SECOND DIVISION in favor of private respondent.
The same was a rmed on
[G.R. No. 120528. January 29, 2001.]
ATTY. DIONISIO CALIBO, JR. ,
petitioner, vs. COURT OF APPEALS and
DR. PABLO U. ABELLA, respondents.
Dionisio A. Calibo, Jr. in his own behalf.
Delfin M. Quijano for private respondent.
SYNOPSIS
A tractor owned by private respondent was offered
by Mike Abella, his son, as security in the payment of his
rents in arrears with petitioner who took possession
thereof. This tractor became the subject of a suit for
replevin with private respondent alleging that the pledge
was made without his knowledge and consent. Petitioner,
on the other hand, alleged that the tractor was validly
pledged to him by respondent's son to answer for his
nancial obligations. In the alternative, petitioner asserted
that the tractor was left with him in the concept of an
innkeeper, on deposit. The trial court rendered judgment
appeal by the Court of Appeals. Hence, this recourse. TcCEDS
In a contract of pledge, the creditor is given the right
to retain his debtor's movable property in his possession,
or that of a third person to whom it has been delivered. It
does not apply where, as in this case, the lessee is not the
owner of the property. In deposit, a person receives an
object belonging to another with the obligation of safely
keeping it and of returning the same. There is no deposit
where the principal purpose for receiving the object is not
for safekeeping.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND
CONTRACTS; PLEDGE; REQUISITES. — In a contract
of pledge, the creditor is given the right to retain his
debtor's movable property in his possession, or in that of
a third person to whom it has been delivered, until the debt
is paid. For the contract to be valid, it is necessary that:
(1) the pledge is constituted to secure the ful llment of a
principal obligation; (2) the pledgor be the absolute owner
of the thing pledged; and (3) the person constituting the
pledge has the free disposal of his property, and in the
absence thereof, that he be legally authorized for the
purpose.
2. ID.; ID.; ID.; NOT PRESENT WHERE
POSSESSION OF SUBJECT PROPERTY
 WAS FOR SAFEKEEPING. — As found by the trial court
and a rmed by respondent court, the pledgor in this case,
Mike Abella, was not the absolute owner of the tractor that
was allegedly pledged to petitioner. The tractor was
owned by his father, private respondent, who left the
equipment with him for safekeeping. Clearly, the second
requisite for a valid pledge, that the pledgor be the
absolute owner of the property, is absent in this case.
Hence, there is no valid pledge.
3. ID.; ID.; DEPOSIT; PURPOSE IS FOR SAFEKEEPING. — In
a contract of deposit, a person receives an object belonging to
another with the obligation of safely keeping it and of returning
the same. Petitioner himself states that he received the
tractor not to safely keep it but as a form of security for the
payment of Mike Abella's obligations. There is no deposit
where the principal purpose for receiving the object is not
safekeeping.
DECISION
QUISUMBING, J : p
Before us is the petition for review on certiorari by
petitioner Dionisio Calibo, Jr., assailing the decision of the
Court of Appeals in CA-G.R. CV No. 39705, which a rmed
the decision of the Regional Trial Court of Cebu, Branch
11, declaring private respondent as the lawful possessor
of a tractor subject of a replevin suit and ordering
petitioner to pay private respondent actual damages and
attorney's fees.
The facts of the case, as summarized by
respondent court, are undisputed.
". . . on January 25, 1979, plaintiff-
appellee [herein petitioner] Pablo U. Abella
purchased an MF 210 agricultural tractor
with Serial No. 00105 and Engine No.
P126M00199 (Exhibit A; Record, p. 5) which
he used in his farm in Dagohoy, Bohol.
Sometime in October or November
1985, Pablo Abella's son, Mike Abella rented
for residential purposes the house of
defendant-appellant Dionisio R. Calibo, Jr.,
in Tagbilaran City.
In October 1986, Pablo Abella pulled
out his aforementioned tractor from his farm
in Dagohoy, Bohol, and left it in the
safekeeping of his son, Mike Abella, in
Tagbilaran City. Mike kept the tractor in the
garage of the house he was leasing from
Calibo.
Since he started renting Calibo's house,
Mike had been religiously paying the monthly
rentals therefor, but beginning November of
1986, he stopped doing so. The following
month, Calibo learned that Mike had never
paid the charges for electric and water
consumption in the leased premises which the
latter was duty-bound to shoulder. Thus,
Calibo confronted Mike about his rental arrears
and the unpaid electric and water bills. During
this confrontation, Mike informed Calibo that
he (Mike) would be staying in the leased
property only until the end of December 1986.
Mike also assured Calibo that he would be
settling his account with the latter, offering the
tractor as security. Mike even asked Calibo to
help him find a buyer for the tractor so he could
sooner pay his outstanding obligation.
In January 1987 when a new tenant
moved into the house formerly leased to
Mike, Calibo had the tractor moved to the
garage of his father's house, also in
Tagbilaran City.
Apprehensive over Mike's unsettled account,
Calibo visited him in his Cebu City address in
January, February and March, 1987 and tried
to collect payment. On all three occasions,
Calibo was unable to talk to Mike as the latter
was reportedly out of town. On his third trip to
Cebu City, Calibo left word with the occupants
of the Abella residence thereat that there was
a prospective buyer for the tractor. The
following week, Mike saw Calibo in Tagbilaran
City to inquire about the possible tractor buyer.
The sale, however, did not push through as the
buyer did not come back anymore. When
again confronted with his outstanding
obligation, Mike reassured Calibo that the
tractor would stand as a guarantee for its
payment. That was the last time Calibo saw
or heard from Mike.
After a long while, or on November 22,
1988, Mike's father, Pablo Abella, came to
Tagbilaran City to claim and take possession
of the tractor. Calibo, however, informed
Pablo that Mike left the tractor with him as
security for the payment of Mike's obligation
to him. Pablo offered to write Mike a check
for P2,000.00 in payment of Mike's unpaid
lease rentals, in addition to issuing postdated
checks to cover the unpaid electric and water
bills the correctness of which Pablo said he
still had to verify with Mike. Calibo told Pablo
that he would accept the P2,000.00 -check
only if the latter would execute a promissory
note in his favor to cover the amount of the
unpaid electric and water bills. Pablo was not
amenable to this proposal. The two of them
having failed to come to an agreement,
Pablo left and went back to Cebu City,
unsuccessful in his attempt to take
possession of the tractor." 1
On November 25, 1988, private respondent
instituted an action for replevin, claiming ownership of the
tractor and seeking to recover possession thereof from
petitioner. As adverted to above, the trial court ruled in
favor of private respondent; so did the Court of Appeals
when petitioner appealed. ICTacD

The Court of Appeals sustained the ruling of the trial
court that Mike Abella could not have validly pledged the
subject tractor to petitioner since he was not the owner
thereof, nor was he authorized by its owner to pledge the
tractor. Respondent court also rejected petitioner's
contention that, if not a pledge, then a deposit was
created. The Court of Appeals said that under the Civil
Code, the primary purpose of a deposit is only
safekeeping and not, as in this case, securing payment of
a debt.
The Court of Appeals reduced the amount of actual
damages payable to private respondent, deducting
therefrom the cost of transporting the tractor from
Tagbilaran, Bohol, to Cebu City.
Hence, this petition.
Essentially, petitioner claims that the tractor in
question was validly pledged to him by private
respondent's son Mike Abella to answer for the latter's
monetary obligations to petitioner. In the alternative,
petitioner asserts that the tractor was left with him, in the
concept of an innkeeper, on deposit and that he may
validly hold on thereto until Mike Abella pays his
obligations.
Petitioner maintains that even if Mike Abella were
not the owner of the tractor, a principal-agent relationship
may be implied between Mike Abella and private
respondent. He contends that the latter failed to repudiate
the alleged agency, knowing that his son is acting on his
behalf without authority when he pledged the tractor to
petitioner. Petitioner argues that, under Article 1911 of the
Civil Code, private respondent is bound by the pledge,
even if it were beyond the authority of his son to pledge
the tractor, since he allowed his son to act as though he
had full powers.
On the other hand, private respondent asserts that
respondent court had correctly ruled on the matter.
In a contract of pledge, the creditor is given the right to
retain his debtor's movable property in his possession, or
in that of a third person to whom it has been delivered,
until the debt is paid. For the contract to be valid, it is
necessary that: (1) the pledge is constituted to secure the
ful llment of a principal obligation; (2) the pledgor be the
absolute owner of the thing pledged; and (3) the person
constituting the pledge has the free disposal of his
property, and in the absence thereof, that he be legally
authorized for the purpose. 2
As found by the trial court and a rmed by
respondent court, the pledgor in this case, Mike Abella,
was not the absolute owner of the tractor that was
allegedly pledged to petitioner. The tractor was owned by
his father, private respondent, who left the equipment with
him for safekeeping. Clearly, the second requisite for a
valid pledge, that the pledgor be the absolute owner of the
property, is absent in this case. Hence, there is no valid
pledge.
"He who is not the owner or proprietor
of the property pledged or mortgaged to
guarantee the ful llment of a principal
obligation, cannot legally constitute such a
guaranty as may validly bind the property in
favor of his creditor, and the pledgee or
mortgagee in such a case acquires no right
whatsoever in the property pledged or
mortgaged." 3
There also does not appear to be any agency in this
case. We agree with the Court of
Appeals that:
"As indicated in Article 1869, for an
agency relationship to be deemed as
implied, the principal must know that another
person is acting on his behalf without
authority. Here, appellee categorically stated
that the only purpose for his leaving the
subject tractor in the care and custody of
Mike Abella was for safekeeping, and de
nitely not for him to pledge or alienate the
same. If it were true that Mike pledged
appellee's tractor to appellant, then Mike was
acting not only without appellee's authority
but without the latter's knowledge as well.
Article 1911, on the other hand,
mandates that the principal is solidarily liable
with the agent if the former allowed the latter to
act as though he had full powers. Again, in
view of appellee's lack of knowledge of Mike's
pledging the tractor without any authority from
him, it stands to reason that the former could
not have allowed the latter to pledge the tractor
as if he had full powers to do so."
4
There is likewise no valid deposit in this case. In a
contract of deposit, a person receives an object belonging
to another with the obligation of safely keeping it and of
returning the same. 5 Petitioner himself states that he
received the tractor not to safely keep it but as a form of
security for the payment of Mike Abella's obligations.
There is no deposit where the principal purpose for
receiving the object is not safekeeping. 6
Consequently, petitioner had no right to refuse
delivery of the tractor to its lawful owner. On the other
hand, private respondent, as owner, had every right to
seek to repossess the tractor, including the institution of
the instant action for replevin.
We do not here pass upon the other assignment of
errors made by petitioner concerning alleged irregularities
in the ra e and disposition of the case at the trial court. A
petition for review on certiorari is not the proper vehicle for
such allegations.
 WHEREFORE, the instant petition is DENIED for [G.R. No. 160544.� February 21, 2005]
lack of merit, and the decision of the Court of Appeals in
CA-G.R. CV No. 39705 is AFFIRMED. Costs against TRIPLE-V vs. FILIPINO MERCHANTS
petitioner. THIRD DIVISION

SO ORDERED. Gentlemen:

Quoted hereunder, for your information, is a resolution of

Bellosillo, Mendoza, Buena and De Leon, Jr., JJ., concur. this Court dated FEB 21 2005.

G.R. No. 160544 (Triple-V Food Services, Inc. vs. Filipino

Merchants Insurance Company, Inc.)

Assailed in this petition for review on certiorari is the

decision[1]cralaw dated October 21, 2003 of the Court of
Appeals in CA-G.R. CV No. 71223, affirming an earlier
decision of the Regional Trial Court at Makati City, Branch
148, in its Civil Case No. 98-838, an action for damages
thereat filed by respondent Filipino Merchants Insurance,
Company, Inc., against the herein petitioner, Triple-V Food
Services, Inc.

