1
BANK OF THE PHILIPPINE ISLANDS…………………1
CA AGRO-INDUSTRIAL…………………………………3
YHT REALTY CORPORATION…………………………6
De Los Santos VS Tan KHey………….di ko mahanap
G.R. No. 104612 May 10, 1994
BANK OF THE PHILIPPINE ISLANDS (successor-in-
interest of COMMERCIAL AND TRUST CO.), petitioner,
vs.
HON. COURT OF APPEALS, EASTERN PLYWOOD
CORP. and BENIGNO D. LIM, respondents.
Leonen, Ramirez & Associates for petitioner.
Constante A. Ancheta for private respondents.
DAVIDE, JR., J.:
The petitioner urges us to review and set aside the amended
Decision1 of 6 March 1992 of respondent Court of Appeals in
CA- G.R. CV No. 25739 which modified the Decision of 15
November 1990 of Branch 19 of the Regional Trial Court
(RTC) of Manila in Civil Case No. 87-42967, entitled Bank of
the Philippine Islands (successor-in-interest of Commercial
Bank and Trust Company) versus Eastern Plywood
Corporation and Benigno D. Lim. The Court of Appeals had
affirmed the dismissal of the complaint but had granted the
defendants' counterclaim for P331,261.44 which represents the
outstanding balance of their account with the plaintiff.
As culled from the records and the pleadings of the parties, the
following facts were duly established:
Private respondents Eastern Plywood Corporation (Eastern)
and
Benigno D. Lim (Lim), an officer and stockholder of Eastern,
held at least one joint bank account ("and/or" account) with
the Commercial Bank and Trust Co. (CBTC), the predecessor-
in-interest of petitioner Bank of the Philippine Islands (BPI).
Sometime in March 1975, a joint checking account ("and"
account) with Lim in the amount of P120,000.00 was opened
by Mariano Velasco with funds withdrawn from the account
of Eastern and/or Lim. Various amounts were later deposited
or withdrawn from the joint account of Velasco and Lim. The
money therein was placed in the money market.
Velasco died on 7 April 1977. At the time of his death, the
outstanding balance of the account stood at P662,522.87. On 5
May 1977, by virtue of an Indemnity Undertaking executed by
Lim for himself and as President and General Manager of
Eastern, 2 one-half of this amount was provisionally released
and transferred to one of the bank accounts of Eastern with
CBTC. 3
Thereafter, on 18 August 1978, Eastern obtained a loan of
P73,000.00 from CBTC as "Additional Working Capital,"
evidenced by the "Disclosure Statement on Loan/Credit
Transaction" (Disclosure Statement) signed by CBTC through
its branch manager, Ceferino Jimenez, and Eastern, through
Lim, as its President and General Manager. 4The loan was
payable on demand with interest at 14% per annum.
For this loan, Eastern issued on the same day a negotiable
promissory note for P73,000.00 payable on demand to the
order of CBTC with interest at 14% per annum. 5 The note
was signed by Lim both in his own capacity and as President
and General Manager of Eastern. No reference to any security
for the loan appears on the note. In the Disclosure Statement,
the box with the printed word "UNSECURED" was marked
with "X" — meaning unsecured, while the line with the words
"this loan is wholly/partly secured by" is followed by the
typewritten words "Hold-Out on a 1:1 on C/A No. 2310-001-
42," which refers to the joint account of Velasco and Lim with
a balance of P331,261.44.
In addition, Eastern and Lim, and CBTC signed another
document entitled "Holdout Agreement," also dated 18 August
1978, 6 wherein it was stated that "as security for the Loan
[Lim and Eastern] have offered [CBTC] and the latter accepts
a holdout on said [Current Account No. 2310-011-42 in the
joint names of Lim and Velasco] to the full extent of their
alleged interests therein as these may appear as a result of final
and definitive judicial action or a settlement between and
among the contesting parties thereto." 7 Paragraph 02 of the
Agreement provides as follows:
Eastply [Eastern] and Mr. Lim hereby confer upon Comtrust
[CBTC], when and if their alleged interests in the Account
Balance shall have been established with finality, ample and
sufficient power as shall be necessary to retain said Account
Balance and enable Comtrust to apply the Account Balance
for the purpose of liquidating the Loan in respect of principal
and/or accrued interest.
And paragraph 05 thereof reads:
The acceptance of this holdout shall not impair the right of
Comtrust to declare the loan payable on demand at any time,
nor shall the existence hereof and the non-resolution of the
dispute between the contending parties in respect of
entitlement to the Account Balance, preclude Comtrust from
instituting an action for recovery against Eastply and/or Mr.
Lim in the event the Loan is declared due and payable and
Eastply and/or Mr. Lim shall default in payment of all
obligations and liabilities thereunder.
In the meantime, a case for the settlement of Velasco's estate
was filed with Branch 152 of the RTC of Pasig, entitled "In re
Intestate Estate of Mariano Velasco," and docketed as Sp.
