THIRD DIVISION

G.R. No. L-66826 August 19, 1988

BANK OF THE PHILIPPINE ISLANDS, petitioner,
APPELLATE COURT and ZSHORNACK respondents.

vs. THE INTERMEDIATE

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

damages.
1. We first consider the first cause of action, On the dates material to this
case, Rizaldy Zshornack and his wife, Shirley Gorospe, maintained in
COMTRUST, Quezon City Branch, a dollar savings account and a peso current
account.
On October 27, 1975, an application for a dollar draft was accomplished by
Virgilio V. Garcia, Assistant Branch Manager of COMTRUST Quezon City,
payable to a certain Leovigilda D. Dizon in the amount of $1,000.00. In the
application, Garcia indicated that the amount was to be charged to Dollar
Savings Acct. No. 25-4109, the savings account of the Zshornacks; the
charges for commission, documentary stamp tax and others totalling P17.46
were to be charged to Current Acct. No. 210465-29, again, the current
account of the Zshornacks. There was no indication of the name of the
purchaser of the dollar draft.
On the same date, October 27,1975, COMTRUST, under the signature of
Virgilio V. Garcia, issued a check payable to the order of Leovigilda D. Dizon in
the sum of US $1,000 drawn on the Chase Manhattan Bank, New York, with
an indication that it was to be charged to Dollar Savings Acct. No. 25-4109.
When Zshornack noticed the withdrawal of US$1,000.00 from his account, he
demanded an explanation from the bank. In answer, COMTRUST claimed that
the peso value of the withdrawal was given to Atty. Ernesto Zshornack, Jr.,
brother of Rizaldy, on October 27, 1975 when he (Ernesto) encashed with
COMTRUST a cashier's check for P8,450.00 issued by the Manila Banking
Corporation payable to Ernesto.
Upon consideration of the foregoing facts, this Court finds no reason to
disturb the ruling of both the trial court and the Appellate Court on the first
cause of action. Petitioner must be held liable for the unauthorized
withdrawal of US$1,000.00 from private respondent's dollar account.
In its desperate attempt to justify its act of withdrawing from its depositor's
savings account, the bank has adopted inconsistent theories. First, it still
maintains that the peso value of the amount withdrawn was given to Atty.
Ernesto Zshornack, Jr. when the latter encashed the Manilabank Cashier's
Check. At the same time, the bank claims that the withdrawal was made
pursuant to an agreement where Zshornack allegedly authorized the bank to
withdraw from his dollar savings account such amount which, when
converted to pesos, would be needed to fund his peso current account. If
indeed the peso equivalent of the amount withdrawn from the dollar account
was credited to the peso current account, why did the bank still have to pay
Ernesto?
At any rate, both explanations are unavailing. With regard to the first
explanation, petitioner bank has not shown how the transaction involving the
cashier's check is related to the transaction involving the dollar draft in favor
of Dizon financed by the withdrawal from Rizaldy's dollar account. The two
transactions appear entirely independent of each other. Moreover, Ernesto
Zshornack, Jr., possesses a personality distinct and separate from Rizaldy

Zshornack. Payment made to Ernesto cannot be considered payment to

Rizaldy.
As to the second explanation, even if we assume that there was such an
agreement, the evidence do not show that the withdrawal was made
pursuant to it. Instead, the record reveals that the amount withdrawn was
used to finance a dollar draft in favor of Leovigilda D. Dizon, and not to fund
the current account of the Zshornacks. There is no proof whatsoever that
peso Current Account No. 210-465-29 was ever credited with the peso
equivalent of the US$1,000.00 withdrawn on October 27, 1975 from Dollar
Savings Account No. 25-4109.
2. As for the second cause of action, the complaint filed with the trial court
alleged that on December 8, 1975, Zshornack entrusted to COMTRUST, thru
Garcia, US $3,000.00 cash (popularly known as greenbacks) for safekeeping,
and that the agreement was embodied in a document, a copy of which was
attached to and made part of the complaint. The document reads:
Makati Cable Address:
Philippines "COMTRUST"
COMMERCIAL BANK AND TRUST COMPANY of the Philippines
Quezon City Branch
December 8, 1975
MR. RIZALDY T. ZSHORNACK
&/OR MRS SHIRLEY E. ZSHORNACK
Sir/Madam:
We acknowledged (sic) having received from you today the sum of US
DOLLARS: THREE THOUSAND ONLY (US$3,000.00) for safekeeping.
Received by:
(Sgd.) VIRGILIO V. GARCIA
It was also alleged in the complaint that despite demands, the bank refused
to return the money.
In its answer, COMTRUST averred that the US$3,000 was credited to
Zshornack's peso current account at prevailing conversion rates.
It must be emphasized that COMTRUST did not deny specifically under oath
the authenticity and due execution of the above instrument.
During trial, it was established that on December 8, 1975 Zshornack indeed
delivered to the bank US $3,000 for safekeeping. When he requested the
return of the money on May 10, 1976, COMTRUST explained that the sum was
disposed of in this manner: US$2,000.00 was sold on December 29, 1975 and

the peso proceeds amounting to P14,920.00 were deposited to Zshornack's

current account per deposit slip accomplished by Garcia; the remaining
US$1,000.00 was sold on February 3, 1976 and the peso proceeds amounting
to P8,350.00 were deposited to his current account per deposit slip also
accomplished by Garcia.
Aside from asserting that the US$3,000.00 was properly credited to
Zshornack's current account at prevailing conversion rates, BPI now posits
another ground to defeat private respondent's claim. It now argues that the
contract embodied in the document is the contract of depositum (as defined
in Article 1962, New Civil Code), which banks do not enter into. The bank
alleges that Garcia exceeded his powers when he entered into the
transaction. Hence, it is claimed, the bank cannot be liable under the
contract, and the obligation is purely personal to Garcia.
Before we go into the nature of the contract entered into, an important point
which arises on the pleadings, must be considered.
The second cause of action is based on a document purporting to be signed
by COMTRUST, a copy of which document was attached to the complaint. In
short, the second cause of action was based on an actionable document. It
was therefore incumbent upon the bank to specifically deny under oath the
due execution of the document, as prescribed under Rule 8, Section 8, if it
desired: (1) to question the authority of Garcia to bind the corporation; and
(2) to deny its capacity to enter into such contract. [See, E.B. Merchant v.
International Banking Corporation, 6 Phil. 314 (1906).] No sworn answer
denying the due execution of the document in question, or questioning the
authority of Garcia to bind the bank, or denying the bank's capacity to enter
into the contract, was ever filed. Hence, the bank is deemed to have
admitted not only Garcia's authority, but also the bank's power, to enter into
the contract in question.
In the past, this Court had occasion to explain the reason behind this
procedural requirement.
The reason for the rule enunciated in the foregoing authorities will, we think,
be readily appreciated. In dealing with corporations the public at large is
bound to rely to a large extent upon outward appearances. If a man is found
acting for a corporation with the external indicia of authority, any person, not
having notice of want of authority, may usually rely upon those appearances;
and if it be found that the directors had permitted the agent to exercise that
authority and thereby held him out as a person competent to bind the
corporation, or had acquiesced in a contract and retained the benefit
supposed to have been conferred by it, the corporation will be bound,
notwithstanding the actual authority may never have been granted
... Whether a particular officer actually possesses the authority which he
assumes to exercise is frequently known to very few, and the proof of it
usually is not readily accessible to the stranger who deals with the
corporation on the faith of the ostensible authority exercised by some of the
corporate officers. It is therefore reasonable, in a case where an officer of a

