i.

168802

Oct. 10, 1990

3,650.00

[ G.R. No. 156940, December 14, 2004 ]

ASSOCIATED BANK (NOW WESTMONT BANK), PETITIONER, VS. VICENTE HENRY TAN,
RESPONDENT.
DECISION
PANGANIBAN, J.:
While banks are granted by law the right to debit the value of a dishonored check from a
depositors account, they must do so with the highest degree of care, so as not to prejudice the
depositor unduly.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, assailing the January
27, 2003 Decision[2] of the Court of Appeals (CA) in CA-GR CV No. 56292. The CA disposed as
follows:
WHEREFORE, premises considered, the Decision dated December 3, 1996, of the Regional
Trial Court of Cabanatuan City, Third Judicial Region, Branch 26, in Civil Case No. 892-AF is
hereby AFFIRMED. Costs against the [petitioner].[3]
The Facts
The CA narrated the antecedents as follows:
Vicente Henry Tan (hereafter TAN) is a businessman and a regular depositor-creditor of the
Associated Bank (hereinafter referred to as the BANK). Sometime in September 1990, he
deposited a postdated UCPB check with the said BANK in the amount of P101,000.00 issued to
him by a certain Willy Cheng from Tarlac. The check was duly entered in his bank record thereby
making his balance in the amount of P297,000.00, as of October 1, 1990, from his original
deposit of P196,000.00. Allegedly, upon advice and instruction of the BANK that the
P101,000.00 check was already cleared and backed up by sufficient funds, TAN, on the same
date, withdrew the sum of P240,000.00, leaving a balance of P57,793.45. A day after, TAN
deposited the amount of P50,000.00 making his existing balance in the amount of P107,793.45,
because he has issued several checks to his business partners, to wit:
CHECK NUMBERS DATE

AMOUNT

a. 138814

Sept. 29, 1990

P9,000.00

b. 138804

Oct. 8, 1990

9,350.00

c. 138787

Sept. 30, 1990

6,360.00

d. 138847

Sept. 29, 1990

21,850.00

e. 167054

Sept. 29, 1990

4,093.40

f. 138792

Sept. 29, 1990

3,546.00

g. 138774

Oct. 2, 1990

6,600.00

h. 167072

Oct. 10, 1990

9,908.00

However, his suppliers and business partners went back to him alleging that the checks he
issued bounced for insufficiency of funds. Thereafter, TAN, thru his lawyer, informed the BANK to
take positive steps regarding the matter for he has adequate and sufficient funds to pay the
amount of the subject checks. Nonetheless, the BANK did not bother nor offer any apology
regarding the incident. Consequently, TAN, as plaintiff, filed a Complaint for Damages on
December 19, 1990, with the Regional Trial Court of Cabanatuan City, Third Judicial Region,
docketed as Civil Case No. 892-AF, against the BANK, as defendant.
In his [C]omplaint, [respondent] maintained that he ha[d] sufficient funds to pay the subject
checks and alleged that his suppliers decreased in number for lack of trust. As he has been in
the business community for quite a time and has established a good record of reputation and
probity, plaintiff claimed that he suffered embarrassment, humiliation, besmirched reputation,
mental anxieties and sleepless nights because of the said unfortunate incident. [Respondent]
further averred that he continuously lost profits in the amount of P250,000.00. [Respondent]
therefore prayed for exemplary damages and that [petitioner] be ordered to pay him the sum of
P1,000,000.00 by way of moral damages, P250,000.00 as lost profits, P50,000.00 as attorneys
fees plus 25% of the amount claimed including P1,000.00 per court appearance.
Meanwhile, [petitioner] filed a Motion to Dismiss on February 7, 1991, but the same was denied
for lack of merit in an Order dated March 7, 1991. Thereafter, [petitioner] BANK on March 20,
1991 filed its Answer denying, among others, the allegations of [respondent] and alleged that no
banking institution would give an assurance to any of its client/depositor that the check
deposited by him had already been cleared and backed up by sufficient funds but it could only
presume that the same has been honored by the drawee bank in view of the lapse of time that
ordinarily takes for a check to be cleared. For its part, [petitioner] alleged that on October 2,
1990, it gave notice to the [respondent] as to the return of his UCPB check deposit in the
amount of P101,000.00, hence, on even date, [respondent] deposited the amount of P50,000.00
to cover the returned check.
By way of affirmative defense, [petitioner] averred that [respondent] had no cause of action
against it and argued that it has all the right to debit the account of the [respondent] by reason of
the dishonor of the check deposited by the [respondent] which was withdrawn by him prior to its
clearing. [Petitioner] further averred that it has no liability with respect to the clearing of
deposited checks as the clearing is being undertaken by the Central Bank and in accepting [the]
check deposit, it merely obligates itself as depositors collecting agent subject to actual payment
by the drawee bank. [Petitioner] therefore prayed that [respondent] be ordered to pay it the
amount of P1,000,000.00 by way of loss of goodwill, P7,000.00 as acceptance fee plus P500.00
per appearance and by way of attorneys fees.
Considering that Westmont Bank has taken over the management of the affairs/properties of
the BANK, [respondent] on October 10, 1996, filed an Amended Complaint reiterating
substantially his allegations in the original complaint, except that the name of the previous
defendant ASSOCIATED BANK is now WESTMONT BANK.
Trial ensured and thereafter, the court rendered its Decision dated December 3, 1996 in favor of
the [respondent] and against the [petitioner], ordering the latter to pay the [respondent] the sum
of P100,000.00 by way of moral damages, P75,000.00 as exemplary damages, P25,000.00 as
attorneys fees, plus the costs of this suit. In making said ruling, it was shown that [respondent]
was not officially informed about the debiting of the P101,000.00 [from] his existing balance and
that the BANK merely allowed the [respondent] to use the fund prior to clearing merely for
accommodation because the BANK considered him as one of its valued clients. The trial court
ruled that the bank manager was negligent in handling the particular checking account of the
[respondent] stating that such lapses caused all the inconveniences to the [respondent]. The trial
court also took into consideration that [respondents] mother was originally maintaining with the x

x x BANK [a] current account as well as [a] time deposit, but [o]n one occasion, although his
mother made a deposit, the same was not credited in her favor but in the name of another.[4]
Petitioner appealed to the CA on the issues of whether it was within its rights, as collecting bank,
to debit the account of its client for a dishonored check; and whether it had informed respondent
about the dishonor prior to debiting his account.
Ruling of the Court of Appeals
Affirming the trial court, the CA ruled that the bank should not have authorized the withdrawal of
the value of the deposited check prior to its clearing. Having done so, contrary to its obligation to
treat respondents account with meticulous care, the bank violated its own policy. It thereby took
upon itself the obligation to officially inform respondent of the status of his account before
unilaterally debiting the amount of P101,000. Without such notice, it is estopped from blaming
him for failing to fund his account.

for the value of a dishonored check that has previously been credited has fairly been established
by jurisprudence. To begin with, Article 1980 of the Civil Code provides that [f]ixed, savings, and
current deposits of money in banks and similar institutions shall be governed by the provisions
concerning simple loan.
Hence, the relationship between banks and depositors has been held to be that of creditor and
debtor.[9] Thus, legal compensation under Article 1278[10] of the Civil Code may take place when
all the requisites mentioned in Article 1279 are present,[11] as follows:
(1) That each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of
the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;

The CA opined that, had the P101,000 not been debited, respondent would have had sufficient
funds for the postdated checks he had issued. Thus, the supposed accommodation accorded by
petitioner to him is the proximate cause of his business woes and shame, for which it is liable for
damages.
Because of the banks negligence, the CA awarded respondent moral damages of P100,000. It
also granted him exemplary damages of P75,000 and attorneys fees of P25,000.
Hence this Petition.[5]
Issue
In its Memorandum, petitioner raises the sole issue of whether or not the petitioner, which is
acting as a collecting bank, has the right to debit the account of its client for a check deposit
which was dishonored by the drawee bank.[6]
The Courts Ruling
The Petition has no merit.
Sole Issue:
Debit of Depositors Account
Petitioner-bank contends that its rights and obligations under the present set of facts were
misappreciated by the CA. It insists that its right to debit the amount of the dishonored check
from the account of respondent is clear and unmistakable. Even assuming that it did not give
him notice that the check had been dishonored, such right remains immediately enforceable.
In particular, petitioner argues that the check deposit slip accomplished by respondent on
September 17, 1990, expressly stipulated that the bank was obligating itself merely as the
depositors collecting agent and -- until such time as actual payment would be made to it -- it
was reserving the right to charge against the depositors account any amount previously
credited. Respondent was allowed to withdraw the amount of the check prior to clearing, merely
as an act of accommodation, it added.
At the outset, we stress that the trial courts factual findings that were affirmed by the CA are not
subject to review by this Court.[7] As petitioner itself takes no issue with those findings, we need
only to determine the legal consequence, based on the established facts.
Right of Setoff
A bank generally has a right of setoff over the deposits therein for the payment of any
withdrawals on the part of a depositor.[8] The right of a collecting bank to debit a clients account

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third persons
and communicated in due time to the debtor.[12]
Nonetheless, the real issue here is not so much the right of petitioner to debit respondents
account but, rather, the manner in which it exercised such right. The Court has held that even
while the right of setoff is conceded, separate is the question of whether that remedy has
properly been exercised.[13]
The liability of petitioner in this case ultimately revolves around the issue of whether it properly
exercised its right of setoff. The determination thereof hinges, in turn, on the banks role and
obligations, first, as respondents depositary bank; and second, as collecting agent for the check
in question.
Obligation as
Depositary Bank
In BPI v. Casa Montessori,[14] the Court has emphasized that the banking business is impressed
with public interest. Consequently, the highest degree of diligence is expected, and high
standards of integrity and performance are even required of it. By the nature of its functions, a
bank is under obligation to treat the accounts of its depositors with meticulous care.[15]
Also affirming this long standing doctrine, Philippine Bank of Commerce v. Court of
Appeals[16] has held that the degree of diligence required of banks is more than that of a good
father of a family where the fiduciary nature of their relationship with their depositors is
concerned.[17] Indeed, the banking business is vested with the trust and confidence of the public;
hence the appropriate standard of diligence must be very high, if not the highest, degree of
diligence.[18] The standard applies, regardless of whether the account consists of only a few
hundred pesos or of millions.[19]
The fiduciary nature of banking, previously imposed by case law,[20] is now enshrined in Republic
Act No. 8791 or the General Banking Law of 2000. Section 2 of the law specifically says that the
State recognizes the fiduciary nature of banking that requires high standards of integrity and
performance.
Did petitioner treat respondents account with the highest degree of care? From all indications, it
did not.
It is undisputed -- nay, even admitted -- that purportedly as an act of accommodation to a valued
client, petitioner allowed the withdrawal of the face value of the deposited check prior to its
clearing. That act certainly disregarded the clearance requirement of the banking system. Such
a practice is unusual, because a check is not legal tender or money; [21] and its value can properly

be transferred to a depositors account only after the check has been cleared by the drawee
bank.[22]
Under ordinary banking practice, after receiving a check deposit, a bank either immediately
credit the amount to a depositors account; or infuse value to that account only after the drawee
bank shall have paid such amount.[23]Before the check shall have been cleared for deposit, the
collecting bank can only assume at its own risk -- as herein petitioner did -- that the check
would be cleared and paid out.
Reasonable business practice and prudence, moreover, dictated that petitioner should not have
authorized the withdrawal by respondent of P240,000 on October 1, 1990, as this amount was
over and above his outstanding cleared balance of P196,793.45.[24] Hence, the lower courts
correctly appreciated the evidence in his favor.
Obligation as
Collecting Agent
Indeed, the bank deposit slip expressed this reservation:
In receiving items on deposit, this Bank obligates itself only as the Depositors Collecting agent,
assuming no responsibility beyond carefulness in selecting correspondents, and until such time
as actual payments shall have come to its possession, this Bank reserves the right to charge
back to the Depositors account any amounts previously credited whether or not the deposited
item is returned. x x x."[25]
However, this reservation is not enough to insulate the bank from any liability. In the past, we
have expressed doubt about the binding force of such conditions unilaterally imposed by a bank
without the consent of the depositor.[26] It is indeed arguable that in signing the deposit slip, the
depositor does so only to identify himself and not to agree to the conditions set forth at the back
of the deposit slip.[27]
Further, by the express terms of the stipulation, petitioner took upon itself certain obligations as
respondents agent, consonant with the well-settled rule that the relationship between the payee
or holder of a commercial paper and the collecting bank is that of principal and agent.[28] Under
Article 1909[29] of the Civil Code, such bank could be held liable not only for fraud, but also for
negligence.
As a general rule, a bank is liable for the wrongful or tortuous acts and declarations of its officers
or agents within the course and scope of their employment.[30] Due to the very nature of their
business, banks are expected to exercise the highest degree of diligence in the selection and
supervision of their employees.[31] Jurisprudence has established that the lack of diligence of a
servant is imputed to the negligence of the employer, when the negligent or wrongful act of the
former proximately results in an injury to a third person;[32] in this case, the depositor.
The manager of the banks Cabanatuan branch, Consorcia Santiago, categorically admitted that
she and the employees under her control had breached bank policies. They admittedly breached
those policies when, without clearance from the drawee bank in Baguio, they allowed
respondent to withdraw on October 1, 1990, the amount of the check deposited. Santiago
testified that respondent was not officially informed about the debiting of the P101,000 from his
existing balance of P170,000 on October 2, 1990 x x x.[33]
Being the branch manager, Santiago clearly acted within the scope of her authority in
authorizing the withdrawal and the subsequent debiting without notice. Accordingly, what
remains to be determined is whether her actions proximately caused respondents injury.
Proximate cause is that which -- in a natural and continuous sequence, unbroken by any efficient
intervening cause --produces the injury, and without which the result would not have occurred.[34]
Let us go back to the facts as they unfolded. It is undeniable that the banks premature
authorization of the withdrawal by respondent on October 1, 1990, triggered --in rapid
succession and in a natural sequence -- the debiting of his account, the fall of his account

balance to insufficient levels, and the subsequent dishonor of his own checks for lack of funds.
The CA correctly noted thus:
x x x [T]he depositor x x x withdrew his money upon the advice by [petitioner] that his money
was already cleared. Without such advice, [respondent] would not have withdrawn the sum of
P240,000.00. Therefore, it cannot be denied that it was [petitioners] fault which allowed
[respondent] to withdraw a huge sum which he believed was already his.
To emphasize, it is beyond cavil that [respondent] had sufficient funds for the check. Had the
P101,000.00 not [been] debited, the subject checks would not have been dishonored. Hence,
we can say that [respondents] injury arose from the dishonor of his well-funded checks. x x x. [35]
Aggravating matters, petitioner failed to show that it had immediately and duly informed
respondent of the debiting of his account. Nonetheless, it argues that the giving of notice was
discernible from his act of depositing P50,000 on October 2, 1990, to augment his account and
allow the debiting. This argument deserves short shrift.
First, notice was proper and ought to be expected. By the bank managers account, respondent
was considered a valued client whose checks had always been sufficiently funded from 1987
to 1990,[36] until the October imbroglio. Thus, he deserved nothing less than an official notice of
the precarious condition of his account.
Second, under the provisions of the Negotiable Instruments Law regarding the liability of a
general indorser[37]and the procedure for a notice of dishonor,[38] it was incumbent on the bank to
give proper notice to respondent. InGullas v. National Bank,[39] the Court emphasized:
x x x [A] general indorser of a negotiable instrument engages that if the instrument the check
in this case is dishonored and the necessary proceedings for its dishonor are duly taken, he
will pay the amount thereof to the holder (Sec. 66) It has been held by a long line of authorities
that notice of dishonor is necessary to charge an indorser and that the right of action against him
does not accrue until the notice is given.
x x x. The fact we believe is undeniable that prior to the mailing of notice of dishonor, and
without waiting for any action by Gullas, the bank made use of the money standing in his
account to make good for the treasury warrant. At this point recall that Gullas was merely an
indorser and had issued checks in good faith. As to a depositor who has funds sufficient to meet
payment of a check drawn by him in favor of a third party, it has been held that he has a right of
action against the bank for its refusal to pay such a check in the absence of notice to him that
the bank has applied the funds so deposited in extinguishment of past due claims held against
him. (Callahan vs. Bank of Anderson [1904], 2 Ann. Cas., 203.) However this may be, as to an
indorser the situation is different, and notice should actually have been given him in order that
he might protect his interests.[40]
Third, regarding the deposit of P50,000 made by respondent on October 2, 1990, we fully
subscribe to the CAs observations that it was not unusual for a well-reputed businessman like
him, who ordinarily takes note of the amount of money he takes and releases, to immediately
deposit money in his current account to answer for the postdated checks he had issued. [41]
Damages
Inasmuch as petitioner does not contest the basis for the award of damages and attorneys fees,
we will no longer address these matters.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against
petitioner.
SO ORDERED.

