(1) BANK OF THE PHILIPPINE ISLANDS, petitioner, vs.

THE INTERMEDIATE
APPELLATE COURT and ZSHORNACK respondents.
[G.R. No. L-66826 August 19, 1988]
CORTES, J.:
The original parties to this case were Rizaldy T. Zshornack and the Commercial Bank and Trust
Company of the Philippines [hereafter referred to as "COMTRUST."] In 1980, the Bank of the
Philippine Islands (hereafter referred to as BPI absorbed COMTRUST through a corporate
merger, and was substituted as party to the case.
Rizaldy Zshornack initiated proceedings on June 28,1976 by filing in the Court of First Instance of
Rizal Caloocan City a complaint against COMTRUST alleging four causes of action. Except
for the third cause of action, the CFI ruled in favor of Zshornack. The bank appealed to the
Intermediate Appellate Court which modified the CFI decision absolving the bank from liability
on the fourth cause of action. The pertinent portions of the judgment, as modified, read:
IN VIEW OF THE FOREGOING, the Court renders judgment as follows:
1. Ordering the defendant COMTRUST to restore to the dollar savings account
of plaintiff (No. 25-4109) the amount of U.S $1,000.00 as of October 27, 1975
to earn interest together with the remaining balance of the said account at the
rate fixed by the bank for dollar deposits under Central Bank Circular 343;
2. Ordering defendant COMTRUST to return to the plaintiff the amount of U.S.
$3,000.00 immediately upon the finality of this decision, without interest for the
reason that the said amount was merely held in custody for safekeeping, but was
not actually deposited with the defendant COMTRUST because being cash
currency, it cannot by law be deposited with plaintiffs dollar account and
defendant's only obligation is to return the same to plaintiff upon demand;
xxx xxx xxx
5. Ordering defendant COMTRUST to pay plaintiff in the amount of P8,000.00
as damages in the concept of litigation expenses and attorney's fees suffered by
plaintiff as a result of the failure of the defendant bank to restore to his
(plaintiffs) account the amount of U.S. $1,000.00 and to return to him (plaintiff)
the U.S. $3,000.00 cash left for safekeeping.
Costs against defendant COMTRUST.
SO ORDERED. [Rollo, pp. 47-48.]
Undaunted, the bank comes to this Court praying that it be totally absolved from any liability to
Zshornack. The latter not having appealed the Court of Appeals decision, the issues facing this
Court are limited to the bank's liability with regard to the first and second causes of action and its
liability for damages.
1. We first consider the first cause of action, On the dates material to this case, Rizaldy Zshornack
and his wife, Shirley Gorospe, maintained in COMTRUST, Quezon City Branch, a dollar savings
account and a peso current account.

On October 27, 1975, an application for a dollar draft was accomplished by Virgilio V. Garcia,
Assistant Branch Manager of COMTRUST Quezon City, payable to a certain Leovigilda D. Dizon
in the amount of $1,000.00. In the application, Garcia indicated that the amount was to be charged
to Dollar Savings Acct. No. 25-4109, the savings account of the Zshornacks; the charges for
commission, documentary stamp tax and others totalling P17.46 were to be charged to Current
Acct. No. 210465-29, again, the current account of the Zshornacks. There was no indication of the
name of the purchaser of the dollar draft.
On the same date, October 27,1975, COMTRUST, under the signature of Virgilio V. Garcia,
issued a check payable to the order of Leovigilda D. Dizon in the sum of US $1,000 drawn on the
Chase Manhattan Bank, New York, with an indication that it was to be charged to Dollar Savings
Acct. No. 25-4109.
When Zshornack noticed the withdrawal of US$1,000.00 from his account, he demanded an
explanation from the bank. In answer, COMTRUST claimed that the peso value of the withdrawal
was given to Atty. Ernesto Zshornack, Jr., brother of Rizaldy, on October 27, 1975 when he
(Ernesto) encashed with COMTRUST a cashier's check for P8,450.00 issued by the Manila
Banking Corporation payable to Ernesto.
Upon consideration of the foregoing facts, this Court finds no reason to disturb the ruling of both
the trial court and the Appellate Court on the first cause of action. Petitioner must be held liable
for the unauthorized withdrawal of US$1,000.00 from private respondent's dollar account.
In its desperate attempt to justify its act of withdrawing from its depositor's savings account, the
bank has adopted inconsistent theories. First, it still maintains that the peso value of the amount
withdrawn was given to Atty. Ernesto Zshornack, Jr. when the latter encashed the Manilabank
Cashier's Check. At the same time, the bank claims that the withdrawal was made pursuant to an
agreement where Zshornack allegedly authorized the bank to withdraw from his dollar savings
account such amount which, when converted to pesos, would be needed to fund his peso current
account. If indeed the peso equivalent of the amount withdrawn from the dollar account was
credited to the peso current account, why did the bank still have to pay Ernesto?
At any rate, both explanations are unavailing. With regard to the first explanation, petitioner bank
has not shown how the transaction involving the cashier's check is related to the transaction
involving the dollar draft in favor of Dizon financed by the withdrawal from Rizaldy's dollar
account. The two transactions appear entirely independent of each other. Moreover, Ernesto
Zshornack, Jr., possesses a personality distinct and separate from Rizaldy Zshornack. Payment
made to Ernesto cannot be considered payment to Rizaldy.
As to the second explanation, even if we assume that there was such an agreement, the evidence
do not show that the withdrawal was made pursuant to it. Instead, the record reveals that the
amount withdrawn was used to finance a dollar draft in favor of Leovigilda D. Dizon, and not to
fund the current account of the Zshornacks. There is no proof whatsoever that peso Current
Account No. 210-465-29 was ever credited with the peso equivalent of the US$1,000.00
withdrawn on October 27, 1975 from Dollar Savings Account No. 25-4109.
2. As for the second cause of action, the complaint filed with the trial court alleged that on
December 8, 1975, Zshornack entrusted to COMTRUST, thru Garcia, US
$3,000.00 cash (popularly known as greenbacks) forsafekeeping, and that the agreement was
embodied in a document, a copy of which was attached to and made part of the complaint. The
document reads:

Makati Cable Address:

Philippines "COMTRUST"
COMMERCIAL BANK AND TRUST COMPANY
of the Philippines
Quezon City Branch
December 8, 1975
MR. RIZALDY T. ZSHORNACK
&/OR MRS SHIRLEY E. ZSHORNACK
Sir/Madam:
We acknowledged (sic) having received from you today the
sum of US DOLLARS: THREE THOUSAND ONLY
(US$3,000.00) for safekeeping.
Received by:
(Sgd.) VIRGILIO V. GARCIA

It was also alleged in the complaint that despite demands, the bank refused to return the money.
In its answer, COMTRUST averred that the US$3,000 was credited to Zshornack's peso current
account at prevailing conversion rates.
It must be emphasized that COMTRUST did not deny specifically under oath the authenticity and
due execution of the above instrument.
During trial, it was established that on December 8, 1975 Zshornack indeed delivered to the bank
US $3,000 for safekeeping. When he requested the return of the money on May 10, 1976,
COMTRUST explained that the sum was disposed of in this manner: US$2,000.00 was sold on
December 29, 1975 and the peso proceeds amounting to P14,920.00 were deposited to
Zshornack's current account per deposit slip accomplished by Garcia; the remaining US$1,000.00
was sold on February 3, 1976 and the peso proceeds amounting to P8,350.00 were deposited to his
current account per deposit slip also accomplished by Garcia.
Aside from asserting that the US$3,000.00 was properly credited to Zshornack's current account at
prevailing conversion rates, BPI now posits another ground to defeat private respondent's claim. It
now argues that the contract embodied in the document is the contract of depositum (as defined in
Article 1962, New Civil Code), which banks do not enter into. The bank alleges that Garcia
exceeded his powers when he entered into the transaction. Hence, it is claimed, the bank cannot be
liable under the contract, and the obligation is purely personal to Garcia.
Before we go into the nature of the contract entered into, an important point which arises on the
pleadings, must be considered.
The second cause of action is based on a document purporting to be signed by COMTRUST, a
copy of which document was attached to the complaint. In short, the second cause of action was
based on an actionable document. It was therefore incumbent upon the bank to specifically deny
under oath the due execution of the document, as prescribed under Rule 8, Section 8, if it desired:
(1) to question the authority of Garcia to bind the corporation; and (2) to deny its capacity to enter
into such contract. [See, E.B. Merchant v. International Banking Corporation, 6 Phil. 314 (1906).]
No sworn answer denying the due execution of the document in question, or questioning the
authority of Garcia to bind the bank, or denying the bank's capacity to enter into the contract, was
ever filed. Hence, the bank is deemed to have admitted not only Garcia's authority, but also the
bank's power, to enter into the contract in question.

