Eastern Shipping Lines

vs
Court of Appeals and the Mercantile Insurance Company, Inc.
FACTS
Two fiber drums were shipped owned by Eastern Shipping from Japan. The
shipment as insured with a marine policy. Upon arrival in Manila unto the custody of
metro Port Service, which excepted to one drum, said to be in bad order and which
damage was unknown the Mercantile Insurance Company. Allied Brokerage
Corporation received the shipment from Metro, one drum opened and without seal.
Allied delivered the shipment to the consignees warehouse. The latter excepted to one
drum which contained spillages while the rest of the contents was adulterated/fake. As
consequence of the loss, the insurance company paid the consignee, so that it became
subrogated to all the rights of action of consignee against the defendants Eastern
Shipping, Metro Port and Allied Brokerage. The insurance company filed before the trial
court. The trial court ruled in favor of plaintiff an ordered defendants to pay the former
with present legal interest of 12% per annum from the date of the filing of the complaint.
On appeal by defendants, the appellate court denied the same and affirmed in toto the
decision of the trial court.
ISSUE
(1) Whether the applicable rate of legal interest is 12% or 6%.
(2) Whether the payment of legal interest on the award for loss or damage is to be
computed from the time the complaint is filed from the date the decision appealed from
is rendered.
HELD
The Supreme Court held that the legal interest should accrue from the date of the
decision of the court a quo, stating that if the suit were for damages, 'unliquidated and
not known until definitely ascertained, assessed and determined by the courts after
proof,' then, interest 'should be from the date of the decision.
Moreover, the Court also ruled that the legal interest in this case should be set at 6%
from the time of the decision a quo. As explanation, the SC set forth the following rule in
identifying legal interest, thus establishing this case as a very important landmark case
in all issues regarding loans moving forward:
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed,
as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money,
i.e., a loan or forbearance of money, the interest due should be that which may have
been stipulated in writing. Furthermore, the interest due shall itself earn legal interest
from the time it is judicially demanded. In the absence of stipulation, the rate of interest

shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial
demand under and subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion of the
court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall begin to run
only from the date the judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained). The actual base for
the computation of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a forbearance of credit.
Following these rules, the Court imposed a 6% legal interest as per the amount
computed on the 03 February 1988 decision, and 12% upon finality of the judgment until
complete payment thereof.
Roman Catholic Bishop of Jaro
Vs.
Gregorio Dela Pea
Facts:
Plaintiff is the trustee of a charitable bequest made for the construction of a leper
hospital and father Augustin Dela Pea was the duly authorized representative of the
plaintiff to receive the legacy. Defendant is the administrator of the estate of father Dela
Pea.
Father Dela Pea was arrested by the military authorities as a political prisoner.
Due to their claim that hes an insurgent, they have confiscated his personal account
deposited in Hong Kong and Shanghai Bank at Iloilo amounting to P 19,000 which the
authorities believed to be used for revolutionary purposes.
Based on a careful examination of the case, it is believed that P 6,641 trust fund
is part of the P 19,000 confiscated by the authorities.
Issue:
Whether or not father Dela Pea is responsible for the loss of such trust fund.
Held:

No. by mixing the trust fund with his personal account does not make him
responsible for such loss. It does not make him a debtor who must respond to all
hazards. Theres no law prohibiting him from depositing it as he did, nor any law which
changed his responsibility by reason of the deposit. The money was forcibly taken from
the bank by the armed forces of the U.S. during the war of the insurrection. Therefore,
father Dela Pea is not responsible for its loss.

Art. 1094 of the Civil Code a person obliged to give something is also bound to
preserve it with the diligence of a good father of a family

Art. 1105. no one shall be liable for events which could not be foreseen, or which
having been foreseen were inevitable, with the exception of the cases expressly
mentioned in the law or those in which obligation so declares.
Dissenting:
The P 6,641 was clothed with all immunities and protection by law for trust funds.
When father Dela Pea mixed said amount with his personal account, he unclothed
such of all its protection. He had the legal responsibility to the care and custody of the
trust funds as a trustee or agent of the plaintiff.