[ G.R. No. 115324, February 19, 2003 ]

PRODUCERS BANK OF THE PHILIPPINES (NOW FIRST INTERNATIONAL BANK),
PETITIONER, VS. HON. COURT OF APPEALS AND FRANKLIN VIVES, RESPONDENTS.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari of the Decision[1] of the Court of Appeals dated June 25,
1991 in CA-G.R. CV No. 11791 and of its Resolution[2] dated May 5, 1994, denying the motion
for reconsideration of said decision filed by petitioner Producers Bank of the Philippines.
Sometime in 1979, private respondent Franklin Vives was asked by his neighbor and friend
Angeles Sanchez to help her friend and townmate, Col. Arturo Doronilla, in incorporating his
business, the Sterela Marketing and Services (Sterela for brevity). Specifically, Sanchez asked
private respondent to deposit in a bank a certain amount of money in the bank account of
Sterela for purposes of its incorporation. She assured private respondent that he could withdraw
his money from said account within a months time. Private respondent asked Sanchez to bring
Doronilla to their house so that they could discuss Sanchezs request. [3]
On May 9, 1979, private respondent, Sanchez, Doronilla and a certain Estrella Dumagpi,
Doronillas private secretary, met and discussed the matter. Thereafter, relying on the
assurances and representations of Sanchez and Doronilla, private respondent issued a check in
the amount of Two Hundred Thousand Pesos (P200,000.00) in favor of Sterela. Private
respondent instructed his wife, Mrs. Inocencia Vives, to accompany Doronilla and Sanchez in
opening a savings account in the name of Sterela in the Buendia, Makati branch of Producers
Bank of the Philippines. However, only Sanchez, Mrs. Vives and Dumagpi went to the bank to
deposit the check. They had with them an authorization letter from Doronilla authorizing
Sanchez and her companions, in coordination with Mr. Rufo Atienza, to open an account for
Sterela Marketing Services in the amount of P200,000.00. In opening the account, the
authorized signatories were Inocencia Vives and/or Angeles Sanchez. A passbook for Savings
Account No. 10-1567 was thereafter issued to Mrs. Vives.[4]
Subsequently, private respondent learned that Sterela was no longer holding office in the
address previously given to him. Alarmed, he and his wife went to the Bank to verify if their
money was still intact. The bank manager referred them to Mr. Rufo Atienza, the assistant
manager, who informed them that part of the money in Savings Account No. 10-1567 had been
withdrawn by Doronilla, and that only P90,000.00 remained therein. He likewise told them that
Mrs. Vives could not withdraw said remaining amount because it had to answer for some
postdated checks issued by Doronilla. According to Atienza, after Mrs. Vives and Sanchez
opened Savings Account No. 10-1567, Doronilla opened Current Account No. 10-0320 for
Sterela and authorized the Bank to debit Savings Account No. 10-1567 for the amounts
necessary to cover overdrawings in Current Account No. 10-0320. In opening said current
account, Sterela, through Doronilla, obtained a loan of P175,000.00 from the Bank. To cover
payment thereof, Doronilla issued three postdated checks, all of which were dishonored. Atienza
also said that Doronilla could assign or withdraw the money in Savings Account No. 10-1567
because he was the sole proprietor of Sterela.[5]
Private respondent tried to get in touch with Doronilla through Sanchez. On June 29, 1979, he
received a letter from Doronilla, assuring him that his money was intact and would be returned to
him. On August 13, 1979, Doronilla issued a postdated check for Two Hundred Twelve
Thousand Pesos (P212,000.00) in favor of private respondent. However, upon presentment
thereof by private respondent to the drawee bank, the check was dishonored. Doronilla
requested private respondent to present the same check on September 15, 1979 but when the
latter presented the check, it was again dishonored.[6]
Private respondent referred the matter to a lawyer, who made a written demand upon Doronilla
for the return of his clients money. Doronilla issued another check for P212,000.00 in private
respondents favor but the check was again dishonored for insufficiency of funds.[7]

Private respondent instituted an action for recovery of sum of money in the Regional Trial Court
(RTC) in Pasig, Metro Manila against Doronilla, Sanchez, Dumagpi and petitioner. The case was
docketed as Civil Case No. 44485. He also filed criminal actions against Doronilla, Sanchez and
Dumagpi in the RTC. However, Sanchez passed away on March 16, 1985 while the case was
pending before the trial court. On October 3, 1995, the RTC of Pasig, Branch 157, promulgated
its Decision in Civil Case No. 44485, the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered sentencing defendants Arturo J.
Doronila, Estrella Dumagpi and Producers Bank of the Philippines to pay plaintiff Franklin Vives
jointly and severally
(a) the amount of P200,000.00, representing the money deposited, with interest at the legal rate
from the filing of the complaint until the same is fully paid;
(b) the sum of P50,000.00 for moral damages and a similar amount for exemplary damages;
(c) the amount of P40,000.00 for attorneys fees; and
(d) the costs of the suit.
SO ORDERED.[8]
Petitioner appealed the trial courts decision to the Court of Appeals. In its Decision dated June
25, 1991, the appellate court affirmed in toto the decision of the RTC.[9] It likewise denied with
finality petitioners motion for reconsideration in its Resolution dated May 5, 1994.[10]
On June 30, 1994, petitioner filed the present petition, arguing that
I.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT THE TRANSACTION
BETWEEN THE DEFENDANT DORONILLA AND RESPONDENT VIVES WAS ONE OF
SIMPLE LOAN AND NOT ACCOMMODATION;
II.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT PETITIONERS
BANK MANAGER, MR. RUFO ATIENZA, CONNIVED WITH THE OTHER DEFENDANTS IN
DEFRAUDING PETITIONER (Sic. Should be PRIVATE RESPONDENT) AND AS A
CONSEQUENCE, THE PETITIONER SHOULD BE HELD LIABLE UNDER THE PRINCIPLE OF
NATURAL JUSTICE;
III.
THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING THE ENTIRE RECORDS OF
THE REGIONAL TRIAL COURT AND AFFIRMING THE JUDGMENT APPEALED FROM, AS
THE FINDINGS OF THE REGIONAL TRIAL COURT WERE BASED ON A
MISAPPREHENSION OF FACTS;
IV.
THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT THE CITED
DECISION IN SALUDARES VS. MARTINEZ, 29 SCRA 745, UPHOLDING THE LIABILITY OF
AN EMPLOYER FOR ACTS COMMITTED BY AN EMPLOYEE IS APPLICABLE;
V.
THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE DECISION OF THE
LOWER COURT THAT HEREIN PETITIONER BANK IS JOINTLY AND SEVERALLY LIABLE

WITH THE OTHER DEFENDANTS FOR THE AMOUNT OF P200,000.00 REPRESENTING

THE SAVINGS ACCOUNT DEPOSIT, P50,000.00 FOR MORAL DAMAGES, P50,000.00 FOR
EXEMPLARY DAMAGES, P40,000.00 FOR ATTORNEYS FEES AND THE COSTS OF SUIT.[11]
Private respondent filed his Comment on September 23, 1994. Petitioner filed its Reply thereto
on September 25, 1995. The Court then required private respondent to submit a rejoinder to the
reply. However, said rejoinder was filed only on April 21, 1997, due to petitioners delay in
furnishing private respondent with copy of the reply[12] and several substitutions of counsel on the
part of private respondent.[13] On January 17, 2001, the Court resolved to give due course to the
petition and required the parties to submit their respective memoranda.[14] Petitioner filed its
memorandum on April 16, 2001 while private respondent submitted his memorandum on March
22, 2001.
Petitioner contends that the transaction between private respondent and Doronilla is a simple
loan (mutuum) since all the elements of a mutuum are present: first, what was delivered by
private respondent to Doronilla was money, a consumable thing; and second, the transaction
was onerous as Doronilla was obliged to pay interest, as evidenced by the check issued by
Doronilla in the amount of P212,000.00, or P12,000 more than what private respondent
deposited in Sterelas bank account.[15] Moreover, the fact that private respondent sued his good
friend Sanchez for his failure to recover his money from Doronilla shows that the transaction was
not merely gratuitous but had a business angle to it. Hence, petitioner argues that it cannot be
held liable for the return of private respondents P200,000.00 because it is not privy to the
transaction between the latter and Doronilla.[16]

review filed with this Court. The Court has repeatedly held that it is not its function to analyze
and weigh all over again the evidence presented by the parties during trial.[24] The Courts
jurisdiction is in principle limited to reviewing errors of law that might have been committed by
the Court of Appeals.[25] Moreover, factual findings of courts, when adopted and confirmed by the
Court of Appeals, are final and conclusive on this Court unless these findings are not supported
by the evidence on record.[26] There is no showing of any misapprehension of facts on the part of
the Court of Appeals in the case at bar that would require this Court to review and overturn the
factual findings of that court, especially since the conclusions of fact of the Court of Appeals and
the trial court are not only consistent but are also amply supported by the evidence on record.
No error was committed by the Court of Appeals when it ruled that the transaction between
private respondent and Doronilla was a commodatum and not a mutuum. A circumspect
examination of the records reveals that the transaction between them was a commodatum.
Article 1933 of the Civil Code distinguishes between the two kinds of loans in this wise:
By the contract of loan, one of the parties delivers to another, either something not consumable
so that the latter may use the same for a certain time and return it, in which case the contract is
called a commodatum; or money or other consumable thing, upon the condition that the same
amount of the same kind and quality shall be paid, in which case the contract is simply called a
loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.

It argues further that petitioners Assistant Manager, Mr. Rufo Atienza, could not be faulted for
allowing Doronilla to withdraw from the savings account of Sterela since the latter was the sole
proprietor of said company. Petitioner asserts that Doronillas May 8, 1979 letter addressed to
the bank, authorizing Mrs. Vives and Sanchez to open a savings account for Sterela, did not
contain any authorization for these two to withdraw from said account. Hence, the authority to
withdraw therefrom remained exclusively with Doronilla, who was the sole proprietor of Sterela,
and who alone had legal title to the savings account.[17] Petitioner points out that no evidence
other than the testimonies of private respondent and Mrs. Vives was presented during trial to
prove that private respondent deposited his P200,000.00 in Sterelas account for purposes of its
incorporation.[18] Hence, petitioner should not be held liable for allowing Doronilla to withdraw
from Sterelas savings account. Petitioner also asserts that the Court of Appeals erred in
affirming the trial courts decision since the findings of fact therein were not accord with the
evidence presented by petitioner during trial to prove that the transaction between private
respondent and Doronilla was a mutuum, and that it committed no wrong in allowing Doronilla to
withdraw from Sterelas savings account.[19] Finally, petitioner claims that since there is no
wrongful act or omission on its part, it is not liable for the actual damages suffered by private
respondent, and neither may it be held liable for moral and exemplary damages as well as
attorneys fees.[20] Private respondent, on the other hand, argues that the transaction between
him and Doronilla is not a mutuum but an accommodation,[21] since he did not actually part with
the ownership of his P200,000.00 and in fact asked his wife to deposit said amount in the
account of Sterela so that a certification can be issued to the effect that Sterela had sufficient
funds for purposes of its incorporation but at the same time, he retained some degree of control
over his money through his wife who was made a signatory to the savings account and in whose
possession the savings account passbook was given.[22]
He likewise asserts that the trial court did not err in finding that petitioner, Atienzas employer, is
liable for the return of his money. He insists that Atienza, petitioners assistant manager,
connived with Doronilla in defrauding private respondent since it was Atienza who facilitated the
opening of Sterelas current account three days after Mrs. Vives and Sanchez opened a savings
account with petitioner for said company, as well as the approval of the authority to debit
Sterelas savings account to cover any overdrawings in its current account. [23]

In commodatum, the bailor retains the ownership of the thing loaned, while in simple loan,
ownership passes to the borrower.
The foregoing provision seems to imply that if the subject of the contract is a consumable thing,
such as money, the contract would be a mutuum. However, there are some instances where
a commodatum may have for its object a consumable thing. Article 1936 of the Civil Code
provides:
Consumable goods may be the subject of commodatum if the purpose of the contract is not the
consumption of the object, as when it is merely for exhibition.
Thus, if consumable goods are loaned only for purposes of exhibition, or when the intention of
the parties is to lend consumable goods and to have the very same goods returned at the end of
the period agreed upon, the loan is acommodatum and not a mutuum.
The rule is that the intention of the parties thereto shall be accorded primordial consideration in
determining the actual character of a contract.[27] In case of doubt, the contemporaneous and
subsequent acts of the parties shall be considered in such determination.[28]
As correctly pointed out by both the Court of Appeals and the trial court, the evidence shows that
private respondent agreed to deposit his money in the savings account of Sterela specifically for
the purpose of making it appear that said firm had sufficient capitalization for incorporation, with
the promise that the amount shall be returned within thirty (30) days.[29] Private respondent
merely accommodated Doronilla by lending his money without consideration, as a favor to his
good friend Sanchez. It was however clear to the parties to the transaction that the money would
not be removed from Sterelas savings account and would be returned to private respondent
after thirty (30) days. Doronillas attempts to return to private respondent the amount of
P200,000.00 which the latter deposited in Sterelas account together with an additional
P12,000.00, allegedly representing interest on the mutuum, did not convert the transaction from
a commodatum into a mutuum because such was not the intent of the parties and because the
additional P12,000.00 corresponds to the fruits of the lending of the P200,000.00. Article 1935 of
the Civil Code expressly states that [t]he bailee in commodatum acquires the use of the thing
loaned but not its fruits. Hence, it was only proper for Doronilla to remit to private respondent
the interest accruing to the latters money deposited with petitioner.

There is no merit in the petition.

At the outset, it must be emphasized that only questions of law may be raised in a petition for

Neither does the Court agree with petitioners contention that it is not solidarily liable for the
return of private respondents money because it was not privy to the transaction between

Doronilla and private respondent. The nature of said transaction, that is, whether it is
a mutuum or a commodatum, has no bearing on the question of petitioners liability for the return
of private respondents money because the factual circumstances of the case clearly show that
petitioner, through its employee Mr. Atienza, was partly responsible for the loss of private
respondents money and is liable for its restitution.
Petitioners rules for savings deposits written on the passbook it issued Mrs. Vives on behalf of
Sterela for Savings Account No. 10-1567 expressly states that
2. Deposits and withdrawals must be made by the depositor personally or upon his written
authority duly authenticated, and neither a deposit nor a withdrawal will be permitted except
upon the production of the depositor savings bank book in which will be entered by the
Bank the amount deposited or withdrawn.[30]
Said rule notwithstanding, Doronilla was permitted by petitioner, through Atienza, the Assistant
Branch Manager for the Buendia Branch of petitioner, to withdraw therefrom even without
presenting the passbook (which Atienza very well knew was in the possession of Mrs. Vives),
not just once, but several times. Both the Court of Appeals and the trial court found that Atienza
allowed said withdrawals because he was party to Doronillas scheme of defrauding private
respondent:
But the scheme could not have been executed successfully without the knowledge, help and
cooperation of Rufo Atienza, assistant manager and cashier of the Makati (Buendia) branch of
the defendant bank. Indeed, the evidence indicates that Atienza had not only facilitated the
commission of the fraud but he likewise helped in devising the means by which it can be done in
such manner as to make it appear that the transaction was in accordance with banking
procedure.
To begin with, the deposit was made in defendants Buendia branch precisely because Atienza
was a key officer therein. The records show that plaintiff had suggested that the P200,000.00 be
deposited in his bank, the Manila Banking Corporation, but Doronilla and Dumagpi insisted that
it must be in defendants branch in Makati for it will be easier for them to get a certification. In
fact before he was introduced to plaintiff, Doronilla had already prepared a letter addressed to
the Buendia branch manager authorizing Angeles B. Sanchez and company to open a savings
account for Sterela in the amount of P200,000.00, as per coordination with Mr. Rufo Atienza,
Assistant Manager of the Bank x x x (Exh. 1). This is a clear manifestation that the other
defendants had been in consultation with Atienza from the inception of the scheme. Significantly,
there were testimonies and admission that Atienza is the brother-in-law of a certain Romeo
Mirasol, a friend and business associate of Doronilla. Then there is the matter of the ownership
of the fund. Because of the coordination between Doronilla and Atienza, the latter knew before
hand that the money deposited did not belong to Doronilla nor to Sterela. Aside from such
foreknowledge, he was explicitly told by Inocencia Vives that the money belonged to her and her
husband and the deposit was merely to accommodate Doronilla. Atienza even declared that the
money came from Mrs. Vives. Although the savings account was in the name of Sterela, the
bank records disclose that the only ones empowered to withdraw the same were Inocencia
Vives and Angeles B. Sanchez. In the signature card pertaining to this account (Exh. J), the
authorized signatories were Inocencia Vives &/or Angeles B. Sanchez. Atienza stated that it is
the usual banking procedure that withdrawals of savings deposits could only be made by
persons whose authorized signatures are in the signature cards on file with the bank. He,
however, said that this procedure was not followed here because Sterela was owned by
Doronilla. He explained that Doronilla had the full authority to withdraw by virtue of such
ownership. The Court is not inclined to agree with Atienza. In the first place, he was all the time
aware that the money came from Vives and did not belong to Sterela. He was also told by Mrs.
Vives that they were only accommodating Doronilla so that a certification can be issued to the
effect that Sterela had a deposit of so much amount to be sued in the incorporation of the firm. In
the second place, the signature of Doronilla was not authorized in so far as that account is
concerned inasmuch as he had not signed the signature card provided by the bank whenever a
deposit is opened. In the third place, neither Mrs. Vives nor Sanchez had given Doronilla the
authority to withdraw.
Moreover, the transfer of fund was done without the passbook having been presented. It is an

accepted practice that whenever a withdrawal is made in a savings deposit, the bank requires
the presentation of the passbook. In this case, such recognized practice was dispensed with.
The transfer from the savings account to the current account was without the submission of the
passbook which Atienza had given to Mrs. Vives. Instead, it was made to appear in a
certification signed by Estrella Dumagpi that a duplicate passbook was issued to Sterela
because the original passbook had been surrendered to the Makati branch in view of a loan
accommodation assigning the savings account (Exh. C). Atienza, who undoubtedly had a hand
in the execution of this certification, was aware that the contents of the same are not true. He
knew that the passbook was in the hands of Mrs. Vives for he was the one who gave it to her.
Besides, as assistant manager of the branch and the bank official servicing the savings and
current accounts in question, he also was aware that the original passbook was never
surrendered. He was also cognizant that Estrella Dumagpi was not among those authorized to
withdraw so her certification had no effect whatsoever.
The circumstance surrounding the opening of the current account also demonstrate that
Atienzas active participation in the perpetration of the fraud and deception that caused the loss.
The records indicate that this account was opened three days later after the P200,000.00 was
deposited. In spite of his disclaimer, the Court believes that Atienza was mindful and posted
regarding the opening of the current account considering that Doronilla was all the while in
coordination with him. That it was he who facilitated the approval of the authority to debit the
savings account to cover any overdrawings in the current account (Exh. 2) is not hard to
comprehend.
Clearly Atienza had committed wrongful acts that had resulted to the loss subject of this case.
Under Article 2180 of the Civil Code, employers shall be held primarily and solidarily liable for
damages caused by their employees acting within the scope of their assigned tasks. To hold the
employer liable under this provision, it must be shown that an employer-employee relationship
exists, and that the employee was acting within the scope of his assigned task when the act
complained of was committed.[32] Case law in the United States of America has it that a
corporation that entrusts a general duty to its employee is responsible to the injured party for
damages flowing from the employees wrongful act done in the course of his general authority,
even though in doing such act, the employee may have failed in its duty to the employer and
disobeyed the latters instructions.[33]
There is no dispute that Atienza was an employee of petitioner. Furthermore, petitioner did not
deny that Atienza was acting within the scope of his authority as Assistant Branch Manager
when he assisted Doronilla in withdrawing funds from Sterelas Savings Account No. 10-1567, in
which account private respondents money was deposited, and in transferring the money
withdrawn to Sterelas Current Account with petitioner. Atienzas acts of helping Doronilla, a
customer of the petitioner, were obviously done in furtherance of petitioners interests [34] even
though in the process, Atienza violated some of petitioners rules such as those stipulated in its
savings account passbook.[35] It was established that the transfer of funds from Sterelas savings
account to its current account could not have been accomplished by Doronilla without the
invaluable assistance of Atienza, and that it was their connivance which was the cause of private
respondents loss.
The foregoing shows that the Court of Appeals correctly held that under Article 2180 of the Civil
Code, petitioner is liable for private respondents loss and is solidarily liable with Doronilla and
Dumagpi for the return of the P200,000.00 since it is clear that petitioner failed to prove that it
exercised due diligence to prevent the unauthorized withdrawals from Sterelas savings account,
and that it was not negligent in the selection and supervision of Atienza. Accordingly, no error
was committed by the appellate court in the award of actual, moral and exemplary damages,
attorneys fees and costs of suit to private respondent.
WHEREFORE, the petition is hereby DENIED. The assailed Decision and Resolution of the
Court of Appeals areAFFIRMED.
SO ORDERED. Bellosillo, (Chairman), Mendoza, Quisumbing, and Austria-Martinez, JJ.,
concur.
[ G.R. No. 179096, February 06, 2013 ]

JOSEPH GOYANKO, JR., AS ADMINISTRATOR OF THE ESTATE OF JOSEPH GOYANKO,

SR., PETITIONER, VS. UNITED COCONUT PLANTERS BANK, MANGO AVENUE BRANCH,
RESPONDENT.
DECISION
BRION, J.:
We resolve the petition for review on certiorari[1] filed by petitioner Joseph Goyanko, Jr.,
administrator of the Estate of Joseph Goyanko, Sr., to nullify the decision [2] dated February 20,
2007 and the resolution[3] dated July 31, 2007 of the Court of Appeals (CA) in CA-G.R. CV. No.
00257 affirming the decision[4] of the Regional Trial Court of Cebu City, Branch 16 (RTC) in Civil
Case No. CEB-22277. The RTC dismissed the petitioners complaint for recovery of sum of
money against United Coconut Planters Bank, Mango Avenue Branch (UCPB).
The Factual Antecedents
In 1995, the late Joseph Goyanko, Sr. (Goyanko) invested Two Million Pesos (P2,000,000.00)
with Philippine Asia Lending Investors, Inc. (PALII); he died before the investment matured.
Goyankos legitimate family, represented by the petitioner, and his illegitimate family presented
conflicting claims to PALII for the release of the investment. Pending the investigation of the
conflicting claims, PALII deposited the proceeds of the investment with UCPB on October 29,
1996[5] under the name Phil Asia: ITF (In Trust For) The Heirs of Joseph Goyanko, Sr.
(ACCOUNT). On September 27, 1997, the deposit under the ACCOUNT was P1,509,318.76.
On December 11, 1997, UCPB allowed PALII to withdraw One Million Five Hundred Thousand
Pesos (P1,500,000.00) from the Account, leaving a balance of only P9,318.76. When UCPB
refused the demand to restore the amount withdrawn plus legal interest from December 11,
1997, the petitioner filed a complaint before the RTC. In its answer to the complaint, UCPB
admitted, among others, the opening of the ACCOUNT under the name ITF (In Trust For) The
Heirs of Joseph Goyanko, Sr., (ITF HEIRS) and the withdrawal on December 11, 1997.
The RTC Ruling
In its August 27, 2003 decision, the RTC dismissed the petitioners complaint and awarded
UCPB attorneys fees, litigation expenses and the costs of the suit. [6] The RTC did not consider
the words ITF HEIRS sufficient to charge UCPB with knowledge of any trust relation between
PALII and Goyankos heirs (HEIRS). It concluded that UCPB merely performed its duty as a
depository bank in allowing PALII to withdraw from the ACCOUNT, as the contract of deposit
was officially only between PALII, in its own capacity, and UCPB. The petitioner appealed his
case to the CA.
The CAs Ruling
Before the CA, the petitioner maintained that by opening the ACCOUNT, PALII established a
trust by which it was the trustee and the HEIRS are the trustors-beneficiaries; thus,
UCPB should be liable for allowing the withdrawal.
The CA partially granted the petitioners appeal. It affirmed the August 27, 2003 decision of the
RTC, but deleted the award of attorneys fees and litigation expenses. The CA held that no
express trust was created between the HEIRS and PALII. For a trust to be established, the law
requires, among others, a competent trustor and trustee and a clear intention to create a trust,
which were absent in this case. Quoting the RTC with approval, the CA noted that the contract
of deposit was only between PALII in its own capacity and UCPB, and the words ITF HEIRS
were insufficient to establish the existence of a trust. The CA concluded that as no trust existed,
expressly or impliedly, UCPB is not liable for the amount withdrawn.[7]
In its July 31, 2007 resolution,[8] the CA denied the petitioners motion for reconsideration.
Hence, the petitioners present recourse.