In the past, this Court had occasion to explain the reason behind this procedural requirement.
The reason for the rule enunciated in the foregoing authorities will, we think, be
readily appreciated. In dealing with corporations the public at large is bound to
rely to a large extent upon outward appearances. If a man is found acting for a
corporation with the external indicia of authority, any person, not having notice
of want of authority, may usually rely upon those appearances; and if it be found
that the directors had permitted the agent to exercise that authority and thereby
held him out as a person competent to bind the corporation, or had acquiesced in
a contract and retained the benefit supposed to have been conferred by it, the
corporation will be bound, notwithstanding the actual authority may never have
been granted
... Whether a particular officer actually possesses the authority which he
assumes to exercise is frequently known to very few, and the proof of it usually
is not readily accessible to the stranger who deals with the corporation on the
faith of the ostensible authority exercised by some of the corporate officers. It is
therefore reasonable, in a case where an officer of a corporation has made a
contract in its name, that the corporation should be required, if it denies his
authority, to state such defense in its answer. By this means the plaintiff is
apprised of the fact that the agent's authority is contested; and he is given an
opportunity to adduce evidence showing either that the authority existed or that
the contract was ratified and approved. [Ramirez v. Orientalist Co. and
Fernandez, 38 Phil. 634, 645- 646 (1918).]
Petitioner's argument must also be rejected for another reason. The practical effect of absolving a
corporation from liability every time an officer enters into a contract which is beyond corporate
powers, even without the proper allegation or proof that the corporation has not authorized nor
ratified the officer's act, is to cast corporations in so perfect a mold that transgressions and wrongs
by such artificial beings become impossible [Bissell v. Michigan Southern and N.I.R. Cos 22 N.Y
258 (1860).] "To say that a corporation has no right to do unauthorized acts is only to put forth a
very plain truism but to say that such bodies have no power or capacity to err is to impute to them
an excellence which does not belong to any created existence with which we are acquainted. The
distinction between power and right is no more to be lost sight of in respect to artificial than in
respect to natural persons." [Ibid.]
Having determined that Garcia's act of entering into the contract binds the corporation, we now
determine the correct nature of the contract, and its legal consequences, including its
enforceability.
The document which embodies the contract states that the US$3,000.00 was received by the bank
for safekeeping. The subsequent acts of the parties also show that the intent of the parties was
really for the bank to safely keep the dollars and to return it to Zshornack at a later time, Thus,
Zshornack demanded the return of the money on May 10, 1976, or over five months later.
The above arrangement is that contract defined under Article 1962, New Civil Code, which reads:
Art. 1962. A deposit is constituted from the moment a person receives a thing
belonging to another, with the obligation of safely keeping it and of returning
the same. If the safekeeping of the thing delivered is not the principal purpose of
the contract, there is no deposit but some other contract.
Note that the object of the contract between Zshornack and COMTRUST was foreign exchange.
Hence, the transaction was covered by Central Bank Circular No. 20, Restrictions on Gold and

Foreign Exchange Transactions, promulgated on December 9, 1949, which was in force at the
time the parties entered into the transaction involved in this case. The circular provides:
xxx xxx xxx
2. Transactions in the assets described below and all dealings in them of whatever nature,
including, where applicable their exportation and importation, shall NOT be effected,
except with respect to deposit accounts included in sub-paragraphs (b) and (c) of this
paragraph, when such deposit accounts are owned by and in the name of, banks.
(a) Any and all assets, provided they are held through, in, or with
banks or banking institutions located in the Philippines,
including money, checks, drafts, bullions bank drafts, deposit
accounts (demand, time and savings), all debts, indebtedness or
obligations, financial brokers and investment houses, notes,
debentures, stocks, bonds, coupons, bank acceptances, mortgages,
pledges, liens or other rights in the nature of security, expressed in
foreign currencies, or if payable abroad, irrespective of the currency
in which they are expressed, and belonging to any person, firm,
partnership, association, branch office, agency, company or other
unincorporated body or corporation residing or located within the
Philippines;
(b) Any and all assets of the kinds included and/or described in
subparagraph (a) above, whether or not held through, in, or with
banks or banking institutions, and existent within the Philippines,
which belong to any person, firm, partnership, association, branch
office, agency, company or other unincorporated body or corporation
not residing or located within the Philippines;
(c) Any and all assets existent within the Philippines including
money, checks, drafts, bullions, bank drafts, all debts, indebtedness
or obligations, financial securities commonly dealt in by bankers,
brokers and investment houses, notes, debentures, stock, bonds,
coupons, bank acceptances, mortgages, pledges, liens or other rights
in the nature of security expressed in foreign currencies, or if payable
abroad, irrespective of the currency in which they are expressed, and
belonging to any person, firm, partnership, association, branch office,
agency, company or other unincorporated body or corporation
residing or located within the Philippines.
xxx xxx xxx
4. (a) All receipts of foreign exchange shall be sold daily to the Central Bank by those
authorized to deal in foreign exchange. All receipts of foreign exchange by any person,
firm, partnership, association, branch office, agency, company or other unincorporated
body or corporation shall be sold to the authorized agents of the Central Bank by
the recipients within one business day following the receipt of such foreign exchange.
Any person, firm, partnership, association, branch office, agency, company or other
unincorporated body or corporation, residing or located within the Philippines, who
acquires on and after the date of this Circular foreign exchange shall not, unless licensed
by the Central Bank, dispose of such foreign exchange in whole or in part, nor receive
less than its full value, nor delay taking ownership thereof except as such delay is
customary; Provided, further, That within one day upon taking ownership, or receiving
payment, of foreign exchange the aforementioned persons and entities shall sell such
foreign exchange to designated agents of the Central Bank.
xxx xxx xxx

8. Strict observance of the provisions of this Circular is enjoined; and any person, firm or
corporation, foreign or domestic, who being bound to the observance thereof, or of such
other rules, regulations or directives as may hereafter be issued in implementation of this
Circular, shall fail or refuse to comply with, or abide by, or shall violate the same, shall
be subject to the penal sanctions provided in the Central Bank Act.
xxx xxx xxx

Paragraph 4 (a) above was modified by Section 6 of Central Bank Circular No. 281, Regulations
on Foreign Exchange, promulgated on November 26, 1969 by limiting its coverage to Philippine
residents only. Section 6 provides:
SEC. 6. All receipts of foreign exchange by any resident person, firm, company or
corporation shall be sold to authorized agents of the Central Bank by the recipients within
one business day following the receipt of such foreign exchange. Any resident person,
firm, company or corporation residing or located within the Philippines, who acquires
foreign exchange shall not, unless authorized by the Central Bank, dispose of such
foreign exchange in whole or in part, nor receive less than its full value, nor delay taking
ownership thereof except as such delay is customary; Provided, That, within one business
day upon taking ownership or receiving payment of foreign exchange the aforementioned
persons and entities shall sell such foreign exchange to the authorized agents of the
Central Bank.

As earlier stated, the document and the subsequent acts of the parties show that they intended the
bank to safekeep the foreign exchange, and return it later to Zshornack, who alleged in his
complaint that he is a Philippine resident. The parties did not intended to sell the US dollars to the
Central Bank within one business day from receipt. Otherwise, the contract of depositum would
never have been entered into at all.
Since the mere safekeeping of the greenbacks, without selling them to the Central Bank within one
business day from receipt, is a transaction which is not authorized by CB Circular No. 20, it must
be considered as one which falls under the general class of prohibited transactions. Hence,
pursuant to Article 5 of the Civil Code, it is void, having been executed against the provisions of a
mandatory/prohibitory law. More importantly, it affords neither of the parties a cause of action
against the other. "When the nullity proceeds from the illegality of the cause or object of the
contract, and the act constitutes a criminal offense, both parties being in pari delicto, they shall
have no cause of action against each other. . ." [Art. 1411, New Civil Code.] The only remedy is
one on behalf of the State to prosecute the parties for violating the law.
We thus rule that Zshornack cannot recover under the second cause of action.
3. Lastly, we find the P8,000.00 awarded by the courts a quo as damages in the concept of
litigation expenses and attorney's fees to be reasonable. The award is sustained.
WHEREFORE, the decision appealed from is hereby MODIFIED. Petitioner is ordered to restore
to the dollar savings account of private respondent the amount of US$1,000.00 as of October 27,
1975 to earn interest at the rate fixed by the bank for dollar savings deposits. Petitioner is further
ordered to pay private respondent the amount of P8,000.00 as damages. The other causes of action
of private respondent are ordered dismissed.
SO ORDERED.

