G.R. No.

4015

August 24, 1908

ANGEL JAVELLANA, plaintiff-appellee,

vs.
JOSE LIM, ET AL., defendants-appellants.
The attorney for the plaintiff, Angel Javellana, file a complaint on the 30th of October, 1906,
with the Court of First Instance of Iloilo, praying that the defendants, Jose Lim and Ceferino
Domingo Lim, he sentenced to jointly and severally pay the sum of P2,686.58, with interest
thereon at the rate of 15 per cent per annum from the 20th of January, 1898, until full
payment should be made, deducting from the amount of interest due the sum of P1,102.16,
and to pay the costs of the proceedings.
Authority from the court having been previously obtained, the complaint was amended on
the 10th of January, 1907; it was then alleged, on the 26th of May, 1897, the defendants
executed and subscribed a document in favor of the plaintiff reading as follows:
We have received from Angel Javellana, as a deposit without interest, the sum of two
thousand six hundred and eighty-six cents of pesos fuertes, which we will return to the said
gentleman, jointly and severally, on the 20th of January, 1898. Jaro, 26th of May, 1897.
Signed Jose Lim. Signed: Ceferino Domingo Lim.
That, when the obligation became due, the defendants begged the plaintiff for an extension
of time for the payment thereof, building themselves to pay interest at the rate of 15 per cent
on the amount of their indebtedness, to which the plaintiff acceded; that on the 15th of May,
1902, the debtors paid on account of interest due the sum of P1,000 pesos, with the
exception of either capital or interest, had thereby been subjected to loss and damages.
A demurrer to the original complaint was overruled, and on the 4th of January, 1907, the
defendants answered the original complaint before its amendment, setting forth that they
acknowledged the facts stated in Nos. 1 and 2 of the complaint; that they admitted the
statements of the plaintiff relative to the payment of 1,102.16 pesos made on the 15th of
November, 1902, not, however, as payment of interest on the amount stated in the
foregoing document, but on account of the principal, and denied that there had been any
agreement as to an extension of the time for payment and the payment of interest at the
rate of 15 per cent per annum as alleged in paragraph 3 of the complaint, and also denied
all the other statements contained therein.
As a counterclaim, the defendants alleged that they had paid to the plaintiff sums which,
together with the P1,102.16 acknowledged in the complaint, aggregated the total sum of
P5,602.16, and that, deducting therefrom the total sum of P2,686.58 stated in the document
transcribed in the complaint, the plaintiff still owed the defendants P2,915.58; therefore, they
asked that judgment be entered absolving them, and sentencing the plaintiff to pay them the
sum of P2,915.58 with the costs.

Evidence was adduced by both parties and, upon their exhibits, together with an account
book having been made of record, the court below rendered judgment on the 15th of
January, 1907, in favor of the plaintiff for the recovery of the sum of P5,714.44 and costs.
The defendants excepted to the above decision and moved for a new trial. This motion was
overruled and was also excepted to by them; the bill of exceptions presented by the
appellants having been approved, the same was in due course submitted to this court.
The document of indebtedness inserted in the complaint states that the plaintiff left on
deposit with the defendants a given sum of money which they were jointly and severally
obliged to return on a certain date fixed in the document; but that, nevertheless, when the
document appearing as Exhibits 2, written in the Visayan dialect and followed by a
translation into Spanish was executed, it was acknowledged, at the date thereof, the 15th of
November, 1902, that the amount deposited had not yet been returned to the creditor,
whereby he was subjected to losses and damages amounting to 830 pesos since the 20th
of January, 1898, when the return was again stipulated with the further agreement that the
amount deposited should bear interest at the rate of 15 per cent per annum, from the
aforesaid date of January 20, and that the 1,000 pesos paid to the depositor on the 15th of
May, 1900, according to the receipt issued by him to the debtors, would be included, and
that the said rate of interest would obtain until the debtors on the 20th of May, 1897, it is
called a deposit consisted, and they could have accomplished the return agreed upon by
the delivery of a sum equal to the one received by them. For this reason it must be
understood that the debtors were lawfully authorized to make use of the amount deposited,
which they have done, as subsequent shown when asking for an extension of the time for
the return thereof, inasmuch as, acknowledging that they have subjected the letter, their
creditor, to losses and damages for not complying with what had been stipulated, and being
conscious that they had used, for their own profit and gain, the money that they received
apparently as a deposit, they engaged to pay interest to the creditor from the date named
until the time when the refund should be made. Such conduct on the part of the debtors is
unquestionable evidence that the transaction entered into between the interested parties
was not a deposit, but a real contract of loan.
Article 1767 of the Civil Code provides that
The depository can not make use of the thing deposited without the express
permission of the depositor.
Otherwise he shall be liable for losses and damages.
Article 1768 also provides that
When the depository has permission to make use of the thing deposited, the
contract loses the character of a deposit and becomes a loan or bailment.

The permission shall not be presumed, and its existence must be proven.
When on one of the latter days of January, 1898, Jose Lim went to the office of the creditor
asking for an extension of one year, in view of the fact the money was scare, and because
neither himself nor the other defendant were able to return the amount deposited, for which
reason he agreed to pay interest at the rate of 15 per cent per annum, it was because, as a
matter of fact, he did not have in his possession the amount deposited, he having made use
of the same in his business and for his own profit; and the creditor, by granting them the
extension, evidently confirmed the express permission previously given to use and dispose
of the amount stated as having bee deposited, which, in accordance with the loan, to all
intents and purposes gratuitously, until the 20th of January, 1898, and from that dated with
interest at 15 per cent per annum until its full payment, deducting from the total amount of
interest the sum of 1,000 pesos, in accordance with the provisions of article 1173 of the Civil
Code.
Notwithstanding that it does not appear that Jose Lim signed the document (Exhibit 2)
executed in the presence of three witnesses on the 15th of November, 1902, by Ceferino
Domingo Lim on behalf of himself and the former, nevertheless, the said document has not
been contested as false, either by a criminal or by a civil proceeding, nor has any doubt
been cast upon the authenticity of the signatures of the witnesses who attested the
execution of the same; and from the evidence in the case one is sufficiently convinced that
the said Jose Lim was perfectly aware of and authorized his joint codebtor to liquidate the
interest, to pay the sum of 1,000 pesos, on account thereof, and to execute the aforesaid
document No. 2. A true ratification of the original document of deposit was thus made, and
not the least proof is shown in the record that Jose Lim had ever paid the whole or any part
of the capital stated in the original document, Exhibit 1.

name of a deposit, since the so-called bailees were forthwith authorized to dispose of the
amount deposited. This they have done, as has been clearly shown.
The original joint obligation contracted by the defendant debtor still exists, and it has not
been shown or proven in the proceedings that the creditor had released Joe Lim from
complying with his obligation in order that he should not be sued for or sentenced to pay the
amount of capital and interest together with his codebtor, Ceferino Domingo Lim, because
the record offers satisfactory evidence against the pretension of Jose Lim, and it further
appears that document No. 2 was executed by the other debtor, Ceferino Domingo Lim, for
himself and on behalf of Jose Lim; and it has also been proven that Jose Lim, being fully
aware that his debt had not yet been settled, took steps to secure an extension of the time
for payment, and consented to pay interest in return for the concession requested from the
creditor.
In view of the foregoing, and adopting the findings in the judgment appealed from, it is our
opinion that the same should be and is hereby affirmed with the costs of this instance
against the appellant, provided that the interest agreed upon shall be paid until the complete
liquidation of the debt. So ordered.
G.R. Nos. L-26948 and L-26949

October 8, 1927

SILVESTRA BARON, plaintiff-appellant,

vs.
PABLO DAVID, defendant-appellant.
And

If the amount, together with interest claimed in the complaint, less 1,000 pesos appears as
fully established, such is not the case with the defendant's counterclaim for P5,602.16,
because the existence and certainty of said indebtedness imputed to the plaintiff has not
been proven, and the defendants, who call themselves creditors for the said amount have
not proven in a satisfactory manner that the plaintiff had received partial payments on
account of the same; the latter alleges with good reason, that they should produce the
receipts which he may have issued, and which he did issue whenever they paid him any
money on account. The plaintiffs allegation that the two amounts of 400 and 1,200 pesos,
referred to in documents marked "C" and "D" offered in evidence by the defendants, had
been received from Ceferino Domingo Lim on account of other debts of his, has not been
contradicted, and the fact that in the original complaint the sum of 1,102.16 pesos, was
expressed in lieu of 1,000 pesos, the only payment made on account of interest on the
amount deposited according to documents No. 2 and letter "B" above referred to, was due
to a mistake.
Moreover, for the reason above set forth it may, as a matter of course, be inferred that there
was no renewal of the contract deposited converted into a loan, because, as has already
been stated, the defendants received said amount by virtue of real loan contract under the

GUILLERMO BARON, plaintiff-appellant,

vs.
PABLO DAVID, defendant-appellant.
These two actions were instituted in the Court of First Instance of the Province of
Pampanga by the respective plaintiffs, Silvestra Baron and Guillermo Baron, for the purpose
of recovering from the defendant, Pablo David, the value of palay alleged to have been sold
by the plaintiffs to the defendant in the year 1920. Owing to the fact that the defendant is the
same in both cases and that the two cases depend in part upon the same facts, the cases
were heard together in the trial court and determined in a single opinion. The same course
will accordingly be followed here.
In the first case, i. e., that which Silvestra Baron is plaintiff, the court gave judgment for her
to recover of the defendant the sum of P5,238.51, with costs. From this judgment both the
plaintiff and the defendant appealed.

