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Republic of the Philippines SUPREME COURT Manila

THIRD DIVISION

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

DAVIDE, JR., J.:
Is the contractual relation between a commercial bank and another party in a contract of rent of a safety deposit
box with respect to its contents placed by the latter one of bailor and bailee or one of lessor and lessee?
This is the crux of the present controversy.
On 3 July 1979, petitioner (through its President, Sergio Aguirre) and the spouses Ramon and Paula Pugao
entered into an agreement whereby the former purchased from the latter two (2) parcels of land for a
consideration of P350,625.00. Of this amount, P75,725.00 was paid as downpayment 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 The same could be withdrawn only upon the joint signatures of a representative of the petitioner and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 defendant-appellee from liability is in accordance with the nature of the contract
of lease and cannot be regarded as contrary to law, public order and public policy."
12
The appellate court was
quick to add, however, that under the contract of lease of the safety deposit box, respondent Bank is not
completely free from liability as it may still be made answerable in case unauthorized persons enter into the vault
area or when the rented box is forced open. Thus, as expressly provided for in stipulation number 8 of the
contract in question:
8. The Bank shall use due diligence that no unauthorized person shall be admitted to any rented safe and beyond
this, the Bank will not be responsible for the contents of any safe rented from it.
13

Its motion for reconsideration
14
having been denied in the respondent Court's Resolution of 28 August 1989,
15

petitioner took this recourse under Rule 45 of the Rules of Court and urges Us to review and set aside the
respondent Court's ruling. Petitioner avers that both the respondent Court and the trial court (a) did not properly
and legally apply the correct law in this case, (b) acted with grave abuse of discretion or in excess of jurisdiction
amounting to lack thereof and (c) set a precedent that is contrary to, or is a departure from precedents adhered to
and affirmed by decisions of this Court and precepts in American jurisprudence adopted in the Philippines. It
reiterates the arguments it had raised in its motion to reconsider the trial court's decision, the brief submitted to
the respondent Court and the motion to reconsider the latter's decision. In a nutshell, petitioner maintains that
regardless of nomenclature, the contract for the rent of the safety deposit box (Exhibit "2") is actually a contract of
deposit governed by Title XII, Book IV of the Civil Code of the Philippines.
16
Accordingly, it is claimed that the
respondent Bank is liable for the loss of the certificates of title pursuant to Article 1972 of the said Code which
provides:
Art. 1972. The depositary is obliged to keep the thing safely and to return it, when required, to the depositor, or to
his heirs and successors, or to the person who may have been designated in the contract. His responsibility, with
regard to the safekeeping and the loss of the thing, shall be governed by the provisions of Title I of this Book.
If the deposit is gratuitous, this fact shall be taken into account in determining the degree of care that the
depositary must observe.
Petitioner then quotes a passage from American Jurisprudence
17
which is supposed to expound on the prevailing
rule in the United States, to wit:
The prevailing rule appears to be that where a safe-deposit company leases a safe-deposit box or safe and the
lessee takes possession of the box or safe and places therein his securities or other valuables, the relation of
bailee and bail or is created between the parties to the transaction as to such securities or other valuables; the
fact that the safe-deposit company does not know, and that it is not expected that it shall know, the character or
description of the property which is deposited in such safe-deposit box or safe does not change that relation. That
access to the contents of the safe-deposit box can be had only by the use of a key retained by the lessee (
whether it is the sole key or one to be used in connection with one retained by the lessor) does not operate to
alter the foregoing rule. The argument that there is not, in such a case, a delivery of exclusive possession and
control to the deposit company, and that therefore the situation is entirely different from that of ordinary bailment,
has been generally rejected by the courts, usually on the ground that as possession must be either in the
depositor or in the company, it should reasonably be considered as in the latter rather than in the former, since
the company is, by the nature of the contract, given absolute control of access to the property, and the depositor
cannot gain access thereto without the consent and active participation of the company. . . . (citations omitted).
and a segment from Words and Phrases
18
which states that a contract for the rental of a bank safety deposit box
in consideration of a fixed amount at stated periods is a bailment for hire.
Petitioner further argues that conditions 13 and 14 of the questioned contract are contrary to law and public policy
and should be declared null and void. In support thereof, it cites Article 1306 of the Civil Code which provides that
parties to a contract may establish such stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good customs, public order or public policy.
After the respondent Bank filed its comment, this Court gave due course to the petition and required the parties to
simultaneously submit their respective Memoranda.
The petition is partly meritorious.
We agree with the petitioner's contention that the contract for the rent of the safety deposit box is not an ordinary
contract of lease as defined in Article 1643 of the Civil Code. However, We do not fully subscribe to its view that
the same is a contract of deposit that is to be strictly governed by the provisions in the Civil Code on deposit;
19

the contract in the case at bar is a special kind of deposit. It cannot be characterized as an ordinary contract of
lease under Article 1643 because the full and absolute possession and control of the safety deposit box was not
given to the joint renters the petitioner and the Pugaos. The guard key of the box remained with the respondent
Bank; without this key, neither of the renters could open the box. On the other hand, the respondent Bank could
not likewise open the box without the renter's key. In this case, the said key had a duplicate which was made so
that both renters could have access to the box.
Hence, the authorities cited by the respondent Court
20
on this point do not apply. Neither could Article 1975, also
relied upon by the respondent Court, be invoked as an argument against the deposit theory. Obviously, the first
paragraph of such provision cannot apply to a depositary of certificates, bonds, securities or instruments which
earn interest if such documents are kept in a rented safety deposit box. It is clear that the depositary cannot open
the box without the renter being present.
We observe, however, that the deposit theory itself does not altogether find unanimous support even in American
jurisprudence. We agree with the petitioner that under the latter, the prevailing rule is that the relation between a
bank renting out safe-deposit boxes and its customer with respect to the contents of the box is that of a bail or
and bailee, the bailment being for hire and mutual benefit.
21
This is just the prevailing view because:
There is, however, some support for the view that the relationship in question might be more properly
characterized as that of landlord and tenant, or lessor and lessee. It has also been suggested that it should be
characterized as that of licensor and licensee. The relation between a bank, safe-deposit company, or storage
company, and the renter of a safe-deposit box therein, is often described as contractual, express or implied, oral
or written, in whole or in part. But there is apparently no jurisdiction in which any rule other than that applicable to
bailments governs questions of the liability and rights of the parties in respect of loss of the contents of safe-
deposit boxes.
22
(citations omitted)
In the context of our laws which authorize banking institutions to rent out safety deposit boxes, it is clear that in
this jurisdiction, the prevailing rule in the United States has been adopted. Section 72 of the General Banking Act
23
pertinently provides:
Sec. 72. In addition to the operations specifically authorized elsewhere in this Act, banking institutions other than
building and loan associations may perform the following services:
(a) Receive in custody funds, documents, and valuable objects, and rent safety deposit boxes for the
safeguarding of such effects.
xxx xxx xxx
The banks shall perform the services permitted under subsections (a), (b) and (c) of this section as depositories
or as agents. . . .
24
(emphasis supplied)
Note that the primary function is still found within the parameters of a contract of deposit, i.e., the receiving in
custody of funds, documents and other valuable objects for safekeeping. The renting out of the safety deposit
boxes is not independent from, but related to or in conjunction with, this principal function. A contract of deposit
may be entered into orally or in writing
25
and, pursuant to Article 1306 of the Civil Code, the parties thereto may
establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order or public policy. The depositary's responsibility for the
safekeeping of the objects deposited in the case at bar is governed by Title I, Book IV of the Civil Code.
Accordingly, the depositary would be liable if, in performing its obligation, it is found guilty of fraud, negligence,
delay or contravention of the tenor of the agreement.
26
In the absence of any stipulation prescribing the degree of
diligence required, that of a good father of a family is to be observed.
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.
Feliciano, Bidin, Romero and Melo, JJ., concur.
Gutierrez, Jr., J., is on leave.
























Republic of the Philippines SUPREME COURT Manila
EN BANC
G.R. Nos. L-26948 and L-26949 October 8, 1927
SILVESTRA BARON, plaintiff-appellant, vs. PABLO DAVID, defendant-appellant.
And
GUILLERMO BARON, plaintiff-appellant, vs. PABLO DAVID, defendant-appellant.
Jose Gutierrez David for plaintiff-appellant in case of No. 26948. Gregorio Perfecto for defendant-appellant in
both cases. Francisco, Lualhati & Lopez and Jose Gutierrez David for plaintiff-appellant in case No. 26949.