Proc. No. 8959. In the said case, the whole balance of
P331,261.44 in the aforesaid joint account of Velasco and Lim
was being claimed as part of Velasco's estate. On 9 September
1986, the intestate court granted the urgent motion of the heirs
of Velasco to withdraw the deposit under the joint account of
Lim and Velasco and authorized the heirs to divide among
themselves the amount withdrawn. 8
Sometime in 1980, CBTC was merged with BPI. 9 On 2
December 1987, BPI filed with the RTC of Manila a
complaint against Lim and Eastern demanding payment of the
promissory note for P73,000.00. The complaint was docketed
as Civil Case No. 87- 42967 and was raffled to Branch 19 of
the said court, then presided over by Judge Wenceslao M.
Polo. Defendants Lim and Eastern, in turn, filed a
counterclaim against BPI for the return of the balance in the
disputed account subject of the Holdout Agreement and the
interests thereon after deducting the amount due on the
promissory note.
After due proceedings, the trial court rendered its decision on
15 November 1990 dismissing the complaint because BPI
failed to make out its case. Furthermore, it ruled that "the
promissory note in question is subject to the 'hold-out'
agreement," 10 and that based on this agreement, "it was the
duty of plaintiff Bank [BPI] to debit the account of the

defendants under the promissory note to set off the loan even
though the same has no fixed maturity." 11 As to the
defendants' counterclaim, the trial court, recognizing the fact
that the entire amount in question had been withdrawn by
Velasco's heirs pursuant to the order of the intestate court in
Sp. Proc. No. 8959, denied it because the "said claim cannot
be awarded without disturbing the resolution" of the intestate
court. 12
Both parties appealed from the said decision to the Court of
Appeals. Their appeal was docketed as CA-G.R. CV No.
25739.
On 23 January 1991, the Court of Appeals rendered a decision
affirming the decision of the trial court. It, however, failed to
rule on the defendants' (private respondents') partial appeal
from the trial court's denial of their counterclaim. Upon their
motion for reconsideration, the Court of Appeals promulgated
on 6 March 1992 an Amended Decision 13 wherein it ruled
that the settlement of Velasco's estate had nothing to do with
the claim of the defendants for the return of the balance of
their account with CBTC/BPI as they were not privy to that
case, and that the defendants, as depositors of CBTC/BPI, are
the latter's creditors; hence, CBTC/BPI should have protected
the defendants' interest in Sp. Proc. No. 8959 when the said
account was claimed by Velasco's estate. It then ordered BPI
"to pay defendants the amount of P331,261.44 representing
the outstanding balance in the bank account of defendants." 14
On 22 April 1992, BPI filed the instant petition alleging
therein that the Holdout Agreement in question was subject to
a suspensive condition stated therein, viz., that the
"P331,261.44 shall become a security for respondent Lim's
promissory note only if respondents' Lim and Eastern
Plywood Corporation's interests to that amount are established
as a result of a final and definitive judicial action or a
settlement between and among the contesting parties
thereto." 15 Hence, BPI asserts, the Court of Appeals erred in
affirming the trial court's decision dismissing the complaint on
the ground that it was the duty of CBTC to debit the account
of the defendants to set off the amount of P73,000.00 covered
by the promissory note.
Private respondents Eastern and Lim dispute the "suspensive
condition" argument of the petitioner. They interpret the
findings of both the trial and appellate courts that the money
deposited in the joint account of Velasco and Lim came from
Eastern and Lim's own account as a finding that the money
deposited in the joint account of Lim and Velasco "rightfully
belong[ed] to Eastern Plywood Corporation and/or Benigno
Lim." And because the latter are the rightful owners of the
money in question, the suspensive condition does not find any
application in this case and the bank had the duty to set off this
deposit with the loan. They add that the ruling of the lower
court that they own the disputed amount is the final and
definitive judicial action required by the Holdout Agreement;
hence, the petitioner can only hold the amount of P73,000.00
representing the security required for the note and must return
the rest. 16
The petitioner filed a Reply to the aforesaid Comment. The
private respondents filed a Rejoinder thereto.
We gave due course to the petition and required the parties to
submit simultaneously their memoranda.
2
The key issues in this case are whether BPI can demand
payment of the loan of P73,000.00 despite the existence of the
Holdout Agreement and whether BPI is still liable to the
private respondents on the account subject of the Holdout
Agreement after its withdrawal by the heirs of Velasco.
The collection suit of BPI is based on the promissory note for
P73,000.00. On its face, the note is an unconditional promise
to pay the said amount, and as stated by the respondent Court
of Appeals, "[t]here is no question that the promissory note is
a negotiable instrument." 17 It further correctly ruled that BPI
was not a holder in due course because the note was not
indorsed to BPI by the payee, CBTC. Only a negotiation by
indorsement could have operated as a valid transfer to make
BPI a holder in due course. It acquired the note from CBTC by
the contract of merger or sale between the two banks. BPI,
therefore, took the note subject to the Holdout Agreement.