corporation has made a contract in its name, that the corporation should be
required, if it denies his authority, to state such defense in its answer. By this
means the plaintiff is apprised of the fact that the agent's authority is
contested; and he is given an opportunity to adduce evidence showing either
that the authority existed or that the contract was ratified and approved.
[Ramirez v. Orientalist Co. and Fernandez, 38 Phil. 634, 645- 646 (1918).]
Petitioner's argument must also be rejected for another reason. The practical
effect of absolving a corporation from liability every time an officer enters
into a contract which is beyond corporate powers, even without the proper
allegation or proof that the corporation has not authorized nor ratified the
officer's act, is to cast corporations in so perfect a mold that transgressions
and wrongs by such artificial beings become impossible [Bissell v. Michigan
Southern and N.I.R. Cos 22 N.Y 258 (1860).] "To say that a corporation has no
right to do unauthorized acts is only to put forth a very plain truism but to say
that such bodies have no power or capacity to err is to impute to them an
excellence which does not belong to any created existence with which we are
acquainted. The distinction between power and right is no more to be lost
sight of in respect to artificial than in respect to natural persons." [Ibid.]
Having determined that Garcia's act of entering into the contract binds the
corporation, we now determine the correct nature of the contract, and its
legal consequences, including its enforceability.
The document which embodies the contract states that the US$3,000.00 was
received by the bank for safekeeping. The subsequent acts of the parties also
show that the intent of the parties was really for the bank to safely keep the
dollars and to return it to Zshornack at a later time, Thus, Zshornack
demanded the return of the money on May 10, 1976, or over five months
later.
The above arrangement is that contract defined under Article 1962, New Civil
Code, which reads:
Art. 1962. A deposit is constituted from the moment a person receives a thing
belonging to another, with the obligation of safely keeping it and of returning
the same. If the safekeeping of the thing delivered is not the principal
purpose of the contract, there is no deposit but some other contract.
Note that the object of the contract between Zshornack and COMTRUST was
foreign exchange. Hence, the transaction was covered by Central Bank
Circular No. 20, Restrictions on Gold and Foreign Exchange Transactions,
promulgated on December 9, 1949, which was in force at the time the parties
entered into the transaction involved in this case. The circular provides:
xxx xxx xxx
2. Transactions in the assets described below and all dealings in them of
whatever nature, including, where applicable their exportation and
importation, shall NOT be effected, except with respect to deposit accounts
included in sub-paragraphs (b) and (c) of this paragraph, when such deposit
accounts are owned by and in the name of, banks.

(a) Any and all assets, provided they are held through, in, or with banks or
banking institutions located in the Philippines, including money, checks,
drafts, bullions bank drafts, deposit accounts (demand, time and savings), all
debts, indebtedness or obligations, financial brokers and investment houses,
notes, debentures, stocks, bonds, coupons, bank acceptances, mortgages,
pledges, liens or other rights in the nature of security, expressed in foreign
currencies, or if payable abroad, irrespective of the currency in which they
are expressed, and belonging to any person, firm, partnership, association,
branch office, agency, company or other unincorporated body or corporation
residing or located within the Philippines;
(b) Any and all assets of the kinds included and/or described in subparagraph
(a) above, whether or not held through, in, or with banks or banking
institutions, and existent within the Philippines, which belong to any person,
firm, partnership, association, branch office, agency, company or other
unincorporated body or corporation not residing or located within the
Philippines;
(c) Any and all assets existent within the Philippines including money, checks,
drafts, bullions, bank drafts, all debts, indebtedness or obligations, financial
securities commonly dealt in by bankers, brokers and investment houses,
notes, debentures, stock, bonds, coupons, bank acceptances, mortgages,
pledges, liens or other rights in the nature of security expressed in foreign
currencies, or if payable abroad, irrespective of the currency in which they
are expressed, and belonging to any person, firm, partnership, association,
branch office, agency, company or other unincorporated body or corporation
residing or located within the Philippines.
xxx xxx xxx
4. (a) All receipts of foreign exchange shall be sold daily to the Central Bank
by those authorized to deal in foreign exchange. All receipts of foreign
exchange by any person, firm, partnership, association, branch office,
agency, company or other unincorporated body or corporation shall be sold
to the authorized agents of the Central Bank by the recipients within one
business day following the receipt of such foreign exchange. Any person,
firm, partnership, association, branch office, agency, company or other
unincorporated body or corporation, residing or located within the Philippines,
who acquires on and after the date of this Circular foreign exchange shall not,
unless licensed by the Central Bank, dispose of such foreign exchange in
whole or in part, nor receive less than its full value, nor delay taking
ownership thereof except as such delay is customary; Provided, further, That
within one day upon taking ownership, or receiving payment, of foreign
exchange the aforementioned persons and entities shall sell such foreign
exchange to designated agents of the Central Bank.
xxx xxx xxx
8. Strict observance of the provisions of this Circular is enjoined; and any
person, firm or corporation, foreign or domestic, who being bound to the
observance thereof, or of such other rules, regulations or directives as may

hereafter be issued in implementation of this Circular, shall fail or refuse to

comply with, or abide by, or shall violate the same, shall be subject to the
penal sanctions provided in the Central Bank Act.
xxx xxx xxx
Paragraph 4 (a) above was modified by Section 6 of Central Bank Circular No.
281, Regulations on Foreign Exchange, promulgated on November 26, 1969
by limiting its coverage to Philippine residents only. Section 6 provides:
SEC. 6. All receipts of foreign exchange by any resident person, firm,
company or corporation shall be sold to authorized agents of the Central
Bank by the recipients within one business day following the receipt of such
foreign exchange. Any resident person, firm, company or corporation residing
or located within the Philippines, who acquires foreign exchange shall not,
unless authorized by the Central Bank, dispose of such foreign exchange in
whole or in part, nor receive less than its full value, nor delay taking
ownership thereof except as such delay is customary; Provided, That, within
one business day upon taking ownership or receiving payment of foreign
exchange the aforementioned persons and entities shall sell such foreign
exchange to the authorized agents of the Central Bank.
As earlier stated, the document and the subsequent acts of the parties show
that they intended the bank to safekeep the foreign exchange, and return it
later to Zshornack, who alleged in his complaint that he is a Philippine
resident. The parties did not intended to sell the US dollars to the Central
Bank within one business day from receipt. Otherwise, the contract of
depositum would never have been entered into at all.
Since the mere safekeeping of the greenbacks, without selling them to the
Central Bank within one business day from receipt, is a transaction which is
not authorized by CB Circular No. 20, it must be considered as one which falls
under the general class of prohibited transactions. Hence, pursuant to Article
5 of the Civil Code, it is void, having been executed against the provisions of
a mandatory/prohibitory law. More importantly, it affords neither of the
parties a cause of action against the other. "When the nullity proceeds from
the illegality of the cause or object of the contract, and the act constitutes a
criminal offense, both parties being in pari delicto, they shall have no cause
of action against each other. . ." [Art. 1411, New Civil Code.] The only remedy
is one on behalf of the State to prosecute the parties for violating the law.
We thus rule that Zshornack cannot recover under the second cause of
action.
3. Lastly, we find the P8,000.00 awarded by the courts a quo as damages in
the concept of litigation expenses and attorney's fees to be reasonable. The
award is sustained.
WHEREFORE, the decision appealed from is hereby MODIFIED. Petitioner is
ordered to restore to the dollar savings account of private respondent the
amount of US$1,000.00 as of October 27, 1975 to earn interest at the rate
fixed by the bank for dollar savings deposits. Petitioner is further ordered to