The Petition
The petitioner argues in his petition that: first, an express trust was created, as clearly shown by
PALIIs March 28, 1996 and November 15, 1996 letters.[9] Citing jurisprudence, the petitioner
emphasizes that from the established definition of a trust,[10] PALII is clearly the trustor as it
created the trust; UCPB is the trustee as it is the party in whom confidence is reposed as
regards the property for the benefit of another; and the HEIRS are the beneficiaries as they are
the persons for whose benefit the trust is created.[11] Also, quoting Development Bank of the
Philippines v. Commission on Audit,[12] the petitioner argues that the naming of the cestui que
trust is not necessary as it suffices that they are adequately certain or identifiable.[13]
Second, UCPB was negligent and in bad faith in allowing the withdrawal and in failing to inquire
into the nature of the ACCOUNT.[14] The petitioner maintains that the surrounding facts, the
testimony of UCPBs witness, and UCPBs own records showed that: (1) UCPB was aware of
the trust relation between PALII and the HEIRS; and (2) PALII held the ACCOUNT in a trust
capacity. Finally, the CA erred in affirming the RTCs dismissal of his case for lack of cause of
action. The petitioner insists that since an express trust clearly exists, UCPB, the trustee, should
not have allowed the withdrawal.
The Case for UCPB
UCPB posits, in defense, that the ACCOUNT involves an ordinary deposit contract between
PALII and UCPB only, which created a debtor-creditor relationship obligating UCPB to return the
proceeds to the account holder-PALII. Thus, it was not negligent in handling the ACCOUNT
when it allowed the withdrawal. The mere designation of the ACCOUNT as ITF is insufficient
to establish the existence of an express trust or charge it with knowledge of the relation between
PALII and the HEIRS.
UCPB also argues that the petitioner changed the theory of his case. Before the CA, the
petitioner argued that the HEIRS are the trustors-beneficiaries, and PALII is the trustee. Here,
the petitioner maintains that PALII is the trustor, UCPB is the trustee, and the HEIRS are the
beneficiaries. Contrary to the petitioners assertion, the records failed to show that PALII and
UCPB executed a trust agreement, and PALIIs letters made it clear that PALII, on its own,
intended to turn-over the proceeds of the ACCOUNT to its rightful owners.
The Courts Ruling
The issue before us is whether UCPB should be held liable for the amount withdrawn because a
trust agreement existed between PALII and UCPB, in favor of the HEIRS, when PALII opened
the ACCOUNT with UCPB.
We rule in the negative.
We first address the procedural issues. We stress the settled rule that a petition for review
on certiorari under Rule 45 of the Rules of Court resolves only questions of law, not questions of
fact.[15] A question, to be one of law, must not examine the probative value of the evidence
presented by the parties;[16] otherwise, the question is one of fact.[17] Whether an express trust
exists in this case is a question of fact whose resolution is not proper in a petition under Rule
45. Reinforcing this is the equally settled rule that factual findings of the lower tribunals are
conclusive on the parties and are not generally reviewable by this Court,[18] especially when, as
here, the CA affirmed these findings. The plain reason is that this Court is not a trier of facts.
[19]
While this Court has, at times, permitted exceptions from the restriction,[20] we find that none
of these exceptions obtain in the present case.
Second, we find that the petitioner changed the theory of his case. The petitioner argued before
the lower courts that an express trust exists between PALII as the trustee and the HEIRS as the
trustor-beneficiary.[21] The petitioner now asserts that the express trust exists between PALII as
the trustor and UCPB as the trustee, with the HEIRS as the beneficiaries.[22] At this stage of the

case, such change of theory is simply not allowed as it violates basic rules of fair play, justice
and due process. Our rulings are clear - a party who deliberately adopts a certain theory
upon which the case was decided by the lower court will not be permitted to change [it] on
appeal;[23]otherwise, the lower courts will effectively be deprived of the opportunity to decide the
merits of the case fairly.[24] Besides, courts of justice are devoid of jurisdiction to resolve a
question not in issue.[25] For these reasons, the petition must fail. Independently of these, the
petition must still be denied.
No express trust exists; UCPB exercised the required diligence in handling the
ACCOUNT; petitioner has no cause of action against UCPB
A trust, either express or implied,[26] is the fiduciary relationship x x x between one person
having an equitable ownership of property and another person owning the legal title to such
property, the equitable ownership of the former entitling him to the performance of certain duties
and the exercise of certain powers by the latter.[27] Express or direct trusts are created by the
direct and positive acts of the trustor or of the parties.[28] No written words are required to create
an express trust. This is clear from Article 1444 of the Civil Code,[29] but, the creation of an
express trust must be firmly shown; it cannot be assumed from loose and vague declarations or
circumstances capable of other interpretations.[30]
In Rizal Surety & Insurance Co. v. CA,[31] we laid down the requirements before an express trust
will be recognized:
Basically, these elements include a competent trustor and trustee, an ascertainable trust
res, and sufficiently certain beneficiaries. xxx each of the above elements is required to
be established, and, if any one of them is missing, it is fatal to the trusts (sic).
Furthermore, there must be a present and complete disposition of the trust property,
notwithstanding that the enjoyment in the beneficiary will take place in the future. It is
essential, too, that the purpose be an active one to prevent trust from being executed into a legal
estate or interest, and one that is not in contravention of some prohibition of statute or rule of
public policy. There must also be some power of administration other than a mere duty to
perform a contract although the contract is for a third-party beneficiary. A declaration of
terms is essential, and these must be stated with reasonable certainty in order that the
trustee may administer, and that the court, if called upon so to do, may enforce, the trust.
[emphasis ours]
Under these standards, we hold that no express trust was created. First, while an ascertainable
trust res and sufficiently certain beneficiaries may exist, a competent trustor and trustee do
not. Second, UCPB, as trustee of the ACCOUNT, was never under any equitable duty to deal
with or given any power of administration over it. On the contrary, it was PALII that undertook
the duty to hold the title to the ACCOUNT for the benefit of the HEIRS. Third, PALII, as the
trustor, did not have the right to the beneficial enjoyment of the ACCOUNT. Finally, the terms
by which UCPB is to administer the ACCOUNT was not shown with reasonable certainty. While
we agree with the petitioner that a trusts beneficiaries need not be particularly identified for a
trust to exist, the intention to create an express trust must first be firmly established, along
with the other elements laid above; absent these, no express trust exists.
Contrary to the petitioners contention, PALIIs letters and UCPBs records established UCPBs
participation as a mere depositary of the proceeds of the investment. In the March 28, 1996
letter, PALII manifested its intention to pursue an active role in and up to the turnover of those
proceeds to their rightful owners,[32] while in the November 15, 1996 letter, PALII begged the
petitioner to trust it with the safekeeping of the investment proceeds and documents.[33] Had it
been PALIIs intention to create a trust in favor of the HEIRS, it would have relinquished any right
or claim over the proceeds in UCPBs favor as the trustee. As matters stand, PALII never did.
UCPBs records and the testimony of UCPBs witness[34] likewise lead us to the same
conclusion. While the words ITF HEIRS may have created the impression that a trust account
was created, a closer scrutiny reveals that it is an ordinary savings account.[35] We give

credence to UCPBs explanation that the word ITF was merely used to distinguish the
ACCOUNT from PALIIs other accounts with UCPB. A trust can be created without using the
word trust or trustee, but the mere use of these words does not automatically reveal an
intention to create a trust.[36] If at all, these words showed a trustee-beneficiary relationship
between PALII and the HEIRS.
Contrary to the petitioners position, UCPB did not become a trustee by the mere opening of the
ACCOUNT. While this may seem to be the case, by reason of the fiduciary nature of the banks
relationship with its depositors,[37] this fiduciary relationship does not convert the contract
between the bank and its depositors from a simple loan to a trust agreement, whether express
or implied.[38] It simply means that the bank is obliged to observe high standards of integrity
and performance in complying with its obligations under the contract of simple loan.[39] Per
Article 1980 of the Civil Code,[40] a creditor-debtor relationship exists between the bank and its
depositor.[41] The savings deposit agreement is between the bank and the depositor;[42] by
receiving the deposit, the bank impliedly agrees to pay upon demand and only upon the
depositors order.[43]
Since the records and the petitioners own admission showed that the ACCOUNT was opened
by PALII, UCPBs receipt of the deposit signified that it agreed to pay PALII upon its demand and
only upon its order. Thus, when UCPB allowed PALII to withdraw from the ACCOUNT, it was
merely performing its contractual obligation under their savings deposit agreement. No
negligence or bad faith[44] can be imputed to UCPB for this action. As far as UCPB was
concerned, PALII is the account holder and not the HEIRS. As we held in Fulton Iron Works Co.
v. China Banking Corporation,[45] the banks duty is to its creditor-depositor and not to third
persons. Third persons, like the HEIRS here, who may have a right to the money deposited,
cannot hold the bank responsible unless there is a court order or garnishment.[46] The
petitioners recourse is to go before a court of competent jurisdiction to prove his valid right over
the money deposited.
In these lights, we find the third assignment of error mooted. A cause of action requires that
there be a right existing in favor of the plaintiff, the defendants obligation to respect that right,
and an act or omission of the defendant in breach of that right.[47] We reiterate that UCPBs
obligation was towards PALII as its creditor-depositor. While the HEIRS may have a valid claim
over the proceeds of the investment, the obligation to turn-over those proceeds lies with PALII.
Since no trust exists, the petitioners complaint was correctly dismissed and the CA did not
commit any reversible error in affirming the RTC decision. One final note, the burden to prove
the existence of an express trust lies with the petitioner.[48] For his failure to discharge this
burden, the petition must fail.
WHEREFORE, in view of these considerations, we hereby DENY the petition and AFFIRM the
decision dated February 20, 2007 and the resolution dated July 31, 2007 of the Court of Appeals
in CA-G.R. CV. No. 00257. Costs against the petitioner.
SO ORDERED. Carpio, (Chairperson), Del Castillo, Perez, and Perlas-Bernabe, JJ., cocnur.

The debiting from another account of private respondent Salazar, considering that her other
account was effectively closed, was not his concern.
[ G.R. NO. 136202, January 25, 2007 ]
BANK OF THE PHILIPPINE ISLANDS, PETITIONER, VS. COURT OF APPEALS, ANNABELLE
A. SALAZAR, AND JULIO R. TEMPLONUEVO, RESPONDENTS.
DECISION
AZCUNA, J.:
This is a petition for review under Rule 45 of the Rules of Court seeking the reversal of the
Decision[1] dated April 3, 1998, and the Resolution[2] dated November 9, 1998, of the Court of
Appeals in CA-G.R. CV No. 42241.
The facts[3] are as follows:
A.A. Salazar Construction and Engineering Services filed an action for a sum of money with
damages against herein petitioner Bank of the Philippine Islands (BPI) on December 5, 1991
before Branch 156 of the Regional Trial Court (RTC) of Pasig City. The complaint was later
amended by substituting the name of Annabelle A. Salazar as the real party in interest in place
of A.A. Salazar Construction and Engineering Services. Private respondent Salazar prayed for
the recovery of the amount of Two Hundred Sixty-Seven Thousand, Seven Hundred Seven
Pesos and Seventy Centavos (P267,707.70) debited by petitioner BPI from her account. She
likewise prayed for damages and attorneys fees.
Petitioner BPI, in its answer, alleged that on August 31, 1991, Julio R. Templonuevo, third-party
defendant and herein also a private respondent, demanded from the former payment of the
amount of Two Hundred Sixty-Seven Thousand, Six Hundred Ninety-Two Pesos and Fifty
Centavos (P267,692.50) representing the aggregate value of three (3) checks, which were
allegedly payable to him, but which were deposited with the petitioner bank to private
respondent Salazars account (Account No. 0203-1187-67) without his knowledge and
corresponding endorsement.
Accepting that Templonuevos claim was a valid one, petitioner BPI froze Account No. 02010588-48 of A.A. Salazar and Construction and Engineering Services, instead of Account No.
0203-1187-67 where the checks were deposited, since this account was already closed by
private respondent Salazar or had an insufficient balance.
Private respondent Salazar was advised to settle the matter with Templonuevo but they did not
arrive at any settlement. As it appeared that private respondent Salazar was not entitled to the
funds represented by the checks which were deposited and accepted for deposit, petitioner BPI
decided to debit the amount of P267,707.70 from her Account No. 0201-0588-48 and the sum of
P267,692.50 was paid to Templonuevo by means of a cashiers check. The difference between
the value of the checks (P267,692.50) and the amount actually debited from her account
(P267,707.70) represented bank charges in connection with the issuance of a cashiers check to
Templonuevo.
In the answer to the third-party complaint, private respondent Templonuevo admitted the
payment to him of P267,692.50 and argued that said payment was to correct the malicious
deposit made by private respondent Salazar to her private account, and that petitioner banks
negligence and tolerance regarding the matter was violative of the primary and ordinary rules of
banking. He likewise contended that the debiting or taking of the reimbursed amount from the
account of private respondent Salazar by petitioner BPI was a matter exclusively between said
parties and may be pursuant to banking rules and regulations, but did not in any way affect him.

After trial, the RTC rendered a decision, the dispositive portion of which reads thus:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff
[private respondent Salazar] and against the defendant [petitioner BPI] and ordering the latter to
pay as follows:
1.

The amount of P267,707.70 with 12% interest thereon from September 16, 1991 until
the said amount is fully paid;
2.
The amount of P30,000.00 as and for actual damages;
3.
The amount of P50,000.00 as and for moral damages;
4.
The amount of P50,000.00 as and for exemplary damages;
5.
The amount of P30,000.00 as and for attorneys fees; and
6.
Costs of suit.
The counterclaim is hereby ordered DISMISSED for lack of factual basis.
The third-party complaint [filed by petitioner] is hereby likewise ordered DISMISSED for lack of
merit.
Third-party defendants [i.e., private respondent Templonuevos] counterclaim is hereby likewise
DISMISSED for lack of factual basis.
SO ORDERED.[4]
On appeal, the Court of Appeals (CA) affirmed the decision of the RTC and held that respondent
Salazar was entitled to the proceeds of the three (3) checks notwithstanding the lack of
endorsement thereon by the payee. The CA concluded that Salazar and Templonuevo had
previously agreed that the checks payable to JRT Construction and Trading[5] actually belonged
to Salazar and would be deposited to her account, with petitioner acquiescing to the
arrangement.[6]
Petitioner therefore filed this petition on these grounds:
I.
The Court of Appeals committed reversible error in misinterpreting Section 49 of the Negotiable
Instruments Law and Section 3 (r and s) of Rule 131 of the New Rules on Evidence.
II.
The Court of Appeals committed reversible error in NOT applying the provisions of Articles 22,
1278 and 1290 of the Civil Code in favor of BPI.
III.
The Court of Appeals committed a reversible error in holding, based on a misapprehension of
facts, that the account from which BPI debited the amount of P267,707.70 belonged to a
corporation with a separate and distinct personality.
IV.
The Court of Appeals committed a reversible error in holding, based entirely on speculations,
surmises or conjectures, that there was an agreement between SALAZAR and TEMPLONUEVO
that checks payable to TEMPLONUEVO may be deposited by SALAZAR to her personal
account and that BPI was privy to this agreement.
V.

The Court of Appeals committed reversible error in holding, based entirely on speculation,
surmises or conjectures, that SALAZAR suffered great damage and prejudice and that her
business standing was eroded.
VI.
The Court of Appeals erred in affirming instead of reversing the decision of the lower court
against BPI and dismissing SALAZARs complaint.
VII.
The Honorable Court erred in affirming the decision of the lower court dismissing the third-party
complaint of BPI.[7]
The issues center on the propriety of the deductions made by petitioner from private respondent
Salazars account. Stated otherwise, does a collecting bank, over the objections of its depositor,
have the authority to withdraw unilaterally from such depositors account the amount it had
previously paid upon certain unendorsed order instruments deposited by the depositor to
another account that she later closed?
Petitioner argues thus:
1.

There is no presumption in law that a check payable to order, when found in the
possession of a person who is neither a payee nor the indorsee thereof, has been lawfully
transferred for value. Hence, the CA should not have presumed that Salazar was a
transferee for value within the contemplation of Section 49 of the Negotiable Instruments
Law,[8] as the latter applies only to a holder defined under Section 191of the same. [9]

2.

Salazar failed to adduce sufficient evidence to prove that her possession of the three
checks was lawful despite her allegations that these checks were deposited pursuant to a
prior internal arrangement with Templonuevo and that petitioner was privy to the
arrangement.

3.

The CA should have applied the Civil Code provisions on legal compensation because
in deducting the subject amount from Salazars account, petitioner was merely rectifying the
undue payment it made upon the checks and exercising its prerogative to alter or modify an
erroneous credit entry in the regular course of its business.

4.

The debit of the amount from the account of A.A. Salazar Construction and
Engineering Services was proper even though the value of the checks had been originally
credited to the personal account of Salazar because A.A. Salazar Construction and
Engineering Services, an unincorporated single proprietorship, had no separate and distinct
personality from Salazar.

5.