On March 2, 1997, at around 2:15 o'clock in the afternoon,

a certain Mary Jo-Anne De Asis (De Asis) dined at
petitioner's Kamayan Restaurant at 15 West Avenue,
Quezon City. De Asis was using a Mitsubishi Galant Super
Saloon Model 1995 with plate number UBU 955, assigned
to her by her employer Crispa Textile Inc. (Crispa). On said
date, De Asis availed of the valet parking service of
petitioner and entrusted her car key to petitioner's valet
counter. A corresponding parking ticket was issued as
receipt for the car. The car was then parked by petitioner's
valet attendant, a certain Madridano, at the designated
parking area. Few minutes later, Madridano noticed that the
car was not in its parking slot and its key no longer in the box
where valet attendants usually keep the keys of cars
entrusted to them. The car was never recovered. Thereafter,
Crispa filed a claim against its insurer, herein respondent
Filipino Merchants Insurance Company, Inc. (FMICI).
Having indemnified Crispa in the amount of P669.500 for the
loss of the subject vehicle, FMICI, as subrogee to Crispa's
rights, filed with the RTC at Makati City an action for
damages against petitioner Triple-V Food Services, Inc.,
thereat docketed as Civil Case No. 98-838 which was raffled
to Branch 148.
In its answer, petitioner argued that the complaint failed to
aver facts to support the allegations of recklessness and
negligence committed in the safekeeping and custody of the
subject vehicle, claiming that it and its employees wasted no
time in ascertaining the loss of the car and in informing De
Asis of the discovery of the loss. Petitioner further argued
that in accepting the complimentary valet parking service,
De Asis received a parking ticket whereunder it is so
provided that "[Management and staff will not be responsible
for any loss of or damage incurred on the vehicle nor of
valuables contained therein", a provision which, to
petitioner's mind, is an explicit waiver of any right to claim
indemnity for the loss of the car; and that De Asis knowingly
assumed the risk of loss when she allowed petitioner to park
her vehicle, adding that its valet parking service did not
include extending a contract of insurance or warranty for the
loss of the vehicle.
During trial, petitioner challenged FMICI's subrogation to
Crispa's right to file a claim for the loss of the car, arguing
that theft is not a risk insured against under FMICI's
Insurance Policy No. PC-5975 for the subject vehicle.
In a decision dated June 22, 2001, the trial court rendered
judgment for respondent FMICI, thus:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of the plaintiff (FMICI) and against the
defendant Triple V (herein petitioner) and the latter is hereby
ordered to pay plaintiff the following:
1.� The amount of P669,500.00, representing actual
damages plus compounded (sic);
2.� The amount of P30,000.00 as acceptance fee plus the
amount equal to 25% of the total amount due as attorney's
fees;
3.� The amount of P50,000.00 as exemplary damages;
4.� Plus, cost of suit.
Defendant Triple V is not therefore precluded from taking
appropriate action against defendant Armando Madridano.
SO ORDERED.
Obviously displeased, petitioner appealed to the Court of
Appeals reiterating its argument that it was not a depositary
of the subject car and that it exercised due diligence and
prudence in the safe keeping of the vehicle, in handling the
car-napping incident and in the supervision of its employees.
It further argued that there was no valid subrogation of rights
between Crispa and respondent FMICI.
In a decision dated October 21, 2003,[2]cralaw the Court of
Appeals dismissed petitioner's appeal and affirmed the
appealed decision of the trial court, thus:
WHEREFORE, based on the foregoing premises, the instant
appeal is hereby DISMISSED. Accordingly, the assailed
June 22, 2001 Decision of the RTC of Makati City - Branch
148 in Civil Case No. 98-838 is AFFIRMED.
SO ORDERED.
In so dismissing the appeal and affirming the appealed
decision, the appellate court agreed with the findings and
conclusions of the trial court that: (a) petitioner was a
depositary of the subject vehicle; (b) petitioner was negligent
in its duties as a depositary thereof and as an employer of
the valet attendant; and (c) there was a valid subrogation of
rights between Crispa and respondent FMICI.
Hence, petitioner's present recourse.
We agree with the two (2) courts below.
When De Asis entrusted the car in question to petitioners
valet attendant while eating at petitioner's Kamayan
Restaurant, the former expected the car's safe return at the
end of her meal. Thus, petitioner was constituted as a
depositary of the same car. Petitioner cannot evade liability
by arguing that neither a contract of deposit nor that of
insurance, guaranty or surety for the loss of the car was
constituted when De Asis availed of its free valet parking
service.
In a contract of deposit, a person receives an object
belonging to another with the obligation of safely keeping it
and returning the same.[3]cralaw A deposit may be
constituted even without any consideration. It is not
necessary that the depositary receives a fee before it
becomes obligated to keep the item entrusted for
safekeeping and to return it later to the depositor.
Specious is petitioner's insistence that the valet parking
claim stub it issued to De Asis contains a clear exclusion of
its liability and operates as an explicit waiver by the
customer of any right to claim indemnity for any loss of or
damage to the vehicle.
The parking claim stub embodying the terms and conditions
of the parking, including that of relieving petitioner from any
loss or damage to the car, is essentially a contract of
adhesion, drafted and prepared as it is by the petitioner
alone with no participation whatsoever on the part of the
customers, like De Asis, who merely adheres to the printed
stipulations therein appearing. While contracts of adhesion
are not void in themselves, yet this Court will not hesitate to
rule out blind adherence thereto if they prove to be one-
sided under the attendant facts and circumstances.[4]cralaw
Hence, and as aptly pointed out by the Court of Appeals,
petitioner must not be allowed to use its parking claim stub's
exclusionary stipulation as a shield from any responsibility
for any loss or damage to vehicles or to the valuables
contained therein. Here, it is evident that De Asis deposited
the car in question with the petitioner as part of the latter's
enticement for customers by providing them a safe parking
space within the vicinity of its restaurant. In a very real
sense, a safe parking space is an added attraction to
petitioner's restaurant business because customers are
thereby somehow assured that their vehicle are safely kept,
rather than parking them elsewhere at their own risk. Having
entrusted the subject car to petitioner's valet attendant,
customer De Asis, like all of petitioner's customers, fully
expects the security of her car while at petitioner's
premises/designated parking areas and its safe return at the
end of her visit at petitioner's restaurant.
Petitioner's argument that there was no valid subrogation of FIRST DIVISION
rights between Crispa and FMICI because theft was not a
risk insured against under FMICI's Insurance Policy No. PC-
5975 holds no water.
[G.R. No. 6913. November 21, 1913.]
Insurance Policy No. PC-5975 which respondent FMICI
issued to Crispa contains, among others things, the
following item: "Insured's Estimate of Value of Scheduled THE ROMAN CATHOLIC BISHOP OF
Vehicle- P800.000".[5]cralaw On the basis of such item, the JARO , plaintiff-appellee, vs. GREGORIO
trial court concluded that the coverage includes a full DE LA PEÑA, administrator of the estate
comprehensive insurance of the vehicle in case of damage of Father Agustin de la Peña, defendant-
or loss. Besides, Crispa paid a premium of P10,304 to cover
appellant.
theft. This is clearly shown in the breakdown of premiums in
the same policy.[6]cralaw Thus, having indemnified CRISPA
for the stolen car, FMICI, as correctly ruled by the trial court
and the Court of Appeals, was properly subrogated to J. Lopez Vito for appellant.
Crispa's rights against petitioner, pursuant to Article 2207 of
the New Civil Code[7].
Arroyo & Horrilleno for appellee.
Anent the trial court's findings of negligence on the part of
the petitioner, which findings were affirmed by the appellate
court, we have consistently ruled that findings of facts of trial
courts, more so when affirmed, as here, by the Court of SYLLABUS
Appeals, are conclusive on this Court unless the trial court
itself ignored, overlooked or misconstrued facts and
circumstances which, if considered, warrant a reversal of the
1. TRUST FUNDS; LIABILITY OF TRUSTEE.
outcome of the case.[8]cralaw This is not so in the case at
bar. For, we have ourselves reviewed the records and find — One who, having in his possession trust funds,
no justification to deviate from the trial court's findings. deposits them in his personal account in a bank and
mixes them with his own funds, does not thereby
WHEREFORE, petition is hereby DENIED DUE COURSE. assume an obligation different from that under which
he would have lain in such deposit had not been made;
SO ORDERED. not does he thereby become liable to repay the money
at all hazards; and where such funds are taken from
the bank by fuerza mayor, he is relieved from
responsibility in relation thereto.
 2. ID.; ID.; ENGLISH AND AMERICAN LAW OF
TRUSTS NOT APPLICABLE. — That branch of the
law, known in England and America as the law of
trusts, has no counterpart in the Roman law and none
under the Spanish law.
DECISION
MORELAND, J : p
This is an appeal by the defendant from a
judgment of the Court of First Instance of Iloilo,
awarding to the plaintiff the sum of P6,641, with
interest at the legal rate from the beginning of the
action.
It is established in this case that the plaintiff is
the trustee of a charitable bequest made for the
construction of a leper hospital and that Father Agustin
de la Peña was the duly authorized representative of
the plaintiff to receive the legacy. The defendant is the
administrator of the estate of Father De la Peña.
In the year 1898 the books of Father de la Peña, as
trustee, shoed that he had on hand as such trustee the
sum of P6,641, collected by him for the charitable
purposes aforesaid. In the same year he deposited in
his personal account P19,000 in the Hongkong and
Shanghai Bank at Iloilo. Shortly thereafter and during
the war of the revolution, Father dela Peña was arrested
by the military authorities as a political prisoner, and
while thus detained made an order on said bank in favor
of the United States Army o cer under whose charge he
then was so for the sum thus deposited in said bank.
The arrest of Father de la Peña and the con scation of
the funds in the bank were the result of the claim of the
military authorities that he was an insurgent and that the
funds thus deposited had been collected by him for
revolutionary purposes. The money was taken from the
bank by the military authorities by virtue of such order,
was confiscated and turned over to the Government.
While there is considerable dispute in the case
over the question whether the P6,641 of trust funds
was included in the P19,000 deposited as aforesaid,
nevertheless, a careful examination of the case leads
us to the conclusion that said trust funds were a part of
the funds deposited and which were removed and
confiscated by the military authorities of the United
States.
Branch of the law know in England and America
as the law of the trusts had no exact counterpart in the
Roman law and is more has none under the Spanish
law, In this jurisdiction, therefore, Father dela Peña's
liability is determined by those portions of the Civil
Code which relate to obligations (Book 4, Title 1.)
Although the Civil Code states that a "person
obliged to give something is also bound to preserve it
with the diligence pertaining to a good father of a
family" (art. 1094), it also provides, following the
principle of the Roman law, major casus est, cui
humana in rmitas resistere non potest, that "no one
shall be liable for events which could not be foreseen,
or which having been foreseen were inevitable, with
the exceptions of the cases expressly mentioned in the
law of those in which the obligation so declares." (Art.
1105).
By placing the money in the bank and mixing it
with his personal funds De la Peña did not thereby
assume an obligation different from that under which
he would have lain if such deposit had not been made,
nor did he thereby make himself liable to repay the
money at all hazards. If the money had been forcibly
take from his pocket or from his house by the military
forces of one of the combatants during a state of war,
it is clear that under the provisions of the Civil Code he
would have been exempt from responsibility. The fact
that he placed the trust fund in the bank is his personal
account does not add to his responsibility. Such
deposit did not make him a debtor who must respond
at all the hazards.
We do not enter into a discussion for the
purpose of determining whether he acted more or less
negligently by depositing the money in the bank than
Arellano, C.J. Torres and Carson, JJ., concur.
he would if had left it in his home: or whether he was
more or less negligent by depositing the money in his
personal account than he would have been if had
deposited it in a separate account as trustee. We
regard such discussion as substantially fruitless,
inasmuch as the precise question is not one of the
negligence. There was no law prohibiting him from
depositing it as he did and there was no law which
changed his responsibility by reason of the deposit,
While it may be true that one who is under obligation
to do or give a things is in duty bound, when he sees
events approaching the results of which will be
dangerous to his trust, to take all reasonable means
and measures to escape or, if unavoidable, to temper
the effects of those events, we do not been
constrained to hold that, in choosing between two
means equally legal, he is culpably negligent in
selecting negligent in selecting one whereas he would
not have been if he had selected the other.
The court, therefore, nds and declares that the
money which is the subject matter of this action was
deposited by Father De la Peña in the Hongkong and
Shanghai Banking Corporation of Iloilo; that said
money was forcibly taken from the bank by the armed
forces of the United States during the war of the
insurrection; and that said Father De la Peña was not
responsible for its loss.
The judgment is therefore reversed, and it is
decreed that the plaintiff shall take nothing by his
complaint.
 THIRD DIVISION
[G.R. No. 90027. March 3, 1993.]
CA AGRO-INDUSTRIAL
DEVELOPMENT CORP., petitioner, vs.
THE HONORABLE COURT OF
APPEALS and SECURITY BANK AND
TRUST COMPANY, respondents.
Dolorfino & Dominguez Law Offices for petitioner.
Danilo B. Banares for private respondent.
SYLLABUS
1. CIVIL LAW; CONTRACTS; CONTRACT FOR RENT
OF SAFETY DEPOSIT BOX; A SPECIAL KIND OF
DEPOSIT NOT STRICTLY GOVERNED BY CIVIL CODE
PROVISIONS ON DEPOSIT. — 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; 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.
ID.; ID.; ID.; PREVAILING RULE IN AMERICAN
JURISPRUDENCE ADOPTED IN THIS JURISDICTION.
— 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 bailor and
bailee, the bailment being for hire and mutual benefit. 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." 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 pertinently provides:
"SEC. 72. In addition to the operations specifically
authorized elsewhere in this Act, banking institutions other
than building and loan associations may perform the
following services: (a) Receive in custody funds,
documents, and valuable objects, and rent safety deposit
boxes for the safeguarding of such effects. . . . The banks
shall perform the services permitted under subsections (a),
(b) and (c) of this section as depositories or as agents. . . ."
Note that the 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.
3. ID.; ID.; ID.; DEGREE OF DILIGENCE
REQUIRED OF DEPOSITARY; FREEDOM TO
STIPULATE; EXCEPTION. — A contract of deposit may
be entered into orally or in writing 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 depository would be liable if, in
performing its obligation, it is found guilty of fraud,
negligence, delay or contravention of the tenor of the
agreement. In the absence of any stipulation prescribing
the degree of diligence required, that of a good father of
a family is to be observed. 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. . . . 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 limit its liability to
some extent by agreement or stipulation."
4. ID.; ID.; ID.; ID.; ID.; ID.; CASE AT BAR. — 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. That 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." 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."
Furthermore, condition
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.
DECISION
DAVIDE, JR., J : p
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. LLjur
On 3 July 1979, petitioner (through its President, Sergio
Aguirre) and the spouses Ramon and Paula Pugao
entered into an agreement whereby the former
purchased from the latter two (2) parcels of land for a
consideration of P350,625.00. Of this amount,
P75,725.00 was paid as downpayment while the
balance was covered by three (3) postdated checks.
Among the terms and conditions of the agreement
embodied in a Memorandum of True and Actual
Agreement of Sale of Land were that the titles to the lots
shall be transferred to the petitioner upon full payment of
the purchase price and that the owner's copies of the
certificates of titles thereto, Transfer Certificates of Title
(TCT) Nos. 284655 and 292434, shall be deposited in a
safety deposit box of any bank. The same could be
withdrawn only upon the joint signatures of a
representative of the petitioner and the Pugaos upon full
payment of the purchase price .Petitioner, through
Sergio Aguirre, and the Pugaos then rented Safety
Deposit Box No. 1448 of private respondent Security
Bank and Trust Company, a domestic banking
corporation hereinafter referred to as the respondent
Bank. For this purpose, both signed a contract of lease
(Exhibit "2") which contains, inter alia, the following
conditions:
"13. The bank is not a depositary of
the contents of the safe and it has
neither the possession nor control of
the same.
14. The bank has no interest
whatsoever in said contents, except
herein expressly provided, and it
assumes absolutely no liability in
connection therewith." 1
After the execution of the contract, two (2) renter's keys
were given to the renters — one to Aguirre (for the
petitioner) and the other to the Pugaos. A guard key
remained in the possession of the respondent Bank. The
safety deposit box has two (2) keyholes, one for the
guard key and the other for the renter's key, and can be
opened only with the use of both keys. Petitioner claims
that the certificates of title were placed inside the said
box.
Thereafter, a certain Mrs. Margarita Ramos offered to
buy from the petitioner the two (2) lots at a price of
P225.00 per square meter which, as petitioner alleged
in its complaint, translates to a profit of P100.00 per
square meter or a total of P280,500.00 for the entire
property. Mrs. Ramos demanded the execution of a
deed of sale which necessarily entailed the production
of the certificates of title. In view thereof, Aguirre,
accompanied by the Pugaos, then proceeded to the
respondent Bank on 4 October 1979 to open the safety
deposit box and get the certificates of title. However,
when opened in the presence of the Bank's
representative, the box yielded no such certificates.
Because of the delay in the reconstitution of the title,
Mrs. Ramos withdrew her earlier offer to purchase the
lots; as a consequence thereof, the petitioner allegedly
failed to realize the expected profit of P280,500.00.
Hence, the latter filed on 1 September 1980 a
complaint 2 for damages against the respondent Bank
with the Court of First Instance (now Regional Trial
Court) of Pasig, Metro Manila which docketed the same
as Civil Case No. 38382. Cdpr
In its Answer with Counterclaim, 3 respondent Bank
alleged that the petitioner has no cause of action
because of paragraphs 13 and 14 of the contract of
lease (Exhibit "2"); corollarily, loss of any of the items or
articles contained in the box could not give rise to an
action against it. It then interposed a counterclaim for
exemplary damages as well as attorney's fees in the
amount of P20,000.00. Petitioner subsequently filed an
answer to the counterclaim. 4
In due course, the trial court. now designated as
Branch 161 of the Regional Trial Court (RTC) of
Pasig, Metro Manila, rendered a decision 5 adverse
to the petitioner on 8 December 1986, the
dispositive portion of which reads:
 "WHEREFORE, premises considered,
judgment is hereby rendered
dismissing plaintiff's complaint.
On defendant's counterclaim, judgment is
hereby rendered ordering plaintiff to pay
defendant the amount of FIVE
THOUSAND (P5,000.00) PESOS as
attorney's fees.
With costs against plaintiff." 6
The unfavorable verdict is based on the trial court's
conclusion that under paragraphs 13 and 14 of the
contract of lease, the Bank has no liability for the loss
of the certificates of title. The court declared that the
said provisions are binding on the parties.
Its motion for reconsideration 7 having been denied,
petitioner appealed from the adverse decision to the
respondent Court of Appeals which docketed the appeal
as CA-G.R. CV No. 15150. Petitioner urged the
respondent Court to reverse the challenged decision
because the trial court erred in (a) absolving the
respondent Bank from liability from the loss, (b) not
declaring as null and void, for being contrary to law,
public order and public policy, the provisions in the
contract for lease of the safety deposit box absolving the
Bank from any liability for loss, (c) not concluding that in
this jurisdiction, as well as under American
jurisprudence, the liability of the Bank is settled and (d)
awarding attorney's fees to the Bank and denying the
petitioner's prayer for nominal and exemplary damages
and attorney's fees. 8
In its Decision promulgated on 4 July 1989, 9 respondent
Court affirmed the appealed decision principally on the
theory that the contract (Exhibit "2") executed by the
petitioner and respondent Bank is in the nature of a
contract of lease by virtue of which the petitioner and its
co-renter were given control over the safety deposit box
and its contents while the Bank retained no right to open
the said box because it had neither the possession nor
control over it and its contents. As such, the contract is
governed by Article 1643 of the Civil Code 10 which
provides:
"ARTICLE 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 leased during the period of the contract
— and Article 1975 of the Civil Code which provides:
"ARTICLE 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, 15
petitioner 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: prLL
"ARTICLE 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 bailor 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 xed 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 renters — the petitioner and the
Pugaos. The guard key of the box remained with the
respondent Bank; without this key, neither of the renters
could open the box. On the other hand, the respondent
Bank could not likewise open the box without the renter's
key. In this case, the said key had a duplicate which was
made so that both renters could have access to the box.
Hence, the authorities cited by the respondent Court 20
on this point do not apply. Neither could Article 1975,
also relied upon by the respondent Court, be invoked as
an argument against the deposit theory. Obviously, the
first paragraph of such provision cannot apply to a
depositary of certificates, bonds, securities or
instruments which earn interest if such documents are
kept in a rented safety deposit box. It is clear that the
depositary cannot open the box without the renter being
present.prcd
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 bailor 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 suggest that 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 23 pertinently provides:

"SECTION 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. 2 6 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 nd 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." 2 9
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 limit its
liability to some extent by agreement or
stipulation." 30 (citations omitted).
Thus, we reach the same conclusion which the Court of
Appeals arrived at, that is, that the petition should be
dismissed, but on grounds quite different from those
relied upon by the Court of Appeals. In the instant case,
the respondent Bank's exoneration cannot, contrary to
the holding of the Court of Appeals, be based on or
proceed from a characterization of the impugned
contract as a contract of lease, but rather on the fact
that no competent proof was presented to show that
respondent Bank was aware of the agreement between
the petitioner and the Pugaos to the effect that the
certificates of title were withdrawable from the safety
deposit box only upon both parties' joint signatures, and
that no evidence was submitted to reveal that the loss of
the certificates of title was due to the fraud or
negligence of the respondent Bank. This in turn flows
from this Court's determination that the contract involved
was one of deposit. Since both the petitioner and the Feliciano, Bidin, Romero and Melo, JJ ., concur.
Pugaos agreed that each should have one (1) renter's
Gutierrez, Jr., J ., is on terminal leave.
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.LLpr

No pronouncement as to costs.

SO ORDERED.

EN BANC
[G.R. No. 4015. August 24, 1908.]
ANGEL JAVELLANA,
plaintiff-appellee, vs. JOSE
LIM, ET. AL., defendants-
appellants.
R. Zaldarriaga for appellants.
TORRES, J :p
B. Montinola for appellee.
SYLLABUS
1. CONTRACT; BAILMENT OR DEPOSIT;
LOAN. — Where money, consisting of coins of legal
tender is deposited with a person and the latter is
authorized by the depositor to use and dispose of the
same, the agreement thus entered into between the
depositor and the depositary is not a contract of
deposit but a loan.
2. ID.; ID.; ID.; SUBSEQUENT
AGREEMENT AS TO INTEREST; NOVATION. — A
subsequent agreement between the parties as to
interest on the amount said to have been deposited
because the same could not be returned at the time
fixed therefor, does not constitute a renew of an
agreement of deposit, but is the best evidence that
the original contract entered into between the parties
therein was for a loan under the guise of a deposit.
DECISION
The attorney for the plaintiff, Angel Javellana,
led a complaint on the 30th of October, 1906, with the
Court of First Instance of Iloilo, praying that the
defendants, Jose Lim and Ceferino Domingo Lim, be
sentenced to jointly and severally pay the sum of
P2,686.58, with interest thereon at the rate of 15 per
cent per annum from the 20th of January, 1898, until
full payment should be made, deducting from the
amount of interest due the sum of P1,102.16, and to
pay the costs of the proceedings.
Authority from the court having been previously
obtained, the complaint was amended on the 10th of
January, 1907; it was then alleged, that on the 26th of
May, 1897, the defendants executed and subscribed a
document in favor of the plaintiff reading as follows:
"We have received from Angel
Javellana, as a deposit without interest, the
sum of two thousand six hundred and
eighty-six pesos and fifty-eight cents of
pesos fuentes, which we will return to the
said gentleman, jointly and severally, on the
20th of January, 1898. — Jaro, 26th of
May, 1897. — Signed: Jose Lim. — Signed:
Ceferino Domingo Lim."
That, when the obligation became due, the
defendants begged the plaintiff for an extension of time
for the payment thereof, binding themselves to pay
interest at the rate of 15 per cent on the amount of their
indebtedness, to which the plaintiff acceded; that on
the 15th of May, 1902, the debtors paid on account of
interest due the sum of 1,000 pesos, with the exception
of which they had not paid any other sum on account
of either capital or interest, notwithstanding the
requests made by the plaintiff, who had thereby been
subjected to loss and damages.
A demurrer to the original complaint was
overruled, and on the 4th of January, 1907, the
defendants answered the original complaint before its
amendment, setting forth that they acknowledged the
facts stated in Nos. 1 and 2 of the complaint; that they
admitted the statements of the plaintiff relative to the
payment of 1,102.16 pesos made on the 15th of
November, 1902, not, however, as payment of interest
on the amount stated in the foregoing document, but
on account of the principal, and denied that there had
been any agreement as to an extension of the time for
payment and the payment of interest at the rate of 15
per cent per annum as alleged in paragraph 3 of the
complaint, and also denied all the other statements
contained therein.
As a counterclaim, the defendants alleged that
they had paid to the plaintiff sums which, together with
the P1,102.16 acknowledged in the complaint,
aggregated the total sum of P5,602.16, and that,
deducting therefrom the P2,686.58 stated in the
document transcribed in the complaint, the plaintiff still
owed the defendants P2,915.58; therefore, they asked
that judgment be entered absolving them, and
sentencing the plaintiff to pay them the sum of
P2,915.58 with the costs.
Evidence was adduced by both parties and,
upon their exhibits, together with an account book
having been made of record, the court below rendered
judgment on the 15th of January, 1907, in favor of the
plaintiff for the recovery of the sum of P5,714.44 and
costs.
The defendants excepted to the above decision
and moved for a new trial. This motion was overruled
and was also excepted to by them; the bill of
exceptions presented by the appellants having been
approved, the same was in due course submitted to
this court.
The document of indebtedness inserted in the
complaint states that the plaintiff left on deposit with
the defendants a given sum of money which they were
jointly and severally obliged to return on a certain date
xed in the document; but that, nevertheless, when the
document appearing as Exhibit 2, written in the
Visayan dialect and followed by a translation into
Spanish was executed, it was acknowledged, at the
date thereof, the 15th of November, 1902, that the
amount deposited had not yet been returned to the
creditor, whereby he was subjected to losses and
damages amounting to 830 pesos since the 20th of
January, 1898, when the return was again stipulated
with the further agreement that the amount deposited
should bear interest at the rate of 15 per cent per
annum from the aforesaid date of January 20, and that
the 1,000 pesos paid to the depositor on the 15th of
May, 1900, according to the receipt issued by him to
the debtors, would be included, and that the said rate
of interest would obtain until the debtors, paid the
creditor the said amount in full. In this second
document the contract between the parties, which is a
real loan of money with interest, appears perfectly de
ned, notwithstanding the fact that in the original
document executed by the debtors, on the 26th of May,
1897, it is called a deposit; so that when they bound
themselves jointly and severally to refund the sum of
2,686.58 pesos to the depositor, Javellana, they did
not engage to return the same coins received and of
which the amount deposited consisted, and they could
have accomplished the return agreed upon by the
delivery of a sum equal to the one received by them.
For this reason it must be understood that the debtors
were lawfully authorized to make use of the amount
deposited, which they have done, as subsequently
shown when asking for an extension of the time for the
return thereof, inasmuch as, acknowledging that they
have subjected the lender, their creditor, to losses and
damages for not complying with what had been
stipulated, and being conscious that they had used, for
their own pro t and gain, the money that they received
apparently as a deposit, they engaged to pay interest
to the creditor from the date named until the time when
the refund should be made. Such conduct on the part
of the debtors is unquestionable evidence that the
transaction entered into between the interested parties
was not a deposit, but a real contract of loan.
Article 1767 of the Civil Code provides that —
"The depositary can not make
use of the thing deposited without the
express permission of the depositor.
"Otherwise he shall be liable for losses and
damages."
Article 1768 also provides that —
"When the depositary has
permission to make use of the thing
deposited, the contract loses the character
of a deposit and becomes a loan or
bailment.
"The permission shall not be presumed, and
its existence must be proven."
 When on one of the latter days of January, 1898,
Jose Lim went to the of ce of the creditor asking for an
extension of one year, in view of the fact that money
was scarce, and because neither himself nor the other
defendant were able to return the amount deposited,
for which reason he agreed to pay interest at the rate
of 15 per cent per annum, it was because, as a matter
of fact, he did not have in his possession the amount
deposited, he having made use of the same in his
business and for his own pro t; and the creditor, by
granting them the extension, evidently con rmed the
express permission previously given them to use and
dispose of the amount slated as having been
deposited, which, in accordance with the terms of the
law, must be considered as given them on loan, to all
intents and purposes gratuitously, until the 20th of
January, 1898, and from that date with interest at 15
per cent per annum until its full payment, deducting
from the total amount of interest the sum of 1,000
pesos, in accordance with the provisions of article
1173 of the Civil Code.
Notwithstanding the fact that it does not appear
that Jose Lim signed the document (Exhibit 2)
executed in the presence of three witnesses on the
15th of November, 1902, by Ceferino Domingo Lim on
behalf of himself and the former, nevertheless, the said
document has not been contested as false, either by a
criminal or by a civil proceeding, nor has any doubt
been cast upon the authenticity of the signatures of the
witnesses who attested the execution of the same; and
from the evidence in the case one is suf ciently
convinced that the said Jose Lim was perfectly aware
of and had authorized his joint codebtor to liquidate the
interest, to pay the sum of 1,000 pesos, on account
thereof, and to execute the aforesaid document No. 2.
A true rati cation of the original document of deposit
was thus made, and not the least proof is shown in the
record that Jose Lim had ever paid the whole or any
part of the capital stated in the original document,
Exhibit 1.
If the amount, together with interest claimed in the
complaint, less 1,000 pesos appears as fully
established, such is not the case with the defendants'
counterclaim for P5,602.16, because the existence
and certainty of said indebtedness imputed to the
plaintiff has not been proven, and the defendants, who
call themselves creditors for the said amount, have not
proven in a satisfactory manner that the plaintiff had
received partial payments on account of the same; the
latter alleges with good reason, that they should
produce the receipts which he may have issued, and
which he did issue whenever they paid him any money
on account. The plaintiff's allegation that the two
amounts of 400 and 1,200 pesos, referred to in
documents marked "C" and "D" offered in evidence by
the defendants, had been received from Ceferino
Domingo Lim on account of other debts of his, has not
been contradicted, and the fact that in the original
complaint the sum of 1,102.16 pesos, was expressed
in lieu of 1,000 pesos, the only payment made on
account of interest on the amount deposited according
to documents No. 2 and letter "B" above referred to,
was due to a mistake.
 Moreover, for the reasons above set forth it may, Arellano, C.J., Carson, Willard and Tracey, JJ.,
as a matter of course, be inferred that there was no concur.
renewal of the contract of deposit converted into a
loan, because, as has already been stated, the
defendants received said amount by virtue of a real
loan contract under the name of a deposit, since the
so -called bails were forthwith authorized to dispose of
the amount deposited. This they have done, as has
been clearly shown.

The original joint obligation contracted by the

defendant debtors still exists, and it has not been
shown or proven in the proceedings that the creditor
had released Jose Lim from complying with his
obligation in order that he should not be sued for or
sentenced to pay the amount of capital and interest
together with his codebtor, Ceferino Domingo Lim,
because the record offers satisfactory evidence
against the pretension of Jose Lim, and it further
appears that document No. 2 was executed by the
other debtor, Ceferino Domingo Lim, for himself and
on behalf of Jose Lim; and it has also been proven that
Jose Lim, being fully aware that his debt had not yet
been settled, took steps to secure an extension of the
time for payment, and consented to pay interest in
return for the concession requested from the creditor.