(2) TRIPLE-V vs. FILIPINO MERCHANTS

[G.R. No. 160544. February 21, 2005]
Gentlemen:
Quoted hereunder, for your information, is a resolution of this Court dated FEB 21 2005.
G.R. No. 160544 (Triple-V Food Services, Inc. vs. Filipino Merchants Insurance Company,
Inc.)
Assailed in this petition for review on certiorari is the decision [1]cralaw dated October 21, 2003 of
the Court of Appeals in CA-G.R. CV No. 71223, affirming an earlier decision of the Regional
Trial Court at Makati City, Branch 148, in its Civil Case No. 98-838, an action for damages
thereat filed by respondent Filipino Merchants Insurance, Company, Inc., against the herein
petitioner, Triple-V Food Services, Inc.
On March 2, 1997, at around 2:15 o'clock in the afternoon, a certain Mary Jo-Anne De Asis (De
Asis) dined at petitioner's Kamayan Restaurant at 15 West Avenue, Quezon City. De Asis was
using a Mitsubishi Galant Super Saloon Model 1995 with plate number UBU 955, assigned to her
by her employer Crispa Textile Inc. (Crispa). On said date, De Asis availed of the valet parking
service of petitioner and entrusted her car key to petitioner's valet counter. A corresponding
parking ticket was issued as receipt for the car. The car was then parked by petitioner's valet
attendant, a certain Madridano, at the designated parking area. Few minutes later, Madridano
noticed that the car was not in its parking slot and its key no longer in the box where valet
attendants usually keep the keys of cars entrusted to them. The car was never recovered.
Thereafter, Crispa filed a claim against its insurer, herein respondent Filipino Merchants Insurance
Company, Inc. (FMICI). Having indemnified Crispa in the amount of P669.500 for the loss of the
subject vehicle, FMICI, as subrogee to Crispa's rights, filed with the RTC at Makati City an action
for damages against petitioner Triple-V Food Services, Inc., thereat docketed as Civil Case No.
98-838 which was raffled to Branch 148.
In its answer, petitioner argued that the complaint failed to aver facts to support the allegations of
recklessness and negligence committed in the safekeeping and custody of the subject vehicle,
claiming that it and its employees wasted no time in ascertaining the loss of the car and in
informing De Asis of the discovery of the loss. Petitioner further argued that in accepting the
complimentary valet parking service, De Asis received a parking ticket whereunder it is so
provided that "[Management and staff will not be responsible for any loss of or damage incurred
on the vehicle nor of valuables contained therein", a provision which, to petitioner's mind, is an
explicit waiver of any right to claim indemnity for the loss of the car; and that De Asis knowingly
assumed the risk of loss when she allowed petitioner to park her vehicle, adding that its valet
parking service did not include extending a contract of insurance or warranty for the loss of the
vehicle.
During trial, petitioner challenged FMICI's subrogation to Crispa's right to file a claim for the loss
of the car, arguing that theft is not a risk insured against under FMICI's Insurance Policy No. PC5975 for the subject vehicle.
In a decision dated June 22, 2001, the trial court rendered judgment for respondent FMICI, thus:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff
(FMICI) and against the defendant Triple V (herein petitioner) and the latter is hereby ordered to
pay plaintiff the following:

1. The amount of P669,500.00, representing actual damages plus compounded (sic);

2. The amount of P30,000.00 as acceptance fee plus the amount equal to 25% of the total amount due as
attorney's fees;
3. The amount of P50,000.00 as exemplary damages;
4. Plus, cost of suit.

Defendant Triple V is not therefore precluded from taking appropriate action against defendant
Armando Madridano.
SO ORDERED.
Obviously displeased, petitioner appealed to the Court of Appeals reiterating its argument that it
was not a depositary of the subject car and that it exercised due diligence and prudence in the safe
keeping of the vehicle, in handling the car-napping incident and in the supervision of its
employees. It further argued that there was no valid subrogation of rights between Crispa and
respondent FMICI.
In a decision dated October 21, 2003,[2]cralaw the Court of Appeals dismissed petitioner's appeal
and affirmed the appealed decision of the trial court, thus:
WHEREFORE, based on the foregoing premises, the instant appeal is hereby DISMISSED.
Accordingly, the assailed June 22, 2001 Decision of the RTC of Makati City - Branch 148 in Civil
Case No. 98-838 is AFFIRMED.
SO ORDERED.
In so dismissing the appeal and affirming the appealed decision, the appellate court agreed with
the findings and conclusions of the trial court that: (a) petitioner was a depositary of the subject
vehicle; (b) petitioner was negligent in its duties as a depositary thereof and as an employer of the
valet attendant; and (c) there was a valid subrogation of rights between Crispa and respondent
FMICI.
Hence, petitioner's present recourse.
We agree with the two (2) courts below.
When De Asis entrusted the car in question to petitioners valet attendant while eating at
petitioner'sKamayan Restaurant, the former expected the car's safe return at the end of her meal.
Thus, petitioner was constituted as a depositary of the same car. Petitioner cannot evade liability
by arguing that neither a contract of deposit nor that of insurance, guaranty or surety for the loss of
the car was constituted when De Asis availed of its free valet parking service.
In a contract of deposit, a person receives an object belonging to another with the obligation of
safely keeping it and returning the same.[3]cralaw A deposit may be constituted even without any
consideration. It is not necessary that the depositary receives a fee before it becomes obligated to
keep the item entrusted for safekeeping and to return it later to the depositor.
Specious is petitioner's insistence that the valet parking claim stub it issued to De Asis contains a
clear exclusion of its liability and operates as an explicit waiver by the customer of any right to
claim indemnity for any loss of or damage to the vehicle.
The parking claim stub embodying the terms and conditions of the parking, including that of
relieving petitioner from any loss or damage to the car, is essentially a contract of adhesion,
drafted and prepared as it is by the petitioner alone with no participation whatsoever on the part of

the customers, like De Asis, who merely adheres to the printed stipulations therein appearing.
While contracts of adhesion are not void in themselves, yet this Court will not hesitate to rule out
blind adherence thereto if they prove to be one-sided under the attendant facts and
circumstances.[4]cralaw
Hence, and as aptly pointed out by the Court of Appeals, petitioner must not be allowed to use its
parking claim stub's exclusionary stipulation as a shield from any responsibility for any loss or
damage to vehicles or to the valuables contained therein. Here, it is evident that De Asis deposited
the car in question with the petitioner as part of the latter's enticement for customers by providing
them a safe parking space within the vicinity of its restaurant. In a very real sense, a safe parking
space is an added attraction to petitioner's restaurant business because customers are thereby
somehow assured that their vehicle are safely kept, rather than parking them elsewhere at their
own risk. Having entrusted the subject car to petitioner's valet attendant, customer De Asis, like all
of petitioner's customers, fully expects the security of her car while at petitioner's
premises/designated parking areas and its safe return at the end of her visit at petitioner's
restaurant.
Petitioner's argument that there was no valid subrogation of rights between Crispa and FMICI
because theft was not a risk insured against under FMICI's Insurance Policy No. PC-5975 holds no
water.
Insurance Policy No. PC-5975 which respondent FMICI issued to Crispa contains, among others
things, the following item: "Insured's Estimate of Value of Scheduled VehicleP800.000".[5]cralaw On the basis of such item, the trial court concluded that the coverage includes
a full comprehensive insurance of the vehicle in case of damage or loss. Besides, Crispa paid a
premium of P10,304 to cover theft. This is clearly shown in the breakdown of premiums in the
same policy.[6]cralaw Thus, having indemnified CRISPA for the stolen car, FMICI, as correctly
ruled by the trial court and the Court of Appeals, was properly subrogated to Crispa's rights
against petitioner, pursuant to Article 2207 of the New Civil Code[7].
Anent the trial court's findings of negligence on the part of the petitioner, which findings were
affirmed by the appellate court, we have consistently ruled that findings of facts of trial courts,
more so when affirmed, as here, by the Court of Appeals, are conclusive on this Court unless the
trial court itself ignored, overlooked or misconstrued facts and circumstances which, if considered,
warrant a reversal of the outcome of the case. [8]cralaw This is not so in the case at bar. For, we
have ourselves reviewed the records and find no justification to deviate from the trial court's
findings.
WHEREFORE, petition is hereby DENIED DUE COURSE.
SO ORDERED.
Very truly yours,
(Sgd.) LUCITA ABJELINA-SORIANO
Clerk of Court

***Penned by Associale Justice Elvi John S. Asuncion and concurred in by Associate Justices
Renato C. Dacudao and Lucas P. Bersamin of the Special Fourth Division.