We disagree, however, with the Court of Appeals in its
interpretation of the Holdout Agreement. It is clear from
paragraph 02 thereof that CBTC, or BPI as its successor-in-
interest, had every right to demand that Eastern and Lim settle
their liability under the promissory note. It cannot be
compelled to retain and apply the deposit in Lim and Velasco's
joint account to the payment of the note. What the agreement
conferred on CBTC was a power, not a duty. Generally, a
bank is under no duty or obligation to make the
application. 18 To apply the deposit to the payment of a loan is
a privilege, a right of set-off which the bank has the option to
exercise. 19
Also, paragraph 05 of the Holdout Agreement itself states that
notwithstanding the agreement, CBTC was not in any way
precluded from demanding payment from Eastern and from
instituting an action to recover payment of the loan. What it
provides is an alternative, not an exclusive, method of
enforcing its claim on the note. When it demanded payment of
the debt directly from Eastern and Lim, BPI had opted not to
exercise its right to apply part of the deposit subject of the
Holdout Agreement to the payment of the promissory note for
P73,000.00. Its suit for the enforcement of the note was then
in order and it was error for the trial court to dismiss it on the
theory that it was set off by an equivalent portion in C/A No.
2310-001-42 which BPI should have debited. The Court of
Appeals also erred in affirming such dismissal.
The "suspensive condition" theory of the petitioner is,
therefore, untenable.
The Court of Appeals correctly decided on the counterclaim.
The counterclaim of Eastern and Lim for the return of the
P331,261.44 20 was equivalent to a demand that they be
allowed to withdraw their deposit with the bank. Article 1980
of the Civil Code expressly provides that "[f]ixed, savings,
and current deposits of money in banks and similar institutions
shall be governed by the provisions concerning simple loan."
In Serrano vs. Central Bank of the Philippines, 21 we held that
bank deposits are in the nature of irregular deposits; they are
really loans because they earn interest. The relationship then
between a depositor and a bank is one of creditor and debtor.
The deposit under the questioned account was an ordinary
bank deposit; hence, it was payable on demand of the
depositor. 22
The account was proved and established to belong to Eastern
even if it was deposited in the names of Lim and Velasco. As

the real creditor of the bank, Eastern has the right to withdraw
it or to demand payment thereof. BPI cannot be relieved of its
duty to pay Eastern simply because it already allowed the
heirs of Velasco to withdraw the whole balance of the account.
The petitioner should not have allowed such withdrawal
because it had admitted in the Holdout Agreement the
questioned ownership of the money deposited in the account.
As early as 12 May 1979, CBTC was notified by the
Corporate Secretary of Eastern that the deposit in the joint
account of Velasco and Lim was being claimed by them and
that one-half was being claimed by the heirs of Velasco.23
Moreover, the order of the court in Sp. Proc. No. 8959 merely
authorized the heirs of Velasco to withdraw the account. BPI
was not specifically ordered to release the account to the said
heirs; hence, it was under no judicial compulsion to do so. The
authorization given to the heirs of Velasco cannot be
construed as a final determination or adjudication that the
account belonged to Velasco. We have ruled that when the
ownership of a particular property is disputed, the
determination by a probate court of whether that property is
included in the estate of a deceased is merely provisional in
character and cannot be the subject of execution. 24
Because the ownership of the deposit remained undetermined,
BPI, as the debtor with respect thereto, had no right to pay to
persons other than those in whose favor the obligation was
constituted or whose right or authority to receive payment is
indisputable. The payment of the money deposited with BPI
that will extinguish its obligation to the creditor-depositor is
payment to the person of the creditor or to one authorized by
him or by the law to receive it. 25 Payment made by the debtor
to the wrong party does not extinguish the obligation as to the
creditor who is without fault or negligence, even if the debtor
acted in utmost good faith and by mistake as to the person of
the creditor, or through error induced by fraud of a third
person. 26 The payment then by BPI to the heirs of Velasco,
even if done in good faith, did not extinguish its obligation to
the true depositor, Eastern.
In the light of the above findings, the dismissal of the
petitioner's complaint is reversed and set aside. The award on
the counterclaim is sustained subject to a modification of the
interest.
WHEREFORE, the instant petition is partly GRANTED. The
challenged amended decision in CA-G.R. CV No. 25735 is
hereby MODIFIED. As modified:
(1) Private respondents are ordered to pay the petitioner the
promissory note for P73,000.00 with interest at:
(a) 14% per annum on the principal, computed from
18 August 1978 until payment;
(b) 12% per annum on the interest which had accrued up to
the date of the filing of the complaint, computed from that
date until payment pursuant to Article 2212 of the Civil Code.