In view of the foregoing, and adopting the

ndings in the judgment appealed from, it is our opinion
that the same should be and is hereby af rmed with the
costs of this instance against the appellant, provided
that the interest agreed upon shall be paid until the
complete liquidation of the debt. So ordered.
 FIRST DIVISION
[G.R. No. 6 . November 14, 1901.]
MANUEL GARCIA GAVIERES,
plaintiff-appellant, vs. T. H. PARDO
DE TAVERA, defendant-appellee.
1. . M. Llanos, for appellant.
Simplicio del Rosario, for appellee.
COOPER, J : p
SYLLABUS
1.INTERPRETATION OF CONTRACTS;
LOAN; DEPOSIT. — An instrument
acknowledging receipt of a sum of money as a
deposit returnable two months after notice with
interest is evidence of a contract of loan and not
of deposit.
2.EVIDENCE; LOAN; PAYMENT. — Where
plaintiff's receipt for a sum of money, paid by
defendant in satisfaction of an unidentified balance, is
introduced to prove payment of an obligation sued
upon, it will be regarded after a lapse of thirty years
as satisfaction of the obligation in question in the
absence of showing of other obligations between the
parties.
3.ID. — Laches in the commencement of an
action causing a possible failure of proof will
prevent court from applying strict rules of
evidence.
DECISION
The present appeal has been interposed in the
declarative action of greater import led in the Court of
First Instance of Tondo, commenced on January 10,
1900, by Don Manuel Garcia Gavieres as plaintiff and
successor in interest of the deceased Doña Ignacia de
Gorricho against Doña Trinidad H. Pardo de Tavera as
universal heir of the deceased Don Felix Pardo de
Tavera for the collection of a balance of 1,423 pesos
75 cents, remaining due on an original obligation of
3,000 pesos which, as the plaintiff alleges, was the
amount of a deposit delivered by Doña Ignacia
Gorricho, deceased, to Don Felix Pardo de Tavera,
deceased, on the 31st day of October, 1859. The
agreement between the parties appears in the
following writing:
"Received of Señorita Ignacia de
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 per cent per annum with an
hypothecation of the goods now owned by
me or which may be owned hereafter, as
security of the payment.
In witness whereof I sign in Binondo, January
31, 1859.
"FELIX
PARDO
DE
TAVERA.
" proof of payment in support of the defense we consider
The defendant answering complaint of plaintiff
alleges among other things as a defense, that the
document upon which the complaint is based was not
a contract of deposit as alleged in the complaint, but a
contract of loan, and setting forth furthermore the
payment of the original obligation as well as the
prescription of the action. The defendant contends that
the document upon which the action is based is not
evidence of a deposit, as the plaintiff maintains, but of
a contract of loan, and that the prescription applicable
to loans has extinguished the right of action. Although
in the document in question a deposit is spoken of,
nevertheless from an examination of the entire
document it clearly appears that the contract was a
loan and that such was the intention of the parties. It is
unnecessary to recur to the canons of interpretation to
arrive at this conclusion. The obligation of the
depositary to pay interest at the rate of 6 per cent to
the depositor suf ces to cause the obligation to be
considered as a loan and makes it likewise evident that
it was the intention of the parties that the depositary
should have the right to make use of the amount
deposited, since it was stipulated that the amount
could be collected after notice of two months in
advance. Such being the case, the contract lost the
character of a deposit and acquired that of a loan. (Art.
1768, 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 Civil Code now in force.
The date of the document is January 31, 1859. The
likewise suf cient to establish such defense. The
document dated January 8, 1869, executed by Don
Felix Garcia Gavieres, husband and legal
representative of Doña Ignacia Gorricho,
acknowledges the receipt of 1,224 pesos from Don
Manuel Darvin, representative of the deceased Don
Felix Pardo de Tavera. This sum is declared in said
document to be the balance due upon the debt of
2,000 pesos. This was slightly more or less the amount
which remained as due upon the original obligation
after deducting the payments which are admitted to
have been made. In the absence of evidence
 disclosing that there were other claims in favor of EN BANC
Gavieres it is reasonably to be supposed that this
payment was made to satisfy the balance due upon
the original obligation.
[G.R. Nos. 26948 & 26949. October 8, 1927.]

The original contract between the parties was

celebrated nearly a half century ago; the contracting
SILVESTRA BARON, plaintiff-appellant, vs.
parties have ceased to exist long since; it may be that
PABLO DAVID, defendant and
there exists or may have existed documents proving a
total payment between the parties and that this
document has some time ago suffered the common appellant,
fate of perishable things. He who by laches in the
exercise of his rights has caused a failure of proof has And
no right to complain if the court does not apply the strict
rules of evidence which are applicable in ordinary UILLERMO BARON, plaintiff and
cases, and admits to a certain extent the presumption appellant, vs. PABLO DAVID,
to which the conduct of the interested party himself defendant-appellant.
naturally gives rise.

It is our opinion that the judgment of the Court of

Jose Gutierrez David, for plaintiff-appellant in
First Instance should be affirmed, and it is so ordered,
case No. 26948.
with costs of appeal taxed against the appellant.

Arellano, C .J ., Torres, Willard and Mapa, JJ ., Gregorio Perfecto, for defendant-appellant in both
concur. cases.

Ladd, J ., did not sit in this case. Francisco, Lualhati & Lopez and Jose
Gutierrez David, for plaintiff-appellant in case No.
26949.

SYLLABUS

1. DEPOSIT; USE OF THING
DEPOSITED; LIABILITY OF DEPOSITARY. — The
owner of a rice mill who, in conformity with custom
prevailing in the trade, receives palay and converts it
into rice, selling the product for his own bene t, must
account for the palay to the owner at the price
prevailing at the time demand is made.
2. ID.; ID.; ID.; DESTRUCTION OF RICE
MILL BY FIRE. — The destruction of a rice mill, with
its contents, by re after palay thus deposited has been
milled and marketed does not affect the liability of the
miller.
3. ATTACHMENT; DAMAGES RESULTING
FROM WRONGFUL ATTACHMENT.
— A plaintiff who, by means of a false a davit, procures
an attachment to be issued and levied upon a rice mill
belonging to his debtor is liable in damages for the loss
of pro ts resulting from the closure of the mill, as well
as for compensation for the loss occasioned to the
good-will of the business in driving away customers.
4. DEPOSITION; READING OF
DEPOSITION IN COURT. — When a deposition as
presented at the trial and admitted by the court, it is
competent evidence for the party in whose behalf it
was taken, although it may not have been actually read
when introduced in evidence.
DECISION
STREET, J : p
These two actions were instituted in the Court of
First Instance of the Province of Pampanga by the
respective plaintiffs, Silvestra Baron and Guillermo
Baron, for the purpose of recovering from the
defendant, Pablo David, the value of palay alleged to
have been sold by the plaintiffs to the defendant in the
year 1920. Owing to the fact that the defendant is the
same in both cases and that the two cases depend in
part upon the same facts, the cases were heard
together in the trial court and determined in a single
opinion. The same course will accordingly be followed
here.
In the rst case, i. e., that in which Silvestra Baron
is plaintiff, the court gave judgment for her to recover
of the defendant the sum of P5,238.51, with costs.
From this judgment both the plaintiff and the defendant
appealed.
In the second case, i. e., that in which Guillermo
Baron is plaintiff, the court gave judgment for him to
recover of the defendant the sum of P5,734.60, with
costs, from which judgment both the plaintiff and the
defendant also appealed. In the same case the
defendant interposed a counterclaim in which he
asked credit for the sum of P2,800 which he had
advanced to the plaintiff Guillermo Baron on various
occasions. This credit was admitted by the plaintiff and
allowed by the trial court. But the defendant also
interposed a cross-action against Guillermo Baron in
which the defendant claimed compensation for
damages alleged to have been suffered by him by
reason of the alleged malicious and false statements
made by the plaintiff against the defendant in suing out
an attachment against the defendant's property soon
after the institution of the action. In the same cross-
action the defendant also sought compensation for
damages incident to the shutting down of the
defendant's rice mill for the period of one hundred
seventy days during which the above-mentioned
attachment was in force. The trial judge disallowed
these claims for damages, and from this feature of the
decision the defendant appealed. We are therefore
confronted with five distinct appeals in this record.
Prior to January 17,1921, the defendant Pablo
David had been engaged in running a rice mill in the
municipality of Magalang, in the Province of
Pampanga, a mill which was well patronized by the rice
growers of the vicinity and almost constantly running.
On the date stated a re occurred that destroyed the mill
and its contents, and it was some time before the mill
could be rebuilt and put in operation again. Silvestra
Baron, the plaintiff in the rst of the actions before us, is
an aunt of the defendant; while Guillermo Baron, the
plaintiff in the other action, is his uncle. 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 thus
placed with the defendant. As against 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. 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 re of
January 17, 1921, already mentioned.
The plaintiffs further say that their palay was
delivered to the defendant at his special request,
coupled with a promise on his part to pay for the same
at the highest price per cavan at which palay would sell
during the year 1920; and they say that in August of
that year the defendant promised to pay them
severally the price of P8.40 per cavan, which was
about the top of the market for the season, provided
they would wait for payment until December. The trial
judge found that no such promise had been given; and
the incredulity of the court upon this point seems to us
to be justi ed. A careful examination of the proof,
however, leads us to the conclusion that the plaintiffs
did, some time in the early part of August, 1920, make
demand upon the defendant for a settlement, which he
evaded or postponed, leaving the exact amount due to
the plaintiffs undetermined.
 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. In
fact the defendant admits that the plaintiffs' palay was
mixed with that of others. In view of the nature of the
defendant's activities and the way in which the palay
was handled in the defendant's mill, it is quite certain
that all of the plaintiffs' palay, which was put in before
June 1, 1920, had been milled and disposed of long
prior to the re of January 17, 1921. Furthermore, the
proof shows that when the re occurred there could not
have been more than about 360 cavans of palay in the
mill, none of which by any reasonable probability could
have been any part of the palay delivered by the
plaintiffs. Considering the fact that the defendant had
thus milled and doubtless sold the plaintiffs' palay prior
to the date of the re, it results that he is bound to
account for its value, and his liability was not
extinguished by the occurrence of the re. In the briefs
before us it seems to have been assumed by the
opposing attorneys that in order for the plaintiffs to
recover, it is necessary that they should be able to
establish that the plaintiffs' palay was delivered in the
character of a sale, and that if, on the contrary, the
defendant should prove that the delivery was made in
the character of deposit, the defendant should be
absolved. But the case does not depend precisely
upon this explicit alternative; for even supposing 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 depositary 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 we wholly reject the defendant's
pretense that the palay delivered by the plaintiffs or
any part of it was actually consumed in the re of
January, 1921. Nor is the liability of the defendant in
any wise affected by the circumstance that, by a
custom prevailing among rice millers in this country,
persons placing palay with them without special
agreement as to price are at liberty to withdraw it later,
proper allowance being made for storage and
shrinkage, a thing that is sometimes done, though
rarely.
In view of what has been said it becomes necessary to
discover the price which the defendant should be
required to pay for the plaintiffs' palay. Upon this point
the trial judge xed upon P6.15 per cavan; and although
we are not exactly in agreement with him as to the
propriety of the method by which he arrived at this
gure, we are nevertheless of the opinion that, all things
considered, the result is approximately correct. It
appears that the price of palay during the months of
April, May, and June, 1920, had been excessively high
in the Philippine Islands, and even prior to that period
the Government of the Philippine Islands had been
attempting to hold the price in check by executive
regulation. The highest point which was touched in this
season was apparently about P8.50 per cavan, but the
market began to sag in May or June and presently
entered upon a precipitate decline. As We have
already stated, the plaintiffs made demand upon the
defendant for settlement in the early part of August;
and, so far as we are able to judge from the proof, the
price of P6.15 per cavan, xed by the trial court, is about
the price at which the defendant should be required to
settle as of that date. It was the date of the demand of
the plaintiffs for settlement that determined the price to
be paid by the defendant, and this is true whether the
palay was delivered in the character of sale with price
undetermined or in the character of deposit subject to
use by the defendant. It results that the plaintiffs are
respectively entitled to recover the value of the palay
which they had placed with the defendant during the
period referred to, with interest from the date of the
filing of their several complaints.
As already stated, the trial court found that at the
time of the re there were about 360 cavans of palay in
the mill and that this palay was destroyed. His Honor
assumed that this was part of the palay delivered by
the plaintiffs, and he held that the defendant should be
credited with said amount. His Honor therefore
deducted from the claims of the plaintiffs their
respective proportionate shares of this amount of
palay. We are unable to see the propriety of this
feature of the decision. There were many customers of
the defendant's rice mill who had placed their palay
with the defendant under the same conditions as the
plaintiffs, and nothing can be more certain than that the
palay which was burned did not belong to the plaintiffs.
That palay without a doubt had long been sold and
marketed. The assignments of error of each of the
plaintiffs-appellants in which this feature of the
decision is attacked are therefore well taken; and the
appealed judgments must be modi ed by eliminating
the deductions which the trial court allowed from the
plaintiffs' claims.
The trial judge also allowed a deduction from the
claim of the plaintiff Guillermo Baron of 167 cavans of
palay, as indicated in Exhibits 12, 13, 14, and 16. This
was also erroneous. These exhibits relate to
transactions that occurred nearly two years after the
transactions with which we are here concerned, and
they were offered in evidence merely to show the
character of subsequent transactions between the
parties, it appearing that at the time said exhibits came
into existence the defendant had reconstructed his mill
and that business relations with Guillermo Baron had
been resumed. The transactions shown by these
exhibits (which relate to palay withdrawn by the plaintiff
from the defendant's mill) were not made the subject
of controversy in either the complaint or the cross-
complaint of that defendant in the second case. They
therefore should not have been taken into account as
a credit in favor of the defendant. Said credit must
therefore be likewise disallowed, though this feature of
our decision will of course be without prejudice to any
proper adjustment of the rights of the parties with
respect to these subsequent transactions that they
have heretofore or may hereafter effect.
 The preceding discussion disposes of all vital
contentions relative to the liability of the defendant
upon the causes of action stated in the complaints. We
proceed therefore now to consider the question of the
liability of the plaintiff Guillermo Baron upon the cross-
complaint of Pablo David in case R. G. No. 26949. In
this cross-action the defendant seeks, as stated in the
third paragraph of this opinion, to recover damages for
the wrongful suing out of an attachment by the plaintiff
and the levy of the same upon the defendant's rice mill.
It appears that about two and one half months after
said action was begun, the plaintiff, Guillermo Baron,
asked for an attachment to be issued against the
property of the defendant; and to procure the issuance
of said writ the plaintiff made a davit to the effect that
the defendant was disposing, or attempting to dispose
of his property for the purpose of defrauding the
plaintiff. Upon this a davit an attachment was issued
as prayed, and on March 27, 1924, it was levied upon
the defendant's rice mill, and other property, real and
personal.
Upon attaching the property the sheriff closed the mill
and placed it in the care of a deputy. Operations were
not resumed until September 13,1924, when the
attachment was dissolved by an order of the court and
the defendant was permitted to resume control. At the
time the attachment was levied there were, in the
bodega, more than 20,000 cavans of palay belonging
to persons who held receipts therefor; and in order to
get this grain away from the sheriff, twenty-four of the
depositors found it necessary to submit third-party
claims to the sheriff. When these claims were put in
the sheriff noti ed the plaintiff that a bond in the amount
of P50,000 must be given, otherwise the grain would
be released. The plaintiff, being unable or unwilling to
give this bond, the sheriff surrendered the palay to the
claimants; but the attachment on the rice mill was
maintained until September 13, as above stated,
covering a period of one hundred seventy days during
which the mill was idle. The ground upon which the
attachment was based, as set forth in the plaintiff's a
davit, was that the defendant was disposing or
attempting to dispose of his property for the purpose of
defrauding the plaintiff. That this allegation was false
is clearly apparent, and not a word of proof has been
submitted in support of the assertion. On the contrary,
the defendant testi ed that at the time this attachment
was secured he was solvent and could have paid his
indebtedness to the plaintiff if judgment had been
rendered against him in ordinary course. His nancial
condition was of course well known to the plaintiff, who
is his uncle. The defendant also states that he had not
conveyed away any of his property, nor had intended
to do so, for the purpose of defrauding the plaintiff. We
have before us therefore a case of a baseless
attachment, recklessly sued out upon a false a davit
and levied upon the defendant's property to his great
and needless damage. That the act of the plaintiff in
suing out the writ was wholly unjusti able is perhaps
also indicated in the circumstance that the attachment
was nally dissolved upon the motion of the plaintiff
himself.
The defendant testi ed that his mill was
accustomed to clean from 400 to 450 cavans of palay
per clay, producing 225 cavans of rice, of 57 kilos
each. The price charged for cleaning each cavan of
rice was 30 centavos. The defendant also stated that
the expense of running the mill per day was from P18
to P25, and that the net pro t per day on the mill was
more than P40. As the mill was not accustomed to run
on Sundays and holidays, we estimate that the
defendant lost the pro t that would have been earned
on not less than one hundred forty work days. Figuring
his pro ts at P40 per day, which would appear to be a
conservative estimate, the actual net loss resulting
from his failure to operate the mill during the time
stated could not have been less than P5,600. The
reasonableness of these gures is also indicated in the
fact that the twenty- four customers who intervened
with third-party claims took out of the camarin 20,000
cavans of palay, practically all of which, in the in this
plant by the defendant. And of course other grain
would have found its way to this mill if it had remained
open during the one hundred forty days when it was
closed.
But this is not all. When the attachment was
dissolved and the mill again opened, the defendant
found that his customers had become scattered and
could not be easily gotten back. So slow, indeed, was
his patronage in returning that during the remainder of
the year 1924 the defendant was able to mill scarcely
more than the grain belonging to himself and his
brothers; and even after the next season opened many
of his old customers did not return. Several of these
individuals, testifying as witnesses in this case, stated
that, owing to the unpleasant experience which they
had had in getting back their grain from the sheriff in
the third-party proceedings, they had not come back to
the mill of the defendant, though they had previously
had much confidence in him.
As against the defendant's proof showing the facts
above stated the plaintiff submitted no evidence
whatever. We are therefore constrained to hold that the
defendant was damaged by the attachment to the extent
of P5,600, in pro ts lost by the closure of the mill, and to
the extent of P1,400 for injury to the good-will of his
business, making a total of P7,000. For this amount the
defendant must recover judgment on his cross-
complaint.
The trial court, in dismissing the defendant's
cross-complaint for damages resulting from the
wrongful suing out of the attachment, suggested that
the closure of the rice mill was a mere act of the sheriff
for which the plaintiff was not responsible and that the
defendant might have been permitted by the sheriff to
continue running the mill if he had applied to the sheriff
for permission to operate it. This singular suggestion
will not bear a moment's criticism. It was of course the
duty of the sheriff, in levying the attachment, to take
the attached property into his possession, and the
closure of the mill was a natural, and even necessary,
consequence of the attachment. For the damage thus
inflicted upon the defendant the plaintiff is undoubtedly
responsible.
One feature of the cross-complaint consists in
the claim of the defendant (cross-complainant) for the
sum of P20,000 as damages caused to the defendant
by the false and alleged malicious statements
contained in the a davit upon which the attachment
was procured. The additional sum of P5,000 is also
claimed as exemplary damages. It is clear that with
respect to these damages the cross-action cannot be
maintained, for the reason that the a davit in question
was used in course of a legal proceeding for the
purpose of obtaining a legal remedy, and it is therefore
privileged. But though the
3. davit is not actionable as a libelous publication, this
fact is no obstacle to the maintenance of an action to
recover the damage resulting from the levy of the
attachment.
Before closing this opinion a word should be said
upon the point raised in the rst assignment of error of
Pablo David as defendant in case R. G. No. 26949. In
this connection it appears that the deposition of
Guillermo Baron was presented in court as evidence
and was admitted as an exhibit, without being
actually read to the court. It is supposed in the
assignment of error now under consideration that the
deposition is not available as evidence to the plaintiff
because it was not actually read out in court. This
contention is not well founded. It is true that in section
364 of the Code of Civil Procedure it is said that a
deposition, once taken, may be read by either party
and will then be deemed the evidence of the party
reading it. The use of the word "read" in this section
nds its explanation of course in the American practice
of trying cases for the most part before juries. When a
case is thus tried the actual reading of the deposition
is necessary in order that the jurymen may become
acquainted with its contents. But in courts of equity,
and in all courts where judges have the evidence
before them for perusal at their pleasure, it is not
necessary that the deposition should be actually read
when presented as evidence.
From what has been said it results that the
judgment of the court below must be modified with
respect to the amounts recoverable by the respective
plaintiffs in the two actions R. G. Nos. 26948 and
26949 and must be reversed in respect to the
disposition of the cross-complaint interposed by the
defendant in case R. G. No. 26949, with the following
results: In case R. G. No. 26948 the plaintiff Silvestra
Baron will recover of the defendant Pablo David the
sum of P6,227.24, with interest from November 21,
1923, the date of the ling of her complaint, and with
costs. In case R. G. No. 26949 the plaintiff Guillermo
Baron will recover of the defendant Pablo David the
sum of P8,669.76, with interest from January 9, 1924.
In the same case the defendant Pablo David, as
plaintiff in the cross-complaint, will recover of
Guillermo Baron the sum of P7,000, without costs. So
ordered.
Avanceña, C.J., Johnson, Malcolm, Villamor,
Romualdez and Villareal, JJ., concur.
 SECOND DIVISION
[G.R. No. 7593. March 27, 1914.]
THE UNITED STATES, plaintiff-
appellee, vs. JOSE M.
IGPUARA, defendant-appellant.
W. A. Kincaid, Thos. L. Hartigan and Jose Robles
Lahesa for appellant.
Solicitor-General Harvey for appellee.
ARELLANO, C. J : p
SYLLABUS
\emdash "ESTAFA"; MISAPPROPRIATION OF
DEPOSIT BY AGENT. — The balance of a commission
account remaining in possession of the agent at the
principal's disposal acquires at once the character of a
deposit which the former must return or restore to the
latter at any time it is demanded, nor can he lawfully
dispose of it without incurring criminal responsibility for
appropriating or diverting to his own use author's
property.
\emdash ID.; ID. — It could only become his as
a loan, if so expressly agreed by its owner, who would
then be obligated not to demand it until the expiration
of the legal or stipulated period for a loan.
\emdash ID.; ID. — He undoubtedly commits
the crime of estafa who, having in his possession a
certain amount of another's money on deposit at its
owner's disposal, appropriates or diverts it to his own
use, with manifest damage to its owner, for he has not
restored it and has so acted willfully and wrongfully in
abuse of the con dence reposed in him.
DECISION
The defendant herein is charged with the crime
of estafa, for having swindled Juana Montilla and
Eugenio Veraguth out of P2,498 Philippine currency,
which he had taken on deposit from the former to be
at the latter's disposal. The document setting forth the
obligation reads:
"We hold at the disposal of Eugenio Veraguth
the sum of two thousand four hundred and ninety-eight
pesos P2,498), the balance from Juana Montilla's
sugar. — Iloilo, June 26, 1911. — Jose Igpuara, for
Ramirez & Co."