STREET, J.:
These two actions were instituted in the Court of First Instance of the Province of Pampanga by the respective
plaintiffs, Silvestra Baron and Guillermo Baron, for the purpose of recovering from the defendant, Pablo David, the
value of palay alleged to have been sold by the plaintiffs to the defendant in the year 1920. Owing to the fact that
the defendant is the same in both cases and that the two cases depend in part upon the same facts, the 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 a
commodatum; and of course by appropriating the thing, the bailee becomes responsible for its value. In this
connection we wholly reject the defendant's pretense that the palay delivered by the plaintiffs or any part of it was
actually consumed in the fire of January, 1921. Nor is the liability of the defendant in any wise affected by the
circumstance that, by a custom prevailing among rice millers in this country, persons placing palay with them
without special agreement as to price are at liberty to withdraw it later, proper allowance being made for storage
and shrinkage, a thing that is sometimes done, though rarely.
In view of what has been said it becomes necessary to discover the price which the defendant should be required
to pay for the plaintiffs' palay. Upon this point the trial judge fixed upon P6.15 per cavan; and although we are not
exactly in agreement with him as to the propriety of the method by which he arrived at this figure, we are
nevertheless of the opinion that, all things considered, the result is approximately correct. It appears that the price
of palay during the months of April, May, and June, 1920, had been excessively high in the Philippine Islands and
even prior to that period the Government of the Philippine Islands had been attempting to hold the price in check
by executive regulation. The highest point was touched in this season was apparently about P8.50 per cavan, but
the market began to sag in May or June and presently entered upon a precipitate decline. As we have already
stated, the plaintiffs made demand upon the defendant for settlement in the early part of August; and, so far as we
are able to judge from the proof, the price of P6.15 per cavan, fixed by the trial court, is about the price at which
the defendant should be required to settle as of that date. It was the date of the demand of the plaintiffs for
settlement that determined the price to be paid by the defendant, and this is true whether the palay was delivered
in the character of sale with price undetermined or in the character of deposit subject to use by the defendant. It
results that the plaintiffs are respectively entitle to recover the value of the palay which they had placed with the
defendant during the period referred to, with interest from the date of the filing of their several complaints.
As already stated, the trial court found that at the time of the fire there were about 360 cavans of palay in the mill
and that this palay was destroyed. His Honor assumed that this was part of the palay delivered by the plaintiffs,
and he held that the defendant should be credited with said amount. His Honor therefore deducted from the
claims of the plaintiffs their respective proportionate shares of this amount of palay. We are unable to see the
propriety of this feature of the decision. There were many customers of the defendant's rice mill who had placed
their palay with the defendant under the same conditions as the plaintiffs, and nothing can be more certain than
that the palay which was burned did not belong to the plaintiffs. That palay without a doubt had long been sold
and marketed. The assignments of error of each of the plaintiffs-appellants in which this feature of the decision is
attacked are therefore well taken; and the appealed judgments must be modified by eliminating the deductions
which the trial court allowed from the plaintiffs' claims.
The trial judge also allowed a deduction from the claim of the plaintiff Guillermo Baron of 167 cavans of palay, as
indicated in Exhibit 12, 13, 14, and 16. This was also erroneous. These exhibits relate to transactions that
occurred nearly two years after the transactions with which we are here concerned, and they were offered in
evidence merely to show the character of subsequent transactions between the parties, it appearing that at the
time said exhibits came into existence the defendant had reconstructed his mill and that business relations with
Guillermo Baron had been resumed. The transactions shown by these exhibits (which relate to palay withdrawn
by the plaintiff from the defendant's mill) were not made the subject of controversy in either the complaint or the
cross-complaint of the defendant in the second case. They therefore should not have been taken into account as
a credit in favor of the defendant. Said credit must therefore be likewise of course be without prejudice to any
proper adjustment of the rights of the parties with respect to these subsequent transactions that they have
heretofore or may hereafter effect.
The preceding discussion disposes of all vital contentions relative to the liability of the defendant upon the causes
of action stated in the complaints. We proceed therefore now to consider the question of the liability of the plaintiff
Guillermo Baron upon the cross-complaint of Pablo David in case R. G. No. 26949. In this cross-action the
defendant seek, as the stated in the third paragraph of this opinion, to recover damages for the wrongful suing out
of an attachment by the plaintiff and the levy of the same upon the defendant's rice mill. It appears that about two
and one-half months after said action was begun, the plaintiff, Guillermo Baron, asked for an attachment to be
issued against the property of the defendant; and to procure the issuance of said writ the plaintiff made affidavit to
the effect that the defendant was disposing, or attempting the plaintiff. Upon this affidavit an attachment was
issued as prayed, and on March 27, 1924, it was levied upon the defendant's rice mill, and other property, real
and personal. 1awph!l.net
Upon attaching the property the sheriff closed the mill and placed it in the care of a deputy. Operations were not
resumed until September 13, 1924, when the attachment was dissolved by an order of the court and the
defendant was permitted to resume control. At the time the attachment was levied there were, in the bodega,
more than 20,000 cavans of palay belonging to persons who held receipts therefor; and in order to get this grain
away from the sheriff, twenty-four of the depositors found it necessary to submit third-party claims to the sheriff.
When these claims were put in the sheriff notified the plaintiff that a bond in the amount of P50,000 must be
given, otherwise the grain would be released. The plaintiff, being unable or unwilling to give this bond, the sheriff
surrendered the palay to the claimants; but the attachment on the rice mill was maintained until September 13, as
above stated, covering a period of one hundred seventy days during which the mill was idle. The ground upon
which the attachment was based, as set forth in the plaintiff's affidavit was that the defendant was disposing or
attempting to dispose of his property for the purpose of defrauding the plaintiff. That this allegation was false is
clearly apparent, and not a word of proof has been submitted in support of the assertion. On the contrary, the
defendant testified that at the time this attachment was secured he was solvent and could have paid his
indebtedness to the plaintiff if judgment had been rendered against him in ordinary course. His financial
conditions was of course well known to the plaintiff, who is his uncle. The defendant also states that he had not
conveyed away any of his property, nor had intended to do so, for the purpose of defrauding the plaintiff. We have
before us therefore a case of a baseless attachment, recklessly sued out upon a false affidavit and levied upon
the defendant's property to his great and needless damage. That the act of the plaintiff in suing out the writ was
wholly unjustifiable is perhaps also indicated in the circumstance that the attachment was finally dissolved upon
the motion of the plaintiff himself.
The defendant testified that his mill was accustomed to clean from 400 to 450 cavans of palay per day, producing
225 cavans of rice of 57 kilos each. The price charged for cleaning each cavan rice was 30 centavos. The
defendant also stated that the expense of running the mill per day was from P18 to P25, and that the net profit per
day on the mill was more than P40. As the mill was not accustomed to run on Sundays and holiday, we estimate
that the defendant lost the profit that would have been earned on not less than one hundred forty work days.
Figuring his profits at P40 per day, which would appear to be a conservative estimate, the actual net loss resulting
from his failure to operate the mill during the time stated could not have been less than P5,600. The
reasonableness of these figures is also indicated in the fact that the twenty-four customers who intervened with
third-party claims took out of the camarin 20,000 cavans of palay, practically all of which, in the ordinary course of
events, would have been milled in this plant by the defendant. And of course other grain would have found its way
to this mill if it had remained open during the one hundred forty days when it was closed.
But this is not all. When the attachment was dissolved and the mill again opened, the defendant found that his
customers had become scattered and could not be easily gotten back. So slow, indeed, was his patronage in
returning that during the remainder of the year 1924 the defendant was able to mill scarcely more than the grain
belonging to himself and his brothers; and even after the next season opened many of his old customers did not
return. Several of these individuals, testifying as witnesses in this case, stated that, owing to the unpleasant
experience which they had in getting back their grain from the sheriff to the mill of the defendant, though they had
previously had much confidence in him.
As against the defendant's proof showing the facts above stated the plaintiff submitted no evidence whatever. We
are therefore constrained to hold that the defendant was damaged by the attachment to the extent of P5,600, in
profits lost by the closure of the mill, and to the extent of P1,400 for injury to the good-will of his business, making
a total of P7,000. For this amount the defendant must recover judgment on his cross-complaint.
The trial court, in dismissing the defendant's cross-complaint for damages resulting from the wrongful suing out of
the attachment, suggested that the closure of the rice mill was a mere act of the sheriff for which the plaintiff was
not responsible and that the defendant might have been permitted by the sheriff to continue running the mill if he
had applied to the sheriff for permission to operate it. This singular suggestion will not bear a moment's criticism.
It was of course the duty of the sheriff, in levying the attachment, to take the attached property into his
possession, and the closure of the mill was a natural, and even necessary, consequence of the attachment. For
the damage thus inflicted upon the defendant the plaintiff is undoubtedly responsible.
One feature of the cross-complaint consist in the claim of the defendant (cross-complaint) for the sum of P20,000
as damages caused to the defendant by the false and alleged malicious statements contained in the affidavit
upon which the attachment was procured. The additional sum of P5,000 is also claimed as exemplary damages. It
is clear that with respect to these damages the cross-action cannot be maintained, for the reason that the affidavit
in question was used in course of a legal proceeding for the purpose of obtaining a legal remedy, and it is
therefore privileged. But though the affidavit is not actionable as a libelous publication, this fact in no obstacle to
the maintenance of an action to recover the damage resulting from the levy of the attachment.
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.
Avancea, C.J., Johnson, Malcolm, Villamor, Romualdez and Villa-Real, JJ., concur.























