ARTICLE 1980

THIRD DIVISION

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

ASSOCIATED BANK (Now WESTMONT BANK), petitioner, vs. VICENTE HENRY

TAN, respondent.

DECISION
PANGANIBAN, J.:

While banks are granted by law the right to debit the value of a dishonored check
from a depositors account, they must do so with the highest degree of care, so as not to
prejudice the depositor unduly.

The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, assailing the
January 27, 2003 Decision[2] of the Court of Appeals (CA) in CA-GR CV No. 56292. The
CA disposed as follows:

WHEREFORE, premises considered, the Decision dated December 3, 1996, of

the Regional Trial Court of Cabanatuan City, Third Judicial Region, Branch 26, in Civil
Case No. 892-AF is hereby AFFIRMED. Costs against the [petitioner].[3]

The Facts

The CA narrated the antecedents as follows:

Vicente Henry Tan (hereafter TAN) is a businessman and a regular depositor-creditor of

the Associated Bank (hereinafter referred to as the BANK). Sometime in September
1990, he deposited a postdated UCPB check with the said BANK in the amount
of P101,000.00 issued to him by a certain Willy Cheng from Tarlac. The check was duly
entered in his bank record thereby making his balance in the amount of P297,000.00,
as of October 1, 1990, from his original deposit of P196,000.00. Allegedly, upon advice
and instruction of the BANK that the P101,000.00 check was already cleared and
backed up by sufficient funds, TAN, on the same date, withdrew the sum
of P240,000.00, leaving a balance of P57,793.45. A day after, TAN deposited the
amount of P50,000.00 making his existing balance in the amount of P107,793.45,
because he has issued several checks to his business partners, to wit:

CHECK NUMBERS DATE AMOUNT

a. 138814 Sept. 29, 1990 P9,000.00

b. 138804 Oct. 8, 1990 9,350.00
c. 138787 Sept. 30, 1990 6,360.00
d. 138847 Sept. 29, 1990 21,850.00
e. 167054 Sept. 29, 1990 4,093.40
f. 138792 ` Sept. 29, 1990 3,546.00
g. 138774 Oct. 2, 1990 6,600.00
h. 167072 Oct. 10, 1990 9,908.00
i. 168802 Oct. 10, 1990 3,650.00

However, his suppliers and business partners went back to him alleging that the checks
he issued bounced for insufficiency of funds. Thereafter, TAN, thru his lawyer, informed
the BANK to take positive steps regarding the matter for he has adequate and sufficient
funds to pay the amount of the subject checks. Nonetheless, the BANK did not bother
nor offer any apology regarding the incident. Consequently, TAN, as plaintiff, filed a
Complaint for Damages on December 19, 1990, with the Regional Trial Court of
Cabanatuan City, Third Judicial Region, docketed as Civil Case No. 892-AF, against the
BANK, as defendant.

In his [C]omplaint, [respondent] maintained that he ha[d] sufficient funds to pay the
subject checks and alleged that his suppliers decreased in number for lack of trust. As
he has been in the business community for quite a time and has established a good
record of reputation and probity, plaintiff claimed that he suffered embarrassment,
humiliation, besmirched reputation, mental anxieties and sleepless nights because of
the said unfortunate incident. [Respondent] further averred that he continuously lost
profits in the amount of P250,000.00. [Respondent] therefore prayed for exemplary
damages and that [petitioner] be ordered to pay him the sum of P1,000,000.00 by way
of moral damages, P250,000.00 as lost profits, P50,000.00 as attorneys fees plus 25%
of the amount claimed including P1,000.00 per court appearance.

Meanwhile, [petitioner] filed a Motion to Dismiss on February 7, 1991, but the same was
denied for lack of merit in an Order dated March 7, 1991. Thereafter, [petitioner] BANK
on March 20, 1991 filed its Answer denying, among others, the allegations of
[respondent] and alleged that no banking institution would give an assurance to any of
its client/depositor that the check deposited by him had already been cleared and
backed up by sufficient funds but it could only presume that the same has been honored
by the drawee bank in view of the lapse of time that ordinarily takes for a check to be
cleared. For its part, [petitioner] alleged that on October 2, 1990, it gave notice to the
[respondent] as to the return of his UCPB check deposit in the amount of P101,000.00,
hence, on even date, [respondent] deposited the amount of P50,000.00 to cover the
returned check.

By way of affirmative defense, [petitioner] averred that [respondent] had no cause of

action against it and argued that it has all the right to debit the account of the
[respondent] by reason of the dishonor of the check deposited by the [respondent]
which was withdrawn by him prior to its clearing. [Petitioner] further averred that it has
no liability with respect to the clearing of deposited checks as the clearing is being
undertaken by the Central Bank and in accepting [the] check deposit, it merely obligates
itself as depositors collecting agent subject to actual payment by the drawee
bank. [Petitioner] therefore prayed that [respondent] be ordered to pay it the amount
of P1,000,000.00 by way of loss of goodwill, P7,000.00 as acceptance fee plus P500.00
per appearance and by way of attorneys fees.

Considering that Westmont Bank has taken over the management of the
affairs/properties of the BANK, [respondent] on October 10, 1996, filed an Amended
Complaint reiterating substantially his allegations in the original complaint, except that
the name of the previous defendant ASSOCIATED BANK is now WESTMONT BANK.

Trial ensured and thereafter, the court rendered its Decision dated December 3, 1996 in
favor of the [respondent] and against the [petitioner], ordering the latter to pay the
[respondent] the sum of P100,000.00 by way of moral damages, P75,000.00 as
exemplary damages, P25,000.00 as attorneys fees, plus the costs of this suit. In making
said ruling, it was shown that [respondent] was not officially informed about the debiting
of the P101,000.00 [from] his existing balance and that the BANK merely allowed the
[respondent] to use the fund prior to clearing merely for accommodation because the
BANK considered him as one of its valued clients. The trial court ruled that the bank
manager was negligent in handling the particular checking account of the [respondent]
stating that such lapses caused all the inconveniences to the [respondent]. The trial
court also took into consideration that [respondents] mother was originally maintaining
with the x x x BANK [a] current account as well as [a] time deposit, but [o]n one
occasion, although his mother made a deposit, the same was not credited in her favor
but in the name of another.[4]

Petitioner appealed to the CA on the issues of whether it was within its rights, as
collecting bank, to debit the account of its client for a dishonored check; and whether it
had informed respondent about the dishonor prior to debiting his account.

Ruling of the Court of Appeals

Affirming the trial court, the CA ruled that the bank should not have authorized the
withdrawal of the value of the deposited check prior to its clearing. Having done so,
contrary to its obligation to treat respondents account with meticulous care, the bank
violated its own policy. It thereby took upon itself the obligation to officially inform
respondent of the status of his account before unilaterally debiting the amount
of P101,000. Without such notice, it is estopped from blaming him for failing to fund his
account.
The CA opined that, had the P101,000 not been debited, respondent would have had
sufficient funds for the postdated checks he had issued. Thus, the supposed
accommodation accorded by petitioner to him is the proximate cause of his business
woes and shame, for which it is liable for damages.
Because of the banks negligence, the CA awarded respondent moral damages
of P100,000. It also granted him exemplary damages of P75,000 and attorneys fees
of P25,000.
Hence this Petition.[5]

Issue

In its Memorandum, petitioner raises the sole issue of whether or not the petitioner,
which is acting as a collecting bank, has the right to debit the account of its client for a
check deposit which was dishonored by the drawee bank.[6]

The Courts Ruling

The Petition has no merit.

Sole Issue:
Debit of Depositors Account

Petitioner-bank contends that its rights and obligations under the present set of facts
were misappreciated by the CA. It insists that its right to debit the amount of the
dishonored check from the account of respondent is clear and unmistakable. Even
assuming that it did not give him notice that the check had been dishonored, such right
remains immediately enforceable.
In particular, petitioner argues that the check deposit slip accomplished by
respondent on September 17, 1990, expressly stipulated that the bank was obligating
itself merely as the depositors collecting agent and -- until such time as actual payment
would be made to it -- it was reserving the right to charge against the depositors account
any amount previously credited. Respondent was allowed to withdraw the amount of the
check prior to clearing, merely as an act of accommodation, it added.
At the outset, we stress that the trial courts factual findings that were affirmed by the
CA are not subject to review by this Court.[7] As petitioner itself takes no issue with those
findings, we need only to determine the legal consequence, based on the established
facts.
Right of Setoff

A bank generally has a right of setoff over the deposits therein for the payment of any
withdrawals on the part of a depositor.[8] The right of a collecting bank to debit a clients
account for the value of a dishonored check that has previously been credited has fairly
been established by jurisprudence. To begin with, Article 1980 of the Civil Code provides
that [f]ixed, savings, and current deposits of money in banks and similar institutions shall
be governed by the provisions concerning simple loan.
Hence, the relationship between banks and depositors has been held to be that of
creditor and debtor.[9] Thus, legal compensation under Article 1278[10] of the Civil Code
may take place when all the requisites mentioned in Article 1279 are present, [11] as
follows:

(1) That each one of the obligors be bound principally, and that he be at the same time
a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the latter
has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor.[12]

Nonetheless, the real issue here is not so much the right of petitioner to debit
respondents account but, rather, the manner in which it exercised such right. The Court
has held that even while the right of setoff is conceded, separate is the question of
whether that remedy has properly been exercised.[13]
The liability of petitioner in this case ultimately revolves around the issue of whether
it properly exercised its right of setoff. The determination thereof hinges, in turn, on the
banks role and obligations, first, as respondents depositary bank; and second, as
collecting agent for the check in question.

Obligation as
Depositary Bank

In BPI v. Casa Montessori,[14] the Court has emphasized that the banking business is
impressed with public interest. Consequently, the highest degree of diligence is expected,
and high standards of integrity and performance are even required of it. By the nature of
its functions, a bank is under obligation to treat the accounts of its depositors with
meticulous care.[15]
Also affirming this long standing doctrine, Philippine Bank of Commerce v. Court of
Appeals[16] has held that the degree of diligence required of banks is more than that of a
good father of a family where the fiduciary nature of their relationship with their depositors
is concerned.[17] Indeed, the banking business is vested with the trust and confidence of
the public; hence the appropriate standard of diligence must be very high, if not the
highest, degree of diligence.[18] The standard applies, regardless of whether the account
consists of only a few hundred pesos or of millions.[19]
The fiduciary nature of banking, previously imposed by case law,[20] is now enshrined
in Republic Act No. 8791 or the General Banking Law of 2000. Section 2 of the law
specifically says that the State recognizes the fiduciary nature of banking that requires
high standards of integrity and performance.
Did petitioner treat respondents account with the highest degree of care? From all
indications, it did not.
It is undisputed -- nay, even admitted -- that purportedly as an act of accommodation
to a valued client, petitioner allowed the withdrawal of the face value of the deposited
check prior to its clearing. That act certainly disregarded the clearance requirement of the
banking system. Such a practice is unusual, because a check is not legal tender or
money;[21] and its value can properly be transferred to a depositors account only after the
check has been cleared by the drawee bank.[22]
Under ordinary banking practice, after receiving a check deposit, a
bank either immediately credit the amount to a depositors account; or infuse value to that
account only after the drawee bank shall have paid such amount. [23] Before the check
shall have been cleared for deposit, the collecting bank can only assume at its own risk -
- as herein petitioner did -- that the check would be cleared and paid out.
Reasonable business practice and prudence, moreover, dictated that petitioner
should not have authorized the withdrawal by respondent of P240,000 on October 1,
1990, as this amount was over and above his outstanding cleared balance
of P196,793.45.[24] Hence, the lower courts correctly appreciated the evidence in his
favor.

Obligation as
Collecting Agent

Indeed, the bank deposit slip expressed this reservation:

In receiving items on deposit, this Bank obligates itself only as the Depositors Collecting
agent, assuming no responsibility beyond carefulness in selecting correspondents, and
until such time as actual payments shall have come to its possession, this Bank
reserves the right to charge back to the Depositors account any amounts previously
credited whether or not the deposited item is returned. x x x." [25]

However, this reservation is not enough to insulate the bank from any liability. In the
past, we have expressed doubt about the binding force of such conditions unilaterally
imposed by a bank without the consent of the depositor.[26] It is indeed arguable that in
signing the deposit slip, the depositor does so only to identify himself and not to agree to
the conditions set forth at the back of the deposit slip.[27]
Further, by the express terms of the stipulation, petitioner took upon itself certain
obligations as respondents agent, consonant with the well-settled rule that the
relationship between the payee or holder of a commercial paper and the collecting bank
is that of principal and agent.[28] Under Article 1909[29] of the Civil Code, such bank could
be held liable not only for fraud, but also for negligence.
As a general rule, a bank is liable for the wrongful or tortuous acts and declarations
of its officers or agents within the course and scope of their employment. [30] Due to the
very nature of their business, banks are expected to exercise the highest degree of
diligence in the selection and supervision of their employees. [31]Jurisprudence has
established that the lack of diligence of a servant is imputed to the negligence of the
employer, when the negligent or wrongful act of the former proximately results in an injury
to a third person;[32] in this case, the depositor.
The manager of the banks Cabanatuan branch, Consorcia Santiago, categorically
admitted that she and the employees under her control had breached bank policies. They
admittedly breached those policies when, without clearance from the drawee bank
in Baguio, they allowed respondent to withdraw on October 1, 1990, the amount of the
check deposited. Santiago testified that respondent was not officially informed about the
debiting of the P101,000 from his existing balance of P170,000 on October 2, 1990 x x
x.[33]
Being the branch manager, Santiago clearly acted within the scope of her authority
in authorizing the withdrawal and the subsequent debiting without notice. Accordingly,
what remains to be determined is whether her actions proximately caused respondents
injury. Proximate cause is that which -- in a natural and continuous sequence, unbroken
by any efficient intervening cause --produces the injury, and without which the result
would not have occurred.[34]
Let us go back to the facts as they unfolded. It is undeniable that the banks premature
authorization of the withdrawal by respondent on October 1, 1990, triggered -- in rapid
succession and in a natural sequence -- the debiting of his account, the fall of his account
balance to insufficient levels, and the subsequent dishonor of his own checks for lack of
funds. The CA correctly noted thus:

x x x [T]he depositor x x x withdrew his money upon the advice by [petitioner] that his
money was already cleared. Without such advice, [respondent] would not have
withdrawn the sum of P240,000.00. Therefore, it cannot be denied that it was
[petitioners] fault which allowed [respondent] to withdraw a huge sum which he believed
was already his.

To emphasize, it is beyond cavil that [respondent] had sufficient funds for the
check. Had the P101,000.00 not [been] debited, the subject checks would not have
been dishonored. Hence, we can say that [respondents] injury arose from the dishonor
of his well-funded checks. x x x.[35]
 Aggravating matters, petitioner failed to show that it had immediately and duly
informed respondent of the debiting of his account. Nonetheless, it argues that the giving
of notice was discernible from his act of depositing P50,000 on October 2, 1990, to
augment his account and allow the debiting. This argument deserves short shrift.
First, notice was proper and ought to be expected. By the bank managers account,
respondent was considered a valued client whose checks had always been sufficiently
funded from 1987 to 1990,[36] until the October imbroglio. Thus, he deserved nothing less
than an official notice of the precarious condition of his account.
Second, under the provisions of the Negotiable Instruments Law regarding the liability
of a general indorser[37] and the procedure for a notice of dishonor,[38] it was incumbent
on the bank to give proper notice to respondent. In Gullas v. National Bank,[39] the Court
emphasized:

x x x [A] general indorser of a negotiable instrument engages that if the instrument the
check in this case is dishonored and the necessary proceedings for its dishonor are duly
taken, he will pay the amount thereof to the holder (Sec. 66) It has been held by a long
line of authorities that notice of dishonor is necessary to charge an indorser and that the
right of action against him does not accrue until the notice is given.

x x x. The fact we believe is undeniable that prior to the mailing of notice of dishonor,
and without waiting for any action by Gullas, the bank made use of the money standing
in his account to make good for the treasury warrant. At this point recall that Gullas was
merely an indorser and had issued checks in good faith. As to a depositor who has
funds sufficient to meet payment of a check drawn by him in favor of a third party, it has
been held that he has a right of action against the bank for its refusal to pay such a
check in the absence of notice to him that the bank has applied the funds so deposited
in extinguishment of past due claims held against him. (Callahan vs. Bank of Anderson
[1904], 2 Ann. Cas., 203.) However this may be, as to an indorser the situation is
different, and notice should actually have been given him in order that he might protect
his interests.[40]

Third, regarding the deposit of P50,000 made by respondent on October 2, 1990, we

fully subscribe to the CAs observations that it was not unusual for a well-reputed
businessman like him, who ordinarily takes note of the amount of money he takes and
releases, to immediately deposit money in his current account to answer for the postdated
checks he had issued.[41]

Damages

Inasmuch as petitioner does not contest the basis for the award of damages and
attorneys fees, we will no longer address these matters.
 WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs
against petitioner.
SO ORDERED.
Sandoval-Gutierrez, Carpio-Morales, and Garcia, JJ., concur.
Corona, J., on leave.
 SECOND DIVISION

G.R. No. 115324 February 19, 2003

PRODUCERS BANK OF THE PHILIPPINES (now FIRST INTERNATIONAL

BANK), petitioner,
vs.
HON. COURT OF APPEALS AND FRANKLIN VIVES, respondents.