The Court of First Instance of Iloilo sentenced
the defendant to two years of presidio correccional, to
pay Juana Montilla P2,498 Philippine currency, and in
case of insolvency to subsidiary imprisonment at
P2.50 per day, not to exceed one-third of the principal
penalty, and the costs.
The defendant appealed, alleging as errors: (1)
Holding that the document executed by him was a certi
cate of deposit; (2) holding the existence of a deposit,
without precedent transfer or delivery of the P2,498;
and (3) classifying the facts in the case as the crime of
estafa.
"A deposit is constituted from the
time a person receives a thing belonging to
another with the obligation of keeping and
returning it." (Art. 1758, Civil Code.)
That the defendant received P2,498 is a fact
proven. The defendant drew up a document declaring
that they remained in his possession, which he could
not have said had he not received them. They
remained in his possession, surely in no other sense
than to take care of them, for they remained has no
other purpose. They remained in the defendant's
possession at the disposal of Veraguth; but on August
23 of the same year Veraguth demanded of him
through a notarial instrument restitution of them, and
to date he has not restored them.
The appellant says: "Juana Montilla's agent
voluntarily accepted the sum of P2,498 in an
instrument payable on demand, and as no attempt was
made to cash it until August 23, 1911, he could indorse
and negotiate it like any other commercial instrument.
There is no doubt that if Veraguth accepted the receipt
for P2,498 it was because at that time he agreed with
the defendant to consider the operation of sale on
commission closed, leaving the collection of said sum
until later, which sum remained as a loan payable upon
presentation of the receipt." (Brief, 3 and 4.)
Then, after averring the true facts: (1) That a
sales commission was precedent;
4. that this commission was settled with a balance of
P2,498 in favor of the principal, Juana Montilla; and (3)
that this balance remained in the possession of the
defendant, who drew up an instrument payable on
demand, he has drawn two conclusions, both
erroneous: One, that the instrument drawn up in the
form of a deposit certi cate could be indorsed or
negotiated like any other commercial instrument; and
the other, that the sum of P2,498 remained in
defendant's possession as a loan.
It is erroneous to assert that the certi cate of
deposit in question is negotiable like any other
commercial instrument; First, because every
commercial 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 the sum of
money set forth in said certi cate 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.
In order that the depositary may use or dispose
of the things deposited, the depositor's consent is
required, and then:
"The rights and obligations of the
depositary and of the depositor shall cease,
and the rules and provisions applicable to
commercial loans, commission, or contract
which took the place of the deposit shall be
observed." (Art. 309, Code of Commerce.)
The defendant has shown no authorization
whatsoever or the consent of the depositary for using
or disposing of the P2,498, which the certi cate
acknowledges, or any contract entered into with the
depositor to convert the deposit into a loan,
commission, or other contract.
That demand was not made for restitution of the
sum deposited, which could have been claimed on the
same or the next day after the certi cate was signed,
does not operate against the depositor, or signify
anything except the intention not to press it. Failure to
claim at once or delay for some time in demanding
restitution of the thing deposited, which was
immediately due, does not imply such permission to
use the thing deposited as would convert the deposit
into a loan.
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."
Whereupon the commentators say:
"In this case the deposit becomes in
fact a loan, as a just punishment imposed
upon him who abuses the sacred nature of a
deposit and as a means of preventing the
desire of gain from leading him into
speculations that may be disastrous to the
depositor, who is much better secured while
the deposit exists that when he only has a
personal action for recovery.
"Accordingly to article 548, No. 5, of the
Penal Code, those who to the prejudice of
another appropriate or abstract for their own
use money, goods, or other personal property
which they may have received as a deposit, on
commission, or for administration, or for any
other purpose which produces the obligation of
delivering it or returning it, and deny having
received it, shall suffer the penalty of the
preceding article," which punished such act as
the crime of estafa. The corresponding article
 of the Penal Code of the Philippine is 535, No.
5.
In a decision of an appeal, September 28, 1895,
the principle was laid down that: "Since he commits the
crime of estafa under article 548 of the Penal Code of
Spain who to another's detriment appropriates to
himself or abstracts money or goods received on
commission for delivery, the court rightly applied this
article to the appellant, who, to the manifest detriment
of the owner or owners of the securities, since he has
not restored them, willfully and wrongfully disposed of
them by appropriating them to himself or at least
diverting them from the purpose to which he was
charged to devote them."
It is unquestionable that in no sense did the
P2,498 which he willfully and wrongfully disposed of to
the detriment of his principal, Juana Montilla, and of
the depositor, Eugenio Veraguth, belong to the
defendant.
Likewise erroneous is the construction
apparently attempted to be given to two decisions of
this Supreme Court (U. S. vs. Dominguez, 2 Phil. Rep.,
580, and U. S. vs. Morales and Morco, 15 Phil. Rep.,
236) as implying that what constitutes estafa is not the
disposal of money deposited, but denial of having
received same. In the rst of said cases there was no
evidence that the defendant had appropriated the
grain deposited in his possession.
"On the contrary, it is entirely probable
that, after the departure of the defendant
from Libmanan on September 20, 1898, two
days after the uprising of the civil guard in
Nueva Caceres, the rice was seized by the
revolutionists and appropriated to their own
uses."
In this connection it was held that failure to
return the thing deposited was not su cient, but that it
was necessary to prove that the depositary had
appropriated it to himself or diverted the deposit to his
own or another's bene t. He was accused of refusing
to restore, and it was held that the code does not
penalize refusal to restore but denial of having
received. So much for the crime of omission; now with
reference to the crime of commission, it was not held
in that decision that appropriation or diversion of the
thing deposited would not constitute the crime of
estafa.
In the second of said decisions, the accused
"kept none of the proceeds of the sales. Those, such
as they were, he turned over the owner;" and there
being no proof of the appropriation, the agent could not
be found guilty of the crime of estafa.
Being in accord with law and the merits of the
case, the judgment appealed from is affirmed, with
costs.
Torres, Johnson and Trent, JJ., concur.
 FIRST DIVISION

TRACEY, J : p

[G.R. No. 2980. January 2, 1907.]

At an interview at which were present the

ANICETA PALACIO, plaintiff- defendant and three herdsmen, the plaintiff made an
arrangement for the pasturing of eighty-one head of
appellee, vs. DIONISIO
cattle, in return for which she was to give one-half of
SUDARIO, defendant-
the calves that might be born and was to pay the
appellant. defendant one-half peso for each calf branded. On
demand for the whole, forty-eight head of cattle were
afterwards returned to her and this action is brought to
Frank E. Green, for appellant. recover the remaining thirty-three.

It is claimed as a rst defense that arrangement

R. Palma, for appellee.
was made between the plaintiff and the herdsmen, the
defendant, who was president of the municipality,
SYLLABUS tendering his good of ces only. Upon this question, the
nding of the court below is conclusive in favor of the
1. LOSS OF PROPERTY ENTRUSTED plaintiff and is fully justi ed by the proofs, especially by
TO ANOTHER. — When cattle taken for pasturage a letter of the defendant in reply to the demand for the
are claimed to have perished, the burden of cattle, in which he seeks to excuse himself for the loss
explaining the loss rests upon the person pasturing of the missing animals.
them. As a second defense it is claimed that the thirty-
2. PRESCRIPTION. — In an action three cows either died of disease or were drowned in
arising before the present Code of Civil Procedure a ood. As to this point, on which the trial court has
with into effect, the rule of prescription to be made no speci c nding, the proof is con icting in many
applied is that under the Civil Code. particulars and indicates that at least some of these
cattle were living at the time of the surrender of the
forty -eight head. The defendant's witnesses swore
DECISION that of the cows that perished, six die from
overfeeding, and they failed to make clear the SECOND DIVISION
happening of any ood sufficient to destroy the others.
If we consider the contract as one of deposit,
then under article 1183 of the Civil Code, the burden [G.R. No. 43191. November 13, 1935.]
of explanation of the loss rested upon the depositary
and under article 1769 the fault is presumed to be his.
The defendant has not succeeded in showing that the PAULINO GULLAS, plaintiff-appellant,
loss occurred either without fault on his part or by vs. THE PHILIPPINE NATIONAL
reason of caso fortuito. BANK, defendant-appellant.