(2) The award of P331,264.44 in favor of the private
respondents shall bear interest at the rate of 12%per
annum computed from the filing of the counterclaim.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 90027 March 3, 1993
CA AGRO-INDUSTRIAL DEVELOPMENT
CORP., petitioner,
vs.
3
THE HONORABLE COURT OF APPEALS and
SECURITY BANK AND TRUST
COMPANY, respondents.
Dolorfino & Dominguez Law Offices for petitioner.
Danilo B. Banares for private respondent.
DAVIDE, JR., J.:
Is the contractual relation between a commercial bank and
another party in a contract of rent of a safety deposit box with
respect to its contents placed by the latter one of bailor and
bailee or one of lessor and lessee?
This is the crux of the present controversy.
On 3 July 1979, petitioner (through its President, Sergio
Aguirre) and the spouses Ramon and Paula Pugao entered into
an agreement whereby the former purchased from the latter
two (2) parcels of land for a consideration of P350,625.00. Of
this amount, P75,725.00 was paid as downpayment while the
balance was covered by three (3) postdated checks. Among
the terms and conditions of the agreement embodied in a
Memorandum of True and Actual Agreement of Sale of Land
were that the titles to the lots shall be transferred to the
petitioner upon full payment of the purchase price and that the
owner's copies of the certificates of titles thereto, Transfer
Certificates of Title (TCT) Nos. 284655 and 292434, shall be
deposited in a safety deposit box of any bank. The same could
be withdrawn only upon the joint signatures of a
representative of the petitioner and the Pugaos upon full
payment of the purchase price. Petitioner, through Sergio
Aguirre, and the Pugaos then rented Safety Deposit Box No.
1448 of private respondent Security Bank and Trust Company,
a domestic banking corporation hereinafter referred to as the
respondent Bank. For this purpose, both signed a contract of
lease (Exhibit "2") which contains, inter alia, the following
conditions:
13. The bank is not a depositary of the contents of the safe and
it has neither the possession nor control of the same.
14. The bank has no interest whatsoever in said contents,
except herein expressly provided, and it assumes absolutely no
liability in connection therewith.1
After the execution of the contract, two (2) renter's keys were
given to the renters — one to Aguirre (for the petitioner) and
the other to the Pugaos. A guard key remained in the
possession of the respondent Bank. The safety deposit box has
two (2) keyholes, one for the guard key and the other for the
renter's key, and can be opened only with the use of both keys.
Petitioner claims that the certificates of title were placed inside
the said box.
Thereafter, a certain Mrs. Margarita Ramos offered to buy
from the petitioner the two (2) lots at a price of P225.00 per
square meter which, as petitioner alleged in its complaint,
translates to a profit of P100.00 per square meter or a total of
P280,500.00 for the entire property. Mrs. Ramos demanded
the execution of a deed of sale which necessarily entailed the
production of the certificates of title. In view thereof, Aguirre,
accompanied by the Pugaos, then proceeded to the respondent
Bank on 4 October 1979 to open the safety deposit box and
get the certificates of title. However, when opened in the
presence of the Bank's representative, the box yielded no such
certificates. Because of the delay in the reconstitution of the
title, Mrs. Ramos withdrew her earlier offer to purchase the

lots; as a consequence thereof, the petitioner allegedly failed
to realize the expected profit of P280,500.00. Hence, the latter
filed on 1 September 1980 a complaint2 for damages against
the respondent Bank with the Court of First Instance (now
Regional Trial Court) of Pasig, Metro Manila which docketed
the same as Civil Case No. 38382.
In its Answer with Counterclaim,3 respondent Bank alleged
that the petitioner has no cause of action because of
paragraphs 13 and 14 of the contract of lease (Exhibit "2");
corollarily, loss of any of the items or articles contained in the
box could not give rise to an action against it. It then
interposed a counterclaim for exemplary damages as well as
attorney's fees in the amount of P20,000.00. Petitioner
subsequently filed an answer to the counterclaim.4
In due course, the trial court, now designated as Branch 161 of
the Regional Trial Court (RTC) of Pasig, Metro Manila,
rendered a decision5 adverse to the petitioner on 8 December
1986, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby
rendered dismissing plaintiff's complaint.
On defendant's counterclaim, judgment is hereby rendered
ordering plaintiff to pay defendant the amount of FIVE
THOUSAND (P5,000.00) PESOS as attorney's fees.
With costs against plaintiff.6
The unfavorable verdict is based on the trial court's conclusion
that under paragraphs 13 and 14 of the contract of lease, the
Bank has no liability for the loss of the certificates of title. The
court declared that the said provisions are binding on the
parties.
Its motion for reconsideration7 having been denied, petitioner
appealed from the adverse decision to the respondent Court of
Appeals which docketed the appeal as CA-G.R. CV No.