(3) CA AGRO-INDUSTRIAL DEVEL]OPMENT CORP., petitioner, vs. THE HONORABLE

COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.
[G.R. No. 90027 March 3, 1993]
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 ninetynine 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, 15petitioner took this recourse under Rule 45 of the Rules of Court and urges Us to
review and set aside the respondent Court's ruling. Petitioner avers that both the respondent Court
and the trial court (a) did not properly and legally apply the correct law in this case, (b) acted with
grave abuse of discretion or in excess of jurisdiction amounting to lack thereof and (c) set a
precedent that is contrary to, or is a departure from precedents adhered to and affirmed by
decisions of this Court and precepts in American jurisprudence adopted in the Philippines. It
reiterates the arguments it had raised in its motion to reconsider the trial court's decision, the brief
submitted to the respondent Court and the motion to reconsider the latter's decision. In a nutshell,
petitioner maintains that regardless of nomenclature, the contract for the rent of the safety deposit
box (Exhibit "2") is actually a contract of deposit governed by Title XII, Book IV of the Civil
Code
of
the
Philippines. 16 Accordingly, it is claimed that the respondent Bank is liable for the loss of the
certificates of title pursuant to Article 1972 of the said Code which provides:
Art. 1972. The depositary is obliged to keep the thing safely and to return it,
when required, to the depositor, or to his heirs and successors, or to the person
who may have been designated in the contract. His responsibility, with regard to
the safekeeping and the loss of the thing, shall be governed by the provisions of
Title I of this Book.
If the deposit is gratuitous, this fact shall be taken into account in determining
the degree of care that the depositary must observe.
Petitioner then quotes a passage from American Jurisprudence 17 which is supposed to
expound on the prevailing rule in the United States, to wit:
The prevailing rule appears to be that where a safe-deposit company leases a
safe-deposit box or safe and the lessee takes possession of the box or safe and
places therein his securities or other valuables, the relation of bailee and bail or
is created between the parties to the transaction as to such securities or other
valuables;
the
fact
that
the
safe-deposit company does not know, and that it is not expected that it shall
know, the character or description of the property which is deposited in such
safe-deposit box or safe does not change that relation. That access to the
contents of the safe-deposit box can be had only by the use of a key retained by
the lessee ( whether it is the sole key or one to be used in connection with one
retained by the lessor) does not operate to alter the foregoing rule. The argument

that there is not, in such a case, a delivery of exclusive possession and control to
the deposit company, and that therefore the situation is entirely different from
that of ordinary bailment, has been generally rejected by the courts, usually on
the ground that as possession must be either in the depositor or in the company,
it should reasonably be considered as in the latter rather than in the former, since
the company is, by the nature of the contract, given absolute control of access to
the property, and the depositor cannot gain access thereto without the consent
and active participation of the company. . . . (citations omitted).
and a segment from Words and Phrases 18 which states that a contract for the rental of a
bank safety deposit box in consideration of a fixed amount at stated periods is a bailment
for hire.
Petitioner further argues that conditions 13 and 14 of the questioned contract are contrary to law
and public policy and should be declared null and void. In support thereof, it cites Article 1306 of
the Civil Code which provides that parties to a contract may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not contrary to law, morals,
good customs, public order or public policy.
After the respondent Bank filed its comment, this Court gave due course to the petition and
required the parties to simultaneously submit their respective Memoranda.
The petition is partly meritorious.
We agree with the petitioner's contention that the contract for the rent of the safety deposit box is
not an ordinary contract of lease as defined in Article 1643 of the Civil Code. However, We do not
fully subscribe to its view that the same is a contract of deposit that is to be strictly governed by
the provisions in the Civil Code on deposit; 19the contract in the case at bar is a special kind of
deposit. It cannot be characterized as an ordinary contract of lease under Article 1643 because the
full and absolute possession and control of the safety deposit box was not given to the joint renters
the petitioner and the Pugaos. The guard key of the box remained with the respondent Bank;
without this key, neither of the renters could open the box. On the other hand, the respondent Bank
could not likewise open the box without the renter's key. In this case, the said key had a duplicate
which was made so that both renters could have access to the box.
Hence, the authorities cited by the respondent Court 20 on this point do not apply. Neither could
Article 1975, also relied upon by the respondent Court, be invoked as an argument against the
deposit theory. Obviously, the first paragraph of such provision cannot apply to a depositary of
certificates, bonds, securities or instruments which earn interest if such documents are kept in a
rented safety deposit box. It is clear that the depositary cannot open the box without the renter
being present.
We observe, however, that the deposit theory itself does not altogether find unanimous support
even in American jurisprudence. We agree with the petitioner that under the latter, the prevailing
rule is that the relation between a bank renting out safe-deposit boxes and its customer with
respect to the contents of the box is that of a bail or and bailee, the bailment being for hire and
mutual benefit. 21 This is just the prevailing view because:
There is, however, some support for the view that the relationship in question
might be more properly characterized as that of landlord and tenant, or lessor
and lessee. It has also been suggested that it should be characterized as that of
licensor and licensee. The relation between a bank, safe-deposit company, or
storage company, and the renter of a safe-deposit box therein, is often described
as contractual, express or implied, oral or written, in whole or in part. But there

is apparently no jurisdiction in which any rule other than that applicable to

bailments governs questions of the liability and rights of the parties in respect of
loss of the contents of safe-deposit boxes. 22 (citations omitted)
In the context of our laws which authorize banking institutions to rent out safety deposit boxes, it
is clear that in this jurisdiction, the prevailing rule in the United States has been adopted. Section
72 of the General Banking Act23 pertinently provides:
Sec. 72. In addition to the operations specifically authorized elsewhere in this
Act, banking institutions other than building and loan associations may perform
the following services:
(a) Receive in custody funds, documents, and valuable objects,
and rent safety deposit boxes for the safeguarding of such
effects.
xxx xxx xxx
The banks shall perform the services permitted under subsections (a), (b) and (c)
of this section asdepositories or as agents. . . . 24 (emphasis supplied)
Note that the primary function is still found within the parameters of a contract of deposit, i.e., the
receiving in custody of funds, documents and other valuable objects for safekeeping. The renting
out of the safety deposit boxes is not independent from, but related to or in conjunction with, this
principal function. A contract of deposit may be entered into orally or in writing 25 and, pursuant
to Article 1306 of the Civil Code, the parties thereto may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not contrary to law, morals,
good customs, public order or public policy. The depositary's responsibility for the safekeeping of
the objects deposited in the case at bar is governed by Title I, Book IV of the Civil Code.
Accordingly, the depositary would be liable if, in performing its obligation, it is found guilty of
fraud, negligence, delay or contravention of the tenor of the agreement. 26 In the absence of any
stipulation prescribing the degree of diligence required, that of a good father of a family is to be
observed. 27 Hence, any stipulation exempting the depositary from any liability arising from the
loss of the thing deposited on account of fraud, negligence or delay would be void for being
contrary to law and public policy. In the instant case, petitioner maintains that conditions 13 and
14 of the questioned contract of lease of the safety deposit box, which read:
13. The bank is not a depositary of the contents of the safe and it has neither the
possession nor control of the same.
14. The bank has no interest whatsoever in said contents, except herein
expressly provided, and it assumes absolutely no liability in connection
therewith. 28
are void as they are contrary to law and public policy. We find Ourselves in agreement
with this proposition for indeed, said provisions are inconsistent with the respondent
Bank's responsibility as a depositary under Section 72(a) of the General Banking Act.
Both exempt the latter from any liability except as contemplated in condition 8 thereof
which limits its duty to exercise reasonable diligence only with respect to who shall be
admitted to any rented safe, to wit:
8. The Bank shall use due diligence that no unauthorized person shall be
admitted to any rented safe and beyond this, the Bank will not be responsible for
the contents of any safe rented from it. 29