If, however, the contract be not one strictly of

Gullas, Lopez, Tuaño & Leuterio for plaintiff-
deposit but one according to local custom for the appellant.
pasturing of cattle, the obligations of the parties remain
the same.
Jose Delgado for defendant-appellant.
The defendant also sets up the six years' statute
of limitation, under section 43 of the present Code of
Civil Procedure. This action, having arisen before that
code went into effect, is governed by the provisions of SYLLABUS
preexisting law (sec. 38) under which the prescription
was one of fifteen years. (Civil Code, art. 1964.)
1. BANKS AND BANKING; CIVIL CODE,
The judgment of the court below is af rmed with ARTICLES 1195 et seq. AND 1758 et seq.
the costs of both instances. After expiration of twenty CONSTRUED; RELATIONSHIP BETWEEN
days let judgment be entered in accordance herewith DEPOSITOR AND BANK. — The relation existing
and ten days thereafter the case remanded to the court between a depositor and a bank is that of creditor and
from whence it came for execution. So ordered. debtor.
2. ID.; ID.; ID.; BANK'S RIGHT OF SET
Arellano, C.J., Torres, Mapa, Carson, and OFF. — The general rule is adopted for this jurisdiction
Willard, JJ., concur.
that a bank has a right of set off of the deposit in its
 hands for the payment of any indebtedness to it on the
part of the depositor.
3. ID.; NEGOTIABLE INSTRUMENTS
LAW CONSTRUED; LIABILITY OF INDORSERS OF
NEGOTIABLE INSTRUMENTS. — Notice of dishonor
is necessary in order to charge an indorser, and the
right of action against him does not accrue until the
notice is given.
DECISION
MALCOLM, J : p
Both parties to this case appealed from a
judgment of the Court of First Instance of Cebu,
which sentenced the defendant to return to the
account of the plaintiff the sum of P509, with legal
interest and costs, the plaintiff to secure damages in
the amount of P10,000 more or less, and the
defendant to be absolved totally from the amended
complaint. As it is conceded that the plaintiff. As it is
conceded that the plaintiff has already received the
sum represented by the United States treasury
warrant, which is in question, the appeal will thus
determine the amount, if any, which should be paid to
the plaintiff by the defendant.
The parties to the case are Paulino Gullas and
the Philippine National Bank. The rst named is a
member of the Philippine Bar, resident in the City of
Cebu. The second named is a banking corporation
with a branch in the same city. Attorney Gullas has
had a current account with the bank.
It appears from the record that on August 2,
1933, the Treasurer of the United States for the
United States Veterans Bureau issued a warrant in
the amount of $361, payable to the order of Francisco
Sabectoria Bacos. Paulino Gullas and Pedro Lopez
signed as indorsers of this check. Thereupon it was
cashed by the Philippine National Bank.
Subsequently the treasury warrant was dishonored
by the Insular Treasurer.
At that time the outstanding balance of Attorney
Gullas on the books of the bank was P509. Against
this balance he had issued certain checks which could
not be paid when the money was sequestered by the
bank. On August 20, 1933, Attorney Gullas left his
residence for Manila.
The bank on learning of the dishonor of the
treasury warrant sent notices by mail to Mr. Gullas
which could not be delivered to him at that time
because he was in Manila. In the bank's letter of
August 21, 1933, addressed to Messrs. Paulino Gullas
and Pedro Lopez, they were informed that the United
States Treasury warrant No. 20175 in the name of
Francisco Sabectoria Bacos for $361 or P722, the
payment for which had been received has been
returned by our Manila o ce with the notation that the
payment of his check has been stopped by the Insular
Treasurer. "In view of this therefore we have applied
the outstanding balances of your current accounts with
us to the part payment of the foregoing check",
namely, Mr. Paulino Gullas P509. On the return of
Attorney Gullas to Cebu on August 31, 1933, notice of
dishonor was received and the unpaid balance of the
United States Treasury warrant was immediately paid
by him.
As a consequence of these happenings, two
occurrences transpired which inconvenienced
Attorney Gullas. In the rst place, as above indicated,
checks including one for his insurance were not paid
because of the lack of funds standing to his credit in
the bank. In the second place, periodicals in the vicinity
gave prominence to the news to the great mortification
of Gullas.
A variety of incidental questions have been
suggested on the record which it can be taken for
granted as having been adversely disposed of in this
opinion. The main issues are two, namely, (1) as to the
right of the Philippine National Bank to apply a deposit
to the debt of a depositor to the bank, and (2) as to the
amount of damages, if any, which should be awarded
Gullas.
The Civil Code contains provisions regarding
compensation (set off) and deposit. (Articles 1195 et
seq., 1758 et seq.) These portions of Philippine law
provide that compensation shall take place when two
persons are reciprocally creditor and debtor of each
other (Civil Code, article 1195). In this connection, it
has been held that the relation existing between a
depositor and a bank is that of creditor and debtor.
(Fulton Iron Works Co. vs. China Banking Corporation
[1930], 55 Phil., 208; San Carlos Milling Co. vs. Bank
of the Philippine Islands and China Banking
Corporation [1933], 50 Phil., 59.)
The Negotiable Instruments Law contains
provisions establishing the liability of a general
indorser and giving the procedure for notice of
dishonor. The general indorser of a negotiable
instrument engages that if it be dishonored and the
necessary proceedings of dishonor be duly taken, he
will pay the amount thereof to the holder. (Negotiable
Instruments Law, sec. 66.) In this connection, it has
been held by a long line of authorities that notice of
dishonor is necessary in order to charge an indorser
and that the right of action against him does not accrue
until the notice is given. (Asia Banking Corporation vs.
Javier [1923]. 44 Phil., 777; 5 Uniform Laws
Annotated.)
As a general rule, a bank has a right of set off of the
deposits in its hands for the payment of any
indebtedness to it on the part of a depositor. In
Louisiana, however, a civil law jurisdiction, the rule is
denied, and it is held that a bank has no right, without
an order from or special assent of the depositor to
retain out of his deposit an amount su cient to meet his
indebtedness. The basis of the Louisiana doctrine is
the theory of con dential contracts arising from
irregular deposits, e. g., the deposit of money with a
banker. With freedom of selection and after full
consideration, we have decided to adopt the general
rule in preference to the minority rule as more in
harmony with modern banking practice. (1 Morse on
Banks and Banking, 5th ed., sec. 324; Garrison vs.
Union Trust Company, [1905], 111 A. S. R., 407;
Louisiana Civil Code Annotated, arts. 2207 et seq.;
Gordon & Gomila vs. Muchler [1882], 34 L. Ann., 604;
8 Manresa, Comentarios al Codigo Civil Español, 4th
ed., 359 et seq.; 11 Manresa, pp. 694 et seq.).
Starting, therefore, from the premise that the
Philippine National Bank had with respect to the
deposit of Gullas a right of set off, we next consider if
that remedy was enforced properly. The fact we
believe is undeniable that prior to the mailing of notice
of dishonor, and without waiting for any action by
Gullas, the bank made use of the money standing in
his account to make good for the treasury warrant. At
his point recall that Gullas was merely an indorser and
had issued checks in good faith.
As to a depositor who has funds su cient to meet
payment of a check drawn by him in favor of a third
party, it has been held that he has a right of action
against the bank for its refusal to pay such a check in
the absence of notice to him that the bank has applied
the funds so deposited in extinguishment of past due
claims held against him. (Callahan vs. Bank of
Anderson [1904], 2 Ann. Cas., 203.) The decision cited
represents the minority doctrine, for on principle it
would seem that notice is not necessary to a maker
because the right is based on the doctrine that the
relationship is that of creditor and debtor. However this
may be, as to an indorser the situation is different, and
notice should actually have been given him in order
that he might protect his interests.
We accordingly are of the opinion that the action
of the bank was prejudicial to Gullas. But to follow up
that statement with others proving exact damages is
not so easy. For instance, for alleged libelous articles
the bank would not be primarily liable. The same
remarks could be made relative to the loss of business
which Gullas claims but which could not be traced de
nitely to this occurrence. Also Gullas having eventually
been reimbursed lost little through the actual levy by
the bank on his funds. On the other hand, it was not
agreeable for one to draw checks in all good faith, then
leave for Manila, and on return nd that those checks
had not been cashed because of the action taken by
the bank. That caused a disturbance in Gullas' nances,
especially with reference to his insurance, which was
injurious to him. All facts and circumstances
considered, we are of the opinion that Gullas should
be awarded nominal damages because of the
premature action of the bank against which Gullas had
no means of protection, and have finally determined
that the amount should be P250.
Agreeable to the foregoing, the errors assigned
by the parties will in the main be overruled, with the
result that the judgment of the trial court will be modi
ed by sentencing the defendant to pay the plaintiff the
sum of P250, and the costs of both instances.
Villa-Real, Imperial, Butte, and Goddard., JJ.,
concur.
 SECOND DIVISION
[G.R. No. L-30511. February 14, 1980.]
MANUEL M. SERRANO, petitioner, vs.
CENTRAL BANK OF THE PHILIPPINES;
OVERSEAS BANK OF MANILA; EMERITO
M. RAMOS, SUSANA B. RAMOS,
EMERITO B. RAMOS, JR., JOSEFA
RAMOS DELA RAMA, HORACIO DELA
RAMA, ANTONIO B. RAMOS, FILOMENA
RAMOS LEDESMA, RODOLFO LEDESMA,
VICTORIA RAMOS TANJUATCO, and
TEOFILO TANJUATCO, respondents.
Rene Diokno for petitioner.
F.E. Evangelista & Glecerio T. Orsolino for
respondent Central Bank of the Philippines.
Feliciano C. Tumale, Paci co T . Torres and
Antonio B. Periquet for respondent Overseas Bank of
Manila.
Josefina G. Salonga for all other respondents.
DECISION
CONCEPCION, JR., J : p
Petition for mandamus and prohibition, with preliminary
injunction, that seeks the establishment of joint and
solidary liability to the amount of Three Hundred Fifty
Thousand Pesos, with interest, against respondent
Central Bank of the Philippines and Overseas Bank of
Manila and its stockholders, on the alleged failure of the
Overseas Bank of Manila to return the time deposits
made by petitioner and assigned to him, on the ground
that respondent Central Bank failed in its duty to
exercise strict supervision over respondent Overseas
Bank of Manila to protect depositors and the general
public. 1 Petitioner also prays that both respondent
banks be ordered to execute the proper and necessary
documents to constitute all properties listed in Annex "7"
of the Answer of respondent Central Bank of the
Philippines in G.R. No. L-29352, entitled "Emerito M.
Ramos, et al. vs. Central Bank of the Philippines," into a
trust fund in favor of petitioner and all other depositors
of respondent Overseas Bank of Manila. It is also
prayed that the respondents be prohibited permanently
from honoring, implementing, or doing any act
predicated upon the validity or efficacy of the deeds of
mortgage, assignment, and/or conveyance or transfer of
whatever nature of the properties listed in Annex "7" of
 the Answer of respondent Central Bank in G.R. No.
29352. 2 cdtai
A sought for ex-parte preliminary injunction against
both respondent banks was not given by this Court.
Undisputed pertinent facts are:
On October 13, 1966 and December 12, 1966, petitioner
made a time deposit, for one year with 6% interest, of
One Hundred Fifty Thousand Pesos (P150,000.00) with
the respondent Overseas Bank of Manila. 3 Concepcion
Maneja also made a time deposit, for one year with 6-
1/2% interest, on March 6, 1967, of Two Hundred
Thousand Pesos (P200,000.00) with the same
respondent Overseas Bank of Manila. 4
On August 31, 1968, Concepcion Maneja, married to
Felixberto M. Serrano, assigned and conveyed to
petitioner Manuel M. Serrano, her time deposit of
P200,000.00 with respondent Overseas Bank of
Manila. 5
Notwithstanding series of demands for encashment of
the aforementioned time deposits from the respondent
Overseas Bank of Manila, dating from December 6,
1967 up to March 4, 1968, not a single one of the time
deposit certificates was honored by respondent
Overseas Bank of Manila. 6
Respondent Central Bank admits that it is charged with
the duty of administering the banking system of the
Republic and it exercises supervision over all doing
business in the Philippines, but denies the petitioner's
allegation that the Central Bark has the duty to exercise
a most rigid and stringent supervision of banks, implying
that respondent Central Bank has to watch every move
or activity of all banks, including respondent Overseas
Bank of Manila. Respondent Central Bank claims that as
of March 12, 1965, the Overseas Bank of Manila, while
operating, was only on a limited degree of banking
operations since the Monetary Board decided in its
Resolution No. 322, dated March 12, 1965, to prohibit
the Overseas Bank of Manila from making new loans
and investments in view of its chronic reserve
deficiencies against its deposit liabilities. This limited
operation of respondent Overseas Bank of Manila
continued up to 1968. 7
Respondent Central Bank also denied that it is guarantor
of the permanent solvency of any banking institution as
claimed by petitioner. It claims that neither the law nor
sound banking supervision requires respondent Central
Bank to advertise or represent to the public any remedial
measures it may impose upon chronic delinquent banks
as such action may inevitably result to panic or bank
"runs". In the years 1966-1967, there were no findings to
declare the respondent Overseas Bank of Manila as
insolvent. 8
Respondent Central Bank likewise denied that a
constructive trust was created in favor of petitioner and
his predecessor in interest Concepcion Maneja when
their time deposits were made in 1966 and 1967 with
the respondent Overseas Bank of Manila as during that
time the latter was not an insolvent bank and its
operation as a banking institution was being salvaged
by the respondent Central Bank. 9
Respondent Central Bank avers no knowledge of
petitioner's claim that the properties given by
respondent Overseas Bank of Manila as additional
collaterals to respondent Central Bank of the
Philippines for the former's overdrafts and
emergency loans were acquire through the use of
depositors' money, including that of the petitioner
and Concepcion Maneja. 10
In G.R. No. L-29352, entitled "Emerito M. Ramos, et al. vs.
Central Bank of the Philippines," a case was filed by the
petitioner Ramos, wherein respondent Overseas Bank of
Manila sought to prevent respondent Central Bank from
closing, declaring the former insolvent, and liquidating its
assets. Petitioner Manuel Serrano in this case, filed on
September 6, 1968, a motion to intervene in G.R. No. L-
29352, on the ground that Serrano had a real and legal
interest as depositor of the Overseas Bank of Manila in the
matter in litigation in that case. Respondent Central Bank
in G.R. No. L-29352 opposed petitioner Manuel Serrano's
motion to intervene in that case, on the ground that his
claim as depositor of the Overseas Bank of Manila
should properly be ventilated in the Court of First
Instance, and if this Court were to allow Serrano to
intervene as depositor in G.R. No. L-29352, thousands
of other depositors would follow and thus cause an
avalanche of cases in this Court. In the resolution dated
October 4, 1968, this Court denied Serrano's, motion to
intervene. The contents of said motion to intervene are
substantially the same as those of the present petition.
11
This Court rendered decision in G.R. No. L-29352 on
October 4, 1971, which became final and executory on
March 3, 1972, favorable to the respondent Overseas
Bank of Manila, with the dispositive portion to wit: Cdpr
WHEREFORE, the writs prayed for in the
petition are hereby granted and respondent
Central Bank's resolution Nos. 1263, 1290
and 1333 (that prohibit the Overseas Bank
of Manila to participate in clearing, direct
the suspension of its operation, and
ordering the liquidation of said bank) are
hereby annulled and set aside; and said
respondent Central Bank of the Philippines
is directed to comply with its obligations
under the Voting Trust Agreement, and to
desist from taking action in violation
therefor. Costs against respondent Central
Bank of the Philippines." 12
Because of the above decision, petitioner in this case
filed a motion for judgment in this case, praying for a
decision on the merits, adjudging respondent Central
Bank jointly and severally liable with respondent
Overseas Bank of Manila to the petitioner for the
P350,000 time deposit made with the latter bank, with
all interests due therein; and declaring all assets
assigned or mortgaged by the respondents Overseas
Bank of Manila and the Ramos groups in favor of the
Central Bank as trust funds for the benefit of petitioner
and other depositors. 13
By the very nature of the claims and causes of action
against respondents, they in reality are recovery of time
deposits plus interest from respondent Overseas Bank of
Manila, and recovery of damages against respondent
Central Bank for its alleged failure to strictly supervise
the acts of the other respondent Bank and protect the
interests of its depositors by virtue of the constructive
trust created when respondent Central Bank required the
other respondent to increase its collaterals for its
overdrafts and emergency loans, said collaterals
allegedly acquired through the use of depositors money.
These claims should be ventilated in the Court of First
Instance of proper jurisdiction as We already pointed out
when this Court denied petitioner's motion to intervene in
G.R. No. L-29352. Claims of these nature are not proper
in actions for mandamus and prohibition as there is no
shown clear abuse of discretion by the Central Bank in
its exercise of supervision over the other respondent
Overseas Bank of Manila, and if there was, petitioner
here is not the proper party to raise that question, but
rather the Overseas Bank of Manila, as it did in G.R. No.
L-29352. Neither is there anything to prohibit in this case,
since the questioned acts of the respondent Central
Bank (the acts of dissolving and liquidating the Overseas
Bank of Manila), which petitioner here intends to use as
Antonio, Abad Santos, JJ., concur.
his basis for claims of damages against respondent
Central Bank, had been accomplished a long time ago.
Furthermore, both parties overlooked one fundamental
principle in the nature of bank deposits when the
petitioner claimed that there should be created a
constructive trust in his favor when the respondent
Overseas Bank of Manila increased its collaterals in
favor of respondent Central Bank for the former's
overdrafts and emergency loans, since these collaterals
were acquired by the use of depositors' money.
Bank deposits are in the nature of irregular deposits.
They are really loans because they earn interest. All
kinds of bank deposits, whether fixed, savings, or current
are to be treated as loans and are to be covered by the
law on loans. 14 Current and savings deposits are loans
to a bank because it can use the same. The petitioner
here in making time deposits that earn interests with
respondent Overseas Bank of Manila was in reality a
creditor of the respondent Bank and not a depositor. The
respondent Bank was in turn a debtor of petitioner.
Failure of the respondent Bank to honor the time deposit
is failure to pay its obligation as a debtor and not a
breach of trust arising from a depositary's failure to
return the subject matter of the deposit.
WHEREFORE, the petition is dismissed for lack of merit,
with costs against petitioner.
SO ORDERED.
 THIRD DIVISION
[G.R. No. 89252. May 24, 1993.]
RAUL SESBREÑO, petitioner, vs. HON.
COURT OF APPEALS, DELTA MOTORS
CORPORATION and PILIPINAS BANK,
respondents.
Salva, Villanueva & Associates for Delta Motors
Corporation.
Reyes, Salazar & Associates for Pilipinas Bank.
SYLLABUS
1. MERCANTILE LAW; NEGOTIABLE INSTRUMENTS
LAW; NEGOTIATION ASSIGNMENT AND TRANSFER,
DIFFERENTIATED. — The negotiation of a negotiable
instrument must be distinguished from the assignment or
transfer of an instrument whether that be negotiable or
non-negotiable. Only an instrument qualifying as a
negotiable instrument under the relevant statute may be
negotiated either by indorsement thereof coupled with
delivery, or by delivery alone where the negotiable
instrument is in bearer form. A negotiable instrument may,
however, instead of being negotiated, also be assigned or
transferred. The legal consequences of negotiation as
distinguished from assignment of a negotiable instrument
are, of course, different. A non-negotiable instrument may,
obviously, not be negotiated; but it may be assigned or
transferred, absent an express prohibition against
assignment or transfer written in the face of the
instrument.
2. ID.; ID.; PROMISSORY NOTE; NON-NEGOTIABILITY
THEREOF DOES NOT PROHIBIT ITS
TRANSFERABILITY AND ASSIGNABILITY; CASE AT
BAR. — DMC PN No. 2731, while marked "non-
negotiable," was not at the same time stamped "non-
transferrable" or "non-assignable." It contained no
stipulation which prohibited Philfinance from assigning or
transferring, in whole or in part, that Note.
3. ID.; ID.; ID.; PARTIAL ASSIGNMENT OF A
PROMISSORY NOTE IS LEGALLY BINDING AND
ENFORCEABLE. — Delta adduced the "Letter of
Agreement" which it had entered into with Philfinance. We
find nothing in his "Letter of Agreement" which can be
reasonably construed as a prohibition upon Philfinance
assigning or transferring all or part of DMC PN No. 2731,
before the maturity thereof. It is scarcely necessary to add
that, even had this "Letter of Agreement" set forth an
explicit prohibition of transfer upon Philfinance, such a
prohibition cannot be invoked against an assignee or
transferee of the Note who parted with valuable
consideration in good faith and without notice of such
prohibition. It is not disputed that petitioner was such an
assignee or transferee. Our conclusion on this point is
reinforced by the fact that what Philfinance and Delta were
doing by their exchange of promissory notes was this:
Delta invested, by making a money market placement with
Philfinance, approximately P4,600,000.00 on 10 April
1980; but promptly, on the same day, borrowed back the
bulk of that placement, i.e., P4,000,000.00, by issuing its
two (2) promissory notes: DMC PN No. 2730 and DMC
PN No. 2731, both also dated 10 April 1980. Thus,
Philfinance was left with not P4,600,000.00 but only
P600,000.00 in cash and the two (2) Delta promissory
notes.
4. ID.; ID.; ID.; ID.; CONSENT OF INVESTOR NOT
NECESSARY FOR VALIDITY AND ENFORCEABILITY
OF ASSIGNMENT. — Delta's complaint that the partial
assignment by Philfinance of DMC PN No. 2731 had been
effected without the consent of Delta, we note that such
consent was not necessary for the validity and
enforceability of the assignment in favor of petitioner.
5. CIVIL LAW; OBLIGATIONS AND CONTRACTS;
CONVENTIONAL SUBROGATION MUST BE CLEARLY
ESTABLISHED. — Conventional subrogation, which in
the first place is never lightly inferred, must be clearly
established by the unequivocal terms of the substituting
obligation or by the evident incompatibility of the new and
old obligations on every point. Nothing of the sort is
present in the instant case.
6. MERCANTILE LAW; NEGOTIABLE INSTRUMENTS
LAW; MONEY MARKET; CONSTRUED. — The money
market is an 'impersonal market', free from personal
considerations.' The market mechanism is intended to
provide quick mobility of money and securities.' The
impersonal character of the money market device
overlooks the individual or entities concerned. The issuer
of a commercial paper in the money market necessarily
knows in advance that it would be expeditiously
transacted and transferred to any investor/lender without
need of notice to said issuer. In practice, no notification is
given to the borrower or issuer of commercial paper of the
sale or transfer to the investor. . . . There is need to
individuate a money market transaction, a relatively novel
institution in the Philippine commercial scene. It has been
intended to facilitate the flow and acquisition of capital on
an impersonal basis. And as specifically required by
Presidential Decree No. 678, the investing public must be
given adequate and effective protection in availing of the
credit of a borrower in the commercial paper market."
(Perez v. Court of Appeals, 127 SCRA 636 [1984]).
7. CIVIL LAW; OBLIGATIONS AND CONTRACTS;
CONDENSATION; EFFECTS THEREOF NOT
AFFECTED BY SUBSEQUENT ASSIGNMENT OF
CREDIT; CASE AT BAR. — We turn to Delta's arguments
concerning alleged compensation or offsetting between
DMC PN No. 2731 and Philfinance PN No. 143-A. It is
important to note that at the time Philfinance sold part of
its rights under DMC PN No. 2731 to petitioner on 9
February 1981, no compensation had as yet taken place
and indeed none could have taken place. The essential
requirements of compensation are listed in the Civil Code.
On 9 February 1981, neither DMC PN No. 2731 nor
Philfinance PN No. 143-A was due. This was explicitly
recognized by Delta in its 10 April 1980 "Letter of
Agreement" with Philfinance, where Delta acknowledged
that the relevant promissory notes were "to be off settled
(sic) against [Philfinance] PN No. 143-A upon co-terminal
maturity." The record shows, however, that petitioner
notified Delta of the fact of the assignment to him only on
14 July 1981, that is, after the maturity not only of the
money market placement made by petitioner but also of
both DMC PN No. 2731 and Philfinance PN No. 143-A. In
other words, petitioner notified Delta of his rights as
assignee after compensation had taken place by
operation of law because the offsetting instruments had
both reached maturity. At the time that Delta was first put
to notice of the assignment in petitioner's favor on 14 July
1981, DMC PN No. 2731 had already been discharged by
compensation. It bears some emphasis that petitioner
could have notified Delta of the assignment in his favor as
soon as that assignment or sale was effected on 9
February 1981. He could have also notified Delta as soon
as his money market placement matured on 13 March
1981 without payment thereof being made by Philfinance;
at that time, compensation had yet to set in and discharge
DMC PN No. 2731. Again, petitioner could have notified
Delta on 26 March 1981 when petitioner received from
Philfinance the Denominated Custodianship Receipt
("DCR") No. 10805 issued by private respondent Pilipinas
in favor of petitioner. Petitioner could, in fine, have notified
Delta at any time before the maturity date of DMC PN No.
2731. Because petitioner failed to do so, and because the
record is bare of any indication that Philfinance had itself
notified Delta of the assignment to petitioner, the Court is
compelled to uphold the defense of compensation raised
by private respondent Delta. Of course, Philfinance
remains liable to petitioner under the terms of the
assignment made by Philfinance to petitioner.
8. ID.; ID.; ASSIGNMENT; VALID WHEN MADE
BEFORE COMPENSATION TAKES PLACE; CASE AT
BAR. — As noted, the assignment to petitioner was made
on 9 February 1981 or from forty-nine (49) days before the
"co-terminal maturity" date, that is to say, before any
compensation had taken place. Further, the assignment
to petitioner would have prevented compensation from
taking place between Philfinance and Delta, to the extent
of P304,533.33, because upon execution of the
assignment in favor of petitioner, Philfinance and Delta
would have ceased to be creditors and debtors of each
other in their own right to the extent of the amount
assigned by Philfinance to petitioner. Thus, we conclude
that the assignment effected by Philfinance in favor of
petitioner was a valid one and that petitioner accordingly
became owner of DMC PN No. 2731 to the extent of the
portion thereof assigned to him.
9. ID.; ID.; ID.; RIGHTS OF THE ASSIGNEE, NOT
GREATER THAN THE RIGHTS OF THE ASSIGNOR. —
It is a firmly settled doctrine that the rights of an assignee
are not any greater than the rights of the assignor, since
the assignee is merely substituted in the place of the
assignor and that the assignee acquires his rights subject
to the equities — i.e., the defenses — which the debtor
could have set up against the original assignor before
notice of the assignment was given to the debtor. (Article
1285 of the Civil Code)
10. ID.; ID.; SOLIDARY OBLIGATIONS; EXPRESS
ASSUMPTION OF SOLIDARY LIABILITY, REQUIRED;
ABSENCE OF EVIDENCE TO SUPPORT ALLEGATION
IN CASE AT BAR. — We find nothing in the DCR that
establishes an obligation on the part of Pilipinas to pay
petitioner the amount of P307,933.33 nor any assumption
of liability in solidum with Philfinance and Delta under
DMC PN No. 2731. We find nothing written in printers ink
on the DCR which could reasonably be read as converting
Pilipinas into an obligor under the terms of DMC PN No.
2731 assigned to petitioner, either upon maturity thereof
or at any other time. We note that both in his complaint
and in his testimony before the trial court, petitioner
referred merely to the obligation of private respondent
Pilipinas to effect physical delivery to him of DMC PN No.
2731. Accordingly, petitioner's theory that Pilipinas had
assumed a solidary obligation to pay the amount
represented by the portion of the Note assigned to him by
Philfinance, appears to be a new theory constructed only
after the trial court had ruled against him. The solidary
liability that petitioner seeks to impute to Pilipinas cannot,
however, be lightly inferred. Under Article 1207 of the Civil
Code, "there is a solidary liability only when the obligation
expressly so states, or when the law or the nature of the
obligation requires solidarity." The record here exhibits no
express assumption of solidary liability vis-a-vis petitioner,
on the part of Pilipinas. Petitioner has not pointed us to
any law which imposed such liability upon Pilipinas nor
has petitioner argued that the very nature of the
custodianship assumed by private respondent Pilipinas
necessarily implies solidary liability under the securities,
custody of which was taken by Pilipinas. Accordingly, we
are unable to hold Pilipinas solidarily liable with
Philfinance and private respondent Delta under DMC PN
No. 2731.
11. ID.; ID.; DEPOSIT; ACT OF DESIGNATING
PILIPINAS AS CUSTODIAN OR DEPOSITORY BANK;
CASE AT BAR. — We believe and so hold that a contract
of deposit was constituted by the act of Philfinance in
designating Pilipinas as custodian or depositary bank. The
depositor was initially Philfinance; the obligation of the
depositary was owed, however, to petitioner Sesbreño as
beneficiary of the custodianship or depositary agreement.
We do not consider that this is a simple case of a
stipulation pour autrui. The custodianship or depositary
agreement was established as an integral part of the
money market transaction entered into by petitioner with
Philfinance. Petitioner bought a portion of DMC PN No.
2731; Philfinance as assignor-vendor deposited that Note
with Pilipinas in order that the thing sold would be placed
outside the control of the vendor. Indeed, the constituting
of the depositary or custodianship agreement was
equivalent to constructive delivery of the Note (to the
extent it had been sold or assigned to petitioner) to
petitioner. It will be seen that custodianship agreements
are designed to facilitate transactions in the money market
by providing a basis for confidence on the part of the
investors or placers that the instruments bought by them
are effectively taken out of the pocket, as it were, of the
vendors and placed safely beyond their reach, that those
instruments will be there available to the placers of funds
should they have need of them.
12. ID.; ID.; ID.; ID.; DEPOSITARY OBLIGED TO
RETURN THE SECURITY OR THING DEPOSITED
UPON DEMAND OF DEPOSITOR; RATIONALE. — The
depositary in a contract of deposit is obliged to return the
security or the thing deposited upon demand of the
depositor (or, in the present case, of the beneficiary) of the
contract, even though a term for such return may have
been established in the said contract. Accordingly, any
stipulation in the contract of deposit or custodianship that
runs counter to the fundamental purpose of that
agreement or which was not brought to the notice of and
accepted by the placer-beneficiary, cannot be enforced as
against such beneficiary-placer. We believe that the
position taken above is supported by considerations of
public policy. If there is any party that needs the equalizing
protection of the law in money market transactions, it is
the members of the general public who place their savings
in such market for the purpose of generating interest
revenues. The custodian bank, if it is not related either in
terms of equity ownership or management control to the
borrower of the funds, or the commercial paper dealer, is
normally a preferred or traditional banker of such borrower
or dealer (here, Philfinance). The custodian bank would
have every incentive to protect the interest of its client the
borrower or dealer as against the placer of funds. The
providers of such funds must be safeguarded from the
impact of stipulations privately made between the
borrowers or dealers and the custodian banks, and
disclosed to fund-providers only after trouble has erupted.
13. ID.; ID.; ID.; ID.; ID.; DEPOSITARY LIABLE FOR
DAMAGES FOR BREACH OF DUTY; CASE AT BAR. —
In the case at bar, the custodian-depositary bank Pilipinas
refused to deliver the security deposited with it when
petitioner first demanded physical delivery thereof on 2
April 1981. We must again note, in this connection, that
on 2 April 1981, DMC PN No. 2731 had not yet matured
and therefore, compensation or offsetting against
Philfinance PN No. 143-A had not yet taken place. Instead
of complying with the demand of petitioner, Pilipinas
purported to require and await the instructions of
Philfinance, in obvious contravention of its undertaking
under the DCR to effect physical delivery of the Note upon
receipt of "written instructions" from petitioner Sesbreño.
The ostensible term written into the DCR (i.e., "should this
[DCR] remain outstanding in your favor thirty [30] days
after its maturity") was not a defense against petitioner's
demand for physical surrender of the Note on at least
three grounds: firstly, such term was never brought to the
attention of petitioner Sesbreño at the time the money
market placement with Philfinance was made; secondly,
such term runs counter to the very purpose of the
custodianship or depositary agreement as an integral part
of a money market transaction; and thirdly, it is
inconsistent with the provisions of Article 1988 of the Civil
Code noted above. Indeed, in principle, petitioner became
entitled to demand physical delivery of the Note held by
Pilipinas as soon as petitioner's money market placement
matured on 13 March 1981 without payment from
Philfinance. We conclude, therefore, that private
respondent Pilipinas must respond to petitioner for
damages sustained by him arising out of its breach of
duty. By failing to deliver the Note to the petitioner as
depositor-beneficiary of the thing deposited, Pilipinas
effectively and unlawfully deprived petitioner of the Note
deposited with it. Whether or not Pilipinas itself benefited
from such conversion or unlawful deprivation inflicted
upon petitioner, is of no moment for present purposes.'
Prima facie, the damages suffered by petitioner consisted
of P304,533.33, the portion of the DMC PN No. 2731
assigned to petitioner but lost by him by reason of
discharge of the Note by compensation, plus legal interest
of six percent (6%) per annum counting from March 1981.
MERCANTILE LAW; CORPORATION LAW; PIERCING
OF CORPORATE ENTITIES; ABSENCE OF EVIDENCE
TO JUSTIFY DISREGARD OF SEPARATE
CORPORATE PERSONALITIES; CASE AT BAR. — It is
not disputed that Philfinance and private respondents
Delta and Pilipinas have been organized as separate
corporate entities. Petitioner asks us to pierce their
separate corporate entities, but has been able only to cite
the presence of a common Director — Mr. Ricardo
Silverio, Sr., sitting on the Boards of Directors of all three
(3) companies. Petitioner has neither alleged nor proved
that one or another of the three (3) concededly related
companies used the other two (2) as mere alter egos or
that the corporate affairs of the other two (2) were
administered and managed for the benefit of one. There
is simply not enough evidence of record to justify
disregarding the separate corporate personalities of Delta
and Pilipinas and to hold them liable for any assumed or
undetermined liability of Philfinance to petitioner.
DECISION
FELICIANO, J : p
On 9 February 1981, petitioner Raul Sesbreño made a
money market placement in the amount of P300,000.00
with the Philippine Underwriters Finance Corporation
("Philfinance"), Cebu Branch; the placement, with a term
of thirty-two (32) days, would mature on 13 March 1981.
Philfinance, also on 9 February 1981, issued the following
documents to petitioner:
(a) the Certificate of Confirmation of Sale,
"without recourse," No. 20496 of one (1)
Delta Motors Corporation Promissory Note
("DMC PN") No. 2731 for a term of 32 days
at 17.0 % per annum;
(b) the Certificate of Securities Delivery
Receipt No. 16587 indicating the sale of
DMC PN No. 2731 to petitioner, with the
notation that the said security was in
custodianship of Pilipinas Bank, as per
Denominated Custodian Receipt ("DCR")
No. 10805 dated 9 February 1981; and
(c) post-dated checks payable on 13 March
1981 (i.e., the maturity date of petitioner's
investment), with petitioner as payee,
Philfinance as drawer, and Insular Bank of
Asia and America as drawee, in the total
amount of P304,533.33.
On 13 March 1981, petitioner sought to encash the post- —————
dated checks issued by Philfinance. However, the checks ————
were dishonored for having been drawn against
MATURITY
insufficient funds.
DATE.