pay private respondent the amount of P8,000.00 as damages. The other

causes of action of private respondent are ordered dismissed.
SO ORDERED.
-------------------------------------------------SECOND DIVISION
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 Decision1 of the Court of Appeals (CA) in CA-G.R. CV No.
86869, which affirmed the decision2 of the Regional Trial Court (RTC), Branch
66, Makati City, in Civil Case No. 03-857, holding petitioner Durban
Apartments Corporation solely liable to respondent Pioneer Insurance and
Surety Corporation for the loss of Jeffrey Sees (Sees) vehicle.
The facts, as found by the CA, are simple.
On July 22, 2003, [respondent] Pioneer Insurance and Surety Corporation x x
x, by right of subrogation, filed [with the RTC of Makati City] a Complaint for
Recovery of Damages against [petitioner] Durban Apartments Corporation,
doing business under the name and style of City Garden Hotel, and
[defendant before the RTC] Vicente Justimbaste x x x. [Respondent averred]
that: it is the insurer for loss and damage of Jeffrey S. Sees [the insureds]
2001 Suzuki Grand Vitara x x x with Plate No. XBH-510 under Policy No. MCCV-HO-01-0003846-00-D in the amount of P1,175,000.00; on April 30, 2002,
See arrived and checked in at the City Garden Hotel in Makati corner
Kalayaan Avenues, Makati City before midnight, and its parking attendant,
defendant x x x Justimbaste got the key to said Vitara from See to park it[.
O]n May 1, 2002, at about 1:00 oclock in the morning, See was awakened in
his room by [a] telephone call from the Hotel Chief Security Officer who
informed him that his Vitara was carnapped while it was parked unattended
at the parking area of Equitable PCI Bank along Makati Avenue between the
hours of 12:00 [a.m.] and 1:00 [a.m.]; See went to see the Hotel Chief
Security Officer, thereafter reported the incident to the Operations Division of
the Makati City Police Anti-Carnapping Unit, and a flash alarm was issued; the
Makati City Police Anti-Carnapping Unit investigated Hotel Security Officer,
Ernesto T. Horlador, Jr. x x x and defendant x x x Justimbaste; See gave his
Sinumpaang Salaysay to the police investigator, and filed a Complaint Sheet
with the PNP Traffic Management Group in Camp Crame, Quezon City; the
Vitara has not yet been recovered since July 23, 2002 as evidenced by a

Certification of Non- Recovery issued by the PNP TMG; it paid the

P1,163,250.00 money claim of See and mortgagee ABN AMRO Savings Bank,
Inc. as indemnity for the loss of the Vitara; the Vitara was lost due to the
negligence of [petitioner] Durban Apartments and [defendant] Justimbaste
because it was discovered during the investigation that this was the second
time that a similar incident of carnapping happened in the valet parking
service of [petitioner] Durban Apartments and no necessary precautions were
taken to prevent its repetition; [petitioner] Durban Apartments was wanting
in due diligence in the selection and supervision of its employees particularly
defendant x x x Justimbaste; and defendant x x x Justimbaste and [petitioner]
Durban Apartments failed and refused to pay its valid, just, and lawful claim
despite written demands.
Upon service of Summons, [petitioner] Durban Apartments and [defendant]
Justimbaste filed their Answer with Compulsory Counterclaim alleging that:
See did not check in at its hotel, on the contrary, he was a guest of a certain
Ching Montero x x x; defendant x x x Justimbaste did not get the ignition key
of Sees Vitara, on the contrary, it was See who requested a parking
attendant to park the Vitara at any available parking space, and it was parked
at the Equitable Bank parking area, which was within Sees view, while he
and Montero were waiting in front of the hotel; they made a written denial of
the demand of [respondent] Pioneer Insurance for want of legal basis; valet
parking services are provided by the hotel for the convenience of its
customers looking for a parking space near the hotel premises; it is a special
privilege that it gave to Montero and See; it does not include responsibility for
any losses or damages to motor vehicles and its accessories in the parking
area; and the same holds true even if it was See himself who parked his
Vitara within the premises of the hotel as evidenced by the valet parking
customers claim stub issued to him; the carnapper was able to open the
Vitara without using the key given earlier to the parking attendant and
subsequently turned over to See after the Vitara was stolen; defendant x x x
Justimbaste saw the Vitara speeding away from the place where it was
parked; he tried to run after it, and blocked its possible path but to no avail;
and See was duly and immediately informed of the carnapping of his Vitara;
the matter was reported to the nearest police precinct; and defendant x x x
Justimbaste, and Horlador submitted themselves to police investigation.
During the pre-trial conference on November 28, 2003, counsel for
[respondent] Pioneer Insurance was present. Atty. Monina Lee x x x, counsel
of record of [petitioner] Durban Apartments and Justimbaste was absent,
instead, a certain Atty. Nestor Mejia appeared for [petitioner] Durban
Apartments and Justimbaste, but did not file their pre-trial brief.
On November 5, 2004, the lower court granted the motion of [respondent]
Pioneer Insurance, despite the opposition of [petitioner] Durban Apartments
and Justimbaste, and allowed [respondent] Pioneer Insurance to present its
evidence ex parte before the Branch Clerk of Court.
See testified that: on April 30, 2002, at about 11:30 in the evening, he drove
his Vitara and stopped in front of City Garden Hotel in Makati Avenue, Makati
City; a parking attendant, whom he had later known to be defendant x x x

Justimbaste, approached and asked for his ignition key, told him that the
latter would park the Vitara for him in front of the hotel, and issued him a
valet parking customers claim stub; he and Montero, thereafter, checked in
at the said hotel; on May 1, 2002, at around 1:00 in the morning, the Hotel
Security Officer whom he later knew to be Horlador called his attention to the
fact that his Vitara was carnapped while it was parked at the parking lot of
Equitable PCI Bank which is in front of the hotel; his Vitara was insured with
[respondent] Pioneer Insurance; he together with Horlador and defendant x x
x Justimbaste went to Precinct 19 of the Makati City Police to report the
carnapping incident, and a police officer came accompanied them to the AntiCarnapping Unit of the said station for investigation, taking of their sworn
statements, and flashing of a voice alarm; he likewise reported the said
incident in PNP TMG in Camp Crame where another alarm was issued; he filed
his claim with [respondent] Pioneer Insurance, and a representative of the
latter, who is also an adjuster of Vesper Insurance Adjusters-Appraisers
[Vesper], investigated the incident; and [respondent] Pioneer Insurance
required him to sign a Release of Claim and Subrogation Receipt, and finally
paid him the sum of P1,163,250.00 for his claim.
Ricardo F. Red testified that: he is a claims evaluator of [petitioner] Pioneer
Insurance tasked, among others, with the receipt of claims and documents
from the insured, investigation of the said claim, inspection of damages,
taking of pictures of insured unit, and monitoring of the processing of the
claim until its payment; he monitored the processing of Sees claim when the
latter reported the incident to [respondent] Pioneer Insurance; [respondent]
Pioneer Insurance assigned the case to Vesper who verified Sees report,
conducted an investigation, obtained the necessary documents for the
processing of the claim, and tendered a settlement check to See; they
evaluated the case upon receipt of the subrogation documents and the
adjusters report, and eventually recommended for its settlement for the sum
of P1,163,250.00 which was accepted by See; the matter was referred and
forwarded to their counsel, R.B. Sarajan & Associates, who prepared and sent
demand letters to [petitioner] Durban Apartments and [defendant]
Justimbaste, who did not pay [respondent] Pioneer Insurance notwithstanding
their receipt of the demand letters; and the services of R.B. Sarajan &
Associates were engaged, for P100,000.00 as attorneys fees plus P3,000.00
per court appearance, to prosecute the claims of [respondent] Pioneer
Insurance against [petitioner] Durban Apartments and Justimbaste before the
lower court.
Ferdinand Cacnio testified that: he is an adjuster of Vesper; [respondent]
Pioneer Insurance assigned to Vesper the investigation of Sees case, and he
was the one actually assigned to investigate it; he conducted his
investigation of the matter by interviewing See, going to the City Garden
Hotel, required subrogation documents from See, and verified the
authenticity of the same; he learned that it is the standard procedure of the
said hotel as regards its valet parking service to assist their guests as soon as
they get to the lobby entrance, park the cars for their guests, and place the
ignition keys in their safety key box; considering that the hotel has only
twelve (12) available parking slots, it has an agreement with Equitable PCI
Bank permitting the hotel to use the parking space of the bank at night; he