DECISION

CALLEJO, SR., J.:

This is a petition for review on certiorari of the Decision1 of the Court of Appeals dated
June 25, 1991 in CA-G.R. CV No. 11791 and of its Resolution2 dated May 5, 1994,
denying the motion for reconsideration of said decision filed by petitioner Producers
Bank of the Philippines.

Sometime in 1979, private respondent Franklin Vives was asked by his neighbor and
friend Angeles Sanchez to help her friend and townmate, Col. Arturo Doronilla, in
incorporating his business, the Sterela Marketing and Services ("Sterela" for brevity).
Specifically, Sanchez asked private respondent to deposit in a bank a certain amount of
money in the bank account of Sterela for purposes of its incorporation. She assured
private respondent that he could withdraw his money from said account within a month’s
time. Private respondent asked Sanchez to bring Doronilla to their house so that they
could discuss Sanchez’s request.3

On May 9, 1979, private respondent, Sanchez, Doronilla and a certain Estrella

Dumagpi, Doronilla’s private secretary, met and discussed the matter. Thereafter,
relying on the assurances and representations of Sanchez and Doronilla, private
respondent issued a check in the amount of Two Hundred Thousand Pesos
(₱200,000.00) in favor of Sterela. Private respondent instructed his wife, Mrs. Inocencia
Vives, to accompany Doronilla and Sanchez in opening a savings account in the name
of Sterela in the Buendia, Makati branch of Producers Bank of the Philippines. However,
only Sanchez, Mrs. Vives and Dumagpi went to the bank to deposit the check. They had
with them an authorization letter from Doronilla authorizing Sanchez and her
companions, "in coordination with Mr. Rufo Atienza," to open an account for Sterela
Marketing Services in the amount of ₱200,000.00. In opening the account, the
authorized signatories were Inocencia Vives and/or Angeles Sanchez. A passbook for
Savings Account No. 10-1567 was thereafter issued to Mrs. Vives.4

Subsequently, private respondent learned that Sterela was no longer holding office in
the address previously given to him. Alarmed, he and his wife went to the Bank to verify
if their money was still intact. The bank manager referred them to Mr. Rufo Atienza, the
assistant manager, who informed them that part of the money in Savings Account No.
10-1567 had been withdrawn by Doronilla, and that only ₱90,000.00 remained therein.
He likewise told them that Mrs. Vives could not withdraw said remaining amount
because it had to answer for some postdated checks issued by Doronilla. According to
Atienza, after Mrs. Vives and Sanchez opened Savings Account No. 10-1567, Doronilla
opened Current Account No. 10-0320 for Sterela and authorized the Bank to debit
Savings Account No. 10-1567 for the amounts necessary to cover overdrawings in
Current Account No. 10-0320. In opening said current account, Sterela, through
Doronilla, obtained a loan of ₱175,000.00 from the Bank. To cover payment thereof,
Doronilla issued three postdated checks, all of which were dishonored. Atienza also
said that Doronilla could assign or withdraw the money in Savings Account No. 10-1567
because he was the sole proprietor of Sterela.5

Private respondent tried to get in touch with Doronilla through Sanchez. On June 29,
1979, he received a letter from Doronilla, assuring him that his money was intact and
would be returned to him. On August 13, 1979, Doronilla issued a postdated check for
Two Hundred Twelve Thousand Pesos (₱212,000.00) in favor of private respondent.
However, upon presentment thereof by private respondent to the drawee bank, the
check was dishonored. Doronilla requested private respondent to present the same
check on September 15, 1979 but when the latter presented the check, it was again
dishonored.6

Private respondent referred the matter to a lawyer, who made a written demand upon
Doronilla for the return of his client’s money. Doronilla issued another check for
₱212,000.00 in private respondent’s favor but the check was again dishonored for
insufficiency of funds.7

Private respondent instituted an action for recovery of sum of money in the Regional
Trial Court (RTC) in Pasig, Metro Manila against Doronilla, Sanchez, Dumagpi and
petitioner. The case was docketed as Civil Case No. 44485. He also filed criminal
actions against Doronilla, Sanchez and Dumagpi in the RTC. However, Sanchez
passed away on March 16, 1985 while the case was pending before the trial court. On
October 3, 1995, the RTC of Pasig, Branch 157, promulgated its Decision in Civil Case
No. 44485, the dispositive portion of which reads:

IN VIEW OF THE FOREGOING, judgment is hereby rendered sentencing defendants

Arturo J. Doronila, Estrella Dumagpi and Producers Bank of the Philippines to pay
plaintiff Franklin Vives jointly and severally –
 (a) the amount of ₱200,000.00, representing the money deposited, with interest
at the legal rate from the filing of the complaint until the same is fully paid;

(b) the sum of ₱50,000.00 for moral damages and a similar amount for
exemplary damages;

(c) the amount of ₱40,000.00 for attorney’s fees; and

(d) the costs of the suit.

SO ORDERED.8

Petitioner appealed the trial court’s decision to the Court of Appeals. In its Decision
dated June 25, 1991, the appellate court affirmed in toto the decision of the RTC.9 It
likewise denied with finality petitioner’s motion for reconsideration in its Resolution
dated May 5, 1994.10

On June 30, 1994, petitioner filed the present petition, arguing that –

I.

THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT THE

TRANSACTION BETWEEN THE DEFENDANT DORONILLA AND RESPONDENT
VIVES WAS ONE OF SIMPLE LOAN AND NOT ACCOMMODATION;

II.

THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT

PETITIONER’S BANK MANAGER, MR. RUFO ATIENZA, CONNIVED WITH THE
OTHER DEFENDANTS IN DEFRAUDING PETITIONER (Sic. Should be PRIVATE
RESPONDENT) AND AS A CONSEQUENCE, THE PETITIONER SHOULD BE HELD
LIABLE UNDER THE PRINCIPLE OF NATURAL JUSTICE;

III.

THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING THE ENTIRE

RECORDS OF THE REGIONAL TRIAL COURT AND AFFIRMING THE JUDGMENT
APPEALED FROM, AS THE FINDINGS OF THE REGIONAL TRIAL COURT WERE
BASED ON A MISAPPREHENSION OF FACTS;

IV.

THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT THE CITED

DECISION IN SALUDARES VS. MARTINEZ, 29 SCRA 745, UPHOLDING THE
LIABILITY OF AN EMPLOYER FOR ACTS COMMITTED BY AN EMPLOYEE IS
APPLICABLE;
 V.

THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE DECISION

OF THE LOWER COURT THAT HEREIN PETITIONER BANK IS JOINTLY AND
SEVERALLY LIABLE WITH THE OTHER DEFENDANTS FOR THE AMOUNT OF
P200,000.00 REPRESENTING THE SAVINGS ACCOUNT DEPOSIT, P50,000.00 FOR
MORAL DAMAGES, P50,000.00 FOR EXEMPLARY DAMAGES, P40,000.00 FOR
ATTORNEY’S FEES AND THE COSTS OF SUIT.11

Private respondent filed his Comment on September 23, 1994. Petitioner filed its Reply
thereto on September 25, 1995. The Court then required private respondent to submit a
rejoinder to the reply. However, said rejoinder was filed only on April 21, 1997, due to
petitioner’s delay in furnishing private respondent with copy of the reply12 and several
substitutions of counsel on the part of private respondent.13 On January 17, 2001, the
Court resolved to give due course to the petition and required the parties to submit their
respective memoranda.14 Petitioner filed its memorandum on April 16, 2001 while
private respondent submitted his memorandum on March 22, 2001.

Petitioner contends that the transaction between private respondent and Doronilla is a
simple loan (mutuum) since all the elements of a mutuum are present: first, what was
delivered by private respondent to Doronilla was money, a consumable thing; and
second, the transaction was onerous as Doronilla was obliged to pay interest, as
evidenced by the check issued by Doronilla in the amount of ₱212,000.00, or ₱12,000
more than what private respondent deposited in Sterela’s bank account. 15 Moreover, the
fact that private respondent sued his good friend Sanchez for his failure to recover his
money from Doronilla shows that the transaction was not merely gratuitous but "had a
business angle" to it. Hence, petitioner argues that it cannot be held liable for the return
of private respondent’s ₱200,000.00 because it is not privy to the transaction between
the latter and Doronilla.16

It argues further that petitioner’s Assistant Manager, Mr. Rufo Atienza, could not be
faulted for allowing Doronilla to withdraw from the savings account of Sterela since the
latter was the sole proprietor of said company. Petitioner asserts that Doronilla’s May 8,
1979 letter addressed to the bank, authorizing Mrs. Vives and Sanchez to open a
savings account for Sterela, did not contain any authorization for these two to withdraw
from said account. Hence, the authority to withdraw therefrom remained exclusively with
Doronilla, who was the sole proprietor of Sterela, and who alone had legal title to the
savings account.17 Petitioner points out that no evidence other than the testimonies of
private respondent and Mrs. Vives was presented during trial to prove that private
respondent deposited his ₱200,000.00 in Sterela’s account for purposes of its
incorporation.18 Hence, petitioner should not be held liable for allowing Doronilla to
withdraw from Sterela’s savings account.1a\^/phi1.net

Petitioner also asserts that the Court of Appeals erred in affirming the trial court’s
decision since the findings of fact therein were not accord with the evidence presented
by petitioner during trial to prove that the transaction between private respondent and
Doronilla was a mutuum, and that it committed no wrong in allowing Doronilla to
withdraw from Sterela’s savings account.19

Finally, petitioner claims that since there is no wrongful act or omission on its part, it is
not liable for the actual damages suffered by private respondent, and neither may it be
held liable for moral and exemplary damages as well as attorney’s fees. 20

Private respondent, on the other hand, argues that the transaction between him and
Doronilla is not a mutuum but an accommodation,21 since he did not actually part with
the ownership of his ₱200,000.00 and in fact asked his wife to deposit said amount in
the account of Sterela so that a certification can be issued to the effect that Sterela had
sufficient funds for purposes of its incorporation but at the same time, he retained some
degree of control over his money through his wife who was made a signatory to the
savings account and in whose possession the savings account passbook was given. 22

He likewise asserts that the trial court did not err in finding that petitioner, Atienza’s
employer, is liable for the return of his money. He insists that Atienza, petitioner’s
assistant manager, connived with Doronilla in defrauding private respondent since it
was Atienza who facilitated the opening of Sterela’s current account three days after
Mrs. Vives and Sanchez opened a savings account with petitioner for said company, as
well as the approval of the authority to debit Sterela’s savings account to cover any
overdrawings in its current account.23

There is no merit in the petition.

At the outset, it must be emphasized that only questions of law may be raised in a
petition for review filed with this Court. The Court has repeatedly held that it is not its
function to analyze and weigh all over again the evidence presented by the parties
during trial.24 The Court’s jurisdiction is in principle limited to reviewing errors of law that
might have been committed by the Court of Appeals.25 Moreover, factual findings of
courts, when adopted and confirmed by the Court of Appeals, are final and conclusive
on this Court unless these findings are not supported by the evidence on
record.26 There is no showing of any misapprehension of facts on the part of the Court
of Appeals in the case at bar that would require this Court to review and overturn the
factual findings of that court, especially since the conclusions of fact of the Court of
Appeals and the trial court are not only consistent but are also amply supported by the
evidence on record.

No error was committed by the Court of Appeals when it ruled that the transaction
between private respondent and Doronilla was a commodatum and not a mutuum. A
circumspect examination of the records reveals that the transaction between them was
a commodatum. Article 1933 of the Civil Code distinguishes between the two kinds of
loans in this wise:

By the contract of loan, one of the parties delivers to another, either something not
consumable so that the latter may use the same for a certain time and return it, in which
case the contract is called a commodatum; or money or other consumable thing, upon
the condition that the same amount of the same kind and quality shall be paid, in which
case the contract is simply called a loan or mutuum.

Commodatum is essentially gratuitous.

Simple loan may be gratuitous or with a stipulation to pay interest.

In commodatum, the bailor retains the ownership of the thing loaned, while in simple
loan, ownership passes to the borrower.

The foregoing provision seems to imply that if the subject of the contract is a
consumable thing, such as money, the contract would be a mutuum. However, there are
some instances where a commodatum may have for its object a consumable thing.
Article 1936 of the Civil Code provides:

Consumable goods may be the subject of commodatum if the purpose of the contract is
not the consumption of the object, as when it is merely for exhibition.

Thus, if consumable goods are loaned only for purposes of exhibition, or when the
intention of the parties is to lend consumable goods and to have the very same goods
returned at the end of the period agreed upon, the loan is a commodatum and not a
mutuum.

The rule is that the intention of the parties thereto shall be accorded primordial
consideration in determining the actual character of a contract.27 In case of doubt, the
contemporaneous and subsequent acts of the parties shall be considered in such
determination.28

As correctly pointed out by both the Court of Appeals and the trial court, the evidence
shows that private respondent agreed to deposit his money in the savings account of
Sterela specifically for the purpose of making it appear "that said firm had sufficient
capitalization for incorporation, with the promise that the amount shall be returned within
thirty (30) days."29 Private respondent merely "accommodated" Doronilla by lending his
money without consideration, as a favor to his good friend Sanchez. It was however
clear to the parties to the transaction that the money would not be removed from
Sterela’s savings account and would be returned to private respondent after thirty (30)
days.

Doronilla’s attempts to return to private respondent the amount of ₱200,000.00 which

the latter deposited in Sterela’s account together with an additional ₱12,000.00,
allegedly representing interest on the mutuum, did not convert the transaction from a
commodatum into a mutuum because such was not the intent of the parties and
because the additional ₱12,000.00 corresponds to the fruits of the lending of the
₱200,000.00. Article 1935 of the Civil Code expressly states that "[t]he bailee in
commodatum acquires the use of the thing loaned but not its fruits." Hence, it was only
proper for Doronilla to remit to private respondent the interest accruing to the latter’s
money deposited with petitioner.

Neither does the Court agree with petitioner’s contention that it is not solidarily liable for
the return of private respondent’s money because it was not privy to the transaction
between Doronilla and private respondent. The nature of said transaction, that is,
whether it is a mutuum or a commodatum, has no bearing on the question of petitioner’s
liability for the return of private respondent’s money because the factual circumstances
of the case clearly show that petitioner, through its employee Mr. Atienza, was partly
responsible for the loss of private respondent’s money and is liable for its restitution.

Petitioner’s rules for savings deposits written on the passbook it issued Mrs. Vives on
behalf of Sterela for Savings Account No. 10-1567 expressly states that—

"2. Deposits and withdrawals must be made by the depositor personally or upon his
written authority duly authenticated, and neither a deposit nor a withdrawal will be
permitted except upon the production of the depositor savings bank book in which will
be entered by the Bank the amount deposited or withdrawn." 30

Said rule notwithstanding, Doronilla was permitted by petitioner, through Atienza, the
Assistant Branch Manager for the Buendia Branch of petitioner, to withdraw therefrom
even without presenting the passbook (which Atienza very well knew was in the
possession of Mrs. Vives), not just once, but several times. Both the Court of Appeals
and the trial court found that Atienza allowed said withdrawals because he was party to
Doronilla’s "scheme" of defrauding private respondent:

XXX

But the scheme could not have been executed successfully without the knowledge, help
and cooperation of Rufo Atienza, assistant manager and cashier of the Makati
(Buendia) branch of the defendant bank. Indeed, the evidence indicates that Atienza
had not only facilitated the commission of the fraud but he likewise helped in devising
the means by which it can be done in such manner as to make it appear that the
transaction was in accordance with banking procedure.