On 26 March 1981, Philfinance delivered to petitioner the NO.

DCR No. 10805 issued by private respondent Pilipinas 10805
Bank ("Pilipinas"). It read as follows:
DENOMINATED CUSTODIAN RECEIPT
"PILIPINAS BANK
—————————————————
Makati Stock Exchange Bldg.,
'This confirms that as a duly Custodian Bank,
Ayala Avenue, Makati,
and upon instruction of PHILIPPINE
Metro Manila UNDERWRITERS FINANCE
CORPORATION, we have in our custody the
February following securities to you [sic] the extent
9, 1981 herein indicated.

———— ————————————————————————————
——— —————————

VALUE SERIAL MAT.

DATE FACE ISSUED
REGISTERED
AMOUNT
TO Raul Sesbreño NUMBER
DATE VALUE
BY HOLDER
April 6, PAYEE
1981
————————————————————————————
—————————
2731 4-6-81 2,300,833.34 DMC PHIL. 307,933.33
UNDERWRITERS
FINANCE CORP.
————————————————————————————
—————————
We further certify that these securities may
be inspected by you or your duly authorized
representative at any time during regular
banking hours.
Upon your written instructions we shall
undertake physical delivery of the above
securities fully assigned to you should this
Denominated Custodianship Receipt remain
outstanding in your favor thirty (30) days after
its maturity.'
PILIPINAS BANK
(By Elizabeth De Villa
Illegible Signature)" 1
On 2 April 1981, petitioner approached Ms. Elizabeth de
Villa of private respondent Pilipinas, Makati Branch, and
handed to her a demand letter informing the bank that his
placement with Philfinance in the amount reflected in the
DCR No. 10805 had remained unpaid and outstanding,
and that he in effect was asking for the physical delivery
of the underlying promissory note. Petitioner then
examined the original of the DMC PN No. 2731 and found:
that the security had been issued on 10 April 1980; that it
would mature on 6 April 1981; that it had a face value of
P2,300,833.33, with Philfinance as "payee" and private
respondent Delta Motors Corporation ("Delta") as
"maker;" and that on face of the promissory note was
stamped "NON-NEGOTIABLE." Pilipinas did not deliver
the Note, nor any certificate of participation in respect
thereof, to petitioner.
Petitioner later made similar demand letters, dated 3 July
1981 and 3 August 1981, 2 again asking private
respondent Pilipinas for physical delivery of the original of
DMC PN No. 2731. Pilipinas allegedly referred all of
petitioner's demand letters to Philfinance for written
instructions, as had been supposedly agreed upon in a
"Securities Custodianship Agreement" between Pilipinas
and Philfinance. Philfinance never did provide the
appropriate instructions; Pilipinas never released DMC
PN No. 2731, nor any other instrument in respect thereof,
to petitioner.
Petitioner also made a written demand on 14 July 1981 3
upon private respondent Delta for the partial satisfaction
of DMC PN No. 2731, explaining that Philfinance, as
payee thereof, had assigned to him said Note to the extent
of P307,933.33. Delta, however, denied any liability to
petitioner on the promissory note, and explained in turn 'This act of Philfinance in
that it had previously agreed with Philfinance to offset its accepting the investment of plaintiff
DMC PN No. 2731 (along with DMC PN No. 2730) against and charging it against DMC P.N. No.
Philfinance PN No. 143-A issued in favor of Delta. 2731 when its entire face value was
already obligated or earmarked for
In the meantime, Philfinance, on 18 June 1981, was set-off or compensation is difficult to
placed under the joint management of the Securities and comprehend and may have been
Exchange Commission ("SEC") and the Central Bank. motivated with bad faith. Philfinance,
Pilipinas delivered to the SEC DMC PN No. 2731, which therefore, is solely and legally
obligated to return the investment of
to date apparently remains in the custody of the SEC. 4
plaintiff, together with its earnings, and
to answer all the damages plaintiff has
As petitioner had failed to collect his investment and suffered incident thereto.
interest thereon, he filed on 28 September 1982 an action Unfortunately for plaintiff, Philfinance
for damages with the Regional Trial Court ("RTC") of was not impleaded as one of the
Cebu City, Branch 21, against private respondents Delta defendants in this case at bar; hence,
and Pilipinas. 5 The trial court, in a decision dated 5 this Court is without jurisdiction to
August 1987, dismissed the complaint and counterclaims pronounce judgment against it. (p. 11,
for lack of merit and for lack of cause of action, with costs Decision).'
against petitioner.

WHEREFORE, finding no reversible error in the decision

Petitioner appealed to respondent Court of Appeals in appealed from, the same is hereby affirmed in toto. Cost
C.A.-G.R. CV No. 15195. In a Decision dated 21 March against plaintiff-appellant."
1989, the Court of Appeals denied the appeal and held; 6
Petitioner moved for reconsideration of the above
Decision, without success.
"Be that as it may, from the evidence on
record, if there is anyone that appears liable
for the travails of plaintiff-appellant, it is Hence, this Petition for Review on Certiorari.
Philfinance. As correctly observed by the trial
court:
After consideration of the allegations contained and
issues raised in the pleadings, the Court resolved to give
due course to the petition and required the parties to file
their respective memoranda. 7
Petitioner reiterates the assignment of errors he directed
at the trial court decision, and contends that respondent
Court of Appeals gravely erred: (i) in concluding that he
cannot recover from private respondent Delta his
assigned portion of DMC PN No. 2731; (ii) in failing to hold
private respondent Pilipinas solidarily liable on the DMC
PN No. 2731 in view of the provisions stipulated in DCR
No. 10805 issued in favor of petitioner; and (iii) in refusing
to pierce the veil of corporate entity between Philfinance,
and private respondents Delta and Pilipinas, considering
that the three (3) entities belong to the "Silverio Group of
Companies" under the leadership of Mr. Ricardo Silverio,
Sr. 8
There are at least two (2) sets of relationships which we
need to address: firstly, the relationship of petitioner vis-
a-vis Delta; secondly, the relationship of petitioner in
respect of Pilipinas. Actually, of course, there is a third
relationship that is of critical importance: the relationship
of petitioner and Philfinance. However, since Philfinance
has not been impleaded in this case, neither the trial court
nor the Court of Appeals acquired jurisdiction over the
person of Philfinance. It is, consequently, not necessary
for present purposes to deal with this third relationship,
except to the extent it necessarily impinges upon or
intersects the first and second relationships.
I
We consider first the relationship between petitioner and
Delta.
The Court of Appeals in effect held that petitioner acquired
no rights vis-a-vis Delta in respect of the Delta promissory
note (DMC PN No. 2731) which Philfinance sold "without
recourse" to petitioner, to the extent of P304,533.33. The
Court of Appeals said on this point:
"Nor could plaintiff-appellant have acquired
any right over DMC P.N. No. 2731 as the
same is `non- negotiable' as stamped on its
face (Exhibit `6'), negotiation being defined
as the transfer of an instrument from one
person to another so as to constitute the
transferee the holder of the instrument (Sec.
30, Negotiable Instruments Law). A person
not a holder cannot sue on the instrument in
his own name and cannot demand or receive
payment (Section 51, id.)." 9
Petitioner admits that DMC PN No. 2731 was non-
negotiable but contends that that Note had been
validly transferred, in part, to him by assignment and
that as a result of such transfer, Delta as debtor-maker
of the Note, was obligated to pay petitioner the portion
 of that Note assigned to him by the payee Philfinance.
LLjur
Delta, however, disputes petitioner's contention and
argues:
(1) that DMC PN No. 2731 was not intended
to be negotiated or otherwise transferred by
Philfinance as manifested by the word "non-
negotiable" stamp across the face of the
Note 10 and because maker Delta and payee
Philfinance intended that this Note would be
offset against the outstanding obligation of
Philfinance represented by Philfinance PN
No. 143-A issued to Delta as payee;
(2) that the assignment of DMC PN No.
2731 by Philfinance was without Delta's
consent, if not against its instructions; and
(3) assuming (arguendo only) that the partial
assignment in favor of petitioner was valid,
petitioner took that Note subject to the
defenses available to Delta, in particular, the
offsetting of DMC PN No. 2731 against
Philfinance PN No. 143-A. 11
We consider Delta's arguments seriatim.
Firstly, it is important to bear in mind that the negotiation
of a negotiable instrument must be distinguished from the
assignment or transfer of an instrument whether that be
negotiable or non -negotiable. Only an instrument
qualifying as a negotiable instrument under the relevant
statute may be negotiated either by indorsement thereof
coupled with delivery, or by delivery alone where the
negotiable instrument is in bearer form. A negotiable
instrument may, however, instead of being negotiated,
also be assigned or transferred. The legal consequences
of negotiation as distinguished from assignment of a
negotiable instrument are, of course, different. A non-
negotiable instrument may, obviously, not be negotiated;
but it may be assigned or transferred, absent an express
prohibition against assignment or transfer written in the
face of the instrument:
"The words 'not negotiable,' stamped on the
face of the bill of lading, did not destroy its
assignability, but the sole effect was to
exempt the bill from the statutory provisions
relative thereto, and a bill, though not
negotiable, may be transferred by
assignment; the assignee taking subject to
the equities between the original parties." 12
(Emphasis added)
DMC PN No. 2731, while marked "non-negotiable," was
not at the same time stamped "non-transferrable" or "non-
assignable." It contained no stipulation which prohibited
Philfinance from assigning or transferring, in whole or in
part, that Note.
 This refers to our outstanding placement of
Delta adduced the "Letter of Agreement" which it had
P4,601,666.67 as evidenced by your
entered into with
Promissory Note No. 143-A, dated April 10,
1980, to mature on April 6, 1981.
Philfinance and which should be quoted in full:
As agreed upon, we enclose our non-
" negotiable Promissory Note No. 2730 and
A 2731 for P2,000,000.00 each, dated April 10,
p
1980, to be offsetted [sic] against your PN
ri
No. 143-A upon co-terminal maturity.
l
1
0 Please deliver the proceeds of our PNs to
, our representative, Mr. Eric Castillo.
1
9
8
0 Very
Truly
Yours,
Philippine Underwriters Finance Corp.

Benavidez St., Makati (Sg

d.)
Metro Manila.
Florencio
B. Biagan
Attention: Mr. Alfredo O. Banaria
Senior
SVP-Treasurer Vice
President"
13
GENTLEMEN:
We find nothing in his "Letter of Agreement" which can be
reasonably construed as a prohibition upon Philfinance
assigning or transferring all or part of DMC PN No. 2731,
before the maturity thereof. It is scarcely necessary to add
that, even had this "Letter of Agreement" set forth an
explicit prohibition of transfer upon Philfinance, such a
prohibition cannot be invoked against an assignee or
transferee of the Note who parted with valuable
consideration in good faith and without notice of such
prohibition. It is not disputed that petitioner was such an
assignee or transferee. Our conclusion on this point is
reinforced by the fact that what Philfinance and Delta were
doing by their exchange of promissory notes was this:
Delta invested, by making a money market placement with
Philfinance, approximately P4,600,000.00 on 10 April
1980; but promptly, on the same day, borrowed back the
bulk of that placement, i.e., P4,000,000.00, by issuing its
two
(2) promissory notes: DMC PN No. 2730 and DMC PN
No. 2731, both also dated
10 April 1980. Thus, Philfinance was left with not
P4,600,000.00 but only P600,000.00 in cash and the two
(2) Delta promissory notes.
Apropos Delta's complaint that the partial assignment by
Philfinance of DMC PN No. 2731 had been effected
without the consent of Delta, we note that such consent
was not necessary for the validity and enforceability of the
assignment in favor of petitioner. 14 Delta's argument that
Philfinance's sale or assignment of part of its rights to
DMC PN No. 2731 constituted conventional subrogation,
which required its (Delta's) consent, is quite mistaken.
Conventional subrogation, which in the first place is never
lightly inferred, 15 must be clearly established by the
unequivocal terms of the substituting obligation or by the
evident incompatibility of the new and old obligations on
every point. 16 Nothing of the sort is present in the instant
case.
It is in fact difficult to be impressed with Delta's complaint,
since it released its DMC PN No. 2731 to Philfinance, an
entity engaged in the business of buying and selling debt
instruments and other securities, and more generally, in
money market transactions. In Perez v. Court of Appeals,
1 7 the Court, speaking through Mme. Justice Herrera,
made the following important statement: Cdpr
"There is another aspect to this case. What
is involved here is a money market
transaction. As defined by Lawrence Smith
`the money market is a market dealing in
standardized short-term credit instruments
(involving large amounts) where lenders and
borrowers do not deal directly with each
other but through a middle man or dealer in
the open market.' It involves 'commercial
papers' which are instruments 'evidencing
indebtedness of any person or entity . . .,
which are issued, endorsed, sold or
transferred or in any manner conveyed to
another person or entity, with or without
recourse'. The fundamental function of the
money market device in its operation is to
match and bring together in a most
impersonal manner both the 'fund users' and
the 'fund suppliers.' The money market is an
'impersonal market', free from personal
considerations.' The market mechanism is
intended to provide quick mobility of money
and securities.'
The impersonal character of the money
market device overlooks the individual or
entities concerned. The issuer of a
commercial paper in the money market
necessarily knows in advance that it would
be expeditiously transacted and transferred
to any investor/lender without need of notice
to said issuer. In practice, no notification is
given to the borrower or issuer of commercial
paper of the sale or transfer to the investor.
xxx xxx xxx
There is need to individuate a money market
transaction, a relatively novel institution in
the Philippine commercial scene. It has been
intended to facilitate the flow and acquisition
of capital on an impersonal basis. And as
specifically required by Presidential Decree
No. 678, the investing public must be given
adequate and effective protection in availing
of the credit of a borrower in the commercial
paper market. " 18 (Citations omitted;
emphasis supplied)
We turn to Delta's arguments concerning alleged
compensation or offsetting between DMC PN No. 2731
and Philfinance PN No. 143-A. It is important to note that
at the time Philfinance sold part of its rights under DMC
PN No. 2731 to petitioner on 9 February 1981, no
compensation had as yet taken place and indeed none
could have taken place. The essential requirements of
compensation are listed in the Civil Code as follows:
"Art. 1279. In order that compensation may be
proper, it is necessary:
(1) That each one of the obligors be bound
principally, and that he be at the same time
a principal creditor of the other;
(2) That both debts consist in a sum of
money, or if the things due are consumable,
they be of the same kind, and also of the
same qualify if the latter has been stated;
(3) That the two debts are due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any
retention or controversy, commenced by
 third persons and communicated in due time
to the debtor." (Emphasis supplied)
On 9 February 1981, neither DMC PN No. 2731 nor
Philfinance PN No. 143-A was due. This was explicitly
recognized by Delta in its 10 April 1980 "Letter of
Agreement" with Philfinance, where Delta
acknowledged that the relevant promissory notes were
"to be offsetted (sic) against [Philfinance] PN No. 143-
A upon co-terminal maturity."
As noted, the assignment to petitioner was made on 9
February 1981 or from forty-nine (49) days before the "co-
terminal maturity" date, that is to say, before any
compensation had taken place. Further, the assignment
to petitioner would have prevented compensation from
taking place between Philfinance and Delta, to the extent
of P304,533.33, because upon execution of the
assignment in favor of petitioner, Philfinance and Delta
would have ceased to be creditors and debtors of each
other in their own right to the extent of the amount
assigned by Philfinance to petitioner. Thus, we conclude
that the assignment effected by Philfinance in favor of
petitioner was a valid one and that petitioner accordingly
became owner of DMC PN No. 2731 to the extent of the
portion thereof assigned to him.
The record shows, however, that petitioner notified Delta
of the fact of the assignment to him only on 14 July 1981,
19 that is, after the maturity not only of the money market
placement made by petitioner but also of both DMC PN
No. 2731 and Philfinance PN No. 143-A. In other words,
petitioner notified Delta of his rights as assignee after
compensation had taken place by operation of law
because the offsetting instruments had both reached
maturity . It is a firmly settled doctrine that the rights of an
assignee are not any greater than the rights of the
assignor, since the assignee is merely substituted in the
place of the assignor 20 and that the assignee acquires his
rights subject to the equities — i.e., the defenses — which
the debtor could have set up against the original assignor
before notice of the assignment was given to the debtor.
Article 1285 of the Civil Code provides that:
"ART. 1285. The debtor who has consented
to the assignment of rights made by a
creditor in favor of a third person, cannot set
up against the assignee the compensation
which would pertain to him against the
assignor, unless the assignor was notified by
the debtor at the time he gave his consent,
that he reserved his right to the
compensation.
If the creditor communicated the cession to
him but the debtor did not consent thereto,
the latter may set up the compensation of
debts previous to the cession, but not of
subsequent ones.
 If the assignment is made without the
knowledge of the debtor, he may set up the
compensation of all credits prior to the same
and also later ones until he had knowledge
of the assignment." (Emphasis supplied). llcd
Article 1626 of the same Code states that: "the debtor
who, before having knowledge of the assignment,
pays his creditor shall be released from the obligation."
In Sison v. Yap-Tico, 21 the Court explained that:
"[n]o man is bound to remain a debtor; he
may pay to him with whom he contracted to
pay; and if he pay before notice that his debt
has been assigned, the law holds him
exonerated, for the reason that it is the duty
of the person who has acquired a title by
transfer to demand payment of the debt, to
give his debtor notice." 22
At the time that Delta was first put to notice of the
assignment in petitioner's favor on 14 July 1981, DMC
PN No. 2731 had already been discharged by
compensation. Since the assignor Philfinance could
not have then compelled payment anew by Delta of
DMC PN No. 2731, petitioner, as assignee of
Philfinance, is similarly disabled from collecting from
Delta the portion of the Note assigned to him.
It bears some emphasis that petitioner could have
notified Delta of the assignment in his favor as soon as
that assignment or sale was effected on 9 February
1981. He could have also notified Delta as soon as his
money market placement matured on 13 March 1981
without payment thereof being made by Philfinance; at
that time, compensation had yet to set in and
discharge DMC PN No. 2731. Again, petitioner could
have notified Delta on 26 March 1981 when petitioner
received from Philfinance the Denominated
Custodianship Receipt ("DCR") No. 10805 issued by
private respondent Pilipinas in favor of petitioner.
Petitioner could, in fine, have notified Delta at any time
before the maturity date of DMC PN No. 2731.
Because petitioner failed to do so, and because the
record is bare of any indication that Philfinance had
itself notified Delta of the assignment to petitioner, the
Court is compelled to uphold the defense of
compensation raised by private respondent Delta. Of
course, Philfinance remains liable to petitioner under
the terms of the assignment made by Philfinance to
petitioner.
II
We turn now to the relationship between petitioner and
private respondent Pilipinas. Petitioner contends that
Pilipinas became solidarily liable with Philfinance and
Delta when Pilipinas issued DCR No. 10805 with the
following words:
 "Upon your written instructions, we
[Pilipinas] shall undertake physical delivery
of the above securities fully assigned to you
—" 23
The Court is not persuaded. We find nothing in the DCR
that establishes an obligation on the part of Pilipinas to
pay petitioner the amount of P307,933.33 nor any
assumption of liability in solidum with Philfinance and
Delta under DMC PN No. 2731. We read the DCR as a
confirmation on the part of Pilipinas that:
(1) it has in its custody, as duly constituted
custodian bank, DMC PN No. 2731 of a
certain face value, to mature on 6 April 1981
and payable to the order of Philfinance;
(2) Pilipinas was, from and after said date of
the assignment by Philfinance to petitioner (9
February 1981), holding that Note on behalf
and for the benefit of petitioner, at least to the
extent it had been assigned to petitioner by
payee Philfinance; 24
(3) petitioner may inspect the Note either
"personally or by authorized
representative", at any time during regular
bank hours; and
(4) upon written instructions of petitioner, Pilipinas
would physically deliver
the DMC PN No. 2731 (or a participation
therein to
the extent of
P307,933.33) "should this Denominated
Custodianship Receipt remain
outstanding in [petitioner's] favor thirty (30) days
after its maturity."
Thus, we find nothing written in printers ink on the DCR
which could reasonably be read as converting Pilipinas
into an obligor under the terms of DMC PN No. 2731
assigned to petitioner, either upon maturity thereof or
at any other time. We note that both in his complaint
and in his testimony before the trial court, petitioner
referred merely to the obligation of private respondent
Pilipinas to effect physical delivery to him of DMC PN
No. 2731. 25 Accordingly, petitioner's theory that
Pilipinas had assumed a solidary obligation to pay the
amount represented by the portion of the Note
assigned to him by Philfinance, appears to be a new
theory constructed only after the trial court had ruled
against him. The solidary liability that petitioner seeks
to impute to Pilipinas cannot, however, be lightly
inferred. Under Article 1207 of the Civil Code, "there is
a solidary liability only when the obligation expressly
so states, or when the law or the nature of the
obligation requires solidarity." The record here exhibits
no express assumption of solidary liability vis-a-vis
petitioner, on the part of Pilipinas. Petitioner has not
pointed us to any law which imposed such liability upon
 Pilipinas nor has petitioner argued that the very nature
of the custodianship assumed by private respondent
Pilipinas necessarily implies solidary liability under the
securities, custody of which was taken by Pilipinas.
Accordingly, we are unable to hold Pilipinas solidarily
liable with Philfinance and private respondent Delta
under DMC PN No. 2731.
We do not, however, mean to suggest that Pilipinas has
no responsibility and liability in respect of petitioner under
the terms of the DCR. To the contrary, we find, after
prolonged analysis and deliberation, that private
respondent Pilipinas had breached its undertaking under
the DCR to petitioner Sesbreño. llcd
We believe and so hold that a contract of deposit was
constituted by the act of Philfinance in designating
Pilipinas as custodian or depositary bank. The depositor
was initially Philfinance; the obligation of the depositary
was owed, however, to petitioner Sesbreño as beneficiary
of the custodianship or depositary agreement. We do not
consider that this is a simple case of a stipulation pour
autrui. The custodianship or depositary agreement was
established as an integral part of the money market
transaction entered into by petitioner with Philfinance.
Petitioner bought a portion of DMC PN No. 2731;
Philfinance as assignor-vendor deposited that Note with
Pilipinas in order that the thing sold would be placed
outside the control of the vendor. Indeed, the constituting
of the depositary or custodianship agreement was
equivalent to constructive delivery of the Note (to the
extent it had been sold or assigned to petitioner) to
petitioner. It will be seen that custodianship agreements
are designed to facilitate transactions in the money market
by providing a basis for confidence on the part of the
investors or placers that the instruments bought by them
are effectively taken out of the pocket, as it were, of the
vendors and placed safely beyond their reach, that those
instruments will be there available to the placers of funds
should they have need of them. The depositary in a
contract of deposit is obliged to return the security or the
thing deposited upon demand of the depositor (or, in the
present case, of the beneficiary) of the contract, even
though a term for such return may have been established
in the said contract. 26 Accordingly, any stipulation in the
contract of deposit or custodianship that runs counter to
the fundamental purpose of that agreement or which was
not brought to the notice of and accepted by the placer-
beneficiary, cannot be enforced as against such
beneficiary-placer.
We believe that the position taken above is supported by
considerations of public policy. If there is any party that
needs the equalizing protection of the law in money
market transactions, it is the members of the general
public who place their savings in such market for the
purpose of generating interest revenues. 27 The
custodian bank, if it is not related either in terms of equity
ownership or management control to the borrower of the
funds, or the commercial paper dealer, is normally a
preferred or traditional banker of such borrower or dealer
(here, Philfinance). The custodian bank would have every
incentive to protect the interest of its client the borrower or
dealer as against the placer of funds. The providers of
such funds must be safeguarded from the impact of
stipulations privately made between the borrowers or
dealers and the custodian banks, and disclosed to fund-
providers only after trouble has erupted.
In the case at bar, the custodian-depositary bank Pilipinas
refused to deliver the security deposited with it when
petitioner first demanded physical delivery thereof on 2
April 1981. We must again note, in this connection, that
on 2 April 1981, DMC PN No. 2731 had not yet matured
and therefore, compensation or offsetting against
Philfinance PN No. 143-A had not yet taken place. Instead
of complying with the demand of petitioner, Pilipinas
purported to require and await the instructions of
Philfinance, in obvious contravention of its undertaking
under the DCR to effect physical delivery of the Note upon
receipt of "written instructions" from petitioner Sesbreño.
The ostensible term written into the DCR (i.e., "should this
[DCR] remain outstanding in your favor thirty [30] days
after its maturity") was not a defense against petitioner's
demand for physical surrender of the Note on at least
three grounds: firstly, such term was never brought to the
attention of petitioner Sesbreño at the time the money
market placement with Philfinance was made; secondly,
such term runs counter to the very purpose of the
custodianship or depositary agreement as an integral part
of a money market transaction; and thirdly, it is
inconsistent with the provisions of Article 1988 of the Civil
Code noted above. Indeed, in principle, petitioner became
entitled to demand physical delivery of the Note held by
Pilipinas as soon as petitioner's money market placement
matured on 13 March 1981 without payment from
Philfinance.
We conclude, therefore, that private respondent Pilipinas
must respond to petitioner for damages sustained by him
arising out of its breach of duty. By failing to deliver the
Note to the petitioner as depositor-beneficiary of the thing
deposited, Pilipinas effectively and unlawfully deprived
petitioner of the Note deposited with it. Whether or not
Pilipinas itself benefited from such conversion or unlawful
deprivation inflicted upon petitioner, is of no moment for
present purposes.' Prima facie, the damages suffered by
petitioner consisted of P304,533.33, the portion of the
DMC PN No. 2731 assigned to petitioner but lost by him
by reason of discharge of the Note by compensation, plus
legal interest of six percent (6%) per annum counting from
14 March 1981.
The conclusion we have here reached is, of course,
without prejudice to such right of reimbursement as
Pilipinas may have vis-a-vis Philfinance.
III
The third principal contention of petitioner — that
Philfinance and private respondents Delta and Pilipinas
should be treated as one corporate entity — need not
detain us for long.LLphil
In the first place, as already noted, jurisdiction over the
person of Philfinance was never acquired either by the
trial court nor by the respondent Court of appeals.
Petitioner similarly did not seek to implead Philfinance in
the Petition before us.
P304,533.33, plus legal interest thereon at the rate of six
percent (6%) per annum counted from 2 April 1981. As so
modified, the Decision and Resolution of the Court of
Appeals are hereby AFFIRMED. No pronouncement as to
costs.