In the second case, i. e., that in which Guillermo Baron, is plaintiff, the court gave judgment
for him to recover of the defendant the sum of P5,734.60, with costs, from which judgment
both the plaintiff and the defendant also appealed. In the same case the defendant
interposed a counterclaim in which he asked credit for the sum of P2,800 which he had
advanced to the plaintiff Guillermo Baron on various occasions. This credit was admitted by
the plaintiff and allowed by the trial court. But the defendant also interposed a cross-action
against Guillermo Baron in which the defendant claimed compensation for damages alleged
to have Ben suffered by him by reason of the alleged malicious and false statements made
by the plaintiff against the defendant in suing out an attachment against the defendant's
property soon after the institution of the action. In the same cross-action the defendant also
sought compensation for damages incident to the shutting down of the defendant's rice mill
for the period of one hundred seventy days during which the above-mentioned attachment
was in force. The trial judge disallowed these claims for damages, and from this feature of
the decision the defendant appealed. We are therefore confronted with five distinct appeals
in this record.
Prior to January 17, 1921, the defendant Pablo David has been engaged in running a rice
mill in the municipality of Magalang, in the Province of Pampanga, a mill which was well
patronized by the rice growers of the vicinity and almost constantly running. On the date
stated a fire occurred that destroyed the mill and its contents, and it was some time before
the mill could be rebuilt and put in operation again. Silvestra Baron, the plaintiff in the first of
the actions before us, is an aunt of the defendant; while Guillermo Baron, the plaintiff in the
other action; is his uncle. In the months of March, April, and May, 1920, Silvestra Baron
placed a quantity of palay in the defendant's mill; and this, in connection with some that she
took over from Guillermo Baron, amounted to 1,012 cavans and 24 kilos. During
approximately the same period Guillermo Baron placed other 1,865 cavans and 43 kilos of
palay in the mill. No compensation has ever been received by Silvestra Baron upon account
of the palay delivered by Guillermo Baron, he has received from the defendant
advancements amounting to P2,800; but apart from this he has not been compensated.
Both the plaintiffs claim that the palay which was delivered by them to the defendant was
sold to the defendant; while the defendant, on the other hand, claims that the palay was
deposited subject to future withdrawal by the depositors or subject to some future sale
which was never effected. He therefore supposes himself to be relieved from all
responsibility by virtue of the fire of January 17, 1921, already mentioned.
The plaintiff further say that their palay was delivered to the defendant at his special
request, coupled with a promise on his part to pay for the same at the highest price per
cavan at which palay would sell during the year 1920; and they say that in August of that
year the defendant promised to pay them severally the price of P8.40 per cavan, which was
about the top of the market for the season, provided they would wait for payment until
December. The trial judge found that no such promise had been given; and the incredulity of
the court upon this point seems to us to be justified. A careful examination of the proof,
however, leads us to the conclusion that the plaintiffs did, some time in the early part of
August, 1920, make demand upon the defendant for a settlement, which he evaded or
postponed leaving the exact amount due to the plaintiffs undetermined.

It should be stated that the palay in question was place by the plaintiffs in the defendant's
mill with the understanding that the defendant was at liberty to convert it into rice and
dispose of it at his pleasure. The mill was actively running during the entire season, and as
palay was daily coming in from many customers and as rice was being constantly shipped
by the defendant to Manila, or other rice markets, it was impossible to keep the plaintiffs'
palay segregated. In fact the defendant admits that the plaintiffs' palay was mixed with that
of others. In view of the nature of the defendant's activities and the way in which the palay
was handled in the defendant's mill, it is quite certain that all of the plaintiffs' palay, which
was put in before June 1, 1920, been milled and disposed of long prior to the fire of January
17, 1921. Furthermore, the proof shows that when the fire occurred there could not have
been more than about 360 cavans of palay in the mill, none of which by any reasonable
probability could have been any part of the palay delivered by the plaintiffs. Considering the
fact that the defendant had thus milled and doubtless sold the plaintiffs' palay prior to the
date of the fire, it result that he is bound to account for its value, and his liability was not
extinguished by the occurence of the fire. In the briefs before us it seems to have been
assumed by the opposing attorneys that in order for the plaintiffs to recover, it is necessary
that they should be able to establish that the plaintiffs' palay was delivered in the character
of a sale, and that if, on the contrary, the defendant should prove that the delivery was made
in the character of deposit, the defendant should be absolved. But the case does not
depend precisely upon this explicit alternative; for even supposing that the palay may have
been delivered in the character of deposit, subject to future sale or withdrawal at plaintiffs'
election, nevertheless if it was understood that the defendant might mill the palay and he
has in fact appropriated it to his own use, he is of course bound to account for its value.
Under article 1768 of the Civil Code, when the depository has permission to make use of
the thing deposited, the contract loses the character of mere deposit and becomes a loan or
acommodatum; and of course by appropriating the thing, the bailee becomes responsible
for its value. In this connection we wholly reject the defendant's pretense that the palay
delivered by the plaintiffs or any part of it was actually consumed in the fire of January,
1921. Nor is the liability of the defendant in any wise affected by the circumstance that, by a
custom prevailing among rice millers in this country, persons placing palay with them
without special agreement as to price are at liberty to withdraw it later, proper allowance
being made for storage and shrinkage, a thing that is sometimes done, though rarely.
In view of what has been said it becomes necessary to discover the price which the
defendant should be required to pay for the plaintiffs' palay. Upon this point the trial judge
fixed upon P6.15 per cavan; and although we are not exactly in agreement with him as to
the propriety of the method by which he arrived at this figure, we are nevertheless of the
opinion that, all things considered, the result is approximately correct. It appears that the
price of palay during the months of April, May, and June, 1920, had been excessively high in
the Philippine Islands and even prior to that period the Government of the Philippine Islands
had been attempting to hold the price in check by executive regulation. The highest point
was touched in this season was apparently about P8.50 per cavan, but the market began to
sag in May or June and presently entered upon a precipitate decline. As we have already
stated, the plaintiffs made demand upon the defendant for settlement in the early part of
August; and, so far as we are able to judge from the proof, the price of P6.15 per cavan,
fixed by the trial court, is about the price at which the defendant should be required to settle

as of that date. It was the date of the demand of the plaintiffs for settlement that determined
the price to be paid by the defendant, and this is true whether the palay was delivered in the
character of sale with price undetermined or in the character of deposit subject to use by the
defendant. It results that the plaintiffs are respectively entitle to recover the value of the
palay which they had placed with the defendant during the period referred to, with interest
from the date of the filing of their several complaints.
As already stated, the trial court found that at the time of the fire there were about 360
cavans of palay in the mill and that this palay was destroyed. His Honor assumed that this
was part of the palay delivered by the plaintiffs, and he held that the defendant should be
credited with said amount. His Honor therefore deducted from the claims of the plaintiffs
their respective proportionate shares of this amount of palay. We are unable to see the
propriety of this feature of the decision. There were many customers of the defendant's rice
mill who had placed their palay with the defendant under the same conditions as the
plaintiffs, and nothing can be more certain than that the palay which was burned did not
belong to the plaintiffs. That palay without a doubt had long been sold and marketed. The
assignments of error of each of the 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.
Before closing this opinion a word should be said upon the point raised in the first
assignment of error of Pablo David as defendant in case R. G. No. 26949. In this connection
it appears that the deposition of Guillermo Baron was presented in court as evidence and
was admitted as an exhibit, without being actually read to the court. It is supposed in the
assignment of error now under consideration that the deposition is not available as evidence
to the plaintiff because it was not actually read out in court. This connection is not well
founded. It is true that in section 364 of the Code of Civil Procedure it is said that a
deposition, once taken, may be read by either party and will then be deemed the evidence
of the party reading it. The use of the word "read" in this section finds its explanation of
course in the American practice of trying cases for the most part before juries. When a case
is thus tried the actual reading of the deposition is necessary in order that the jurymen may
become acquainted with its contents. But in courts of equity, and in all courts where judges
have the evidence before them for perusal at their pleasure, it is not necessary that the
deposition should be actually read when presented as evidence.

From what has been said it result that judgment of the court below must be modified with
respect to the amounts recoverable by the respective plaintiffs in the two actions R. G. Nos.
26948 and 26949 and must be reversed in respect to the disposition of the cross-complaint
interposed by the defendant in case R. G. No. 26949, with the following result: In case R. G.
No. 26948 the plaintiff Silvestra Baron will recover of the Pablo David the sum of P6,227.24,
with interest from November 21, 1923, the date of the filing of her complaint, and with costs.
In case R. G. No. 26949 the plaintiff Guillermo Baron will recover of the defendant Pablo
David the sum of P8,669.75, with interest from January 9, 1924. In the same case the
defendant Pablo David, as plaintiff in the cross-complaint, will recover of Guillermo Baron
the sum of P7,000, without costs. So ordered.
G.R. No. L-66826 August 19, 1988
BANK OF THE PHILIPPINE ISLANDS, petitioner,
vs.
THE INTERMEDIATE APPELLATE COURT and ZSHORNACK respondents.
The original parties to this case were Rizaldy T. Zshornack and the Commercial Bank and
Trust Company of the Philippines [hereafter referred to as "COMTRUST."] In 1980, the Bank
of the Philippine Islands (hereafter referred to as BPI absorbed COMTRUST through a
corporate merger, and was substituted as party to the case.
Rizaldy Zshornack initiated proceedings on June 28,1976 by filing in the Court of First
Instance of Rizal Caloocan City a complaint against COMTRUST alleging four causes of
action. Except for the third cause of action, the CFI ruled in favor of Zshornack. The bank
appealed to the Intermediate Appellate Court which modified the CFI decision absolving the
bank from liability on the fourth cause of action. The pertinent portions of the judgment, as
modified, read:
IN VIEW OF THE FOREGOING, the Court renders judgment as
follows:
1. Ordering the defendant COMTRUST to restore to the dollar savings
account of plaintiff (No. 25-4109) the amount of U.S $1,000.00 as of
October 27, 1975 to earn interest together with the remaining balance
of the said account at the rate fixed by the bank for dollar deposits
under Central Bank Circular 343;
2. Ordering defendant COMTRUST to return to the plaintiff the amount
of U.S. $3,000.00 immediately upon the finality of this decision,
without interest for the reason that the said amount was merely held in
custody for safekeeping, but was not actually deposited with the
defendant COMTRUST because being cash currency, it cannot by law