Republic of the Philippines SUPREME COURT Manila
SECOND DIVISION
G.R. No. L-30511 February 14, 1980
MANUEL M. SERRANO, petitioner, vs. CENTRAL BANK OF THE PHILIPPINES; OVERSEAS BANK OF
MANILA; EMERITO M. RAMOS, SUSANA B. RAMOS, EMERITO B. RAMOS, JR., JOSEFA RAMOS DELA
RAMA, HORACIO DELA RAMA, ANTONIO B. RAMOS, FILOMENA RAMOS LEDESMA, RODOLFO
LEDESMA, VICTORIA RAMOS TANJUATCO, and TEOFILO TANJUATCO, respondents.
Rene Diokno for petitioner.
F.E. Evangelista & Glecerio T. Orsolino for respondent Central Bank of the Philippines.
Feliciano C. Tumale, Pacifico T. Torres and Antonio B. Periquet for respondent Overseas Bank of Manila.
Josefina G. Salonga for all other respondents.

CONCEPCION, JR., J.:
Petition for mandamus and prohibition, with preliminary injunction, that seeks the establishment of joint and
solidary liability to the amount of Three Hundred Fifty Thousand Pesos, with interest, against respondent Central
Bank of the Philippines and Overseas Bank of Manila and its stockholders, on the alleged failure of the Overseas
Bank of Manila to return the time deposits made by petitioner and assigned to him, on the ground that respondent
Central Bank failed in its duty to exercise strict supervision over respondent Overseas Bank of Manila to protect
depositors and the general public.
1
Petitioner also prays that both respondent banks be ordered to execute the
proper and necessary documents to constitute all properties fisted in Annex "7" of the Answer of respondent
Central Bank of the Philippines in G.R. No. L-29352, entitled "Emerita M. Ramos, et al vs. Central Bank of the
Philippines," into a trust fund in favor of petitioner and all other depositors of respondent Overseas Bank of
Manila. It is also prayed that the respondents be prohibited permanently from honoring, implementing, or doing
any act predicated upon the validity or efficacy of the deeds of mortgage, assignment. and/or conveyance or
transfer of whatever nature of the properties listed in Annex "7" of the Answer of respondent Central Bank in G.R.
No. 29352.
2

A sought for ex-parte preliminary injunction against both respondent banks was not given by this Court.
Undisputed pertinent facts are:
On October 13, 1966 and December 12, 1966, petitioner made a time deposit, for one year with 6% interest, of
One Hundred Fifty Thousand Pesos (P150,000.00) with the respondent Overseas Bank of Manila.
3
Concepcion
Maneja also made a time deposit, for one year with 6-!% interest, on March 6, 1967, of Two Hundred Thousand
Pesos (P200,000.00) with the same respondent Overseas Bank of Manila.
4

On August 31, 1968, Concepcion Maneja, married to Felixberto M. Serrano, assigned and conveyed to petitioner
Manuel M. Serrano, her time deposit of P200,000.00 with respondent Overseas Bank of Manila.
5

Notwithstanding series of demands for encashment of the aforementioned time deposits from the respondent
Overseas Bank of Manila, dating from December 6, 1967 up to March 4, 1968, not a single one of the time
deposit certificates was honored by respondent Overseas Bank of Manila.
6

Respondent Central Bank admits that it is charged with the duty of administering the banking system of the
Republic and it exercises supervision over all doing business in the Philippines, but denies the petitioner's
allegation that the Central Bank has the duty to exercise a most rigid and stringent supervision of banks, implying
that respondent Central Bank has to watch every move or activity of all banks, including respondent Overseas
Bank of Manila. Respondent Central Bank claims that as of March 12, 1965, the Overseas Bank of Manila, while
operating, was only on a limited degree of banking operations since the Monetary Board decided in its Resolution
No. 322, dated March 12, 1965, to prohibit the Overseas Bank of Manila from making new loans and investments
in view of its chronic reserve deficiencies against its deposit liabilities. This limited operation of respondent
Overseas Bank of Manila continued up to 1968.
7

Respondent Central Bank also denied that it is guarantor of the permanent solvency of any banking institution as
claimed by petitioner. It claims that neither the law nor sound banking supervision requires respondent Central
Bank to advertise or represent to the public any remedial measures it may impose upon chronic delinquent banks
as such action may inevitably result to panic or bank "runs". In the years 1966-1967, there were no findings to
declare the respondent Overseas Bank of Manila as insolvent.
8

Respondent Central Bank likewise denied that a constructive trust was created in favor of petitioner and his
predecessor in interest Concepcion Maneja when their time deposits were made in 1966 and 1967 with the
respondent Overseas Bank of Manila as during that time the latter was not an insolvent bank and its operation as
a banking institution was being salvaged by the respondent Central Bank.
9

Respondent Central Bank avers no knowledge of petitioner's claim that the properties given by respondent
Overseas Bank of Manila as additional collaterals to respondent Central Bank of the Philippines for the former's
overdrafts and emergency loans were acquired through the use of depositors' money, including that of the
petitioner and Concepcion Maneja.
10

In G.R. No. L-29362, entitled "Emerita M. Ramos, et al. vs. Central Bank of the Philippines," a case was filed by
the petitioner Ramos, wherein respondent Overseas Bank of Manila sought to prevent respondent Central Bank
from closing, declaring the former insolvent, and liquidating its assets. Petitioner Manuel Serrano in this case, filed
on September 6, 1968, a motion to intervene in G.R. No. L-29352, on the ground that Serrano had a real and
legal interest as depositor of the Overseas Bank of Manila in the matter in litigation in that case. Respondent
Central Bank in G.R. No. L-29352 opposed petitioner Manuel Serrano's motion to intervene in that case, on the
ground that his claim as depositor of the Overseas Bank of Manila should properly be ventilated in the Court of
First Instance, and if this Court were to allow Serrano to intervene as depositor in G.R. No. L-29352, thousands of
other depositors would follow and thus cause an avalanche of cases in this Court. In the resolution dated October
4, 1968, this Court denied Serrano's, motion to intervene. The contents of said motion to intervene are
substantially the same as those of the present petition.
11

This Court rendered decision in G.R. No. L-29352 on October 4, 1971, which became final and executory on
March 3, 1972, favorable to the respondent Overseas Bank of Manila, with the dispositive portion to wit:
WHEREFORE, the writs prayed for in the petition are hereby granted and respondent Central Bank's resolution
Nos. 1263, 1290 and 1333 (that prohibit the Overseas Bank of Manila to participate in clearing, direct the
suspension of its operation, and ordering the liquidation of said bank) are hereby annulled and set aside; and said
respondent Central Bank of the Philippines is directed to comply with its obligations under the Voting Trust
Agreement, and to desist from taking action in violation therefor. Costs against respondent Central Bank of the
Philippines.
12

Because of the above decision, petitioner in this case filed a motion for judgment in this case, praying for a
decision on the merits, adjudging respondent Central Bank jointly and severally liable with respondent Overseas
Bank of Manila to the petitioner for the P350,000 time deposit made with the latter bank, with all interests due
therein; and declaring all assets assigned or mortgaged by the respondents Overseas Bank of Manila and the
Ramos groups in favor of the Central Bank as trust funds for the benefit of petitioner and other depositors.
13

By the very nature of the claims and causes of action against respondents, they in reality are recovery of time
deposits plus interest from respondent Overseas Bank of Manila, and recovery of damages against respondent
Central Bank for its alleged failure to strictly supervise the acts of the other respondent Bank and protect the
interests of its depositors by virtue of the constructive trust created when respondent Central Bank required the
other respondent to increase its collaterals for its overdrafts said emergency loans, said collaterals allegedly
acquired through the use of depositors money. These claims shoud be ventilated in the Court of First Instance of
proper jurisdiction as We already pointed out when this Court denied petitioner's motion to intervene in G.R. No.
L-29352. Claims of these nature are not proper in actions for mandamus and prohibition as there is no shown
clear abuse of discretion by the Central Bank in its exercise of supervision over the other respondent Overseas
Bank of Manila, and if there was, petitioner here is not the proper party to raise that question, but rather the
Overseas Bank of Manila, as it did in G.R. No. L-29352. Neither is there anything to prohibit in this case, since the
questioned acts of the respondent Central Bank (the acts of dissolving and liquidating the Overseas Bank of
Manila), which petitioner here intends to use as his basis for claims of damages against respondent Central Bank,
had been accomplished a long time ago.
Furthermore, both parties overlooked one fundamental principle in the nature of bank deposits when the petitioner
claimed that there should be created a constructive trust in his favor when the respondent Overseas Bank of
Manila increased its collaterals in favor of respondent Central Bank for the former's overdrafts and emergency
loans, since these collaterals were acquired by the use of depositors' money.
Bank deposits are in the nature of irregular deposits. They are really loans because they earn interest. All kinds of
bank deposits, whether fixed, savings, or current are to be treated as loans and are to be covered by the law on
loans.
14
Current and savings deposit are loans to a bank because it can use the same. The petitioner here in
making time deposits that earn interests with respondent Overseas Bank of Manila was in reality a creditor of the
respondent Bank and not a depositor. The respondent Bank was in turn a debtor of petitioner. Failure of he
respondent Bank to honor the time deposit is failure to pay s obligation as a debtor and not a breach of trust
arising from depositary's failure to return the subject matter of the deposit
WHEREFORE, the petition is dismissed for lack of merit, with costs against petitioner.
SO ORDERED.
Antonio, Abad Santos, JJ., concur.
Barredo (Chairman) J., concur in the judgment on the of the concurring opinion of Justice Aquino.








