U.S vs Thomas (82 U.S 337) page 343

Trustees are only bound to exercise the same care and solitude with regard to
the trust property which they would exercise with regard to their own. Equity will not
exact more of them. They are not liable for a loss by theft without their fault. But this
exemption ceases when they mix the trust money with their own whereby it loses its
identity and they become mere debtors.
The record also shows that father Dela Pea has been using the money in his personal
account wherein part of which is the trust-money, therefore, a violation of the trust
imposed on him.
If the doctrine announced in the majority opinion be followed in cases hereafter arising
in this jurisdiction, trust funds will be placed in precarious condition. The position of the
trustee will cease to be one of trust.
CA Agro Industrial Development Corp.
vs
THE HONORABLE COURT OF APPEALS and SECURITY BANK AND TRUST
COMPANY
Facts:
Petitioner (through its President Sergio Aguirre) and the spouses Ramon and Paula
Pugao entered into an agreement whereby the former purchased from the latter two (2)
parcels of land for a consideration of P350,625.00. Of this amount, P75, 725.00 was
paid as downpayment while the balance was covered by three (3) postdated checks.

Among the terms and conditions of the agreement were that the titles to the lots shall be
transferred to the petitioner upon full payment of the purchase price and that the
owner's copies of the certificates of titles thereto, and that title shall be deposited in a
safety deposit box of any bank. The same could be withdrawn only upon the joint
signatures of a representative of the petitioner and the Pugaos upon full payment of the
purchase price. Petitioner and the Pugaos then rented Safety Deposit Box of private
respondent Security Bank and Trust Company.
After the execution of the contract, two (2) renter's keys were given to the renters one
to Aguirre (for the petitioner) and the other to the Pugaos. A guard key remained in the
possession of the respondent Bank. The safety deposit box has two (2) keyholes, one
for the guard key and the other for the renter's key, and can be opened only with the use
of both keys. Petitioner claims that the certificates of title were placed inside the said
box.
Thereafter, a certain Mrs. Margarita Ramos offered to buy from the petitioner the two (2)
lots. Mrs. Ramos demanded the execution of a deed of sale which necessarily entailed
the production of the certificates of title. In view thereof, Aguirre, accompanied by the
Pugaos, then proceeded to the respondent Bank to open the safety deposit box and get
the certificates of title. However, when opened in the presence of the Bank's
representative, the box yielded no such certificates.
Issue:
Whether or not the respondent liable for the loss of the titles in the safety deposit box
Held:
NO
The contract for the rent of the safety deposit box is not an ordinary contract of lease as
defined in Article 1643 of the Civil Code. However, we do not fully subscribe to its view
that the same is a contract of deposit that is to be strictly governed by the provisions in
the Civil Code on deposit; the contract in the case at bar is a special kind of deposit. It
cannot be characterized as an ordinary contract of lease under Article 1643 because the
full and absolute possession and control of the safety deposit box was not given to the
joint renters the petitioner and the Pugaos. The guard key of the box remained with
the respondent Bank; without this key, neither of the renters could open the box. On the
other hand, the respondent Bank could not likewise open the box without the renter's
key. In this case, the said key had a duplicate which was made so that both renters
could have access to the box.
We reach the same conclusion which the Court of Appeals arrived at, that is, that the
petition should be dismissed, but on grounds quite different from those relied upon by
the Court of Appeals. In the instant case, the respondent Bank's exoneration cannot,
contrary to the holding of the Court of Appeals, be based on or proceed from a

characterization of the impugned contract as a contract of lease, but rather on the fact
that no competent proof was presented to show that respondent Bank was aware of the
agreement between the petitioner and the Pugaos to the effect that the certificates of
title were withdrawable from the safety deposit box only upon both parties' joint
signatures, and that no evidence was submitted to reveal that the loss of the certificates
of title was due to the fraud or negligence of the respondent Bank. This in turn flows
from this Court's determination that the contract involved was one of deposit. Since both
the petitioner and the Pugaos agreed that each should have one (1) renter's key, it was
obvious that either of them could ask the Bank for access to the safety deposit box and,
with the use of such key and the Bank's own guard key, could open the said box,
without the other renter being present.
Angel Javellana
vs.
Jose Lim
FACTS:
The herein defendants-appellants, Jose Lim and Ceferino Domingo Lim executed and
subscribed a document in favor of the plaintiff-appellee, Angel Javellana which states
that they have received, as a deposit without interest, the sum of P2,686.58 which they
will return to Angel Javellana, jointly and severally on January 20, 1898.
When the obligation became due, the defendants begged the plaintiff for an extension
of time for the payment, binding themselves to pay 15% interest on the amount of their
indebtedness to which the plaintiff acceded. Despite of extension of period for the
settlement of defendants debt, they failed to settle the same and paid only the sum of
P1,000.00 on account of interest due. The plaintiff filed a complaint against defendant at
CFI of Iloilo for the payment of the amount due. The trial court ruled in favor of the
plaintiff. The defendants moved for new trial. They alleged that the contract they have
entered into is one of deposit and not of loan.
ISSUE:
Whether or not the agreement between the parties is one or deposit or of loan
HELD:
The agreement is a CONTRACT OF LOAN. Based on the fact that when defendants
went to the creditor (Javellana) asking for an extension of period for payment because
the defendants were unable to return the amount deposited and for that reason they
agreed to pay 15% interest per annum and the creditor granted the same, are clear
indication that the defendants have permission to use and dispose of the amount stated
as having been deposited. These are unquestionable evidence that the transaction
entered into between the parties was not a deposit but a real contract of loan.
Article 1768 of the Civil Code provides that