To begin with, the deposit was made in defendant’s Buendia branch precisely because
Atienza was a key officer therein. The records show that plaintiff had suggested that the
₱200,000.00 be deposited in his bank, the Manila Banking Corporation, but Doronilla
and Dumagpi insisted that it must be in defendant’s branch in Makati for "it will be easier
for them to get a certification". In fact before he was introduced to plaintiff, Doronilla had
already prepared a letter addressed to the Buendia branch manager authorizing
Angeles B. Sanchez and company to open a savings account for Sterela in the amount
of ₱200,000.00, as "per coordination with Mr. Rufo Atienza, Assistant Manager of the
Bank x x x" (Exh. 1). This is a clear manifestation that the other defendants had been in
consultation with Atienza from the inception of the scheme. Significantly, there were
testimonies and admission that Atienza is the brother-in-law of a certain Romeo Mirasol,
a friend and business associate of Doronilla.1awphi1.nét

Then there is the matter of the ownership of the fund. Because of the "coordination"
between Doronilla and Atienza, the latter knew before hand that the money deposited
did not belong to Doronilla nor to Sterela. Aside from such foreknowledge, he was
explicitly told by Inocencia Vives that the money belonged to her and her husband and
the deposit was merely to accommodate Doronilla. Atienza even declared that the
money came from Mrs. Vives.

Although the savings account was in the name of Sterela, the bank records disclose
that the only ones empowered to withdraw the same were Inocencia Vives and Angeles
B. Sanchez. In the signature card pertaining to this account (Exh. J), the authorized
signatories were Inocencia Vives &/or Angeles B. Sanchez. Atienza stated that it is the
usual banking procedure that withdrawals of savings deposits could only be made by
persons whose authorized signatures are in the signature cards on file with the bank.
He, however, said that this procedure was not followed here because Sterela was
owned by Doronilla. He explained that Doronilla had the full authority to withdraw by
virtue of such ownership. The Court is not inclined to agree with Atienza. In the first
place, he was all the time aware that the money came from Vives and did not belong to
Sterela. He was also told by Mrs. Vives that they were only accommodating Doronilla so
that a certification can be issued to the effect that Sterela had a deposit of so much
amount to be sued in the incorporation of the firm. In the second place, the signature of
Doronilla was not authorized in so far as that account is concerned inasmuch as he had
not signed the signature card provided by the bank whenever a deposit is opened. In
the third place, neither Mrs. Vives nor Sanchez had given Doronilla the authority to
withdraw.

Moreover, the transfer of fund was done without the passbook having been presented. It
is an accepted practice that whenever a withdrawal is made in a savings deposit, the
bank requires the presentation of the passbook. In this case, such recognized practice
was dispensed with. The transfer from the savings account to the current account was
without the submission of the passbook which Atienza had given to Mrs. Vives. Instead,
it was made to appear in a certification signed by Estrella Dumagpi that a duplicate
passbook was issued to Sterela because the original passbook had been surrendered
to the Makati branch in view of a loan accommodation assigning the savings account
(Exh. C). Atienza, who undoubtedly had a hand in the execution of this certification, was
aware that the contents of the same are not true. He knew that the passbook was in the
hands of Mrs. Vives for he was the one who gave it to her. Besides, as assistant
manager of the branch and the bank official servicing the savings and current accounts
in question, he also was aware that the original passbook was never surrendered. He
was also cognizant that Estrella Dumagpi was not among those authorized to withdraw
so her certification had no effect whatsoever.

The circumstance surrounding the opening of the current account also demonstrate that
Atienza’s active participation in the perpetration of the fraud and deception that caused
the loss. The records indicate that this account was opened three days later after the
₱200,000.00 was deposited. In spite of his disclaimer, the Court believes that Atienza
was mindful and posted regarding the opening of the current account considering that
Doronilla was all the while in "coordination" with him. That it was he who facilitated the
approval of the authority to debit the savings account to cover any overdrawings in the
current account (Exh. 2) is not hard to comprehend.

Clearly Atienza had committed wrongful acts that had resulted to the loss subject of this
case. x x x.31

Under Article 2180 of the Civil Code, employers shall be held primarily and solidarily
liable for damages caused by their employees acting within the scope of their assigned
tasks. To hold the employer liable under this provision, it must be shown that an
employer-employee relationship exists, and that the employee was acting within the
scope of his assigned task when the act complained of was committed. 32 Case law in
the United States of America has it that a corporation that entrusts a general duty to its
employee is responsible to the injured party for damages flowing from the employee’s
wrongful act done in the course of his general authority, even though in doing such act,
the employee may have failed in its duty to the employer and disobeyed the latter’s
instructions.33

There is no dispute that Atienza was an employee of petitioner. Furthermore, petitioner

did not deny that Atienza was acting within the scope of his authority as Assistant
Branch Manager when he assisted Doronilla in withdrawing funds from Sterela’s
Savings Account No. 10-1567, in which account private respondent’s money was
deposited, and in transferring the money withdrawn to Sterela’s Current Account with
petitioner. Atienza’s acts of helping Doronilla, a customer of the petitioner, were
obviously done in furtherance of petitioner’s interests34 even though in the process,
Atienza violated some of petitioner’s rules such as those stipulated in its savings
account passbook.35 It was established that the transfer of funds from Sterela’s savings
account to its current account could not have been accomplished by Doronilla without
the invaluable assistance of Atienza, and that it was their connivance which was the
cause of private respondent’s loss.

The foregoing shows that the Court of Appeals correctly held that under Article 2180 of
the Civil Code, petitioner is liable for private respondent’s loss and is solidarily liable
with Doronilla and Dumagpi for the return of the ₱200,000.00 since it is clear that
petitioner failed to prove that it exercised due diligence to prevent the unauthorized
withdrawals from Sterela’s savings account, and that it was not negligent in the
selection and supervision of Atienza. Accordingly, no error was committed by the
appellate court in the award of actual, moral and exemplary damages, attorney’s fees
and costs of suit to private respondent.

WHEREFORE, the petition is hereby DENIED. The assailed Decision and Resolution of
the Court of Appeals are AFFIRMED.
SO ORDERED.

Bellosillo, (Chairman), Mendoza, Quisumbing and Austria-Martinez, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 179096 February 06, 2013

JOSEPH GOYANKO, JR., as administrator of the Estate of Joseph Goyanko,

Sr., Petitioner,
vs.
UNITED COCONUT PLANTERS BANK, MANGO AVENUE BRANCH, Respondent.

DECISION

BRION, J.:

We resolve the petition for review on certiorari1 filed by petitioner Joseph Goyanko, Jr.,
administrator of the Estate of Joseph Goyanko, Sr., to nullify the decision 2 dated
February 20, 2007 and the resolution3 dated July 31, 2007 of the Court of Appeals (CA)
in CA-G.R. CV. No. 00257 affirming the decision4 of the Regional Trial Court of Cebu
City, Branch 16(RTC) in Civil Case No. CEB-22277. The RTC dismissed the petitioner’s
complaint for recovery of sum money against United Coconut Planters Bank, Mango
Avenue Branch (UCPB).

The Factual Antecedents

In 1995, the late Joseph Goyanko, Sr. (Goyanko) invested Two Million Pesos
(P2,000,000.00) with Philippine Asia Lending Investors, Inc. family, represented by the
petitioner, and his illegitimate family presented conflicting claims to PALII for the release
of the investment. Pending the investigation of the conflicting claims, PALII deposited
the proceeds of the investment with UCPB on October 29, 19965 under the name "Phil
Asia: ITF (In Trust For) The Heirs of Joseph Goyanko, Sr." (ACCOUNT). On September
27, 1997, the deposit under the ACCOUNT was P1,509,318.76.

On December 11, 1997, UCPB allowed PALII to withdraw One Million Five Hundred
Thousand Pesos (P1,500,000.00) from the Account, leaving a balance of only
P9,318.76. When UCPB refused the demand to restore the amount withdrawn plus
legal interest from December 11, 1997, the petitioner filed a complaint before the RTC.
In its answer to the complaint, UCPB admitted, among others, the opening of the
ACCOUNT under the name "ITF (In Trust For) The Heirs of Joseph Goyanko, Sr.," (ITF
HEIRS) and the withdrawal on December 11, 1997.

The RTC Ruling

In its August 27, 2003 decision, the RTC dismissed the petitioner’s complaint and
awarded UCPB attorney’s fees, litigation expenses and the costs of the suit.6 The RTC
did not consider the words "ITF HEIRS" sufficient to charge UCPB with knowledge of
any trust relation between PALII and Goyanko’s heirs (HEIRS). It concluded that UCPB
merely performed its duty as a depository bank in allowing PALII to withdraw from the
ACCOUNT, as the contract of deposit was officially only between PALII, in its own
capacity, and UCPB. The petitioner appealed his case to the CA.

The CA’s Ruling

Before the CA, the petitioner maintained that by opening the ACCOUNT, PALII
established a trust by which it was the "trustee" and the HEIRS are the "trustors-
beneficiaries;" thus, UCPB should be liable for allowing the withdrawal.

The CA partially granted the petitioner’s appeal. It affirmed the August 27, 2003
decision of the RTC, but deleted the award of attorney’s fees and litigation expenses.
The CA held that no express trust was created between the HEIRS and PALII. For a
trust to be established, the law requires, among others, a competent trustor and trustee
and a clear intention to create a trust, which were absent in this case. Quoting the RTC
with approval, the CA noted that the contract of deposit was only between PALII in its
own capacity and UCPB, and the words "ITF HEIRS" were insufficient to establish the
existence of a trust. The CA concluded that as no trust existed, expressly or impliedly,
UCPB is not liable for the amount withdrawn.7

In its July 31, 2007 resolution,8 the CA denied the petitioner’s motion for
reconsideration. Hence, the petitioner’s present recourse.

The Petition

The petitioner argues in his petition that: first, an express trust was created, as clearly
shown by PALII’s March 28, 1996 and November 15, 1996 letters.9 Citing jurisprudence,
the petitioner emphasizes that from the established definition of a trust, 10 PALII is clearly
the trustor as it created the trust; UCPB is the trustee as it is the party in whom
confidence is reposed as regards the property for the benefit of another; and the HEIRS
are the beneficiaries as they are the persons for whose benefit the trust is
created.11 Also, quoting Development Bank of the Philippines v. Commission on
Audit,12 the petitioner argues that the naming of the cestui que trust is not necessary as
it suffices that they are adequately certain or identifiable.13

Second, UCPB was negligent and in bad faith in allowing the withdrawal and in failing to
inquire into the nature of the ACCOUNT.14 The petitioner maintains that the surrounding
facts, the testimony of UCPB’s witness, and UCPB’s own records showed that: (1)
UCPB was aware of the trust relation between PALII and the HEIRS; and (2) PALII held
the ACCOUNT in a trust capacity. Finally, the CA erred in affirming the RTC’s dismissal
of his case for lack of cause of action. The petitioner insists that since an express trust
clearly exists, UCPB, the trustee, should not have allowed the withdrawal.
 The Case for UCPB

UCPB posits, in defense, that the ACCOUNT involves an ordinary deposit contract
between PALII and UCPB only, which created a debtor-creditor relationship obligating
UCPB to return the proceeds to the account holder-PALII. Thus, it was not negligent in
handling the ACCOUNT when it allowed the withdrawal. The mere designation of the
ACCOUNT as "ITF" is insufficient to establish the existence of an express trust or
charge it with knowledge of the relation between PALII and the HEIRS.

UCPB also argues that the petitioner changed the theory of his case. Before the CA, the
petitioner argued that the HEIRS are the trustors-beneficiaries, and PALII is the trustee.
Here, the petitioner maintains that PALII is the trustor, UCPB is the trustee, and the
HEIRS are the beneficiaries. Contrary to the petitioner’s assertion, the records failed to
show that PALII and UCPB executed a trust agreement, and PALII’s letters made it
clear that PALII, on its own, intended to turn-over the proceeds of the ACCOUNT to its
rightful owners.

The Court’s Ruling

The issue before us is whether UCPB should be held liable for the amount withdrawn
because a trust agreement existed between PALII and UCPB, in favor of the HEIRS,
when PALII opened the ACCOUNT with UCPB.

We rule in the negative.

We first address the procedural issues. We stress the settled rule that a petition for
review on certiorari under Rule 45 of the Rules of Court resolves only questions of law,
not questions of fact.15 A question, to be one of law, must not examine the probative
value of the evidence presented by the parties;16 otherwise, the question is one of
fact.17Whether an express trust exists in this case is a question of fact whose resolution
is not proper in a petition under Rule 45. Reinforcing this is the equally settled rule that
factual findings of the lower tribunals are conclusive on the parties and are not generally
reviewable by this Court,18 especially when, as here, the CA affirmed these findings.
The plain reason is that this Court is not a trier of facts.19 While this Court has, at times,
permitted exceptions from the restriction,20 we find that none of these exceptions obtain
in the present case.

Second, we find that the petitioner changed the theory of his case. The petitioner
argued before the lower courts that an express trust exists between PALII as the trustee
and the HEIRS as the trustor-beneficiary.21 The petitioner now asserts that the express
trust exists between PALII as the trustor and UCPB as the trustee, with the HEIRS as
the beneficiaries.22 At this stage of the case, such change of theory is simply not
allowed as it violates basic rules of fair play, justice and due process. Our rulings are
clear - "a party who deliberately adopts a certain theory upon which the case was
decided by the lower court will not be permitted to change [it] on appeal";23 otherwise,
the lower courts will effectively be deprived of the opportunity to decide the merits of the
case fairly.24 Besides, courts of justice are devoid of jurisdiction to resolve a question
not in issue.25 For these reasons, the petition must fail. Independently of these, the
petition must still be denied.

No express trust exists; UCPB exercised the required diligence in handling the
ACCOUNT; petitioner has no cause of action against UCPB

A trust, either express or implied,26 is the fiduciary relationship "x x x between one
person having an equitable ownership of property and another person owning the legal
title to such property, the equitable ownership of the former entitling him to the
performance of certain duties and the exercise of certain powers by the
latter."27 Express or direct trusts are created by the direct and positive acts of the trustor
or of the parties.28 No written words are required to create an express trust. This is clear
from Article 1444 of the Civil Code,29 but, the creation of an express trust must be firmly
shown; it cannot be assumed from loose and vague declarations or circumstances
capable of other interpretations.30

In Rizal Surety & Insurance Co. v. CA,31 we laid down the requirements before an
express trust will be recognized:

Basically, these elements include a competent trustor and trustee, an

ascertainable trust res, and sufficiently certain beneficiaries. xxx each of the
above elements is required to be established, and, if any one of them is missing,
it is fatal to the trusts (sic). Furthermore, there must be a present and complete
disposition of the trust property, notwithstanding that the enjoyment in the
beneficiary will take place in the future. It is essential, too, that the purpose be an
active one to prevent trust from being executed into a legal estate or interest, and one
that is not in contravention of some prohibition of statute or rule of public policy. There
must also be some power of administration other than a mere duty to perform a
contract although the contract is for a thirdparty beneficiary. A declaration of
terms is essential, and these must be stated with reasonable certainty in order
that the trustee may administer, and that the court, if called upon so to do, may
enforce, the trust. [emphasis ours]

Under these standards, we hold that no express trust was created. First, while an
ascertainable trust res and sufficiently certain beneficiaries may exist, a competent
trustor and trustee do not. Second, UCPB, as trustee of the ACCOUNT, was never
under any equitable duty to deal with or given any power of administration over it. On
the contrary, it was PALII that undertook the duty to hold the title to the ACCOUNT for
the benefit of the HEIRS. Third, PALII, as the trustor, did not have the right to the
beneficial enjoyment of the ACCOUNT. Finally, the terms by which UCPB is to
administer the ACCOUNT was not shown with reasonable certainty. While we agree
with the petitioner that a trust’s beneficiaries need not be particularly identified for a trust
to exist, the intention to create an express trust must first be firmly established,
along with the other elements laid above; absent these, no express trust exists.
Contrary to the petitioner’s contention, PALII’s letters and UCPB’s records established
UCPB’s participation as a mere depositary of the proceeds of the investment. In the
March 28, 1996 letter, PALII manifested its intention to pursue an active role in and up
to the turnover of those proceeds to their rightful owners,32 while in the November 15,
1996 letter, PALII begged the petitioner to trust it with the safekeeping of the investment
proceeds and documents.33 Had it been PALII’s intention to create a trust in favor of the
HEIRS, it would have relinquished any right or claim over the proceeds in UCPB’s favor
as the trustee. As matters stand, PALII never did.