Republic of the Philippines SUPREME COURT Manila
SECOND DIVISION
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.
D E C I S I O N
TINGA, J.:
The primary question of interest before this Court is the only legal issue in the case: It is whether a hotel may
evade liability for the loss of items left with it for safekeeping by its guests, by having these guests execute written
waivers holding the establishment or its employees free from blame for such loss in light of Article 2003 of the
Civil Code which voids such waivers.
Before this Court is a Rule 45 petition for review of the Decision
1
dated 19 October 1995 of the Court of Appeals
which affirmed the Decision
2
dated 16 December 1991 of the Regional Trial Court (RTC), Branch 13, of Manila,
finding YHT Realty Corporation, Brunhilda Mata-Tan (Tan), Erlinda Lainez (Lainez) and Anicia Payam (Payam)
jointly and solidarily liable for damages in an action filed by Maurice McLoughlin (McLoughlin) for the loss of his
American and Australian dollars deposited in the safety deposit box of Tropicana Copacabana Apartment Hotel,
owned and operated by YHT Realty Corporation.
The factual backdrop of the case follow.
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,"
15

specifically 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 Malaca"ang 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 Complaint
20
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 2001
37
is suppressed or diminished shall be void.
Article 2003 was incorporated in the New Civil Code as an expression of public policy precisely to apply to
situations such as that presented in this case. The hotel business like the common carrier's business is imbued
with public interest. Catering to the public, hotelkeepers are bound to provide not only lodging for hotel guests and
security to their persons and belongings. The twin duty constitutes the essence of the business. The law in turn
does not allow such duty to the public to be negated or diluted by any contrary stipulation in so-called
"undertakings" that ordinarily appear in prepared forms imposed by hotel keepers on guests for their signature.
In an early case,
38
the Court of Appeals through its then Presiding Justice (later Associate Justice of the Court)
Jose P. Bengzon, ruled that to hold hotelkeepers or innkeeper liable for the effects of their guests, it is not
necessary that they be actually delivered to the innkeepers or their employees. It is enough that such effects are
within the hotel or inn.
39
With greater reason should the liability of the hotelkeeper be enforced when the missing
items are taken without the guest's knowledge and consent from a safety deposit box provided by the hotel itself,
as in this case.
Paragraphs (2) and (4) of the "undertaking" manifestly contravene Article 2003 of the New Civil Code for they
allow Tropicana to be released from liability arising from any loss in the contents and/or use of the safety deposit
box for any cause whatsoever.
40
Evidently, the undertaking was intended to bar any claim against Tropicana for
any loss of the contents of the safety deposit box whether or not negligence was incurred by Tropicana or its
employees. The New Civil Code is explicit that the responsibility of the hotel-keeper shall extend to loss of, or
injury to, the personal property of the guests even if caused by servants or employees of the keepers of hotels or
inns as well as by strangers, except as it may proceed from any force majeure.
41
It is the loss through force
majeure that may spare the hotel-keeper from liability. In the case at bar, there is no showing that the act of the
thief or robber was done with the use of arms or through an irresistible force to qualify the same as force
majeure.
42

Petitioners likewise anchor their defense on Article 2002
43
which exempts the hotel-keeper from liability if the loss
is due to the acts of his guest, his family, or visitors. Even a cursory reading of the provision would lead us to
reject petitioners' contention. The justification they raise would render nugatory the public interest sought to be
protected by the provision. What if the negligence of the employer or its employees facilitated the consummation
of a crime committed by the registered guest's relatives or visitor? Should the law exculpate the hotel from liability
since the loss was due to the act of the visitor of the registered guest of the hotel? Hence, this provision
presupposes that the hotel-keeper is not guilty of concurrent negligence or has not contributed in any degree to
the occurrence of the loss. A depositary is not responsible for the loss of goods by theft, unless his actionable
negligence contributes to the loss.
44

In the case at bar, the responsibility of securing the safety deposit box was shared not only by the guest himself
but also by the management since two keys are necessary to open the safety deposit box. Without the assistance
of hotel employees, the loss would not have occurred. Thus, Tropicana was guilty of concurrent negligence in
allowing Tan, who was not the registered guest, to open the safety deposit box of McLoughlin, even assuming
that the latter was also guilty of negligence in allowing another person to use his key. To rule otherwise would
result in undermining the safety of the safety deposit boxes in hotels for the management will be given imprimatur
to allow any person, under the pretense of being a family member or a visitor of the guest, to have access to the
safety deposit box without fear of any liability that will attach thereafter in case such person turns out to be a
complete stranger. This will allow the hotel to evade responsibility for any liability incurred by its employees in
conspiracy with the guest's relatives and visitors.
Petitioners contend that McLoughlin's case was mounted on the theory of contract, but the trial court and the
appellate court upheld the grant of the claims of the latter on the basis of tort.
45
There is nothing anomalous in
how the lower courts decided the controversy for this Court has pronounced a jurisprudential rule that tort liability
can exist even if there are already contractual relations. The act that breaks the contract may also be tort.
46

As to damages awarded to McLoughlin, we see no reason to modify the amounts awarded by the appellate court
for the same were based on facts and law. It is within the province of lower courts to settle factual issues such as
the proper amount of damages awarded and such finding is binding upon this Court especially if sufficiently
proven by evidence and not unconscionable or excessive. Thus, the appellate court correctly awarded
McLoughlin Two Thousand US Dollars (US$2,000.00) and Four Thousand Five Hundred Australian dollars
(AUS$4,500.00) or their peso equivalent at the time of payment,
47
being the amounts duly proven by evidence.
48

The alleged loss that took place prior to 16 April 1988 was not considered since the amounts alleged to have
been taken were not sufficiently established by evidence. The appellate court also correctly awarded the sum of
P308,880.80, representing the peso value for the air fares from Sydney to Manila and back for a total of eleven
(11) trips;
49
one-half of P336,207.05 or P168,103.52 representing payment to Tropicana;
50
one-half of
P152,683.57 or P76,341.785 representing payment to Echelon Tower;
51
one-half of P179,863.20 or P89,931.60
for the taxi or transportation expenses from McLoughlin's residence to Sydney Airport and from MIA to the hotel
here in Manila, for the eleven (11) trips;
52
one-half of P7,801.94 or P3,900.97 representing Meralco power
expenses;
53
one-half of P356,400.00 or P178,000.00 representing expenses for food and maintenance.
54

The amount of P50,000.00 for moral damages is reasonable. Although trial courts are given discretion to
determine the amount of moral damages, the appellate court may modify or change the amount awarded when it
is palpably and scandalously excessive.l^vvphi1.net Moral damages are not intended to enrich a complainant at
the expense of a defendant.l^vvphi1.net They are awarded only to enable the injured party to obtain means,
diversion or amusements that will serve to alleviate the moral suffering he has undergone, by reason of
defendants' culpable action.
55

The awards of P10,000.00 as exemplary damages and P200,000.00 representing attorney's fees are likewise
sustained.
WHEREFORE, foregoing premises considered, the Decision of the Court of Appeals dated 19 October 1995 is
hereby AFFIRMED. Petitioners are directed, jointly and severally, to pay private respondent the following
amounts:
(1) US$2,000.00 and AUS$4,500.00 or their peso equivalent at the time of payment;
(2) P308,880.80, representing the peso value for the air fares from Sydney to Manila and back for a total of
eleven (11) trips;
(3) One-half of P336,207.05 or P168,103.52 representing payment to Tropicana Copacabana Apartment Hotel;
(4) One-half of P152,683.57 or P76,341.785 representing payment to Echelon Tower;
(5) One-half of P179,863.20 or P89,931.60 for the taxi or transportation expense from 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.
SO ORDERED.
Puno, (Chairman), Callejo, Sr., and Chico-Nazario, JJ., concur. Austria-Martinez, J., no part.






