Assuming the deduction from Salazars account was improper, the CA should not
have dismissed petitioners third-party complaint against Templonuevo because the latter
would have the legal duty to return to petitioner the proceeds of the checks which he
previously received from it.

6.
There was no factual basis for the award of damages to Salazar.
The petition is partly meritorious.
First, the issue raised by petitioner requires an inquiry into the factual findings made by the CA.
The CAs conclusion that the deductions from the bank account of A.A. Salazar Construction and
Engineering Services were improper stemmed from its finding that there was no ineffective
payment to Salazar which would call for the exercise of petitioners right to set off against the
formers bank deposits. This finding, in turn, was drawn from the pleadings of the parties, the

evidence adduced during trial and upon the admissions and stipulations of fact made during the
pre-trial, most significantly the following:
(a) That Salazar previously had in her possession the following checks:
(1) Solid Bank Check No. CB766556 dated January 30, 1990 in the amount of P57,712.50;
(2) Solid Bank Check No. CB898978 dated July 31, 1990 in the amount of P55,180.00; and,
(3) Equitable Banking Corporation Check No. 32380638 dated August 28, 1990 for the amount
of P154,800.00;
(b) That these checks which had an aggregate amount of P267,692.50 were payable to the
order of JRT Construction and Trading, the name and style under which Templonuevo does
business;
(c) That despite the lack of endorsement of the designated payee upon such checks, Salazar
was able to deposit the checks in her personal savings account with petitioner and encash the
same;
(d) That petitioner accepted and paid the checks on three (3) separate occasions over a span of
eight months in 1990; and
(e) That Templonuevo only protested the purportedly unauthorized encashment of the checks
after the lapse of one year from the date of the last check.[10]
Petitioner concedes that when it credited the value of the checks to the account of private
respondent Salazar, it made a mistake because it failed to notice the lack of endorsement
thereon by the designated payee. The CA, however, did not lend credence to this claim and
concluded that petitioners actions were deliberate, in view of its admission that the mistake
was committed three times on three separate occasions, indicating acquiescence to the internal
arrangement between Salazar and Templonuevo. The CA explained thus:
It was quite apparent that the three checks which appellee Salazar deposited were not indorsed.
Three times she deposited them to her account and three times the amounts borne by these
checks were credited to the same. And in those separate occasions, the bank did not return the
checks to her so that she could have them indorsed. Neither did the bank question her as to why
she was depositing the checks to her account considering that she was not the payee thereof,
thus allowing us to come to the conclusion that defendant-appellant BPI was fully aware that the
proceeds of the three checks belong to appellee.
For if the bank was not privy to the agreement between Salazar and Templonuevo, it is most
unlikely that appellant BPI (or any bank for that matter) would have accepted the checks for
deposit on three separate times nary any question. Banks are most finicky over accepting
checks for deposit without the corresponding indorsement by their payee. In fact, they hesitate
to accept indorsed checks for deposit if the depositor is not one they know very well.[11]
The CA likewise sustained Salazars position that she received the checks from Templonuevo
pursuant to an internal arrangement between them, ratiocinating as follows:
If there was indeed no arrangement between Templonuevo and the plaintiff over the three
questioned checks, it baffles us why it was only on August 31, 1991 or more than a year after the
third and last check was deposited that he demanded for the refund of the total amount of
P267,692.50.
A prudent man knowing that payment is due him would have demanded payment by his debtor
from the moment the same became due and demandable. More so if the sum involved runs in
hundreds of thousand of pesos. By and large, every person, at the very moment he learns that
he was deprived of a thing which rightfully belongs to him, would have created a big fuss. He

would not have waited for a year within which to do so. It is most inconceivable that
Templonuevo did not do this.[12]
Generally, only questions of law may be raised in an appeal by certiorari under Rule 45 of the
Rules of Court.[13]Factual findings of the CA are entitled to great weight and respect, especially
when the CA affirms the factual findings of the trial court.[14] Such questions on whether certain
items of evidence should be accorded probative value or weight, or rejected as feeble or
spurious, or whether or not the proofs on one side or the other are clear and convincing and
adequate to establish a proposition in issue, are questions of fact. The same holds true for
questions on whether or not the body of proofs presented by a party, weighed and analyzed in
relation to contrary evidence submitted by the adverse party may be said to be strong, clear and
convincing, or whether or not inconsistencies in the body of proofs of a party are of such gravity
as to justify refusing to give said proofs weight all these are issues of fact which are not
reviewable by the Court.[15]
This rule, however, is not absolute and admits of certain exceptions, namely: a) when the
conclusion is a finding grounded entirely on speculations, surmises, or conjectures; b) when the
inference made is manifestly mistaken, absurd, or impossible; c) when there is a grave abuse of
discretion; d) when the judgment is based on a misapprehension of facts; e) when the findings of
fact are conflicting; f) when the CA, in making its findings, went beyond the issues of the case
and the same are contrary to the admissions of both appellant and appellee; g) when the
findings of the CA are contrary to those of the trial court; h) when the findings of fact are
conclusions without citation of specific evidence on which they are based; i) when the finding of
fact of the CA is premised on the supposed absence of evidence but is contradicted by the
evidence on record; and j) when the CA manifestly overlooked certain relevant facts not disputed
by the parties and which, if properly considered, would justify a different conclusion.[16]
In the present case, the records do not support the finding made by the CA and the trial court
that a prior arrangement existed between Salazar and Templonuevo regarding the transfer of
ownership of the checks. This fact is crucial as Salazars entitlement to the value of the
instruments is based on the assumption that she is a transferee within the contemplation of
Section 49 of the Negotiable Instruments Law.
Section 49 of the Negotiable Instruments Law contemplates a situation whereby the payee or
indorsee delivers a negotiable instrument for value without indorsing it, thus:
Transfer without indorsement; effect of- Where the holder of an instrument payable to his order
transfers it for value without indorsing it, the transfer vests in the transferee such title as the
transferor had therein, and the transferee acquires in addition, the right to have the indorsement
of the transferor. But for the purpose of determining whether the transferee is a holder in due
course, the negotiation takes effect as of the time when the indorsement is actually made. [17]
It bears stressing that the above transaction is an equitable assignment and the transferee
acquires the instrument subject to defenses and equities available among prior parties. Thus, if
the transferor had legal title, the transferee acquires such title and, in addition, the right to have
the indorsement of the transferor and also the right, as holder of the legal title, to maintain legal
action against the maker or acceptor or other party liable to the transferor. The underlying
premise of this provision, however, is that a valid transfer of ownership of the negotiable
instrument in question has taken place.
Transferees in this situation do not enjoy the presumption of ownership in favor of holders since
they are neither payees nor indorsees of such instruments. The weight of authority is that the
mere possession of a negotiable instrument does not in itself conclusively establish either the
right of the possessor to receive payment, or of the right of one who has made payment to be
discharged from liability. Thus, something more than mere possession by persons who are not
payees or indorsers of the instrument is necessary to authorize payment to them in the absence
of any other facts from which the authority to receive payment may be inferred.[18]

The CA and the trial court surmised that the subject checks belonged to private respondent
Salazar based on the pre-trial stipulation that Templonuevo incurred a one-year delay in
demanding reimbursement for the proceeds of the same. To the Courts mind, however, such
period of delay is not of such unreasonable length as to estop Templonuevo from asserting
ownership over the checks especially considering that it was readily apparent on the face of the
instruments[19] that these were crossed checks.
In State Investment House v. IAC,[20] the Court enumerated the effects of crossing a check, thus:
(1) that the check may not be encashed but only deposited in the bank; (2) that the check may
be negotiated only once - to one who has an account with a bank; and (3) that the act of
crossing the check serves as a warning to the holder that the check has been issued for a
definite purpose so that such holder must inquire if the check has been received pursuant to that
purpose.
Thus, even if the delay in the demand for reimbursement is taken in conjunction with Salazars
possession of the checks, it cannot be said that the presumption of ownership in Templonuevos
favor as the designated payee therein was sufficiently overcome. This is consistent with the
principle that if instruments payable to named payees or to their order have not been indorsed in
blank, only such payees or their indorsees can be holders and entitled to receive payment in
their own right.[21]
The presumption under Section 131(s) of the Rules of Court stating that a negotiable instrument
was given for a sufficient consideration will not inure to the benefit of Salazar because the term
given does not pertain merely to a transfer of physical possession of the instrument. The
phrase given or indorsed in the context of a negotiable instrument refers to the manner in
which such instrument may be negotiated. Negotiable instruments are negotiated by transfer to
one person or another in such a manner as to constitute the transferee the holderthereof. If
payable to bearer it is negotiated by delivery. If payable to order it is negotiated by the
indorsement completed by delivery.[22] The present case involves checks payable to order. Not
being a payee or indorsee of the checks, private respondent Salazar could not be
a holder thereof.
It is an exception to the general rule for a payee of an order instrument to transfer the instrument
without indorsement. Precisely because the situation is abnormal, it is but fair to the maker and
to prior holders to require possessors to prove without the aid of an initial presumption in their
favor, that they came into possession by virtue of a legitimate transaction with the last holder.
[23]
Salazar failed to discharge this burden, and the return of the check proceeds to Templonuevo
was therefore warranted under the circumstances despite the fact that Templonuevo may not
have clearly demonstrated that he never authorized Salazar to deposit the checks or to encash
the same. Noteworthy also is the fact that petitioner stamped on the back of the checks the
words: "All prior endorsements and/or lack of endorsements guaranteed," thereby making the
assurance that it had ascertained the genuineness of all prior endorsements. Having assumed
the liability of a general indorser, petitioners liability to the designated payee cannot be denied.
Consequently, petitioner, as the collecting bank, had the right to debit Salazars account for the
value of the checks it previously credited in her favor. It is of no moment that the account debited
by petitioner was different from the original account to which the proceeds of the check were
credited because both admittedly belonged to Salazar, the former being the account of the sole
proprietorship which had no separate and distinct personality from her, and the latter being her
personal account.
The right of set-off was explained in Associated Bank v. Tan:[24]
A bank generally has a right of set-off over the deposits therein for the payment of any
withdrawals on the part of a depositor. The right of a collecting bank to debit a client's account
for the value of a dishonored check that has previously been credited has fairly been established
by jurisprudence. To begin with, Article 1980 of the Civil Code provides that "[f]ixed, savings, and
current deposits of money in banks and similar institutions shall be governed by the provisions

concerning simple loan.

Hence, the relationship between banks and depositors has been held to be that of creditor and
debtor. Thus, legal compensation under Article 1278 of the Civil Code may take place "when all
the requisites mentioned in Article 1279 are present," as follows:
(1) That each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of
the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons
and communicated in due time to the debtor.
While, however, it is conceded that petitioner had the right of set-off over the amount it paid to
Templonuevo against the deposit of Salazar, the issue of whether it acted judiciously is an
entirely different matter.[25] As businesses affected with public interest, and because of the nature
of their functions, banks are under obligation to treat the accounts of their depositors with
meticulous care, always having in mind the fiduciary nature of their relationship.[26] In this regard,
petitioner was clearly remiss in its duty to private respondent Salazar as its depositor.
To begin with, the irregularity appeared plainly on the face of the checks. Despite the obvious
lack of indorsement thereon, petitioner permitted the encashment of these checks three times on
three separate occasions. This negates petitioners claim that it merely made a mistake in
crediting the value of the checks to Salazars account and instead bolsters the conclusion of the
CA that petitioner recognized Salazars claim of ownership of checks and acted deliberately in
paying the same, contrary to ordinary banking policy and practice. It must be emphasized that
the law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it,
for the purpose of determining their genuineness and regularity. The collecting bank, being
primarily engaged in banking, holds itself out to the public as the expert on this field, and the law
thus holds it to a high standard of conduct.[27]The taking and collection of a check without the
proper indorsement amount to a conversion of the check by the bank.[28]
More importantly, however, solely upon the prompting of Templonuevo, and with full knowledge
of the brewing dispute between Salazar and Templonuevo, petitioner debited the account held in
the name of the sole proprietorship of Salazar without even serving due notice upon her. This
ran contrary to petitioners assurances to private respondent Salazar that the account would
remain untouched, pending the resolution of the controversy between her and Templonuevo.
[29]
In this connection, the CA cited the letter dated September 5, 1991 of Mr. Manuel Ablan,
Senior Manager of petitioner banks Pasig/Ortigas branch, to private respondent Salazar
informing her that her account had been frozen, thus:
From the tenor of the letter of Manuel Ablan, it is safe to conclude that Account No. 0201-058848 will remain frozen or untouched until herein [Salazar] has settled matters with Templonuevo.
But, in an unexpected move, in less than two weeks (eleven days to be precise) from the time
that letter was written, [petitioner] bank issued a cashiers check in the name of Julio R.
Templonuevo of the J.R.T. Construction and Trading for the sum of P267,692.50 (Exhibit 8)
and debited said amount from Ms. Arcillas account No. 0201-0588-48 which was supposed to
be frozen or controlled. Such a move by BPI is, to Our minds, a clear case of negligence, if not a
fraudulent, wanton and reckless disregard of the right of its depositor.
The records further bear out the fact that respondent Salazar had issued several checks drawn
against the account of A.A. Salazar Construction and Engineering Services prior to any notice of
deduction being served. The CA sustained private respondent Salazars claim of damages in
this regard:

The act of the bank in freezing and later debiting the amount of P267,692.50 from the account of
A.A. Salazar Construction and Engineering Services caused plaintiff-appellee great damage and
prejudice particularly when she had already issued checks drawn against the said account. As
can be expected, the said checks bounced. To prove this, plaintiff-appellee presented as exhibits
photocopies of checks dated September 8, 1991, October 28, 1991, and November 14, 1991
(Exhibits D, E and F respectively)[30]
These checks, it must be emphasized, were subsequently dishonored, thereby causing private
respondent Salazar undue embarrassment and inflicting damage to her standing in the business
community. Under the circumstances, she was clearly not given the opportunity to protect her
interest when petitioner unilaterally withdrew the above amount from her account without
informing her that it had already done so.
For the above reasons, the Court finds no reason to disturb the award of damages granted by
the CA against petitioner. This whole incident would have been avoided had petitioner adhered
to the standard of diligence expected of one engaged in the banking business. A depositor has
the right to recover reasonable moral damages even if the banks negligence may not have been
attended with malice and bad faith, if the former suffered mental anguish, serious anxiety,
embarrassment and humiliation.[31] Moral damages are not meant to enrich a complainant at the
expense of defendant. It is only intended to alleviate the moral suffering she has undergone. The
award of exemplary damages is justified, on the other hand, when the acts of the bank are
attended by malice, bad faith or gross negligence. The award of reasonable attorneys fees is
proper where exemplary damages are awarded. It is proper where depositors are compelled to
litigate to protect their interest.[32]
WHEREFORE, the petition is partially GRANTED. The assailed Decision dated April 3, 1998
and Resolution dated April 3, 1998 rendered by the Court of Appeals in CA-G.R. CV No. 42241
are MODIFIED insofar as it ordered petitioner Bank of the Philippine Islands to return the
amount of Two Hundred Sixty-seven Thousand Seven Hundred and Seven and 70/100 Pesos
(P267,707.70) to respondent Annabelle A. Salazar, which portion isREVERSED and SET
ASIDE. In all other respects, the same are AFFIRMED.
No costs. SO ORDERED. Puno C.J., (Chairperson), Sandoval-Gutierrez, Corona, and Garcia,
JJ., concur.

During the pendency of Civil Case No. 95-9344, the spouses Cortez manifested that they were
turning over the balance of the deposit in FEBTC (amounting to P54,534.00) to the spouses
Serfino as partial payment of their obligation under the compromise judgment. The RTC issued
an order dated July 30, 1997, authorizing FEBTC to turn over the balance of the deposit to the
spouses Serfino.
[ G.R. No. 171845, October 10, 2012 ]
SPOUSES GODFREY AND GERARDINA SERFINO, PETITIONERS, VS. FAR EAST BANK
AND TRUST COMPANY, INC., NOW BANK OF THE PHILIPPINE ISLANDS, RESPONDENT.
DECISION
BRION, J.:

On February 23, 2006, the RTC issued the assailed decision (a) finding the spouses Cortez,
Grace and Dante liable for fraudulently diverting the amount due the spouses Serfino, but
(b) absolving FEBTC from any liability for allowing Grace to withdraw the deposit. The
RTC declared that FEBTC was not a party to the compromise judgment; FEBTC was thus not
chargeable with notice of the parties agreement, as there was no valid court order or processes
requiring it to withhold payment of the deposit. Given the nature of bank deposits, FEBTC was
primarily bound by its contract of loan with Grace. There was, therefore, no legal justification for
the bank to refuse payment of the account, notwithstanding the claim of the spouses Serfino as
stated in their three letters.
THE PARTIES ARGUMENTS

[1]

Before the Court is a petition for review on certiorari, filed under Rule 45 of the Rules of Court,
assailing the decision[2] dated February 23, 2006 of the Regional Trial Court (RTC) of Bacolod
City, Branch 41, in Civil Case No. 95-9344.
FACTUAL ANTECEDENTS
The present case traces its roots to the compromise judgment dated October 24, 1995[3] of the
RTC of Bacolod City, Branch 47, in Civil Case No. 95-9880. Civil Case No. 95-9880 was an
action for collection of sum of money instituted by the petitioner spouses Godfrey and Gerardina
Serfino (collectively, spouses Serfino) against the spouses Domingo and Magdalena Cortez
(collectively, spouses Cortez). By way of settlement, the spouses Serfino and the spouses
Cortez executed a compromise agreement on October 20, 1995, in which the spouses Cortez
acknowledged their indebtedness to the spouses Serfino in the amount of P108,245.71. To
satisfy the debt, Magdalena bound herself to pay in full the judgment debt out of her
retirement benefits[.][4] Payment of the debt shall be made one (1) week after Magdalena has
received her retirement benefits from the Government Service Insurance System (GSIS). In
case of default, the debt may be executed against any of the properties of the spouses Cortez
that is subject to execution, upon motion of the spouses Serfino.[5] After finding that the
compromise agreement was not contrary to law, morals, good custom, public order or public
policy, the RTC approved the entirety of the parties agreement and issued a compromise
judgment based thereon.[6] The debt was later reduced to P155,000.00 from P197,000.00
(including interest), with the promise that the spouses Cortez would pay in full the judgment debt
not later than April 23, 1996.[7]
No payment was made as promised. Instead, Godfrey discovered that Magdalena deposited
her retirement benefits in the savings account of her daughter-in-law, Grace Cortez, with the
respondent, Far East Bank and Trust Company, Inc. (FEBTC). As of April 23, 1996, Graces
savings account with FEBTC amounted to P245,830.37, the entire deposit coming from
Magdalenas retirement benefits.[8] That same day, the spouses Serfinos counsel sent two
letters to FEBTC informing the bank that the deposit in Graces name was owned by the
spouses Serfino by virtue of an assignment made in their favor by the spouses Cortez.
The letter requested FEBTC to prevent the delivery of the deposit to either Grace or the spouses
Cortez until its actual ownership has been resolved in court.
On April 25, 1996, the spouses Serfino instituted Civil Case No. 95-9344 against the spouses
Cortez, Grace and her husband, Dante Cortez, and FEBTC for the recovery of money on
deposit and the payment of damages, with a prayer for preliminary attachment.
On April 26, 1996, Grace withdrew P150,000.00 from her savings account with FEBTC. On
the same day, the spouses Serfino sent another letter to FEBTC informing it of the pending
action; attached to the letter was a copy of the complaint filed as Civil Case No. 95-9344.