also learned that a Hyundai Starex van was carnapped at the said place
barely a month before the occurrence of this incident because Liberty
Insurance assigned the said incident to Vespers, and Horlador and defendant
x x x Justimbaste admitted the occurrence of the same in their sworn
statements before the Anti-Carnapping Unit of the Makati City Police; upon
verification with the PNP TMG [Unit] in Camp Crame, he learned that Sees
Vitara has not yet been recovered; upon evaluation, Vesper recommended to
[respondent] Pioneer Insurance to settle Sees claim for P1,045,750.00; See
contested the recommendation of Vesper by reasoning out that the 10%
depreciation should not be applied in this case considering the fact that the
Vitara was used for barely eight (8) months prior to its loss; and [respondent]
Pioneer Insurance acceded to Sees contention, tendered the sum of
P1,163,250.00 as settlement, the former accepted it, and signed a release of
claim and subrogation receipt.
The lower court denied the Motion to Admit Pre-Trial Brief and Motion for
Reconsideration field by [petitioner] Durban Apartments and Justimbaste in
its Orders dated May 4, 2005 and October 20, 2005, respectively, for being
devoid of merit.3
Thereafter, on January 27, 2006, the RTC rendered a decision, disposing, as
follows:
WHEREFORE, judgment is hereby rendered ordering [petitioner Durban
Apartments Corporation] to pay [respondent Pioneer Insurance and Surety
Corporation] the sum of P1,163,250.00 with legal interest thereon from July
22, 2003 until the obligation is fully paid and attorneys fees and litigation
expenses amounting to P120,000.00.
SO ORDERED.4
On appeal, the appellate court affirmed the decision of the trial court, viz.:
WHEREFORE, premises considered, the Decision dated January 27, 2006 of
the RTC, Branch 66, Makati City in Civil Case No. 03-857 is hereby AFFIRMED
insofar as it holds [petitioner] Durban Apartments Corporation solely liable to
[respondent] Pioneer Insurance and Surety Corporation for the loss of Jeffrey
Sees Suzuki Grand Vitara.
SO ORDERED.5
Hence, this recourse by petitioner.
The issues for our resolution are:
1. Whether the lower courts erred in declaring petitioner as in default for
failure to appear at the pre-trial conference and to file a pre-trial brief;
2. Corollary thereto, whether the trial court correctly allowed respondent to
present evidence ex-parte;
3. Whether petitioner is liable to respondent for attorneys fees in the amount
of P120,000.00; and

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

vehicle.
The petition must fail.
We are in complete accord with the common ruling of the lower courts that
petitioner was in default for failure to appear at the pre-trial conference and
to file a pre-trial brief, and thus, correctly allowed respondent to present
evidence ex-parte. Likewise, the lower courts did not err in holding petitioner
liable for the loss of Sees vehicle.
Well-entrenched in jurisprudence is the rule that factual findings of the trial
court, especially when affirmed by the appellate court, are accorded the
highest degree of respect and are considered conclusive between the
parties.6 A review of such findings by this Court is not warranted except upon
a showing of highly meritorious circumstances, such as: (1) when the findings
of a trial court are grounded entirely on speculation, surmises, or conjectures;
(2) when a lower courts inference from its factual findings is manifestly
mistaken, absurd, or impossible; (3) when there is grave abuse of discretion
in the appreciation of facts; (4) when the findings of the appellate court go
beyond the issues of the case, or fail to notice certain relevant facts which, if
properly considered, will justify a different conclusion; (5) when there is a
misappreciation of facts; (6) when the findings of fact are conclusions without
mention of the specific evidence on which they are based, are premised on
the absence of evidence, or are contradicted by evidence on record.7 None of
the foregoing exceptions permitting a reversal of the assailed decision exists
in this instance.
Petitioner urges us, however, that "strong [and] compelling reason[s]" such
as the prevention of miscarriage of justice warrant a suspension of the rules
and excuse its and its counsels non-appearance during the pre-trial
conference and their failure to file a pre-trial brief.
We are not persuaded.
Rule 18 of the Rules of Court leaves no room for equivocation; appearance of
parties and their counsel at the pre-trial conference, along with the filing of a
corresponding pre-trial brief, is mandatory, nay, their duty. Thus, Section 4
and Section 6 thereof provide:
SEC. 4. Appearance of parties.It shall be the duty of the parties and their
counsel to appear at the pre-trial. The non-appearance of a party may be
excused only if a valid cause is shown therefor or if a representative shall
appear in his behalf fully authorized in writing to enter into an amicable
settlement, to submit to alternative modes of dispute resolution, and to enter
into stipulations or admissions of facts and documents.
SEC. 6. Pre-trial brief.The parties shall file with the court and serve on the
adverse party, in such manner as shall ensure their receipt thereof at least
three (3) days before the date of the pre-trial, their respective pre-trial briefs
which shall contain, among others:

xxxx
Failure to file the pre-trial brief shall have the same effect as failure to appear
at the pre-trial.
Contrary to the foregoing rules, petitioner and its counsel of record were not
present at the scheduled pre-trial conference. Worse, they did not file a pretrial brief. Their non-appearance cannot be excused as Section 4, in relation
to Section 6, allows only two exceptions: (1) a valid excuse; and (2)
appearance of a representative on behalf of a party who is fully authorized in
writing to enter into an amicable settlement, to submit to alternative modes
of dispute resolution, and to enter into stipulations or admissions of facts and
documents.
Petitioner is adamant and harps on the fact that November 28, 2003 was
merely the first scheduled date for the pre-trial conference, and a certain
Atty. Mejia appeared on its behalf. However, its assertion is belied by its own
admission that, on said date, this Atty. Mejia "did not have in his possession
the Special Power of Attorney issued by petitioners Board of Directors."
As pointed out by the CA, petitioner, through Atty. Lee, received the notice of
pre-trial on October 27, 2003, thirty-two (32) days prior to the scheduled
conference. In that span of time, Atty. Lee, who was charged with the duty of
notifying petitioner of the scheduled pre-trial conference,8 petitioner, and
Atty. Mejia should have discussed which lawyer would appear at the pre-trial
conference with petitioner, armed with the appropriate authority therefor.
Sadly, petitioner failed to comply with not just one rule; it also did not proffer
a reason why it likewise failed to file a pre-trial brief. In all, petitioner has not
shown any persuasive reason why it should be exempt from abiding by the
rules.
The appearance of Atty. Mejia at the pre-trial conference, without a pre-trial
brief and with only his bare allegation that he is counsel for petitioner, was
correctly rejected by the trial court. Accordingly, the trial court, as affirmed by
the appellate court, did not err in allowing respondent to present evidence
ex-parte.
Former Chief Justice Andres R. Narvasas words continue to resonate, thus:
Everyone knows that a pre-trial in civil actions is mandatory, and has been so
since January 1, 1964. Yet to this day its place in the scheme of things is not
fully appreciated, and it receives but perfunctory treatment in many courts.
Some courts consider it a mere technicality, serving no useful purpose save
perhaps, occasionally to furnish ground for non-suiting the plaintiff, or
declaring a defendant in default, or, wistfully, to bring about a compromise.
The pre-trial device is not thus put to full use. Hence, it has failed in the main
to accomplish the chief objective for it: the simplification, abbreviation and
expedition of the trial, if not indeed its dispensation. This is a great pity,
because the objective is attainable, and with not much difficulty, if the device
were more intelligently and extensively handled.
xxxx