Republic of the Philippines
Supreme Court
Manila

SECOND DIVISION

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




- versus -




PIONEER INSURANCE AND SURETY CORPORATION,
Respondent.
G.R. No. 179419

Present:

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



Promulgated:

January 12, 2011
x------------------------------------------------------------------------------------x


DECISION

NACHURA, J.:


For review is the Decision[1] of the Court of Appeals (CA) in CA-G.R. CV No. 86869, which affirmed the decision[2]
of the Regional Trial Court (RTC), Branch 66, Makati City, in Civil Case No. 03-857, holding petitioner Durban Apartments
Corporation solely liable to respondent Pioneer Insurance and Surety Corporation for the loss of Jeffrey Sees (Sees) vehicle.

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

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

Upon service of Summons, [petitioner] Durban Apartments and [defendant] Justimbaste
filed their Answer with Compulsory Counterclaim alleging that: See did not check in at its hotel,
on the contrary, he was a guest of a certain Ching Montero x x x; defendant x x x Justimbaste did
not get the ignition key of Sees Vitara, on the contrary, it was See who requested a parking
attendant to park the Vitara at any available parking space, and it was parked at the Equitable Bank
parking area, which was within Sees view, while he and Montero were waiting in front of the
hotel; they made a written denial of the demand of [respondent] Pioneer Insurance for want of
legal basis; valet parking services are provided by the hotel for the convenience of its customers
looking for a parking space near the hotel premises; it is a special privilege that it gave to Montero
and See; it does not include responsibility for any losses or damages to motor vehicles and its
accessories in the parking area; and the same holds true even if it was See himself who parked his
Vitara within the premises of the hotel as evidenced by the valet parking customers claim stub
issued to him; the carnapper was able to open the Vitara without using the key given earlier to the
parking attendant and subsequently turned over to See after the Vitara was stolen; defendant x x x
Justimbaste saw the Vitara speeding away from the place where it was parked; he tried to run after
it, and blocked its possible path but to no avail; and See was duly and immediately informed of the
carnapping of his Vitara; the matter was reported to the nearest police precinct; and defendant x x
x Justimbaste, and Horlador submitted themselves to police investigation.

During the pre-trial conference on November 28, 2003, counsel for [respondent] Pioneer
Insurance was present. Atty. Monina Lee x x x, counsel of record of [petitioner] Durban
Apartments and Justimbaste was absent, instead, a certain Atty. Nestor Mejia appeared for
[petitioner] Durban Apartments and Justimbaste, but did not file their pre-trial brief.

On November 5, 2004, the lower court granted the motion of [respondent] Pioneer
Insurance, despite the opposition of [petitioner] Durban Apartments and Justimbaste, and allowed
[respondent] Pioneer Insurance to present its evidence ex parte before the Branch Clerk of Court.

See testified that: on April 30, 2002, at about 11:30 in the evening, he drove his Vitara and
stopped in front of City Garden Hotel in Makati Avenue, Makati City; a parking attendant, whom
he had later known to be defendant x x x Justimbaste, approached and asked for his ignition key,
told him that the latter would park the Vitara for him in front of the hotel, and issued him a valet
parking customers claim stub; he and Montero, thereafter, checked in at the said hotel; on May 1,
2002, at around 1:00 in the morning, the Hotel Security Officer whom he later knew to be
Horlador called his attention to the fact that his Vitara was carnapped while it was parked at the
parking lot of Equitable PCI Bank which is in front of the hotel; his Vitara was insured with
[respondent] Pioneer Insurance; he together with Horlador and defendant x x x Justimbaste went to
Precinct 19 of the Makati City Police to report the carnapping incident, and a police officer came
accompanied them to the Anti-Carnapping Unit of the said station for investigation, taking of their
sworn statements, and flashing of a voice alarm; he likewise reported the said incident in PNP
TMG in Camp Crame where another alarm was issued; he filed his claim with [respondent]
Pioneer Insurance, and a representative of the latter, who is also an adjuster of Vesper Insurance
Adjusters-Appraisers [Vesper], investigated the incident; and [respondent] Pioneer Insurance
required him to sign a Release of Claim and Subrogation Receipt, and finally paid him the sum of
P1,163,250.00 for his claim.

Ricardo F. Red testified that: he is a claims evaluator of [petitioner] Pioneer Insurance
tasked, among others, with the receipt of claims and documents from the insured, investigation of
the said claim, inspection of damages, taking of pictures of insured unit, and monitoring of the
processing of the claim until its payment; he monitored the processing of Sees claim when the
latter reported the incident to [respondent] Pioneer Insurance; [respondent] Pioneer Insurance
assigned the case to Vesper who verified Sees report, conducted an investigation, obtained the
necessary documents for the processing of the claim, and tendered a settlement check to See; they
evaluated the case upon receipt of the subrogation documents and the adjusters report, and
eventually recommended for its settlement for the sum of P1,163,250.00 which was accepted by
See; the matter was referred and forwarded to their counsel, R.B. Sarajan & Associates, who
prepared and sent demand letters to [petitioner] Durban Apartments and [defendant] Justimbaste,
who did not pay [respondent] Pioneer Insurance notwithstanding their receipt of the demand
letters; and the services of R.B. Sarajan & Associates were engaged, for P100,000.00 as attorneys
fees plus P3,000.00 per court appearance, to prosecute the claims of [respondent] Pioneer
Insurance against [petitioner] Durban Apartments and Justimbaste before the lower court.

Ferdinand Cacnio testified that: he is an adjuster of Vesper; [respondent] Pioneer Insurance
assigned to Vesper the investigation of Sees case, and he was the one actually assigned to
investigate it; he conducted his investigation of the matter by interviewing See, going to the City
Garden Hotel, required subrogation documents from See, and verified the authenticity of the same;
he learned that it is the standard procedure of the said hotel as regards its valet parking service to
assist their guests as soon as they get to the lobby entrance, park the cars for their guests, and place
the ignition keys in their safety key box; considering that the hotel has only twelve (12) available
parking slots, it has an agreement with Equitable PCI Bank permitting the hotel to use the parking
space of the bank at night; he also learned that a Hyundai Starex van was carnapped at the said
place barely a month before the occurrence of this incident because Liberty Insurance assigned the
said incident to Vespers, and Horlador and defendant x x x Justimbaste admitted the occurrence of
the same in their sworn statements before the Anti-Carnapping Unit of the Makati City Police;
upon verification with the PNP TMG [Unit] in Camp Crame, he learned that Sees Vitara has not
yet been recovered; upon evaluation, Vesper recommended to [respondent] Pioneer Insurance to
settle Sees claim for P1,045,750.00; See contested the recommendation of Vesper by reasoning
out that the 10% depreciation should not be applied in this case considering the fact that the Vitara
was used for barely eight (8) months prior to its loss; and [respondent] Pioneer Insurance acceded
to Sees contention, tendered the sum of P1,163,250.00 as settlement, the former accepted it, and
signed a release of claim and subrogation receipt.

The lower court denied the Motion to Admit Pre-Trial Brief and Motion for
Reconsideration field by [petitioner] Durban Apartments and Justimbaste in its Orders dated May
4, 2005 and October 20, 2005, respectively, for being devoid of merit.[3]


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

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

SO ORDERED.[4]

On appeal, the appellate court affirmed the decision of the trial court, viz.:

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

SO ORDERED.[5]


Hence, this recourse by petitioner.

The issues for our resolution are:

1. Whether the lower courts erred in declaring petitioner as in default for failure to appear at the pre-trial
conference and to file a pre-trial brief;

2. Corollary thereto, whether the trial court correctly allowed respondent to present evidence ex-parte;

3. Whether petitioner is liable to respondent for attorneys fees in the amount of P120,000.00; and

4. Ultimately, whether petitioner is liable to respondent for the loss of Sees vehicle.

The petition must fail.

We are in complete accord with the common ruling of the lower courts that petitioner was in default for failure to
appear at the pre-trial conference and to file a pre-trial brief, and thus, correctly allowed respondent to present evidence ex-
parte. Likewise, the lower courts did not err in holding petitioner liable for the loss of Sees vehicle.

Well-entrenched in jurisprudence is the rule that factual findings of the trial court, especially when affirmed by the
appellate court, are accorded the highest degree of respect and are considered conclusive between the parties.[6] A review of
such findings by this Court is not warranted except upon a showing of highly meritorious circumstances, such as: (1) when
the findings of a trial court are grounded entirely on speculation, surmises, or conjectures; (2) when a lower courts inference
from its factual findings is manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of discretion in the
appreciation of facts; (4) when the findings of the appellate court go beyond the issues of the case, or fail to notice certain
relevant facts which, if properly considered, will justify a different conclusion; (5) when there is a misappreciation of facts;
(6) when the findings of fact are conclusions without mention of the specific evidence on which they are based, are premised
on the absence of evidence, or are contradicted by evidence on record.[7] None of the foregoing exceptions permitting a
reversal of the assailed decision exists in this instance.

Petitioner urges us, however, that strong [and] compelling reason[s] such as the prevention of miscarriage of justice
warrant a suspension of the rules and excuse its and its counsels non-appearance during the pre-trial conference and their
failure to file a pre-trial brief.

We are not persuaded.