UCPB’s records and the testimony of UCPB’s witness34 likewise lead us to the same
conclusion. While the words "ITF HEIRS" may have created the impression that a trust
account was created, a closer scrutiny reveals that it is an ordinary savings
account.35 We give credence to UCPB’s explanation that the word "ITF" was merely
used to distinguish the ACCOUNT from PALII’s other accounts with UCPB. A trust can
be created without using the word "trust" or "trustee," but the mere use of these words
does not automatically reveal an intention to create a trust.36 If at all, these words
showed a trustee-beneficiary relationship between PALII and the HEIRS.

Contrary to the petitioner’s position, UCPB did not become a trustee by the mere
opening of the ACCOUNT.1âwphi1 While this may seem to be the case, by reason of
the fiduciary nature of the bank’s relationship with its depositors,37 this fiduciary
relationship does not "convert the contract between the bank and its depositors from a
simple loan to a trust agreement, whether express or implied." 38 It simply means that
the bank is obliged to observe "high standards of integrity and performance" in
complying with its obligations under the contract of simple loan.39 Per Article 1980 of the
Civil Code,40 a creditor-debtor relationship exists between the bank and its
depositor.41 The savings deposit agreement is between the bank and the depositor; 42 by
receiving the deposit, the bank impliedly agrees to pay upon demand and only upon the
depositor’s order.43

Since the records and the petitioner’s own admission showed that the ACCOUNT was
opened by PALII, UCPB’s receipt of the deposit signified that it agreed to pay PALII
upon its demand and only upon its order. Thus, when UCPB allowed PALII to withdraw
from the ACCOUNT, it was merely performing its contractual obligation under their
savings deposit agreement. No negligence or bad faith44 can be imputed to UCPB for
this action. As far as UCPB was concerned, PALII is the account holder and not the
HEIRS. As we held in Falton Iron Works Co. v. China Banking Corporation.45 the bank’s
duty is to its creditor-depositor and not to third persons. Third persons, like the HEIRS
here, who may have a right to the money deposited, cannot hold the bank responsible
unless there is a court order or garnishment.46 The petitioner’s recourse is to go before
a court of competent jurisdiction to prove his valid right over the money deposited.

In these lights, we find the third assignment of error mooted. A cause of action requires
that there be a right existing in favor of the plaintiff, the defendant’s obligation to respect
that right, and an act or omission of the defendant in breach of that right. 47 We reiterate
that UCPB’s obligation was towards PALII as its creditor-depositor. While the HEIRS
may have a valid claim over the proceeds of the investment, the obligation to turn-over
those proceeds lies with PALII. Since no trust exists the petitioner’s complaint was
correctly dismissed and the CA did not commit any reversible error in affirming the RTC
decision. One final note, the burden to prove the existence of an express trust lies with
the petitioner.48 For his failure to discharge this burden, the petition must fail.

WHEREFORE, in view of these considerations, we hereby DENY the petition and

AFFIRM the decision dated February 20, 2007 and the resolution dated July 31, 2007 of
the Court of Appeals in CA-G.R. CV. No. 00257. Costs against the petitioner.

SO ORDERED:

ARTURO D. BRION
Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

MARIANO C. DEL CASTILLO JOSE PORTUGAL PEREZ

Associate Justice Associate Justice

ESTELA M. PERLAS-BERNABE
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court’s Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s
Attestation, it is hereby certified that the conclusions in the above Decision had been
reached in consultation before the case was assigned to the writer of the opinion of the
Court'’ Division.

MARIA LOURDES P.A. SERENO

Chief Justice
 FIRST DIVISION

BANK OF THE PHILIPPINE ISLANDS, G.R. No. 136202

Petitioner, Present:

PUNO, C.J., Chairperson,

- versus - SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA, and
GARCIA, JJ.

COURT OF APPEALS, ANNABELLE A.

SALAZAR, and JULIO R. Promulgated:
TEMPLONUEVO,
Respondents. January 25, 2007

x-----------------------------------------------------------------------------------------x

DECISION

AZCUNA, J.:

This is a petition for review under Rule 45 of the Rules of Court seeking the reversal
of the Decision[1] dated April 3, 1998, and the Resolution[2] dated November 9, 1998, of
the Court of Appeals in CA-G.R. CV No. 42241.

The facts[3] are as follows:

A.A. Salazar Construction and Engineering Services filed an action for a sum of
money with damages against herein petitioner Bank of the Philippine Islands (BPI) on
December 5, 1991 before Branch 156 of the Regional Trial Court (RTC) of Pasig City. The
complaint was later amended by substituting the name of Annabelle A. Salazar as the real
party in interest in place of A.A. Salazar Construction and Engineering Services. Private
respondent Salazar prayed for the recovery of the amount of Two Hundred Sixty-Seven
Thousand, Seven Hundred Seven Pesos and Seventy Centavos (P267,707.70) debited
by petitioner BPI from her account. She likewise prayed for damages and attorneys fees.

Petitioner BPI, in its answer, alleged that on August 31, 1991, Julio R.
Templonuevo, third-party defendant and herein also a private respondent, demanded
from the former payment of the amount of Two Hundred Sixty-Seven Thousand, Six
Hundred Ninety-Two Pesos and Fifty Centavos (P267,692.50) representing the aggregate
value of three (3) checks, which were allegedly payable to him, but which were deposited
with the petitioner bank to private respondent Salazars account (Account No. 0203-1187-
67) without his knowledge and corresponding endorsement.

Accepting that Templonuevos claim was a valid one, petitioner BPI froze Account
No. 0201-0588-48 of A.A. Salazar and Construction and Engineering Services, instead of
Account No. 0203-1187-67 where the checks were deposited, since this account was
already closed by private respondent Salazar or had an insufficient balance.

Private respondent Salazar was advised to settle the matter with Templonuevo but
they did not arrive at any settlement. As it appeared that private respondent Salazar was
not entitled to the funds represented by the checks which were deposited and accepted
for deposit, petitioner BPI decided to debit the amount of P267,707.70 from her Account
No. 0201-0588-48 and the sum of P267,692.50 was paid to Templonuevo by means of a
cashiers check. The difference between the value of the checks (P267,692.50) and the
amount actually debited from her account (P267,707.70) represented bank charges in
connection with the issuance of a cashiers check to Templonuevo.

In the answer to the third-party complaint, private respondent Templonuevo

admitted the payment to him of P267,692.50 and argued that said payment was to correct
the malicious deposit made by private respondent Salazar to her private account, and that
petitioner banks negligence and tolerance regarding the matter was violative of the
primary and ordinary rules of banking. He likewise contended that the debiting or taking
of the reimbursed amount from the account of private respondent Salazar by petitioner
BPI was a matter exclusively between said parties and may be pursuant to banking rules
and regulations, but did not in any way affect him. The debiting from another account of
private respondent Salazar, considering that her other account was effectively closed,
was not his concern.

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

1. The amount of P267,707.70 with 12% interest thereon

from September 16, 1991 until the said amount is fully paid;
2. The amount of P30,000.00 as and for actual damages;
3. The amount of P50,000.00 as and for moral damages;
4. The amount of P50,000.00 as and for exemplary
damages;
5. The amount of P30,000.00 as and for attorneys fees; and
6. Costs of suit.

The counterclaim is hereby ordered DISMISSED for lack of factual

basis.

The third-party complaint [filed by petitioner] is hereby likewise

ordered DISMISSED for lack of merit.

Third-party defendants [i.e., private respondent Templonuevos]

counterclaim is hereby likewise DISMISSED for lack of factual basis.

SO ORDERED.[4]
On appeal, the Court of Appeals (CA) affirmed the decision of the RTC and held
that respondent Salazar was entitled to the proceeds of the three (3) checks
notwithstanding the lack of endorsement thereon by the payee. The CA concluded that
Salazar and Templonuevo had previously agreed that the checks payable to JRT
Construction and Trading[5] actually belonged to Salazar and would be deposited to her
account, with petitioner acquiescing to the arrangement.[6]

Petitioner therefore filed this petition on these grounds:

 I.
The Court of Appeals committed reversible error in misinterpreting Section
49 of the Negotiable Instruments Law and Section 3 (r and s) of Rule 131
of the New Rules on Evidence.

II.
The Court of Appeals committed reversible error in NOT applying the
provisions of Articles 22, 1278 and 1290 of the Civil Code in favor of BPI.

III.
The Court of Appeals committed a reversible error in holding, based on a
misapprehension of facts, that the account from which BPI debited the
amount of P267,707.70 belonged to a corporation with a separate and
distinct personality.

IV.
The Court of Appeals committed a reversible error in holding, based
entirely on speculations, surmises or conjectures, that there was an
agreement between SALAZAR and TEMPLONUEVO that checks payable
to TEMPLONUEVO may be deposited by SALAZAR to her personal
account and that BPI was privy to this agreement.
V.
The Court of Appeals committed reversible error in holding, based entirely
on speculation, surmises or conjectures, that SALAZAR suffered great
damage and prejudice and that her business standing was eroded.

VI.
The Court of Appeals erred in affirming instead of reversing the decision of
the lower court against BPI and dismissing SALAZARs complaint.

VII.
The Honorable Court erred in affirming the decision of the lower court
dismissing the third-party complaint of BPI.[7]

The issues center on the propriety of the deductions made by petitioner from
private respondent Salazars account. Stated otherwise, does a collecting bank, over the
objections of its depositor, have the authority to withdraw unilaterally from such depositors
account the amount it had previously paid upon certain unendorsed order instruments
deposited by the depositor to another account that she later closed?

Petitioner argues thus:

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

2. Salazar failed to adduce sufficient evidence to prove that her

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

3. The CA should have applied the Civil Code provisions on legal

compensation because in deducting the subject amount from Salazars
account, petitioner was merely rectifying the undue payment it made upon
the checks and exercising its prerogative to alter or modify an erroneous
credit entry in the regular course of its business.

4. The debit of the amount from the account of A.A. Salazar

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

5. Assuming the deduction from Salazars account was improper, the CA

should not have dismissed petitioners third-party complaint against
Templonuevo because the latter would have the legal duty to return to
petitioner the proceeds of the checks which he previously received from it.
 6. There was no factual basis for the award of damages to Salazar.

The petition is partly meritorious.

First, the issue raised by petitioner requires an inquiry into the factual findings
made by the CA. The CAs conclusion that the deductions from the bank account of A.A.
Salazar Construction and Engineering Services were improper stemmed from its finding
that there was no ineffective payment to Salazar which would call for the exercise of
petitioners right to set off against the formers bank deposits. This finding, in turn, was
drawn from the pleadings of the parties, the evidence adduced during trial and upon the
admissions and stipulations of fact made during the pre-trial, most significantly the
following:

(a) That Salazar previously had in her possession the following checks:

(1) Solid Bank Check No. CB766556 dated January 30, 1990 in
the amount of P57,712.50;
(2) Solid Bank Check No. CB898978 dated July 31, 1990 in the
amount of P55,180.00; and,
(3) Equitable Banking Corporation Check No. 32380638
dated August 28, 1990 for the amount of P154,800.00;

(b) That these checks which had an aggregate amount of P267,692.50

were payable to the order of JRT Construction and Trading, the name and style under
which Templonuevo does business;

(c) That despite the lack of endorsement of the designated payee upon
such checks, Salazar was able to deposit the checks in her personal savings account
with petitioner and encash the same;
 (d) That petitioner accepted and paid the checks on three (3) separate
occasions over a span of eight months in 1990; and
(e) That Templonuevo only protested the purportedly unauthorized
encashment of the checks after the lapse of one year from the date of the last check. [10]

Petitioner concedes that when it credited the value of the checks to the account of
private respondent Salazar, it made a mistake because it failed to notice the lack of
endorsement thereon by the designated payee. The CA, however, did not lend credence
to this claim and concluded that petitioners actions were deliberate, in view of its
admission that the mistake was committed three times on three separate occasions,
indicating acquiescence to the internal arrangement between Salazar and Templonuevo.
The CA explained thus:

It was quite apparent that the three checks which appellee Salazar
deposited were not indorsed. Three times she deposited them to her
account and three times the amounts borne by these checks were credited
to the same. And in those separate occasions, the bank did not return the
checks to her so that she could have them indorsed. Neither did the bank
question her as to why she was depositing the checks to her account
considering that she was not the payee thereof, thus allowing us to come to
the conclusion that defendant-appellant BPI was fully aware that the
proceeds of the three checks belong to appellee.

For if the bank was not privy to the agreement between Salazar and
Templonuevo, it is most unlikely that appellant BPI (or any bank for that
matter) would have accepted the checks for deposit on three separate times
nary any question. Banks are most finicky over accepting checks for deposit
without the corresponding indorsement by their payee. In fact, they hesitate
to accept indorsed checks for deposit if the depositor is not one they know
very well.[11]

The CA likewise sustained Salazars position that she received the checks from
Templonuevo pursuant to an internal arrangement between them, ratiocinating as follows:

If there was indeed no arrangement between Templonuevo and the

plaintiff over the three questioned checks, it baffles us why it was only
on August 31, 1991 or more than a year after the third and last check was
 deposited that he demanded for the refund of the total amount of
P267,692.50.

A prudent man knowing that payment is due him would have

demanded payment by his debtor from the moment the same became due
and demandable. More so if the sum involved runs in hundreds of thousand
of pesos. By and large, every person, at the very moment he learns that he
was deprived of a thing which rightfully belongs to him, would have created
a big fuss. He would not have waited for a year within which to do so. It is
most inconceivable that Templonuevo did not do this.[12]

Generally, only questions of law may be raised in an appeal by certiorari under

Rule 45 of the Rules of Court.[13] Factual findings of the CA are entitled to great weight
and respect, especially when the CA affirms the factual findings of the trial court.[14] Such
questions on whether certain items of evidence should be accorded probative value or
weight, or rejected as feeble or spurious, or whether or not the proofs on one side or the
other are clear and convincing and adequate to establish a proposition in issue, are
questions of fact. The same holds true for questions on whether or not the body of proofs
presented by a party, weighed and analyzed in relation to contrary evidence submitted by
the adverse party may be said to be strong, clear and convincing, or whether or not
inconsistencies in the body of proofs of a party are of such gravity as to justify refusing to
give said proofs weight all these are issues of fact which are not reviewable by the
Court.[15]

This rule, however, is not absolute and admits of certain exceptions, namely: a)
when the conclusion is a finding grounded entirely on speculations, surmises, or
conjectures; b) when the inference made is manifestly mistaken, absurd, or impossible;
c) when there is a grave abuse of discretion; d) when the judgment is based on a
misapprehension of facts; e) when the findings of fact are conflicting; f) when the CA, in
making its findings, went beyond the issues of the case and the same are contrary to the
admissions of both appellant and appellee; g) when the findings of the CA are contrary to
those of the trial court; h) when the findings of fact are conclusions without citation of
specific evidence on which they are based; i) when the finding of fact of the CA is
premised on the supposed absence of evidence but is contradicted by the evidence on
record; and j) when the CA manifestly overlooked certain relevant facts not disputed by
the parties and which, if properly considered, would justify a different conclusion. [16]

In the present case, the records do not support the finding made by the CA and
the trial court that a prior arrangement existed between Salazar and Templonuevo
regarding the transfer of ownership of the checks. This fact is crucial as Salazars
entitlement to the value of the instruments is based on the assumption that she is a
transferee within the contemplation of Section 49 of the Negotiable Instruments Law.