Consistently with the mandatory character of the pre-trial, the Rules oblige
not only the lawyers but the parties as well to appear for this purpose before
the Court, and when a party "fails to appear at a pre-trial conference (he)
may be non-suited or considered as in default." The obligation "to appear"
denotes not simply the personal appearance, or the mere physical
presentation by a party of ones self, but connotes as importantly,
preparedness to go into the different subject assigned by law to a pre-trial.
And in those instances where a party may not himself be present at the pretrial, and another person substitutes for him, or his lawyer undertakes to
appear not only as an attorney but in substitution of the clients person, it is
imperative for that representative of the lawyer to have "special authority" to
make such substantive agreements as only the client otherwise has capacity
to make. That "special authority" should ordinarily be in writing or at the very
least be "duly established by evidence other than the self-serving assertion of
counsel (or the proclaimed representative) himself." Without that special
authority, the lawyer or representative cannot be deemed capacitated to
appear in place of the party; hence, it will be considered that the latter has
failed to put in an appearance at all, and he [must] therefore "be non-suited
or considered as in default," notwithstanding his lawyers or delegates
presence.9
We are not unmindful that defendants (petitioners) preclusion from
presenting evidence during trial does not automatically result in a judgment
in favor of plaintiff (respondent). The plaintiff must still substantiate the
allegations in its complaint.10 Otherwise, it would be inutile to continue with
the plaintiffs presentation of evidence each time the defendant is declared in
default.
In this case, respondent substantiated the allegations in its complaint, i.e., a
contract of necessary deposit existed between the insured See and petitioner.
On this score, we find no error in the following disquisition of the appellate
court:
[The] records also reveal that upon arrival at the City Garden Hotel, See gave
notice to the doorman and parking attendant of the said hotel, x x x
Justimbaste, about his Vitara when he entrusted its ignition key to the latter. x
x x Justimbaste issued a valet parking customer claim stub to See, parked the
Vitara at the Equitable PCI Bank parking area, and placed the ignition key
inside a safety key box while See proceeded to the hotel lobby to check in.
The Equitable PCI Bank parking area became an annex of City Garden Hotel
when the management of the said bank allowed the parking of the vehicles of
hotel guests thereat in the evening after banking hours.11
Article 1962, in relation to Article 1998, of the Civil Code defines a contract of
deposit and a necessary deposit made by persons in hotels or inns:
Art. 1962. A deposit is constituted from the moment a person receives a thing
belonging to another, with the obligation of safely keeping it and returning
the same. If the safekeeping of the thing delivered is not the principal
purpose of the contract, there is no deposit but some other contract.

Art. 1998. The deposit of effects made by travelers in hotels or inns shall also
be regarded as necessary.1avvphi1 The keepers of hotels or inns shall be
responsible for them as depositaries, provided that notice was given to them,
or to their employees, of the effects brought by the guests and that, on the
part of the latter, they take the precautions which said hotel-keepers or their
substitutes advised relative to the care and vigilance of their effects.
Plainly, from the facts found by the lower courts, the insured See deposited
his vehicle for safekeeping with petitioner, through the latters employee,
Justimbaste. In turn, Justimbaste issued a claim stub to See. Thus, the
contract of deposit was perfected from Sees delivery, when he handed over
to Justimbaste the keys to his vehicle, which Justimbaste received with the
obligation of safely keeping and returning it. Ultimately, petitioner is liable for
the loss of Sees vehicle.
Lastly, petitioner assails the lower courts award of attorneys fees to
respondent in the amount of P120,000.00. Petitioner claims that the award is
not substantiated by the evidence on record.
We disagree.
While it is a sound policy not to set a premium on the right to litigate,12 we
find that respondent is entitled to reasonable attorneys fees. Attorneys fees
may be awarded when a party is compelled to litigate or incur expenses to
protect its interest,13 or when the court deems it just and equitable.14 In this
case, petitioner refused to answer for the loss of Sees vehicle, which was
deposited with it for safekeeping. This refusal constrained respondent, the
insurer of See, and subrogated to the latters right, to litigate and incur
expenses. However, we reduce the award of P120,000.00 to P60,000.00 in
view of the simplicity of the issues involved in this case.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in
CA-G.R. CV No. 86869 is AFFIRMED with the MODIFICATION that the award of
attorneys fees is reduced to P60,000.00. Costs against petitioner.
SO ORDERED.

Makati v Harper
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 200145 and Article 200246 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.

---------------------------------------------------SECOND DIVISION
G.R. No. 126780

February 17, 2005

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

vs. THE COURT OF APPEALS and MAURICE McLOUGHLIN, respondents.
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 Decision1 dated 19
October 1995 of the Court of Appeals which affirmed the Decision2 dated 16
December 1991 of the Regional Trial Court (RTC), Branch 13, of Manila,
finding YHT Realty Corporation, Brunhilda Mata-Tan (Tan), Erlinda Lainez
(Lainez) and Anicia Payam (Payam) jointly and solidarily liable for damages in
an action filed by Maurice McLoughlin (McLoughlin) for the loss of his
American and Australian dollars deposited in the safety deposit box of
Tropicana Copacabana Apartment Hotel, owned and operated by YHT Realty
Corporation.
The factual backdrop of the case follow.
Private respondent McLoughlin, an Australian businessman-philanthropist,
used to stay at Sheraton Hotel during his trips to the Philippines prior to 1984
when he met Tan. Tan befriended McLoughlin by showing him around,
introducing him to important people, accompanying him in visiting
impoverished street children and assisting him in buying gifts for the children
and in distributing the same to charitable institutions for poor children. Tan
convinced McLoughlin to transfer from Sheraton Hotel to Tropicana where
Lainez, Payam and Danilo Lopez were employed. Lopez served as manager of
the hotel while Lainez and Payam had custody of the keys for the safety
deposit boxes of Tropicana. Tan took care of McLoughlin's booking at the
Tropicana where he started staying during his trips to the Philippines from
December 1984 to September 1987.3
On 30 October 1987, McLoughlin arrived from Australia and registered with

Tropicana. He rented a safety deposit box as it was his practice to rent a

safety deposit box every time he registered at Tropicana in previous trips. As
a tourist, McLoughlin was aware of the procedure observed by Tropicana
relative to its safety deposit boxes. The safety deposit box could only be
opened through the use of two keys, one of which is given to the registered
guest, and the other remaining in the possession of the management of the
hotel. When a registered guest wished to open his safety deposit box, he
alone could personally request the management who then would assign one
of its employees to accompany the guest and assist him in opening the safety
deposit box with the two keys.4
McLoughlin allegedly placed the following in his safety deposit box: Fifteen
Thousand US Dollars (US$15,000.00) which he placed in two envelopes, one
envelope containing Ten Thousand US Dollars (US$10,000.00) and the other
envelope Five Thousand US Dollars (US$5,000.00); Ten Thousand Australian
Dollars (AUS$10,000.00) which he also placed in another envelope; two (2)
other envelopes containing letters and credit cards; two (2) bankbooks; and a
checkbook, arranged side by side inside the safety deposit box.5
On 12 December 1987, before leaving for a brief trip to Hongkong,
McLoughlin opened his safety deposit box with his key and with the key of the
management and took therefrom the envelope containing Five Thousand US
Dollars (US$5,000.00), the envelope containing Ten Thousand Australian
Dollars (AUS$10,000.00), his passports and his credit cards.6 McLoughlin left
the other items in the box as he did not check out of his room at the
Tropicana during his short visit to Hongkong. When he arrived in Hongkong,
he opened the envelope which contained Five Thousand US Dollars
(US$5,000.00) and discovered upon counting that only Three Thousand US
Dollars (US$3,000.00) were enclosed therein.7 Since he had no idea whether
somebody else had tampered with his safety deposit box, he thought that it
was just a result of bad accounting since he did not spend anything from that
envelope.8
After returning to Manila, he checked out of Tropicana on 18 December 1987
and left for Australia. When he arrived in Australia, he discovered that the
envelope with Ten Thousand US Dollars (US$10,000.00) was short of Five
Thousand US Dollars (US$5,000). He also noticed that the jewelry which he
bought in Hongkong and stored in the safety deposit box upon his return to
Tropicana was likewise missing, except for a diamond bracelet.9
When McLoughlin came back to the Philippines on 4 April 1988, he asked
Lainez if some money and/or jewelry which he had lost were found and
returned to her or to the management. However, Lainez told him that no one
in the hotel found such things and none were turned over to the
management. He again registered at Tropicana and rented a safety deposit
box. He placed therein one (1) envelope containing Fifteen Thousand US
Dollars (US$15,000.00), another envelope containing Ten Thousand
Australian Dollars (AUS$10,000.00) and other envelopes containing his
traveling papers/documents. On 16 April 1988, McLoughlin requested Lainez
and Payam to open his safety deposit box. He noticed that in the envelope
containing Fifteen Thousand US Dollars (US$15,000.00), Two Thousand US