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

practice of the Bank. It is not correct to assert that the Bank has neither the possession nor
control of the contents of the box since in fact, the safety deposit box itself is located in
its premises and is under its absolute control; moreover, the respondent Bank keeps the
guard key to the said box. As stated earlier, renters cannot open their respective boxes
unless the Bank cooperates by presenting and using this guard key. Clearly then, to the
extent above stated, the foregoing conditions in the contract in question are void and
ineffective. It has been said:
With respect to property deposited in a safe-deposit box by a customer of a safedeposit company, the parties, since the relation is a contractual one, may by
special contract define their respective duties or provide for increasing or
limiting the liability of the deposit company, provided such contract is not in
violation of law or public policy. It must clearly appear that there actually was
such a special contract, however, in order to vary the ordinary obligations
implied by law from the relationship of the parties; liability of the deposit
company will not be enlarged or restricted by words of doubtful meaning. The
company,
in
renting
safe-deposit boxes, cannot exempt itself from liability for loss of the contents by
its own fraud or negligence or that of its agents or servants, and if a provision of
the contract may be construed as an attempt to do so, it will be held ineffective
for the purpose. Although it has been held that the lessor of a safe-deposit box
cannot limit its liability for loss of the contents thereof through its own
negligence, the view has been taken that such a lessor may 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.

(4) THE ROMAN CATHOLIC BISHOP OF JARO, plaintiff-appellee, vs. GREGORIO DE

LA PEA, administrator of the estate of Father Agustin de la Pea, defendant-appellant.
[G.R. No. L-6913 November 21, 1913]
MORELAND, J.:
This is an appeal by the defendant from a judgment of the Court of First Instance of Iloilo,
awarding to the plaintiff the sum of P6,641, with interest at the legal rate from the beginning of the
action.
It is established in this case that the plaintiff is the trustee of a charitable bequest made for the
construction of a leper hospital and that father Agustin de la Pea was the duly authorized
representative of the plaintiff to receive the legacy. The defendant is the administrator of the estate
of Father De la Pea.
In the year 1898 the books Father De la Pea, as trustee, showed that he had on hand as such
trustee the sum of P6,641, collected by him for the charitable purposes aforesaid. In the same year
he deposited in his personal account P19,000 in the Hongkong and Shanghai Bank at Iloilo.
Shortly thereafter and during the war of the revolution, Father De la Pea was arrested by the
military authorities as a political prisoner, and while thus detained made an order on said bank in
favor of the United States Army officer under whose charge he then was for the sum thus
deposited in said bank. The arrest of Father De la Pea and the confiscation of the funds in the
bank were the result of the claim of the military authorities that he was an insurgent and that the
funds thus deposited had been collected by him for revolutionary purposes. The money was taken
from the bank by the military authorities by virtue of such order, was confiscated and turned over
to the Government.
While there is considerable dispute in the case over the question whether the P6,641 of trust funds
was included in the P19,000 deposited as aforesaid, nevertheless, a careful examination of the case
leads us to the conclusion that said trust funds were a part of the funds deposited and which were
removed and confiscated by the military authorities of the United States.
That branch of the law known in England and America as the law of trusts had no exact
counterpart in the Roman law and has none under the Spanish law. In this jurisdiction, therefore,
Father De la Pea's liability is determined by those portions of the Civil Code which relate to
obligations. (Book 4, Title 1.)
Although the Civil Code states that "a person obliged to give something is also bound to preserve
it with the diligence pertaining to a good father of a family" (art. 1094), it also provides, following
the principle of the Roman law, major casus est, cui humana infirmitas resistere non potest, that
"no one shall be liable for events which could not be foreseen, or which having been foreseen
were inevitable, with the exception of the cases expressly mentioned in the law or those in which
the obligation so declares." (Art. 1105.)
By placing the money in the bank and mixing it with his personal funds De la Pea did not thereby
assume an obligation different from that under which he would have lain if such deposit had not
been made, nor did he thereby make himself liable to repay the money at all hazards. If the had
been forcibly taken from his pocket or from his house by the military forces of one of the
combatants during a state of war, it is clear that under the provisions of the Civil Code he would
have been exempt from responsibility. The fact that he placed the trust fund in the bank in his

personal account does not add to his responsibility. Such deposit did not make him a debtor who
must respond at all hazards.
We do not enter into a discussion for the purpose of determining whether he acted more or less
negligently by depositing the money in the bank than he would if he had left it in his home; or
whether he was more or less negligent by depositing the money in his personal account than he
would have been if he had deposited it in a separate account as trustee. We regard such discussion
as substantially fruitless, inasmuch as the precise question is not one of negligence. There was no
law prohibiting him from depositing it as he did and there was no law which changed his
responsibility be reason of the deposit. While it may be true that one who is under obligation to do
or give a thing is in duty bound, when he sees events approaching the results of which will be
dangerous to his trust, to take all reasonable means and measures to escape or, if unavoidable, to
temper the effects of those events, we do not feel constrained to hold that, in choosing between
two means equally legal, he is culpably negligent in selecting one whereas he would not have been
if he had selected the other.
The court, therefore, finds and declares that the money which is the subject matter of this action
was deposited by Father De la Pea in the Hongkong and Shanghai Banking Corporation of Iloilo;
that said money was forcibly taken from the bank by the armed forces of the United States during
the war of the insurrection; and that said Father De la Pea was not responsible for its loss.
The judgment is therefore reversed, and it is decreed that the plaintiff shall take nothing by his
complaint.

(5)
YHT
REALTY
CORPORATION,
PAYAM, petitioners,
vs. THE
COURT
McLOUGHLIN, respondents.

ERLINDA
LAINEZ and
ANICIA
OF
APPEALS
and
MAURICE

[G.R. No. 126780. February 17, 2005]

DECISION

TINGA, J.:

The primary question of interest before this Court is the only legal issue in the case: It is
whether a hotel may evade liability for the loss of items left with it for safekeeping by its guests,
by having these guests execute written waivers holding the establishment or its employees free
from blame for such loss in light of Article 2003 of the Civil Code which voids such waivers.
Before this Court is a Rule 45 petition for review of the 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 McLoughlins 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
McLoughlins 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 Malacaang to follow up
on his letter but he was instructed to go to the DOJ. The DOJ directed him to proceed to the WPD
for documentation. But McLoughlin went back to Australia as he had an urgent business matter to
attend to.
For several times, McLoughlin left for Australia to attend to his business and came back to
the Philippines to follow up on his letter to the President but he failed to obtain any concrete
assistance.[19]
McLoughlin left again for Australia and upon his return to the Philippines on 25 August
1989 to pursue his claims against petitioners, the WPD conducted an investigation which resulted
in the preparation of an affidavit which was forwarded to the Manila City Fiscals 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
Fiscals 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 McLoughlins 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 attorneys 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 McLoughlins 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 McLoughlins
money, kept in Tropicanas safety deposit box, was taken by Tan without McLoughlins
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 Fiscals 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 pretrial 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 McLoughlins 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 nonperformance 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 courts 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
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)

the

peso

equivalent

of

US$2,000.00

and

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 attorneys 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
courts 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. 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.
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 McLoughlins 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 McLoughlins 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 McLoughlins deposit. If only petitioners exercised due diligence
in taking care of McLoughlins safety deposit box, they should have confronted him as to his
relationship with Tan considering that the latter had been observed opening McLoughlins safety
deposit box a number of times at the early hours of the morning. Tans 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 McLoughlins
money was consummated through the negligence of Tropicanas employees in allowing Tan to
open the safety deposit box without the guests 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 carriers 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 guests
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 throughforce 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 guests 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 guests
relatives and visitors.
Petitioners contend that McLoughlins 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 McLoughlins residence to Sydney Airport and from MIA to the
hotel here in Manila, for the eleven (11) trips;[52] one-half ofP7,801.94 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. Moral damages are not
intended to enrich a complainant at the expense of a defendant. 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 attorneys
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

McLoughlins 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 attorneys fees.