Section 49 of the Negotiable Instruments Law contemplates a situation whereby

the payee or indorsee delivers a negotiable instrument for value without indorsing it, thus:

Transfer without indorsement; effect of- Where the holder of an

instrument payable to his order transfers it for value without indorsing it, the
transfer vests in the transferee such title as the transferor had therein, and
the transferee acquires in addition, the right to have the indorsement of the
transferor. But for the purpose of determining whether the transferee is a
holder in due course, the negotiation takes effect as of the time when the
indorsement is actually made. [17]

It bears stressing that the above transaction is an equitable assignment and the
transferee acquires the instrument subject to defenses and equities available among prior
parties. Thus, if the transferor had legal title, the transferee acquires such title and, in
addition, the right to have the indorsement of the transferor and also the right, as holder
of the legal title, to maintain legal action against the maker or acceptor or other party liable
to the transferor. The underlying premise of this provision, however, is that a valid transfer
of ownership of the negotiable instrument in question has taken place.

Transferees in this situation do not enjoy the presumption of ownership in favor of

holders since they are neither payees nor indorsees of such instruments. The weight of
authority is that the mere possession of a negotiable instrument does not in itself
conclusively establish either the right of the possessor to receive payment, or of the right
of one who has made payment to be discharged from liability. Thus, something more than
mere possession by persons who are not payees or indorsers of the instrument is
necessary to authorize payment to them in the absence of any other facts from which the
authority to receive payment may be inferred.[18]

The CA and the trial court surmised that the subject checks belonged to private
respondent Salazar based on the pre-trial stipulation that Templonuevo incurred a one-
year delay in demanding reimbursement for the proceeds of the same. To the Courts
mind, however, such period of delay is not of such unreasonable length as to estop
Templonuevo from asserting ownership over the checks especially considering that it was
readily apparent on the face of the instruments[19] that these were crossed checks.

In State Investment House v. IAC,[20] the Court enumerated the effects of crossing
a check, thus: (1) that the check may not be encashed but only deposited in the bank; (2)
that the check may be negotiated only once - to one who has an account with a bank;
and (3) that the act of crossing the check serves as a warning to the holder that the check
has been issued for a definite purpose so that such holder must inquire if the check has
been received pursuant to that purpose.

Thus, even if the delay in the demand for reimbursement is taken in conjunction
with Salazars possession of the checks, it cannot be said that the presumption of
ownership in Templonuevos favor as the designated payee therein was sufficiently
overcome. This is consistent with the principle that if instruments payable to named
payees or to their order have not been indorsed in blank, only such payees or their
indorsees can be holders and entitled to receive payment in their own right.[21]

The presumption under Section 131(s) of the Rules of Court stating that a
negotiable instrument was given for a sufficient consideration will not inure to the benefit
of Salazar because the term given does not pertain merely to a transfer of physical
possession of the instrument. The phrase given or indorsed in the context of a negotiable
instrument refers to the manner in which such instrument may be negotiated. Negotiable
instruments are negotiated by transfer to one person or another in such a manner as to
constitute the transferee the holder thereof. If payable to bearer it is negotiated by
delivery. If payable to order it is negotiated by the indorsement completed by
delivery.[22] The present case involves checks payable to order. Not being
a payee or indorsee of the checks, private respondent Salazar could not be
a holder thereof.

It is an exception to the general rule for a payee of an order instrument to transfer

the instrument without indorsement. Precisely because the situation is abnormal, it is but
fair to the maker and to prior holders to require possessors to prove without the aid of an
initial presumption in their favor, that they came into possession by virtue of a legitimate
transaction with the last holder.[23] Salazar failed to discharge this burden, and the return
of the check proceeds to Templonuevo was therefore warranted under the circumstances
despite the fact that Templonuevo may not have clearly demonstrated that he never
authorized Salazar to deposit the checks or to encash the same. Noteworthy also is the
fact that petitioner stamped on the back of the checks the words: "All prior endorsements
and/or lack of endorsements guaranteed," thereby making the assurance that it had
ascertained the genuineness of all prior endorsements. Having assumed the liability of a
general indorser, petitioners liability to the designated payee cannot be denied.
Consequently, petitioner, as the collecting bank, had the right to debit Salazars
account for the value of the checks it previously credited in her favor. It is of no moment
that the account debited by petitioner was different from the original account to which the
proceeds of the check were credited because both admittedly belonged to Salazar, the
former being the account of the sole proprietorship which had no separate and distinct
personality from her, and the latter being her personal account.

The right of set-off was explained in Associated Bank v. Tan:[24]

A bank generally has a right of set-off over the deposits therein for the
payment of any withdrawals on the part of a depositor. The right of a
collecting bank to debit a client's account for the value of a dishonored check
that has previously been credited has fairly been established by
 jurisprudence. To begin with, Article 1980 of the Civil Code provides that
"[f]ixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple loan.

Hence, the relationship between banks and depositors has been held
to be that of creditor and debtor. Thus, legal compensation under Article
1278 of the Civil Code may take place "when all the requisites mentioned in
Article 1279 are present," as follows:

(1) That each one of the obligors be bound principally, and

that he be at the same time a principal creditor of the
other;
(2) That both debts consist in a sum of money, or if the things
due are consumable, they be of the same kind, and
also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or
controversy, commenced by third persons and
communicated in due time to the debtor.

While, however, it is conceded that petitioner had the right of set-off over the
amount it paid to Templonuevo against the deposit of Salazar, the issue of whether it
acted judiciously is an entirely different matter.[25] As businesses affected with public
interest, and because of the nature of their functions, banks are under obligation to treat
the accounts of their depositors with meticulous care, always having in mind the fiduciary
nature of their relationship.[26] In this regard, petitioner was clearly remiss in its duty to
private respondent Salazar as its depositor.

To begin with, the irregularity appeared plainly on the face of the checks. Despite
the obvious lack of indorsement thereon, petitioner permitted the encashment of these
checks three times on three separate occasions. This negates petitioners claim that it
merely made a mistake in crediting the value of the checks to Salazars account and
instead bolsters the conclusion of the CA that petitioner recognized Salazars claim of
ownership of checks and acted deliberately in paying the same, contrary to ordinary
banking policy and practice. It must be emphasized that the law imposes a duty of
diligence on the collecting bank to scrutinize checks deposited with it, for the purpose of
determining their genuineness and regularity. The collecting bank, being primarily
engaged in banking, holds itself out to the public as the expert on this field, and the law
thus holds it to a high standard of conduct.[27] The taking and collection of a check without
the proper indorsement amount to a conversion of the check by the bank.[28]

More importantly, however, solely upon the prompting of Templonuevo, and with
full knowledge of the brewing dispute between Salazar and Templonuevo, petitioner
debited the account held in the name of the sole proprietorship of Salazar without even
serving due notice upon her. This ran contrary to petitioners assurances to private
respondent Salazar that the account would remain untouched, pending the resolution of
the controversy between her and Templonuevo.[29] In this connection, the CA cited the
letter dated September 5, 1991 of Mr. Manuel Ablan, Senior Manager of petitioner banks
Pasig/Ortigas branch, to private respondent Salazar informing her that her account had
been frozen, thus:

From the tenor of the letter of Manuel Ablan, it is safe to conclude that
Account No. 0201-0588-48 will remain frozen or untouched until herein
[Salazar] has settled matters with Templonuevo. But, in an unexpected
move, in less than two weeks (eleven days to be precise) from the time that
letter was written, [petitioner] bank issued a cashiers check in the name of
Julio R. Templonuevo of the J.R.T. Construction and Trading for the sum
of P267,692.50 (Exhibit 8) and debited said amount from Ms. Arcillas
account No. 0201-0588-48 which was supposed to be frozen or controlled.
Such a move by BPI is, to Our minds, a clear case of negligence, if not a
fraudulent, wanton and reckless disregard of the right of its depositor.

The records further bear out the fact that respondent Salazar had issued several
checks drawn against the account of A.A. Salazar Construction and Engineering Services
prior to any notice of deduction being served. The CA sustained private respondent
Salazars claim of damages in this regard:

The act of the bank in freezing and later debiting the amount
of P267,692.50 from the account of A.A. Salazar Construction and
Engineering Services caused plaintiff-appellee great damage and prejudice
particularly when she had already issued checks drawn against the said
account. As can be expected, the said checks bounced. To prove this,
 plaintiff-appellee presented as exhibits photocopies of checks
dated September 8, 1991, October 28, 1991, and November 14,
1991 (Exhibits D, E and F respectively)[30]

These checks, it must be emphasized, were subsequently dishonored, thereby

causing private respondent Salazar undue embarrassment and inflicting damage to her
standing in the business community. Under the circumstances, she was clearly not given
the opportunity to protect her interest when petitioner unilaterally withdrew the above
amount from her account without informing her that it had already done so.

For the above reasons, the Court finds no reason to disturb the award of damages
granted by the CA against petitioner. This whole incident would have been avoided had
petitioner adhered to the standard of diligence expected of one engaged in the banking
business. A depositor has the right to recover reasonable moral damages even if the
banks negligence may not have been attended with malice and bad faith, if the former
suffered mental anguish, serious anxiety, embarrassment and humiliation. [31] Moral
damages are not meant to enrich a complainant at the expense of defendant. It is only
intended to alleviate the moral suffering she has undergone. The award of exemplary
damages is justified, on the other hand, when the acts of the bank are attended by malice,
bad faith or gross negligence. The award of reasonable attorneys fees is proper where
exemplary damages are awarded. It is proper where depositors are compelled to litigate
to protect their interest.[32]

WHEREFORE, the petition is partially GRANTED. The assailed Decision

dated April 3, 1998 and Resolution dated April 3, 1998 rendered by the Court of Appeals
in CA-G.R. CV No. 42241 are MODIFIED insofar as it ordered petitioner Bank of the
Philippine Islands to return the amount of Two Hundred Sixty-seven Thousand Seven
Hundred and Seven and 70/100 Pesos (P267,707.70) to respondent Annabelle A.
Salazar, which portion is REVERSED and SET ASIDE. In all other respects, the same
are AFFIRMED.
No costs.

SO ORDERED.
ARTICLE 1988

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 171845 October 10, 2012

SPOUSES GODFREY and GERARDINA SERFINO, Petitioners,

vs.
FAR EAST BANK AND TRUST COMPANY, INC., now BANK OF THE PHILIPPINE
ISLANDS, Respondent.

DECISION

BRION, J.:

Before the Court is a petition for review on certiorari, 1 filed under Rule 45 of the Rules
of Court, assailing the decision2 dated February 23, 2006 of the Regional Trial
Court (RTC) of Bacolod City, Branch 41, in Civil Case No. 95-9344.

FACTUAL ANTECEDENTS

The present case traces its roots to the compromise judgment dated October 24,
19953 of the RTC of Bacolod City, Branch 47, in Civil Case No. 95-9880. Civil Case No.
95-9880 was an action for collection of sum of money instituted by the petitioner
spouses Godfrey and Gerardina Serfino (collectively, spouses Serfino) against the
spouses Domingo and Magdalena Cortez (collectively, spouses Cortez). By way of
settlement, the spouses Serfino and the spouses Cortez executed a compromise
agreement on October 20, 1995, in which the spouses Cortez acknowledged their
indebtedness to the spouses Serfino in the amount of ₱ 108,245.71. To satisfy the debt,
Magdalena bound herself "to pay in full the judgment debt out of her retirement
benefits[.]"4 Payment of the debt shall be made one (1) week after Magdalena has
received her retirement benefits from the Government Service Insurance System
(GSIS). In case of default, the debt may be executed against any of the properties of the
spouses Cortez that is subject to execution, upon motion of the spouses Serfino. 5 After
finding that the compromise agreement was not contrary to law, morals, good custom,
public order or public policy, the RTC approved the entirety of the parties’ agreement
and issued a compromise judgment based thereon.6 The debt was later reduced to ₱
155,000.00 from ₱ 197,000.00 (including interest), with the promise that the spouses
Cortez would pay in full the judgment debt not later than April 23, 1996.7

No payment was made as promised. Instead, Godfrey discovered that Magdalena

deposited her retirement benefits in the savings account of her daughter-in-law, Grace
Cortez, with the respondent, Far East Bank and Trust Company, Inc. (FEBTC). As of
April 23, 1996, Grace’s savings account with FEBTC amounted to ₱ 245,830.37, the
entire deposit coming from Magdalena’s retirement benefits.8 That same day, the
spouses Serfino’s counsel sent two letters to FEBTC informing the bank that the
deposit in Grace’s name was owned by the spouses Serfino by virtue of an
assignment made in their favor by the spouses Cortez. The letter requested FEBTC
to prevent the delivery of the deposit to either Grace or the spouses Cortez until its
actual ownership has been resolved in court.

On April 25, 1996, the spouses Serfino instituted Civil Case No. 95- 9344 against the
spouses Cortez, Grace and her husband, Dante Cortez, and FEBTC for the recovery
of money on deposit and the payment of damages, with a prayer for preliminary
attachment.

On April 26, 1996, Grace withdrew ₱ 150,000.00 from her savings account with
FEBTC. On the same day, the spouses Serfino sent another letter to FEBTC informing
it of the pending action; attached to the letter was a copy of the complaint filed as Civil
Case No. 95-9344.

During the pendency of Civil Case No. 95-9344, the spouses Cortez manifested that
they were turning over the balance of the deposit in FEBTC (amounting to ₱ 54,534.00)
to the spouses Serfino as partial payment of their obligation under the compromise
judgment. The RTC issued an order dated July 30, 1997, authorizing FEBTC to turn
over the balance of the deposit to the spouses Serfino.

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

THE PARTIES’ ARGUMENTS

The spouses Serfino appealed the RTC’s ruling absolving FEBTC from liability for
allowing the withdrawal of the deposit. They allege that the RTC cited no legal basis
for declaring that only a court order or process can justify the withholding of the deposit
in Grace’s name. Since FEBTC was informed of their adverse claim after they sent
three letters, they claim that:

Upon receipt of a notice of adverse claim in proper form, it becomes the duty of the
bank to: 1. Withhold payment of the deposit until there is a reasonable opportunity to
institute legal proceedings to contest ownership; and 2) give prompt notice of the
adverse claim to the depositor. The bank may be held liable to the adverse claimant if it
disregards the notice of adverse claim and pays the depositor.

When the bank has reasonable notice of a bona fide claim that money deposited
with it is the property of another than the depositor, it should withhold payment until
there is reasonable opportunity to institute legal proceedings to contest the
ownership.9(emphases and underscoring supplied)

Aside from the three letters, FEBTC should be deemed bound by the compromise
judgment, since Article 1625 of the Civil Code states that an assignment of credit binds
third persons if it appears in a public instrument.10 They conclude that FEBTC, having
been notified of their adverse claim, should not have allowed Grace to withdraw the
deposit.

While they acknowledged that bank deposits are governed by the Civil Code provisions
on loan, the spouses Serfino allege that the provisions on voluntary deposits should
apply by analogy in this case, particularly Article 1988 of the Civil Code, which states:

Article 1988. The thing deposited must be returned to the depositor upon demand, even
though a specified period or time for such return may have been fixed.

This provision shall not apply when the thing is judicially attached while in the
depositary’s possession, or should he have been notified of the opposition of a
third person to the return or the removal of the thing deposited. In these cases, the
depositary must immediately inform the depositor of the attachment or opposition.

Based on Article 1988 of the Civil Code, the depository is not obliged to return the thing
to the depositor if notified of a third party’s adverse claim.

By allowing Grace to withdraw the deposit that is due them under the compromise
judgment, the spouses Serfino claim that FEBTC committed an actionable wrong
that entitles them to the payment of actual and moral damages.

FEBTC, on the other hand, insists on the correctness of the RTC ruling. It claims that it
is not bound by the compromise judgment, but only by its contract of loan with its
depositor. As a loan, the bank deposit is owned by the bank; hence, the spouses
Serfino’s claim of ownership over it is erroneous.

Based on these arguments, the case essentially involves a determination of the

obligation of banks to a third party who claims rights over a bank deposit
standing in the name of another.

THE COURT’S RULING

We find the petition unmeritorious and see no reason to reverse the RTC’s ruling.
Claim for actual damages not
meritorious because there could be
no pecuniary loss that should be
compensated if there was no
assignment of credit

The spouses Serfino’s claim for damages against FEBTC is premised on their claim of
ownership of the deposit with FEBTC. The deposit consists of Magdalena’s retirement
benefits, which the spouses Serfino claim to have been assigned to them under the
compromise judgment. That the retirement benefits were deposited in Grace’s savings
account with FEBTC supposedly did not divest them of ownership of the amount, as
"the money already belongs to the [spouses Serfino] having been absolutely assigned
to them and constructively delivered by virtue of the x x x public instrument[.]" 11 By virtue
of the assignment of credit, the spouses Serfino claim ownership of the deposit, and
they posit that FEBTC was duty bound to protect their right by preventing the withdrawal
of the deposit since the bank had been notified of the assignment and of their claim.