The spouses Serfino appealed the RTCs ruling absolving FEBTC from liability for
allowing the withdrawal of the deposit. They allege that the RTC cited no legal basis for
declaring that only a court order or process can justify the withholding of the deposit in Graces
name. Since FEBTC was informed of their adverse claim after they sent three letters, they claim
that:
[u]pon receipt of a notice of adverse claim in proper form, it becomes the duty of the bank to:
1. Withhold payment of the deposit until there is a reasonable opportunity to institute legal
proceedings to contest ownership; and 2) give prompt notice of the adverse claim to the
depositor. The bank may be held liable to the adverse claimant if it disregards the notice of
adverse claim and pays the depositor.
When the bank has reasonable notice of a bona fide claim that money deposited with it is
the property of another than the depositor, it should withhold payment until there is
reasonable opportunity to institute legal proceedings to contest the ownership. [9] (emphases and
underscoring supplied)
Aside from the three letters, FEBTC should be deemed bound by the compromise judgment,
since Article 1625 of the Civil Code states that an assignment of credit binds third persons if it
appears in a public instrument.[10] They conclude that FEBTC, having been notified of their
adverse claim, should not have allowed Grace to withdraw the deposit.
While they acknowledged that bank deposits are governed by the Civil Code provisions on loan,
the spouses Serfino allege that the provisions on voluntary deposits should apply by analogy in
this case, particularly Article 1988 of the Civil Code, which states:
Article 1988. The thing deposited must be returned to the depositor upon demand, even though
a specified period or time for such return may have been fixed.
This provision shall not apply when the thing is judicially attached while in the depositarys
possession, or should he have been notified of the opposition of a third person to the
return or the removal of the thing deposited. In these cases, the depositary must immediately
inform the depositor of the attachment or opposition.
Based on Article 1988 of the Civil Code, the depository is not obliged to return the thing to the
depositor if notified of a third partys adverse claim.
By allowing Grace to withdraw the deposit that is due them under the compromise judgment, the
spouses Serfino claim that FEBTC committed an actionable wrong that entitles them to

the payment of actual and moral damages.

FEBTC, on the other hand, insists on the correctness of the RTC ruling. It claims that it is not
bound by the compromise judgment, but only by its contract of loan with its depositor. As a loan,
the bank deposit is owned by the bank; hence, the spouses Serfinos claim of ownership over it
is erroneous.
Based on these arguments, the case essentially involves a determination of the obligation of
banks to a third party who claims rights over a bank deposit standing in the name of
another.
THE COURTS RULING
We find the petition unmeritorious and see no reason to reverse the RTCs ruling.
Claim for actual damages not meritorious because there could be no pecuniary loss
that should be compensated if there was no assignment of credit
The spouses Serfinos claim for damages against FEBTC is premised on their claim of
ownership of the deposit with FEBTC. The deposit consists of Magdalenas retirement benefits,
which the spouses Serfino claim to have been assigned to them under the compromise
judgment. That the retirement benefits were deposited in Graces savings account with FEBTC
supposedly did not divest them of ownership of the amount, as the money already belongs to
the [spouses Serfino] having been absolutely assigned to them and constructively delivered by
virtue of the x x x public instrument[.][11] By virtue of the assignment of credit, the spouses
Serfino claim ownership of the deposit, and they posit that FEBTC was duty bound to protect
their right by preventing the withdrawal of the deposit since the bank had been notified of the
assignment and of their claim.
We find no basis to support the spouses Serfinos claim of ownership of the deposit.
An assignment of credit is an agreement by virtue of which the owner of a credit, known as the
assignor, by a legal cause, such as sale, dation in payment, exchange or donation, and without
the consent of the debtor, transfers his credit and accessory rights to another, known as the
assignee, who acquires the power to enforce it to the same extent as the assignor could enforce
it against the debtor. It may be in the form of sale, but at times it may constitute a dation in
payment, such as when a debtor, in order to obtain a release from his debt, assigns to his
creditor a credit he has against a third person.[12] As a dation in payment, the assignment
of credit operates as a mode of extinguishing the obligation;[13] the delivery and
transmission of ownership of a thing (in this case, the credit due from a third person) by the
debtor to the creditor is accepted as the equivalent of the performance of the obligation. [14]
The terms of the compromise judgment, however, did not convey an intent to equate the
assignment of Magdalenas retirement benefits (the credit) as the equivalent of the payment of
the debt due the spouses Serfino (the obligation). There was actually no assignment of credit; if
at all, the compromise judgment merely identified the fund from which payment for the
judgment debt would be sourced:
(c) That before the plaintiffs file a motion for execution of the decision or order based [on this]
Compromise Agreement, the defendant, Magdalena Cortez undertake[s] and bind[s] herself
to pay in full the judgment debtout of her retirement benefits as Local [T]reasury Operation
Officer in the City of Bacolod, Philippines, upon which full payment, the plaintiffs waive, abandon
and relinquish absolutely any of their claims for attorneys fees stipulated in the Promissory Note
(Annex A to the Complaint).[15] [emphasis ours]
Only when Magdalena has received and turned over to the spouses Serfino the portion of her
retirement benefits corresponding to the debt due would the debt be deemed paid.
In Aquitey v. Tibong,[16] the issue raised was whether the obligation to pay the loan was
extinguished by the execution of the deeds of assignment. The Court ruled in the affirmative,
given that, in the deeds involved, the respondent (the debtor) assigned to the petitioner (the
creditor) her credits to make good the balance of her obligation; the parties agreed to relieve
the respondent of her obligation to pay the balance of her account, and for the petitioner to
collect the same from the respondents debtors.[17] The Court concluded that the respondents
obligation to pay the balance of her accounts with the petitioner was extinguished, pro tanto, by
the deeds of assignment of credit executed by the respondent in favor of the petitioner.[18]
In the present case, the judgment debt was not extinguished by the mere designation in the

compromise judgment of Magdalenas retirement benefits as the fund from which payment shall
be sourced. That the compromise agreement authorizes recourse in case of default on other
executable properties of the spouses Cortez, to satisfy the judgment debt, further supports our
conclusion that there was no assignment of Magdalenas credit with the GSIS that would have
extinguished the obligation.
The compromise judgment in this case also did not give the supposed assignees, the spouses
Serfino, the power to enforce Magdalenas credit against the GSIS. In fact, the spouses Serfino
are prohibited from enforcing their claim until after the lapse of one (1) week from Magdalenas
receipt of her retirement benefits:
(d) That the plaintiffs shall refrain from having the judgment based upon this Compromise
Agreement executed until after one (1) week from receipt by the defendant, Magdalena Cortez
of her retirement benefits from the [GSIS] but fails to pay within the said period the defendants
judgment debt in this case, in which case [this] Compromise Agreement [may be] executed upon
any property of the defendants that are subject to execution upon motion by the plaintiffs.[19]
An assignment of credit not only entitles the assignee to the credit itself, but also gives him the
power to enforce it as against the debtor of the assignor.
Since no valid assignment of credit took place, the spouses Serfino cannot validly claim
ownership of the retirement benefits that were deposited with FEBTC. Without ownership
rights over the amount, they suffered no pecuniary loss that has to be compensated by
actual damages. The grant of actual damages presupposes that the claimant suffered a duly
proven pecuniary loss.[20]
Claim for moral damages not meritorious because no duty exists on the part of the
bank to protect interest of third person claiming deposit in the name of another
Under Article 2219 of the Civil Code, moral damages are recoverable for acts referred to in
Article 21 of the Civil Code.[21] Article 21 of the Civil Code, in conjunction with Article 19 of the
Civil Code, is part of the cause of action known in this jurisdiction as abuse of rights. The
elements of abuse of rights are: (a) there is a legal right or duty; (b) exercised in bad faith; and
(c) for the sole intent of prejudicing or injuring another.
The spouses Serfino invoke American common law that imposes a duty upon a bank receiving
a notice of adverse claim to the fund in a depositors account to freeze the account for a
reasonable length of time, sufficient to allow the adverse claimant to institute legal
proceedings to enforce his right to the fund.[22] In other words, the bank has a duty not to
release the deposits unreasonably early after a third party makes known his adverse claim to the
bank deposit. Acknowledging that no such duty is imposed by law in this jurisdiction, the
spouses Serfino ask the Court to adopt this foreign rule.[23]
To adopt the foreign rule, however, goes beyond the power of this Court to promulgate rules
governing pleading, practice and procedure in all courts.[24] The rule reflects a matter of
policy that is better addressed by the other branches of government, particularly,
the Bangko Sentral ng Pilipinas, which is the agency that supervises the operations and
activities of banks, and which has the power to issue rules of conduct or the establishment of
standards of operation for uniform application to all institutions or functions covered[.] [25] To
adopt this rule will have significant implications on the banking industry and practices, as the
American experience has shown. Recognizing that the rule imposing duty on banks to freeze
the deposit upon notice of adverse claim adopts a policy adverse to the bank and its functions,
and opens it to liability to both the depositor and the adverse claimant,[26] many American states
have since adopted adverse claim statutes that shifted or, at least, equalized the burden.
Essentially, these statutes do not impose a duty on banks to freeze the deposit upon a mere
notice of adverse claim; they first require either a court order or an indemnity bond.[27]
In the absence of a law or a rule binding on the Court, it has no option but to uphold the existing
policy that recognizes the fiduciary nature of banking. It likewise rejects the adoption of a
judicially-imposed rule giving third parties with unverified claims against the deposit of another a
better right over the deposit. As current laws provide, the banks contractual relations are with its
depositor, not with the third party;[28] a bank is under obligation to treat the accounts of its
depositors with meticulous care and always to have in mind the fiduciary nature of its
relationship with them.[29] In the absence of any positive duty of the bank to an adverse

claimant, there could be no breach that entitles the latter to moral damages.

valid, just, and lawful claim despite written demands.

WHEREFORE, in view of the foregoing, the petition for review on certiorari is DENIED, and the
decision dated February 23, 2006 of the Regional Trial Court of Bacolod City, Branch 41, in Civil
Case No. 95-9344 isAFFIRMED. Costs against the petitioners.
SO ORDERED. Carpio, (Chairperson), Del Castillo, Perez, and Perlas-Bernabe, JJ., concur.

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

[ G.R. No. 179419, January 12, 2011 ]

DURBAN APARTMENTS CORPORATION, DOING BUSINESS UNDER THE NAME AND
STYLE OF CITY GARDEN HOTEL, PETITIONER, VS. PIONEER INSURANCE AND SURETY
CORPORATION, RESPONDENT.
DECISION
NACHURA, J.:
For review is the Decision [1] of the Court of Appeals (CA) in CA-G.R. CV No. 86869, which
affirmed the decision [2]of the Regional Trial Court (RTC), Branch 66, Makati City, in Civil Case
No. 03-857, holding petitioner Durban Apartments Corporation solely liable to respondent
Pioneer Insurance and Surety Corporation for the loss of Jeffrey See's (See's) vehicle.
The facts, as found by the CA, are simple.
On July 22, 2003, [respondent] Pioneer Insurance and Surety Corporation x x x, by right of
subrogation, filed [with the RTC of Makati City] a Complaint for Recovery of Damages against
[petitioner] Durban Apartments Corporation, doing business under the name and style of City
Garden Hotel, and [defendant before the RTC] Vicente Justimbaste x x x. [Respondent
averred] that: it is the insurer for loss and damage of Jeffrey S. See's [the insured's] 2001 Suzuki
Grand Vitara x x x with Plate No. XBH-510 under Policy No. MC-CV-HO-01-0003846-00-D in the
amount of P1,175,000.00; on April 30, 2002, See arrived and checked in at the City Garden
Hotel in Makati corner Kalayaan Avenues, Makati City before midnight, and its parking attendant,
defendant x x x Justimbaste got the key to said Vitara from See to park it[. O]n May 1, 2002, at
about 1:00 o'clock in the morning, See was awakened in his room by [a] telephone call from the
Hotel Chief Security Officer who informed him that his Vitara was carnapped while it was parked
unattended at the parking area of Equitable PCI Bank along Makati Avenue between the hours
of 12:00 [a.m.] and 1:00 [a.m.]; See went to see the Hotel Chief Security Officer, thereafter
reported the incident to the Operations Division of the Makati City Police Anti-Carnapping Unit,
and a flash alarm was issued; the Makati City Police Anti-Carnapping Unit investigated Hotel
Security Officer, Ernesto T. Horlador, Jr. x x x and defendant x x x Justimbaste; See gave his
Sinumpaang Salaysay to the police investigator, and filed a Complaint Sheet with the PNP
Traffic Management Group in Camp Crame, Quezon City; the Vitara has not yet been recovered
since July 23, 2002 as evidenced by a Certification of Non- Recovery issued by the PNP TMG; it
paid the P1,163,250.00 money claim of See and mortgagee ABN AMRO Savings Bank, Inc. as
indemnity for the loss of the Vitara; the Vitara was lost due to the negligence of [petitioner]
Durban Apartments and [defendant] Justimbaste because it was discovered during the
investigation that this was the second time that a similar incident of carnapping happened in the
valet parking service of [petitioner] Durban Apartments and no necessary precautions were
taken to prevent its repetition; [petitioner] Durban Apartments was wanting in due diligence in the
selection and supervision of its employees particularly defendant x x x Justimbaste; and
defendant x x x Justimbaste and [petitioner] Durban Apartments failed and refused to pay its

During the pre-trial conference on November 28, 2003, counsel for [respondent] Pioneer
Insurance was present. Atty. Monina Lee x x x, counsel of record of [petitioner] Durban
Apartments and Justimbaste was absent, instead, a certain Atty. Nestor Mejia appeared for
[petitioner] Durban Apartments and Justimbaste, but did not file their pre-trial brief.
On November 5, 2004, the lower court granted the motion of [respondent] Pioneer Insurance,
despite the opposition of [petitioner] Durban Apartments and Justimbaste, and allowed
[respondent] Pioneer Insurance to present its evidence ex parte before the Branch Clerk of
Court.
See testified that: on April 30, 2002, at about 11:30 in the evening, he drove his Vitara and
stopped in front of City Garden Hotel in Makati Avenue, Makati City; a parking attendant, whom
he had later known to be defendant x x x Justimbaste, approached and asked for his ignition
key, told him that the latter would park the Vitara for him in front of the hotel, and issued him a
valet parking customer's claim stub; he and Montero, thereafter, checked in at the said hotel; on
May 1, 2002, at around 1:00 in the morning, the Hotel Security Officer whom he later knew to be
Horlador called his attention to the fact that his Vitara was carnapped while it was parked at the
parking lot of Equitable PCI Bank which is in front of the hotel; his Vitara was insured with
[respondent] Pioneer Insurance; he together with Horlador and defendant x x x Justimbaste
went to Precinct 19 of the Makati City Police to report the carnapping incident, and a police
officer came accompanied them to the Anti-Carnapping Unit of the said station for investigation,
taking of their sworn statements, and flashing of a voice alarm; he likewise reported the said
incident in PNP TMG in Camp Crame where another alarm was issued; he filed his claim with
[respondent] Pioneer Insurance, and a representative of the latter, who is also an adjuster of
Vesper Insurance Adjusters-Appraisers [Vesper], investigated the incident; and [respondent]
Pioneer Insurance required him to sign a Release of Claim and Subrogation Receipt, and finally
paid him the sum of P1,163,250.00 for his claim.
Ricardo F. Red testified that: he is a claims evaluator of [petitioner] Pioneer Insurance tasked,
among others, with the receipt of claims and documents from the insured, investigation of the
said claim, inspection of damages, taking of pictures of insured unit, and monitoring of the
processing of the claim until its payment; he monitored the processing of See's claim when the
latter reported the incident to [respondent] Pioneer Insurance; [respondent] Pioneer Insurance
assigned the case to Vesper who verified See's report, conducted an investigation, obtained the
necessary documents for the processing of the claim, and tendered a settlement check to See;
they evaluated the case upon receipt of the subrogation documents and the adjuster's report,

and eventually recommended for its settlement for the sum of P1,163,250.00 which was
accepted by See; the matter was referred and forwarded to their counsel, R.B. Sarajan &
Associates, who prepared and sent demand letters to [petitioner] Durban Apartments and
[defendant] Justimbaste, who did not pay [respondent] Pioneer Insurance notwithstanding their
receipt of the demand letters; and the services of R.B. Sarajan & Associates were engaged, for
P100,000.00 as attorney's fees plus P3,000.00 per court appearance, to prosecute the claims of
[respondent] Pioneer Insurance against [petitioner] Durban Apartments and Justimbaste before
the lower court.

2. Corollary thereto, whether the trial court correctly allowed respondent to present evidence exparte;
3. Whether petitioner is liable to respondent for attorney's fees in the amount of P120,000.00;
and
4. Ultimately, whether petitioner is liable to respondent for the loss of See's vehicle.

Ferdinand Cacnio testified that: he is an adjuster of Vesper; [respondent] Pioneer Insurance

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

The petition must fail.

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

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

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

We are not persuaded.

WHEREFORE, judgment is hereby rendered ordering [petitioner Durban Apartments

Corporation] to pay [respondent Pioneer Insurance and Surety Corporation] the sum of
P1,163,250.00 with legal interest thereon from July 22, 2003 until the obligation is fully paid and
attorney's fees and litigation expenses amounting to P120,000.00.

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

SO ORDERED. [4]
On appeal, the appellate court affirmed the decision of the trial court, viz.:

We are in complete accord with the common ruling of the lower courts that petitioner was in
default for failure to appear at the pre-trial conference and to file a pre-trial brief, and thus,
correctly allowed respondent to present evidence ex-parte. Likewise, the lower courts did not err
in holding petitioner liable for the loss of See's vehicle.
Well-entrenched in jurisprudence is the rule that factual findings of the trial court, especially
when affirmed by the appellate court, are accorded the highest degree of respect and are
considered conclusive between the parties. [6]A review of such findings by this Court is not
warranted except upon a showing of highly meritorious circumstances, such as: (1) when the
findings of a trial court are grounded entirely on speculation, surmises, or conjectures; (2) when
a lower court's inference from its factual findings is manifestly mistaken, absurd, or impossible;
(3) when there is grave abuse of discretion in the appreciation of facts; (4) when the findings of
the appellate court go beyond the issues of the case, or fail to notice certain relevant facts
which, if properly considered, will justify a different conclusion; (5) when there is a
misappreciation of facts; (6) when the findings of fact are conclusions without mention of the
specific evidence on which they are based, are premised on the absence of evidence, or are
contradicted by evidence on record. [7] None of the foregoing exceptions permitting a reversal of
the assailed decision exists in this instance.

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

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

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

SO ORDERED. [5]

xxxx

Hence, this recourse by petitioner.