Secondly, it is not disputed that Philfinance and private

respondents Delta and Pilipinas have been organized as SO ORDERED.
separate corporate entities. Petitioner asks us to pierce
their separate corporate entities, but has been able only Bidin, Davide, Jr., Romero and Melo, JJ ., concur.
to cite the presence of a common Director — Mr. Ricardo
Silverio, Sr., sitting on the Boards of Directors of all three
(3) companies. Petitioner has neither alleged nor proved
that one or another of the three (3) concededly related
companies used the other two (2) as mere alter egos or
that the corporate affairs of the other two (2) were
administered and managed for the benefit of one. There
is simply not enough evidence of record to justify
disregarding the separate corporate personalities of Delta
and Pilipinas and to hold them liable for any assumed or
undetermined liability of Philfinance to petitioner. 28

WHEREFORE, for all the foregoing, the Decision and

Resolution of the Court of Appeals in C.A.-G.R. CV No.
15195 dated 21 March 1989 and 17 July 1989,
respectively, are hereby MODIFIED and SET ASIDE, to
the extent that such Decision and Resolution had
dismissed petitioner's complaint against Pilipinas Bank.
Private respondent Pilipinas Bank is hereby ORDERED to
indemnify petitioner for damages in the amount of
 THIRD DIVISION
[G.R. No. 66826. August 19, 1988.]
BANK OF THE PHILIPPINE
ISLANDS , petitioner, vs. THE
INTERMEDIATE APPELLATE
COURT and RIZALDY T.
ZSHORNACK respondents.
Pacis & Reyes Law Office for petitioner.
Ernesto T. Zshornack, Jr. for private respondent.
SYLLABUS
CIVIL LAW; DEPOSIT; NATURE; CASE AT BAR. —
The Commercial Bank and Trust Co. (subsequently
absorbed by petitioner Bank of the Philippine Islands)
through its assistant branch manager for Quezon City
acknowledged receipt from the private respondent of
US$3,000.00 for safekeeping. The subsequent acts of
the parties also show that the intent of the parties was
really for the bank to safely keep the dollars and to return
it to Zshornack at a later time. Thus, Zshornack
demanded the return of the money on May 10, 1976, or
over five months later. The above arrangement is that
contract defined under Article 1962, New Civil Code,
which reads: Art. 1962. A deposit is constituted from the
moment a person receives a thing belonging to another,
with the obligation of safely keeping it and of returning
the same. If the safekeeping of the thing delivered is not
the principal purpose of the contract, there is no deposit
but some other contract.
REMEDIAL LAW; ALLEGATIONS IN PLEADINGS;
EFFECT OF FAILURE TO SPECIFICALLY DENY
THEREIN THE DUE EXECUTION OF DOCUMENTS. —
The respondent's second cause of action was based on
an actionable document. It was therefore incumbent
upon the bank to specifically deny under oath the due
execution of the document, as prescribed under Rule 8,
Section 8, if it desired: (1) to question the authority of
Garcia to bind the corporation; and (2) to deny its
capacity to enter into such contract. No sworn answer
denying the due execution of the document in question,
or questioning the authority of Garcia to bind the bank, or
denying the bank's capacity to enter into the contract,
was ever filed. Hence, the bank is deemed to have
admitted not only Garcia's authority, but also the bank's
power, to enter into the contract in question.
ID.; VOID CONTRACTS; CONTRACTS EXECUTED
AGAINST A MANDATORY/PROHIBITORY LAW. —
The mere safekeeping of the greenbacks, without
selling them to the Central Bank within one business
day from receipt, is a transaction which is not
authorized by CB Circular No. 20, it must be considered
as one which falls under the general class of prohibited
transactions. Hence, pursuant to Article 5 of the Civil
 Code, it is void, having been executed against the
provisions of a mandatory/prohibitory law.
ID.; ID.; ID.; EFFECT. — It affords neither of the parties a
cause of action against the other. "When the nullity
proceeds from the illegality of the cause or object of the
contract, and the act constitutes a criminal offense, both
parties being in pari delicto, they shall have no cause of
action against each other . . . " [Art. 1411, New Civil
Code.] The only remedy is one on behalf of the State to
prosecute the parties for violating the law.
DECISION
CORTES, J : p
The original parties to this case were Rizaldy T.
Zshornack and the Commercial Bank and Trust
Company of the Philippines [hereafter referred to as
"COMTRUST."] In 1980, the Bank of the Philippine
Islands (hereafter referred to as "BPI") absorbed
COMTRUST through a corporate merger, and was
substituted as party to the case. prLL
Rizaldy Zshornack initiated proceedings on June 28,
1976 by filing in the Court of First Instance of Rizal —
Caloocan City a complaint against COMTRUST
alleging four causes of action. Except for the third
cause of action, the CFI ruled in favor of Zshornack.
The bank appealed to the Intermediate Appellate Court
which modified the CFI decision absolving the bank
from liability on the fourth cause of action. The
pertinent portions of the judgment, as modified, read:
IN VIEW OF THE FOREGOING, the Court renders
judgment as follows:
(b) Ordering the defendant COMTRUST to
restore to the dollar savings account of
plaintiff (No. 25-4109) the amount of U.S
$1,000.00 as of October 27, 1975 to earn
interest together with the remaining balance
of the said account at the rate fixed by the
bank for dollar deposits under Central Bank
Circular 343;
(c) Ordering defendant COMTRUST to
return to the plaintiff the amount of U.S.
$3,000.00 immediately upon the finality of
this decision, without interest for the reason
that the said amount was merely held in
custody for safekeeping, but was not
actually deposited with the defendant
COMTRUST because being cash currency,
it cannot by law be deposited with plaintiff's
dollar account and defendant's only
obligation is to return the same to plaintiff
upon demand;
xxx xxx
 5. Ordering defendant COMTRUST to
pay plaintiff in the amount of P8,000.00 as
damages in the concept of litigation
expenses and attorney's fees suffered by
plaintiff as a result of the failure of the
defendant bank to restore to his (plaintiff's)
account the amount of U.S. $1,000.00 and
to return to him (plaintiff) the U.S. $3,000.00
cash left for safekeeping.
Costs against defendant COMTRUST.
SO ORDERED. [Rollo, pp. 47-48.]
Undaunted, the bank comes to this Court praying
that it be totally absolved from any liability to
Zshornack. The latter not having appealed the Court
of Appeals decision, the issues facing this Court are
limited to the bank's liability with regard to the first
and second causes of action and its liability for
damages.
4. We first consider the first cause of action.
On the dates material to this case, Rizaldy Zshornack
and his wife, Shirley Gorospe, maintained in
COMTRUST, Quezon City Branch, a dollar savings
account and a peso current account.
On October 27, 1975, an application for a dollar draft
was accomplished by Virgilio V. Garcia, Assistant
Branch Manager of COMTRUST Quezon City, payable
to a certain Leovigilda D. Dizon in the amount of
$1,000.00. In the application, Garcia indicated that the
amount was to be charged to Dollar Savings Acct. No.
25-4109, the savings account of the Zshornacks; the
charges for commission, documentary stamp tax and
others totalling P17.46 were to be charged to Current
Acct. No. 210-465-29, again, the current account of the
Zshornacks. There was no indication of the name of the
purchaser of the dollar draft.
On the same date, October 27, 1975, COMTRUST,
under the signature of Virgilio V. Garcia, issued a check
payable to the order of Leovigilda D. Dizon in the sum
of US$ 1,000 drawn on the Chase Manhattan Bank,
New York, with an indication that it was to be charged
to Dollar Savings Acct. No. 25-4109. prcd
When Zshornack noticed the withdrawal of US$1,000.00
from his account, he demanded an explanation from the
bank. In answer, COMTRUST claimed that the peso
value of the withdrawal was given to Atty. Ernesto
Zshornack, Jr., brother of Rizaldy, on October 27, 1975
when he (Ernesto) encashed with COMTRUST a
cashier's check for P8,450.00 issued by the Manila
Banking Corporation payable to Ernesto.
Upon consideration of the foregoing facts, this Court
finds no reason to disturb the ruling of both the trial
court and the Appellate Court on the first cause of
action. Petitioner must be held liable for the
unauthorized withdrawal of US$1,000.00 from private
respondent's dollar account.
 Zshornacks. There is no proof whatsoever that peso
In its desperate attempt to justify its act of withdrawing Current Account No. 210-465-29 was ever credited with
from its depositor's savings account, the bank has the peso equivalent of the US$1,000.00 withdrawn on
adopted inconsistent theories. First, it still maintains that October 27, 1975 from Dollar Savings Account No. 25-
the peso value of the amount withdrawn was given to 4109.
Atty. Ernesto Zshornack, Jr. when the latter encashed
As for the second cause of action, the complaint filed
the Manilabank Cashier's Check. At the same time, the
with the trial court alleged that on December 8, 1975,
bank claims that the withdrawal was made pursuant to
Zshornack entrusted to COMTRUST, thru Garcia,
an agreement where Zshornack allegedly authorized the
US$3,000.00 cash (popularly known as greenbacks) for
bank to withdraw from his dollar savings account such
safekeeping, and that the agreement was embodied in a
amount which, when converted to pesos, would be
needed to fund his peso current account. If indeed the document, a copy of which was attached to and made
peso equivalent of the amount withdrawn from the dollar part of the complaint. The document reads:
account was credited to the peso current account, why Makati Cable Address:
did the bank still have to pay Ernesto?
Philippines "COMTRUST"
At any rate, both explanations are unavailing. With regard
to the first explanation, petitioner bank has not shown how COMMERCIAL BANK AND TRUST COMPANY
the transaction involving the cashier's check is related to
the transaction involving the dollar draft in favor of Dizon of the Philippines
financed by the withdrawal from Rizaldy's dollar account.
The two transactions appear entirely independent of each Quezon City Branch
other. Moreover, Ernesto Zshornack, Jr., possesses a
personality distinct and separate from Rizaldy Zshornack.
December
Payment made to Ernesto cannot be considered payment
8, 1975
to Rizaldy.prcd

As to the second explanation, even if we assume that MR. RIZALDY T. ZSHORNACK

there was such an agreement, the evidence do not
show that the withdrawal was made pursuant to it. &/OR MRS. SHIRLEY E. ZSHORNACK
Instead, the record reveals that the amount withdrawn
was used to finance a dollar draft in favor of Leovigilda Sir/Madam:
D. Dizon, and not to fund the current account of the