Rule 18 of the Rules of Court leaves no room for equivocation; appearance of parties and their counsel at the pre-trial
conference, along with the filing of a corresponding pre-trial brief, is mandatory, nay, their duty. Thus, Section 4 and Section
6 thereof provide:

SEC. 4. Appearance of parties.It shall be the duty of the parties and their counsel to
appear at the pre-trial. The non-appearance of a party may be excused only if a valid cause is
shown therefor or if a representative shall appear in his behalf fully authorized in writing to enter
into an amicable settlement, to submit to alternative modes of dispute resolution, and to enter into
stipulations or admissions of facts and documents.

SEC. 6. Pre-trial brief.The parties shall file with the court and serve on the adverse party,
in such manner as shall ensure their receipt thereof at least three (3) days before the date of the
pre-trial, their respective pre-trial briefs which shall contain, among others:

x x x x

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

Contrary to the foregoing rules, petitioner and its counsel of record were not present at the scheduled pre-trial
conference. Worse, they did not file a pre-trial brief. Their non-appearance cannot be excused as Section 4, in relation to
Section 6, allows only two exceptions: (1) a valid excuse; and (2) appearance of a representative on behalf of a party who is
fully authorized in writing to enter into an amicable settlement, to submit to alternative modes of dispute resolution, and to
enter into stipulations or admissions of facts and documents.

Petitioner is adamant and harps on the fact that November 28, 2003 was merely the first scheduled date for the pre-trial
conference, and a certain Atty. Mejia appeared on its behalf. However, its assertion is belied by its own admission that, on
said date, this Atty. Mejia did not have in his possession the Special Power of Attorney issued by petitioners Board of
Directors.

As pointed out by the CA, petitioner, through Atty. Lee, received the notice of pre-trial on October 27, 2003, thirty-two
(32) days prior to the scheduled conference. In that span of time, Atty. Lee, who was charged with the duty of notifying
petitioner of the scheduled pre-trial conference,[8] petitioner, and Atty. Mejia should have discussed which lawyer would
appear at the pre-trial conference with petitioner, armed with the appropriate authority therefor. Sadly, petitioner failed to
comply with not just one rule; it also did not proffer a reason why it likewise failed to file a pre-trial brief. In all, petitioner
has not shown any persuasive reason why it should be exempt from abiding by the rules.

The appearance of Atty. Mejia at the pre-trial conference, without a pre-trial brief and with only his bare allegation that
he is counsel for petitioner, was correctly rejected by the trial court. Accordingly, the trial court, as affirmed by the appellate
court, did not err in allowing respondent to present evidence ex-parte.

Former Chief Justice Andres R. Narvasas words continue to resonate, thus:

Everyone knows that a pre-trial in civil actions is mandatory, and has been so since January
1, 1964. Yet to this day its place in the scheme of things is not fully appreciated, and it receives but
perfunctory treatment in many courts. Some courts consider it a mere technicality, serving no
useful purpose save perhaps, occasionally to furnish ground for non-suiting the plaintiff, or
declaring a defendant in default, or, wistfully, to bring about a compromise. The pre-trial device is
not thus put to full use. Hence, it has failed in the main to accomplish the chief objective for it: the
simplification, abbreviation and expedition of the trial, if not indeed its dispensation. This is a
great pity, because the objective is attainable, and with not much difficulty, if the device were
more intelligently and extensively handled.

x x x x

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. The keepers of hotels or inns shall be responsible for them as depositaries, provided
that notice was given to them, or to their employees, of the effects brought by the guests and that,
on the part of the latter, they take the precautions which said hotel-keepers or their substitutes
advised relative to the care and vigilance of their effects.


Plainly, from the facts found by the lower courts, the insured See deposited his vehicle for safekeeping with petitioner,
through the latters employee, Justimbaste. In turn, Justimbaste issued a claim stub to See. Thus, the contract of deposit was
perfected from Sees delivery, when he handed over to Justimbaste the keys to his vehicle, which Justimbaste received with
the obligation of safely keeping and returning it. Ultimately, petitioner is liable for the loss of Sees vehicle.

Lastly, petitioner assails the lower courts award of attorneys fees to respondent in the amount of P120,000.00.
Petitioner claims that the award is not substantiated by the evidence on record.

We disagree.

While it is a sound policy not to set a premium on the right to litigate,[12] we find that respondent is entitled to
reasonable attorneys fees. Attorneys fees may be awarded when a party is compelled to litigate or incur expenses to protect
its interest,[13] or when the court deems it just and equitable.[14] In this case, petitioner refused to answer for the loss of
Sees vehicle, which was deposited with it for safekeeping. This refusal constrained respondent, the insurer of See, and
subrogated to the latters right, to litigate and incur expenses. However, we reduce the award of P120,000.00 to P60,000.00 in
view of the simplicity of the issues involved in this case.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 86869 is
AFFIRMED with the MODIFICATION that the award of attorneys fees is reduced to P60,000.00. Costs against petitioner.

SO ORDERED.









Republic of the Philippines SUPREME COURT Manila
SECOND DIVISION
G.R. No. L-60033 April 4, 1984
TEOFISTO GUINGONA, JR., ANTONIO I. MARTIN, and TERESITA SANTOS, petitioners, vs. THE CITY
FISCAL OF MANILA, HON. JOSE B. FLAMINIANO, ASST. CITY FISCAL FELIZARDO N. LOTA and
CLEMENT DAVID, respondents.