When the depositary has a permission to make use of the thing deposited, the contract
loses the character of deposit and becomes a loan or bailment.
The permission shall not be presumed, and its existence must be proven.
Manuel Garcia Gavieres
vs.
Trinidad H. Pardo de Tavera
FACTS:
Don Manuel Garcia Gavieres, plaintiff and successor in interest of the deceased Doa
Ignacia de Gorricho filed an action against Don Trinidad H. Pardo de Tavera, heir of Don
Felix de Tavera for the collection of a balance of P1,423.75, remaining due on the
original obligation of P3,000.00. The agreement between the parties appears in the
following writing:
Received of Seorita Ignacia e Gorricho the sum of 3,000 pesos, gold (3,000
pesos), as a deposit payable on two months notice in advance, with interest at 6
percent per annum with a hypothecation of the goods now owned by me or which may
be owned thereafter, as a security of payment.
The plaintiff alleged in the complaint that the contract executed by Felix and
Ignacia was a contract of deposit. The defendant, on the other hand, alleged that it was
a contract of loan and therefore the prescription applicable to the contract of loan
extinguished the right of action.
ISSUE:
W/N the contract executed is a contract of loan or deposit
HELD:
The contract executed is a CONTRACT OF LOAN.
There is a stipulation of interest at 6% per annum and the amount could be collected
after notice of two months in advance, evident that the intention of the parties that the
depositary should have the right to make use of the amount deposited (The purpose of
the contract of deposit is the safekeeping of the thing delivered by the depositor to the
depository. Art. 1962)
The prescription has extinguished the contract of loan as provided in the old civil code.
All personal actions, such as those which arise from a contract of loan, cease to have
legal effect after twenty years according to the former law and after fifteen years
according to the Civil Code now in force. (PRSCRIPTION. Please refer to full text for
dates )
Vicente Delgado
vs.
Pedro Bonnevie and Francisco Arandez

FACTS:
Appellant Bonnevie and Arandez formed a regular general partnership in Nueva
Caceres, Ambos, Camarines Sur which engaged in the business of threshing
paddy/palay. Vicente Delgado undertook to deliver to the appellants, 2003 and a half
paddy. The palays are to be cleaned and returned to him as rice with the agreement of
payment of 10 centimos for each cavan and to have it returned in the rice, one half the
amount received as palay.
Delgado appeared in CFI on February 6, 1909, demanding the return of the 2003 and a
half cavanes of palay. Prior to the pendency of the trial, the partnership was already
dissolved.
ISSUES:
1. W/N the nature of the obligation contracted by the appellants (Bonnevie & Arandez) is
a deposit or a hire of service
2. W/N the right to demand the return of the things has prescription
HELD:
1. The obligation of the appellants arose primarily out of deposit. While the deposit was
later converted into a contract of hire services, even after the hire of service had been
fulfilled, the object (rice) in every way remained as a deposit in the possession of the
appellants, for them to return to the depositor at any time they might be required to do
so and nothing has released them of this obligation. Moreover, neither the dissolution of
the partnership that united them, nor the revolutionary movement of a political character
that seems to have occurred in 1898, nor the fact that they may at some time have lost
possession of the rice has released them from the obligation to return it.
2. Under the title of deposit or hire of services, the possession of the appellants can in
no way amount to prescription, for the thing received on deposit or for hire of service
could not prescribe, since for every prescription of ownership, the possession must be
in the capacity of an owner, public, peaceful and uninterrupted (Civil Code 1941).
The appellants could not possess the rice in the capacity of owners, taking for granted
that the depositor or lessor never could have believed that he had transferred to them
ownership of the thing deposited or leased, but merely the care of the thing on deposit
and the use or profit thereof; which is expressed in legal terms by saying that the
possession of the depositary or of the lessee is not adverse to that of the depositor or
lessor, who continues to be the owner of the thing which is merely held in trust by the
depositary or lessee.
Silvestra Baron
vs.
Pablo David
and
Guillermo Baron
vs.