15150. Petitioner urged the respondent Court to reverse the
challenged decision because the trial court erred in (a)
absolving the respondent Bank from liability from the loss, (b)
not declaring as null and void, for being contrary to law,
public order and public policy, the provisions in the contract
for lease of the safety deposit box absolving the Bank from
any liability for loss, (c) not concluding that in this
jurisdiction, as well as under American jurisprudence, the
liability of the Bank is settled and (d) awarding attorney's fees
to the Bank and denying the petitioner's prayer for nominal
and exemplary damages and attorney's fees.8
In its Decision promulgated on 4 July 1989, 9 respondent Court
affirmed the appealed decision principally on the theory that
the contract (Exhibit "2") executed by the petitioner and
respondent Bank is in the nature of a contract of lease by
virtue of which the petitioner and its co-renter were given
control over the safety deposit box and its contents while the
Bank retained no right to open the said box because it had
neither the possession nor control over it and its contents. As
such, the contract is governed by Article 1643 of the Civil
Code 10 which provides:
Art. 1643. In the lease of things, one of the parties binds
himself to give to another the enjoyment or use of a thing for a
price certain, and for a period which may be definite or
indefinite. However, no lease for more than ninety-nine years
shall be valid.
It invoked Tolentino vs. Gonzales 11 — which held that the
owner of the property loses his control over the property
4
leased during the period of the contract — and Article 1975 of
the Civil Code which provides:
Art. 1975. The depositary holding certificates, bonds,
securities or instruments which earn interest shall be bound to
collect the latter when it becomes due, and to take such steps
as may be necessary in order that the securities may preserve
their value and the rights corresponding to them according to
law.
The above provision shall not apply to contracts for the rent of
safety deposit boxes.
and then concluded that "[c]learly, the defendant-appellee is
not under any duty to maintain the contents of the box. The
stipulation absolving the defendant-appellee from liability is in
accordance with the nature of the contract of lease and cannot
be regarded as contrary to law, public order and public
policy." 12 The appellate court was quick to add, however, that
under the contract of lease of the safety deposit box,
respondent Bank is not completely free from liability as it may
still be made answerable in case unauthorized persons enter
into the vault area or when the rented box is forced open.
Thus, as expressly provided for in stipulation number 8 of the
contract in question:
8. The Bank shall use due diligence that no unauthorized
person shall be admitted to any rented safe and beyond this,
the Bank will not be responsible for the contents of any safe
rented from it. 13
Its motion for reconsideration 14 having been denied in the
respondent Court's Resolution of 28 August 1989, 15petitioner
took this recourse under Rule 45 of the Rules of Court and
urges Us to review and set aside the respondent Court's ruling.
Petitioner avers that both the respondent Court and the trial
court (a) did not properly and legally apply the correct law in
this case, (b) acted with grave abuse of discretion or in excess
of jurisdiction amounting to lack thereof and (c) set a
precedent that is contrary to, or is a departure from precedents
adhered to and affirmed by decisions of this Court and
precepts in American jurisprudence adopted in the Philippines.
It reiterates the arguments it had raised in its motion to
reconsider the trial court's decision, the brief submitted to the
respondent Court and the motion to reconsider the latter's
decision. In a nutshell, petitioner maintains that regardless of
nomenclature, the contract for the rent of the safety deposit
box (Exhibit "2") is actually a contract of deposit governed by
Title XII, Book IV of the Civil Code of the
Philippines. 16 Accordingly, it is claimed that the respondent
Bank is liable for the loss of the certificates of title pursuant to
Article 1972 of the said Code which provides:
Art. 1972. The depositary is obliged to keep the thing safely
and to return it, when required, to the depositor, or to his heirs
and successors, or to the person who may have been
designated in the contract. His responsibility, with regard to
the safekeeping and the loss of the thing, shall be governed by
the provisions of Title I of this Book.
If the deposit is gratuitous, this fact shall be taken into account
in determining the degree of care that the depositary must
observe.
Petitioner then quotes a passage from American
Jurisprudence 17 which is supposed to expound on the
prevailing rule in the United States, to wit:

The prevailing rule appears to be that where a safe-deposit
company leases a safe-deposit box or safe and the lessee takes
possession of the box or safe and places therein his securities
or other valuables, the relation of bailee and bail or is created
between the parties to the transaction as to such securities or
other valuables; the fact that the
safe-deposit company does not know, and that it is not
expected that it shall know, the character or description of the
property which is deposited in such safe-deposit box or safe
does not change that relation. That access to the contents of
the safe-deposit box can be had only by the use of a key
retained by the lessee ( whether it is the sole key or one to be
used in connection with one retained by the lessor) does not
operate to alter the foregoing rule. The argument that there is
not, in such a case, a delivery of exclusive possession and
control to the deposit company, and that therefore the situation
is entirely different from that of ordinary bailment, has been
generally rejected by the courts, usually on the ground that as
possession must be either in the depositor or in the company,
it should reasonably be considered as in the latter rather than
in the former, since the company is, by the nature of the
contract, given absolute control of access to the property, and
the depositor cannot gain access thereto without the consent
and active participation of the company. . . . (citations
omitted).
and a segment from Words and Phrases 18 which states that a
contract for the rental of a bank safety deposit box in
consideration of a fixed amount at stated periods is a bailment
for hire.