We find no basis to support the spouses Serfino’s claim of ownership of the

deposit.

"An assignment of credit is an agreement by virtue of which the owner of a credit,

known as the assignor, by a legal cause, such as sale, dation in payment, exchange or
donation, and without the consent of the debtor, transfers his credit and accessory
rights to another, known as the assignee, who acquires the power to enforce it to the
same extent as the assignor could enforce it against the debtor. It may be in the form of
sale, but at times it may constitute a dation in payment, such as when a debtor, in
order to obtain a release from his debt, assigns to his creditor a credit he has
against a third person."12 As a dation in payment, the assignment of credit operates
as a mode of extinguishing the obligation;13 the delivery and transmission of
ownership of a thing (in this case, the credit due from a third person) by the debtor to
the creditor is accepted as the equivalent of the performance of the obligation. 14

The terms of the compromise judgment, however, did not convey an intent to equate the
assignment of Magdalena’s retirement benefits (the credit) as the equivalent of the
payment of the debt due the spouses Serfino (the obligation). There was actually no
assignment of credit; if at all, the compromise judgment merely identified the fund
from which payment for the judgment debt would be sourced:

(c) That before the plaintiffs file a motion for execution of the decision or order based
[on this] Compromise Agreement, the defendant, Magdalena Cortez undertake[s]
and bind[s] herself to pay in full the judgment debt out of her retirement
benefits as Local [T]reasury Operation Officer in the City of Bacolod, Philippines, upon
which full payment, the plaintiffs waive, abandon and relinquish absolutely any of their
claims for attorney’s fees stipulated in the Promissory Note (Annex "A" to the
Complaint).15 [emphasis ours]
Only when Magdalena has received and turned over to the spouses Serfino the portion
of her retirement benefits corresponding to the debt due would the debt be deemed
paid.

In Aquitey v. Tibong,16 the issue raised was whether the obligation to pay the loan was
extinguished by the execution of the deeds of assignment. The Court ruled in the
affirmative, given that, in the deeds involved, the respondent (the debtor) assigned to
the petitioner (the creditor) her credits "to make good" the balance of her obligation; the
parties agreed to relieve the respondent of her obligation to pay the balance of her
account, and for the petitioner to collect the same from the respondent’s debtors. 17 The
Court concluded that the respondent’s obligation to pay the balance of her accounts
with the petitioner was extinguished, pro tanto, by the deeds of assignment of credit
executed by the respondent in favor of the petitioner.18

In the present case, the judgment debt was not extinguished by the mere
designation in the compromise judgment of Magdalena’s retirement benefits as the
fund from which payment shall be sourced. That the compromise agreement authorizes
recourse in case of default on other executable properties of the spouses Cortez, to
satisfy the judgment debt, further supports our conclusion that there was no assignment
of Magdalena’s credit with the GSIS that would have extinguished the obligation.

The compromise judgment in this case also did not give the supposed assignees, the
spouses Serfino, the power to enforce Magdalena’s credit against the GSIS. In fact, the
spouses Serfino are prohibited from enforcing their claim until after the lapse of one (1)
week from Magdalena’s receipt of her retirement benefits:

(d) That the plaintiffs shall refrain from having the judgment based upon this
Compromise Agreement executed until after one (1) week from receipt by the
defendant, Magdalena Cortez of her retirement benefits from the [GSIS] but fails to pay
within the said period the defendants’ judgment debt in this case, in which case [this]
Compromise Agreement [may be] executed upon any property of the defendants that
are subject to execution upon motion by the plaintiffs.19

An assignment of credit not only entitles the assignee to the credit itself, but also gives
him the power to enforce it as against the debtor of the assignor.

Since no valid assignment of credit took place, the spouses Serfino cannot validly claim
ownership of the retirement benefits that were deposited with FEBTC. Without
ownership rights over the amount, they suffered no pecuniary loss that has to be
compensated by actual damages. The grant of actual damages presupposes that the
claimant suffered a duly proven pecuniary loss.20

Claim for moral damages not

meritorious because no duty exists
on the part of the bank to protect
interest of third person claiming
deposit in the name of another

Under Article 2219 of the Civil Code, moral damages are recoverable for acts referred
to in Article 21 of the Civil Code.21 Article 21 of the Civil Code, in conjunction with Article
19 of the Civil Code, is part of the cause of action known in this jurisdiction as "abuse of
rights." The elements of abuse of rights are: (a) there is a legal right or duty; (b)
exercised in bad faith; and (c) for the sole intent of prejudicing or injuring
another.1âwphi1

The spouses Serfino invoke American common law that imposes a duty upon a bank
receiving a notice of adverse claim to the fund in a depositor’s account to freeze
the account for a reasonable length of time, sufficient to allow the adverse
claimant to institute legal proceedings to enforce his right to the fund.22 In other
words, the bank has a duty not to release the deposits unreasonably early after a third
party makes known his adverse claim to the bank deposit. Acknowledging that no such
duty is imposed by law in this jurisdiction, the spouses Serfino ask the Court to adopt
this foreign rule.23

To adopt the foreign rule, however, goes beyond the power of this Court to promulgate
rules governing pleading, practice and procedure in all courts.24 The rule reflects a
matter of policy that is better addressed by the other branches of government,
particularly, the Bangko Sentral ng Pilipinas, which is the agency that supervises the
operations and activities of banks, and which has the power to issue "rules of conduct or
the establishment of standards of operation for uniform application to all institutions or
functions covered[.]"25 To adopt this rule will have significant implications on the banking
industry and practices, as the American experience has shown. Recognizing that the
rule imposing duty on banks to freeze the deposit upon notice of adverse claim adopts a
policy adverse to the bank and its functions, and opens it to liability to both the depositor
and the adverse claimant,26 many American states have since adopted adverse claim
statutes that shifted or, at least, equalized the burden. Essentially, these statutes do not
impose a duty on banks to freeze the deposit upon a mere notice of adverse claim; they
first require either a court order or an indemnity bond.27

In the absence of a law or a rule binding on the Court, it has no option but to uphold the
existing policy that recognizes the fiduciary nature of banking. It likewise rejects the
adoption of a judicially-imposed rule giving third parties with unverified claims against
the deposit of another a better right over the deposit. As current laws provide, the
bank’s contractual relations are with its depositor, not with the third party; 28 "a bank is
under obligation to treat the accounts of its depositors with meticulous care and always
to have in mind the fiduciary nature of its relationship with them." 29 In the absence of
any positive duty of the bank to an adverse claimant, there could be no breach that
entitles the latter to moral damages.

WHEREFORE, in view of the foregoing, the petition for review

on certiorari is DENIED, and the decision dated February 23, 2006 of the Regional Trial
Court of Bacolod City, Branch 41, in Civil Case No. 95-9344 is AFFIRMED. Costs
against the petitioners.

SO ORDERED.

ARTURO D. BRION
Associate Justice
ARTICLE 1998

Republic of the Philippines

Supreme Court
Manila

SECOND DIVISION

DURBAN APARTMENTS CORPORATION, G.R. No. 179419

doing business under the name and style of
City Garden Hotel, Present:
Petitioner,
CARPIO, J.,
Chairperson,
NACHURA,
PERALTA,
- versus - ABAD, and
MENDOZA, JJ.

PIONEER INSURANCE AND SURETY Promulgated:

CORPORATION,
Respondent. January 12, 2011

x------------------------------------------------------------------------------------x

DECISION

NACHURA, J.:

For review is the Decision[1] of the Court of Appeals (CA) in CA-G.R. CV No. 86869, which
affirmed the decision[2] of the Regional Trial Court (RTC), Branch 66, Makati City, in Civil
Case No. 03-857, holding petitioner Durban Apartments Corporation solely liable to
respondent Pioneer Insurance and Surety Corporation for the loss of Jeffrey Sees (Sees)
vehicle.

The facts, as found by the CA, are simple.

On July 22, 2003, [respondent] Pioneer Insurance and Surety Corporation
x x x, by right of subrogation, filed [with the RTC of Makati City] a Complaint
for Recovery of Damages against [petitioner] Durban Apartments
Corporation, doing business under the name and style of City Garden Hotel,
and [defendant before the RTC] Vicente Justimbaste x x x. [Respondent
averred] that: it is the insurer for loss and damage of Jeffrey S. Sees [the
insureds] 2001 Suzuki Grand Vitara x x x with Plate No. XBH-510 under
Policy No. MC-CV-HO-01-0003846-00-D in the amount of P1,175,000.00;
on April 30, 2002, See arrived and checked in at the City Garden Hotel in
Makati corner Kalayaan Avenues, Makati City before midnight, and its
parking attendant, defendant x x x Justimbaste got the key to said Vitara
from See to park it[. O]n May 1, 2002, at about 1:00 oclock in the morning,
See was awakened in his room by [a] telephone call from the Hotel Chief
Security Officer who informed him that his Vitara was carnapped while it
was parked unattended at the parking area of Equitable PCI Bank along
Makati Avenue between the hours of 12:00 [a.m.] and 1:00 [a.m.]; See went
to see the Hotel Chief Security Officer, thereafter reported the incident to
the Operations Division of the Makati City Police Anti-Carnapping Unit, and
a flash alarm was issued; the Makati City Police Anti-Carnapping Unit
investigated Hotel Security Officer, Ernesto T. Horlador, Jr. x x x and
defendant x x x Justimbaste; See gave his Sinumpaang Salaysay to the
police investigator, and filed a Complaint Sheet with the PNP Traffic
Management Group in Camp Crame, Quezon City; the Vitara has not yet
been recovered since July 23, 2002 as evidenced by a Certification of Non-
Recovery issued by the PNP TMG; it paid the P1,163,250.00 money claim
of See and mortgagee ABN AMRO Savings Bank, Inc. as indemnity for the
loss of the Vitara; the Vitara was lost due to the negligence of [petitioner]
Durban Apartments and [defendant] Justimbaste because it was discovered
during the investigation that this was the second time that a similar incident
of carnapping happened in the valet parking service of [petitioner] Durban
Apartments and no necessary precautions were taken to prevent its
repetition; [petitioner] Durban Apartments was wanting in due diligence in
the selection and supervision of its employees particularly defendant x x x
Justimbaste; and defendant x x x Justimbaste and [petitioner] Durban
Apartments failed and refused to pay its valid, just, and lawful claim despite
written demands.

Upon service of Summons, [petitioner] Durban Apartments and [defendant]

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

During the pre-trial conference on November 28, 2003, counsel for

[respondent] Pioneer Insurance was present. Atty. Monina Lee x x x,
counsel of record of [petitioner] Durban Apartments and Justimbaste was
absent, instead, a certain Atty. Nestor Mejia appeared for [petitioner]
Durban Apartments and Justimbaste, but did not file their pre-trial brief.

On November 5, 2004, the lower court granted the motion of [respondent]

Pioneer Insurance, despite the opposition of [petitioner] Durban Apartments
and Justimbaste, and allowed [respondent] Pioneer Insurance to present its
evidence ex parte before the Branch Clerk of Court.

See testified that: on April 30, 2002, at about 11:30 in the evening, he drove
his Vitara and stopped in front of City Garden Hotel in Makati Avenue,
Makati City; a parking attendant, whom he had later known to be defendant
x x x Justimbaste, approached and asked for his ignition key, told him that
the latter would park the Vitara for him in front of the hotel, and issued him
a valet parking customers claim stub; he and Montero, thereafter, checked
in at the said hotel; on May 1, 2002, at around 1:00 in the morning, the Hotel
Security Officer whom he later knew to be Horlador called his attention to
the fact that his Vitara was carnapped while it was parked at the parking lot
of Equitable PCI Bank which is in front of the hotel; his Vitara was insured
with [respondent] Pioneer Insurance; he together with Horlador and
defendant x x x Justimbaste went to Precinct 19 of the Makati City Police to
report the carnapping incident, and a police officer came accompanied them
to the Anti-Carnapping Unit of the said station for investigation, taking of
their sworn statements, and flashing of a voice alarm; he likewise reported
the said incident in PNP TMG in Camp Crame where another alarm was
issued; he filed his claim with [respondent] Pioneer Insurance, and a
representative of the latter, who is also an adjuster of Vesper Insurance
Adjusters-Appraisers [Vesper], investigated the incident; and [respondent]
Pioneer Insurance required him to sign a Release of Claim and Subrogation
Receipt, and finally paid him the sum of P1,163,250.00 for his claim.

Ricardo F. Red testified that: he is a claims evaluator of [petitioner] Pioneer

Insurance tasked, among others, with the receipt of claims and documents
from the insured, investigation of the said claim, inspection of damages,
taking of pictures of insured unit, and monitoring of the processing of the
claim until its payment; he monitored the processing of Sees claim when
the latter reported the incident to [respondent] Pioneer Insurance;
[respondent] Pioneer Insurance assigned the case to Vesper who verified
Sees report, conducted an investigation, obtained the necessary
documents for the processing of the claim, and tendered a settlement check
to See; they evaluated the case upon receipt of the subrogation documents
and the adjusters report, and eventually recommended for its settlement for
the sum of P1,163,250.00 which was accepted by See; the matter was
referred and forwarded to their counsel, R.B. Sarajan & Associates, who
prepared and sent demand letters to [petitioner] Durban Apartments and
[defendant] Justimbaste, who did not pay [respondent] Pioneer Insurance
notwithstanding their receipt of the demand letters; and the services of R.B.
Sarajan & Associates were engaged, for P100,000.00 as attorneys fees
plus P3,000.00 per court appearance, to prosecute the claims of
[respondent] Pioneer Insurance against [petitioner] Durban Apartments and
Justimbaste before the lower court.

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

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

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

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

WHEREFORE, judgment is hereby rendered ordering [petitioner Durban

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

SO ORDERED.[4]

On appeal, the appellate court affirmed the decision of the trial court, viz.:

WHEREFORE, premises considered, the Decision dated January 27, 2006

of the RTC, Branch 66, Makati City in Civil Case No. 03-857 is hereby
AFFIRMED insofar as it holds [petitioner] Durban Apartments Corporation
solely liable to [respondent] Pioneer Insurance and Surety Corporation for
the loss of Jeffrey Sees Suzuki Grand Vitara.

SO ORDERED.[5]

Hence, this recourse by petitioner.

The issues for our resolution are:

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

2. Corollary thereto, whether the trial court correctly allowed respondent to present
evidence ex-parte;
3. Whether petitioner is liable to respondent for attorneys fees in the amount
of P120,000.00; and

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

The petition must fail.

We are in complete accord with the common ruling of the lower courts that petitioner was
in default for failure to appear at the pre-trial conference and to file a pre-trial brief, and
thus, correctly allowed respondent to present evidence ex-parte. Likewise, the lower
courts did not err in holding petitioner liable for the loss of Sees vehicle.

Well-entrenched in jurisprudence is the rule that factual findings of the trial court,
especially when affirmed by the appellate court, are accorded the highest degree of
respect and are considered conclusive between the parties.[6] A review of such findings
by this Court is not warranted except upon a showing of highly meritorious circumstances,
such as: (1) when the findings of a trial court are grounded entirely on speculation,
surmises, or conjectures; (2) when a lower courts inference from its factual findings is
manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of discretion in
the appreciation of facts; (4) when the findings of the appellate court go beyond the issues
of the case, or fail to notice certain relevant facts which, if properly considered, will justify
a different conclusion; (5) when there is a misappreciation of facts; (6) when the findings
of fact are conclusions without mention of the specific evidence on which they are based,
are premised on the absence of evidence, or are contradicted by evidence on
record.[7] None of the foregoing exceptions permitting a reversal of the assailed decision
exists in this instance.

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

We are not persuaded.

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

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

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

xxxx

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

Contrary to the foregoing rules, petitioner and its counsel of record were not present at
the scheduled pre-trial conference. Worse, they did not file a pre-trial brief. Their non-
appearance cannot be excused as Section 4, in relation to Section 6, allows only two
exceptions: (1) a valid excuse; and (2) appearance of a representative on behalf of a party
who is fully authorized in writing to enter into an amicable settlement, to submit to
alternative modes of dispute resolution, and to enter into stipulations or admissions of
facts and documents.