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

The issues for our resolution are:

Contrary to the foregoing rules, petitioner and its counsel of record were not present at the
scheduled pre-trial conference. Worse, they did not file a pre-trial brief. Their non-appearance
cannot be excused as Section 4, in relation to Section 6, allows only two exceptions: (1) a valid
excuse; and (2) appearance of a representative on behalf of a party who is fully authorized in

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

writing to enter into an amicable settlement, to submit to alternative modes of dispute resolution,
and to enter into stipulations or admissions of facts and documents.
Petitioner is adamant and harps on the fact that November 28, 2003 was merely the first
scheduled date for the pre-trial conference, and a certain Atty. Mejia appeared on its behalf.
However, its assertion is belied by its own admission that, on said date, this Atty. Mejia "did not
have in his possession the Special Power of Attorney issued by petitioner's Board of Directors."
As pointed out by the CA, petitioner, through Atty. Lee, received the notice of pre-trial on October
27, 2003, thirty-two (32) days prior to the scheduled conference. In that span of time, Atty. Lee,
who was charged with the duty of notifying petitioner of the scheduled pre-trial
conference, [8] petitioner, and Atty. Mejia should have discussed which lawyer would appear at
the pre-trial conference with petitioner, armed with the appropriate authority therefor. Sadly,
petitioner failed to comply with not just one rule; it also did not proffer a reason why it likewise
failed to file a pre-trial brief. In all, petitioner has not shown any persuasive reason why it should
be exempt from abiding by the rules.
The appearance of Atty. Mejia at the pre-trial conference, without a pre-trial brief and with only
his bare allegation that he is counsel for petitioner, was correctly rejected by the trial court.
Accordingly, the trial court, as affirmed by the appellate court, did not err in allowing respondent
to present evidence ex-parte.
Former Chief Justice Andres R. Narvasa's words continue to resonate, thus:
Everyone knows that a pre-trial in civil actions is mandatory, and has been so since January 1,
1964. Yet to this day its place in the scheme of things is not fully appreciated, and it receives but
perfunctory treatment in many courts. Some courts consider it a mere technicality, serving no
useful purpose save perhaps, occasionally to furnish ground for non-suiting the plaintiff, or
declaring a defendant in default, or, wistfully, to bring about a compromise. The pre-trial device is
not thus put to full use. Hence, it has failed in the main to accomplish the chief objective for it:
the simplification, abbreviation and expedition of the trial, if not indeed its dispensation. This is a
great pity, because the objective is attainable, and with not much difficulty, if the device were
more intelligently and extensively handled.
xxxx
Consistently with the mandatory character of the pre-trial, the Rules oblige not only the lawyers
but the parties as well to appear for this purpose before the Court, and when a party "fails to
appear at a pre-trial conference (he) may be non-suited or considered as in default." The
obligation "to appear" denotes not simply the personal appearance, or the mere physical
presentation by a party of one's self, but connotes as importantly, preparedness to go into the
different subject assigned by law to a pre-trial. And in those instances where a party may not
himself be present at the pre-trial, and another person substitutes for him, or his lawyer
undertakes to appear not only as an attorney but in substitution of the client's person, it is
imperative for that representative of the lawyer to have "special authority" to make such
substantive agreements as only the client otherwise has capacity to make. That "special
authority" should ordinarily be in writing or at the very least be "duly established by evidence
other than the self-serving assertion of counsel (or the proclaimed representative) himself."
Without that special authority, the lawyer or representative cannot be deemed capacitated to
appear in place of the party; hence, it will be considered that the latter has failed to put in an
appearance at all, and he [must] therefore "be non-suited or considered as in default,"
notwithstanding his lawyer's or delegate's presence. [9]
We are not unmindful that defendant's (petitioner's) preclusion from presenting evidence during
trial does not automatically result in a judgment in favor of plaintiff (respondent). The plaintiff
must still substantiate the allegations in its complaint. [10] Otherwise, it would be inutile to
continue with the plaintiff's presentation of evidence each time the defendant is declared in
default.

In this case, respondent substantiated the allegations in its complaint, i.e., a contract of
necessary deposit existed between the insured See and petitioner. On this score, we find no
error in the following disquisition of the appellate court:
[The] records also reveal that upon arrival at the City Garden Hotel, See gave notice to the
doorman and parking attendant of the said hotel, x x x Justimbaste, about his Vitara when he
entrusted its ignition key to the latter. x x x Justimbaste issued a valet parking customer claim
stub to See, parked the Vitara at the Equitable PCI Bank parking area, and placed the ignition
key inside a safety key box while See proceeded to the hotel lobby to check in. The Equitable
PCI Bank parking area became an annex of City Garden Hotel when the management of the
said bank allowed the parking of the vehicles of hotel guests thereat in the evening after banking
hours. [11]
Article 1962, in relation to Article 1998, of the Civil Code defines a contract of deposit and a
necessary deposit made by persons in hotels or inns:
Art. 1962. A deposit is constituted from the moment a person receives a thing belonging to
another, with the obligation of safely keeping it and returning the same. If the safekeeping of the
thing delivered is not the principal purpose of the contract, there is no deposit but some other
contract.
Art. 1998. The deposit of effects made by travelers in hotels or inns shall also be regarded as
necessary. The keepers of hotels or inns shall be responsible for them as depositaries, provided
that notice was given to them, or to their employees, of the effects brought by the guests and
that, on the part of the latter, they take the precautions which said hotel-keepers or their
substitutes advised relative to the care and vigilance of their effects.
Plainly, from the facts found by the lower courts, the insured See deposited his vehicle for
safekeeping with petitioner, through the latter's employee, Justimbaste. In turn, Justimbaste
issued a claim stub to See. Thus, the contract of deposit was perfected from See's delivery,
when he handed over to Justimbaste the keys to his vehicle, which Justimbaste received with
the obligation of safely keeping and returning it. Ultimately, petitioner is liable for the loss of
See's vehicle.
Lastly, petitioner assails the lower courts' award of attorney's fees to respondent in the amount
of P120,000.00. Petitioner claims that the award is not substantiated by the evidence on record.
We disagree.
While it is a sound policy not to set a premium on the right to litigate, [12] we find that respondent
is entitled to reasonable attorney's fees. Attorney's fees may be awarded when a party is
compelled to litigate or incur expenses to protect its interest, [13] or when the court deems it just
and equitable. [14] In this case, petitioner refused to answer for the loss of See's vehicle, which
was deposited with it for safekeeping. This refusal constrained respondent, the insurer of See,
and subrogated to the latter's right, to litigate and incur expenses. However, we reduce the
award of P120,000.00 to P60,000.00 in view of the simplicity of the issues involved in this case.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No.
86869 isAFFIRMED with the MODIFICATION that the award of attorney's fees is reduced to
P60,000.00. Costs against petitioner.
SO ORDERED. Carpio, (Chairperson), Peralta, Abad, and Mendoza, JJ., concur.

In the meanwhile, Harpers family in Norway must have called him at his hotel room to inform
him about the attempt to use his American Express card. Not getting any response from the
room, his family requested Raymond Alarcon, the Duty Manager of the Shangri-La Hotel, to
check on Harpers room. Alarcon and a security personnel went to Room 1428 at 11:27 a.m.,
and were shocked to discover Harpers lifeless body on the bed.
Col. Rodrigo de Guzman (de Guzman), the hotels Security Manager, initially investigated the
murder. In his incident report, he concluded from the several empty bottles of wine in the trash
can and the number of cigarette butts in the toilet bowl that Harper and his visitors had drunk
that much and smoked that many cigarettes the night before.[3]

[ G.R. No. 189998, August 29, 2012 ]

MAKATI SHANGRI-LA HOTEL AND RESORT, INC., PETITIONER, VS. ELLEN JOHANNE
HARPER, JONATHAN CHRISTOPHER HARPER, AND RIGOBERTO GILLERA,
RESPONDENTS.
DECISION
BERSAMIN, J.:
The hotel owner is liable for civil damages to the surviving heirs of its hotel guest whom
strangers murder inside his hotel room.
The Case
Petitioner, the owner and operator of the 5-star Shangri-La Hotel in Makati City (Shangri-La
Hotel), appeals the decision promulgated on October 21, 2009,[1] whereby the Court of Appeals
(CA) affirmed with modification the judgment rendered on October 25, 2005 by the Regional Trial
Court (RTC) in Quezon City holding petitioner liable for damages for the murder of Christian
Fredrik Harper, a Norwegian national.[2] Respondents Ellen Johanne Harper and Jonathan
Christopher Harper are the widow and son of Christian Harper, while respondent Rigoberto
Gillera is their authorized representative in the Philippines.
Antecedents
In the first week of November 1999, Christian Harper came to Manila on a business trip as the
Business Development Manager for Asia of ALSTOM Power Norway AS, an engineering firm
with worldwide operations. He checked in at the Shangri-La Hotel and was billeted at Room
1428. He was due to check out on November 6, 1999. In the early morning of that date,
however, he was murdered inside his hotel room by still unidentified malefactors. He was then
30 years old.
How the crime was discovered was a story in itself. A routine verification call from the American
Express Card Company to cardholder Harpers residence in Oslo, Norway (i.e., Bygdoy Terasse
16, 0287 Oslo, Norway) led to the discovery. It appears that at around 11:00 am of November 6,
1999, a Caucasian male of about 3032 years in age, 54 in height, clad in maroon long
sleeves, black denims and black shoes, entered the Alexis Jewelry Store in Glorietta, Ayala
Center, Makati City and expressed interest in purchasing a Cartier ladys watch valued at
P320,000.00 with the use of two Mastercard credit cards and an American Express credit card
issued in the name of Harper. But the customers difficulty in answering the queries phoned in by
a credit card representative sufficiently aroused the suspicion of saleslady Anna Liza Lumba
(Lumba), who asked for the customers passport upon suggestion of the credit card
representative to put the credit cards on hold. Probably sensing trouble for himself, the customer
hurriedly left the store, and left the three credit cards and the passport behind.

The police investigation actually commenced only upon the arrival in the hotel of the team of
PO3 Carmelito Mendoza[4] and SPO4 Roberto Hizon. Mendoza entered Harpers room in the
company of De Guzman, Alarcon, Gami Holazo (the hotels Executive Assistant Manager),
Norge Rosales (the hotels Executive Housekeeper), and Melvin Imperial (a security personnel
of the hotel). They found Harpers body on the bed covered with a blanket, and only the back of
the head could be seen. Lifting the blanket, Mendoza saw that the victims eyes and mouth had
been bound with electrical and packaging tapes, and his hands and feet tied with a white rope.
The body was identified to be that of hotel guest Christian Fredrik Harper.
Mendoza subsequently viewed the closed circuit television (CCTV) tapes, from which he found
that Harper had entered his room at 12:14 a.m. of November 6, 1999, and had been followed
into the room at 12:17 a.m. by a woman; that another person, a Caucasian male, had entered
Harpers room at 2:48 a.m.; that the woman had left the room at around 5:33 a.m.; and that the
Caucasian male had come out at 5:46 a.m.
On November 10, 1999, SPO1 Ramoncito Ocampo, Jr. interviewed Lumba about the incident in
the Alexis Jewelry Shop. During the interview, Lumba confirmed that the person who had
attempted to purchase the Cartier ladys watch on November 6, 1999 had been the person
whose picture was on the passport issued under the name of Christian Fredrik Harper and the
Caucasian male seen on the CCTV tapes entering Harpers hotel room.
Sr. Insp. Danilo Javier of the Criminal Investigation Division of the Makati City Police reflected in
his Progress Report No. 2[5] that the police investigation showed that Harpers passport, credit
cards, laptop and an undetermined amount of cash had been missing from the crime scene; and
that he had learned during the follow-up investigation about an unidentified Caucasian males
attempt to purchase a Cartier ladys watch from the Alexis Jewelry Store in Glorietta, Ayala
Center, Makati City with the use of one of Harpers credit cards.
On August 30, 2002, respondents commenced this suit in the RTC to recover various damages
from petitioner,[6]pertinently alleging:
xxx
7. The deceased was to check out and leave the hotel on November 6, 1999, but in the early
morning of said date, while he was in his hotel room, he was stabbed to death by an (sic) still
unidentified male who had succeeded to intrude into his room. 8. The murderer succeeded to
trespass into the area of the hotels private rooms area and into the room of the said deceased
on account of the hotels gross negligence in providing the most basic security system of its
guests, the lack of which owing to the acts or omissions of its employees was the immediate
cause of the tragic death of said deceased.
xxx
10. Defendant has prided itself to be among the top hotel chains in the East claiming to provide
excellent service, comfort and security for its guests for which reason ABB Alstom executives
and their guests have invariably chosen this hotel to stay.[7]

xxx
On October 21, 2009, the CA affirmed the judgment of the RTC with modification,[9] as follows:
Ruling of the RTC
On October 25, 2005, the RTC rendered judgment after trial,[8] viz:
WHEREFORE, finding the defendant hotel to be remiss in its duties and thus liable for the death
of Christian Harper, this Court orders the defendant to pay plaintiffs the amount of:
PhP 43,901,055.00 as and by way of actual and compensatory damages;
PhP 739,075.00 representing the expenses of transporting the remains of Harper to Oslo,
Norway;
PhP 250,000.00 attorneys fees;
and to pay the cost of suit.

WHEREFORE, the assailed Decision of the Regional Trial Court dated October 25, 2005 is
hereby AFFIRMEDwith MODIFICATION. Accordingly, defendant-appellant is ordered to pay
plaintiffs-appellees the amounts of P52,078,702.50, as actual and compensatory damages;
P25,000.00, as temperate damages; P250,000.00, as attorneys fees; and to pay the costs of
the suit.
SO ORDERED.[10]
Issues
Petitioner still seeks the review of the judgment of the CA, submitting the following issues for
consideration and determination, namely:

SO ORDERED.

I.
Ruling of the CA

Petitioner appealed, assigning to the RTC the following errors, to wit:

WHETHER OR NOT THE PLAINTIFFS-APPELLEES WERE ABLE TO PROVE WITH

COMPETENT EVIDENCE THE AFFIRMATIVE ALLEGATIONS IN THE COMPLAINT THAT
THEY ARE THE WIDOW AND SON OF MR. CHRISTIAN HARPER.

I
THE TRIAL COURT ERRED IN RULING THAT THE PLAINTIFFS APPELLEES ARE THE
HEIRS OF THE LATE CHRISTIAN HARPER, AS THERE IS NO COMPETENT EVIDENCE ON
RECORD SUPPORTING SUCH RULING.

II.
WHETHER OR NOT THE APPELLEES WERE ABLE TO PROVE WITH COMPETENT
EVIDENCE THE AFFIRMATIVE ALLEGATIONS IN THE COMPLAINT THAT THERE WAS
NEGLIGENCE ON THE PART OF THE APPELLANT AND ITS SAID NEGLIGENCE WAS THE
PROXIMATE CAUSE OF THE DEATH OF MR. CHRISTIAN HARPER.

II
III.
THE TRIAL COURT ERRED IN RULING THAT THE DEFENDANT APPELLANTS
NEGLIGENCE WAS THE PROXIMATE CAUSE OF THE DEATH OF MR. HARPER, OR IN NOT
RULING THAT IT WAS MR. CHRISTIAN HARPERS OWN NEGLIGENCE WHICH WAS THE
SOLE, PROXIMATE CAUSE OF HIS DEATH.

WHETHER OR NOT THE PROXIMATE CAUSE OF THE DEATH OF MR. CHRISTIAN HARPER
WAS HIS OWN NEGLIGENCE.
Ruling

III
THE TRIAL COURT ERRED IN AWARDING TO THE PLAINTIFFS APPELLEES THE AMOUNT
OF PHP43,901,055.00, REPRESENTING THE ALLEGED LOST EARNING OF THE LATE
CHRISTIAN HARPER, THERE BEING NO COMPETENT PROOF OF THE EARNING OF MR.
HARPER DURING HIS LIFETIME AND OF THE ALLEGATION THAT THE PLAINTIFFSAPPELLEES ARE MR. HARPERS HEIRS.
IV
THE TRIAL COURT ERRED IN AWARDING TO THE PLAINTIFFS APPELLEES THE AMOUNT
OF PHP739,075.00, REPRESENTING THE ALLEGED COST OF TRANSPORTING THE
REMAINS OF MR. CHRISTIAN HARPER TO OSLO, NORWAY, THERE BEING NO PROOF ON
RECORD THAT IT WAS PLAINTIFFS-APPELLEES WHO PAID FOR SAID COST.
V
THE TRIAL COURT ERRED IN AWARDING ATTORNEYS FEES AND COST OF SUIT TO THE
PLAINTIFFS-APPELLEES, THERE BEING NO PROOF ON RECORD SUPPORTING SUCH
AWARD.

The appeal lacks merit.

1.
Requirements for authentication of documents establishing
respondents legal relationship with the victim as his
heirs were complied with
As to the first issue, the CA pertinently held as follows:
The documentary evidence that plaintiffs-appellees offered relative to their heirship consisted of
the following
1. Exhibit Q -Birth Certificate of Jonathan Christopher Harper, son of Christian Fredrik
Harper and Ellen Johanne Harper;
2. Exhibit Q-1 -Marriage Certificate of Ellen Johanne Clausen and Christian Fredrik
Harper;
3. Exhibit R -Birth Certificate of Christian Fredrick Harper, son of Christopher Shaun
Harper and Eva Harper; and

4. Exhibit R-1 -Certificate from the Oslo Probate Court stating that Ellen Harper was
married to the deceased, Christian Fredrick Harper and listed Ellen Harper and
Jonathan Christopher Harper as the heirs of Christian Fredrik Harper.
Defendant-appellant points out that plaintiffs-appellees committed several mistakes as regards
the above documentary exhibits, resultantly making them incompetent evidence, to wit, (a) none
of the plaintiffs- appellees or any of the witnesses who testified for the plaintiffs gave evidence
that Ellen Johanne Harper and Jonathan Christopher Harper are the widow and son of the
deceased Christian Fredrik Harper; (b) Exhibit Q was labeled as Certificate of Marriage in
plaintiffs-appellees Formal Offer of Evidence, when it appears to be the Birth Certificate of the
late Christian Harper; (c) Exhibit Q-1 is a translation of the Marriage Certificate of Ellen
Johanne Harper and Christian Fredrik Harper, the original of which was not produced in court,
much less, offered in evidence. Being a mere translation, it cannot be a competent evidence of
the alleged fact that Ellen Johanne Harper is the widow of Christian Fredrik Harper, pursuant to
the Best Evidence Rule. Even assuming that it is an original Marriage Certificate, it is not a
public document that is admissible without the need of being identified or authenticated on the
witness stand by a witness, as it appears to be a document issued by the Vicar of the Parish of
Ullern and, hence, a private document; (d) Exhibit R was labeled as Probate Court Certificate
in plaintiffs-appellees Formal Offer of Evidence, when it appears to be the Birth Certificate of the
deceased, Christian Fredrik Harper; and (e) Exhibit R-1 is a translation of the supposed
Probate Court Certificate, the original of which was not produced in court, much less, offered in
evidence. Being a mere translation, it is an incompetent evidence of the alleged fact that
plaintiffs- appellees are the heirs of Christian Fredrik Harper, pursuant to the Best Evidence
Rule.
Defendant-appellant further adds that Exhibits Q-1 and R-1 were not duly attested by the
legal custodians (by the Vicar of the Parish of Ullern for Exhibit Q-1 and by the Judge or Clerk
of the Probate Court for Exhibit R-1) as required under Sections 24 and 25, Rule 132 of the
Revised Rules of Court. Likewise, the said documents are not accompanied by a certificate that
such officer has the custody as also required under Section 24 of Rule 132. Consequently,
defendant- appellant asseverates that Exhibits Q-1 and R-1 as private documents, which
were not duly authenticated on the witness stand by a competent witness, are essentially
hearsay in nature that have no probative value. Therefore, it is obvious that plaintiffs-appellees
failed to prove that they are the widow and son of the late Christian Harper.
Plaintiffs-appellees make the following counter arguments, viz, (a) Exhibit Q-1, the Marriage
Certificate of Ellen Johanne Harper and Christian Fredrik Harper, was issued by the Office of the
Vicar of Ullern with a statement that this certificate is a transcript from the Register of Marriage
of Ullern Church. The contents of Exhibit Q-1 were translated by the Government of the
Kingdom of Norway, through its authorized translator, into English and authenticated by the
Royal Ministry of Foreign Affairs of Norway, which in turn, was also authenticated by the Consul,
Embassy of the Republic of the Philippines in Stockholm, Sweden; (b) Exhibit Q, the Birth
Certificate of Jonathan Christopher Harper, was issued and signed by the Registrar of the
Kingdom of Norway, as authenticated by the Royal Ministry of Foreign Affairs of Norway, whose
signature was also authenticated by the Consul, Embassy of the Republic of the Philippines in
Stockholm, Sweden; and (c) Exhibit R-1, the Probate Court Certificate was also authenticated
by the Royal Ministry of Foreign Affairs of Norway, whose signature was also authenticated by
the Consul, Embassy of the Republic of the Philippines in Stockholm, Sweden.
They further argue that since Exhibit Q-1, Marriage Certificate, was issued by the vicar or
parish priest, the legal custodian of parish records, it is considered as an exception to the
hearsay rule. As for Exhibit R-1, the Probate Court Certificate, while the document is indeed a
translation of the certificate, it is an official certification, duly confirmed by the Government of the
Kingdom of Norway; its contents were lifted by the Government Authorized Translator from the
official record and thus, a written official act of a foreign sovereign country.
WE rule for plaintiffs-appellees.