With costs.
SO ORDERED.

(6) PHILIPPINE NATIONAL BANK, petitioner, vs. HON. PRES. JUDGE BENITO C. SE,
JR., RTC, BR. 45, MANILA; NOAHS ARKSUGAR REFINERY; ALBERTO T.
LOOYUKO, JIMMY T. GO and WILSON T. GO, respondents.
[G.R. No. 119231. April 18, 1996]
SYLLABUS
1.

COMMERCIAL LAW; WAREHOUSE RECEIPTS LAW; THE UNCONDITIONAL

PRESENTMENT OF THE RECEIPTS FOR PAYMENT CARRIED WITH IT THE
ADMISSIONS OF THE EXISTENCE AND VALIDITY OF THE TERMS,
CONDITIONS AND STIPULATIONS WRITTEN ON THE FACE OF THE
WAREHOUSE RECEIPTS, INCLUDING THE UNQUALIFIED RECOGNITION OF
THE PAYMENT OF WAREHOUSEMANS LIEN FOR STORAGE FEES AND
PRESERVATION EXPENSES; CASE AT BAR. - Petitioner is in estoppel in disclaiming
liability for the payment of storage fees due the private respondents as warehouseman while
claiming to be entitled to the sugar stocks covered by the subject Warehouse Receipts on the
basis of which it anchors its claim for payment or delivery of the sugar stocks. The
unconditional presentment of the receipts by the petitioner for payment against private
respondents on the strength of the provisions of the Warehouse Receipts Law (R.A. 2137)
carried with it the admission of the existence and validity of the terms, conditions and
stipulations written on the face of the Warehouse Receipts, including the unqualified
recognition of the payment of warehousemans lien for storage fees and preservation
expenses. Petitioner may not now retrieve the sugar stocks without paying the lien due
private respondents as warehouseman.

2.

ID.; ID.; ID.; WAREHOUSEMANS LIEN; POSSESSORY IN NATURE. - While the

PNB is entitled to the stocks of sugar as the endorsee of the quedans, delivery to it shall be
effected only upon payment of the storage fees. Imperative is the right of the warehouseman
to demand payment of his lien at this juncture, because, in accordance with Section 29 of the
Warehouse Receipts Law, the warehouseman loses his lien upon goods by surrendering
possession thereof. In other words, the lien may be lost where the warehouseman surrenders
the possession of the goods without requiring payment of his lien, because a warehousemans
lien is possessory in nature.
.

DECISION

HERMOSISIMA, JR., J.:

The source of conflict herein is the question as to whether the Philippine National Bank
should pay storage fees for sugar stocks covered by five (5) Warehouse Receipts stored in the
warehouse of private respondents in the face of the Court of Appeals decision (affirmed by the
Supreme Court) declaring the Philippine National Bank as the owner of the said sugar stocks and
ordering their delivery to the said bank. From the same facts but on a different perspective, it can
be said that the issue is: Can the warehouseman enforce his warehousemans lien before delivering
the sugar stocks as ordered by the Court of Appeals or need he file a separate action to enforce
payment of storage fees?
The herein petition seeks to annul: (1) the Resolution of respondent Judge Benito C. Se, Jr.
of the Regional Trial Court of Manila, Branch 45, dated December 20, 1994, in Civil Case No. 9053023, authorizing reception of evidence to establish the claim of respondents Noahs Ark Sugar
Refinery, et al., for storage fees and preservation expenses over sugar stocks covered by
five (5) Warehouse Receipts which is in the nature of a warehousemans lien; and (2) the
Resolution of the said respondent Judge, dated March 1, 1995, declaring the validity of private

respondents warehousemans lien under Section 27 of Republic Act No 2137 and ordering that
execution of the Court of Appeals decision, dated December 13, 1991, be in effect held in
abeyance until the full amount of the warehousemans lien on the sugar stocks covered by
five (5) quedans subject of the action shall have been satisfied conformably with the provisions of
Section 31 of Republic Act 2137.
Also prayed for by the petition is a Writ of Prohibition to require respondent RTC Judge to
desist from further proceeding with Civil Case No. 90-53023, except order the execution of the
Supreme Court judgment; and a Writ of Mandamus to compel respondent RTC Judge to issue a
Writ of Execution in accordance with the said executory Supreme Court decision.

THE FACTS
In accordance with Act No. 2137, the Warehouse Receipts Law, Noahs Ark Sugar Refinery
issued on several dates, the following Warehouse Receipts (Quedans): (a) March 1, 1989, Receipt
No. 18062, covering sugar deposited by Rosa Sy; (b) March 7, 1989, Receipt No. 18080, covering
sugar deposited by RNS Merchandising (Rosa Ng Sy); (c) March 21, 1989, Receipt No. 18081,
covering sugar deposited by St. Therese Merchandising; (d)March 31, 1989, Receipt No. 18086,
covering sugar deposited by St. Therese Merchandising; and (e) April 1, 1989, Receipt No. 18087,
covering sugar deposited by RNS Merchandising. The receipts are substantially in the form, and
contains the terms, prescribed for negotiable warehouse receipts by Section 2 of the law.
Subsequently, Warehouse Receipts Nos. 18080 and 18081 were negotiated and endorsed to
Luis T. Ramos; and Receipts Nos. 18086, 18087 and 18062 were negotiated and endorsed to
Cresencia K. Zoleta. Ramos and Zoleta then used the quedans as security for two loan agreements
- one for P15.6 million and the other for P23.5 million - obtained by them from the Philippine
National Bank. The aforementioned quedans were endorsed by them to the Philippine National
Bank.
Luis T. Ramos and Cresencia K. Zoleta failed to pay their loans upon maturity on January 9,
1990. Consequently, on March 16, 1990, the Philippine National Bank wrote to Noahs Ark Sugar
Refinery demanding delivery of the sugar stocks covered by the quedans endorsed to it by Zoleta
and Ramos. Noahs Ark Sugar Refinery refused to comply with the demand alleging ownership
thereof, for which reason the Philippine National Bank filed with the Regional Trial Court of
Manila a verified complaint for Specific Performance with Damages and Application for Writ of
Attachment against Noahs Ark Sugar Refinery, Alberto T. Looyuko, Jimmy T. Go and Wilson
T. Go, the last three being identified as the sole proprietor, managing partner, and Executive Vice
President of Noahs Ark, respectively.
Respondent Judge Benito C. Se, Jr., in whose sala the case was raffled, denied the
Application for Preliminary Attachment. Reconsideration therefor was likewise denied.
Noahs Ark and its co-defendants filed an Answer with Counterclaim and Third-Party
Complaint in which they claimed that they are the owners of the subject quedans and the sugar
represented therein, averring as they did that:
9.*** In an agreement dated April 1, 1989, defendants agreed to sell to Rosa Ng Sy of RNS
Merchandising and Teresita Ng of St. Therese Merchandising the total volumeof sugar indicated
in the quedans stored at Noahs Ark Sugar Refinery for a total consideration of P63,000,000.00,
*** The corresponding payments in the form of checks issued by the vendees in favor of
defendants were subsequently dishonored by the drawee banks by reason of payment stopped
and drawn against insufficient funds,