be deposited with plaintiffs dollar account and defendant's only

obligation is to return the same to plaintiff upon demand;
xxx xxx xxx
5. Ordering defendant COMTRUST to pay plaintiff in the amount of
P8,000.00 as damages in the concept of litigation expenses and
attorney's fees suffered by plaintiff as a result of the failure of the
defendant bank to restore to his (plaintiffs) account the amount of U.S.
$1,000.00 and to return to him (plaintiff) the U.S. $3,000.00 cash left
for safekeeping.
Costs against defendant COMTRUST.
SO ORDERED. [Rollo, pp. 47-48.]
Undaunted, the bank comes to this Court praying that it be totally absolved from any liability
to Zshornack. The latter not having appealed the Court of Appeals decision, the issues
facing this Court are limited to the bank's liability with regard to the first and second causes
of action and its liability for damages.
1. We first consider the first cause of action, On the dates material to this case, Rizaldy
Zshornack and his wife, Shirley Gorospe, maintained in COMTRUST, Quezon City Branch,
a dollar savings account and a peso current account.
On October 27, 1975, an application for a dollar draft was accomplished by Virgilio V.
Garcia, Assistant Branch Manager of COMTRUST Quezon City, payable to a certain
Leovigilda D. Dizon in the amount of $1,000.00. In the application, Garcia indicated that the
amount was to be charged to Dollar Savings Acct. No. 25-4109, the savings account of the
Zshornacks; the charges for commission, documentary stamp tax and others totalling
P17.46 were to be charged to Current Acct. No. 210465-29, again, the current account of
the Zshornacks. There was no indication of the name of the purchaser of the dollar draft.
On the same date, October 27,1975, COMTRUST, under the signature of Virgilio V. Garcia,
issued a check payable to the order of Leovigilda D. Dizon in the sum of US $1,000 drawn
on the Chase Manhattan Bank, New York, with an indication that it was to be charged to
Dollar Savings Acct. No. 25-4109.

Upon consideration of the foregoing facts, this Court finds no reason to disturb the ruling of
both the trial court and the Appellate Court on the first cause of action. Petitioner must be
held liable for the unauthorized withdrawal of US$1,000.00 from private respondent's dollar
account.
In its desperate attempt to justify its act of withdrawing from its depositor's savings account,
the bank has adopted inconsistent theories. First, it still maintains that the peso value of the
amount withdrawn was given to Atty. Ernesto Zshornack, Jr. when the latter encashed the
Manilabank Cashier's Check. At the same time, the bank claims that the withdrawal was
made pursuant to an agreement where Zshornack allegedly authorized the bank to
withdraw from his dollar savings account such amount which, when converted to pesos,
would be needed to fund his peso current account. If indeed the peso equivalent of the
amount withdrawn from the dollar account was credited to the peso current account, why
did the bank still have to pay Ernesto?
At any rate, both explanations are unavailing. With regard to the first explanation, petitioner
bank has not shown how the transaction involving the cashier's check is related to the
transaction involving the dollar draft in favor of Dizon financed by the withdrawal from
Rizaldy's dollar account. The two transactions appear entirely independent of each other.
Moreover, Ernesto Zshornack, Jr., possesses a personality distinct and separate from
Rizaldy Zshornack. Payment made to Ernesto cannot be considered payment to Rizaldy.
As to the second explanation, even if we assume that there was such an agreement, the
evidence do not show that the withdrawal was made pursuant to it. Instead, the record
reveals that the amount withdrawn was used to finance a dollar draft in favor of Leovigilda
D. Dizon, and not to fund the current account of the Zshornacks. There is no proof
whatsoever that peso Current Account No. 210-465-29 was ever credited with the peso
equivalent of the US$1,000.00 withdrawn on October 27, 1975 from Dollar Savings Account
No. 25-4109.
2. As for the second cause of action, the complaint filed with the trial court alleged that on
December 8, 1975, Zshornack entrusted to COMTRUST, thru Garcia, US
$3,000.00 cash (popularly known as greenbacks) forsafekeeping, and that the agreement
was embodied in a document, a copy of which was attached to and made part of the
complaint. The document reads:
Makati Cable Address:
Philippines "COMTRUST"

When Zshornack noticed the withdrawal of US$1,000.00 from his account, he demanded an
explanation from the bank. In answer, COMTRUST claimed that the peso value of the
withdrawal was given to Atty. Ernesto Zshornack, Jr., brother of Rizaldy, on October 27,
1975 when he (Ernesto) encashed with COMTRUST a cashier's check for P8,450.00 issued
by the Manila Banking Corporation payable to Ernesto.

COMMERCIAL BANK AND TRUST COMPANY

of the Philippines

Quezon City Branch

Aside from asserting that the US$3,000.00 was properly credited to Zshornack's current
account at prevailing conversion rates, BPI now posits another ground to defeat private
respondent's claim. It now argues that the contract embodied in the document is the
contract of depositum (as defined in Article 1962, New Civil Code), which banks do not enter
into. The bank alleges that Garcia exceeded his powers when he entered into the
transaction. Hence, it is claimed, the bank cannot be liable under the contract, and the
obligation is purely personal to Garcia.
Before we go into the nature of the contract entered into, an important point which arises on
the pleadings, must be considered.
The second cause of action is based on a document purporting to be signed by
COMTRUST, a copy of which document was attached to the complaint. In short, the second
cause of action was based on an actionable document. It was therefore incumbent upon the
bank to specifically deny under oath the due execution of the document, as prescribed
under Rule 8, Section 8, if it desired: (1) to question the authority of Garcia to bind the
corporation; and (2) to deny its capacity to enter into such contract. [See, E.B. Merchant v.
International Banking Corporation, 6 Phil. 314 (1906).] No sworn answer denying the due
execution of the document in question, or questioning the authority of Garcia to bind the
bank, or denying the bank's capacity to enter into the contract, was ever filed. Hence, the
bank is deemed to have admitted not only Garcia's authority, but also the bank's power, to
enter into the contract in question.
In the past, this Court had occasion to explain the reason behind this procedural
requirement.
The reason for the rule enunciated in the foregoing authorities will, we
think, be readily appreciated. In dealing with corporations the public at
large is bound to rely to a large extent upon outward appearances. If a
man is found acting for a corporation with the external indicia of
authority, any person, not having notice of want of authority, may
usually rely upon those appearances; and if it be found that the
directors had permitted the agent to exercise that authority and
thereby held him out as a person competent to bind the corporation,
or had acquiesced in a contract and retained the benefit supposed to
have been conferred by it, the corporation will be bound,
notwithstanding the actual authority may never have been granted
... Whether a particular officer actually possesses the authority which
he assumes to exercise is frequently known to very few, and the proof
of it usually is not readily accessible to the stranger who deals with the
corporation on the faith of the ostensible authority exercised by some

of the corporate officers. It is therefore reasonable, in a case where an

officer of a corporation has made a contract in its name, that the
corporation should be required, if it denies his authority, to state such
defense in its answer. By this means the plaintiff is apprised of the fact
that the agent's authority is contested; and he is given an opportunity
to adduce evidence showing either that the authority existed or that
the contract was ratified and approved. [Ramirez v. Orientalist Co. and
Fernandez, 38 Phil. 634, 645- 646 (1918).]
Petitioner's argument must also be rejected for another reason. The practical effect of
absolving a corporation from liability every time an officer enters into a contract which is
beyond corporate powers, even without the proper allegation or proof that the corporation
has not authorized nor ratified the officer's act, is to cast corporations in so perfect a mold
that transgressions and wrongs by such artificial beings become impossible [Bissell v.
Michigan Southern and N.I.R. Cos 22 N.Y 258 (1860).] "To say that a corporation has no
right to do unauthorized acts is only to put forth a very plain truism but to say that such
bodies have no power or capacity to err is to impute to them an excellence which does not
belong to any created existence with which we are acquainted. The distinction between
power and right is no more to be lost sight of in respect to artificial than in respect to natural
persons." [Ibid.]
Having determined that Garcia's act of entering into the contract binds the corporation, we
now determine the correct nature of the contract, and its legal consequences, including its
enforceability.
The document which embodies the contract states that the US$3,000.00 was received by
the bank for safekeeping. The subsequent acts of the parties also show that the intent of the
parties was really for the bank to safely keep the dollars and to return it to Zshornack at a
later time, Thus, Zshornack demanded the return of the money on May 10, 1976, or over
five months later.
The above arrangement is that contract defined under Article 1962, New Civil Code, which
reads:
Art. 1962. A deposit is constituted from the moment a person receives
a thing belonging to another, with the obligation of safely keeping it
and of returning the same. If the safekeeping of the thing delivered is
not the principal purpose of the contract, there is no deposit but some
other contract.
Note that the object of the contract between Zshornack and COMTRUST was foreign
exchange. Hence, the transaction was covered by Central Bank Circular No. 20,
Restrictions on Gold and Foreign Exchange Transactions, promulgated on December 9,

1949, which was in force at the time the parties entered into the transaction involved in this
case. The circular provides:

rights in the nature of security expressed in

foreign currencies, or if payable abroad,
irrespective of the currency in which they are
expressed, and belonging to any person, firm,
partnership, association, branch office, agency,
company or other unincorporated body or
corporation residing or located within the
Philippines.