The Revised Rules of Court provides that public documents may be evidenced by a copy
attested by the officer having the legal custody of the record. The attestation must state, in
substance, that the copy is a correct copy of the original, or a specific part thereof, as the case
may be. The attestation must be under the official seal of the attesting officer, if there be any, or
if he be the clerk of a court having a seal, under the seal of such court.
If the record is not kept in the Philippines, the attested copy must be accompanied with a
certificate that such officer has the custody. If the office in which the record is kept is in a foreign
country, the certificate may be made by a secretary of the embassy or legation, consul general,
consul, vice consul, or consular agent or by any officer in the foreign service of the Philippines
stationed in the foreign country in which the record is kept, and authenticated by the seal of his
office.
The documents involved in this case are all kept in Norway. These documents have been
authenticated by the Royal Norwegian Ministry of Foreign Affairs; they bear the official
seal of the Ministry and signature of one, Tanja Sorlie. The documents are accompanied
by an Authentication by the Consul, Embassy of the Republic of the Philippines in
Stockholm, Sweden to the effect that, Tanja Sorlie is duly authorized to legalize official
documents for the Ministry.
Exhibits Q and R are extracts of the register of births of both Jonathan Christopher
Harper and the late Christian Fredrik Harper, respectively, wherein the former explicitly
declares that Jonathan Christopher is the son of Christian Fredrik and Ellen Johanne
Harper. Said documents bear the signature of the keeper, Y. Ayse B. Nordal with the
official seal of the Office of the Registrar of Oslo, and the authentication of Tanja Sorlie of
the Royal Ministry of Foreign Affairs, Oslo, which were further authenticated by Philippine
Consul Marian Jocelyn R. Tirol. In addition, the latter states that said documents are the
birth certificates of Jonathan Christopher Harper and Christian Fredrik Harper issued by
the Registrar Office of Oslo, Norway on March 23, 2004.
Exhibits Q-1, on the other hand, is the Marriage Certificate of Christian Fredrik Harper
and Ellen Johanne Harper issued by the vicar of the Parish of Ullern while Exhibit R-1 is
the Probate Court Certificate from the Oslo Probate Court, naming Ellen Johanne Harper
and Jonathan Christopher Harper as the heirs of the deceased Christian Fredrik Harper.
The documents are certified true translations into English of the transcript of the said
marriage certificate and the probate court certificate. They were likewise signed by the
authorized government translator of Oslo with the seal of his office; attested by Tanja
Sorlie and further certified by our own Consul.
In view of the foregoing, WE conclude that plaintiffs-appellees had substantially complied
with the requirements set forth under the rules. WE would also like to stress that
plaintiffs-appellees herein are residing overseas and are litigating locally through their
representative. While they are not excused from complying with our rules, WE must take
into account the attendant reality that these overseas litigants communicate with their
representative and counsel via long distance communication. Add to this is the fact that
compliance with the requirements on attestation and authentication or certification is no
easy process and completion thereof may vary depending on different factors such as
the location of the requesting party from the consulate and the office of the record
custodian, the volume of transactions in said offices and even the mode of sending these
documents to the Philippines. With these circumstances under consideration, to OUR
minds, there is every reason for an equitable and relaxed application of the rules on the
issuance of the required attestation from the custodian of the documents to plaintiffsappellees situation. Besides, these questioned documents were duly signed by the
officers having custody of the same.[11]
Petitioner assails the CAs ruling that respondents substantially complied with the rules on the
authentication of the proofs of marriage and filiation set by Section 24 and Section 25 of Rule
132 of the Rules of Court when they presented Exhibit Q, Exhibit Q-1, Exhibit R and Exhibit R-1,

because the legal custodian did not duly attest that Exhibit Q-1 and Exhibit R-1 were the correct
copies of the originals on file, and because no certification accompanied the documents stating
that such officer has custody of the originals. It contends that respondents did not competently
prove their being Harpers surviving heirs by reason of such documents being hearsay and
incompetent.
Petitioners challenge against respondents documentary evidence on marriage and heirship is
not well-taken.

signature of Tanja Sorlie and with the official seal of the Royal Ministry of Foreign Affairs of
Norway. As with the other documents, Philippine Consul Tirol explicitly certified to the capacity of
Sorlie to legalize official documents for the Royal Ministry of Foreign Affairs of Norway, and
further certified that the document was a true translation into English of the Oslo Probate Court
certificate issued on February 18, 2000 to the effect that Christian Fredrik Harper, born on
December 4, 1968, had reportedly died on November 6, 1999.[21]
The Oslo Probate Court certificate recited that both Ellen Johanne Harper and Christopher S.
Harper were Harpers heirs, to wit:

Section 24 and Section 25 of Rule 132 provide:

Section 24. Proof of official record.The record of public documents referred to in paragraph (a)
of Section 19, when admissible for any purpose, may be evidenced by an official publication
thereof or by a copy attested by the officer having the legal custody of the record, or by his
deputy, and accompanied, if the record is not kept in the Philippines, with a certificate that such
officer has the custody. If the office in which the record is kept is in a foreign country, the
certificate may be made by a secretary of the embassy or legation, consul general, consul, vice
consul, or consular agent or by any officer in the foreign service of the Philippines stationed in
the foreign country in which the record is kept, and authenticated by the seal of his office.

The above names surviving spouse has accepted responsibility for the commitments of the
deceased in accordance with the provisions of Section 78 of the Probate Court Act (Norway),
and the above substitute guardian has agreed to the private division of the estate.
The following heir and substitute guardian will undertake the private division of the estate:
Ellen Johanne Harper
Christopher S. Harper
This probate court certificate relates to the entire estate.
Oslo Probate Court, 18 February 2000.[22]

Section 25. What attestation of copy must state.Whenever a copy of a document or record is
attested for the purpose of evidence, the attestation must state, in substance, that the copy is a
correct copy of the original, or a specific part thereof, as the case may be. The attestation must
be under the official seal of the attesting officer, if there be any, or if he be the clerk of a court
having a seal, under the seal of such court.
Although Exhibit Q,[12] Exhibit Q-1,[13] Exhibit R[14] and Exhibit R-1[15] were not attested by the
officer having the legal custody of the record or by his deputy in the manner required in Section
25 of Rule 132, and said documents did not comply with the requirement under Section 24 of
Rule 132 to the effect that if the record was not kept in the Philippines a certificate of the person
having custody must accompany the copy of the document that was duly attested stating that
such person had custody of the documents, the deviation was not enough reason to reject the
utility of the documents for the purposes they were intended to serve.
Exhibit Q and Exhibit R were extracts from the registry of births of Oslo, Norway issued on
March 23, 2004 and signed by Y. Ayse B. Nordal, Registrar, and corresponded to respondent
Jonathan Christopher Harper and victim Christian Fredrik Harper, respectively.[16] Exhibit Q
explicitly stated that Jonathan was the son of Christian Fredrik Harper and Ellen Johanne
Harper, while Exhibit R attested to the birth of Christian Fredrik Harper on December 4, 1968.
Exhibit Q and Exhibit R were authenticated on March 29, 2004 by the signatures of Tanja Sorlie
of the Royal Ministry of Foreign Affairs of Norway as well as by the official seal of that office. In
turn, Consul Marian Jocelyn R. Tirol of the Philippine Consulate in Stockholm, Sweden
authenticated the signatures of Tanja Sorlie and the official seal of the Royal Ministry of Foreign
Affairs of Norway on Exhibit Q and Exhibit R, explicitly certifying to the authority of Tanja Sorlie
to legalize official documents for the Royal Ministry of Foreign Affairs of Norway. [17]
Exhibit Q-1,[18] the Marriage Certificate of Ellen Johanne Clausen Harper and Christian Fredrik
Harper, contained the following data, namely: (a) the parties were married on June 29, 1996 in
Ullern Church; and (b) the certificate was issued by the Office of the Vicar of Ullern on June 29,
1996. Exhibit Q-1 was similarly authenticated by the signature of Tanja Sorlie of the Royal
Ministry of Foreign Affairs of Norway, with the official seal of that office. Philippine Consul Tirol
again expressly certified to the capacity of Sorlie to legalize official documents for the Royal
Ministry of Foreign Affairs of Norway,[19] and further certified that the document was a true
translation into English of a transcript of a Marriage Certificate issued to Christian Frederik
Harper and Ellen Johanne Clausen by the Vicar of the Parish of Ullern on June 29, 1996.
Exhibit R-1,[20] a Probate Court certificate issued by the Oslo Probate Court on February 18,
2000 through Morten Bolstad, its Senior Executive Officer, was also authenticated by the

The official participation in the authentication process of Tanja Sorlie of the Royal Ministry of
Foreign Affairs of Norway and the attachment of the official seal of that office on each
authentication indicated that Exhibit Q, Exhibit R, Exhibit Q-1 and Exhibit R-1 were documents of
a public nature in Norway, not merely private documents. It cannot be denied that based on
Philippine Consul Tirols official authentication, Tanja Sorlie was on the date of signing, duly
authorized to legalize official documents for the Royal Ministry of Foreign Affairs of Norway.
Without a showing to the contrary by petitioner, Exhibit Q, Exhibit R, Exhibit Q-1 and Exhibit R-1
should be presumed to be themselves official documents under Norwegian law, and admissible
as prima facie evidence of the truth of their contents under Philippine law.
At the minimum, Exhibit Q, Exhibit R, Exhibit Q-1 and Exhibit R-1 substantially met the
requirements of Section 24 and Section 25 of Rule 132 as a condition for their admission as
evidence in default of a showing by petitioner that the authentication process was tainted with
bad faith. Consequently, the objective of ensuring the authenticity of the documents prior to their
admission as evidence was substantially achieved. In Constantino-David v. PangandamanGania,[23] the Court has said that substantial compliance, by its very nature, is actually
inadequate observance of the requirements of a rule or regulation that are waived under
equitable circumstances in order to facilitate the administration of justice, there being no damage
or injury caused by such flawed compliance.
The Court has further said in Constantino-David v. Pangandaman-Gania that the focus in every
inquiry on whether or not to accept substantial compliance is always on the presence of
equitable conditions to administer justice effectively and efficiently without damage or injury to
the spirit of the legal obligation.[24] There are, indeed, such equitable conditions attendant here,
the foremost of which is that respondents had gone to great lengths to submit the documents. As
the CA observed, respondents compliance with the requirements on attestation and
authentication of the documents had not been easy; they had to contend with many difficulties
(such as the distance of Oslo, their place of residence, from Stockholm, Sweden, where the
Philippine Consulate had its office; the volume of transactions in the offices concerned; and the
safe transmission of the documents to the Philippines).[25] Their submission of the documents
should be presumed to be in good faith because they did so in due course. It would be
inequitable if the sincerity of respondents in obtaining and submitting the documents despite the
difficulties was ignored.
The principle of substantial compliance recognizes that exigencies and situations do
occasionally demand some flexibility in the rigid application of the rules of procedure and the
laws.[26] That rules of procedure may be mandatory in form and application does not forbid a

showing of substantial compliance under justifiable circumstances,[27] because substantial

compliance does not equate to a disregard of basic rules. For sure, substantial compliance and
strict adherence are not always incompatible and do not always clash in discord. The power of
the Court to suspend its own rules or to except any particular case from the operation of the
rules whenever the purposes of justice require the suspension cannot be challenged.[28] In the
interest of substantial justice, even procedural rules of the most mandatory character in terms of
compliance are frequently relaxed. Similarly, the procedural rules should definitely be liberally
construed if strict adherence to their letter will result in absurdity and in manifest injustice, or
where the merits of a partys cause are apparent and outweigh considerations of noncompliance with certain formal requirements.[29] It is more in accord with justice that a partylitigant is given the fullest opportunity to establish the merits of his claim or defense than for him
to lose his life, liberty, honor or property on mere technicalities. Truly, the rules of procedure are
intended to promote substantial justice, not to defeat it, and should not be applied in a very rigid
and technical sense.[30] Petitioner urges the Court to resolve the apparent conflict between the
rulings in Heirs of Pedro Cabais v. Court of Appeals[31] (Cabais) and in Heirs of Ignacio Conti v.
Court of Appeals[32] (Conti) establishing filiation through a baptismal certificate.[33]
Petitioners urging is not warranted, both because there is no conflict between the rulings
in Cabais and Conti, and because neither Cabais nor Conti is relevant herein.
In Cabais, the main issue was whether or not the CA correctly affirmed the decision of the RTC
that had relied mainly on the baptismal certificate of Felipa C. Buesa to establish the parentage
and filiation of Pedro Cabais. The Court held that the petition was meritorious, stating:
A birth certificate, being a public document, offers prima facie evidence of filiation and a high
degree of proof is needed to overthrow the presumption of truth contained in such public
document. This is pursuant to the rule that entries in official records made in the performance of
his duty by a public officer are prima facie evidence of the facts therein stated. The evidentiary
nature of such document must, therefore, be sustained in the absence of strong, complete and
conclusive proof of its falsity or nullity.
On the contrary, a baptismal certificate is a private document, which, being hearsay, is not a
conclusive proof of filiation. It does not have the same probative value as a record of birth, an
official or public document. In US v. Evangelista, this Court held that church registers of births,
marriages, and deaths made subsequent to the promulgation of General Orders No. 68 and the
passage of Act No. 190 are no longer public writings, nor are they kept by duly authorized public
officials. Thus, in this jurisdiction, a certificate of baptism such as the one herein controversy is
no longer regarded with the same evidentiary value as official records of birth. Moreover, on this
score, jurisprudence is consistent and uniform in ruling that the canonical certificate of baptism is
not sufficient to prove recognition.[34]
The Court sustained the Cabais petitioners stance that the RTC had apparently erred in relying
on the baptismal certificate to establish filiation, stressing the baptismal certificates limited
evidentiary value as proof of filiation inferior to that of a birth certificate; and declaring that the
baptismal certificate did not attest to the veracity of the statements regarding the kinsfolk of the
one baptized. Nevertheless, the Court ultimately ruled that it was respondents failure to present
the birth certificate, more than anything else, that lost them their case, stating that: The
unjustified failure to present the birth certificate instead of the baptismal certificate now under
consideration or to otherwise prove filiation by any other means recognized by law weigh heavily
against respondents.[35]
In Conti, the Court affirmed the rulings of the trial court and the CA to the effect that
the Conti respondents were able to prove by preponderance of evidence their being the
collateral heirs of deceased Lourdes Sampayo. TheConti petitioners disagreed, arguing that
baptismal certificates did not prove the filiation of collateral relatives of the deceased. Agreeing
with the CA, the Court said:

We are not persuaded. Altogether, the documentary and testimonial evidence submitted xxx are
competent and adequate proofs that private respondents are collateral heirs of Lourdes
Sampayo.
xxx
Under Art. 172 of the Family Code, the filiation of legitimate children shall be proved by any
other means allowed by the Rules of Court and special laws, in the absence of a record of birth
or a parents admission of such legitimate filiation in a public or private document duly signed by
the parent. Such other proof of ones filiation may be a baptismal certificate, a judicial admission,
a family Bible in which his name has been entered, common reputation respecting his pedigree,
admission by silence, the testimonies of witnesses and other kinds of proof admissible under
Rule 130 of the Rules of Court. By analogy, this method of proving filiation may also be utilized
in the instant case.
Public documents are the written official acts, or records of the official act of the sovereign
authority, official bodies and tribunals, and public officers, whether of the Philippines, or a foreign
country. The baptismal certificates presented in evidence by private respondents are
public documents. Parish priests continue to be the legal custodians of the parish
records and are authorized to issue true copies, in the form of certificates, of the entries
contained therein.
The admissibility of baptismal certificates offered by Lydia S. Reyes, absent the testimony of the
officiating priest or the official recorder, was settled in People v. Ritter, citing U.S. v. de Vera (28
Phil. 105 [1914], thus:
. The entries made in the Registry Book may be considered as entries made in the course of
business under Section 43 of Rule 130, which is an exception to the hearsay rule. The baptisms
administered by the church are one of its transactions in the exercise of ecclesiastical duties and
recorded in the book of the church during this course of its business.
It may be argued that baptismal certificates are evidence only of the administration of the
sacrament, but in this case, there were four (4) baptismal certificates which, when taken
together, uniformly show that Lourdes, Josefina, Remedios and Luis had the same set of
parents, as indicated therein. Corroborated by the undisputed testimony of Adelaida
Sampayo that with the demise of Lourdes and her brothers Manuel, Luis and sister
Remedios, the only sibling left was Josefina Sampayo Reyes, such baptismal certificates
have acquired evidentiary weight to prove filiation.[36]
Obviously, Conti did not treat a baptismal certificate, standing alone, as sufficient to prove
filiation; on the contrary,Conti expressly held that a baptismal certificate had evidentiary value to
prove filiation if considered alongside other evidence of filiation. As such, a baptismal certificate
alone is not sufficient to resolve a disputed filiation.
Unlike Cabais and Conti, this case has respondents presenting several documents, like the birth
certificates of Harper and respondent Jonathan Harper, the marriage certificate of Harper and
Ellen Johanne Harper, and the probate court certificate, all of which were presumably regarded
as public documents under the laws of Norway. Such documentary evidence sufficed to
competently establish the relationship and filiation under the standards of our Rules of Court.
II
Petitioner was liable due to its own negligence
Petitioner argues that respondents failed to prove its negligence; that Harpers own negligence
in allowing the killers into his hotel room was the proximate cause of his own death; and that
hotels were not insurers of the safety of their guests.