MAKASIAR, Actg. C.J.:+.wph!1
This is a petition for prohibition and injunction with a prayer for the immediate issuance of restraining order and/or
writ of preliminary injunction filed by petitioners on March 26, 1982.
On March 31, 1982, by virtue of a court resolution issued by this Court on the same date, a temporary restraining
order was duly issued ordering the respondents, their officers, agents, representatives and/or person or persons
acting upon their (respondents') orders or in their place or stead to refrain from proceeding with the preliminary
investigation in Case No. 8131938 of the Office of the City Fiscal of Manila (pp. 47-48, rec.). On January 24,
1983, private respondent Clement David filed a motion to lift restraining order which was denied in the resolution
of this Court dated May 18, 1983.
As can be gleaned from the above, the instant petition seeks to prohibit public respondents from proceeding with
the preliminary investigation of I.S. No. 81-31938, in which petitioners were charged by private respondent
Clement David, with estafa and violation of Central Bank Circular No. 364 and related regulations regarding
foreign exchange transactions principally, on the ground of lack of jurisdiction in that the allegations of the
charged, as well as the testimony of private respondent's principal witness and the evidence through said witness,
showed that petitioners' obligation is civil in nature.
For purposes of brevity, We hereby adopt the antecedent facts narrated by the Solicitor General in its Comment
dated June 28,1982, as follows:t.hqw
On December 23,1981, private respondent David filed I.S. No. 81-31938 in the Office of the City Fiscal of Manila,
which case was assigned to respondent Lota for preliminary investigation (Petition, p. 8).
In I.S. No. 81-31938, David charged petitioners (together with one Robert Marshall and the following directors of
the Nation Savings and Loan Association, Inc., namely Homero Gonzales, Juan Merino, Flavio Macasaet, Victor
Gomez, Jr., Perfecto Manalac, Jaime V. Paz, Paulino B. Dionisio, and one John Doe) with estafa and violation of
Central Bank Circular No. 364 and related Central Bank regulations on foreign exchange transactions, allegedly
committed as follows (Petition, Annex "A"):t.hqw
"From March 20, 1979 to March, 1981, David invested with the Nation Savings and Loan Association, (hereinafter
called NSLA) the sum of P1,145,546.20 on nine deposits, P13,531.94 on savings account deposits (jointly with
his sister, Denise Kuhne), US$10,000.00 on time deposit, US$15,000.00 under a receipt and guarantee of
payment and US$50,000.00 under a receipt dated June 8, 1980 (au jointly with Denise Kuhne), that David was
induced into making the aforestated investments by Robert Marshall an Australian national who was allegedly a
close associate of petitioner Guingona Jr., then NSLA President, petitioner Martin, then NSLA Executive Vice-
President of NSLA and petitioner Santos, then NSLA General Manager; that on March 21, 1981 N LA was placed
under receivership by the Central Bank, so that David filed claims therewith for his investments and those of his
sister; that on July 22, 1981 David received a report from the Central Bank that only P305,821.92 of those
investments were entered in the records of NSLA; that, therefore, the respondents in I.S. No. 81-31938
misappropriated the balance of the investments, at the same time violating Central Bank Circular No. 364 and
related Central Bank regulations on foreign exchange transactions; that after demands, petitioner Guingona Jr.
paid only P200,000.00, thereby reducing the amounts misappropriated to P959,078.14 and US$75,000.00."
Petitioners, Martin and Santos, filed a joint counter-affidavit (Petition, Annex' B') in which they stated the
following.t.hqw
"That Martin became President of NSLA in March 1978 (after the resignation of Guingona, Jr.) and served as
such until October 30, 1980, while Santos was General Manager up to November 1980; that because NSLA was
urgently in need of funds and at David's insistence, his investments were treated as special- accounts with
interest above the legal rate, an recorded in separate confidential documents only a portion of which were to be
reported because he did not want the Australian government to tax his total earnings (nor) to know his total
investments; that all transactions with David were recorded except the sum of US$15,000.00 which was a
personal loan of Santos; that David's check for US$50,000.00 was cleared through Guingona, Jr.'s dollar account
because NSLA did not have one, that a draft of US$30,000.00 was placed in the name of one Paz Roces
because of a pending transaction with her; that the Philippine Deposit Insurance Corporation had already
reimbursed David within the legal limits; that majority of the stockholders of NSLA had filed Special Proceedings
No. 82-1695 in the Court of First Instance to contest its (NSLA's) closure; that after NSLA was placed under
receivership, Martin executed a promissory note in David's favor and caused the transfer to him of a nine and on
behalf (9 1/2) carat diamond ring with a net value of P510,000.00; and, that the liabilities of NSLA to David were
civil in nature."
Petitioner, Guingona, Jr., in his counter-affidavit (Petition, Annex' C') stated the following:t.hqw
"That he had no hand whatsoever in the transactions between David and NSLA since he (Guingona Jr.) had
resigned as NSLA president in March 1978, or prior to those transactions; that he assumed a portion o; the
liabilities of NSLA to David because of the latter's insistence that he placed his investments with NSLA because of
his faith in Guingona, Jr.; that in a Promissory Note dated June 17, 1981 (Petition, Annex "D") he (Guingona, Jr.)
bound himself to pay David the sums of P668.307.01 and US$37,500.00 in stated installments; that he
(Guingona, Jr.) secured payment of those amounts with second mortgages over two (2) parcels of land under a
deed of Second Real Estate Mortgage (Petition, Annex "E") in which it was provided that the mortgage over one
(1) parcel shall be cancelled upon payment of one-half of the obligation to David; that he (Guingona, Jr.) paid
P200,000.00 and tendered another P300,000.00 which David refused to accept, hence, he (Guingona, Jr.) filed
Civil Case No. Q-33865 in the Court of First Instance of Rizal at Quezon City, to effect the release of the
mortgage over one (1) of the two parcels of land conveyed to David under second mortgages."
At the inception of the preliminary investigation before respondent Lota, petitioners moved to dismiss the charges
against them for lack of jurisdiction because David's claims allegedly comprised a purely civil obligation which was
itself novated. Fiscal Lota denied the motion to dismiss (Petition, p. 8).
But, after the presentation of David's principal witness, petitioners filed the instant petition because: (a) the
production of the Promisory Notes, Banker's Acceptance, Certificates of Time Deposits and Savings Account
allegedly showed that the transactions between David and NSLA were simple loans, i.e., civil obligations on the
part of NSLA which were novated when Guingona, Jr. and Martin assumed them; and (b) David's principal
witness allegedly testified that the duplicate originals of the aforesaid instruments of indebtedness were all on file
with NSLA, contrary to David's claim that some of his investments were not record (Petition, pp. 8-9).
Petitioners alleged that they did not exhaust available administrative remedies because to do so would be futile
(Petition, p. 9) [pp. 153-157, rec.].
As correctly pointed out by the Solicitor General, the sole issue for resolution is whether public respondents acted
without jurisdiction when they investigated the charges (estafa and violation of CB Circular No. 364 and related
regulations regarding foreign exchange transactions) subject matter of I.S. No. 81-31938.
There is merit in the contention of the petitioners that their liability is civil in nature and therefore, public
respondents have no jurisdiction over the charge of estafa.
A casual perusal of the December 23, 1981 affidavit. complaint filed in the Office of the City Fiscal of Manila by
private respondent David against petitioners Teopisto Guingona, Jr., Antonio I. Martin and Teresita G. Santos,
together with one Robert Marshall and the other directors of the Nation Savings and Loan Association, will show
that from March 20, 1979 to March, 1981, private respondent David, together with his sister, Denise Kuhne,
invested with the Nation Savings and Loan Association the sum of P1,145,546.20 on time deposits covered by
Bankers Acceptances and Certificates of Time Deposits and the sum of P13,531.94 on savings account deposits
covered by passbook nos. 6-632 and 29-742, or a total of P1,159,078.14 (pp. 15-16, roc.). It appears further that
private respondent David, together with his sister, made investments in the aforesaid bank in the amount of
US$75,000.00 (p. 17, rec.).
Moreover, the records reveal that when the aforesaid bank was placed under receivership on March 21, 1981,
petitioners Guingona and Martin, upon the request of private respondent David, assumed the obligation of the
bank to private respondent David by executing on June 17, 1981 a joint promissory note in favor of private
respondent acknowledging an indebtedness of Pl,336,614.02 and US$75,000.00 (p. 80, rec.). This promissory
note was based on the statement of account as of June 30, 1981 prepared by the private respondent (p. 81, rec.).
The amount of indebtedness assumed appears to be bigger than the original claim because of the added interest
and the inclusion of other deposits of private respondent's sister in the amount of P116,613.20.
Thereafter, or on July 17, 1981, petitioners Guingona and Martin agreed to divide the said indebtedness, and
petitioner Guingona executed another promissory note antedated to June 17, 1981 whereby he personally
acknowledged an indebtedness of P668,307.01 (1/2 of P1,336,614.02) and US$37,500.00 (1/2 of US$75,000.00)
in favor of private respondent (p. 25, rec.). The aforesaid promissory notes were executed as a result of deposits
made by Clement David and Denise Kuhne with the Nation Savings and Loan Association.
Furthermore, the various pleadings and documents filed by private respondent David, before this Court
indisputably show that he has indeed invested his money on time and savings deposits with the Nation Savings
and Loan Association.
It must be pointed out that when private respondent David invested his money on nine. and savings deposits with
the aforesaid bank, the contract that was perfected was a contract of simple loan or mutuum and not a contract of
deposit. Thus, Article 1980 of the New Civil Code provides that:t.hqw
Article 1980. Fixed, savings, and current deposits of-money in banks and similar institutions shall be governed by
the provisions concerning simple loan.
In the case of Central Bank of the Philippines vs. Morfe (63 SCRA 114,119 [1975], We said:t.hqw
It should be noted that fixed, savings, and current deposits of money in banks and similar institutions are hat true
deposits. are considered simple loans and, as such, are not preferred credits (Art. 1980 Civil Code; In re
Liquidation of Mercantile Batik of China Tan Tiong Tick vs. American Apothecaries Co., 66 Phil 414; Pacific Coast
Biscuit Co. vs. Chinese Grocers Association 65 Phil. 375; Fletcher American National Bank vs. Ang Chong UM 66
PWL 385; Pacific Commercial Co. vs. American Apothecaries Co., 65 PhiL 429; Gopoco Grocery vs. Pacific
Coast Biscuit CO.,65 Phil. 443)."
This Court also declared in the recent case of Serrano vs. Central Bank of the Philippines (96 SCRA 102 [1980])
that:t.hqw
Bank deposits are in the nature of irregular deposits. They are really 'loans because they earn interest. All kinds of
bank deposits, whether fixed, savings, or current are to be treated as loans and are to be covered by the law on
loans (Art. 1980 Civil Code Gullas vs. Phil. National Bank, 62 Phil. 519). Current and saving deposits, are loans to
a bank because it can use the same. The petitioner here in making time deposits that earn interests will
respondent Overseas Bank of Manila was in reality a creditor of the respondent Bank and not a depositor. The