xxx xxx xxx

2. Transactions in the assets described below and all dealings in them
of whatever nature, including, where applicable their exportation and
importation, shall NOT be effected, except with respect to deposit
accounts included in sub-paragraphs (b) and (c) of this paragraph,
when such deposit accounts are owned by and in the name of, banks.
(a) Any and all assets, provided they are held
through, in, or with banks or banking institutions
located in the Philippines, including money,
checks, drafts, bullions bank drafts, deposit
accounts (demand, time and savings), all debts,
indebtedness or obligations, financial brokers
and investment houses, notes, debentures,
stocks, bonds, coupons, bank acceptances,
mortgages, pledges, liens or other rights in the
nature of security, expressed in foreign
currencies, or if payable abroad, irrespective of
the currency in which they are expressed, and
belonging to any person, firm, partnership,
association, branch office, agency, company or
other unincorporated body or corporation
residing or located within the Philippines;
(b) Any and all assets of the kinds included
and/or described in subparagraph (a) above,
whether or not held through, in, or with banks or
banking institutions, and existent within the
Philippines, which belong to any person, firm,
partnership, association, branch office, agency,
company or other unincorporated body or
corporation not residing or located within the
Philippines;
(c) Any and all assets existent within the
Philippines including money, checks, drafts,
bullions, bank drafts, all debts, indebtedness or
obligations, financial securities commonly dealt
in by bankers, brokers and investment houses,
notes, debentures, stock, bonds, coupons, bank
acceptances, mortgages, pledges, liens or other

xxx xxx xxx

4. (a) All receipts of foreign exchange shall be sold daily to the Central
Bank by those authorized to deal in foreign exchange. All receipts of
foreign exchange by any person, firm, partnership, association,
branch office, agency, company or other unincorporated body or
corporation shall be sold to the authorized agents of the Central Bank
by the recipients within one business day following the receipt of such
foreign exchange. Any person, firm, partnership, association, branch
office, agency, company or other unincorporated body or corporation,
residing or located within the Philippines, who acquires on and after
the date of this Circular foreign exchange shall not, unless licensed by
the Central Bank, dispose of such foreign exchange in whole or in
part, nor receive less than its full value, nor delay taking ownership
thereof except as such delay is customary; Provided, further, That
within one day upon taking ownership, or receiving payment, of
foreign exchange the aforementioned persons and entities shall sell
such foreign exchange to designated agents of the Central Bank.
xxx xxx xxx
8. Strict observance of the provisions of this Circular is enjoined; and
any person, firm or corporation, foreign or domestic, who being bound
to the observance thereof, or of such other rules, regulations or
directives as may hereafter be issued in implementation of this
Circular, shall fail or refuse to comply with, or abide by, or shall violate
the same, shall be subject to the penal sanctions provided in the
Central Bank Act.
xxx xxx xxx
Paragraph 4 (a) above was modified by Section 6 of Central Bank Circular No. 281,
Regulations on Foreign Exchange, promulgated on November 26, 1969 by limiting its
coverage to Philippine residents only. Section 6 provides:

SEC. 6. All receipts of foreign exchange by any resident person, firm,

company or corporation shall be sold to authorized agents of the
Central Bank by the recipients within one business day following the
receipt of such foreign exchange. Any resident person, firm, company
or corporation residing or located within the Philippines, who acquires
foreign exchange shall not, unless authorized by the Central Bank,
dispose of such foreign exchange in whole or in part, nor receive less
than its full value, nor delay taking ownership thereof except as such
delay is customary; Provided, That, within one business day upon
taking ownership or receiving payment of foreign exchange the
aforementioned persons and entities shall sell such foreign exchange
to the authorized agents of the Central Bank.
As earlier stated, the document and the subsequent acts of the parties show that they
intended the bank to safekeep the foreign exchange, and return it later to Zshornack, who
alleged in his complaint that he is a Philippine resident. The parties did not intended to sell
the US dollars to the Central Bank within one business day from receipt. Otherwise, the
contract of depositum would never have been entered into at all.
Since the mere safekeeping of the greenbacks, without selling them to the Central Bank
within one business day from receipt, is a transaction which is not authorized by CB Circular
No. 20, it must be considered as one which falls under the general class of prohibited
transactions. Hence, pursuant to Article 5 of the Civil Code, it is void, having been executed
against the provisions of a mandatory/prohibitory law. More importantly, it affords neither of
the parties a cause of action against the other. "When the nullity proceeds from the illegality
of the cause or object of the contract, and the act constitutes a criminal offense, both parties
being in pari delicto, they shall have no cause of action against each other. . ." [Art. 1411,
New Civil Code.] The only remedy is one on behalf of the State to prosecute the parties for
violating the law.
We thus rule that Zshornack cannot recover under the second cause of action.
3. Lastly, we find the P8,000.00 awarded by the courts a quo as damages in the concept of
litigation expenses and attorney's fees to be reasonable. The award is sustained.
WHEREFORE, the decision appealed from is hereby MODIFIED. Petitioner is ordered to
restore to the dollar savings account of private respondent the amount of US$1,000.00 as of
October 27, 1975 to earn interest at the rate fixed by the bank for dollar savings deposits.
Petitioner is further ordered to pay private respondent the amount of P8,000.00 as
damages. The other causes of action of private respondent are ordered dismissed.
SO ORDERED.
G.R. No. L-6913

November 21, 1913

THE ROMAN CATHOLIC BISHOP OF JARO, plaintiff-appellee,

vs.
GREGORIO DE LA PEA, administrator of the estate of Father Agustin de la
Pea, defendant-appellant.
This is an appeal by the defendant from a judgment of the Court of First Instance of Iloilo,
awarding to the plaintiff the sum of P6,641, with interest at the legal rate from the beginning
of the action.
It is established in this case that the plaintiff is the trustee of a charitable bequest made for
the construction of a leper hospital and that father Agustin de la Pea was the duly
authorized representative of the plaintiff to receive the legacy. The defendant is the
administrator of the estate of Father De la Pea.
In the year 1898 the books Father De la Pea, as trustee, showed that he had on hand as
such trustee the sum of P6,641, collected by him for the charitable purposes aforesaid. In
the same year he deposited in his personal account P19,000 in the Hongkong and
Shanghai Bank at Iloilo. Shortly thereafter and during the war of the revolution, Father De la
Pea was arrested by the military authorities as a political prisoner, and while thus detained
made an order on said bank in favor of the United States Army officer under whose charge
he then was for the sum thus deposited in said bank. The arrest of Father De la Pea and
the confiscation of the funds in the bank were the result of the claim of the military
authorities that he was an insurgent and that the funds thus deposited had been collected
by him for revolutionary purposes. The money was taken from the bank by the military
authorities by virtue of such order, was confiscated and turned over to the Government.
While there is considerable dispute in the case over the question whether the P6,641 of
trust funds was included in the P19,000 deposited as aforesaid, nevertheless, a careful
examination of the case leads us to the conclusion that said trust funds were a part of the
funds deposited and which were removed and confiscated by the military authorities of the
United States.
That branch of the law known in England and America as the law of trusts had no exact
counterpart in the Roman law and has none under the Spanish law. In this jurisdiction,
therefore, Father De la Pea's liability is determined by those portions of the Civil Code
which relate to obligations. (Book 4, Title 1.)
Although the Civil Code states that "a person obliged to give something is also bound to
preserve it with the diligence pertaining to a good father of a family" (art. 1094), it also
provides, following the principle of the Roman law, major casus est, cui humana infirmitas
resistere non potest, that "no one shall be liable for events which could not be foreseen, or
which having been foreseen were inevitable, with the exception of the cases expressly
mentioned in the law or those in which the obligation so declares." (Art. 1105.)

By placing the money in the bank and mixing it with his personal funds De la Pea did not
thereby assume an obligation different from that under which he would have lain if such
deposit had not been made, nor did he thereby make himself liable to repay the money at all
hazards. If the had been forcibly taken from his pocket or from his house by the military
forces of one of the combatants during a state of war, it is clear that under the provisions of
the Civil Code he would have been exempt from responsibility. The fact that he placed the
trust fund in the bank in his personal account does not add to his responsibility. Such
deposit did not make him a debtor who must respond at all hazards.
We do not enter into a discussion for the purpose of determining whether he acted more or
less negligently by depositing the money in the bank than he would if he had left it in his
home; or whether he was more or less negligent by depositing the money in his personal
account than he would have been if he had deposited it in a separate account as trustee.
We regard such discussion as substantially fruitless, inasmuch as the precise question is
not one of negligence. There was no law prohibiting him from depositing it as he did and
there was no law which changed his responsibility be reason of the deposit. While it may be
true that one who is under obligation to do or give a thing is in duty bound, when he sees
events approaching the results of which will be dangerous to his trust, to take all reasonable
means and measures to escape or, if unavoidable, to temper the effects of those events, we
do not feel constrained to hold that, in choosing between two means equally legal, he is
culpably negligent in selecting one whereas he would not have been if he had selected the
other.
The court, therefore, finds and declares that the money which is the subject matter of this
action was deposited by Father De la Pea in the Hongkong and Shanghai Banking
Corporation of Iloilo; that said money was forcibly taken from the bank by the armed forces
of the United States during the war of the insurrection; and that said Father De la Pea was
not responsible for its loss.
The judgment is therefore reversed, and it is decreed that the plaintiff shall take nothing by
his complaint.
G.R. No. 90027 March 3, 1993
CA AGRO-INDUSTRIAL DEVELOPMENT CORP., petitioner,
vs.
THE HONORABLE COURT OF APPEALS and SECURITY BANK AND TRUST
COMPANY, respondents.
Is the contractual relation between a commercial bank and another party in a contract of
rent of a safety deposit box with respect to its contents placed by the latter one of bailor and
bailee or one of lessor and lessee?
This is the crux of the present controversy.