Dollars (US$2,000.00) were missing and in the envelope previously

containing Ten Thousand Australian Dollars (AUS$10,000.00), Four Thousand
Five Hundred Australian Dollars (AUS$4,500.00) were missing.10
When McLoughlin discovered the loss, he immediately confronted Lainez and
Payam who admitted that Tan opened the safety deposit box with the key
assigned to him.11 McLoughlin went up to his room where Tan was staying
and confronted her. Tan admitted that she had stolen McLoughlin's key and
was able to open the safety deposit box with the assistance of Lopez, Payam
and Lainez.12 Lopez also told McLoughlin that Tan stole the key assigned to
McLoughlin while the latter was asleep.13
McLoughlin requested the management for an investigation of the incident.
Lopez got in touch with Tan and arranged for a meeting with the police and
McLoughlin. When the police did not arrive, Lopez and Tan went to the room
of McLoughlin at Tropicana and thereat, Lopez wrote on a piece of paper a
promissory note dated 21 April 1988. The promissory note reads as follows:
I promise to pay Mr. Maurice McLoughlin the amount of AUS$4,000.00 and
US$2,000.00 or its equivalent in Philippine currency on or before May 5,
1988.14
Lopez requested Tan to sign the promissory note which the latter did and
Lopez also signed as a witness. Despite the execution of promissory note by
Tan, McLoughlin insisted that it must be the hotel who must assume
responsibility for the loss he suffered. However, Lopez refused to accept the
responsibility relying on the conditions for renting the safety deposit box
entitled "Undertaking For the Use Of Safety Deposit Box,"15 specifically
paragraphs (2) and (4) thereof, to wit:
2. To release and hold free and blameless TROPICANA APARTMENT HOTEL
from any liability arising from any loss in the contents and/or use of the said
deposit box for any cause whatsoever, including but not limited to the
presentation or use thereof by any other person should the key be lost;
...
4. To return the key and execute the RELEASE in favor of TROPICANA
APARTMENT HOTEL upon giving up the use of the box.16
On 17 May 1988, McLoughlin went back to Australia and he consulted his
lawyers as to the validity of the abovementioned stipulations. They opined
that the stipulations are void for being violative of universal hotel practices
and customs. His lawyers prepared a letter dated 30 May 1988 which was
signed by McLoughlin and sent to President Corazon Aquino.17 The Office of
the President referred the letter to the Department of Justice (DOJ) which
forwarded the same to the Western Police District (WPD).18
After receiving a copy of the indorsement in Australia, McLoughlin came to
the Philippines and registered again as a hotel guest of Tropicana. McLoughlin
went to Malacaang to follow up on his letter but he was instructed to go to
the DOJ. The DOJ directed him to proceed to the WPD for documentation. But

McLoughlin went back to Australia as he had an urgent business matter to

attend to.
For several times, McLoughlin left for Australia to attend to his business and
came back to the Philippines to follow up on his letter to the President but he
failed to obtain any concrete assistance.19
McLoughlin left again for Australia and upon his return to the Philippines on
25 August 1989 to pursue his claims against petitioners, the WPD conducted
an investigation which resulted in the preparation of an affidavit which was
forwarded to the Manila City Fiscal's Office. Said affidavit became the basis of
preliminary investigation. However, McLoughlin left again for Australia
without receiving the notice of the hearing on 24 November 1989. Thus, the
case at the Fiscal's Office was dismissed for failure to prosecute. Mcloughlin
requested the reinstatement of the criminal charge for theft. In the
meantime, McLoughlin and his lawyers wrote letters of demand to those
having responsibility to pay the damage. Then he left again for Australia.
Upon his return on 22 October 1990, he registered at the Echelon Towers at
Malate, Manila. Meetings were held between McLoughlin and his lawyer which
resulted to the filing of a complaint for damages on 3 December 1990 against
YHT Realty Corporation, Lopez, Lainez, Payam and Tan (defendants) for the
loss of McLoughlin's money which was discovered on 16 April 1988. After
filing the complaint, McLoughlin left again for Australia to attend to an urgent
business matter. Tan and Lopez, however, were not served with summons,
and trial proceeded with only Lainez, Payam and YHT Realty Corporation as
defendants.
After defendants had filed their Pre-Trial Brief admitting that they had
previously allowed and assisted Tan to open the safety deposit box,
McLoughlin filed an Amended/Supplemental Complaint20 dated 10 June 1991
which included another incident of loss of money and jewelry in the safety
deposit box rented by McLoughlin in the same hotel which took place prior to
16 April 1988.21 The trial court admitted the Amended/Supplemental
Complaint.
During the trial of the case, McLoughlin had been in and out of the country to
attend to urgent business in Australia, and while staying in the Philippines to
attend the hearing, he incurred expenses for hotel bills, airfare and other
transportation expenses, long distance calls to Australia, Meralco power
expenses, and expenses for food and maintenance, among others.22
After trial, the RTC of Manila rendered judgment in favor of McLoughlin, the
dispositive portion of which reads:
WHEREFORE, above premises considered, judgment is hereby rendered by
this Court in favor of plaintiff and against the defendants, to wit:
1. Ordering defendants, jointly and severally, to pay plaintiff the sum of
US$11,400.00 or its equivalent in Philippine Currency of P342,000.00, more
or less, and the sum of AUS$4,500.00 or its equivalent in Philippine Currency
of P99,000.00, or a total of P441,000.00, more or less, with 12% interest from

April 16 1988 until said amount has been paid to plaintiff (Item 1, Exhibit CC);
2. Ordering defendants, jointly and severally to pay plaintiff the sum of
P3,674,238.00 as actual and consequential damages arising from the loss of
his Australian and American dollars and jewelries complained against and in
prosecuting his claim and rights administratively and judicially (Items II, III, IV,
V, VI, VII, VIII, and IX, Exh. "CC");
3. Ordering defendants, jointly and severally, to pay plaintiff the sum of
P500,000.00 as moral damages (Item X, Exh. "CC");
4. Ordering defendants, jointly and severally, to pay plaintiff the sum of
P350,000.00 as exemplary damages (Item XI, Exh. "CC");
5. And ordering defendants, jointly and severally, to pay litigation expenses in
the sum of P200,000.00 (Item XII, Exh. "CC");
6. Ordering defendants, jointly and severally, to pay plaintiff the sum of
P200,000.00 as attorney's fees, and a fee of P3,000.00 for every appearance;
and
7. Plus costs of suit.
SO ORDERED.23
The trial court found that McLoughlin's allegations as to the fact of loss and
as to the amount of money he lost were sufficiently shown by his direct and
straightforward manner of testifying in court and found him to be credible
and worthy of belief as it was established that McLoughlin's money, kept in
Tropicana's safety deposit box, was taken by Tan without McLoughlin's
consent. The taking was effected through the use of the master key which
was in the possession of the management. Payam and Lainez allowed Tan to
use the master key without authority from McLoughlin. The trial court added
that if McLoughlin had not lost his dollars, he would not have gone through
the trouble and personal inconvenience of seeking aid and assistance from
the Office of the President, DOJ, police authorities and the City Fiscal's Office
in his desire to recover his losses from the hotel management and Tan.24
As regards the loss of Seven Thousand US Dollars (US$7,000.00) and jewelry
worth approximately One Thousand Two Hundred US Dollars (US$1,200.00)
which allegedly occurred during his stay at Tropicana previous to 4 April
1988, no claim was made by McLoughlin for such losses in his complaint
dated 21 November 1990 because he was not sure how they were lost and
who the responsible persons were. But considering the admission of the
defendants in their pre-trial brief that on three previous occasions they
allowed Tan to open the box, the trial court opined that it was logical and
reasonable to presume that his personal assets consisting of Seven Thousand
US Dollars (US$7,000.00) and jewelry were taken by Tan from the safety
deposit box without McLoughlin's consent through the cooperation of Payam
and Lainez.25
The trial court also found that defendants acted with gross negligence in the