Petitioner is adamant and harps on the fact that November 28, 2003 was merely the first
scheduled date for the pre-trial conference, and a certain Atty. Mejia appeared on its
behalf. However, its assertion is belied by its own admission that, on said date, this Atty.
Mejia did not have in his possession the Special Power of Attorney issued by petitioners
Board of Directors.

As pointed out by the CA, petitioner, through Atty. Lee, received the notice of pre-trial on
October 27, 2003, thirty-two (32) days prior to the scheduled conference. In that span of
time, Atty. Lee, who was charged with the duty of notifying petitioner of the scheduled
pre-trial conference,[8] petitioner, and Atty. Mejia should have discussed which lawyer
would appear at the pre-trial conference with petitioner, armed with the appropriate
authority therefor. Sadly, petitioner failed to comply with not just one rule; it also did not
proffer a reason why it likewise failed to file a pre-trial brief. In all, petitioner has not shown
any persuasive reason why it should be exempt from abiding by the rules.

The appearance of Atty. Mejia at the pre-trial conference, without a pre-trial brief and with
only his bare allegation that he is counsel for petitioner, was correctly rejected by the trial
court. Accordingly, the trial court, as affirmed by the appellate court, did not err in allowing
respondent to present evidence ex-parte.

Former Chief Justice Andres R. Narvasas words continue to resonate, thus:

Everyone knows that a pre-trial in civil actions is mandatory, and has been
so since January 1, 1964. Yet to this day its place in the scheme of things
is not fully appreciated, and it receives but perfunctory treatment in many
courts. Some courts consider it a mere technicality, serving no useful
purpose save perhaps, occasionally to furnish ground for non-suiting the
plaintiff, or declaring a defendant in default, or, wistfully, to bring about a
compromise. The pre-trial device is not thus put to full use. Hence, it has
failed in the main to accomplish the chief objective for it: the simplification,
abbreviation and expedition of the trial, if not indeed its dispensation. This
is a great pity, because the objective is attainable, and with not much
difficulty, if the device were more intelligently and extensively handled.

xxxx

Consistently with the mandatory character of the pre-trial, the Rules

oblige not only the lawyers but the parties as well to appear for this purpose
before the Court, and when a party fails to appear at a pre-trial conference
(he) may be non-suited or considered as in default. The obligation to appear
denotes not simply the personal appearance, or the mere physical
presentation by a party of ones self, but connotes as importantly,
preparedness to go into the different subject assigned by law to a pre-trial.
And in those instances where a party may not himself be present at the pre-
trial, and another person substitutes for him, or his lawyer undertakes to
appear not only as an attorney but in substitution of the clients person, it is
imperative for that representative of the lawyer to have special authority to
make such substantive agreements as only the client otherwise has
capacity to make. That special authority should ordinarily be in writing or at
the very least be duly established by evidence other than the self-serving
assertion of counsel (or the proclaimed representative) himself. Without that
special authority, the lawyer or representative cannot be deemed
capacitated to appear in place of the party; hence, it will be considered that
 the latter has failed to put in an appearance at all, and he [must] therefore
be non-suited or considered as in default, notwithstanding his lawyers or
delegates presence.[9]

We are not unmindful that defendants (petitioners) preclusion from presenting evidence
during trial does not automatically result in a judgment in favor of plaintiff (respondent).
The plaintiff must still substantiate the allegations in its complaint. [10] Otherwise, it would
be inutile to continue with the plaintiffs presentation of evidence each time the defendant
is declared in default.

In this case, respondent substantiated the allegations in its complaint, i.e., a contract of
necessary deposit existed between the insured See and petitioner. On this score, we find
no error in the following disquisition of the appellate court:

[The] records also reveal that upon arrival at the City Garden Hotel, See
gave notice to the doorman and parking attendant of the said hotel, x x x
Justimbaste, about his Vitara when he entrusted its ignition key to the latter.
x x x Justimbaste issued a valet parking customer claim stub to See, parked
the Vitara at the Equitable PCI Bank parking area, and placed the ignition
key inside a safety key box while See proceeded to the hotel lobby to check
in. The Equitable PCI Bank parking area became an annex of City Garden
Hotel when the management of the said bank allowed the parking of the
vehicles of hotel guests thereat in the evening after banking hours.[11]

Article 1962, in relation to Article 1998, of the Civil Code defines a contract of deposit and
a necessary deposit made by persons in hotels or inns:
Art. 1962. A deposit is constituted from the moment a person
receives a thing belonging to another, with the obligation of safely keeping
it and returning the same. If the safekeeping of the thing delivered is not the
principal purpose of the contract, there is no deposit but some other
contract.

Art. 1998. The deposit of effects made by travelers in hotels or inns shall
also be regarded as necessary. The keepers of hotels or inns shall be
responsible for them as depositaries, provided that notice was given to
them, or to their employees, of the effects brought by the guests and that,
on the part of the latter, they take the precautions which said hotel-keepers
or their substitutes advised relative to the care and vigilance of their effects.
Plainly, from the facts found by the lower courts, the insured See deposited his vehicle
for safekeeping with petitioner, through the latters employee, Justimbaste. In turn,
Justimbaste issued a claim stub to See. Thus, the contract of deposit was perfected from
Sees delivery, when he handed over to Justimbaste the keys to his vehicle, which
Justimbaste received with the obligation of safely keeping and returning it. Ultimately,
petitioner is liable for the loss of Sees vehicle.

Lastly, petitioner assails the lower courts award of attorneys fees to respondent in
the amount of P120,000.00. Petitioner claims that the award is not substantiated by the
evidence on record.

We disagree.

While it is a sound policy not to set a premium on the right to litigate,[12] we find
that respondent is entitled to reasonable attorneys fees. Attorneys fees may be awarded
when a party is compelled to litigate or incur expenses to protect its interest, [13] or when
the court deems it just and equitable.[14] In this case, petitioner refused to answer for the
loss of Sees vehicle, which was deposited with it for safekeeping. This refusal constrained
respondent, the insurer of See, and subrogated to the latters right, to litigate and incur
expenses. However, we reduce the award of P120,000.00 to P60,000.00 in view of the
simplicity of the issues involved in this case.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in

CA-G.R. CV No. 86869 is AFFIRMED with the MODIFICATION that the award of
attorneys fees is reduced to P60,000.00. Costs against petitioner.
SO ORDERED.
ARTICLE 2002 -DOWNLOADED
ARTICLE 2003

SECOND DIVISION

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

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

vs. THE COURT OF APPEALS and MAURICE McLOUGHLIN, respondents.

DECISION
TINGA, J.:

The primary question of interest before this Court is the only legal issue in the case:
It is whether a hotel may evade liability for the loss of items left with it for safekeeping by
its guests, by having these guests execute written waivers holding the establishment or
its employees free from blame for such loss in light of Article 2003 of the Civil Code which
voids such waivers.
Before this Court is a Rule 45 petition for review of the Decision[1] dated 19 October
1995 of the Court of Appeals which affirmed the Decision[2] dated 16 December 1991 of
the Regional Trial Court (RTC), Branch 13, of Manila, finding YHT Realty Corporation,
Brunhilda Mata-Tan (Tan), Erlinda Lainez (Lainez) and Anicia Payam (Payam) jointly and
solidarily liable for damages in an action filed by Maurice McLoughlin (McLoughlin) for the
loss of his American and Australian dollars deposited in the safety deposit box of
Tropicana Copacabana Apartment Hotel, owned and operated by YHT Realty
Corporation.
The factual backdrop of the case follow.
Private respondent McLoughlin, an Australian businessman-philanthropist, used to
stay at Sheraton Hotel during his trips to the Philippines prior to 1984 when he met Tan.
Tan befriended McLoughlin by showing him around, introducing him to important people,
accompanying him in visiting impoverished street children and assisting him in buying
gifts for the children and in distributing the same to charitable institutions for poor children.
Tan convinced McLoughlin to transfer from Sheraton Hotel to Tropicana where Lainez,
Payam and Danilo Lopez were employed. Lopez served as manager of the hotel while
Lainez and Payam had custody of the keys for the safety deposit boxes of Tropicana. Tan
took care of McLoughlins booking at the Tropicana where he started staying during his
trips to the Philippines from December 1984 to September 1987.[3]
On 30 October 1987, McLoughlin arrived from Australia and registered with
Tropicana. He rented a safety deposit box as it was his practice to rent a safety deposit
box every time he registered at Tropicana in previous trips. As a tourist, McLoughlin was
aware of the procedure observed by Tropicana relative to its safety deposit boxes. The
safety deposit box could only be opened through the use of two keys, one of which is
given to the registered guest, and the other remaining in the possession of the
management of the hotel. When a registered guest wished to open his safety deposit box,
he alone could personally request the management who then would assign one of its
employees to accompany the guest and assist him in opening the safety deposit box with
the two keys.[4]
McLoughlin allegedly placed the following in his safety deposit box: Fifteen Thousand
US Dollars (US$15,000.00) which he placed in two envelopes, one envelope containing
Ten Thousand US Dollars (US$10,000.00) and the other envelope Five Thousand US
Dollars (US$5,000.00); Ten Thousand Australian Dollars (AUS$10,000.00) which he also
placed in another envelope; two (2) other envelopes containing letters and credit cards;
two (2) bankbooks; and a checkbook, arranged side by side inside the safety deposit
box.[5]
On 12 December 1987, before leaving for a brief trip to Hongkong, McLoughlin
opened his safety deposit box with his key and with the key of the management and took
therefrom the envelope containing Five Thousand US Dollars (US$5,000.00), the
envelope containing Ten Thousand Australian Dollars (AUS$10,000.00), his passports
and his credit cards.[6] McLoughlin left the other items in the box as he did not check out
of his room at the Tropicana during his short visit to Hongkong. When he arrived in
Hongkong, he opened the envelope which contained Five Thousand US Dollars
(US$5,000.00) and discovered upon counting that only Three Thousand US Dollars
(US$3,000.00) were enclosed therein.[7] Since he had no idea whether somebody else
had tampered with his safety deposit box, he thought that it was just a result of bad
accounting since he did not spend anything from that envelope. [8]
After returning to Manila, he checked out of Tropicana on 18 December 1987 and left
for Australia. When he arrived in Australia, he discovered that the envelope with Ten
Thousand US Dollars (US$10,000.00) was short of Five Thousand US Dollars
(US$5,000). He also noticed that the jewelry which he bought in Hongkong and stored in
the safety deposit box upon his return to Tropicana was likewise missing, except for a
diamond bracelet.[9]
When McLoughlin came back to the Philippines on 4 April 1988, he asked Lainez if
some money and/or jewelry which he had lost were found and returned to her or to the
management. However, Lainez told him that no one in the hotel found such things and
none were turned over to the management. He again registered at Tropicana and rented
a safety deposit box. He placed therein one (1) envelope containing Fifteen Thousand
US Dollars (US$15,000.00), another envelope containing Ten Thousand Australian
Dollars (AUS$10,000.00) and other envelopes containing his traveling
papers/documents. On 16 April 1988, McLoughlin requested Lainez and Payam to open
his safety deposit box. He noticed that in the envelope containing Fifteen Thousand US
Dollars (US$15,000.00), Two Thousand US Dollars (US$2,000.00) were missing and in
the envelope previously containing Ten Thousand Australian Dollars (AUS$10,000.00),
Four Thousand Five Hundred Australian Dollars (AUS$4,500.00) were missing. [10]
 When McLoughlin discovered the loss, he immediately confronted Lainez and Payam
who admitted that Tan opened the safety deposit box with the key assigned to
him.[11] McLoughlin went up to his room where Tan was staying and confronted her. Tan
admitted that she had stolen McLoughlins key and was able to open the safety deposit
box with the assistance of Lopez, Payam and Lainez.[12] Lopez also told McLoughlin that
Tan stole the key assigned to McLoughlin while the latter was asleep. [13]
McLoughlin requested the management for an investigation of the incident. Lopez got
in touch with Tan and arranged for a meeting with the police and McLoughlin. When the
police did not arrive, Lopez and Tan went to the room of McLoughlin at Tropicana and
thereat, Lopez wrote on a piece of paper a promissory note dated 21 April 1988. The
promissory note reads as follows:

I promise to pay Mr. Maurice McLoughlin the amount of AUS$4,000.00 and

US$2,000.00 or its equivalent in Philippine currency on or before May 5, 1988. [14]

Lopez requested Tan to sign the promissory note which the latter did and Lopez also
signed as a witness. Despite the execution of promissory note by Tan, McLoughlin
insisted that it must be the hotel who must assume responsibility for the loss he suffered.
However, Lopez refused to accept the responsibility relying on the conditions for renting
the safety deposit box entitled Undertaking For the Use Of Safety Deposit
Box,[15] specifically paragraphs (2) and (4) thereof, to wit:

2. To release and hold free and blameless TROPICANA APARTMENT HOTEL

from any liability arising from any loss in the contents and/or use of the said
deposit box for any cause whatsoever, including but not limited to the
presentation or use thereof by any other person should the key be lost;

...

4. To return the key and execute the RELEASE in favor of TROPICANA

APARTMENT HOTEL upon giving up the use of the box.[16]

On 17 May 1988, McLoughlin went back to Australia and he consulted his lawyers as
to the validity of the abovementioned stipulations. They opined that the stipulations are
void for being violative of universal hotel practices and customs. His lawyers prepared a
letter dated 30 May 1988 which was signed by McLoughlin and sent to President Corazon
Aquino.[17] The Office of the President referred the letter to the Department of Justice
(DOJ) which forwarded the same to the Western Police District (WPD).[18]
After receiving a copy of the indorsement in Australia, McLoughlin came to the
Philippines and registered again as a hotel guest of Tropicana. McLoughlin went to
Malacaňang to follow up on his letter but he was instructed to go to the DOJ. The DOJ
directed him to proceed to the WPD for documentation. But McLoughlin went back to
Australia as he had an urgent business matter to attend to.
 For several times, McLoughlin left for Australia to attend to his business and came
back to the Philippines to follow up on his letter to the President but he failed to obtain
any concrete assistance.[19]
McLoughlin left again for Australia and upon his return to the Philippines on 25 August
1989 to pursue his claims against petitioners, the WPD conducted an investigation which
resulted in the preparation of an affidavit which was forwarded to the Manila City Fiscals
Office. Said affidavit became the basis of preliminary investigation. However, McLoughlin
left again for Australia without receiving the notice of the hearing on 24 November 1989.
Thus, the case at the Fiscals Office was dismissed for failure to prosecute. Mcloughlin
requested the reinstatement of the criminal charge for theft. In the meantime, McLoughlin
and his lawyers wrote letters of demand to those having responsibility to pay the damage.
Then he left again for Australia.
Upon his return on 22 October 1990, he registered at the Echelon Towers at Malate,
Manila. Meetings were held between McLoughlin and his lawyer which resulted to the
filing of a complaint for damages on 3 December 1990 against YHT Realty Corporation,
Lopez, Lainez, Payam and Tan (defendants) for the loss of McLoughlins money which
was discovered on 16 April 1988. After filing the complaint, McLoughlin left again for
Australia to attend to an urgent business matter. Tan and Lopez, however, were not
served with summons, and trial proceeded with only Lainez, Payam and YHT Realty
Corporation as defendants.
After defendants had filed their Pre-Trial Brief admitting that they had previously
allowed and assisted Tan to open the safety deposit box, McLoughlin filed
an Amended/Supplemental Complaint[20] dated 10 June 1991 which included another
incident of loss of money and jewelry in the safety deposit box rented by McLoughlin in
the same hotel which took place prior to 16 April 1988. [21] The trial court admitted
the Amended/Supplemental Complaint.
During the trial of the case, McLoughlin had been in and out of the country to attend
to urgent business in Australia, and while staying in the Philippines to attend the hearing,
he incurred expenses for hotel bills, airfare and other transportation expenses, long
distance calls to Australia, Meralco power expenses, and expenses for food and
maintenance, among others.[22]
After trial, the RTC of Manila rendered judgment in favor of McLoughlin, the
dispositive portion of which reads:

WHEREFORE, above premises considered, judgment is hereby rendered by this Court

in favor of plaintiff and against the defendants, to wit:

1. Ordering defendants, jointly and severally, to pay plaintiff the sum of

US$11,400.00 or its equivalent in Philippine Currency of P342,000.00, more
or less, and the sum of AUS$4,500.00 or its equivalent in Philippine Currency
of P99,000.00, or a total of P441,000.00, more or less, with 12% interest from
April 16 1988 until said amount has been paid to plaintiff (Item 1, Exhibit CC);
 2. Ordering defendants, jointly and severally to pay plaintiff the sum
of P3,674,238.00 as actual and consequential damages arising from the loss
of his Australian and American dollars and jewelries complained against and
in prosecuting his claim and rights administratively and judicially (Items II, III,
IV, V, VI, VII, VIII, and IX, Exh. CC);
3. Ordering defendants, jointly and severally, to pay plaintiff the sum
of P500,000.00 as moral damages (Item X, Exh. CC);
4. Ordering defendants, jointly and severally, to pay plaintiff the sum
of P350,000.00 as exemplary damages (Item XI, Exh. CC);
5. And ordering defendants, jointly and severally, to pay litigation expenses in the
sum of P200,000.00 (Item XII, Exh. CC);
6. Ordering defendants, jointly and severally, to pay plaintiff the sum
of P200,000.00 as attorneys fees, and a fee of P3,000.00 for every
appearance; and
7. Plus costs of suit.