On 3 July 1979, petitioner (through its President, Sergio Aguirre) and the spouses Ramon
and Paula Pugao entered into an agreement whereby the former purchased from the latter
two (2) parcels of land for a consideration of P350,625.00. Of this amount, P75,725.00 was
paid as downpayment while the balance was covered by three (3) postdated checks. Among
the terms and conditions of the agreement embodied in a Memorandum of True and Actual
Agreement of Sale of Land were that the titles to the lots shall be transferred to the
petitioner upon full payment of the purchase price and that the owner's copies of the
certificates of titles thereto, Transfer Certificates of Title (TCT) Nos. 284655 and 292434,
shall be deposited in a safety deposit box of any bank. The same could be withdrawn only
upon the joint signatures of a representative of the petitioner and the Pugaos upon full
payment of the purchase price. Petitioner, through Sergio Aguirre, and the Pugaos then
rented Safety Deposit Box No. 1448 of private respondent Security Bank and Trust
Company, a domestic banking corporation hereinafter referred to as the respondent Bank.
For this purpose, both signed a contract of lease (Exhibit "2") which contains, inter alia, the
following conditions:
13. The bank is not a depositary of the contents of the safe and it has
neither the possession nor control of the same.
14. The bank has no interest whatsoever in said contents, except
herein expressly provided, and it assumes absolutely no liability in
connection therewith. 1
After the execution of the contract, two (2) renter's keys were given to the renters one to
Aguirre (for the petitioner) and the other to the Pugaos. A guard key remained in the
possession of the respondent Bank. The safety deposit box has two (2) keyholes, one for
the guard key and the other for the renter's key, and can be opened only with the use of
both keys. Petitioner claims that the certificates of title were placed inside the said box.
Thereafter, a certain Mrs. Margarita Ramos offered to buy from the petitioner the two (2) lots
at a price of P225.00 per square meter which, as petitioner alleged in its complaint,
translates to a profit of P100.00 per square meter or a total of P280,500.00 for the entire
property. Mrs. Ramos demanded the execution of a deed of sale which necessarily entailed
the production of the certificates of title. In view thereof, Aguirre, accompanied by the
Pugaos, then proceeded to the respondent Bank on 4 October 1979 to open the safety
deposit box and get the certificates of title. However, when opened in the presence of the
Bank's representative, the box yielded no such certificates. Because of the delay in the
reconstitution of the title, Mrs. Ramos withdrew her earlier offer to purchase the lots; as a
consequence thereof, the petitioner allegedly failed to realize the expected profit of
P280,500.00. Hence, the latter filed on 1 September 1980 a complaint 2 for damages
against the respondent Bank with the Court of First Instance (now Regional Trial Court) of
Pasig, Metro Manila which docketed the same as Civil Case No. 38382.
In its Answer with Counterclaim, 3 respondent Bank alleged that the petitioner has no cause
of action because of paragraphs 13 and 14 of the contract of lease (Exhibit "2"); corollarily,

loss of any of the items or articles contained in the box could not give rise to an action
against it. It then interposed a counterclaim for exemplary damages as well as attorney's
fees in the amount of P20,000.00. Petitioner subsequently filed an answer to the
counterclaim. 4
In due course, the trial court, now designated as Branch 161 of the Regional Trial Court
(RTC) of Pasig, Metro Manila, rendered a decision 5 adverse to the petitioner on 8
December 1986, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered
dismissing plaintiff's complaint.
On defendant's counterclaim, judgment is hereby rendered ordering
plaintiff to pay defendant the amount of FIVE THOUSAND (P5,000.00)
PESOS as attorney's fees.
With costs against plaintiff. 6
The unfavorable verdict is based on the trial court's conclusion that under paragraphs 13
and 14 of the contract of lease, the Bank has no liability for the loss of the certificates of title.
The court declared that the said provisions are binding on the parties.
Its motion for reconsideration 7 having been denied, petitioner appealed from the adverse
decision to the respondent Court of Appeals which docketed the appeal as CA-G.R. CV No.
15150. Petitioner urged the respondent Court to reverse the challenged decision because
the trial court erred in (a) absolving the respondent Bank from liability from the loss, (b) not
declaring as null and void, for being contrary to law, public order and public policy, the
provisions in the contract for lease of the safety deposit box absolving the Bank from any
liability for loss, (c) not concluding that in this jurisdiction, as well as under American
jurisprudence, the liability of the Bank is settled and (d) awarding attorney's fees to the Bank
and denying the petitioner's prayer for nominal and exemplary damages and attorney's
fees. 8
In its Decision promulgated on 4 July 1989, 9 respondent Court affirmed the appealed
decision principally on the theory that the contract (Exhibit "2") executed by the petitioner
and respondent Bank is in the nature of a contract of lease by virtue of which the petitioner
and its co-renter were given control over the safety deposit box and its contents while the
Bank retained no right to open the said box because it had neither the possession nor
control over it and its contents. As such, the contract is governed by Article 1643 of the Civil
Code 10 which provides:
Art. 1643. In the lease of things, one of the parties binds himself to
give to another the enjoyment or use of a thing for a price certain, and

for a period which may be definite or indefinite. However, no lease for

more than ninety-nine years shall be valid.
It invoked Tolentino vs. Gonzales 11 which held that the owner of the property
loses his control over the property leased during the period of the contract and
Article 1975 of the Civil Code which provides:
Art. 1975. The depositary holding certificates, bonds, securities or
instruments which earn interest shall be bound to collect the latter
when it becomes due, and to take such steps as may be necessary in
order that the securities may preserve their value and the rights
corresponding to them according to law.
The above provision shall not apply to contracts for the rent of safety
deposit boxes.
and then concluded that "[c]learly, the defendant-appellee is not under any duty
to maintain the contents of the box. The stipulation absolving the defendantappellee from liability is in accordance with the nature of the contract of lease
and cannot be regarded as contrary to law, public order and public policy." 12 The
appellate court was quick to add, however, that under the contract of lease of the
safety deposit box, respondent Bank is not completely free from liability as it may
still be made answerable in case unauthorized persons enter into the vault area
or when the rented box is forced open. Thus, as expressly provided for in
stipulation number 8 of the contract in question:
8. The Bank shall use due diligence that no unauthorized person shall
be admitted to any rented safe and beyond this, the Bank will not be
responsible for the contents of any safe rented from it. 13
Its motion for reconsideration 14 having been denied in the respondent Court's Resolution of
28 August 1989, 15petitioner took this recourse under Rule 45 of the Rules of Court and
urges Us to review and set aside the respondent Court's ruling. Petitioner avers that both
the respondent Court and the trial court (a) did not properly and legally apply the correct law
in this case, (b) acted with grave abuse of discretion or in excess of jurisdiction amounting
to lack thereof and (c) set a precedent that is contrary to, or is a departure from precedents
adhered to and affirmed by decisions of this Court and precepts in American jurisprudence
adopted in the Philippines. It reiterates the arguments it had raised in its motion to
reconsider the trial court's decision, the brief submitted to the respondent Court and the
motion to reconsider the latter's decision. In a nutshell, petitioner maintains that regardless
of nomenclature, the contract for the rent of the safety deposit box (Exhibit "2") is actually a
contract of deposit governed by Title XII, Book IV of the Civil Code of the
Philippines. 16 Accordingly, it is claimed that the respondent Bank is liable for the loss of the
certificates of title pursuant to Article 1972 of the said Code which provides:

Art. 1972. The depositary is obliged to keep the thing safely and to
return it, when required, to the depositor, or to his heirs and
successors, or to the person who may have been designated in the
contract. His responsibility, with regard to the safekeeping and the loss
of the thing, shall be governed by the provisions of Title I of this Book.
If the deposit is gratuitous, this fact shall be taken into account in
determining the degree of care that the depositary must observe.
Petitioner then quotes a passage from American Jurisprudence 17 which is
supposed to expound on the prevailing rule in the United States, to wit:
The prevailing rule appears to be that where a safe-deposit company
leases a safe-deposit box or safe and the lessee takes possession of
the box or safe and places therein his securities or other valuables,
the relation of bailee and bail or is created between the parties to the
transaction as to such securities or other valuables; the fact that the
safe-deposit company does not know, and that it is not expected that it
shall know, the character or description of the property which is
deposited in such safe-deposit box or safe does not change that
relation. That access to the contents of the safe-deposit box can be
had only by the use of a key retained by the lessee ( whether it is the
sole key or one to be used in connection with one retained by the
lessor) does not operate to alter the foregoing rule. The argument that
there is not, in such a case, a delivery of exclusive possession and
control to the deposit company, and that therefore the situation is
entirely different from that of ordinary bailment, has been generally
rejected by the courts, usually on the ground that as possession must
be either in the depositor or in the company, it should reasonably be
considered as in the latter rather than in the former, since the
company is, by the nature of the contract, given absolute control of
access to the property, and the depositor cannot gain access thereto
without the consent and active participation of the company. . . .
(citations omitted).
and a segment from Words and Phrases 18 which states that a contract for the
rental of a bank safety deposit box in consideration of a fixed amount at stated
periods is a bailment for hire.
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 asdepositories or as
agents. . . . 24 (emphasis supplied)
Note that the primary function is still found within the parameters of a contract
of deposit, i.e., the receiving in custody of funds, documents and other valuable objects for
safekeeping. The renting out of the safety deposit boxes is not independent from, but
related to or in conjunction with, this principal function. A contract of deposit may be entered
into orally or in writing 25 and, pursuant to Article 1306 of the Civil Code, the parties thereto
may establish such stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good customs, public order or
public policy. The depositary's responsibility for the safekeeping of the objects deposited in
the case at bar is governed by Title I, Book IV of the Civil Code. Accordingly, the depositary
would be liable if, in performing its obligation, it is found guilty of fraud, negligence, delay or
contravention of the tenor of the agreement. 26 In the absence of any stipulation prescribing
the degree of diligence required, that of a good father of a family is to be
observed. 27 Hence, any stipulation exempting the depositary from any liability arising from
the loss of the thing deposited on account of fraud, negligence or delay would be void for
being contrary to law and public policy. In the instant case, petitioner maintains that
conditions 13 and 14 of the questioned contract of lease of the safety deposit box, which
read:
13. The bank is not a depositary of the contents of the safe and it has
neither the possession nor control of the same.
14. The bank has no interest whatsoever in said contents, except
herein expressly provided, and it assumes absolutely no liability in
connection therewith. 28

are void as they are contrary to law and public policy. We find Ourselves in
agreement with this proposition for indeed, said provisions are inconsistent with
the respondent Bank's responsibility as a depositary under Section 72(a) of the
General Banking Act. Both exempt the latter from any liability except as
contemplated in condition 8 thereof which limits its duty to exercise reasonable
diligence only with respect to who shall be admitted to any rented safe, to wit:
8. The Bank shall use due diligence that no unauthorized person shall
be admitted to any rented safe and beyond this, the Bank will not be
responsible for the contents of any safe rented from it. 29
Furthermore, condition 13 stands on a wrong premise and is contrary to the
actual practice of the Bank. It is not correct to assert that the Bank has neither
the possession nor control of the contents of the box since in fact, the safety
deposit box itself is located in its premises and is under its absolute control;
moreover, the respondent Bank keeps the guard key to the said box. As stated
earlier, renters cannot open their respective boxes unless the Bank cooperates
by presenting and using this guard key. Clearly then, to the extent above stated,
the foregoing conditions in the contract in question are void and ineffective. It has
been said:
With respect to property deposited in a 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)
Thus, we reach the same conclusion which the Court of Appeals arrived at, that is, that the
petition should be dismissed, but on grounds quite different from those relied upon by the
Court of Appeals. In the instant case, the respondent Bank's exoneration cannot, contrary to
the holding of the Court of Appeals, be based on or proceed from a characterization of the
impugned contract as a contract of lease, but rather on the fact that no competent proof was