performance and exercise of their duties and obligations as innkeepers and

were therefore liable to answer for the losses incurred by McLoughlin.26
Moreover, the trial court ruled that paragraphs (2) and (4) of the
"Undertaking For The Use Of Safety Deposit Box" are not valid for being
contrary to the express mandate of Article 2003 of the New Civil Code and
against public policy.27 Thus, there being fraud or wanton conduct on the
part of defendants, they should be responsible for all damages which may be
attributed to the non-performance of their contractual obligations.28
The Court of Appeals affirmed the disquisitions made by the lower court
except as to the amount of damages awarded. The decretal text of the
appellate court's decision reads:
THE FOREGOING CONSIDERED, the appealed Decision is hereby AFFIRMED
but modified as follows:
The appellants are directed jointly and severally to pay the plaintiff/appellee
the following amounts:
1) P153,200.00 representing the peso equivalent of US$2,000.00 and
AUS$4,500.00;
2) P308,880.80, representing the peso value for the air fares from Sidney [sic]
to Manila and back for a total of eleven (11) trips;
3) One-half of P336,207.05 or P168,103.52 representing payment to
Tropicana Apartment Hotel;
4) One-half of P152,683.57 or P76,341.785 representing payment to Echelon
Tower;
5) One-half of P179,863.20 or P89,931.60 for the taxi xxx transportation from
the residence to Sidney [sic] Airport and from MIA to the hotel here in Manila,
for the eleven (11) trips;
6) One-half of P7,801.94 or P3,900.97 representing Meralco power expenses;
7) One-half of P356,400.00 or P178,000.00 representing expenses for food
and maintenance;
8) P50,000.00 for moral damages;
9) P10,000.00 as exemplary damages; and
10) P200,000 representing attorney's fees.
With costs.
SO ORDERED.29
Unperturbed, YHT Realty Corporation, Lainez and Payam went to this Court in
this appeal by certiorari.

Petitioners submit for resolution by this Court the following issues: (a)
whether the appellate court's conclusion on the alleged prior existence and
subsequent loss of the subject money and jewelry is supported by the
evidence on record; (b) whether the finding of gross negligence on the part of
petitioners in the performance of their duties as innkeepers is supported by
the evidence on record; (c) whether the "Undertaking For The Use of Safety
Deposit Box" admittedly executed by private respondent is null and void; and
(d) whether the damages awarded to private respondent, as well as the
amounts thereof, are proper under the circumstances.30
The petition is devoid of merit.
It is worthy of note that the thrust of Rule 45 is the resolution only of
questions of law and any peripheral factual question addressed to this Court
is beyond the bounds of this mode of review.
Petitioners point out that the evidence on record is insufficient to prove the
fact of prior existence of the dollars and the jewelry which had been lost
while deposited in the safety deposit boxes of Tropicana, the basis of the trial
court and the appellate court being the sole testimony of McLoughlin as to
the contents thereof. Likewise, petitioners dispute the finding of gross
negligence on their part as not supported by the evidence on record.
We are not persuaded.l^vvphi1.net We adhere to the findings of the trial
court as affirmed by the appellate court that the fact of loss was established
by the credible testimony in open court by McLoughlin. Such findings are
factual and therefore beyond the ambit of the present petition.1awphi1.nt
The trial court had the occasion to observe the demeanor of McLoughlin while
testifying which reflected the veracity of the facts testified to by him. On this
score, we give full credence to the appreciation of testimonial evidence by
the trial court especially if what is at issue is the credibility of the witness.
The oft-repeated principle is that where the credibility of a witness is an
issue, the established rule is that great respect is accorded to the evaluation
of the credibility of witnesses by the trial court.31 The trial court is in the best
position to assess the credibility of witnesses and their testimonies because
of its unique opportunity to observe the witnesses firsthand and note their
demeanor, conduct and attitude under grilling examination.32
We are also not impressed by petitioners' argument that the finding of gross
negligence by the lower court as affirmed by the appellate court is not
supported by evidence. The evidence reveals that two keys are required to
open the safety deposit boxes of Tropicana. One key is assigned to the guest
while the other remains in the possession of the management. If the guest
desires to open his safety deposit box, he must request the management for
the other key to open the same. In other words, the guest alone cannot open
the safety deposit box without the assistance of the management or its
employees. With more reason that access to the safety deposit box should be
denied if the one requesting for the opening of the safety deposit box is a
stranger. Thus, in case of loss of any item deposited in the safety deposit box,
it is inevitable to conclude that the management had at least a hand in the

consummation of the taking, unless the reason for the loss is force majeure.
Noteworthy is the fact that Payam and Lainez, who were employees of
Tropicana, had custody of the master key of the management when the loss
took place. In fact, they even admitted that they assisted Tan on three
separate occasions in opening McLoughlin's safety deposit box.33 This only
proves that Tropicana had prior knowledge that a person aside from the
registered guest had access to the safety deposit box. Yet the management
failed to notify McLoughlin of the incident and waited for him to discover the
taking before it disclosed the matter to him. Therefore, Tropicana should be
held responsible for the damage suffered by McLoughlin by reason of the
negligence of its employees.
The management should have guarded against the occurrence of this
incident considering that Payam admitted in open court that she assisted Tan
three times in opening the safety deposit box of McLoughlin at around 6:30
A.M. to 7:30 A.M. while the latter was still asleep.34 In light of the
circumstances surrounding this case, it is undeniable that without the
acquiescence of the employees of Tropicana to the opening of the safety
deposit box, the loss of McLoughlin's money could and should have been
avoided.
The management contends, however, that McLoughlin, by his act, made its
employees believe that Tan was his spouse for she was always with him most
of the time. The evidence on record, however, is bereft of any showing that
McLoughlin introduced Tan to the management as his wife. Such an inference
from the act of McLoughlin will not exculpate the petitioners from liability in
the absence of any showing that he made the management believe that Tan
was his wife or was duly authorized to have access to the safety deposit box.
Mere close companionship and intimacy are not enough to warrant such
conclusion considering that what is involved in the instant case is the very
safety of McLoughlin's deposit. If only petitioners exercised due diligence in
taking care of McLoughlin's safety deposit box, they should have confronted
him as to his relationship with Tan considering that the latter had been
observed opening McLoughlin's safety deposit box a number of times at the
early hours of the morning. Tan's acts should have prompted the
management to investigate her relationship with McLoughlin. Then,
petitioners would have exercised due diligence required of them. Failure to do
so warrants the conclusion that the management had been remiss in
complying with the obligations imposed upon hotel-keepers under the law.
Under Article 1170 of the New Civil Code, those who, in the performance of
their obligations, are guilty of negligence, are liable for damages. As to who
shall bear the burden of paying damages, Article 2180, paragraph (4) of the
same Code provides that the owners and managers of an establishment or
enterprise are likewise responsible for damages caused by their employees in
the service of the branches in which the latter are employed or on the
occasion of their functions. Also, this Court has ruled that if an employee is
found negligent, it is presumed that the employer was negligent in selecting
and/or supervising him for it is hard for the victim to prove the negligence of
such employer.35 Thus, given the fact that the loss of McLoughlin's money