*** Upon proper notification to said vendees and plaintiff in due course, defendants refused to
deliver to vendees therein the quantity of sugar covered by the subject quedans.
10. *** Considering that the vendees and first endorsers of subject quedans did not acquire
ownership thereof, the subsequent endorsers and plaintiff itself did not acquire a better right of
ownership than the original vendees/first endorsers. 1
The Answer incorporated a Third-Party Complaint by Alberto T. Looyuko, Jimmy T. Go and
Wilson T. Go, doing business under the trade name and style Noahs Ark Sugar Refinery against
Rosa Ng Sy and Teresita Ng, praying that the latter be ordered to deliver or return to them the
quedans (previously endorsed to PNB and the subject of the suit) and pay damages and litigation
expenses.
The Answer of Rosa Ng Sy and Teresita Ng, dated September 6, 1990, one of avoidance, is
essentially to the effect that the transaction between them, on the one hand, and Jimmy T. Go, on
the other, concerning the quedans and the sugar stocks covered by them was merely a simulated
one being part of the latters complex banking schemes and financial maneuvers, and thus, they
are not answerable in damages to him.
On January 31, 1991, the Philippine National Bank filed a Motion for Summary Judgment in
favor of the plaintiff as against the defendants for the reliefs prayed for in the complaint.
On May 2, 1991, the Regional Trial Court issued an order denying the Motion for Summary
Judgment. Thereupon, the Philippine National Bank filed a Petition for Certiorari with the Court
of Appeals, docketed as CA-G.R. SP. No. 25938 on December 13, 1991.
Pertinent portions of the decision of the Court of Appeals read:
In issuing the questioned Orders, the respondent Court ruled that questions of law should be
resolved after and not before, the questions of fact are properly litigated. A scrutiny of
defendants affirmative defenses does not show material questions of fact as to the alleged
nonpayment of purchase price by the vendees/first endorsers, and which nonpayment is not
disputed by PNB as it does not materially affect PNBs title to the sugar stocks as holder of the
negotiable quedans.
What is determinative of the propriety of summary judgment is not the existence of conflicting
claims from prior parties but whether from an examination of the pleadings, depositions,
admissions and documents on file, the defenses as to the main issue do not tender material
questions of fact (see Garcia vs. Court of Appeals, 167 SCRA 815) or the issues thus tendered are
in fact sham, fictitious, contrived, set up in bad faith or so unsubstantial as not to constitute
genuine issues for trial. (See Vergara vs. Suelto, et al., 156 SCRA 753; Mercado, et al. vs. Court
of Appeals, 162 SCRA 75). The questioned Orders themselves do not specify what material facts
are in issue. (See Sec. 4, Rule 34, Rules of Court).
To require a trial notwithstanding pertinent allegations of the pleadings and other facts appearing
on the record, would constitute a waste of time and an injustice to the PNB whose rights to relief
to which it is plainly entitled would be further delayed to its prejudice.
In issuing the questioned Orders, We find the respondent Court to have acted in grave abuse of
discretion which justify holding null and void and setting aside the Orders dated May 2 and July
4, 1990 of respondent Court, and that a summary judgment be rendered forthwith in favor of the
PNB against Noahs Ark Sugar Refinery, et al., as prayed for in petitioners Motion for Summary
Judgment.2
On December 13, 1991, the Court of Appeals nullified and set aside the orders of May 2
and July 4, 1990 of the Regional Trial Court and ordered the trial court to render summary

judgment in favor of the PNB. On June 18, 1992, the trial court rendered judgment dismissing
plaintiffs complaint against private respondents for lack of cause of action and likewise dismissed
private respondents counterclaim against PNB and of the Third-Party Complaint and the ThirdParty Defendants Counterclaim. On September 4, 1992, the trial court denied PNBs Motion for
Reconsideration.
On June 9, 1992, the PNB filed an appeal from the RTC decision with the Supreme Court,
G.R. No. 107243, by way of a Petition for Review on Certiorari under Rule 45 of the Rules of
Court. This Court rendered judgment on September 1, 1993, the dispositive portion of which
reads:
WHEREFORE, the trial judges decision in Civil Case No. 90-53023, dated June 18, 1992, is
reversed and set aside and a new one rendered conformably with the final and executory decision
of the Court of Appeals in CA-G.R SP. No. 25938, ordering the private respondents Noahs Ark
Sugar Refinery, Alberto T. Looyuko, Jimmy T. Go and Wilson T. Go, jointly and severally:
(a)

to deliver to the petitioner Philippine National Bank, the sugar stocks

covered by the Warehouse Receipts/ Quedans which are now in the latters
possession as holder for value and in due course; or alternatively, to pay (said)
plaintiff actual damages in the amount of P39.1 million, with legal interest thereon
from the filing of the complaint until full payment; and

(b)

to pay plaintiff Philippine National Bank attorneys fees, litigation expenses

and judicial costs hereby fixed at the amount of One Hundred Fifty Thousand Pesos
(P150,000.00) as well as the costs.

SO ORDERED.3
On September 29, 1993, private respondents moved for reconsideration of this decision. A
Supplemental/Second Motion for Reconsideration with leave of court was filed by private
respondents on November 8, 1993. We denied private respondents motion on January 10, 1994. .
Private respondents filed a Motion Seeking Clarification of the Decision, dated September 1,
1993. We denied this motion in this manner:
It bears stressing that the relief granted in this Courts decision of September 1, 1993 is precisely
that set out in the final and executory decision of the Court of Appeals in CA-G.R. SP No. 25938,
dated December 13, 1991, which was affirmed in toto by this Court and which became unalterable
upon becoming final and executory. 4
Private respondents thereupon filed before the trial court an Omnibus Motion seeking among
others the deferment of the proceedings until private respondents are heard on their claim for
warehousemans lien. On the other hand, on August 22, 1994, the Philippine National Bank filed a
Motion for the Issuance of a Writ of Execution and an Opposition to the Omnibus Motion filed by
private respondents.
The trial court granted private respondents Omnibus Motion on December 20, 1994 and set
reception of evidence on their claim for warehousemans lien. The resolution of the PNBs Motion
for Execution was ordered deferred until the determination of private respondents claim.
On February 21, 1995, private respondents claim for lien was heard and evidence was
received in support thereof. The trial court thereafter gave both parties five (5) days to file
respective memoranda.
On February 28, 1995, the Philippine National Bank filed a Manifestation with Urgent
Motion to Nullify Court Proceedings. In adjudication thereof, the trial court issued the following
order on March 1, 1995:

WHEREFORE, this court hereby finds that there exists in favor of the defendants a valid
warehousemans lien under Section 27 of Republic Act 2137 and accordingly, execution of the
judgment is hereby ordered stayed and/ or precluded until the full amount of defendants lien on
the sugar stocks covered by the five (5) quedans subject of this action shall have been satisfied
conformably with the provisions of Section 31 of Republic Act 2137. 5
Consequently, the Philippine National Bank filed the herein petition to seek the nullification
of the above-assailed orders of respondent judge.
The PNB submits that:
I
PNBs RIGHT TO A WRIT OF EXECUTION IS SUPPORTED BY TWO FINAL AND
EXECUTORY DECISIONS: THE DECEMBER 13, 1991 COURT OF APPEALS DECISION IN
CA-G.R. SP. NO. 25938; AND, THE NOVEMBER 9, 1992 SUPREME COURT DECISION IN
G.R NO. 107243. RESPONDENT RTCS MINISTERIAL AND MANDATORY DUTY IS TO ISSUE
THE WRIT OF EXECUTION TO IMPLEMENT THE DECRETAL PORTION OF SAID
SUPREME COURT DECISION
II
RESPONDENT RTC IS WITHOUT JURISDICTION TO HEAR PRIVATE RESPONDENTS
OMNIBUS MOTION. THE CLAIMS SET FORTH IN SAID MOTION: (1) WERE ALREADY
REJECTED BY THE SUPREME COURT IN ITS MARCH 9, 1994 RESOLUTION DENYING
PRIVATE RESPONDENTS MOTION FOR CLARIFICATION OF DECISION IN .G.R. NO.
107243; AND (2) ARE BARRED FOREVER BY PRIVATE RESPONDENTS FAILURE TO
INTERPOSE THEM IN THEIR ANSWER, AND FAILURE TO APPEAL FROM THE JUNE 18,
1992 RTC DECISION IN CIVIL CASE NO. 90-52023
III
RESPONDENT RTCS ONLY JURISDICTION IS TO ISSUE THE WRIT TO EXECUTE THE
SUPREME COURT DECISION. THUS, PNB IS ENTITLED TO: (1) A WRIT OF CERTIORARI
TO ANNUL THE RTC RESOLUTION DATED DECEMBER 20, 1994 AND THE ORDER
DATED FEBRUARY 7, 1995 AND ALL PROCEEDINGS TAKEN BY THE RTC THEREAFTER;
(2) A WRIT OF PROHIBITION TO PREVENT RESPONDENT RTC FROM FURTHER
PROCEEDING WITH CIVIL CASE NO. 90-53023 AND COMMITTING OTHER ACTS
VIOLATIVE OF THE SUPREME COURT DECISION IN G.R. NO. 107243; AND (3) A WRIT OF
MANDAMUS TO COMPEL RESPONDENT RTC TO ISSUE THE WRIT TO EXECUTE THE
SUPREME COURT JUDGMENT IN FAVOR OF PNB
The issues presented before us in this petition revolve around the legality of the questioned
orders of respondent judge, issued as they were after we had denied with finality private
respondents contention that the PNB could not compel them to deliver the stocks of sugar in their
warehouse covered by the endorsed quedans or pay the value of the said stocks of sugar.
Petitioners submission is on a technicality, that is, that private respondents have lost their
right to recover warehousemans lien on the sugar stocks covered by the five (5) Warehouse
Receipts for the reason that they failed to set up said claim in their Answer before the trial court
and that private respondents did not appeal from the decision in this regard, dated June 18, 1992.
Petitioner asseverates that the denial by this Court on March 9, 1994 of the motion seeking
clarification of our decision, dated September 1, 1993, has foreclosed private respondents right to
enforce their warehousemans lien for storage fees and preservation expenses under the
Warehouse Receipts Act.