presented to show that respondent Bank was aware of the agreement between the
petitioner and the Pugaos to the effect that the certificates of title were withdrawable from
the safety deposit box only upon both parties' joint signatures, and that no evidence was
submitted to reveal that the loss of the certificates of title was due to the fraud or negligence
of the respondent Bank. This in turn flows from this Court's determination that the contract
involved was one of deposit. Since both the petitioner and the Pugaos agreed that each
should have one (1) renter's key, it was obvious that either of them could ask the Bank for
access to the safety deposit box and, with the use of such key and the Bank's own guard
key, could open the said box, without the other renter being present.
Since, however, the petitioner cannot be blamed for the filing of the complaint and no bad
faith on its part had been established, the trial court erred in condemning the petitioner to
pay the respondent Bank attorney's fees. To this extent, the Decision (dispositive portion) of
public respondent Court of Appeals must be modified.
WHEREFORE, the Petition for Review is partially GRANTED by deleting the award for
attorney's fees from the 4 July 1989 Decision of the respondent Court of Appeals in CA-G.R.
CV No. 15150. As modified, and subject to the pronouncement We made above on the
nature of the relationship between the parties in a contract of lease of safety deposit boxes,
the dispositive portion of the said Decision is hereby AFFIRMED and the instant Petition for
Review is otherwise DENIED for lack of merit.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 126780

February 17, 2005

YHT REALTY CORPORATION, ERLINDA LAINEZ and ANICIA PAYAM, petitioners,

vs.
THE COURT OF APPEALS and MAURICE McLOUGHLIN, respondents.
The primary question of interest before this Court is the only legal issue in the case: It is
whether a hotel may evade liability for the loss of items left with it for safekeeping by its
guests, by having these guests execute written waivers holding the establishment or its
employees free from blame for such loss in light of Article 2003 of the Civil Code which
voids such waivers.
Before this Court is a Rule 45 petition for review of the Decision1 dated 19 October 1995 of
the Court of Appeals which affirmed the Decision2 dated 16 December 1991 of the Regional
Trial Court (RTC), Branch 13, of Manila, finding YHT Realty Corporation, Brunhilda MataTan (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.
Private respondent McLoughlin, an Australian businessman-philanthropist, used to stay at
Sheraton Hotel during his trips to the Philippines prior to 1984 when he met Tan. Tan
befriended McLoughlin by showing him around, introducing him to important people,
accompanying him in visiting impoverished street children and assisting him in buying gifts
for the children and in distributing the same to charitable institutions for poor children. Tan
convinced McLoughlin to transfer from Sheraton Hotel to Tropicana where Lainez, Payam
and Danilo Lopez were employed. Lopez served as manager of the hotel while Lainez and
Payam had custody of the keys for the safety deposit boxes of Tropicana. Tan took care of
McLoughlin's booking at the Tropicana where he started staying during his trips to the
Philippines from December 1984 to September 1987. 3
On 30 October 1987, McLoughlin arrived from Australia and registered with Tropicana. He
rented a safety deposit box as it was his practice to rent a safety deposit box every time he
registered at Tropicana in previous trips. As a tourist, McLoughlin was aware of the
procedure observed by Tropicana relative to its safety deposit boxes. The safety 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 jewelry worth
approximately One Thousand Two Hundred US Dollars (US$1,200.00) which allegedly
occurred during his stay at Tropicana previous to 4 April 1988, no claim was made by
McLoughlin for such losses in his complaint dated 21 November 1990 because he was not
sure how they were lost and who the responsible persons were. But considering the
admission of the defendants in their pre-trial brief that on three previous occasions they
allowed Tan to open the box, the trial court opined that it was logical and reasonable to
presume that his personal assets consisting of Seven Thousand US Dollars (US$7,000.00)
and jewelry were taken by Tan from the safety deposit box without McLoughlin's consent
through the cooperation of Payam and Lainez. 25
The trial court also found that defendants acted with gross negligence in the performance
and exercise of their duties and obligations as innkeepers and were therefore liable to
answer for the losses incurred by McLoughlin.26
Moreover, the trial court ruled that paragraphs (2) and (4) of the "Undertaking For The Use
Of Safety Deposit Box" are not valid for being contrary to the express mandate of Article
2003 of the New Civil Code and against public policy.27 Thus, there being fraud or wanton
conduct on the part of defendants, they should be responsible for all damages which may
be attributed to the non-performance of their contractual obligations. 28
The Court of Appeals affirmed the disquisitions made by the lower court except as to the
amount of damages awarded. The decretal text of the appellate court's decision reads:
THE FOREGOING CONSIDERED, the appealed Decision is hereby AFFIRMED but
modified as follows:
The appellants are directed jointly and severally to pay the plaintiff/appellee the following
amounts:

1) P153,200.00 representing the peso equivalent of US$2,000.00 and

AUS$4,500.00;
2) P308,880.80, representing the peso value for the air fares from Sidney [sic] to
Manila and back for a total of eleven (11) trips;
3) One-half of P336,207.05 or P168,103.52 representing payment to Tropicana
Apartment Hotel;
4) One-half of P152,683.57 or P76,341.785 representing payment to Echelon
Tower;
5) One-half of P179,863.20 or P89,931.60 for the taxi xxx transportation from the
residence to Sidney [sic] Airport and from MIA to the hotel here in Manila, for the
eleven (11) trips;
6) One-half of P7,801.94 or P3,900.97 representing Meralco power expenses;
7) One-half of P356,400.00 or P178,000.00 representing expenses for food and
maintenance;
8) P50,000.00 for moral damages;
9) P10,000.00 as exemplary damages; and
10) P200,000 representing attorney's fees.
With costs.
SO ORDERED.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 200137 is suppressed or diminished shall be void.
Article 2003 was incorporated in the New Civil Code as an expression of public policy
precisely to apply to situations such as that presented in this case. The hotel business like
the common carrier's business is imbued with public interest. Catering to the public,
hotelkeepers are bound to provide not only lodging for hotel guests and security to their
persons and belongings. The twin duty constitutes the essence of the business. The law in
turn does not allow such duty to the public to be negated or diluted by any contrary
stipulation in so-called "undertakings" that ordinarily appear in prepared forms imposed by
hotel keepers on guests for their signature.
In an early case,38 the Court of Appeals through its then Presiding Justice (later Associate
Justice of the Court) Jose P. Bengzon, ruled that to hold hotelkeepers or innkeeper liable for
the effects of their guests, it is not necessary that they be actually delivered to the
innkeepers or their employees. It is enough that such effects are within the hotel or
inn.39 With greater reason should the liability of the hotelkeeper be enforced when the
missing items are taken without the guest's knowledge and consent from a safety deposit
box provided by the hotel itself, as in this case.
Paragraphs (2) and (4) of the "undertaking" manifestly contravene Article 2003 of the New
Civil Code for they allow Tropicana to be released from liability arising from any loss in the
contents and/or use of the safety deposit box for any cause whatsoever.40 Evidently, the
undertaking was intended to bar any claim against Tropicana for any loss of the contents of
the safety deposit box whether or not negligence was incurred by Tropicana or its
employees. The New Civil Code is explicit that the responsibility of the hotel-keeper shall
extend to loss of, or injury to, the personal property of the guests even if caused by servants
or employees of the keepers of hotels or inns as well as by strangers, except as it may
proceed from any force majeure.41 It is the loss through force majeure that may spare the
hotel-keeper from liability. In the case at bar, there is no showing that the act of the thief or
robber was done with the use of arms or through an irresistible force to qualify the same
as force majeure.42
Petitioners likewise anchor their defense on Article 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

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

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.

The awards of P10,000.00 as exemplary damages and P200,000.00 representing attorney's

fees are likewise sustained.

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 ofP308,880.80,
representing the peso value for the air fares from Sydney to Manila and back for a total of
eleven (11) trips;49 one-half of P336,207.05 or P168,103.52 representing payment to
Tropicana;50 one-half ofP152,683.57 or P76,341.785 representing payment to Echelon
Tower;51 one-half of P179,863.20 or P89,931.60 for the taxi or transportation expenses from
McLoughlin's residence to Sydney Airport and from MIA to the hotel here in Manila, for the
eleven (11) trips;52 one-half of P7,801.94 or P3,900.97 representing Meralco power
expenses;53 one-half of P356,400.00 or P178,000.00 representing expenses for food and
maintenance.54

WHEREFORE, foregoing premises considered, the Decision of the Court of Appeals dated
19 October 1995 is hereby AFFIRMED. Petitioners are directed, jointly and severally, to pay
private respondent the following amounts:
(1) US$2,000.00 and AUS$4,500.00 or their peso equivalent at the time of
payment;
(2) P308,880.80, representing the peso value for the air fares from Sydney to
Manila and back for a total of eleven (11) trips;
(3) One-half of P336,207.05 or P168,103.52 representing payment to Tropicana
Copacabana Apartment Hotel;
(4) One-half of P152,683.57 or P76,341.785 representing payment to Echelon
Tower;
(5) One-half of P179,863.20 or P89,931.60 for the taxi or transportation expense
from McLoughlin's residence to Sydney Airport and from MIA to the hotel here in
Manila, for the eleven (11) trips;
(6) One-half of P7,801.94 or P3,900.97 representing Meralco power expenses;
(7) One-half of P356,400.00 or P178,200.00 representing expenses for food and
maintenance;
(8) P50,000.00 for moral damages;
(9) P10,000.00 as exemplary damages; and
(10) P200,000 representing attorney's fees.

With costs.