Petitioner further argues that conditions 13 and 14 of the
questioned contract are contrary to law and public policy and
should be declared null and void. In support thereof, it cites
Article 1306 of the Civil Code which provides that parties to a
contract may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are
not contrary to law, morals, good customs, public order or
public policy.
After the respondent Bank filed its comment, this Court gave
due course to the petition and required the parties to
simultaneously submit their respective Memoranda.
The petition is partly meritorious.
We agree with the petitioner's contention that the contract for
the rent of the safety deposit box is not an ordinary contract of
lease as defined in Article 1643 of the Civil Code. However,
We do not fully subscribe to its view that the same is a
contract of deposit that is to be strictly governed by the
provisions in the Civil Code on deposit; 19 the contract in the
case at bar is a special kind of deposit. It cannot be
characterized as an ordinary contract of lease under Article
1643 because the full and absolute possession and control of
the safety deposit box was not given to the joint renters — the
petitioner and the Pugaos. The guard key of the box remained
with the respondent Bank; without this key, neither of the
renters could open the box. On the other hand, the respondent
Bank could not likewise open the box without the renter's key.
In this case, the said key had a duplicate which was made so
that both renters could have access to the box.
Hence, the authorities cited by the respondent Court 20 on this
point do not apply. Neither could Article 1975, also relied
upon by the respondent Court, be invoked as an argument
5
against the deposit theory. Obviously, the first paragraph of
such provision cannot apply to a depositary of certificates,
bonds, securities or instruments which earn interest if such
documents are kept in a rented safety deposit box. It is clear
that the depositary cannot open the box without the renter
being present.
We observe, however, that the deposit theory itself does not
altogether find unanimous support even in American
jurisprudence. We agree with the petitioner that under the
latter, the prevailing rule is that the relation between a bank
renting out safe-deposit boxes and its customer with respect to
the contents of the box is that of a bail or and bailee, the
bailment being for hire and mutual benefit. 21 This is just the
prevailing view because:
There is, however, some support for the view that the
relationship in question might be more properly characterized
as that of landlord and tenant, or lessor and lessee. It has also
been suggested that it should be characterized as that of
licensor and licensee. The relation between a bank, safe-
deposit company, or storage company, and the renter of a safe-
deposit box therein, is often described as contractual, express
or implied, oral or written, in whole or in part. But there is
apparently no jurisdiction in which any rule other than that
applicable to bailments governs questions of the liability and
rights of the parties in respect of loss of the contents of safe-
deposit boxes. 22 (citations omitted)
In the context of our laws which authorize banking institutions
to rent out safety deposit boxes, it is clear that in this
jurisdiction, the prevailing rule in the United States has been
adopted. Section 72 of the General Banking Act 23pertinently
provides:
Sec. 72. In addition to the operations specifically authorized
elsewhere in this Act, banking institutions other than building
and loan associations may perform the following services:
(a) Receive in custody funds, documents, and valuable objects,
and rent safety deposit boxes for the safeguarding of such
effects.
xxx xxx xxx
The banks shall perform the services permitted under
subsections (a), (b) and (c) of this section as depositories or as
agents. . . . 24 (emphasis supplied)
Note that the primary function is still found within the
parameters of a contract of deposit, i.e., the receiving in
custody of funds, documents and other valuable objects for
safekeeping. The renting out of the safety deposit boxes is not
independent from, but related to or in conjunction with, this
principal function. A contract of deposit may be entered into
orally or in writing 25 and, pursuant to Article 1306 of the
Civil Code, the parties thereto may establish such stipulations,
clauses, terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs,
public order or public policy. The depositary's responsibility
for the safekeeping of the objects deposited in the case at bar
is governed by Title I, Book IV of the Civil Code.
Accordingly, the depositary would be liable if, in performing
its obligation, it is found guilty of fraud, negligence, delay or
contravention of the tenor of the agreement. 26 In the absence
of any stipulation prescribing the degree of diligence required,
that of a good father of a family is to be observed. 27 Hence,
any stipulation exempting the depositary from any liability

arising from the loss of the thing deposited on account of
fraud, negligence or delay would be void for being contrary to
law and public policy. In the instant case, petitioner maintains
that conditions 13 and 14 of the questioned contract of lease of
the safety deposit box, which read:
13. The bank is not a depositary of the contents of the safe and
it has neither the possession nor control of the same.