respondent Bank was in turn a debtor of petitioner. Failure of the respondent Bank to honor the time deposit is
failure to pay its obligation as a debtor and not a breach of trust arising from a depositary's failure to return the
subject matter of the deposit (Emphasis supplied).
Hence, the relationship between the private respondent and the Nation Savings and Loan Association is that of
creditor and debtor; consequently, the ownership of the amount deposited was transmitted to the Bank upon the
perfection of the contract and it can make use of the amount deposited for its banking operations, such as to pay
interests on deposits and to pay withdrawals. While the Bank has the obligation to return the amount deposited, it
has, however, no obligation to return or deliver the same money that was deposited. And, the failure of the Bank
to return the amount deposited will not constitute estafa through misappropriation punishable under Article 315,
par. l(b) of the Revised Penal Code, but it will only give rise to civil liability over which the public respondents have
no- jurisdiction.
WE have already laid down the rule that:t.hqw
In order that a person can be convicted under the above-quoted provision, it must be proven that he has the
obligation to deliver or return the some money, goods or personal property that he received Petitioners had no
such obligation to return the same money, i.e., the bills or coins, which they received from private respondents.
This is so because as clearly as stated in criminal complaints, the related civil complaints and the supporting
sworn statements, the sums of money that petitioners received were loans.
The nature of simple loan is defined in Articles 1933 and 1953 of the Civil Code.t.hqw
"Art. 1933. By the contract of loan, one of the parties delivers to another, either something not consumable so
that the latter may use the same for a certain time- and return it, in which case the contract is called a
commodatum; or money or other consumable thing, upon the condition that the same amount of the same kind
and quality shall he paid in which case the contract is simply called a loan or mutuum.
"Commodatum is essentially gratuitous.
"Simple loan may be gratuitous or with a stipulation to pay interest.
"In commodatum the bailor retains the ownership of the thing loaned while in simple loan, ownership passes to
the borrower.
"Art. 1953. A person who receives a loan of money or any other fungible thing acquires the ownership thereof,
and is bound to pay to the creditor an equal amount of the same kind and quality."
It can be readily noted from the above-quoted provisions that in simple loan (mutuum), as contrasted to
commodatum the borrower acquires ownership of the money, goods or personal property borrowed Being the
owner, the borrower can dispose of the thing borrowed (Article 248, Civil Code) and his act will not be considered
misappropriation thereof' (Yam vs. Malik, 94 SCRA 30, 34 [1979]; Emphasis supplied).
But even granting that the failure of the bank to pay the time and savings deposits of private respondent David
would constitute a violation of paragraph 1(b) of Article 315 of the Revised Penal Code, nevertheless any incipient
criminal liability was deemed avoided, because when the aforesaid bank was placed under receivership by the
Central Bank, petitioners Guingona and Martin assumed the obligation of the bank to private respondent David,
thereby resulting in the novation of the original contractual obligation arising from deposit into a contract of loan
and converting the original trust relation between the bank and private respondent David into an ordinary debtor-
creditor relation between the petitioners and private respondent. Consequently, the failure of the bank or
petitioners Guingona and Martin to pay the deposits of private respondent would not constitute a breach of trust
but would merely be a failure to pay the obligation as a debtor.
Moreover, while it is true that novation does not extinguish criminal liability, it may however, prevent the rise of
criminal liability as long as it occurs prior to the filing of the criminal information in court. Thus, in Gonzales vs.
Serrano ( 25 SCRA 64, 69 [1968]) We held that:t.hqw
As pointed out in People vs. Nery, novation prior to the filing of the criminal information as in the case at bar
may convert the relation between the parties into an ordinary creditor-debtor relation, and place the complainant
in estoppel to insist on the original transaction or "cast doubt on the true nature" thereof.
Again, in the latest case of Ong vs. Court of Appeals (L-58476, 124 SCRA 578, 580-581 [1983] ), this Court
reiterated the ruling in People vs. Nery ( 10 SCRA 244 [1964] ), declaring that:t.hqw
The novation theory may perhaps apply prior to the filling of the criminal information in court by the state
prosecutors because up to that time the original trust relation may be converted by the parties into an ordinary
creditor-debtor situation, thereby placing the complainant in estoppel to insist on the original trust. But after the
justice authorities have taken cognizance of the crime and instituted action in court, the offended party may no
longer divest the prosecution of its power to exact the criminal liability, as distinguished from the civil. The crime
being an offense against the state, only the latter can renounce it (People vs. Gervacio, 54 Off. Gaz. 2898; People
vs. Velasco, 42 Phil. 76; U.S. vs. Montanes, 8 Phil. 620).
It may be observed in this regard that novation is not one of the means recognized by the Penal Code whereby
criminal liability can be extinguished; hence, the role of novation may only be to either prevent the rise of criminal
habihty or to cast doubt on the true nature of the original basic transaction, whether or not it was such that its
breach would not give rise to penal responsibility, as when money loaned is made to appear as a deposit, or other
similar disguise is resorted to (cf. Abeto vs. People, 90 Phil. 581; U.S. vs. Villareal, 27 Phil. 481).
In the case at bar, there is no dispute that petitioners Guingona and Martin executed a promissory note on June
17, 1981 assuming the obligation of the bank to private respondent David; while the criminal complaint for estafa
was filed on December 23, 1981 with the Office of the City Fiscal. Hence, it is clear that novation occurred long
before the filing of the criminal complaint with the Office of the City Fiscal.
Consequently, as aforestated, any incipient criminal liability would be avoided but there will still be a civil liability
on the part of petitioners Guingona and Martin to pay the assumed obligation.
Petitioners herein were likewise charged with violation of Section 3 of Central Bank Circular No. 364 and other
related regulations regarding foreign exchange transactions by accepting foreign currency deposit in the amount
of US$75,000.00 without authority from the Central Bank. They contend however, that the US dollars intended by
respondent David for deposit were all converted into Philippine currency before acceptance and deposit into
Nation Savings and Loan Association.
Petitioners' contention is worthy of behelf for the following reasons:
1. It appears from the records that when respondent David was about to make a deposit of bank draft issued in
his name in the amount of US$50,000.00 with the Nation Savings and Loan Association, the same had to be
cleared first and converted into Philippine currency. Accordingly, the bank draft was endorsed by respondent
David to petitioner Guingona, who in turn deposited it to his dollar account with the Security Bank and Trust
Company. Petitioner Guingona merely accommodated the request of the Nation Savings and loan Association in
order to clear the bank draft through his dollar account because the bank did not have a dollar account.
Immediately after the bank draft was cleared, petitioner Guingona authorized Nation Savings and Loan
Association to withdraw the same in order to be utilized by the bank for its operations.
2. It is safe to assume that the U.S. dollars were converted first into Philippine pesos before they were accepted
and deposited in Nation Savings and Loan Association, because the bank is presumed to have followed the
ordinary course of the business which is to accept deposits in Philippine currency only, and that the transaction
was regular and fair, in the absence of a clear and convincing evidence to the contrary (see paragraphs p and q,
Sec. 5, Rule 131, Rules of Court).
3. Respondent David has not denied the aforesaid contention of herein petitioners despite the fact that it was
raised. in petitioners' reply filed on May 7, 1982 to private respondent's comment and in the July 27, 1982 reply to
public respondents' comment and reiterated in petitioners' memorandum filed on October 30, 1982, thereby
adding more support to the conclusion that the US$75,000.00 were really converted into Philippine currency
before they were accepted and deposited into Nation Savings and Loan Association. Considering that this might
adversely affect his case, respondent David should have promptly denied petitioners' allegation.
In conclusion, considering that the liability of the petitioners is purely civil in nature and that there is no clear
showing that they engaged in foreign exchange transactions, We hold that the public respondents acted without
jurisdiction when they investigated the charges against the petitioners. Consequently, public respondents should
be restrained from further proceeding with the criminal case for to allow the case to continue, even if the
petitioners could have appealed to the Ministry of Justice, would work great injustice to petitioners and would
render meaningless the proper administration of justice.
While as a rule, the prosecution in a criminal offense cannot be the subject of prohibition and injunction, this court
has recognized the resort to the extraordinary writs of prohibition and injunction in extreme cases,
thus:t.hqw
On the issue of whether a writ of injunction can restrain the proceedings in Criminal Case No. 3140, the general
rule is that "ordinarily, criminal prosecution may not be blocked by court prohibition or injunction." Exceptions,
however, are allowed in the following instances:t.hqw
"1. for the orderly administration of justice;
"2. to prevent the use of the strong arm of the law in an oppressive and vindictive manner;
"3. to avoid multiplicity of actions;
"4. to afford adequate protection to constitutional rights;
"5. in proper cases, because the statute relied upon is unconstitutional or was held invalid" ( Primicias vs.
Municipality of Urdaneta, Pangasinan, 93 SCRA 462, 469-470 [1979]; citing Ramos vs. Torres, 25 SCRA 557
[1968]; and Hernandez vs. Albano, 19 SCRA 95, 96 [1967]).
Likewise, in Lopez vs. The City Judge, et al. ( 18 SCRA 616, 621-622 [1966]), We held that:t.hqw
The writs of certiorari and prohibition, as extraordinary legal remedies, are in the ultimate analysis, intended to
annul void proceedings; to prevent the unlawful and oppressive exercise of legal authority and to provide for a fair
and orderly administration of justice. Thus, in Yu Kong Eng vs. Trinidad, 47 Phil. 385, We took cognizance of a
petition for certiorari and prohibition although the accused in the case could have appealed in due time from the
order complained of, our action in the premises being based on the public welfare policy the advancement of
public policy. In Dimayuga vs. Fajardo, 43 Phil. 304, We also admitted a petition to restrain the prosecution of
certain chiropractors although, if convicted, they could have appealed. We gave due course to their petition for the
orderly administration of justice and to avoid possible oppression by the strong arm of the law. And in Arevalo vs.
Nepomuceno, 63 Phil. 627, the petition for certiorari challenging the trial court's action admitting an amended
information was sustained despite the availability of appeal at the proper time.
WHEREFORE, THE PETITION IS HEREBY GRANTED; THE TEMPORARY RESTRAINING ORDER
PREVIOUSLY ISSUED IS MADE PERMANENT. COSTS AGAINST THE PRIVATE RESPONDENT.
SO ORDERED.1wph1.t

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