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff

(FMICI) and against the defendant Triple V (herein petitioner) and the latter is hereby
ordered to pay plaintiff the following:

SO ORDERED.
[G.R. No. 160544. February 21, 2005]
TRIPLE-V vs. FILIPINO MERCHANTS
Quoted hereunder, for your information, is a resolution of this Court dated FEB 21 2005.
G.R. No. 160544 (Triple-V Food Services, Inc. vs. Filipino Merchants Insurance
Company, Inc.)
Assailed in this petition for review on certiorari is the decision [1] dated October 21,
2003 of the Court of Appeals in CA-G.R. CV No. 71223, affirming an earlier decision of the
Regional Trial Court at Makati City, Branch 148, in its Civil Case No. 98-838, an action for
damages thereat filed by respondent Filipino Merchants Insurance, Company, Inc., against
the herein petitioner, Triple-V Food Services, Inc.
On March 2, 1997, at around 2:15 o'clock in the afternoon, a certain Mary Jo-Anne
De Asis (De Asis) dined at petitioner's Kamayan Restaurant at 15 West Avenue, Quezon
City. De Asis was using a Mitsubishi Galant Super Saloon Model 1995 with plate number
UBU 955, assigned to her by her employer Crispa Textile Inc. (Crispa). On said date, De
Asis availed of the valet parking service of petitioner and entrusted her car key to
petitioner's valet counter. A corresponding parking ticket was issued as receipt for the car.
The car was then parked by petitioner's valet attendant, a certain Madridano, at the
designated parking area. Few minutes later, Madridano noticed that the car was not in its
parking slot and its key no longer in the box where valet attendants usually keep the keys of
cars entrusted to them. The car was never recovered. Thereafter, Crispa filed a claim
against its insurer, herein respondent Filipino Merchants Insurance Company, Inc. (FMICI).
Having indemnified Crispa in the amount of P669.500 for the loss of the subject vehicle,
FMICI, as subrogee to Crispa's rights, filed with the RTC at Makati City an action for
damages against petitioner Triple-V Food Services, Inc., thereat docketed as Civil Case No.
98-838 which was raffled to Branch 148.

1.

The amount of P669,500.00, representing actual damages plus

compounded (sic);

2. The amount of P30,000.00 as acceptance fee plus the amount equal to

25% of the total amount due as attorney's fees;
3. The amount of P50,000.00 as exemplary damages;
4. Plus, cost of suit.
Defendant Triple V is not therefore precluded from taking appropriate action against
defendant Armando Madridano.
SO ORDERED.
Obviously displeased, petitioner appealed to the Court of Appeals reiterating its
argument that it was not a depositary of the subject car and that it exercised due diligence
and prudence in the safe keeping of the vehicle, in handling the car-napping incident and in
the supervision of its employees. It further argued that there was no valid subrogation of
rights between Crispa and respondent FMICI.
In a decision dated October 21, 2003, [2] the Court of Appeals dismissed petitioner's
appeal and affirmed the appealed decision of the trial court, thus:
WHEREFORE, based on the foregoing premises, the instant appeal is
hereby DISMISSED. Accordingly, the assailed June 22, 2001 Decision of the RTC of Makati
City - Branch 148 in Civil Case No. 98-838 is AFFIRMED.

In its answer, petitioner argued that the complaint failed to aver facts to support the
allegations of recklessness and negligence committed in the safekeeping and custody of the
subject vehicle, claiming that it and its employees wasted no time in ascertaining the loss of
the car and in informing De Asis of the discovery of the loss. Petitioner further argued that in
accepting the complimentary valet parking service, De Asis received a parking ticket
whereunder it is so provided that "[Management and staff will not be responsible for any
loss of or damage incurred on the vehicle nor of valuables contained therein", a provision
which, to petitioner's mind, is an explicit waiver of any right to claim indemnity for the loss of
the car; and that De Asis knowingly assumed the risk of loss when she allowed petitioner to
park her vehicle, adding that its valet parking service did not include extending a contract of
insurance or warranty for the loss of the vehicle.

SO ORDERED.

During trial, petitioner challenged FMICI's subrogation to Crispa's right to file a claim
for the loss of the car, arguing that theft is not a risk insured against under FMICI's
Insurance Policy No. PC-5975 for the subject vehicle.

When De Asis entrusted the car in question to petitioners valet attendant while eating
at petitioner's Kamayan Restaurant, the former expected the car's safe return at the end of
her meal. Thus, petitioner was constituted as a depositary of the same car. Petitioner cannot
evade liability by arguing that neither a contract of deposit nor that of insurance, guaranty or
surety for the loss of the car was constituted when De Asis availed of its free valet parking
service.

In a decision dated June 22, 2001, the trial court rendered judgment for respondent
FMICI, thus:

In so dismissing the appeal and affirming the appealed decision, the appellate court
agreed with the findings and conclusions of the trial court that: (a) petitioner was a
depositary of the subject vehicle; (b) petitioner was negligent in its duties as a depositary
thereof and as an employer of the valet attendant; and (c) there was a valid subrogation of
rights between Crispa and respondent FMICI.
Hence, petitioner's present recourse.
We agree with the two (2) courts below.

In a contract of deposit, a person receives an object belonging to another with the

obligation of safely keeping it and returning the same. [3] A deposit may be constituted even
without any consideration. It is not necessary that the depositary receives a fee before it
becomes obligated to keep the item entrusted for safekeeping and to return it later to the
depositor.
Specious is petitioner's insistence that the valet parking claim stub it issued to De
Asis contains a clear exclusion of its liability and operates as an explicit waiver by the
customer of any right to claim indemnity for any loss of or damage to the vehicle.
The parking claim stub embodying the terms and conditions of the parking, including
that of relieving petitioner from any loss or damage to the car, is essentially a contract of
adhesion, drafted and prepared as it is by the petitioner alone with no participation
whatsoever on the part of the customers, like De Asis, who merely adheres to the printed
stipulations therein appearing. While contracts of adhesion are not void in themselves, yet
this Court will not hesitate to rule out blind adherence thereto if they prove to be one-sided
under the attendant facts and circumstances.[4]
Hence, and as aptly pointed out by the Court of Appeals, petitioner must not be
allowed to use its parking claim stub's exclusionary stipulation as a shield from any
responsibility for any loss or damage to vehicles or to the valuables contained therein. Here,
it is evident that De Asis deposited the car in question with the petitioner as part of the
latter's enticement for customers by providing them a safe parking space within the vicinity
of its restaurant. In a very real sense, a safe parking space is an added attraction to
petitioner's restaurant business because customers are thereby somehow assured that their
vehicle are safely kept, rather than parking them elsewhere at their own risk. Having
entrusted the subject car to petitioner's valet attendant, customer De Asis, like all of
petitioner's customers, fully expects the security of her car while at petitioner's
premises/designated parking areas and its safe return at the end of her visit at petitioner's
restaurant.
Petitioner's argument that there was no valid subrogation of rights between Crispa
and FMICI because theft was not a risk insured against under FMICI's Insurance Policy No.
PC-5975 holds no water.
Insurance Policy No. PC-5975 which respondent FMICI issued to Crispa contains,
among others things, the following item: "Insured's Estimate of Value of Scheduled VehicleP800.000".[5] On the basis of such item, the trial court concluded that the coverage includes
a full comprehensive insurance of the vehicle in case of damage or loss. Besides, Crispa
paid a premium of P10,304 to cover theft. This is clearly shown in the breakdown of
premiums in the same policy.[6] Thus, having indemnified CRISPA for the stolen car, FMICI,
as correctly ruled by the trial court and the Court of Appeals, was properly subrogated to
Crispa's rights against petitioner, pursuant to Article 2207 of the New Civil Code[7].
Anent the trial court's findings of negligence on the part of the petitioner, which
findings were affirmed by the appellate court, we have consistently ruled that findings of
facts of trial courts, more so when affirmed, as here, by the Court of Appeals, are conclusive
on this Court unless the trial court itself ignored, overlooked or misconstrued facts and
circumstances which, if considered, warrant a reversal of the outcome of the case. [8] This is
not so in the case at bar. For, we have ourselves reviewed the records and find no
justification to deviate from the trial court's findings.
WHEREFORE, petition is hereby DENIED DUE COURSE.
SO ORDERED.

G.R. No. 179419

January 12, 2011

DURBAN APARTMENTS CORPORATION, doing business under the name and style of
City Garden Hotel,Petitioner,
vs.
PIONEER INSURANCE AND SURETY CORPORATION, Respondent.
For review is the Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 86869, which
affirmed the decision2of the Regional Trial Court (RTC), Branch 66, Makati City, in Civil Case
No. 03-857, holding petitioner Durban Apartments Corporation solely liable to respondent
Pioneer Insurance and Surety Corporation for the loss of Jeffrey Sees (Sees) vehicle.
The facts, as found by the CA, are simple.
On July 22, 2003, [respondent] Pioneer Insurance and Surety Corporation x x x, by right of
subrogation, filed [with the RTC of Makati City] a Complaint for Recovery of Damages
against [petitioner] Durban Apartments Corporation, doing business under the name and
style of City Garden Hotel, and [defendant before the RTC] Vicente Justimbaste x x x.
[Respondent averred] that: it is the insurer for loss and damage of Jeffrey S. Sees [the
insureds] 2001 Suzuki Grand Vitara x x x with Plate No. XBH-510 under Policy No. MC-CVHO-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 AntiCarnapping Unit of the said station for investigation, taking of their sworn statements, and
flashing of a voice alarm; he likewise reported the said incident in PNP TMG in Camp
Crame where another alarm was issued; he filed his claim with [respondent] Pioneer
Insurance, and a representative of the latter, who is also an adjuster of Vesper Insurance

Adjusters-Appraisers [Vesper], investigated the incident; and [respondent] Pioneer