The CA resolved petitioners arguments thuswise:

Defendant-appellant contends that the pivotal issue is whether or not it had committed
negligence and corollarily, whether its negligence was the immediate cause of the death of
Christian Harper. In its defense, defendant-appellant mainly avers that it is equipped with
adequate security system as follows: (1) keycards or vingcards for opening the guest rooms, (2)
two CCTV monitoring cameras on each floor of the hotel and (3) roving guards with handheld
radios, the number of which depends on the occupancy rate of the hotel. Likewise, it reiterates
that the proximate cause of Christian Harpers death was his own negligence in inviting to his
room the two (2) still unidentified suspects.
Plaintiffs-appellees in their Brief refute, in that, the liability of defendant-appellant is based upon
the fact that it was in a better situation than the injured person, Christian Harper, to foresee and
prevent the happening of the injurious occurrence. They maintain that there is no dispute that
even prior to the untimely demise of Christian Harper, defendant-appellant was duly forewarned
of its security lapses as pointed out by its Chief Security Officer, Col. Rodrigo De Guzman, who
recommended that one roving guard be assigned on each floor of the hotel considering the
length and shape of the corridors. They posit that defendant-appellants inaction constitutes
negligence.
This Court finds for plaintiffs-appellees.
As the action is predicated on negligence, the relevant law is Article 2176 of the Civil Code,
which states that
Whoever by act or omission causes damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or negligence, if there was no preexisting
contractual relation between the parties, is called quasi-delict and is governed by the provisions
of this chapter.
Negligence is defined as the omission to do something which a reasonable man, guided by
those considerations which ordinarily regulate the conduct of human affairs, would do, or the
doing of something which a prudent and reasonable man would not do. The Supreme Court
likewise ruled that negligence is want of care required by the circumstances. It is a relative or
comparative, not an absolute, term and its application depends upon the situation of the parties
and the degree of care and vigilance which the circumstances reasonably require. In
determining whether or not there is negligence on the part of the parties in a given situation,
jurisprudence has laid down the following test: Did defendant, in doing the alleged negligent act,
use that reasonable care and caution which an ordinarily prudent person would have used in the
same situation? If not, the person is guilty of negligence. The law, in effect, adopts the standard
supposed to be supplied by the imaginary conduct of the discreet pater familiasof the Roman
law.
The test of negligence is objective. WE measure the act or omission of the tortfeasor with a
perspective as that of an ordinary reasonable person who is similarly situated. The test, as
applied to the extant case, is whether or not defendant-appellant, under the attendant
circumstances, used that reasonable care and caution which an ordinary reasonable person
would have used in the same situation.
WE rule in the negative.

then the Chief Security Officer of defendant hotel for the year 1999. He is a retired police officer
and had vast experience in security jobs. He was likewise a member of the elite Presidential
Security Group.
He testified that upon taking over the job as the chief of the security force of the hotel, he made
an assessment of the security situation. Col. De Guzman was not satisfied with the security setup and told the hotel management of his desire to improve it. In his testimony, De Guzman
testified that at the time he took over, he noticed that there were few guards in the elevated
portion of the hotel where the rooms were located. The existing security scheme then was one
guard for 3 or 4 floors. He likewise testified that he recommended to the hotel management that
at least one guard must be assigned per floor especially considering that the hotel has a long Lshaped hallway, such that one cannot see both ends of the hallway. He further opined that
even one guard in that hallway is not enough because of the blind portion of the hallway.
On cross-examination, Col. De Guzman testified that the security of the hotel was adequate at
the time the crime occurred because the hotel was not fully booked. He qualified his testimony
on direct in that his recommendation of one guard per floor is the ideal set-up when the hotel is
fully-booked.
Be that as it may, it must be noted that Col. De Guzman also testified that the reason why the
hotel management disapproved his recommendation was that the hotel was not doing well. It is
for this reason that the hotel management did not heed the recommendation of Col. De
Guzman, no matter how sound the recommendation was, and whether the hotel is fully-booked
or not. It was a business judgment call on the part of the defendant.
Plaintiffs anchor its (sic) case on our law on quasidelicts.
Article 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no preexisting contractual relation between the parties, is called quasi-delict.
Liability on the part of the defendant is based upon the fact that he was in a better situation than
the injured person to foresee and prevent the happening of the injurious occurrence.
There is no dispute that even prior to the untimely demise of Mr. Harper, defendant was duly
forewarned of the security lapses in the hotel. Col. De Guzman was particularly concerned with
the security of the private areas where the guest rooms are. He wanted not just one roving
guard in every three or four floors. He insisted there must be at least one in each floor
considering the length and the shape of the corridors. The trained eyes of a security officer was
(sic) looking at that deadly scenario resulting from that wide security breach as that which befell
Christian Harper.
The theory of the defense that the malefactor/s was/were known to Harper or was/were visitors
of Harper and that there was a shindig among [the] three deserves scant consideration.
The NBI Biology Report (Exh. C & D) and the Toxicology Report (Exh. E) belie the defense
theory of a joyous party between and among Harper and the unidentified malefactor/s. Based on
the Biology Report, Harper was found negative of prohibited and regulated drugs. The
Toxicology Report likewise revealed that the deceased was negative of the presence of alcohol
in his blood.

In finding defendant-appellant remiss in its duty of exercising the required reasonable care under
the circumstances, the court a quo reasoned-out, to wit:

The defense even suggests that the malefactor/s gained entry into the private room of Harper
either because Harper allowed them entry by giving them access to the vingcard or because
Harper allowed them entry by opening the door for them, the usual gesture of a room occupant
to his visitors.

Of the witnesses presented by plaintiffs to prove its (sic) case, the only one with competence to
testify on the issue of adequacy or inadequacy of security is Col. Rodrigo De Guzman who was

While defendants theory may be true, it is more likely, under the circumstances obtaining that
the malefactor/s gained entry into his room by simply knocking at Harpers door and the latter

opening it probably thinking it was hotel personnel, without an inkling that criminal/s could be in
the premises.
The latter theory is more attuned to the dictates of reason. If indeed the female visitor is known
to or a visitor of Harper, she should have entered the the room together with Harper. It is quite
unlikely that a supposed visitor would wait three minutes to be with a guest when he/she could
go with the guest directly to the room. The interval of three minutes in Harpers entry and that of
the alleged female visitor belies the theory of acquaintanceship. It is most likely that the female
visitor was the one who opened the door to the male visitor, undoubtedly, a co-conspirator.
In any case, the ghastly incident could have been prevented had there been adequate security
in each of the hotel floors. This, coupled with the earlier recommendation of Col. De Guzman to
the hotel management to act on the security lapses of the hotel, raises the presumption that the
crime was foreseeable.
Clearly, defendants inaction constitutes negligence or want of the reasonable care demanded of
it in that particular situation.
In a case, the Supreme Court defined negligence as:
The failure to observe for the protection of the interests of another person that degree of care,
precaution and vigilance, which the circumstances justly demand, whereby such person suffers
injury.
Negligence is want of care required by the circumstances. It is a relative or comparative, not an
absolute term, and its application depends upon the situation of the parties, and the degree of
care and vigilance which the circumstances reasonably impose. Where the danger is great, a
high degree of care is necessary.
Moreover, in applying the premises liability rule in the instant case as it is applied in some
jurisdiction (sic) in the United States, it is enough that guests are injured while inside the hotel
premises to make the hotelkeeper liable. With great caution should the liability of the
hotelkeeper be enforced when a guest died inside the hotel premises.
It also bears stressing that there were prior incidents that occurred in the hotel which should
have forewarned the hotel management of the security lapses of the hotel. As testified to by Col.
De Guzman, there were minor incidents (loss of items) before the happening of the instant
case.
These minor incidents may be of little significance to the hotel, yet relative to the instant case,
it speaks volume. This should have served as a caveat that the hotel security has lapses.
Makati Shangri-La Hotel, to stress, is a five-star hotel. The reasonable care that it must
exercise for the safety and comfort of its guests should be commensurate with the grade and
quality of the accommodation it offers. If there is such a thing as five-star hotel security, the
guests at Makati Shangri-La surely deserves just that!
When one registers (as) a guest of a hotel, he makes the establishment the guardian of his life
and his personal belongings during his stay. It is a standard procedure of the management of the
hotel to screen visitors who call on their guests at their rooms. The murder of Harper could have
been avoided had the security guards of the Shangri-La Hotel in Makati dutifully observed this
standard procedure.
WE concur.
Well settled is the doctrine that the findings of fact by the trial court are accorded great respect
by appellate courts and should not be disturbed on appeal unless the trial court has overlooked,
ignored, or disregarded some fact or circumstances of sufficient weight or significance which, if
considered, would alter the situation. After a conscientious sifting of the records, defendant-

appellant fails to convince US to deviate from this doctrine.

It could be gleaned from findings of the trial court that its conclusion of negligence on the part of
defendant-appellant is grounded mainly on the latters inadequate hotel security, more
particularly on the failure to deploy sufficient security personnel or roving guards at the time the
ghastly incident happened.
A review of the testimony of Col. De Guzman reveals that on direct examination he testified that
at the time he assumed his position as Chief Security Officer of defendant-appellant, during the
early part of 1999 to the early part of 2000, he noticed that some of the floors of the hotel were
being guarded by a few guards, for instance, 3 or 4 floors by one guard only on a roving manner.
He then made a recommendation that the ideal-set up for an effective security should be one
guard for every floor, considering that the hotel is L-shaped and the ends of the hallways cannot
be seen. At the time he made the recommendation, the same was denied, but it was later on
considered and approved on December 1999 because of the Centennial Celebration.
On cross-examination, Col. De Guzman confirmed that after he took over as Chief Security
Officer, the number of security guards was increased during the first part of December or about
the last week of November, and before the incident happened, the security was adequate. He
also qualified that as to his direct testimony on ideal-set up, he was referring to one guard for
every floor if the hotel is fully booked. At the time he made his recommendation in the early part
of 1999, it was disapproved as the hotel was not doing well and it was not fully booked so the
existing security was adequate enough. He further explained that his advice was observed only
in the late November 1999 or the early part of December 1999.
It could be inferred from the foregoing declarations of the former Chief Security Officer of
defendant-appellant that the latter was negligent in providing adequate security due its guests.
With confidence, it was repeatedly claimed by defendant-appellant that it is a five-star hotel.
Unfortunately, the record failed to show that at the time of the death of Christian Harper, it was
exercising reasonable care to protect its guests from harm and danger by providing sufficient
security commensurate to it being one of the finest hotels in the country. In so concluding, WE
are reminded of the Supreme Courts enunciation that 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 but also security to their persons and belongings.
The twin duty constitutes the essence of the business.
It is clear from the testimony of Col. De Guzman that his recommendation was initially denied
due to the fact that the business was then not doing well. The one guard, one floor
recommended policy, although ideal when the hotel is fully-booked, was observed only later in
November 1999 or in the early part of December 1999, or needless to state, after the murder of
Christian Harper. The apparent security lapses of defendant-appellant were further shown when
the male culprit who entered Christian Harpers room was never checked by any of the guards
when he came inside the hotel. As per interview conducted by the initial investigator, PO3
Cornelio Valiente to the guards, they admitted that nobody know that said man entered the hotel
and it was only through the monitor that they became aware of his entry. It was even evidenced
by the CCTV that before he walked to the room of the late Christian Harper, said male suspect
even looked at the monitoring camera. Such act of the man showing wariness, added to the fact
that his entry to the hotel was unnoticed, at an unholy hour, should have aroused suspicion on
the part of the roving guard in the said floor, had there been any. Unluckily for Christian Harper,
there was none at that time.
Proximate cause is defined as that cause, which, in natural and continuous sequence, unbroken
by any efficient intervening cause, produces, the injury, and without which the result would not
have occurred. More comprehensively, proximate cause is that cause acting first and producing
the injury, either immediately or by setting other events in motion, all constituting a natural and
continuous chain of events, each having a close causal connection with its immediate
predecessor, the final event in the chain immediately effecting the injury as natural and probable
result of the cause which first acted, under such circumstances that the person responsible for

the first event should, as an ordinarily prudent and intelligent person, have reasonable ground to
expect at the moment of his act or default that an injury to some person might probably result
therefrom.
Defendant-appellants contention that it was Christian Harpers own negligence in allowing the
malefactors to his room that was the proximate cause of his death, is untenable. To reiterate,
defendant-appellant is engaged in a business imbued with public interest, ergo, it is bound to
provide adequate security to its guests. As previously discussed, defendant-appellant failed to
exercise such reasonable care expected of it under the circumstances. Such negligence is the
proximate cause which set the chain of events that led to the eventual demise of its guest. Had
there been reasonable security precautions, the same could have saved Christian Harper from a
brutal death.
The Court concurs entirely with the findings and conclusions of the CA, which the Court regards
to be thorough and supported by the records of the trial. Moreover, the Court cannot now review
and pass upon the uniform findings of negligence by the CA and the RTC because doing so
would require the Court to delve into and revisit the factual bases for the finding of negligence,
something fully contrary to its character as not a trier of facts. In that regard, the factual findings
of the trial court that are supported by the evidence on record, especially when affirmed by the
CA, are conclusive on the Court.[37] Consequently, the Court will not review unless there are
exceptional circumstances for doing so, such as the following:
(a) When the findings are grounded entirely on speculation, surmises or conjectures;
(b) When the inference made is manifestly mistaken, absurd or impossible;
(c) When there is grave abuse of discretion;
(d) When the judgment is based on a misapprehension of facts;
(e) When the findings of facts are conflicting;
(f) When in making its findings the Court of Appeals went beyond the issues of the case, or its
findings are contrary to the admissions of both the appellant and the appellee;
(g) When the findings are contrary to the trial court;
(h) When the findings are conclusions without citation of specific evidence on which they are
based;
(i) When the facts set forth in the petition as well as in the petitioners main and reply briefs are
not disputed by the respondent;
(j) When the findings of fact are premised on the supposed absence of evidence and
contradicted by the evidence on record; and
(k) When the Court of Appeals manifestly overlooked certain relevant facts not disputed by the
parties, which, if properly considered, would justify a different conclusion.[38]
None of the exceptional circumstances obtains herein. Accordingly, the Court cannot depart from
or disturb the factual findings on negligence of petitioner made by both the RTC and the CA.[39]
Even so, the Court agrees with the CA that petitioner failed to provide the basic and adequate
security measures expected of a five-star hotel; and that its omission was the proximate cause
of Harpers death.
The testimony of Col. De Guzman revealed that the management practice prior to the murder of
Harper had been to deploy only one security or roving guard for every three or four floors of the

building; that such ratio had not been enough considering the L-shape configuration of the hotel
that rendered the hallways not visible from one or the other end; and that he had recommended
to management to post a guard for each floor, but his recommendation had been disapproved
because the hotel was not doing well at that particular time.[40]
Probably realizing that his testimony had weakened petitioners position in the case, Col. De
Guzman soon clarified on cross-examination that petitioner had seen no need at the time of the
incident to augment the number of guards due to the hotel being then only half-booked. Here is
how his testimony went:
ATTY MOLINA:
I just forgot one more point, Your Honor please. Was there ever a time, Mr. Witness, that your
recommendation to post a guard in every floor ever considered and approved by the hotel?
A: Yes, Sir.
Q: When was this?
A: That was on December 1999 because of the Centennial Celebration when the hotel accepted
so many guests wherein most of the rooms were fully booked and I recommended that all the
hallways should be guarded by one guard.[41]
xxx
ATTY COSICO:
Q: So at that time that you made your recommendation, the hotel was half-filled.
A: Maybe.
Q: And even if the hotel is half-filled, your recommendation is that each floor shall be maintained
by one security guard per floors?
A: Yes sir.
Q: Would you agree with me that even if the hotel is half-filled, there is no need to increase the
guards because there were only few customers?
A: I think so.
Q: So you will agree with me that each floor should be maintained by one security guard if the
rooms are filled up or occupied?
A: Yes sir.
Q: Now, you even testified that from January 1999 to November 1999 thereof, only minor
incidents were involved?
A: Yes sir.
Q: So it would be correct to say that the security at that time in February was adequate?
A: I believe so.
Q: Even up to November when the incident happened for that same reason, security was
adequate?
A: Yes, before the incident.
Q: Now, you testified on direct that the hotel posted one guard each floor?
A: Yes sir.
Q: And it was your own recommendation?
A: Yes, because we are expecting that the hotel will be filled up.
Q: In fact, the hotel was fully booked?
A: Yes sir.[42]
Petitioner would thereby have the Court believe that Col. De Guzmans initial recommendation
had been rebuffed due to the hotel being only half-booked; that there had been no urgency to
adopt a one-guard-perfloor policy because security had been adequate at that time; and that he
actually meant by his statement that the hotel was not doing well that the hotel was only halfbooked.
We are not convinced.
The hotel business is imbued with public interest. Catering to the public, hotelkeepers are bound
to provide not only lodging for their guests but also security to the persons and belongings of

their guests. The twin duty constitutes the essence of the business.[43] Applying by analogy
Article 2000,[44] Article 2001[45] and Article 2002[46] of the Civil Code (all of which concerned the
hotelkeepers degree of care and responsibility as to the personal effects of their guests), we
hold that there is much greater reason to apply the same if not greater degree of care and
responsibility when the lives and personal safety of their guests are involved. Otherwise, the
hotelkeepers would simply stand idly by as strangers have unrestricted access to all the hotel
rooms on the pretense of being visitors of the guests, without being held liable should anything
untoward befall the unwary guests. That would be absurd, something that no good law would
ever envision. In fine, the Court sees no reversible-error on the part of the CA.
WHEREFORE, the Court AFFIRMS the judgment of the Court of Appeals; and ORDERS
petitioner to pay the costs of suit. SO ORDERED. Sereno, C.J, Leonardo-De Castro, Villarama,
Jr., and Reyes, JJ., Concur.

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

YHT REALTY CORPORATION, ERLINDA LAINEZ AND ANICIA PAYAM, PETITIONERS, VS.
THE COURT OF APPEALS AND MAURICE MCLOUGHLIN, RESPONDENTS.
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 MalacaHang 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
pre-trial brief that on three previous occasions they allowed Tan to open the box, the trial court
opined that it was logical and reasonable to presume that his personal assets consisting of
Seven Thousand US Dollars (US$7,000.00) and jewelry were taken by Tan from the safety
deposit box without 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 non-performance of their contractual obligations.[28]
The Court of Appeals affirmed the disquisitions made by the lower court except as to the amount
of damages awarded. The decretal text of the appellate 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 the peso equivalent of US$2,000.00 and AUS$4,500.00;
2) P308,880.80, representing the peso value for the air fares from Sidney [sic] to Manila and
back for a total of eleven (11) trips;
3) One-half of P336,207.05 or P168,103.52 representing payment to Tropicana Apartment Hotel;
4) One-half of P152,683.57 or P76,341.785 representing payment to Echelon Tower;
5) One-half of P179,863.20 or P89,931.60 for the taxi xxx transportation from the residence to
Sidney [sic] Airport and from MIA to the hotel here in Manila, for the eleven (11) trips;
6) One-half of P7,801.94 or P3,900.97 representing Meralco power expenses;
7) One-half of P356,400.00 or P178,000.00 representing expenses for food and maintenance;
8) P50,000.00 for moral damages;
9) P10,000.00 as exemplary damages; and
10) P200,000 representing attorneys fees.

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.

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

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 hotelkeepers 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 hotelkeeper 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 forany cause whatsoever.[40] Evidently, the undertaking was
intended to bar any claim against Tropicana for any loss of the contents of the safety deposit box
whether or not negligence was incurred by Tropicana or its employees. The New Civil Code is
explicit that the responsibility of the hotel-keeper shall extend to loss of, or injury to, the personal
property of the guests even if caused by servants or employees of the keepers of hotels or inns
as well as by strangers, except as it may proceed from any force majeure.[41] It is the loss
through force majeure that may spare the hotel-keeper from liability. In the case at bar, there is
no showing that the act of the thief or robber was done with the use of arms or through an
irresistible force to qualify the same as force majeure.[42]
Petitioners likewise anchor their defense on Article 2002[43] which exempts the hotel-keeper from
liability if the loss is due to the acts of his guest, his family, or visitors. Even a cursory reading of
the provision would lead us to reject petitioners contention. The justification they raise would
render nugatory the public interest sought to be protected by the provision. What if the
negligence of the employer or its employees facilitated the consummation of a crime committed
by the registered 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 of P7,801.94 or P3,900.97 representing
Meralco power expenses;[53] one-half of P356,400.00 or P178,000.00 representing expenses for
food and maintenance.[54]
The amount of P50,000.00 for moral damages is reasonable. Although trial courts are given
discretion to determine the amount of moral damages, the appellate court may modify or change
the amount awarded when it is palpably and scandalously excessive. 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. Puno, (Chairman), Callejo, Sr., and Chico-Nazario, JJ., concur.
Austria-Martinez, J., no part.