SO ORDERED.[23]

The trial court found that McLoughlins allegations as to the fact of loss and as to the
amount of money he lost were sufficiently shown by his direct and straightforward manner
of testifying in court and found him to be credible and worthy of belief as it was established
that McLoughlins money, kept in Tropicanas safety deposit box, was taken by Tan without
McLoughlins consent. The taking was effected through the use of the master key which
was in the possession of the management. Payam and Lainez allowed Tan to use the
master key without authority from McLoughlin. The trial court added that if McLoughlin
had not lost his dollars, he would not have gone through the trouble and personal
inconvenience of seeking aid and assistance from the Office of the President, DOJ, police
authorities and the City Fiscals Office in his desire to recover his losses from the hotel
management and Tan.[24]
As regards the loss of Seven Thousand US Dollars (US$7,000.00) and jewelry worth
approximately One Thousand Two Hundred US Dollars (US$1,200.00) which allegedly
occurred during his stay at Tropicana previous to 4 April 1988, no claim was made by
McLoughlin for such losses in his complaint dated 21 November 1990 because he was
not sure how they were lost and who the responsible persons were. But considering the
admission of the defendants in their pre-trial brief that on three previous occasions they
allowed Tan to open the box, the trial court opined that it was logical and reasonable to
presume that his personal assets consisting of Seven Thousand US Dollars
(US$7,000.00) and jewelry were taken by Tan from the safety deposit box without
McLoughlins consent through the cooperation of Payam and Lainez. [25]
The trial court also found that defendants acted with gross negligence in the
performance and exercise of their duties and obligations as innkeepers and were
therefore liable to answer for the losses incurred by McLoughlin.[26]
 Moreover, the trial court ruled that paragraphs (2) and (4) of the Undertaking For The
Use Of Safety Deposit Box are not valid for being contrary to the express mandate of
Article 2003 of the New Civil Code and against public policy. [27] Thus, there being fraud
or wanton conduct on the part of defendants, they should be responsible for all damages
which may be attributed to the non-performance of their contractual obligations.[28]
The Court of Appeals affirmed the disquisitions made by the lower court except as to
the amount of damages awarded. The decretal text of the appellate courts decision reads:

THE FOREGOING CONSIDERED, the appealed Decision is hereby AFFIRMED but

modified as follows:

The appellants are directed jointly and severally to pay the plaintiff/appellee the
following amounts:

1) P153,200.00 representing the peso equivalent of US$2,000.00 and

AUS$4,500.00;

2) P308,880.80, representing the peso value for the air fares from Sidney [sic]
to Manila and back for a total of eleven (11) trips;

3) One-half of P336,207.05 or P168,103.52 representing payment to Tropicana

Apartment Hotel;

4) One-half of P152,683.57 or P76,341.785 representing payment to Echelon

Tower;

5) One-half of P179,863.20 or P89,931.60 for the taxi xxx transportation from

the residence to Sidney [sic] Airport and from MIA to the hotel here in
Manila, for the eleven (11) trips;

6) One-half of P7,801.94 or P3,900.97 representing Meralco power expenses;

7) One-half of P356,400.00 or P178,000.00 representing expenses for food and

maintenance;

8) P50,000.00 for moral damages;

9) P10,000.00 as exemplary damages; and

10) P200,000 representing attorneys fees.

With costs.

SO ORDERED.[29]
 Unperturbed, YHT Realty Corporation, Lainez and Payam went to this Court in this
appeal by certiorari.
Petitioners submit for resolution by this Court the following issues: (a) whether the
appellate courts conclusion on the alleged prior existence and subsequent loss of the
subject money and jewelry is supported by the evidence on record; (b) whether the finding
of gross negligence on the part of petitioners in the performance of their duties as
innkeepers is supported by the evidence on record; (c) whether the Undertaking For The
Use of Safety Deposit Box admittedly executed by private respondent is null and void;
and (d) whether the damages awarded to private respondent, as well as the amounts
thereof, are proper under the circumstances.[30]
The petition is devoid of merit.
It is worthy of note that the thrust of Rule 45 is the resolution only of questions of law
and any peripheral factual question addressed to this Court is beyond the bounds of this
mode of review.
Petitioners point out that the evidence on record is insufficient to prove the fact of
prior existence of the dollars and the jewelry which had been lost while deposited in the
safety deposit boxes of Tropicana, the basis of the trial court and the appellate court being
the sole testimony of McLoughlin as to the contents thereof. Likewise, petitioners dispute
the finding of gross negligence on their part as not supported by the evidence on record.
We are not persuaded. We adhere to the findings of the trial court as affirmed by the
appellate court that the fact of loss was established by the credible testimony in open
court by McLoughlin. Such findings are factual and therefore beyond the ambit of the
present petition.
The trial court had the occasion to observe the demeanor of McLoughlin while
testifying which reflected the veracity of the facts testified to by him. On this score, we
give full credence to the appreciation of testimonial evidence by the trial court especially
if what is at issue is the credibility of the witness. The oft-repeated principle is that where
the credibility of a witness is an issue, the established rule is that great respect is accorded
to the evaluation of the credibility of witnesses by the trial court.[31] The trial court is in the
best position to assess the credibility of witnesses and their testimonies because of its
unique opportunity to observe the witnesses firsthand and note their demeanor, conduct
and attitude under grilling examination.[32]
We are also not impressed by petitioners argument that the finding of gross
negligence by the lower court as affirmed by the appellate court is not supported by
evidence. The evidence reveals that two keys are required to open the safety deposit
boxes of Tropicana. One key is assigned to the guest while the other remains in the
possession of the management. If the guest desires to open his safety deposit box, he
must request the management for the other key to open the same. In other words, the
guest alone cannot open the safety deposit box without the assistance of the
management or its employees. With more reason that access to the safety deposit box
should be denied if the one requesting for the opening of the safety deposit box is a
stranger. Thus, in case of loss of any item deposited in the safety deposit box, it is
inevitable to conclude that the management had at least a hand in the consummation of
the taking, unless the reason for the loss is force majeure.
Noteworthy is the fact that Payam and Lainez, who were employees of Tropicana,
had custody of the master key of the management when the loss took place. In fact, they
even admitted that they assisted Tan on three separate occasions in opening
McLoughlins safety deposit box.[33] This only proves that Tropicana had prior knowledge
that a person aside from the registered guest had access to the safety deposit box. Yet
the management failed to notify McLoughlin of the incident and waited for him to discover
the taking before it disclosed the matter to him. Therefore, Tropicana should be held
responsible for the damage suffered by McLoughlin by reason of the negligence of its
employees.
The management should have guarded against the occurrence of this incident
considering that Payam admitted in open court that she assisted Tan three times in
opening the safety deposit box of McLoughlin at around 6:30 A.M. to 7:30 A.M. while the
latter was still asleep.[34] In light of the circumstances surrounding this case, it is
undeniable that without the acquiescence of the employees of Tropicana to the opening
of the safety deposit box, the loss of McLoughlins money could and should have been
avoided.
The management contends, however, that McLoughlin, by his act, made its
employees believe that Tan was his spouse for she was always with him most of the time.
The evidence on record, however, is bereft of any showing that McLoughlin introduced
Tan to the management as his wife. Such an inference from the act of McLoughlin will not
exculpate the petitioners from liability in the absence of any showing that he made the
management believe that Tan was his wife or was duly authorized to have access to the
safety deposit box. Mere close companionship and intimacy are not enough to warrant
such conclusion considering that what is involved in the instant case is the very safety of
McLoughlins deposit. If only petitioners exercised due diligence in taking care of
McLoughlins safety deposit box, they should have confronted him as to his relationship
with Tan considering that the latter had been observed opening McLoughlins safety
deposit box a number of times at the early hours of the morning. Tans acts should have
prompted the management to investigate her relationship with McLoughlin. Then,
petitioners would have exercised due diligence required of them. Failure to do so warrants
the conclusion that the management had been remiss in complying with the obligations
imposed upon hotel-keepers under the law.
Under Article 1170 of the New Civil Code, those who, in the performance of their
obligations, are guilty of negligence, are liable for damages. As to who shall bear the
burden of paying damages, Article 2180, paragraph (4) of the same Code provides that
the owners and managers of an establishment or enterprise are likewise responsible for
damages caused by their employees in the service of the branches in which the latter are
employed or on the occasion of their functions. Also, this Court has ruled that if an
employee is found negligent, it is presumed that the employer was negligent in selecting
and/or supervising him for it is hard for the victim to prove the negligence of such
employer.[35] Thus, given the fact that the loss of McLoughlins money was consummated
through the negligence of Tropicanas employees in allowing Tan to open the safety
deposit box without the guests consent, both the assisting employees and YHT Realty
Corporation itself, as owner and operator of Tropicana, should be held solidarily liable
pursuant to Article 2193.[36]
The issue of whether the Undertaking For The Use of Safety Deposit Box executed
by McLoughlin is tainted with nullity presents a legal question appropriate for resolution
in this petition. Notably, both the trial court and the appellate court found the same to be
null and void. We find no reason to reverse their common conclusion. Article 2003 is
controlling, thus:

Art. 2003. The hotel-keeper cannot free himself from responsibility by posting notices to
the effect that he is not liable for the articles brought by the guest. Any stipulation
between the 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 carriers business is imbued with public interest. Catering to the public,
hotelkeepers are bound to provide not only lodging for hotel guests and security to their
persons and belongings. The twin duty constitutes the essence of the business. The law
in turn does not allow such duty to the public to be negated or diluted by any contrary
stipulation in so-called undertakings that ordinarily appear in prepared forms imposed by
hotel keepers on guests for their signature.
In an early case,[38] the Court of Appeals through its then Presiding Justice (later
Associate Justice of the Court) Jose P. Bengzon, ruled that to hold hotelkeepers or
innkeeper liable for the effects of their guests, it is not necessary that they be actually
delivered to the innkeepers or their employees. It is enough that such effects are within
the hotel or inn.[39] With greater reason should the liability of the hotelkeeper be enforced
when the missing items are taken without the guests knowledge and consent from a
safety deposit box provided by the hotel itself, as in this case.
Paragraphs (2) and (4) of the undertaking manifestly contravene Article 2003 of the
New Civil Code for they allow Tropicana to be released from liability arising from any loss
in the contents and/or use of the safety deposit box 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
justification they raise would render nugatory the public interest sought to be protected by
the provision. What if the negligence of the employer or its employees facilitated the
consummation of a crime committed by the registered guests relatives or visitor? Should
the law exculpate the hotel from liability since the loss was due to the act of the visitor of
the registered guest of the hotel? Hence, this provision presupposes that the hotel-keeper
is not guilty of concurrent negligence or has not contributed in any degree to the
occurrence of the loss. A depositary is not responsible for the loss of goods by theft,
unless his actionable negligence contributes to the loss.[44]
In the case at bar, the responsibility of securing the safety deposit box was shared
not only by the guest himself but also by the management since two keys are necessary
to open the safety deposit box. Without the assistance of hotel employees, the loss would
not have occurred. Thus, Tropicana was guilty of concurrent negligence in allowing Tan,
who was not the registered guest, to open the safety deposit box of McLoughlin, even
assuming that the latter was also guilty of negligence in allowing another person to use
his key. To rule otherwise would result in undermining the safety of the safety deposit
boxes in hotels for the management will be given imprimatur to allow any person, under
the pretense of being a family member or a visitor of the guest, to have access to the
safety deposit box without fear of any liability that will attach thereafter in case such
person turns out to be a complete stranger. This will allow the hotel to evade responsibility
for any liability incurred by its employees in conspiracy with the guests relatives and
visitors.
Petitioners contend that McLoughlins case was mounted on the theory of contract,
but the trial court and the appellate court upheld the grant of the claims of the latter on
the basis of tort.[45] There is nothing anomalous in how the lower courts decided the
controversy for this Court has pronounced a jurisprudential rule that tort liability can exist
even if there are already contractual relations. The act that breaks the contract may also
be tort.[46]
As to damages awarded to McLoughlin, we see no reason to modify the amounts
awarded by the appellate court for the same were based on facts and law. It is within the
province of lower courts to settle factual issues such as the proper amount of damages
awarded and such finding is binding upon this Court especially if sufficiently proven by
evidence and not unconscionable or excessive. Thus, the appellate court correctly
awarded McLoughlin Two Thousand US Dollars (US$2,000.00) and Four Thousand Five
Hundred Australian dollars (AUS$4,500.00) or their peso equivalent at the time of
payment,[47] being the amounts duly proven by evidence.[48] The alleged loss that took
place prior to 16 April 1988 was not considered since the amounts alleged to have been
taken were not sufficiently established by evidence. The appellate court also correctly
awarded the sum of P308,880.80, representing the peso value for the air fares from
Sydney to Manila and back for a total of eleven (11) trips; [49] one-half of P336,207.05
or P168,103.52 representing payment to Tropicana;[50] one-half of P152,683.57
or P76,341.785 representing payment to Echelon Tower;[51] one-half of P179,863.20
or P89,931.60 for the taxi or transportation expenses from McLoughlins residence to
Sydney Airport and from MIA to the hotel here in Manila, for the eleven (11) trips; [52] one-
half of P7,801.94 or P3,900.97 representing Meralco power expenses;[53] one-half
of P356,400.00 or P178,000.00 representing expenses for food and maintenance. [54]
 The amount of P50,000.00 for moral damages is reasonable. Although trial courts are
given discretion to determine the amount of moral damages, the appellate court may
modify or change the amount awarded when it is palpably and scandalously excessive.
Moral damages are not intended to enrich a complainant at the expense of a defendant.
They are awarded only to enable the injured party to obtain means, diversion or
amusements that will serve to alleviate the moral suffering he has undergone, by reason
of defendants culpable action.[55]
The awards of P10,000.00 as exemplary damages and P200,000.00 representing
attorneys fees are likewise sustained.
WHEREFORE, foregoing premises considered, the Decision of the Court of Appeals
dated 19 October 1995 is hereby AFFIRMED. Petitioners are directed, jointly and
severally, to pay private respondent the following amounts:

(1) US$2,000.00 and AUS$4,500.00 or their peso equivalent at the time of

payment;

(2) P308,880.80, representing the peso value for the air fares from Sydney to
Manila and back for a total of eleven (11) trips;

(3) One-half of P336,207.05 or P168,103.52 representing payment to Tropicana

Copacabana Apartment Hotel;

(4) One-half of P152,683.57 or P76,341.785 representing payment to Echelon

Tower;

(5) One-half of P179,863.20 or P89,931.60 for the taxi or transportation expense

from McLoughlins residence to Sydney Airport and from MIA to the hotel
here in Manila, for the eleven (11) trips;

(6) One-half of P7,801.94 or P3,900.97 representing Meralco power expenses;

(7) One-half of P356,400.00 or P178,200.00 representing expenses for food and

maintenance;

(8) P50,000.00 for moral damages;

(9) P10,000.00 as exemplary damages; and

(10) P200,000 representing attorneys fees.

With costs.

SO ORDERED.
Puno, (Chairman), Callejo, Sr., and Chico-Nazario, JJ., concur.
Austria-Martinez, J., no part.