14. The bank has no interest whatsoever in said contents,
except herein expressly provided, and it assumes absolutely no
liability in connection therewith. 28
are void as they are contrary to law and public policy. We find
Ourselves in agreement with this proposition for indeed, said
provisions are inconsistent with the respondent Bank's
responsibility as a depositary under Section 72(a) of the
General Banking Act. Both exempt the latter from any liability
except as contemplated in condition 8 thereof which limits its
duty to exercise reasonable diligence only with respect to who
shall be admitted to any rented safe, to wit:
8. The Bank shall use due diligence that no unauthorized
person shall be admitted to any rented safe and beyond this,
the Bank will not be responsible for the contents of any safe
rented from it. 29
Furthermore, condition 13 stands on a wrong premise and is
contrary to the actual practice of the Bank. It is not correct to
assert that the Bank has neither the possession nor control of
the contents of the box since in fact, the safety deposit box
itself is located in its premises and is under its absolute
control; moreover, the respondent Bank keeps the guard key to
the said box. As stated earlier, renters cannot open their
respective boxes unless the Bank cooperates by presenting and
using this guard key. Clearly then, to the extent above stated,
the foregoing conditions in the contract in question are void
and ineffective. It has been said:
With respect to property deposited in a safe-deposit box by a
customer of a safe-deposit company, the parties, since the
relation is a contractual one, may by special contract define
their respective duties or provide for increasing or limiting the
liability of the deposit company, provided such contract is not
in violation of law or public policy. It must clearly appear that
there actually was such a special contract, however, in order to
vary the ordinary obligations implied by law from the
relationship of the parties; liability of the deposit company
will not be enlarged or restricted by words of doubtful
meaning. The company, in renting
safe-deposit boxes, cannot exempt itself from liability for loss
of the contents by its own fraud or negligence or that of its
agents or servants, and if a provision of the contract may be
construed as an attempt to do so, it will be held ineffective for
the purpose. Although it has been held that the lessor of a safe-
deposit box cannot limit its liability for loss of the contents
thereof through its own negligence, the view has been taken
that such a lessor may limits its liability to some extent by
agreement or stipulation. 30 (citations omitted)
Thus, we reach the same conclusion which the Court of
Appeals arrived at, that is, that the petition should be
dismissed, but on grounds quite different from those relied
upon by the Court of Appeals. In the instant case, the
respondent Bank's exoneration cannot, contrary to the holding
of the Court of Appeals, be based on or proceed from a
characterization of the impugned contract as a contract of
6
lease, but rather on the fact that no competent proof was
presented to show that respondent Bank was aware of the
agreement between the petitioner and the Pugaos to the effect
that the certificates of title were withdrawable from the safety
deposit box only upon both parties' joint signatures, and that
no evidence was submitted to reveal that the loss of the
certificates of title was due to the fraud or negligence of the
respondent Bank. This in turn flows from this Court's
determination that the contract involved was one of deposit.
Since both the petitioner and the Pugaos agreed that each
should have one (1) renter's key, it was obvious that either of
them could ask the Bank for access to the safety deposit box
and, with the use of such key and the Bank's own guard key,
could open the said box, without the other renter being
present.
Since, however, the petitioner cannot be blamed for the filing
of the complaint and no bad faith on its part had been
established, the trial court erred in condemning the petitioner
to pay the respondent Bank attorney's fees. To this extent, the
Decision (dispositive portion) of public respondent Court of
Appeals must be modified.
WHEREFORE, the Petition for Review is partially
GRANTED by deleting the award for attorney's fees from the
4 July 1989 Decision of the respondent Court of Appeals in
CA-G.R. CV No. 15150. As modified, and subject to the
pronouncement We made above on the nature of the
relationship between the parties in a contract of lease of safety
deposit boxes, the dispositive portion of the said Decision is
hereby AFFIRMED and the instant Petition for Review is
otherwise DENIED for lack of merit.
No pronouncement as to costs.
SO ORDERED.
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
7
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 Malacaňang 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:
8
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 ₱342,000.00, more or less, and the sum of
AUS$4,500.00 or its equivalent in Philippine Currency of
₱99,000.00, or a total of ₱441,000.00, 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 ₱3,674,238.00 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 ₱500,000.00 as moral damages (Item X, Exh.
"CC");
4. Ordering defendants, jointly and severally, to pay plaintiff
the sum of ₱350,000.00 as exemplary damages (Item XI, Exh.
"CC");
5. And ordering defendants, jointly and severally, to pay
litigation expenses in the sum of ₱200,000.00 (Item XII, Exh.
"CC");
6. Ordering defendants, jointly and severally, to pay plaintiff
the sum of ₱200,000.00 as attorney's fees, and a fee of
₱3,000.00 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) ₱153,200.00 representing the peso equivalent of
US$2,000.00 and AUS$4,500.00;
2) ₱308,880.80, 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 ₱336,207.05 or ₱168,103.52 representing
payment to Tropicana Apartment Hotel;
4) One-half of ₱152,683.57 or ₱76,341.785 representing
payment to Echelon Tower;
5) One-half of ₱179,863.20 or ₱89,931.60 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 ₱7,801.94 or ₱3,900.97 representing Meralco
power expenses;
7) One-half of ₱356,400.00 or ₱178,000.00 representing
expenses for food and maintenance;
8) ₱50,000.00 for moral damages;
9) ₱10,000.00 as exemplary damages; and
10) ₱200,000 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.