We acknowledged (sic) having received from you
today the sum of US DOLLARS:
THREE THOUSAND ONLY (US$3,000.00) for
safekeeping.
Received
by:(Sgd.)
VIRGILIO V.
GARCIA
It was also alleged in the complaint that despite
demands, the bank refused to return the money.
In its answer, COMTRUST averred that the
US$3,000 was credited to Zshornack's peso current
account at prevailing conversion rates.
It must be emphasized that COMTRUST did
not deny specifically under oath the
authenticity and due execution of the above
instrument.
During trial, it was established that on December 8, 1975
Zshornack indeed delivered to the bank US$3,000 for
safekeeping. When he requested the return of the
money on May 10, 1976, COMTRUST explained that the
sum was disposed of in this manner: US$2,000.00 was
sold on December 29, 1975 and the peso proceeds
amounting to P14,920.00 were deposited to Zshornack's
current account per deposit slip accomplished by Garcia;
the remaining US$1,000. 00 was sold on February 3,
1976 and the peso proceeds amounting to P8,350.00
were deposited to his current account per deposit slip
also accomplished by Garcia.
Aside from asserting that the US$3,000.00 was
properly credited to Zshornack's current account at
prevailing conversion rates, BPI now posits another
ground to defeat private respondent's claim. It now
argues that the contract embodied in the document is
the contract of depositum (as defined in Article 1962,
New Civil Code), which banks do not enter into. The
bank alleges that Garcia exceeded his powers when
he entered into the transaction. Hence, it is claimed,
the bank cannot be liable under the contract, and the
obligation is purely personal to Garcia.LexLib
Before we go into the nature of the contract entered
into, an important point which arises on the pleadings,
must be considered.
The second cause of action is based on a document
purporting to be signed by COMTRUST, a copy of
which document was attached to the complaint. In
short, the second cause of action was based on an
actionable document. It was therefore incumbent upon
the bank to specifically deny under oath the due
execution of the document, as prescribed under Rule 8,
Section 8, if it desired: (1) to question the authority of
Garcia to bind the corporation; and (2) to deny its
capacity to enter into such contract. [See, E.B.
Merchant v. International Banking Corporation, 6 Phil.
314 (1906).] No sworn answer denying the due
execution of the document in question, or questioning
the authority of Garcia to bind the bank, or denying the
bank's capacity to enter into the contract, was ever
filed. Hence, the bank is deemed to have admitted not
only Garcia's authority, but also the bank's power, to
enter into the contract in question.
In the past, this Court had occasion to explain
the reason behind this procedural
requirement.
The reason for the rule enunciated in the
foregoing authorities will, we think, be readily
appreciated. In dealing with corporations the
public at large is bound to rely to a large
extent upon outward appearances. If a man
is found acting for a corporation with the
external indicia of authority, any person, not
having notice of want of authority, may
usually rely upon those appearances; and if it
be found that the directors had permitted the
agent to exercise that authority and thereby
held him out as a person competent to bind
the corporation, or had acquiesced in a
contract and retained the benefit supposed to
have been conferred by it, the corporation
will be bound notwithstanding the actual
authority may never have been granted . . .
Whether a particular officer actually
possesses the authority which he assumes to
exercise is frequently known to very few, and
the proof of it usually is not readily accessible
to the stranger who deals with the
corporation on the faith of the ostensible
authority exercised by some of the corporate
officers. It is therefore reasonable in a case
where an officer of a corporation has made a
contract in its name, that the corporation
should be required, if it denies his authority,
to state such defense in its answer. By this
means the plaintiffs apprised of the fact that
the agent's authority is contested; and he is
given an opportunity to adduce evidence
showing either that the authority existed or
that the contract was ratified and approved
[Ramirez v. Orientalist Co. and Fernandez,
38 Phil. 634, 645-646 (1918).]
Petitioner's argument must also be rejected for another
reason. The practical effect of absolving a corporation
from liability every time an officer enters into a contract
which is beyond corporate powers, even without the
proper allegation or proof that the corporation has not
authorized nor ratified the officer's act, is to cast
corporations in so perfect a mold that transgressions and
wrongs by such artificial beings become impossible
[Bissell v. Michigan Southern and N.I.R Cos, 22 N.Y 258
(1860).] "To say that a corporation has no right to do
unauthorized acts is only to put forth a very plain truism;
but to say that such bodies have no power or capacity to
err is to impute to them an excellence which does not
belong to any created existence with which we are
acquainted. The distinction between power and right is
no more to be lost sight of in respect to artificial than in
respect to natural persons." [Ibid.]
Having determined that Garcia's act of entering into the
contract binds the corporation, we now determine the
correct nature of the contract, and its legal
consequences, including its enforceability. LibLex
The document which embodies the contract states that
the US$3,000.00 was received by the bank for
safekeeping. The subsequent acts of the parties also
show that the intent of the parties was really for the
bank to safely keep the dollars and to return it to
Zshornack at a later time. Thus, Zshornack demanded
the return of the money on May 10, 1976, or over five
months later.
The above arrangement is that contract defined under
Article 1962, New Civil Code, which reads:
Art. 1962. A deposit is constituted from the
moment a person receives a thing belonging
to another, with the obligation of safely
keeping it and of returning the same. If the
safekeeping of the thing delivered is not the
principal purpose of the contract, there is no
deposit but some other contract.
Note that the object of the contract between
Zshornack and COMTRUST was foreign exchange.
Hence, the transaction was covered by Central Bank
Circular No. 20, Restrictions on Gold and Foreign
Exchange Transactions, promulgated on December
9, 1949, which was in force at the time the parties
entered into the transaction involved in this case.
The circular provides:
xxx xxx
13. Transactions in the assets described
below and all dealings in them of whatever
nature, including, where applicable their
exportation and importation, shall NOT be
effected, except with respect to deposit
accounts included in sub-paragraphs (b)
and (c) of this paragraph, when such
deposit accounts are owned by and in the
name of banks.
Any and all assets,
provided they are held through, in, or
with banks or banking institutions
located in the Philippines, including
money, checks, drafts, bullions, bank
drafts deposit accounts (demand,
time and savings), all debts,
indebtedness or obligations, financial
brokers and investment houses
notes, debentures, stocks, bonds,
coupons, bank acceptances,
mortgages, pledges, liens or other
rights in the nature of security,
expressed in foreign currencies, or if
payable abroad, irrespective of the
currency in which they are
expressed, and belonging to any
person, firm, partnership,
association, branch office, agency,
company or other unincorporated
body or corporation residing or
located within the Philippines;
 Any and all assets of
the kinds included and or described
in subparagraph (a) above, whether
or not held through, in, or with banks
or banking institutions, and existent
within the Philippines, which belong
to any person, film, partnership,
association, branch office, agency,
company or other unincorporated
body or corporation not residing or
located within the Philippines;
Any and all assets
existent within the Philippines
including money, checks, drafts,
bullions, bank drafts, all debts,
indebtedness or obligations, financial
securities commonly dealt in by
bankers, brokers and investment
houses, notes, debentures, stock,
bonds, coupons, bank acceptances,
mortgages, pledges, liens or other
rights in the nature of security
expressed in foreign currencies, or if
payable abroad, irrespective of the
currency in which they are
expressed, and belonging to any
person, firm, partnership,
association, branch office, agency,
company or other unincorporated
body or corporation residing or
located within the Philippines.
xxx xxx
(a) All receipts of foreign exchange shall be
sold daily to the Central Bank by those
authorized to deal in foreign exchange. All
receipts of foreign exchange by any person,
firm, partnership, association, branch office,
agency, company or other unincorporated
body or corporation shall be sold to the
authorized agents of the Central Bank by the
recipients within one business day following
the receipt of such foreign exchange. Any
person, firm, partnership, association, branch
office, agency, company or other
unincorporated body or corporation, residing
or located within the Philippines, who
acquires on and after the date of this Circular
foreign exchange shall not unless licensed by
the Central Bank, dispose of such foreign
exchange in whole or in part, nor receive less
than its full value, nor delay taking ownership
thereof except as such delay is customary;
Provided, further, That within one day upon
taking ownership, or receiving payment, of
foreign exchange the aforementioned
persons and entities shall sell such foreign
exchange to designated agents of the
Central Bank.
xxx xxx
8. Strict observance of the provisions
of this Circular is enjoined; and any
person, firm or corporation, foreign or
domestic, who being bound to the
observance thereof, or of such other
rules, regulations or directives as may
 hereafter be issued in implementation of
this Circular, shall fail or refuse to comply
with, or abide by, or shall violate the
same, shall be subject to the penal
sanctions provided in the Central Bank
Act.
xxx xxx xxx
Paragraph 4 (a) above was modified by Section 6
of Central Bank Circular No. 281, Regulations on
Foreign Exchange, promulgated on November 26,
1969 by limiting its coverage to Philippine
residents only. Section 6 provides:
SEC. 6. All receipts of foreign exchange by
any resident person, firm, company or
corporation shall be sold to authorized
agents of the Central Bank by the recipients
within one business day following the
receipt of such foreign exchange. Any
resident person, firm, company or
corporation residing or located within the
Philippines, who acquires foreign exchange
shall not, unless authorized by the Central
Bank, dispose of such foreign exchange in
whole or in part, nor receive less than its full
value, nor delay taking ownership thereof
except as such delay is customary;
Provided, That, within one business day
upon taking ownership or receiving
payment of foreign exchange the
aforementioned persons and entities shall
sell such foreign exchange to the
authorized agents of the Central Bank.
As earlier stated, the document and the subsequent
acts of the parties show that they intended the bank to
safekeep the foreign exchange, and return it later to
Zshornack, who alleged in his complaint that he is a
Philippine resident. The parties did not intended to sell
the US dollars to the Central Bank within one business
day from receipt. Otherwise, the contract of depositum
would never have been entered into at all.
Since the mere safekeeping of the greenbacks, without
selling them to the Central Bank within one business
day from receipt, is a transaction which is not
authorized by CB Circular No. 20, it must be considered
as one which falls under the general class of prohibited
transactions. Hence, pursuant to Article 5 of the Civil
Code, it is void, having been executed against the
provisions of a mandatory/prohibitory law. More
importantly, it affords neither of the parties a cause of
action against the other. "When the nullity proceeds
from the illegality of the cause or object of the contract,
and the act constitutes a criminal offense, both parties
being in pari delicto, they shall have no cause of action
against each other . . . " [Art. 1411, New Civil Code.]
The only remedy is one on behalf of the State to
prosecute the parties for violating the law.
We thus rule that Zshornack cannot recover under the
second cause of action.
Lastly, we find the P8,000.00 awarded by the courts a quo SECOND DIVISION
as damages in the concept of litigation expenses and
attorney's fees to be reasonable. The award is sustained.
LLpr

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

WHEREFORE, the decision appealed from is hereby
MODIFIED. Petitioner is ordered to restore to the dollar
savings account of private respondent the amount of YHT REALTY CORPORATION,
US$1,000.00 as of October 27, 1975 to earn interest at ERLINDA LAINEZ and ANICIA PAYAM,
the rate fixed by the bank for dollar savings deposits. petitioners, vs. THE COURT OF
Petitioner is further ordered to pay private respondent APPEALS and MAURICE
the amount of P8,000.00 as damages. The other McLOUGHLIN, respondents.
causes of action of private respondent are ordered
dismissed.

SO ORDERED. DECISION

Gutierrez, Jr. and Bidin, JJ., concur.

Fernan, C.J., took no part — was counsel for Bank of P.I. TINGA, J :p

(Cebu).
The primary question of interest before this Court is
Feliciano, J., concurs in the result. the only legal issue in the case: It is whether a hotel may
evade liability for the loss of items left with it for
safekeeping by its guests, by having these guests execute
written waivers holding the establishment or its employees
free from blame for such loss in light of Article 2003 of the
Civil Code which voids such waivers.

Before this Court is a Rule 45 petition for review of

the Decision 1 dated 19 October 1995 of the Court of
Appeals which a rmed the Decision 2 dated 16 December
1991 of the Regional Trial Court (RTC), Branch 13, of
Manila, nding YHT Realty Corporation, Brunhilda Mata-
Tan (Tan), Erlinda Lainez (Lainez) and Anicia Payam
(Payam) jointly and solidarily liable for damages in an
action led 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. IHcSCA
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.
11. Since he had no idea whether somebody else had
tampered with his safety deposit box, he thought that it
was just a result of bad accounting since he did not spend
anything from that envelope. 8
After returning to Manila, he checked out of
Tropicana on 18 December 1987 and left for Australia.
When he arrived in Australia, he discovered that the
envelope with Ten Thousand US Dollars (US$10,000.00)
was short of Five Thousand US Dollars (US$ 5,000). He
also noticed that the jewelry which he bought in Hongkong
and stored in the safety deposit box upon his return to
Tropicana was likewise missing, except for a diamond
bracelet. 9
When McLoughlin came back to the Philippines on
4 April 1988, he asked Lainez if some money and/or
jewelry which he had lost were found and returned to her
or to the management. However, Lainez told him that no
one in the hotel found such things and none were turned
over to the management. He again registered at
Tropicana and rented a safety deposit box. He placed
therein one (1) envelope containing Fifteen Thousand US
Dollars (US$15,000.00), another envelope containing Ten
Thousand Australian Dollars (AUS$10,000.00) and other
envelopes containing his traveling papers/documents. On
16 April 1988, McLoughlin requested Lainez and Payam
to open his safety deposit box. He noticed that in the
envelope containing Fifteen Thousand US Dollars
(US$15,000.00), Two Thousand US Dollars
(US$2,000.00) were missing and in the envelope
previously containing Ten Thousand Australian Dollars
(AUS$10,000.00), Four Thousand Five Hundred
Australian Dollars (AUS$4,500.00) were missing. 10
When McLoughlin discovered the loss, he
immediately confronted Lainez and Payam who admitted
that Tan opened the safety deposit box with the key
assigned to him. 11 McLoughlin went up to his room where
Tan was staying and confronted her. Tan admitted that
she had stolen McLoughlin's key and was able to open the
safety deposit box with the assistance of Lopez, Payam
and Lainez. 12 Lopez also told McLoughlin that Tan stole
the key assigned to McLoughlin while the latter was
asleep. 13
McLoughlin requested the management for an
investigation of the incident. Lopez got in touch with Tan
and arranged for a meeting with the police and
McLoughlin. When the police did not arrive, Lopez and
Tan went to the room of McLoughlin at Tropicana and
thereat, Lopez wrote on a piece of paper a promissory
note dated 21 April 1988. The promissory note reads as
follows:
I promise to pay Mr. Maurice McLoughlin the amount of
AUS$4,000.00 and US$2,000.00 or its equivalent in
Philippine currency on or before May 5, 1988. 14
Lopez requested Tan to sign the promissory note
which the latter did and Lopez also signed as a witness.
Despite the execution of promissory note by Tan,
McLoughlin insisted that it must be the hotel who must
assume responsibility for the loss he suffered. However,
Lopez refused to accept the responsibility relying on the
conditions for renting the safety deposit box entitled
"Undertaking For the Use Of Safety Deposit Box, " 15
specifically paragraphs (2) and (4) thereof, to wit:
14. 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;
xxx xxx
14. 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 O ce 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 Malacañang 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 a
davit which was forwarded to the Manila City Fiscal's O
ce. Said a davit 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 O ce 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 ling of a complaint for damages on 3 December WHEREFORE, above premises
1990 against YHT Realty Corporation, Lopez, Lainez, considered, judgment is hereby rendered by
Payam and Tan (defendants) for the loss of McLoughlin's this Court in favor of plaintiff and against the
money which was discovered on 16 April 1988. After ling defendants, to wit:
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 1. Ordering defendants, jointly
only Lainez, Payam and YHT Realty Corporation as and severally, to pay
defendants. plaintiff the sum of
US$11,400.00 or its
After defendants had led their Pre-Trial Brief equivalent in Philippine
admitting that they had previously allowed and assisted Currency of P342,000.00,
Tan to open the safety deposit box, McLoughlin led an more or less, and the sum of
Amended/Supplemental Complaint 20 dated 10 June 1991 AUS$4,500.00 or its
which included another incident of loss of money and equivalent in Philippine
jewelry in the safety deposit box rented by McLoughlin in Currency of P99,000.00, or
the same hotel which took place prior to 16 April 1988. 21 a total of P441,000.00,
The trial court admitted the Amended/Supplemental more or less, with 12%
interest from April 16, 1988
Complaint. IcDESA

until said amount has been

paid to plaintiff (Item 1,
During the trial of the case, McLoughlin had been in Exhibit CC);
and out of the country to attend to urgent business in
Australia, and while staying in the Philippines to attend the 2. Ordering defendants, jointly
hearing, he incurred expenses for hotel bills, airfare and and severally to pay plaintiff
other transportation expenses, long distance calls to the sum of P3,674,238.00
Australia, Meralco power expenses, and expenses for as actual and consequential
food and maintenance, among others. 22 damages arising from the
loss of his Australian and
American dollars and
After trial, the RTC of Manila rendered judgment in jewelries complained
favor of McLoughlin, the dispositive portion of which against and in prosecuting
reads: his claim and rights
administratively and
judicially (Items II, III, IV, V,
 VI, VII, VIII, and IX, Exh.
"CC");
3. Ordering defendants, jointly
and severally, to pay
plaintiff the sum of
P500,000.00 as moral
damages (Item X, Exh.
"CC");
4. Ordering defendants, jointly
and severally, to pay
plaintiff the sum of
P350,000.00 as exemplary
damages (Item XI, Exh.
"CC");
5. And ordering defendants,
jointly and severally, to pay
litigation expenses in the
sum of P200,000.00 (Item
XII, Exh. "CC");
6. Ordering defendants, jointly
and severally, to pay
plaintiff the sum of
P200,000.00 as attorney's
fees, and a fee of P3,000.00
for every appearance; and
7. Plus costs of suit.
SO ORDERED. 23
The trial court found that McLoughlin's allegations as to
the fact of loss and as to the amount of money he lost
were su ciently 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 O ce of the President,
DOJ, police authorities and the City Fiscal's O ce 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 The appellants are directed jointly
and Lainez. 25 and severally to pay the plaintiff/appellee
the following amounts:
The trial court also found that defendants acted with
gross negligence in the performance and exercise of their i. P153,200.00
duties and obligations as innkeepers and were therefore representing the peso
liable to answer for the losses incurred by McLoughlin. 26 equivalent of
US$2,000.00 and
AUS$4,500.00;
Moreover, the trial court ruled that paragraphs (2)
and (4) of the "Undertaking For The Use Of Safety Deposit
ii. P308,880.80, representing the
Box" are not valid for being contrary to the express
peso value for the air fares from
mandate of Article 2003 of the New Civil Code and against
Sidney [sic] to Manila and back
public policy. 27 Thus, there being fraud or wanton conduct
for a total of eleven (11) trips;
on the part of defendants, they should be responsible for
all damages which may be attributed to the non-
iii. One-half of P336,207.05
performance of their contractual obligations. 28
or P168,103.52
representing payment to
The Court of Appeals a rmed the disquisitions Tropicana Apartment
made by the lower court except as to the amount of Hotel;
damages awarded. The decretal text of the appellate
court's decision reads: iv. One-half of P152,683.57 or
P76,341.785 representing
payment to Echelon Tower;

THE FOREGOING CONSIDERED,the One-half of P179,863.20 or P89,931.60 for the

appealed Decision is taxi . . . transportation from the residence to
hereby Sidney [sic] Airport and from MIA to the hotel
here in Manila, for the eleven (11) trips;
AFFIRMED but modified as follows:
(d) One-half of P7,801.94 or P3,900.97
representing Meralco power expenses;
 (e) One-half of P356,400.00 or
P178,000.00 representing
expenses for food and
maintenance;
(f) P50,000.00 for moral damages;
(g) P10,000.00 as exemplary damages; and
(h) P200,000 representing attorney's fees.
With costs.
SO ORDERED. 29
Unperturbed, YHT Realty Corporation, Lainez and
Payam went to this Court in this appeal by certiorari.cACEHI
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 nding 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
(4) whether the damages awarded to private respondent,
as well as the amounts thereof, are proper under the
circumstances. 30
The petition is devoid of merit.
It is worthy of note that the thrust of Rule 45 is the
resolution only of questions of law and any peripheral
factual question addressed to this Court is beyond the
bounds of this mode of review.
Petitioners point out that the evidence on record is
insu cient to prove the fact of prior existence of the dollars
and the jewelry which had been lost while deposited in the
safety deposit boxes of Tropicana, the basis of the trial
court and the appellate court being the sole testimony of
McLoughlin as to the contents thereof. Likewise,
petitioners dispute the finding of gross negligence on their
part as not supported by the evidence on record.
We are not persuaded. We adhere to the ndings of
the trial court as a rmed by the appellate court that the fact
of loss was established by the credible testimony in open
court by McLoughlin. Such ndings are factual and
therefore beyond the ambit of the present petition.
The trial court had the occasion to observe the
demeanor of McLoughlin while testifying which re ected
the veracity of the facts testi ed 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 rsthand
and note their demeanor, conduct and attitude under
grilling examination. 32
We are also not impressed by petitioners' argument
that the nding of gross negligence by the lower court as a
rmed 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. TEDHaA
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
nd no reason to reverse their common conclusion. Article
2003 is controlling, thus:
Art. 2003. The hotel-keeper cannot
free himself from responsibility by posting
notices to the effect that he is not liable for
the articles brought by the guest. Any
stipulation between the hotel-keeper and the
guest whereby the responsibility of the
former as set forth in Articles 1998 to 2001 37
is suppressed or diminished shall be void.
Article 2003 was incorporated in the New Civil Code
as an expression of public policy precisely to apply to
situations such as that presented in this case. The hotel
business like the common 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
2002 43 which exempts the hotel-keeper from liability if the
loss is due to the acts of his guest, his family, or visitors.
Even a cursory reading of the provision would lead us to
reject petitioners' contention. The justi cation they raise
would render nugatory the public interest sought to be
protected by the provision. What if the negligence of the
employer or its employees facilitated the consummation
of a crime committed by the registered guest's relatives or
visitor? Should the law exculpate the hotel from liability
since the loss was due to the act of the visitor of the
registered guest of the hotel? Hence, this provision
presupposes that the hotel-keeper is not guilty of
concurrent negligence or has not contributed in any
degree to the occurrence of the loss. A depositary is not
responsible for the loss of goods by theft, unless his
actionable negligence contributes to the loss. 44
In the case at bar, the responsibility of securing the
safety deposit box was shared not only by the guest
himself but also by the management since two keys are
necessary to open the safety deposit box. Without the
assistance of hotel employees, the loss would not have
occurred. Thus, Tropicana was guilty of concurrent
negligence in allowing Tan, who was not the registered
guest, to open the safety deposit box of McLoughlin, even
assuming that the latter was also guilty of negligence in
allowing another person to use his key. To rule otherwise
would result in undermining the safety of the safety
deposit boxes in hotels for the management will be given
imprimatur to allow any person, under the pretense of
being a family member or a visitor of the guest, to have
access to the safety deposit box without fear of any liability
that will attach thereafter in case such person turns out to
be a complete stranger. This will allow the hotel to evade
responsibility for any liability incurred by its employees in
conspiracy with the guest's relatives and visitors. DaECST
 residence to Sydney Airport and from MIA to the hotel
Petitioners contend that McLoughlin's case was here in Manila, for the eleven (11) trips; 52 one-half of
mounted on the theory of contract, but the trial court and P7,801.94 or P3,900.97 representing Meralco power
the appellate court upheld the grant of the claims of the expenses; 53 one- half of P356,400.00 or P178,000.00
latter on the basis of tort. 45 There is nothing anomalous representing expenses for food and maintenance. 54
in how the lower courts decided the controversy for this
Court has pronounced a jurisprudential rule that tort
The amount of P50,000.00 for moral damages is
liability can exist even if there are already contractual
reasonable. Although trial courts are given discretion to
relations. The act that breaks the contract may also be
determine the amount of moral damages, the appellate
tort. 46
court may modify or change the amount awarded when it
is palpably and scandalously excessive. Moral damages
As to damages awarded to McLoughlin, we see no are not intended to enrich a complainant at the expense
reason to modify the amounts awarded by the appellate of a defendant. They are awarded only to enable the
court for the same were based on facts and law. It is within injured party to obtain means, diversion or amusements
the province of lower courts to settle factual issues such that will serve to alleviate the moral suffering he has
as the proper amount of damages awarded and such undergone, by reason of defendants' culpable action. 55
nding is binding upon this Court especially if su ciently
proven by evidence and not unconscionable or excessive.
Thus, the appellate court correctly awarded McLoughlin
Two Thousand US Dollars (US$2,000.00) and Four
Thousand Five Hundred Australian dollars The awards of P10,000.00 as exemplary damages
(AUS$4,500.00) or their peso equivalent at the time of and P200,000.00 representing attorney's fees are
payment, 47 being the amounts duly proven by evidence.
likewise sustained.
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. WHEREFORE, foregoing premises considered, the
The appellate court also correctly awarded the sum of Decision of the Court of Appeals dated 19 October 1995
P308,880.80, representing the peso value for the air fares is hereby AFFIRMED. Petitioners are directed, jointly and
from Sydney to Manila and back for a total of eleven (11) severally, to pay private respondent the following
trips; 49 one-half of P336,207.05 or P168,103.52 amounts:
representing payment to Tropicana; 50 one -half of
P152,683.57 or P76,341.785 representing payment to
Echelon Tower; 51 one-half of P179,863.20 or P89,931.60
for the taxi or transportation expenses from McLoughlin's
(2) US$2,000.00 and AUS$4,500.00
or their peso equivalent at the (9) P50,000.00 for moral damages;
time of payment;
(10) P10,000.00 as exemplary damages; and
(3) P308,880.80, representing the peso
value for the air fares from Sydney (11) P200,000 representing attorney's fees.
to Manila and back for a total of
eleven (11) trips; With costs.

(4) One-half of P336,207.05 or

P168,103.52 representing SO ORDERED.
payment to Tropicana
Copacabana Apartment Puno, Callejo, Sr. and Chico-Nazario, JJ., concur.
Hotel;

(5) One-half of P152,683.57 or Austria-Martinez, J., took no part.

P76,341.785 representing payment
to Echelon Tower;

(6) One-half of P179,863.20 or

P89,931.60 for the taxi or
transportation expense from
McLoughlin's residence to Sydney
Airport and from MIA to the hotel
here in Manila, for the eleven (11)
trips;

(7) One-half of P7,801.94 or P3,900.97

representing Meralco power expenses;

(8) One-half of P356,400.00 or

P178,200.00 representing
expenses for food and
maintenance;