was consummated through the negligence of Tropicana's employees in

allowing Tan to open the safety deposit box without the guest's consent, both
the assisting employees and YHT Realty Corporation itself, as owner and
operator of Tropicana, should be held solidarily liable pursuant to Article
2193.36
The issue of whether the "Undertaking For The Use of Safety Deposit Box"
executed by McLoughlin is tainted with nullity presents a legal question
appropriate for resolution in this petition. Notably, both the trial court and the
appellate court found the same to be null and void. We find no reason to
reverse their common conclusion. Article 2003 is controlling, thus:
Art. 2003. The hotel-keeper cannot free himself from responsibility by posting
notices to the effect that he is not liable for the articles brought by the guest.
Any stipulation between the hotel-keeper and the guest whereby the
responsibility of the former as set forth in Articles 1998 to 200137 is
suppressed or diminished shall be void.
Article 2003 was incorporated in the New Civil Code as an expression of
public policy precisely to apply to situations such as that presented in this
case. The hotel business like the common carrier's business is imbued with
public interest. Catering to the public, hotelkeepers are bound to provide not
only lodging for hotel guests and security to their persons and belongings.
The twin duty constitutes the essence of the business. The law in turn does
not allow such duty to the public to be negated or diluted by any contrary
stipulation in so-called "undertakings" that ordinarily appear in prepared
forms imposed by hotel keepers on guests for their signature.
In an early case,38 the Court of Appeals through its then Presiding Justice
(later Associate Justice of the Court) Jose P. Bengzon, ruled that to hold
hotelkeepers or innkeeper liable for the effects of their guests, it is not
necessary that they be actually delivered to the innkeepers or their
employees. It is enough that such effects are within the hotel or inn.39 With
greater reason should the liability of the hotelkeeper be enforced when the
missing items are taken without the guest's knowledge and consent from a
safety deposit box provided by the hotel itself, as in this case.
Paragraphs (2) and (4) of the "undertaking" manifestly contravene Article
2003 of the New Civil Code for they allow Tropicana to be released from
liability arising from any loss in the contents and/or use of the safety deposit
box for any cause whatsoever.40 Evidently, the undertaking was intended to
bar any claim against Tropicana for any loss of the contents of the safety
deposit box whether or not negligence was incurred by Tropicana or its
employees. The New Civil Code is explicit that the responsibility of the hotelkeeper 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 200243 which exempts

the hotel-keeper from liability if the loss is due to the acts of his guest, his
family, or visitors. Even a cursory reading of the provision would lead us to
reject petitioners' contention. The justification they raise would render
nugatory the public interest sought to be protected by the provision. What if
the negligence of the employer or its employees facilitated the
consummation of a crime committed by the registered guest's relatives or
visitor? Should the law exculpate the hotel from liability since the loss was
due to the act of the visitor of the registered guest of the hotel? Hence, this
provision presupposes that the hotel-keeper is not guilty of concurrent
negligence or has not contributed in any degree to the occurrence of the loss.
A depositary is not responsible for the loss of goods by theft, unless his
actionable negligence contributes to the loss.44
In the case at bar, the responsibility of securing the safety deposit box was
shared not only by the guest himself but also by the management since two
keys are necessary to open the safety deposit box. Without the assistance of
hotel employees, the loss would not have occurred. Thus, Tropicana was
guilty of concurrent negligence in allowing Tan, who was not the registered
guest, to open the safety deposit box of McLoughlin, even assuming that the
latter was also guilty of negligence in allowing another person to use his key.
To rule otherwise would result in undermining the safety of the safety deposit
boxes in hotels for the management will be given imprimatur to allow any
person, under the pretense of being a family member or a visitor of the
guest, to have access to the safety deposit box without fear of any liability
that will attach thereafter in case such person turns out to be a complete
stranger. This will allow the hotel to evade responsibility for any liability
incurred by its employees in conspiracy with the guest's relatives and visitors.
Petitioners contend that McLoughlin's case was mounted on the theory of
contract, but the trial court and the appellate court upheld the grant of the
claims of the latter on the basis of tort.45 There is nothing anomalous in how
the lower courts decided the controversy for this Court has pronounced a
jurisprudential rule that tort liability can exist even if there are already
contractual relations. The act that breaks the contract may also be tort.46
As to damages awarded to McLoughlin, we see no reason to modify the
amounts awarded by the appellate court for the same were based on facts
and law. It is within the province of lower courts to settle factual issues such
as the proper amount of damages awarded and such finding is binding upon
this Court especially if sufficiently proven by evidence and not
unconscionable or excessive. Thus, the appellate court correctly awarded
McLoughlin Two Thousand US Dollars (US$2,000.00) and Four Thousand Five
Hundred Australian dollars (AUS$4,500.00) or their peso equivalent at the
time of payment,47 being the amounts duly proven by evidence.48 The
alleged loss that took place prior to 16 April 1988 was not considered since
the amounts alleged to have been taken were not sufficiently established by
evidence. The appellate court also correctly awarded the sum of P308,880.80,
representing the peso value for the air fares from Sydney to Manila and back
for a total of eleven (11) trips;49 one-half of P336,207.05 or P168,103.52
representing payment to Tropicana;50 one-half of P152,683.57 or

P76,341.785 representing payment to Echelon Tower;51 one-half of

P179,863.20 or P89,931.60 for the taxi or transportation expenses from
McLoughlin's residence to Sydney Airport and from MIA to the hotel here in
Manila, for the eleven (11) trips;52 one-half of P7,801.94 or P3,900.97
representing Meralco power expenses;53 one-half of P356,400.00 or
P178,000.00 representing expenses for food and maintenance.54
The amount of P50,000.00 for moral damages is reasonable. Although trial
courts are given discretion to determine the amount of moral damages, the
appellate court may modify or change the amount awarded when it is
palpably and scandalously excessive.l^vvphi1.net Moral damages are not
intended to enrich a complainant at the expense of a defendant.l^vvphi1.net
They are awarded only to enable the injured party to obtain means, diversion
or amusements that will serve to alleviate the moral suffering he has
undergone, by reason of defendants' culpable action.55
The awards of P10,000.00 as exemplary damages and P200,000.00
representing attorney's fees are likewise sustained.
WHEREFORE, foregoing premises considered, the Decision of the Court of
Appeals dated 19 October 1995 is hereby AFFIRMED. Petitioners are directed,
jointly and severally, to pay private respondent the following amounts:
(1) US$2,000.00 and AUS$4,500.00 or their peso equivalent at the time of
payment;
(2) P308,880.80, representing the peso value for the air fares from Sydney to
Manila and back for a total of eleven (11) trips;
(3) One-half of P336,207.05 or P168,103.52 representing payment to
Tropicana Copacabana Apartment Hotel;
(4) One-half of P152,683.57 or P76,341.785 representing payment to Echelon
Tower;
(5) One-half of P179,863.20 or P89,931.60 for the taxi or transportation
expense from McLoughlin's residence to Sydney Airport and from MIA to the
hotel here in Manila, for the eleven (11) trips;
(6) One-half of P7,801.94 or P3,900.97 representing Meralco power expenses;
(7) One-half of P356,400.00 or P178,200.00 representing expenses for food
and maintenance;
(8) P50,000.00 for moral damages;
(9) P10,000.00 as exemplary damages; and
(10) P200,000 representing attorney's fees.
With costs.
SO ORDERED.