Insurance required him to sign a Release of Claim and Subrogation Receipt, and finally paid
him the sum of P1,163,250.00 for his claim.
Ricardo F. Red testified that: he is a claims evaluator of [petitioner] Pioneer Insurance
tasked, among others, with the receipt of claims and documents from the insured,
investigation of the said claim, inspection of damages, taking of pictures of insured unit, and
monitoring of the processing of the claim until its payment; he monitored the processing of
Sees claim when the latter reported the incident to [respondent] Pioneer Insurance;
[respondent] Pioneer Insurance assigned the case to Vesper who verified Sees report,
conducted an investigation, obtained the necessary documents for the processing of the
claim, and tendered a settlement check to See; they evaluated the case upon receipt of the
subrogation documents and the adjusters report, and eventually recommended for its
settlement for the sum of P1,163,250.00 which was accepted by See; the matter was
referred and forwarded to their counsel, R.B. Sarajan & Associates, who prepared and sent
demand letters to [petitioner] Durban Apartments and [defendant] Justimbaste, who did not
pay [respondent] Pioneer Insurance notwithstanding their receipt of the demand letters; and
the services of R.B. Sarajan & Associates were engaged, for P100,000.00 as attorneys
fees plus P3,000.00 per court appearance, to prosecute the claims of [respondent] Pioneer
Insurance against [petitioner] Durban Apartments and Justimbaste before the lower court.
Ferdinand Cacnio testified that: he is an adjuster of Vesper; [respondent] Pioneer Insurance
assigned to Vesper the investigation of Sees case, and he was the one actually assigned to
investigate it; he conducted his investigation of the matter by interviewing See, going to the
City Garden Hotel, required subrogation documents from See, and verified the authenticity
of the same; he learned that it is the standard procedure of the said hotel as regards its
valet parking service to assist their guests as soon as they get to the lobby entrance, park
the cars for their guests, and place the ignition keys in their safety key box; considering that
the hotel has only twelve (12) available parking slots, it has an agreement with Equitable
PCI Bank permitting the hotel to use the parking space of the bank at night; he also learned
that a Hyundai Starex van was carnapped at the said place barely a month before the
occurrence of this incident because Liberty Insurance assigned the said incident to Vespers,
and Horlador and defendant x x x Justimbaste admitted the occurrence of the same in their
sworn statements before the Anti-Carnapping Unit of the Makati City Police; upon
verification with the PNP TMG [Unit] in Camp Crame, he learned that Sees Vitara has not
yet been recovered; upon evaluation, Vesper recommended to [respondent] Pioneer
Insurance to settle Sees claim for P1,045,750.00; See contested the recommendation of
Vesper by reasoning out that the 10% depreciation should not be applied in this case
considering the fact that the Vitara was used for barely eight (8) months prior to its loss; and
[respondent] Pioneer Insurance acceded to Sees contention, tendered the sum
of P1,163,250.00 as settlement, the former accepted it, and signed a release of claim and
subrogation receipt.
The lower court denied the Motion to Admit Pre-Trial Brief and Motion for Reconsideration
field by [petitioner] Durban Apartments and Justimbaste in its Orders dated May 4, 2005 and
October 20, 2005, respectively, for being devoid of merit. 3

Thereafter, on January 27, 2006, the RTC rendered a decision, disposing, as follows:
WHEREFORE, judgment is hereby rendered ordering [petitioner Durban Apartments
Corporation] to pay [respondent Pioneer Insurance and Surety Corporation] the sum
of P1,163,250.00 with legal interest thereon from July 22, 2003 until the obligation is fully
paid and attorneys fees and litigation expenses amounting toP120,000.00.
SO ORDERED.4
On appeal, the appellate court affirmed the decision of the trial court, viz.:
WHEREFORE, premises considered, the Decision dated January 27, 2006 of the RTC,
Branch 66, Makati City in Civil Case No. 03-857 is hereby AFFIRMED insofar as it holds
[petitioner] Durban Apartments Corporation solely liable to [respondent] Pioneer Insurance
and Surety Corporation for the loss of Jeffrey Sees Suzuki Grand Vitara.
SO ORDERED.5
Hence, this recourse by petitioner.
The issues for our resolution are:
1. Whether the lower courts erred in declaring petitioner as in default for failure to
appear at the pre-trial conference and to file a pre-trial brief;
2. Corollary thereto, whether the trial court correctly allowed respondent to
present evidence ex-parte;
3. Whether petitioner is liable to respondent for attorneys fees in the amount
of P120,000.00; and
4. Ultimately, whether petitioner is liable to respondent for the loss of Sees
vehicle.

Well-entrenched in jurisprudence is the rule that factual findings of the trial court, especially
when affirmed by the appellate court, are accorded the highest degree of respect and are
considered conclusive between the parties.6A review of such findings by this Court is not
warranted except upon a showing of highly meritorious circumstances, such as: (1) when
the findings of a trial court are grounded entirely on speculation, surmises, or conjectures;
(2) when a lower courts inference from its factual findings is manifestly mistaken, absurd, or
impossible; (3) when there is grave abuse of discretion in the appreciation of facts; (4) when
the findings of the appellate court go beyond the issues of the case, or fail to notice certain
relevant facts which, if properly considered, will justify a different conclusion; (5) when there
is a misappreciation of facts; (6) when the findings of fact are conclusions without mention
of the specific evidence on which they are based, are premised on the absence of evidence,
or are contradicted by evidence on record. 7 None of the foregoing exceptions permitting a
reversal of the assailed decision exists in this instance.
Petitioner urges us, however, that "strong [and] compelling reason[s]" such as the
prevention of miscarriage of justice warrant a suspension of the rules and excuse its and its
counsels non-appearance during the pre-trial conference and their failure to file a pre-trial
brief.
We are not persuaded.
Rule 18 of the Rules of Court leaves no room for equivocation; appearance of parties and
their counsel at the pre-trial conference, along with the filing of a corresponding pre-trial
brief, is mandatory, nay, their duty. Thus, Section 4 and Section 6 thereof provide:
SEC. 4. Appearance of parties.It shall be the duty of the parties and their counsel to
appear at the pre-trial. The 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

The petition must fail.

Failure to file the pre-trial brief shall have the same effect as failure to appear at the pre-trial.
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.

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 nonappearance 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 pretrial 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 nonsuiting 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.

On March 31, 1959, the Court of First Instance of Manila, in its Civil Case No. 36525,
rendered a decision ordering the City of Baguio to pay the National Power Corporation
various sums of money totalling P240,000.00 representing the unpaid electric charges, and
rentals for the lease of two generators, etc. The aforesaid decision having become final, the
court of Manila granted on June 4, 1959, the National Power Corporation's motion for
execution. A writ was issued, addressed to the Sheriff of Baguio City to levy execution on
the property of above respondent Baguio City to satisfy the judgment. Such Sheriff, in
compliance with the writ, garnished on June 8, 1959, the amount of P239,589.80 out of the
cash deposits of Baguio City in the possession of the Baguio Branch of the Philippine
National Bank.
Whereupon on June 12, 1959, Baguio City filed against herein petitioner National Power
Corporation, the Philippine National Bank and the said Sheriff, in the Court of First Instance
of Baguio City, a complaint (Civil Case No. 866) praying that all the acts of said defendants
relative to the garnishment of the cash deposits with the defendant Philippine National
Bank, be declared illegal, that said defendants be permanently restrained from performing
acts in furtherance of the said garnishment, and that they be ordered to pay damages.
On the same date, June 12, 1959, above respondent court of Baguio City issued a
preliminary mandatory injunction ordering above petitioner corporation, the Philippine
National Bank, the Sheriff and others acting in their behalf to restore and maintain the status
quo of respondent corporation's bank deposits.
Above petitioner's motions for reconsideration of the mandatory preliminary injunction and
for dismissal of the said Civil Case No. 866 on the alleged grounds of lack of jurisdiction
over the subject-matter and lack of cause of action, were denied.
Consequently, the instant petition for certiorari was filed.

G.R. No. L-15763

December 22, 1961

NATIONAL POWER CORPORATION, petitioner,

vs.
HON. JESUS DE VEYRA, as Judge of the Court of First Instance of Baguio City and
the CITY OF BAGUIO,respondents.
Petitioner asks this Court to annul and set aside the preliminary mandatory injunction issued
by the above respondent judge; to declare the respondent Court of First Instance of Baguio
City to be without jurisdiction to try its Civil Case No. 868, and to require said court to
dismiss it.
The record bear out the following facts:

The question raised is whether or not property which has been levied upon in a garnishment
proceedings by one court, may be subject to the jurisdiction of another court (where the
property is found) in an independent suit impugning the legality of said garnishment the
property garnished allegedly being exempt from execution.
The garnishment of property to satisfy a writ of execution "operates as an attachment and
fastens upon the property a lien by which the property is brought under the jurisdiction of the
court issuing the writ."1 It is brought into custodia legis, under the sole control of such court.
Property is in the custody of the court when it has been seized by an officer either under a
writ of attachment on mesne process or under a writ of execution. 2 A court which has control
of such property, exercises exclusive jurisdiction over same. 3 No court, except one having a
supervisory control or superior jurisdiction in the premises, has a right to interfere with and
change that possession. 4

We have followed and applied this principle of procedure. Thereby conflict of power is
avoided between different courts of coordinate jurisdiction. We have invariably held that no
court has authority to interfere by injunction on with the judgments or decrees of a court of
concurrent or coordinate jurisdiction having equal power to grant the relief sought by
injunction. 5

Received by:

The property involved in Civil Case No. 866, is property in custodia legis of the Court of First
Instance of Manila, it having been garnished to satisfy a writ of execution duly issued by the
said court. Respondent Baguio court should not have interfered with the Manila court's
jurisdiction by issuing the writ of preliminary injunction and assuming cognizance of the
complaint presented before it.
The reason advanced by the respondent court of Baguio City that it should grant relief when
"there is apparently an illegal service of the writ" (the property garnished being allegedly
exempt from execution) may not be upheld, there being a better procedure to follow, i.e., a
resort to the Manila court, wherein the remedy may be obtained, it being the court under
whose authority the illegal levy had been made. Needless to say, an effective ordering of
legal relationships in civil society is possible only when each court is granted exclusive
jurisdiction over the property brought to it. To allow coordinate courts to interfere with each
other's judgments or decrees by injunctions, would obviously lead to confusion and might
seriously hinder the proper administration of justice. 6lawphil.net
Premises considered, the preliminary mandatory injunction issued by respondent court is
set aside, even as further proceedings in Civil Case No. 866 are hereby enjoined. So
ordered.

&/OR MRS SHIRLEY E. ZSHORWe acknowledged (sic)

having received from you today the sum of US DOLLARS:
THREE THOUSAND ONLY (US$3,000.00) for safekeeping.

(Sgd.) VIRGILIO V. GA
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