On the other hand, private respondents maintain that they could not have claimed the right to
a warehouseman s lien in their Answer to the complaint before the trial court as it would have
been inconsistent with their stand that they claim ownership of the stocks covered by the quedans
since the checks issued for payment thereof were dishonored. If they were still the owners, it
would have been absurd for them to ask payment for storage fees and preservation expenses. They
further contend that our resolution, dated March 9, 1994, denying their motion for clarification did
not preclude their right to claim their warehousemans lien under Sections 27 and 31 of Republic
Act 2137, as our resolution merely affirmed and adopted the earlier decision, dated December 13,
1991, of the Court of Appeals (6th Division) in CA-G.R. SP. No. 25938 and did not make any
finding on the matter of the warehouseman s lien.
We find for private respondents on the foregoing issue and so the petition necessarily must
fail.
We have carefully examined our resolution, dated March 9, 1994, which denied
Noahs Arks motion for clarification of our decision, dated September 1, 1993, wherein we
affirmed in full and adopted the Court of Appeals earlier decision, dated December 13, 1991, in
CA-G.R. SP. No. 25938. We are not persuaded by the petitioners argument that our said
resolution carried with it the denial of the warehousemans lien over the sugar stocks covered by
the subject Warehouse Receipts. We have simply resolved and upheld in our decision,
dated September 1, 1993, the propriety of summary judgment which was then assailed by private
respondents. In effect, we ruled therein that, considering the circumstances obtaining before the
trial court, the issuance of the Warehouse Receipts not being disputed by the private respondents,
a summary judgment in favor of PNB was proper. We in effect further affirmed the finding that
Noahs Ark is a warehouseman which was obliged to deliver the sugar stocks covered by the
Warehouse Receipts pledged by Cresencia K. Zoleta and Luis T. Ramos to the petitioner pursuant
to the pertinent provisions of Republic Act 2137.
In disposing of the private respondents motion for clarification, we could not contemplate
the matter of warehousemans lien because the issue to be finally resolved then was the claim of
private respondents for retaining ownership of the stocks of sugar covered by the endorsed
quedans. Stated otherwise, there was no point in taking up the issue of warehousemans lien since
the matter of ownership was as yet being determined. Neither could storage fees be due then while
no one has been declared the owner of the sugar stocks in question.
Of considerable relevance is the pertinent stipulation in the subject Warehouse Receipts
which provides for respondent Noahs Arks right to impose and collect warehousemans lien:
Storage of the refined sugar quantities mentioned herein shall be free up to one (1) week from
the date of the quedans covering said sugar and thereafter, storage fees shall be charged in
accordance with the Refining Contract under which the refined sugar covered by this Quedan was
produced. 6
It is not disputed, therefore, that, under the subject Warehouse Receipts provision, storage
fees are chargeable.
Petitioner anchors its claim against private respondents on the five (5) Warehouse Receipts
issued by the latter to third-party defendants Rosa Ng Sy of RNS Merchandising and Teresita Ng
of St. Therese Merchandising, which found their way to petitioner after they were negotiated to
them by Luis T. Ramos and Cresencia K. Zoleta for a loan of P39.1 Million. Accordingly,
petitioner PNB is legally bound to stand by the express terms and conditions on the face of the
Warehouse Receipts as to the payment of storage fees. Even in the absence of such a provision,
law and equity dictate the payment of the warehouseman s lien pursuant to Sections 27 and 31 of
the Warehouse Receipts Law (R.A. 2137), to wit:
SECTION 27. What claims are included in the warehousemans lien. - Subject to the provisions
of section thirty, a warehouseman shall have lien on goods deposited or on the proceeds thereof in

his hands, for all lawful charges for storage and preservation of the goods; also for all lawful
claims for money advanced, interest, insurance, transportation, labor, weighing coopering and
other charges and expenses in relation to such goods; also for all reasonable charges and
expenses for notice, and advertisement of sale, and for sale of the goods where default has been
made in satisfying the warehousemans lien.
xxx

xxx

xxx

SECTION 31. Warehouseman need not deliver until lien is satisfied. - A warehouseman having a
lien valid against the person demanding the goods may refuse to deliver the goods to him until the
lien is satisfied.
After being declared not the owner, but the warehouseman, by the Court of Appeals
on December 13, 1991 in CA-G.R. SP. No. 25938, the decision having been affirmed by us
on December 1, 1993, private respondents cannot legally be deprived of their right to enforce their
claim for warehousemans lien, for reasonable storage fees and preservation expenses. Pursuant to
Section 31 which we quote hereunder, the goods under storage may not be delivered until said lien
is satisfied.
SECTION 31. Warehouseman need not deliver until lien is satisfied. - A warehouseman having a
lien valid against the person demanding the goods may refuse to deliver the goods to him until the
lien is satisfied.
Considering that petitioner does not deny the existence, validity and genuineness of the
Warehouse Receipts on which it anchors its claim for payment against private respondents, it
cannot disclaim liability for the payment of the storage fees stipulated therein. As contracts, the
receipts must be respected by authority of Article 1159 of the Civil Code, to wit:
ART. 1159. Obligations arising from contracts have the force of law between the contracting
parties and should be complied with in good faith.
Petitioner is in estoppel in disclaiming liability for the payment of storage fees due the
private respondents as warehouseman while claiming to be entitled to the sugar stocks covered by
the subject Warehouse Receipts on the basis of which it anchors its claim for payment or delivery
of the sugar stocks. The unconditional presentment of the receipts by the petitioner for payment
against private respondents on the strength of the provisions of the Warehouse Receipts Law (R.A.
2137) carried with it the admission of the existence and validity of the terms, conditions and
stipulations written on the face of the Warehouse Receipts, including the unqualified recognition
of the payment of warehousemans lien for storage fees and preservation expenses. Petitioner may
not now retrieve the sugar stocks without paying the lien due private respondents as
warehouseman.
In view of the foregoing, the rule may be simplified thus: While the PNB is entitled to the
stocks of sugar as the endorsee of the quedans, delivery to it shall be effected only upon payment
of the storage fees.
Imperative is the right of the warehouseman to demand payment of his lien at this juncture,
because, in accordance with Section 29 of the Warehouse Receipts Law, the warehouseman loses
his lien upon goods by surrendering possession thereof. In other words, the lien may be lost where
the warehouseman surrenders the possession of the goods without requiring payment of his lien,
because a warehousemans lien is possessory in nature.
We, therefore, uphold and sustain the validity of the assailed orders of public respondent,
dated December 20, 1994 and March 1, 1995.

In fine, we fail to see any taint of abuse of discretion on the part of the public respondent in
issuing the questioned orders which recognized the legitimate right of Noahs Ark, after being
declared as warehouseman, to recover storage fees before it would release to the PNB sugar stocks
covered by the five (5) Warehouse Receipts. Our resolution, dated March 9, 1994, did not
preclude private respondents unqualified right to establish its claim to recover storage fees which
is recognized under Republic Act No. 2137. Neither did the Court of Appeals decision,
dated December 13, 1991, restrict such right.
Our Resolutions reference to the decision by the Court of Appeals, dated December 13,
1991, in CA-G.R. SP. No. 25938, was intended to guide the parties in the subsequent disposition
of the case to its final end. We certainly did not foreclose private respondents inherent right as
warehouseman to collect storage fees and preservation expenses as stipulated n the face of each of
the Warehouse Receipts and as provided for in the Warehouse Receipts Law (R.A. 2137).
WHEREFORE, the petition should be, as it is, hereby dismissed for lack of merit. The
questioned orders issued by public respondent judge are affirmed.
Costs against the petitioner.
SO ORDERED.