Pablo David
Facts:
The defendant Pablo David is engaged in running a rice mill in the municipality of
Magalang, in the Province of Pampanga. In the months of March, April, and May, 1920,
Silvestra Baron placed a quantity of palay in the defendant's mill; and this, in connection
with some that she took over from Guillermo Baron, amounted to 1,012 cavans and 24
kilos. During approximately the same period Guillermo Baron placed other 1,865 cavans
and 43 kilos of palay in the mill. No compensation has ever been received by Silvestra
Baron upon account of the palay delivered by Guillermo Baron, he has received from
the defendant advancements amounting to P2,800; but apart from this he has not been
compensated. On January 17, 1921, the defendant's rice mill caught on fire.
Both the plaintiffs claim that the palay which was delivered by them to the defendant
was sold to the defendant; while the defendant, on the other hand, claims that the palay
was deposited subject to future withdrawal by the depositors or subject to some future
sale which was never effected. He therefore supposes himself to be relieved from all
responsibility by virtue of the mentioned fire.
Issue:
Whether or not the defendant is correct in contending that the transaction is that of a
deposit and is freed from the responsibility to pay compensation to the plaintiffs by
reason of the fire
Held:
No. It should be stated that the palay in question was placed by the plaintiffs in the
defendant's mill with the understanding that the defendant was at liberty to convert it
into rice and dispose of it at his pleasure. The mill was actively running during the entire
season, and as palay was daily coming in from many customers and as rice was being
constantly shipped by the defendant to Manila, or other rice markets, it was impossible
to keep the plaintiffs' palay segregated.
Considering the fact that the defendant had thus milled and doubtless sold the plaintiffs'
palay prior to the date of the fire, it result that he is bound to account for its value, and
his liability was not extinguished by the occurrence of the fire.
Suppose that the palay may have been delivered in the character of deposit, subject to
future sale or withdrawal at plaintiffs' election, nevertheless if it was understood that the
defendant might mill the palay and he has in fact appropriated it to his own use, he is of
course bound to account for its value.
Under article 1768 of the Civil Code, when the depository has permission to make use
of the thing deposited, the contract loses the character of mere deposit and becomes a
loan or a commodatum; and of course by appropriating the thing, the bailee becomes
responsible for its value. In this connection the Court wholly rejected the defendant's

pretense that the palay delivered by the plaintiffs or any part of it was actually
consumed in the fire of January, 1921.
The United States
vs.
Jose M. Igpuara
FACTS:
Appellant Jose M. Igpuara has been charge with the crime of estafa, for having
swindled Juana Montilla and Eugenio Veraguth out of PhP2,498 Philippine currency,
which he had take on deposit from the former to be at the latter's disposal.
The defendant has shown no authorization whatsoever or the consent of the depositary
for using or disposing of the P2,498, which the certificate acknowledges, or any contract
entered into with the depositor to convert the deposit into a loan, commission, or other
contract.
CFI: Defendant was guilty
ISSUES:
W/n holding that the document executed by him was a certificate of deposit and not a
negotiable instrument;
DECISIONS:
It is erroneous to assert that the certificate of deposit in question is negotiable like any
other commercial instrument:
First, because every commercial instrument is not negotiable; and second, because
only instruments payable to order are negotiable. Hence, this instrument not being to
order but to bearer, it is not negotiable.
It is also erroneous to assert that sum of money set forth in said certificate is, according
to it, in the defendant's possession as a loan. In a loan the lender transmits to the
borrower the use of the thing lent, while in a deposit the use of the thing is not
transmitted, but merely possession for its custody or safe-keeping.
Article 408 of the Code of Commerce of 1829, previous to the one now in force,
provided: The depositary of an amount of money cannot use the amount, and if he
makes use of it, he shall be responsible for all damages that may accrue and shall
respond to the depositor for the legal interest on the amount.
Being in accord and the merits of the case, the judgment appealed from is
affirmed, with costs.