9
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.nét
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
10
common carrier's business is imbued with public interest.
Catering to the public, hotelkeepers are bound to provide not
only lodging for hotel guests and security to their persons and
belongings. The twin duty constitutes the essence of the
business. The law in turn does not allow such duty to the
public to be negated or diluted by any contrary stipulation in
so-called "undertakings" that ordinarily appear in prepared
forms imposed by hotel keepers on guests for their signature.
In an early case,38 the Court of Appeals through its then
Presiding Justice (later Associate Justice of the Court) Jose P.
Bengzon, ruled that to hold hotelkeepers or innkeeper liable
for the effects of their guests, it is not necessary that they be
actually delivered to the innkeepers or their employees. It is
enough that such effects are within the hotel or inn.39 With
greater reason should the liability of the hotelkeeper be
enforced when the missing items are taken without the guest's
knowledge and consent from a safety deposit box provided by
the hotel itself, as in this case.
Paragraphs (2) and (4) of the "undertaking" manifestly
contravene Article 2003 of the New Civil Code for they allow
Tropicana to be released from liability arising from any loss in
the contents and/or use of the safety deposit box for any cause
whatsoever.40 Evidently, the undertaking was intended to bar
any claim against Tropicana for any loss of the contents of the
safety deposit box whether or not negligence was incurred by
Tropicana or its employees. The New Civil Code is explicit
that the responsibility of the hotel-keeper shall extend to loss
of, or injury to, the personal property of the guests even if
caused by servants or employees of the keepers of hotels or
inns as well as by strangers, except as it may proceed from
any force majeure.41 It is the loss through force majeure that
may spare the hotel-keeper from liability. In the case at bar,
there is no showing that the act of the thief or robber was done
with the use of arms or through an irresistible force to qualify
the same as force majeure.42
Petitioners likewise anchor their defense on Article
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
 11

otherwise would result in undermining the safety of the safety (1) US$2,000.00 and AUS$4,500.00 or their peso equivalent
deposit boxes in hotels for the management will be given at the time of payment;
imprimatur to allow any person, under the pretense of being a (2) ₱308,880.80, representing the peso value for the air fares
family member or a visitor of the guest, to have access to the from Sydney to Manila and back for a total of eleven (11)
safety deposit box without fear of any liability that will attach trips;
thereafter in case such person turns out to be a complete (3) One-half of ₱336,207.05 or ₱168,103.52 representing
stranger. This will allow the hotel to evade responsibility for payment to Tropicana Copacabana Apartment Hotel;
any liability incurred by its employees in conspiracy with the (4) One-half of ₱152,683.57 or ₱76,341.785 representing
guest's relatives and visitors. payment to Echelon Tower;
Petitioners contend that McLoughlin's case was mounted on (5) One-half of ₱179,863.20 or ₱89,931.60 for the taxi or
the theory of contract, but the trial court and the appellate transportation expense from McLoughlin's residence to
court upheld the grant of the claims of the latter on the basis of Sydney Airport and from MIA to the hotel here in Manila, for
tort.45 There is nothing anomalous in how the lower courts the eleven (11) trips;
decided the controversy for this Court has pronounced a (6) One-half of ₱7,801.94 or ₱3,900.97 representing Meralco
jurisprudential rule that tort liability can exist even if there are power expenses;
already contractual relations. The act that breaks the contract (7) One-half of ₱356,400.00 or ₱178,200.00 representing
may also be tort.46 expenses for food and maintenance;
As to damages awarded to McLoughlin, we see no reason to (8) ₱50,000.00 for moral damages;
modify the amounts awarded by the appellate court for the (9) ₱10,000.00 as exemplary damages; and
same were based on facts and law. It is within the province of (10) ₱200,000 representing attorney's fees.
lower courts to settle factual issues such as the proper amount With costs.
of damages awarded and such finding is binding upon this SO ORDERED.
Court especially if sufficiently proven by evidence and not Puno, (Chairman), Callejo, Sr., and Chico-Nazario, JJ.,
unconscionable or excessive. Thus, the appellate court concur.
correctly awarded McLoughlin Two Thousand US Dollars Austria-Martinez, J., no part.
(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 ₱308,880.80, 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 ₱336,207.05
or ₱168,103.52 representing payment to Tropicana; 50 one-half
of ₱152,683.57 or ₱76,341.785 representing payment to
Echelon Tower;51 one-half of ₱179,863.20 or ₱89,931.60 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 ₱7,801.94 or
₱3,900.97 representing Meralco power expenses;53 one-half of
₱356,400.00 or ₱178,000.00 representing expenses for food
and maintenance.54
The amount of ₱50,000.00 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 ₱10,000.00 as exemplary damages and
₱200,000.00 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: