SECOND DIVISION

[G.R. No. 120528. January 29, 2001]

ATTY. DIONISIO CALIBO, JR., petitioner, vs. COURT OF APPEALS and

DR. PABLO U. ABELLA, respondents.

DECISION
QUISUMBING, J.:

Before us is the petition for review on certiorari by petitioner Dionisio Calibo, Jr., assailing
the decision of the Court of Appeals in CA-G.R. CV No. 39705, which affirmed the decision of
the Regional Trial Court of Cebu, Branch 11, declaring private respondent as the lawful
possessor of a tractor subject of a replevin suit and ordering petitioner to pay private respondent
actual damages and attorneys fees.
The facts of the case, as summarized by respondent court, are undisputed.

on January 25, 1979, plaintiff-appellee [herein petitioner] Pablo U. Abella purchased

an MF 210 agricultural tractor with Serial No. 00105 and Engine No. P126M00199
(Exhibit A; Record, p.5) which he used in his farm in Dagohoy, Bohol.

Sometime in October or November 1985, Pablo Abellas son, Mike Abella rented for
residential purposes the house of defendant-appellant Dionisio R. Calibo, Jr., in
Tagbilaran City.

In October 1986, Pablo Abella pulled out his aforementioned tractor from his farm in
Dagohoy, Bohol, and left it in the safekeeping of his son, Mike Abella, in Tagbilaran
City. Mike kept the tractor in the garage of the house he was leasing from Calibo.

Since he started renting Calibos house, Mike had been religiously paying the monthly
rentals therefor, but beginning November of 1986, he stopped doing so. The following
month, Calibo learned that Mike had never paid the charges for electric and water
consumption in the leased premises which the latter was duty-bound to
shoulder. Thus, Calibo confronted Mike about his rental arrears and the unpaid
electric and water bills. During this confrontation, Mike informed Calibo that he
(Mike) would be staying in the leased property only until the end of December
1986. Mike also assured Calibo that he would be settling his account with the latter,
offering the tractor as security. Mike even asked Calibo to help him find a buyer for
the tractor so he could sooner pay his outstanding obligation.
In January 1987 when a new tenant moved into the house formerly leased to Mike,
Calibo had the tractor moved to the garage of his fathers house, also in Tagbilaran
City.

Apprehensive over Mikes unsettled account, Calibo visited him in his Cebu City
address in January, February and March, 1987 and tried to collect payment. On all
three occasions, Calibo was unable to talk to Mike as the latter was reportedly out of
town. On his third trip to Cebu City, Calibo left word with the occupants of the Abella
residence thereat that there was a prospective buyer for the tractor. The following
week, Mike saw Calibo in Tagbilaran City to inquire about the possible tractor
buyer. The sale, however, did not push through as the buyer did not come back
anymore.When again confronted with his outstanding obligation, Mike reassured
Calibo that the tractor would stand as a guarantee for its payment. That was the last
time Calibo saw or heard from Mike.

After a long while, or on November 22, 1988, Mikes father, Pablo Abella, came to
Tagbilaran City to claim and take possession of the tractor. Calibo, however, informed
Pablo that Mike left the tractor with him as security for the payment of Mikes
obligation to him. Pablo offered to write Mike a check for P2,000.00 in payment of
Mikes unpaid lease rentals, in addition to issuing postdated checks to cover the unpaid
electric and water bills the correctness of which Pablo said he still had to verify with
Mike. Calibo told Pablo that he would accept the P2,000.00-check only if the latter
would execute a promissory note in his favor to cover the amount of the unpaid
electric and water bills. Pablo was not amenable to this proposal. The two of them
having failed to come to an agreement, Pablo left and went back to Cebu City,
unsuccessful in his attempt to take possession of the tractor.[1]

On November 25, 1988, private respondent instituted an action for replevin, claiming
ownership of the tractor and seeking to recover possession thereof from petitioner. As adverted
to above, the trial court ruled in favor of private respondent; so did the Court of Appeals when
petitioner appealed.
The Court of Appeals sustained the ruling of the trial court that Mike Abella could not have
validly pledged the subject tractor to petitioner since he was not the owner thereof, nor was he
authorized by its owner to pledge the tractor. Respondent court also rejected petitioners
contention that, if not a pledge, then a deposit was created. The Court of Appeals said that under
the Civil Code, the primary purpose of a deposit is only safekeeping and not, as in this case,
securing payment of a debt.
The Court of Appeals reduced the amount of actual damages payable to private respondent,
deducting therefrom the cost of transporting the tractor from Tagbilaran, Bohol, to Cebu City.
Hence, this petition.
 Essentially, petitioner claims that the tractor in question was validly pledged to him by
private respondents son Mike Abella to answer for the latters monetary obligations to
petitioner. In the alternative, petitioner asserts that the tractor was left with him, in the concept of
an innkeeper, on deposit and that he may validly hold on thereto until Mike Abella pays his
obligations.
Petitioner maintains that even if Mike Abella were not the owner of the tractor, a principal-
agent relationship may be implied between Mike Abella and private respondent. He contends
that the latter failed to repudiate the alleged agency, knowing that his son is acting on his behalf
without authority when he pledged the tractor to petitioner. Petitioner argues that, under Article
1911 of the Civil Code, private respondent is bound by the pledge, even if it were beyond the
authority of his son to pledge the tractor, since he allowed his son to act as though he had full
powers.
On the other hand, private respondent asserts that respondent court had correctly ruled on
the matter.
In a contract of pledge, the creditor is given the right to retain his debtors movable property
in his possession, or in that of a third person to whom it has been delivered, until the debt is
paid. For the contract to be valid, it is necessary that: (1) the pledge is constituted to secure the
fulfillment of a principal obligation; (2) the pledgor be the absolute owner of the thing pledged;
and (3) the person constituting the pledge has the free disposal of his property, and in the absence
thereof, that he be legally authorized for the purpose.[2]
As found by the trial court and affirmed by respondent court, the pledgor in this case, Mike
Abella, was not the absolute owner of the tractor that was allegedly pledged to petitioner. The
tractor was owned by his father, private respondent, who left the equipment with him for
safekeeping.Clearly, the second requisite for a valid pledge, that the pledgor be the absolute
owner of the property, is absent in this case. Hence, there is no valid pledge.

He who is not the owner or proprietor of the property pledged or mortgaged to

guarantee the fulfillment of a principal obligation, cannot legally constitute such a
guaranty as may validly bind the property in favor of his creditor, and the pledgee or
mortgagee in such a case acquires no right whatsoever in the property pledged or
mortgaged.[3]

There also does not appear to be any agency in this case. We agree with the Court of
Appeals that:

As indicated in Article 1869, for an agency relationship to be deemed as implied, the

principal must know that another person is acting on his behalf without
authority. Here, appellee categorically stated that the only purpose for his leaving the
subject tractor in the care and custody of Mike Abella was for safekeeping, and
definitely not for him to pledge or alienate the same. If it were true that Mike pledged
appellees tractor to appellant, then Mike was acting not only without appellees
authority but without the latters knowledge as well.
Article 1911, on the other hand, mandates that the principal is solidarily liable with
the agent if the former allowed the latter to act as though he had full powers. Again, in
view of appellees lack of knowledge of Mikes pledging the tractor without any
authority from him, it stands to reason that the former could not have allowed the
latter to pledge the tractor as if he had full powers to do so.[4]

There is likewise no valid deposit in this case. In a contract of deposit, a person receives an
object belonging to another with the obligation of safely keeping it and of returning the
same.[5] Petitioner himself states that he received the tractor not to safely keep it but as a form of
security for the payment of Mike Abellas obligations. There is no deposit where the principal
purpose for receiving the object is not safekeeping.[6]
Consequently, petitioner had no right to refuse delivery of the tractor to its lawful owner. On
the other hand, private respondent, as owner, had every right to seek to repossess the tractor,
including the institution of the instant action for replevin.
We do not here pass upon the other assignment of errors made by petitioner concerning
alleged irregularities in the raffle and disposition of the case at the trial court. A petition for
review on certiorari is not the proper vehicle for such allegations.
WHEREFORE, the instant petition is DENIED for lack of merit, and the decision of the
Court of Appeals in CA-G.R. CV No. 39705 is AFFIRMED. Costs against petitioner.
SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-6913 November 21, 1913

THE ROMAN CATHOLIC BISHOP OF JARO, plaintiff-appellee,

vs.
GREGORIO DE LA PEÑA, administrator of the estate of Father Agustin de la Peña, defendant-
appellant.

J. Lopez Vito, for appellant.

Arroyo and Horrilleno, for appellee.

MORELAND, J.:

This is an appeal by the defendant from a judgment of the Court of First Instance of Iloilo, awarding
to the plaintiff the sum of P6,641, with interest at the legal rate from the beginning of the action.

It is established in this case that the plaintiff is the trustee of a charitable bequest made for the
construction of a leper hospital and that father Agustin de la Peña was the duly authorized
representative of the plaintiff to receive the legacy. The defendant is the administrator of the estate
of Father De la Peña.

In the year 1898 the books Father De la Peña, as trustee, showed that he had on hand as such
trustee the sum of P6,641, collected by him for the charitable purposes aforesaid. In the same year
he deposited in his personal account P19,000 in the Hongkong and Shanghai Bank at Iloilo. Shortly
thereafter and during the war of the revolution, Father De la Peña was arrested by the military
authorities as a political prisoner, and while thus detained made an order on said bank in favor of the
United States Army officer under whose charge he then was for the sum thus deposited in said
bank. The arrest of Father De la Peña and the confiscation of the funds in the bank were the result
of the claim of the military authorities that he was an insurgent and that the funds thus deposited had
been collected by him for revolutionary purposes. The money was taken from the bank by the
military authorities by virtue of such order, was confiscated and turned over to the Government.

While there is considerable dispute in the case over the question whether the P6,641 of trust funds
was included in the P19,000 deposited as aforesaid, nevertheless, a careful examination of the case
leads us to the conclusion that said trust funds were a part of the funds deposited and which were
removed and confiscated by the military authorities of the United States.

That branch of the law known in England and America as the law of trusts had no exact counterpart
in the Roman law and has none under the Spanish law. In this jurisdiction, therefore, Father De la
Peña's liability is determined by those portions of the Civil Code which relate to obligations. (Book 4,
Title 1.)

Although the Civil Code states that "a person obliged to give something is also bound to preserve it
with the diligence pertaining to a good father of a family" (art. 1094), it also provides, following the
principle of the Roman law, major casus est, cui humana infirmitas resistere non potest, that "no one
shall be liable for events which could not be foreseen, or which having been foreseen were
inevitable, with the exception of the cases expressly mentioned in the law or those in which the
obligation so declares." (Art. 1105.)

By placing the money in the bank and mixing it with his personal funds De la Peña did not thereby
assume an obligation different from that under which he would have lain if such deposit had not
been made, nor did he thereby make himself liable to repay the money at all hazards. If the had
been forcibly taken from his pocket or from his house by the military forces of one of the combatants
during a state of war, it is clear that under the provisions of the Civil Code he would have been
exempt from responsibility. The fact that he placed the trust fund in the bank in his personal account
does not add to his responsibility. Such deposit did not make him a debtor who must respond at all
hazards.

We do not enter into a discussion for the purpose of determining whether he acted more or less
negligently by depositing the money in the bank than he would if he had left it in his home; or
whether he was more or less negligent by depositing the money in his personal account than he
would have been if he had deposited it in a separate account as trustee. We regard such discussion
as substantially fruitless, inasmuch as the precise question is not one of negligence. There was no
law prohibiting him from depositing it as he did and there was no law which changed his
responsibility be reason of the deposit. While it may be true that one who is under obligation to do or
give a thing is in duty bound, when he sees events approaching the results of which will be
dangerous to his trust, to take all reasonable means and measures to escape or, if unavoidable, to
temper the effects of those events, we do not feel constrained to hold that, in choosing between two
means equally legal, he is culpably negligent in selecting one whereas he would not have been if he
had selected the other.

The court, therefore, finds and declares that the money which is the subject matter of this action was
deposited by Father De la Peña in the Hongkong and Shanghai Banking Corporation of Iloilo; that
said money was forcibly taken from the bank by the armed forces of the United States during the war
of the insurrection; and that said Father De la Peña was not responsible for its loss.

The judgment is therefore reversed, and it is decreed that the plaintiff shall take nothing by his
complaint.

Arellano, C.J., Torres and Carson, JJ., concur.

Separate Opinions

TRENT, J., dissenting:

I dissent. Technically speaking, whether Father De la Peña was a trustee or an agent of the plaintiff
his books showed that in 1898 he had in his possession as trustee or agent the sum of P6,641
belonging to the plaintiff as the head of the church. This money was then clothed with all the
immunities and protection with which the law seeks to invest trust funds. But when De la Peña mixed
this trust fund with his own and deposited the whole in the bank to his personal account or credit, he
by this act stamped on the said fund his own private marks and unclothed it of all the protection it
had. If this money had been deposited in the name of De la Peña as trustee or agent of the plaintiff, I
think that it may be presumed that the military authorities would not have confiscated it for the
reason that they were looking for insurgent funds only. Again, the plaintiff had no reason to suppose
that De la Peña would attempt to strip the fund of its identity, nor had he said or done anything which
tended to relieve De la Peña from the legal reponsibility which pertains to the care and custody of
trust funds.

The Supreme Court of the United States in the United State vs. Thomas (82 U. S., 337), at page
343, said: "Trustees are only bound to exercise the same care and solicitude with regard to the trust
property which they would exercise with regard to their own. Equity will not exact more of them. They
are not liable for a loss by theft without their fault. But this exemption ceases when they mix the
trust-money with their own, whereby it loses its identity, and they become mere debtors."

If this proposition is sound and is applicable to cases arising in this jurisdiction, and I entertain no
doubt on this point, the liability of the estate of De la Peña cannot be doubted. But this court in the
majority opinion says: "The fact that he (Agustin de la Peña) placed the trust fund in the bank in his
personal account does not add to his responsibility. Such deposit did not make him a debtor who
must respond at all hazards. . . . There was no law prohibiting him from depositing it as he did, and
there was no law which changed his responsibility, by reason of the deposit."

I assume that the court in using the language which appears in the latter part of the above quotation
meant to say that there was no statutory law regulating the question. Questions of this character are
not usually governed by statutory law. The law is to be found in the very nature of the trust itself,
and, as a general rule, the courts say what facts are necessary to hold the trustee as a debtor.

If De la Peña, after depositing the trust fund in his personal account, had used this money for
speculative purposes, such as the buying and selling of sugar or other products of the country,
thereby becoming a debtor, there would have been no doubt as to the liability of his estate. Whether
he used this money for that purpose the record is silent, but it will be noted that a considerable
length of time intervened from the time of the deposit until the funds were confiscated by the military
authorities. In fact the record shows that De la Peña deposited on June 27, 1898, P5,259, on June
28 of that year P3,280, and on August 5 of the same year P6,000. The record also shows that these
funds were withdrawn and again deposited all together on the 29th of May, 1900, this last deposit
amounting to P18,970. These facts strongly indicate that De la Peña had as a matter of fact been
using the money in violation of the trust imposed in him. lawph!1.net

If the doctrine announced in the majority opinion be followed in cases hereafter arising in this
jurisdiction trust funds will be placed in precarious condition. The position of the trustee will cease to
be one of trust.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 90027 March 3, 1993

CA AGRO-INDUSTRIAL DEVELOPMENT CORP., petitioner,

vs.
THE HONORABLE COURT OF APPEALS and SECURITY BANK AND TRUST
COMPANY, respondents.

Dolorfino & Dominguez Law Offices for petitioner.

Danilo B. Banares for private respondent.

DAVIDE, JR., J.:

Is the contractual relation between a commercial bank and another party in a contract of rent of a
safety deposit box with respect to its contents placed by the latter one of bailor and bailee or one of
lessor and lessee?

This is the crux of the present controversy.

On 3 July 1979, petitioner (through its President, Sergio Aguirre) and the spouses Ramon and Paula
Pugao entered into an agreement whereby the former purchased from the latter two (2) parcels of
land for a consideration of P350,625.00. Of this amount, P75,725.00 was paid as downpayment
while the balance was covered by three (3) postdated checks. Among the terms and conditions of
the agreement embodied in a Memorandum of True and Actual Agreement of Sale of Land were that
the titles to the lots shall be transferred to the petitioner upon full payment of the purchase price and
that the owner's copies of the certificates of titles thereto, Transfer Certificates of Title (TCT) Nos.
284655 and 292434, shall be deposited in a safety deposit box of any bank. The same could be
withdrawn only upon the joint signatures of a representative of the petitioner and the Pugaos upon
full payment of the purchase price. Petitioner, through Sergio Aguirre, and the Pugaos then rented
Safety Deposit Box No. 1448 of private respondent Security Bank and Trust Company, a domestic
banking corporation hereinafter referred to as the respondent Bank. For this purpose, both signed a
contract of lease (Exhibit "2") which contains, inter alia, the following conditions:

13. The bank is not a depositary of the contents of the safe and it has neither the
possession nor control of the same.

14. The bank has no interest whatsoever in said contents, except herein expressly
provided, and it assumes absolutely no liability in connection therewith. 1

After the execution of the contract, two (2) renter's keys were given to the renters — one to Aguirre
(for the petitioner) and the other to the Pugaos. A guard key remained in the possession of the
respondent Bank. The safety deposit box has two (2) keyholes, one for the guard key and the other
for the renter's key, and can be opened only with the use of both keys. Petitioner claims that the
certificates of title were placed inside the said box.

Thereafter, a certain Mrs. Margarita Ramos offered to buy from the petitioner the two (2) lots at a
price of P225.00 per square meter which, as petitioner alleged in its complaint, translates to a profit
of P100.00 per square meter or a total of P280,500.00 for the entire property. Mrs. Ramos
demanded the execution of a deed of sale which necessarily entailed the production of the
certificates of title. In view thereof, Aguirre, accompanied by the Pugaos, then proceeded to the
respondent Bank on 4 October 1979 to open the safety deposit box and get the certificates of title.
However, when opened in the presence of the Bank's representative, the box yielded no such
certificates. Because of the delay in the reconstitution of the title, Mrs. Ramos withdrew her earlier
offer to purchase the lots; as a consequence thereof, the petitioner allegedly failed to realize the
expected profit of P280,500.00. Hence, the latter filed on 1 September 1980 a complaint 2 for
damages against the respondent Bank with the Court of First Instance (now Regional Trial Court) of
Pasig, Metro Manila which docketed the same as Civil Case No. 38382.

In its Answer with Counterclaim, 3 respondent Bank alleged that the petitioner has no cause of action
because of paragraphs 13 and 14 of the contract of lease (Exhibit "2"); corollarily, loss of any of the items
or articles contained in the box could not give rise to an action against it. It then interposed a counterclaim
for exemplary damages as well as attorney's fees in the amount of P20,000.00. Petitioner subsequently
filed an answer to the counterclaim. 4

In due course, the trial court, now designated as Branch 161 of the Regional Trial Court (RTC) of
Pasig, Metro Manila, rendered a decision 5 adverse to the petitioner on 8 December 1986, the
dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered dismissing

plaintiff's complaint.

On defendant's counterclaim, judgment is hereby rendered ordering plaintiff to pay

defendant the amount of FIVE THOUSAND (P5,000.00) PESOS as attorney's fees.

With costs against plaintiff. 6

The unfavorable verdict is based on the trial court's conclusion that under paragraphs 13 and 14 of
the contract of lease, the Bank has no liability for the loss of the certificates of title. The court
declared that the said provisions are binding on the parties.

Its motion for reconsideration 7 having been denied, petitioner appealed from the adverse decision to the
respondent Court of Appeals which docketed the appeal as CA-G.R. CV No. 15150. Petitioner urged the
respondent Court to reverse the challenged decision because the trial court erred in (a) absolving the
respondent Bank from liability from the loss, (b) not declaring as null and void, for being contrary to law,
public order and public policy, the provisions in the contract for lease of the safety deposit box absolving
the Bank from any liability for loss, (c) not concluding that in this jurisdiction, as well as under American
jurisprudence, the liability of the Bank is settled and (d) awarding attorney's fees to the Bank and denying
the petitioner's prayer for nominal and exemplary damages and attorney's fees. 8

In its Decision promulgated on 4 July 1989, 9 respondent Court affirmed the appealed decision
principally on the theory that the contract (Exhibit "2") executed by the petitioner and respondent Bank is
in the nature of a contract of lease by virtue of which the petitioner and its co-renter were given control
over the safety deposit box and its contents while the Bank retained no right to open the said box
because it had neither the possession nor control over it and its contents. As such, the contract is
governed by Article 1643 of the Civil Code 10 which provides:

Art. 1643. In the lease of things, one of the parties binds himself to give to another
the enjoyment or use of a thing for a price certain, and for a period which may be
definite or indefinite. However, no lease for more than ninety-nine years shall be
valid.

It invoked Tolentino vs. Gonzales 11 — which held that the owner of the property loses his
control over the property leased during the period of the contract — and Article 1975 of the Civil
Code which provides:

Art. 1975. The depositary holding certificates, bonds, securities or instruments which
earn interest shall be bound to collect the latter when it becomes due, and to take
such steps as may be necessary in order that the securities may preserve their value
and the rights corresponding to them according to law.

The above provision shall not apply to contracts for the rent of safety deposit boxes.

and then concluded that "[c]learly, the defendant-appellee is not under any duty to maintain
the contents of the box. The stipulation absolving the defendant-appellee from liability is in
accordance with the nature of the contract of lease and cannot be regarded as contrary to
law, public order and public policy." 12 The appellate court was quick to add, however, that
under the contract of lease of the safety deposit box, respondent Bank is not completely free from
liability as it may still be made answerable in case unauthorized persons enter into the vault area
or when the rented box is forced open. Thus, as expressly provided for in stipulation number 8 of
the contract in question:

8. The Bank shall use due diligence that no unauthorized person shall be admitted to
any rented safe and beyond this, the Bank will not be responsible for the contents of
any safe rented from it. 13

Its motion for reconsideration 14 having been denied in the respondent Court's Resolution of 28 August
1989, 15petitioner took this recourse under Rule 45 of the Rules of Court and urges Us to review and set
aside the respondent Court's ruling. Petitioner avers that both the respondent Court and the trial court (a)
did not properly and legally apply the correct law in this case, (b) acted with grave abuse of discretion or
in excess of jurisdiction amounting to lack thereof and (c) set a precedent that is contrary to, or is a
departure from precedents adhered to and affirmed by decisions of this Court and precepts in American
jurisprudence adopted in the Philippines. It reiterates the arguments it had raised in its motion to
reconsider the trial court's decision, the brief submitted to the respondent Court and the motion to
reconsider the latter's decision. In a nutshell, petitioner maintains that regardless of nomenclature, the
contract for the rent of the safety deposit box (Exhibit "2") is actually a contract of deposit governed by
Title XII, Book IV of the Civil Code of the
Philippines. 16 Accordingly, it is claimed that the respondent Bank is liable for the loss of the certificates of
title pursuant to Article 1972 of the said Code which provides:

Art. 1972. The depositary is obliged to keep the thing safely and to return it, when
required, to the depositor, or to his heirs and successors, or to the person who may
have been designated in the contract. His responsibility, with regard to the
safekeeping and the loss of the thing, shall be governed by the provisions of Title I of
this Book.
 If the deposit is gratuitous, this fact shall be taken into account in determining the
degree of care that the depositary must observe.

Petitioner then quotes a passage from American Jurisprudence 17 which is supposed to

expound on the prevailing rule in the United States, to wit:

The prevailing rule appears to be that where a safe-deposit company leases a safe-
deposit box or safe and the lessee takes possession of the box or safe and places
therein his securities or other valuables, the relation of bailee and bail or is created
between the parties to the transaction as to such securities or other valuables; the
fact that the
safe-deposit company does not know, and that it is not expected that it shall know,
the character or description of the property which is deposited in such safe-deposit
box or safe does not change that relation. That access to the contents of the safe-
deposit box can be had only by the use of a key retained by the lessee ( whether it is
the sole key or one to be used in connection with one retained by the lessor) does
not operate to alter the foregoing rule. The argument that there is not, in such a case,
a delivery of exclusive possession and control to the deposit company, and that
therefore the situation is entirely different from that of ordinary bailment, has been
generally rejected by the courts, usually on the ground that as possession must be
either in the depositor or in the company, it should reasonably be considered as in
the latter rather than in the former, since the company is, by the nature of the
contract, given absolute control of access to the property, and the depositor cannot
gain access thereto without the consent and active participation of the company. . . .
(citations omitted).

and a segment from Words and Phrases 18 which states that a contract for the rental of a bank
safety deposit box in consideration of a fixed amount at stated periods is a bailment for hire.

Petitioner further argues that conditions 13 and 14 of the questioned contract are contrary to law and
public policy and should be declared null and void. In support thereof, it cites Article 1306 of the Civil
Code which provides that parties to a contract may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals, good
customs, public order or public policy.

After the respondent Bank filed its comment, this Court gave due course to the petition and required
the parties to simultaneously submit their respective Memoranda.

The petition is partly meritorious.

We agree with the petitioner's contention that the contract for the rent of the safety deposit box is not
an ordinary contract of lease as defined in Article 1643 of the Civil Code. However, We do not fully
subscribe to its view that the same is a contract of deposit that is to be strictly governed by the
provisions in the Civil Code on deposit; 19the contract in the case at bar is a special kind of deposit. It
cannot be characterized as an ordinary contract of lease under Article 1643 because the full and absolute
possession and control of the safety deposit box was not given to the joint renters — the petitioner and
the Pugaos. The guard key of the box remained with the respondent Bank; without this key, neither of the
renters could open the box. On the other hand, the respondent Bank could not likewise open the box
without the renter's key. In this case, the said key had a duplicate which was made so that both renters
could have access to the box.
Hence, the authorities cited by the respondent Court 20 on this point do not apply. Neither could Article
1975, also relied upon by the respondent Court, be invoked as an argument against the deposit theory.
Obviously, the first paragraph of such provision cannot apply to a depositary of certificates, bonds,
securities or instruments which earn interest if such documents are kept in a rented safety deposit box. It
is clear that the depositary cannot open the box without the renter being present.

We observe, however, that the deposit theory itself does not altogether find unanimous support even
in American jurisprudence. We agree with the petitioner that under the latter, the prevailing rule is
that the relation between a bank renting out safe-deposit boxes and its customer with respect to the
contents of the box is that of a bail or and bailee, the bailment being for hire and mutual
benefit. 21 This is just the prevailing view because:

There is, however, some support for the view that the relationship in question might
be more properly characterized as that of landlord and tenant, or lessor and lessee. It
has also been suggested that it should be characterized as that of licensor and
licensee. The relation between a bank, safe-deposit company, or storage company,
and the renter of a safe-deposit box therein, is often described as contractual,
express or implied, oral or written, in whole or in part. But there is apparently no
jurisdiction in which any rule other than that applicable to bailments governs
questions of the liability and rights of the parties in respect of loss of the contents of
safe-deposit boxes. 22 (citations omitted)

In the context of our laws which authorize banking institutions to rent out safety deposit boxes, it is
clear that in this jurisdiction, the prevailing rule in the United States has been adopted. Section 72 of
the General Banking Act 23 pertinently provides:

Sec. 72. In addition to the operations specifically authorized elsewhere in this Act,
banking institutions other than building and loan associations may perform the
following services:

(a) Receive in custody funds, documents, and valuable objects, and

rent safety deposit boxes for the safeguarding of such effects.

xxx xxx xxx

The banks shall perform the services permitted under subsections (a), (b) and (c) of
this section as depositories or as agents. . . . 24 (emphasis supplied)

Note that the primary function is still found within the parameters of a contract of deposit, i.e., the
receiving in custody of funds, documents and other valuable objects for safekeeping. The renting out
of the safety deposit boxes is not independent from, but related to or in conjunction with, this
principal function. A contract of deposit may be entered into orally or in writing 25 and, pursuant to
Article 1306 of the Civil Code, the parties thereto may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals, good customs,
public order or public policy. The depositary's responsibility for the safekeeping of the objects deposited in
the case at bar is governed by Title I, Book IV of the Civil Code. Accordingly, the depositary would be
liable if, in performing its obligation, it is found guilty of fraud, negligence, delay or contravention of the
tenor of the agreement. 26 In the absence of any stipulation prescribing the degree of diligence required,
that of a good father of a family is to be observed. 27 Hence, any stipulation exempting the depositary from
any liability arising from the loss of the thing deposited on account of fraud, negligence or delay would be
void for being contrary to law and public policy. In the instant case, petitioner maintains that conditions 13
and 14 of the questioned contract of lease of the safety deposit box, which read:
 13. The bank is not a depositary of the contents of the safe and it has neither the
possession nor control of the same.

14. The bank has no interest whatsoever in said contents, except herein expressly
provided, and it assumes absolutely no liability in connection therewith. 28

are void as they are contrary to law and public policy. We find Ourselves in agreement with
this proposition for indeed, said provisions are inconsistent with the respondent Bank's
responsibility as a depositary under Section 72(a) of the General Banking Act. Both exempt
the latter from any liability except as contemplated in condition 8 thereof which limits its duty
to exercise reasonable diligence only with respect to who shall be admitted to any rented
safe, to wit:

8. The Bank shall use due diligence that no unauthorized person shall be admitted to
any rented safe and beyond this, the Bank will not be responsible for the contents of
any safe rented from it. 29

Furthermore, condition 13 stands on a wrong premise and is contrary to the actual practice
of the Bank. It is not correct to assert that the Bank has neither the possession nor control of
the contents of the box since in fact, the safety deposit box itself is located in its premises
and is under its absolute control; moreover, the respondent Bank keeps the guard key to the
said box. As stated earlier, renters cannot open their respective boxes unless the Bank
cooperates by presenting and using this guard key. Clearly then, to the extent above stated,
the foregoing conditions in the contract in question are void and ineffective. It has been said:

With respect to property deposited in a safe-deposit box by a customer of a safe-

deposit company, the parties, since the relation is a contractual one, may by special
contract define their respective duties or provide for increasing or limiting the liability
of the deposit company, provided such contract is not in violation of law or public
policy. It must clearly appear that there actually was such a special contract,
however, in order to vary the ordinary obligations implied by law from the relationship
of the parties; liability of the deposit company will not be enlarged or restricted by
words of doubtful meaning. The company, in renting
safe-deposit boxes, cannot exempt itself from liability for loss of the contents by its
own fraud or negligence or that of its agents or servants, and if a provision of the
contract may be construed as an attempt to do so, it will be held ineffective for the
purpose. Although it has been held that the lessor of a safe-deposit box cannot limit
its liability for loss of the contents thereof through its own negligence, the view has
been taken that such a lessor may limits its liability to some extent by agreement or
stipulation. 30 (citations omitted)

Thus, we reach the same conclusion which the Court of Appeals arrived at, that is, that the petition
should be dismissed, but on grounds quite different from those relied upon by the Court of Appeals.
In the instant case, the respondent Bank's exoneration cannot, contrary to the holding of the Court of
Appeals, be based on or proceed from a characterization of the impugned contract as a contract of
lease, but rather on the fact that no competent proof was presented to show that respondent Bank
was aware of the agreement between the petitioner and the Pugaos to the effect that the certificates
of title were withdrawable from the safety deposit box only upon both parties' joint signatures, and
that no evidence was submitted to reveal that the loss of the certificates of title was due to the fraud
or negligence of the respondent Bank. This in turn flows from this Court's determination that the
contract involved was one of deposit. Since both the petitioner and the Pugaos agreed that each
should have one (1) renter's key, it was obvious that either of them could ask the Bank for access to
the safety deposit box and, with the use of such key and the Bank's own guard key, could open the
said box, without the other renter being present.

Since, however, the petitioner cannot be blamed for the filing of the complaint and no bad faith on its
part had been established, the trial court erred in condemning the petitioner to pay the respondent
Bank attorney's fees. To this extent, the Decision (dispositive portion) of public respondent Court of
Appeals must be modified.

WHEREFORE, the Petition for Review is partially GRANTED by deleting the award for attorney's
fees from the 4 July 1989 Decision of the respondent Court of Appeals in CA-G.R. CV No. 15150. As
modified, and subject to the pronouncement We made above on the nature of the relationship
between the parties in a contract of lease of safety deposit boxes, the dispositive portion of the said
Decision is hereby AFFIRMED and the instant Petition for Review is otherwise DENIED for lack of
merit.

No pronouncement as to costs.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 4015 August 24, 1908

ANGEL JAVELLANA, plaintiff-appellee,

vs.
JOSE LIM, ET AL., defendants-appellants.

R. Zaldarriaga for appellants.

B. Montinola for appellee.

TORRES, J.:

The attorney for the plaintiff, Angel Javellana, file a complaint on the 30th of October, 1906, with the
Court of First Instance of Iloilo, praying that the defendants, Jose Lim and Ceferino Domingo Lim, he
sentenced to jointly and severally pay the sum of P2,686.58, with interest thereon at the rate of 15
per cent per annum from the 20th of January, 1898, until full payment should be made, deducting
from the amount of interest due the sum of P1,102.16, and to pay the costs of the proceedings.

Authority from the court having been previously obtained, the complaint was amended on the 10th of
January, 1907; it was then alleged, on the 26th of May, 1897, the defendants executed and
subscribed a document in favor of the plaintiff reading as follows:

We have received from Angel Javellana, as a deposit without interest, the sum of two thousand six
hundred and eighty-six cents of pesos fuertes, which we will return to the said gentleman, jointly and
severally, on the 20th of January, 1898. — Jaro, 26th of May, 1897. — Signed Jose Lim. — Signed:
Ceferino Domingo Lim.

That, when the obligation became due, the defendants begged the plaintiff for an extension of time
for the payment thereof, building themselves to pay interest at the rate of 15 per cent on the amount
of their indebtedness, to which the plaintiff acceded; that on the 15th of May, 1902, the debtors paid
on account of interest due the sum of P1,000 pesos, with the exception of either capital or interest,
had thereby been subjected to loss and damages.

A demurrer to the original complaint was overruled, and on the 4th of January, 1907, the defendants
answered the original complaint before its amendment, setting forth that they acknowledged the
facts stated in Nos. 1 and 2 of the complaint; that they admitted the statements of the plaintiff relative
to the payment of 1,102.16 pesos made on the 15th of November, 1902, not, however, as payment
of interest on the amount stated in the foregoing document, but on account of the principal, and
denied that there had been any agreement as to an extension of the time for payment and the
payment of interest at the rate of 15 per cent per annum as alleged in paragraph 3 of the complaint,
and also denied all the other statements contained therein.

As a counterclaim, the defendants alleged that they had paid to the plaintiff sums which, together
with the P1,102.16 acknowledged in the complaint, aggregated the total sum of P5,602.16, and that,
deducting therefrom the total sum of P2,686.58 stated in the document transcribed in the complaint,
the plaintiff still owed the defendants P2,915.58; therefore, they asked that judgment be entered
absolving them, and sentencing the plaintiff to pay them the sum of P2,915.58 with the costs.

Evidence was adduced by both parties and, upon their exhibits, together with an account book
having been made of record, the court below rendered judgment on the 15th of January, 1907, in
favor of the plaintiff for the recovery of the sum of P5,714.44 and costs.

The defendants excepted to the above decision and moved for a new trial. This motion was
overruled and was also excepted to by them; the bill of exceptions presented by the appellants
having been approved, the same was in due course submitted to this court.

The document of indebtedness inserted in the complaint states that the plaintiff left on deposit with
the defendants a given sum of money which they were jointly and severally obliged to return on a
certain date fixed in the document; but that, nevertheless, when the document appearing as Exhibits
2, written in the Visayan dialect and followed by a translation into Spanish was executed, it was
acknowledged, at the date thereof, the 15th of November, 1902, that the amount deposited had not
yet been returned to the creditor, whereby he was subjected to losses and damages amounting to
830 pesos since the 20th of January, 1898, when the return was again stipulated with the further
agreement that the amount deposited should bear interest at the rate of 15 per cent per annum, from
the aforesaid date of January 20, and that the 1,000 pesos paid to the depositor on the 15th of May,
1900, according to the receipt issued by him to the debtors, would be included, and that the said rate
of interest would obtain until the debtors on the 20th of May, 1897, it is called a deposit consisted,
and they could have accomplished the return agreed upon by the delivery of a sum equal to the one
received by them. For this reason it must be understood that the debtors were lawfully authorized to
make use of the amount deposited, which they have done, as subsequent shown when asking for an
extension of the time for the return thereof, inasmuch as, acknowledging that they have subjected
the letter, their creditor, to losses and damages for not complying with what had been stipulated, and
being conscious that they had used, for their own profit and gain, the money that they received
apparently as a deposit, they engaged to pay interest to the creditor from the date named until the
time when the refund should be made. Such conduct on the part of the debtors is unquestionable
evidence that the transaction entered into between the interested parties was not a deposit, but a
real contract of loan.

Article 1767 of the Civil Code provides that —

The depository can not make use of the thing deposited without the express permission of
the depositor.

Otherwise he shall be liable for losses and damages.

Article 1768 also provides that —

When the depository has permission to make use of the thing deposited, the contract loses
the character of a deposit and becomes a loan or bailment.

The permission shall not be presumed, and its existence must be proven.

When on one of the latter days of January, 1898, Jose Lim went to the office of the creditor asking
for an extension of one year, in view of the fact the money was scare, and because neither himself
nor the other defendant were able to return the amount deposited, for which reason he agreed to
pay interest at the rate of 15 per cent per annum, it was because, as a matter of fact, he did not have
in his possession the amount deposited, he having made use of the same in his business and for his
own profit; and the creditor, by granting them the extension, evidently confirmed the express
permission previously given to use and dispose of the amount stated as having bee deposited,
which, in accordance with the loan, to all intents and purposes gratuitously, until the 20th of January,
1898, and from that dated with interest at 15 per cent per annum until its full payment, deducting
from the total amount of interest the sum of 1,000 pesos, in accordance with the provisions of article
1173 of the Civil Code.

Notwithstanding that it does not appear that Jose Lim signed the document (Exhibit 2) executed in
the presence of three witnesses on the 15th of November, 1902, by Ceferino Domingo Lim on behalf
of himself and the former, nevertheless, the said document has not been contested as false, either
by a criminal or by a civil proceeding, nor has any doubt been cast upon the authenticity of the
signatures of the witnesses who attested the execution of the same; and from the evidence in the
case one is sufficiently convinced that the said Jose Lim was perfectly aware of and authorized his
joint codebtor to liquidate the interest, to pay the sum of 1,000 pesos, on account thereof, and to
execute the aforesaid document No. 2. A true ratification of the original document of deposit was
thus made, and not the least proof is shown in the record that Jose Lim had ever paid the whole or
any part of the capital stated in the original document, Exhibit 1.

If the amount, together with interest claimed in the complaint, less 1,000 pesos appears as fully
established, such is not the case with the defendant's counterclaim for P5,602.16, because the
existence and certainty of said indebtedness imputed to the plaintiff has not been proven, and the
defendants, who call themselves creditors for the said amount have not proven in a satisfactory
manner that the plaintiff had received partial payments on account of the same; the latter alleges
with good reason, that they should produce the receipts which he may have issued, and which he
did issue whenever they paid him any money on account. The plaintiffs allegation that the two
amounts of 400 and 1,200 pesos, referred to in documents marked "C" and "D" offered in evidence
by the defendants, had been received from Ceferino Domingo Lim on account of other debts of his,
has not been contradicted, and the fact that in the original complaint the sum of 1,102.16 pesos, was
expressed in lieu of 1,000 pesos, the only payment made on account of interest on the amount
deposited according to documents No. 2 and letter "B" above referred to, was due to a mistake.

Moreover, for the reason above set forth it may, as a matter of course, be inferred that there was no
renewal of the contract deposited converted into a loan, because, as has already been stated, the
defendants received said amount by virtue of real loan contract under the name of a deposit, since
the so-called bailees were forthwith authorized to dispose of the amount deposited. This they have
done, as has been clearly shown.

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

In view of the foregoing, and adopting the findings in the judgment appealed from, it is our opinion
that the same should be and is hereby affirmed with the costs of this instance against the appellant,
provided that the interest agreed upon shall be paid until the complete liquidation of the debt. So
ordered.
Arellano, C.J., Carson, Willard and Tracey, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-6 November 14, 1901

MANUEL GARCIA GAVIERES, plaintiff-appellant,

vs.
T.H. PARDO DE TAVERA, defendant-appellee.

E.M. Llanos, for appellant.

Simplicio del Rosario, for appellee.

COOPER, J.:

The present appeal has been interposed in the declarative action of greater import filed in the Court
of First Instance of Tondo, commenced on January 10, 1900, by Don Manuel Garcia Gavieres as
plaintiff and successor in interest of the deceased Doña Ignacia de Gorricho against Don Trinidad H.
Pardo de Tavera as universal heir of the deceased Don Felix Pardo de Tavera for the collection of a
balance of 1,423 pesos 75 cents, remaining due on an original obligation of 3,000 pesos which, as
the plaintiff alleges, was the amount of a deposit delivered by Doña Ignacia Gorricho, deceased, to
Don Felix Pardo de Tavera, deceased, on the 31st day of October, 1859. The agreement between
the parties appears in the following writing:

Received of Señorita Ignacia de Gorricho the sum of 3,000 pesos, gold (3,000
pesos), as a deposit payable on two months' notice in advance, with interest at
6 per cent per annum with an hypothecation of the goods now owned by me or
which may be owned hereafter, as security of the payment.

In witness whereof I sign in Binondo, January 31, 1859. lawphil.net

FELIX PARDO DE TAVERA.

The defendant answering complaint of plaintiff alleges among other things as a defense, that the
document upon which the complaint is based was not a contract of deposit as alleged in the
complaint, but a contract of loan, and setting forth furthermore the payment of the original obligation
as well as the prescription of the action. The defendant contends that the document upon which the
action is based is not evidence of a deposit, as the plaintiff maintains, but of a contract of loan, and
that the prescription applicable to loans has extinguished the right of action. Although in the
document in question a deposit is spoken of, nevertheless from an examination of the entire
document it clearly appears that the contract was a loan and that such was the intention of the
parties. It is unnecessary to recur to the canons of interpretation to arrive at this conclusion. The
obligation of the depositary to pay interest at the rate of 6 per cent to the depositor suffices to cause
the obligation to be considered as a loan and makes it likewise evident that it was the intention of the
parties that the depositary should have the right to make use of the amount deposited, since it was
stimulated that the amount could be collected after notice of two months in advance. Such being the
case, the contract lost the character of a deposit and acquired that of a loan. (Art. 1768, Civil Code.)
All personal actions, such as those which arise from a contract of loan, cease to have legal effect
after twenty years according to the former law and after fifteen years according to the Civil Code now
in force. The date of the document is January 31, 1859. The proof of payment in support of the
defense we consider likewise sufficient to establish such defense. The document dated January 8,
1869, executed by Don Felix Garcia Gavieres, husband and legal representative of Doña Ignacia
Gorricho, acknowledges the receipt of 1,224 pesos from Don Manuel Darvin, representative of the
deceased Don Felix Pardo de Tavera. This sum is declared in said document to be the balance due
upon the debt of 2,000 pesos. This was slightly more or less the amount which remained as due
upon the original obligation after deducting the payment which are admitted to have been made. In
the absence of evidence disclosing that there were other claims in favor of Gavieres it is reasonably
to be supposed that this payment was made to satisfy the balance due upon the original obligation.

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

It is our opinion that the judgment of the Court of First Instance should be affirmed, and it is so
ordered, with costs of appeal taxed against the appellant.

Arellano, C.J., Torres, Willard, and Mapa, JJ., concur.

Ladd, J., did not sit in this case.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. Nos. L-26948 and L-26949 October 8, 1927

SILVESTRA BARON, plaintiff-appellant,

vs.
PABLO DAVID, defendant-appellant.

And

GUILLERMO BARON, plaintiff-appellant,

vs.
PABLO DAVID, defendant-appellant.

Jose Gutierrez David for plaintiff-appellant in case of No. 26948.

Gregorio Perfecto for defendant-appellant in both cases.
Francisco, Lualhati & Lopez and Jose Gutierrez David for plaintiff-appellant in case No. 26949.

STREET, J.:

These two actions were instituted in the Court of First Instance of the Province of Pampanga by the
respective plaintiffs, Silvestra Baron and Guillermo Baron, for the purpose of recovering from the
defendant, Pablo David, the value of palay alleged to have been sold by the plaintiffs to the
defendant in the year 1920. Owing to the fact that the defendant is the same in both cases and that
the two cases depend in part upon the same facts, the cases were heard together in the trial court
and determined in a single opinion. The same course will accordingly be followed here.

In the first case, i. e., that which Silvestra Baron is plaintiff, the court gave judgment for her to
recover of the defendant the sum of P5,238.51, with costs. From this judgment both the plaintiff and
the defendant appealed.

In the second case, i. e., that in which Guillermo Baron, is plaintiff, the court gave judgment for him
to recover of the defendant the sum of P5,734.60, with costs, from which judgment both the plaintiff
and the defendant also appealed. In the same case the defendant interposed a counterclaim in
which he asked credit for the sum of P2,800 which he had advanced to the plaintiff Guillermo Baron
on various occasions. This credit was admitted by the plaintiff and allowed by the trial court. But the
defendant also interposed a cross-action against Guillermo Baron in which the defendant claimed
compensation for damages alleged to have Ben suffered by him by reason of the alleged malicious
and false statements made by the plaintiff against the defendant in suing out an attachment against
the defendant's property soon after the institution of the action. In the same cross-action the
defendant also sought compensation for damages incident to the shutting down of the defendant's
rice mill for the period of one hundred seventy days during which the above-mentioned attachment
was in force. The trial judge disallowed these claims for damages, and from this feature of the
decision the defendant appealed. We are therefore confronted with five distinct appeals in this
record.
Prior to January 17, 1921, the defendant Pablo David has been engaged in running a rice mill in the
municipality of Magalang, in the Province of Pampanga, a mill which was well patronized by the rice
growers of the vicinity and almost constantly running. On the date stated a fire occurred that
destroyed the mill and its contents, and it was some time before the mill could be rebuilt and put in
operation again. Silvestra Baron, the plaintiff in the first of the actions before us, is an aunt of the
defendant; while Guillermo Baron, the plaintiff in the other action; is his uncle. In the months of
March, April, and May, 1920, Silvestra Baron placed a quantity of palay in the defendant's mill; and
this, in connection with some that she took over from Guillermo Baron, amounted to 1,012 cavans
and 24 kilos. During approximately the same period Guillermo Baron placed other 1,865 cavans and
43 kilos of palay in the mill. No compensation has ever been received by Silvestra Baron upon
account of the palay delivered by Guillermo Baron, he has received from the defendant
advancements amounting to P2,800; but apart from this he has not been compensated. Both the
plaintiffs claim that the palay which was delivered by them to the defendant was sold to the
defendant; while the defendant, on the other hand, claims that the palay was deposited subject to
future withdrawal by the depositors or subject to some future sale which was never effected. He
therefore supposes himself to be relieved from all responsibility by virtue of the fire of January 17,
1921, already mentioned.

The plaintiff further say that their palay was delivered to the defendant at his special request,
coupled with a promise on his part to pay for the same at the highest price per cavan at which palay
would sell during the year 1920; and they say that in August of that year the defendant promised to
pay them severally the price of P8.40 per cavan, which was about the top of the market for the
season, provided they would wait for payment until December. The trial judge found that no such
promise had been given; and the incredulity of the court upon this point seems to us to be justified. A
careful examination of the proof, however, leads us to the conclusion that the plaintiffs did, some
time in the early part of August, 1920, make demand upon the defendant for a settlement, which he
evaded or postponed leaving the exact amount due to the plaintiffs undetermined.

It should be stated that the palay in question was place by the plaintiffs in the defendant's mill with
the understanding that the defendant was at liberty to convert it into rice and dispose of it at his
pleasure. The mill was actively running during the entire season, and as palay was daily coming in
from many customers and as rice was being constantly shipped by the defendant to Manila, or other
rice markets, it was impossible to keep the plaintiffs' palay segregated. In fact the defendant admits
that the plaintiffs' palay was mixed with that of others. In view of the nature of the defendant's
activities and the way in which the palay was handled in the defendant's mill, it is quite certain that all
of the plaintiffs' palay, which was put in before June 1, 1920, been milled and disposed of long prior
to the fire of January 17, 1921. Furthermore, the proof shows that when the fire occurred there could
not have been more than about 360 cavans of palay in the mill, none of which by any reasonable
probability could have been any part of the palay delivered by the plaintiffs. Considering the fact that
the defendant had thus milled and doubtless sold the plaintiffs' palay prior to the date of the fire, it
result that he is bound to account for its value, and his liability was not extinguished by the
occurence of the fire. In the briefs before us it seems to have been assumed by the opposing
attorneys that in order for the plaintiffs to recover, it is necessary that they should be able to
establish that the plaintiffs' palay was delivered in the character of a sale, and that if, on the contrary,
the defendant should prove that the delivery was made in the character of deposit, the defendant
should be absolved. But the case does not depend precisely upon this explicit alternative; for even
supposing that the palay may have been delivered in the character of deposit, subject to future sale
or withdrawal at plaintiffs' election, nevertheless if it was understood that the defendant might mill the
palay and he has in fact appropriated it to his own use, he is of course bound to account for its
value. Under article 1768 of the Civil Code, when the depository has permission to make use of the
thing deposited, the contract loses the character of mere deposit and becomes a loan or
a commodatum; and of course by appropriating the thing, the bailee becomes responsible for its
value. In this connection we wholly reject the defendant's pretense that the palay delivered by the
plaintiffs or any part of it was actually consumed in the fire of January, 1921. Nor is the liability of the
defendant in any wise affected by the circumstance that, by a custom prevailing among rice millers
in this country, persons placing palay with them without special agreement as to price are at liberty
to withdraw it later, proper allowance being made for storage and shrinkage, a thing that is
sometimes done, though rarely.

In view of what has been said it becomes necessary to discover the price which the defendant
should be required to pay for the plaintiffs' palay. Upon this point the trial judge fixed upon P6.15 per
cavan; and although we are not exactly in agreement with him as to the propriety of the method by
which he arrived at this figure, we are nevertheless of the opinion that, all things considered, the
result is approximately correct. It appears that the price of palay during the months of April, May, and
June, 1920, had been excessively high in the Philippine Islands and even prior to that period the
Government of the Philippine Islands had been attempting to hold the price in check by executive
regulation. The highest point was touched in this season was apparently about P8.50 per cavan, but
the market began to sag in May or June and presently entered upon a precipitate decline. As we
have already stated, the plaintiffs made demand upon the defendant for settlement in the early part
of August; and, so far as we are able to judge from the proof, the price of P6.15 per cavan, fixed by
the trial court, is about the price at which the defendant should be required to settle as of that date. It
was the date of the demand of the plaintiffs for settlement that determined the price to be paid by the
defendant, and this is true whether the palay was delivered in the character of sale with price
undetermined or in the character of deposit subject to use by the defendant. It results that the
plaintiffs are respectively entitle to recover the value of the palay which they had placed with the
defendant during the period referred to, with interest from the date of the filing of their several
complaints.

As already stated, the trial court found that at the time of the fire there were about 360 cavans of
palay in the mill and that this palay was destroyed. His Honor assumed that this was part of the
palay delivered by the plaintiffs, and he held that the defendant should be credited with said amount.
His Honor therefore deducted from the claims of the plaintiffs their respective proportionate shares of
this amount of palay. We are unable to see the propriety of this feature of the decision. There were
many customers of the defendant's rice mill who had placed their palay with the defendant under the
same conditions as the plaintiffs, and nothing can be more certain than that the palay which was
burned did not belong to the plaintiffs. That palay without a doubt had long been sold and marketed.
The assignments of error of each of the plaintiffs-appellants in which this feature of the decision is
attacked are therefore well taken; and the appealed judgments must be modified by eliminating the
deductions which the trial court allowed from the plaintiffs' claims.

The trial judge also allowed a deduction from the claim of the plaintiff Guillermo Baron of 167 cavans
of palay, as indicated in Exhibit 12, 13, 14, and 16. This was also erroneous. These exhibits relate to
transactions that occurred nearly two years after the transactions with which we are here concerned,
and they were offered in evidence merely to show the character of subsequent transactions between
the parties, it appearing that at the time said exhibits came into existence the defendant had
reconstructed his mill and that business relations with Guillermo Baron had been resumed. The
transactions shown by these exhibits (which relate to palay withdrawn by the plaintiff from the
defendant's mill) were not made the subject of controversy in either the complaint or the cross-
complaint of the defendant in the second case. They therefore should not have been taken into
account as a credit in favor of the defendant. Said credit must therefore be likewise of course be
without prejudice to any proper adjustment of the rights of the parties with respect to these
subsequent transactions that they have heretofore or may hereafter effect.

The preceding discussion disposes of all vital contentions relative to the liability of the defendant
upon the causes of action stated in the complaints. We proceed therefore now to consider the
question of the liability of the plaintiff Guillermo Baron upon the cross-complaint of Pablo David in
case R. G. No. 26949. In this cross-action the defendant seek, as the stated in the third paragraph of
this opinion, to recover damages for the wrongful suing out of an attachment by the plaintiff and the
levy of the same upon the defendant's rice mill. It appears that about two and one-half months after
said action was begun, the plaintiff, Guillermo Baron, asked for an attachment to be issued against
the property of the defendant; and to procure the issuance of said writ the plaintiff made affidavit to
the effect that the defendant was disposing, or attempting the plaintiff. Upon this affidavit an
attachment was issued as prayed, and on March 27, 1924, it was levied upon the defendant's rice
mill, and other property, real and personal. 1aw ph!l.net

Upon attaching the property the sheriff closed the mill and placed it in the care of a deputy.
Operations were not resumed until September 13, 1924, when the attachment was dissolved by an
order of the court and the defendant was permitted to resume control. At the time the attachment
was levied there were, in the bodega, more than 20,000 cavans of palay belonging to persons who
held receipts therefor; and in order to get this grain away from the sheriff, twenty-four of the
depositors found it necessary to submit third-party claims to the sheriff. When these claims were put
in the sheriff notified the plaintiff that a bond in the amount of P50,000 must be given, otherwise the
grain would be released. The plaintiff, being unable or unwilling to give this bond, the sheriff
surrendered the palay to the claimants; but the attachment on the rice mill was maintained until
September 13, as above stated, covering a period of one hundred seventy days during which the
mill was idle. The ground upon which the attachment was based, as set forth in the plaintiff's affidavit
was that the defendant was disposing or attempting to dispose of his property for the purpose of
defrauding the plaintiff. That this allegation was false is clearly apparent, and not a word of proof has
been submitted in support of the assertion. On the contrary, the defendant testified that at the time
this attachment was secured he was solvent and could have paid his indebtedness to the plaintiff if
judgment had been rendered against him in ordinary course. His financial conditions was of course
well known to the plaintiff, who is his uncle. The defendant also states that he had not conveyed
away any of his property, nor had intended to do so, for the purpose of defrauding the plaintiff. We
have before us therefore a case of a baseless attachment, recklessly sued out upon a false affidavit
and levied upon the defendant's property to his great and needless damage. That the act of the
plaintiff in suing out the writ was wholly unjustifiable is perhaps also indicated in the circumstance
that the attachment was finally dissolved upon the motion of the plaintiff himself.

The defendant testified that his mill was accustomed to clean from 400 to 450 cavans of palay per
day, producing 225 cavans of rice of 57 kilos each. The price charged for cleaning each cavan rice
was 30 centavos. The defendant also stated that the expense of running the mill per day was from
P18 to P25, and that the net profit per day on the mill was more than P40. As the mill was not
accustomed to run on Sundays and holiday, we estimate that the defendant lost the profit that would
have been earned on not less than one hundred forty work days. Figuring his profits at P40 per day,
which would appear to be a conservative estimate, the actual net loss resulting from his failure to
operate the mill during the time stated could not have been less than P5,600. The reasonableness of
these figures is also indicated in the fact that the twenty-four customers who intervened with third-
party claims took out of the camarin 20,000 cavans of palay, practically all of which, in the ordinary
course of events, would have been milled in this plant by the defendant. And of course other grain
would have found its way to this mill if it had remained open during the one hundred forty days when
it was closed.

But this is not all. When the attachment was dissolved and the mill again opened, the defendant
found that his customers had become scattered and could not be easily gotten back. So slow,
indeed, was his patronage in returning that during the remainder of the year 1924 the defendant was
able to mill scarcely more than the grain belonging to himself and his brothers; and even after the
next season opened many of his old customers did not return. Several of these individuals, testifying
as witnesses in this case, stated that, owing to the unpleasant experience which they had in getting
back their grain from the sheriff to the mill of the defendant, though they had previously had much
confidence in him.

As against the defendant's proof showing the facts above stated the plaintiff submitted no evidence
whatever. We are therefore constrained to hold that the defendant was damaged by the attachment
to the extent of P5,600, in profits lost by the closure of the mill, and to the extent of P1,400 for injury
to the good-will of his business, making a total of P7,000. For this amount the defendant must
recover judgment on his cross-complaint.

The trial court, in dismissing the defendant's cross-complaint for damages resulting from the
wrongful suing out of the attachment, suggested that the closure of the rice mill was a mere act of
the sheriff for which the plaintiff was not responsible and that the defendant might have been
permitted by the sheriff to continue running the mill if he had applied to the sheriff for permission to
operate it. This singular suggestion will not bear a moment's criticism. It was of course the duty of
the sheriff, in levying the attachment, to take the attached property into his possession, and the
closure of the mill was a natural, and even necessary, consequence of the attachment. For the
damage thus inflicted upon the defendant the plaintiff is undoubtedly responsible.

One feature of the cross-complaint consist in the claim of the defendant (cross-complaint) for the
sum of P20,000 as damages caused to the defendant by the false and alleged malicious statements
contained in the affidavit upon which the attachment was procured. The additional sum of P5,000 is
also claimed as exemplary damages. It is clear that with respect to these damages the cross-action
cannot be maintained, for the reason that the affidavit in question was used in course of a legal
proceeding for the purpose of obtaining a legal remedy, and it is therefore privileged. But though the
affidavit is not actionable as a libelous publication, this fact in no obstacle to the maintenance of an
action to recover the damage resulting from the levy of the attachment.

Before closing this opinion a word should be said upon the point raised in the first assignment of
error of Pablo David as defendant in case R. G. No. 26949. In this connection it appears that the
deposition of Guillermo Baron was presented in court as evidence and was admitted as an exhibit,
without being actually read to the court. It is supposed in the assignment of error now under
consideration that the deposition is not available as evidence to the plaintiff because it was not
actually read out in court. This connection is not well founded. It is true that in section 364 of the
Code of Civil Procedure it is said that a deposition, once taken, may be read by either party and will
then be deemed the evidence of the party reading it. The use of the word "read" in this section finds
its explanation of course in the American practice of trying cases for the most part before juries.
When a case is thus tried the actual reading of the deposition is necessary in order that the jurymen
may become acquainted with its contents. But in courts of equity, and in all courts where judges
have the evidence before them for perusal at their pleasure, it is not necessary that the deposition
should be actually read when presented as evidence.

From what has been said it result that judgment of the court below must be modified with respect to
the amounts recoverable by the respective plaintiffs in the two actions R. G. Nos. 26948 and 26949
and must be reversed in respect to the disposition of the cross-complaint interposed by the
defendant in case R. G. No. 26949, with the following result: In case R. G. No. 26948 the plaintiff
Silvestra Baron will recover of the Pablo David the sum of P6,227.24, with interest from November
21, 1923, the date of the filing of her complaint, and with costs. In case R. G. No. 26949 the plaintiff
Guillermo Baron will recover of the defendant Pablo David the sum of P8,669.75, with interest from
January 9, 1924. In the same case the defendant Pablo David, as plaintiff in the cross-complaint, will
recover of Guillermo Baron the sum of P7,000, without costs. So ordered.

Avanceña, C.J., Johnson, Malcolm, Villamor, Romualdez and Villa-Real, JJ., concur.
Separate Opinions

JOHNS, J., dissenting and concurring:

The plaintiff Silvestra Baron is the aunt of the defendant, and Guillermo Baron, the plaintiff in the
other action, is his uncle. There is no dispute as to the amount of palay which each delivered to the
mill of the defendant. Owing to the fact that they were relatives and that the plaintiffs reposed special
reposed special trust and confidence in the defendant, who was their nephew, they were not as
careful and prudent in their business dealings with him as they should have been. Plaintiffs allege
that their respective palay was delivered to the defendant at his mill with the understanding and
agreement between them that they should receive the highest market price for the palay for that
season, which was P8.50 per cavan. They further allege that about August first they made another
contract in and by which he promised and agreed to pay them P8.40 per cavan for their palay, in
consideration of which they agreed to extend the time for payment to the first of December of that
year. The amount of palay is not in dispute, and the defendant admits that it was delivered to his mill,
but he claims that he kept it on deposit and as bailee without hire for the plaintiffs and at their own
risk, and that the mill was burned down, and that at the time of the fire, plaintiffs' palay was in the
mill. The lower court found as a fact that there was no merit in that defense, and that there was but
little, if any, palay in the mill at the time of the fire and that in truth and in fact that defense was based
upon perjured testimony.

The two cases were tried separately in the court below, but all of the evidence in the case was
substituted and used in the other. Both plaintiffs testified to the making of the respective contracts as
alleged in their complaint; to wit, that they delivered the palay to the defendant with the express
understanding and agreement that he would pay them for the palay the highest market price for the
season, and to the making of the second contract about the first of August, in which they had a
settlement, and that the defendant then agreed to pay them P8.40 per cavan, such payment to be
made on December first. It appears that the highest market price for palay for that season was P8.50
per cavan. The defendant denied the making of either one of those contracts, and offered no other
evidence on that question. That is to say, we have the evidence of both Silvestra Baron and
Guillermo Baron to the making of those contracts, which is denied by the defendant only. Plaintiffs'
evidence is also corroborated by the usual and customary manner in which the growers sell their
palay. That is to say, it is their custom to sell the palay at or about the time it is delivered at the mill
and as soon as it is made ready for market in the form of rice. As stated the lower court found as a
fact that the evidence of the defendants as to plaintiffs' palay being in the mill at the time of the fire
was not worthy of belief, and that in legal effect it was a manufactured defense. Yet, strange as it
may seem, both the lower court and this court have found as a fact that upon the question of the
alleged contracts, the evidence for the defendant is true and entitled to more weight than the
evidence of both plaintiffs which is false.

It appears that the plaintiff Silvestra Baron is an old lady about 80 years of age and the aunt of the
defendant, and Guillermo Baron is the uncle. Under the theory of the lower court and of this court,
both of them at all the time during the high prices held their palay in defendant's mill at their own risk,
and that upon that point the evidence of the defendant, standing alone is entitled to more weight and
is more convincing than the combined evidence of the two plaintiffs. In the very nature of things, if
defendant's evidence upon that point is true, it stands to reason that, following the custom of
growers, the plaintiffs would have sold their palay during the period of high prices, and would not
have waited until it dropped from P8.50 per cavan to P6.15 per cavan about the first of August. Upon
that question, both the weight and the credibility of the evidence is with the plaintiffs, and they should
have judgment for the full amount of their palay on the basis of P8.40 per cavan. For such reason, I
vigorously dissent from the majority opinion.

I frankly concede that the attachment was wrongful, and that it should never have been levied. It
remained in force for a period of one hundred and seventy days at which time it was released on
motion of the plaintiffs. The defendant now claims, and the majority opinion has allowed him,
damages for that full period, exclusive of Sundays, at the rate, of P40 per day, found to be the net
profit for the operation of the rice mill. It further appears, and this court finds, that the defendant was
a responsible man, and that he had ample property out which to satisfy plaintiffs' claim. Assuming
that to be true, there was no valid reason why he could not had given a counter bond and released
the attachment. Upon the theory of the majority opinion, if the plaintiffs had not released the
attachment, they would still be liable to the defendant at the rate of P40 per day up to the present
time. When the mill was attached, if he was in a position to do so, it was the duty of the defendant to
give a counter bond and release the attachment and resume its operation. The majority opinion also
allowed the defendant P1,400 "for injury to the goodwill of his business." The very fact that after a
delay of about four years, both of the plaintiffs were compelled to bring to their respective actions
against the defendant to recover from him on a just and meritorious claim, as found by this court and
the lower court, and the further fact that after such long delay, the defendant has sought to defeat
the actions by a sham and manufactured defense, as found by this and the lower court, would
arouse the suspicion of any customers the defendant ever had, and shake their confidence in his
business honor and integrity, and destroy any goodwill which he ever did have. Under such
conditions, it would be strange that the defendant would have any customers left. He is not entitled
to any compensation for the loss of goodwill, and P5,000 should be the very limit of the amount of
his damages for the wrongful attachment, and upon that point I vigorously dissent. In all other
respects, I agree with the majority opinion.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-7593 March 27, 1913

THE UNITED STATES, plaintiff-appellee,

vs.
JOSE M. IGPUARA, defendant-appellant.

W. A. Kincaid, Thos. L. Hartigan, and Jose Robles Lahesa for appellant.

Office of the Solicitor-General Harvey for appellee.

ARELLANO, C.J.:

The defendant therein is charged with the crime of estafa, for having swindled Juana Montilla and
Eugenio Veraguth out of P2,498 Philippine currency, which he had take on deposit from the former
to be at the latter's disposal. The document setting forth the obligation reads:

We hold at the disposal of Eugenio Veraguth the sum of two thousand four hundred and ninety-eight
pesos (P2,498), the balance from Juana Montilla's sugar. — Iloilo, June 26, 1911, — Jose Igpuara,
for Ramirez and Co.

The Court of First Instance of Iloilo sentenced the defendant to two years of presidio correccional, to
pay Juana Montilla P2,498 Philippine currency, and in case of insolvency to subsidiary imprisonment
at P2.50 per day, not to exceed one-third of the principal penalty, and the costs.

The defendant appealed, alleging as errors: (1) Holding that the document executed by him was a
certificate of deposit; (2) holding the existence of a deposit, without precedent transfer or delivery of
the P2,498; and (3) classifying the facts in the case as the crime of estafa.

A deposit is constituted from the time a person receives a thing belonging to another with the
obligation of keeping and returning it. (Art. 1758, Civil Code.)

That the defendant received P2,498 is a fact proven. The defendant drew up a document declaring
that they remained in his possession, which he could not have said had he not received them. They
remained in his possession, surely in no other sense than to take care of them, for they
remained has no other purpose. They remained in the defendant's possession at the disposal of
Veraguth; but on August 23 of the same year Veraguth demanded for him through a notarial
instrument restitution of them, and to date he has not restored them.

The appellant says: "Juana Montilla's agent voluntarily accepted the sum of P2,498 in an instrument
payable on demand, and as no attempt was made to cash it until August 23, 1911, he could indorse
and negotiate it like any other commercial instrument. There is no doubt that if Veraguth accepted
the receipt for P2,498 it was because at that time he agreed with the defendant to consider the
operation of sale on commission closed, leaving the collection of said sum until later, which sum
remained as a loan payable upon presentation of the receipt." (Brief, 3 and 4.)
Then, after averring the true facts: (1) that a sales commission was precedent; (2) that this
commission was settled with a balance of P2,498 in favor of the principal, Juana Montilla; and (3)
that this balance remained in the possession of the defendant, who drew up an instrument payable
on demand, he has drawn two conclusions, both erroneous: One, that the instrument drawn up in
the form of a deposit certificate could be indorsed or negotiated like any other commercial
instrument; and the other, that the sum of P2,498 remained in defendant's possession as a loan.

It is erroneous to assert that the certificate of deposit in question is negotiable like any other
commercial instrument: First, because every commercial instrument is not negotiable; and second,
because only instruments payable to order are negotiable. Hence, this instrument not being to order
but to bearer, it is not negotiable.

It is also erroneous to assert that sum of money set forth in said certificate is, according to it, in the
defendant's possession as a loan. In a loan the lender transmits to the borrower the use of the thing
lent, while in a deposit the use of the thing is not transmitted, but merely possession for its custody
or safe-keeping.

In order that the depositary may use or dispose oft he things deposited, the depositor's consent is
required, and then:

The rights and obligations of the depositary and of the depositor shall cease, and the rules
and provisions applicable to commercial loans, commission, or contract which took the place
of the deposit shall be observed. (Art. 309, Code of Commerce.)

The defendant has shown no authorization whatsoever or the consent of the depositary for using or
disposing of the P2,498, which the certificate acknowledges, or any contract entered into with the
depositor to convert the deposit into a loan, commission, or other contract.

That demand was not made for restitution of the sum deposited, which could have been claimed on
the same or the next day after the certificate was signed, does not operate against the depositor, or
signify anything except the intention not to press it. Failure to claim at once or delay for sometime in
demanding restitution of the things deposited, which was immediately due, does not imply such
permission to use the thing deposited as would convert the deposit into a loan.

Article 408 of the Code of Commerce of 1829, previous to the one now in force, provided:

The depositary of an amount of money cannot use the amount, and if he makes use of it, he
shall be responsible for all damages that may accrue and shall respond to the depositor for
the legal interest on the amount.

Whereupon the commentators say:

In this case the deposit becomes in fact a loan, as a just punishment imposed upon him who
abuses the sacred nature of a deposit and as a means of preventing the desire of gain from
leading him into speculations that may be disastrous to the depositor, who is much better
secured while the deposit exists when he only has a personal action for recovery.

According to article 548, No. 5, of the Penal Code, those who to the prejudice of another
appropriate or abstract for their own use money, goods, or other personal property which
they may have received as a deposit, on commission, or for administration, or for any other
purpose which produces the obligation of delivering it or returning it, and deny having
 received it, shall suffer the penalty of the preceding article," which punishes such act as the
crime of estafa. The corresponding article of the Penal Code of the Philippines in 535, No. 5.

In a decision of an appeal, September 28, 1895, the principle was laid down that: "Since he commits
the crime of estafa under article 548 of the Penal Code of Spain who to another's detriment
appropriates to himself or abstracts money or goods received on commission for delivery, the court
rightly applied this article to the appellant, who, to the manifest detriment of the owner or owners of
the securities, since he has not restored them, willfully and wrongfully disposed of them by
appropriating them to himself or at least diverting them from the purpose to which he was charged to
devote them."

It is unquestionable that in no sense did the P2,498 which he willfully and wrongfully disposed of to
the detriments of his principal, Juana Montilla, and of the depositor, Eugenio Veraguth, belong to the
defendant.

Likewise erroneous is the construction apparently at tempted to be given to two decisions of this
Supreme Court (U. S. vs. Dominguez, 2 Phil. Rep., 580, and U. S. vs. Morales and Morco, 15 Phil.
Rep., 236) as implying that what constitutes estafa is not the disposal of money deposited, but denial
of having received same. In the first of said cases there was no evidence that the defendant had
appropriated the grain deposited in his possession.

On the contrary, it is entirely probable that, after the departure of the defendant from
Libmanan on September 20, 1898, two days after the uprising of the civil guard in Nueva
Caceres, the rice was seized by the revolutionalists and appropriated to their own uses.

In this connection it was held that failure to return the thing deposited was not sufficient, but that it
was necessary to prove that the depositary had appropriated it to himself or diverted the deposit to
his own or another's benefit. He was accused or refusing to restore, and it was held that the code
does not penalize refusal to restore but denial of having received. So much for the crime of
omission; now with reference to the crime of commission, it was not held in that decision that
appropriation or diversion of the thing deposited would not constitute the crime of estafa.

In the second of said decisions, the accused "kept none of the proceeds of the sales. Those, such as
they were, he turned over to the owner;" and there being no proof of the appropriation, the agent
could not be found guilty of the crime of estafa.

Being in accord and the merits of the case, the judgment appealed from is affirmed, with costs.

Torres, Johnson and Trent, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 2908 January 2, 1907

ANICETA PALACIO, plaintiff-appellee,

vs.
DIONISIO SUDARIO, defendant-appellant.

Frank E. Green for appellant.

R. Palma for appellee.

TRACEY, J.:

At an interview in which were present the defendant and three herdsmen, the plaintiff made an
arrangement for the pasturing of eighty-one head of cattle, in return for which she has to give one-
half of the calves that might be born and was to pay the defendant one-half peso for each calf
branded. On demand for the whole, forty-eight head of cattle were afterwards returned to her and
this action is brought to recover the remaining thirty-three.

It is claimed as a first defense that the arrangement was made between the plaintiff and the
herdsmen, the defendant, who was president of the municipality, tendering his good offices only.
Upon this question, the finding of the court below is conclusive in favor of the plaintiff and is fully
justified by the proofs, especially by a letter of the defendant in reply to the demand for the cattle, in
which he seeks to excuse himself for the loss of the missing animals.

As a second defense it is claimed that the thirty-three cows either died of disease or were drowned
in a flood. As to this point, on which the trial court has made no specific finding, the proof is
conflicting in many particulars and indicates that at least some of these cattle were living at the time
of the surrender of the forty-eight head. The defendant's witnesses swore that of the cows that
perished, six died from overfeeding, and they failed to make clear the happening of any flood
sufficient to destroy the others.

If we consider the contract as one of deposit, then under article 1183 of the Civil Code, the burden of
explanation of the loss rested upon the depositary and under article 1769 the fault is presumed to be
his. The defendant has not succeeded in showing that the loss occurred either without fault on his
part or by reason of caso fortuito.

If, however, the contract be not one strictly of deposit but one according to a local custom for the
pasturing of cattle, the obligations of the parties remain the same.

The defendant also sets up the six years statute of limitation, under section 43 of the present Code
of Civil Procedure. This action, having arisen before that code went into effect, is governed by the
provisions of preexisting law (sec. 38) under which the prescription was one of fifteen years. (Civil
Code, art. 1964.)
The judgment of the court below is affirmed with the costs of both instances. After expiration of
twenty days let judgment be entered in accordance herewith and ten days thereafter the case
remanded to the court from whence it came for execution. So ordered.

Arellano, C.J., Torres, Mapa, Carson and Willard, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-43191 November 13, 1935

PAULINO GULLAS, plaintiff-appellant,

vs.
THE PHILIPPINE NATIONAL BANK, defendant-appellant.

Gullas, Lopez, Tuaño and Leuterio for plaintiff-appellant.

Jose Delgado for defendant-appellant.

MALCOLM, J.:

Both parties to this case appealed from a judgment of the Court of First Instance of Cebu, which
sentenced the defendant to return to the account of the plaintiff the sum of P5098, with legal interest
and costs, the plaintiff to secure damages in the amount of P10,000 more or less, and the defendant
to be absolved totally from the amended complaint. As it is conceded that the plaintiff has already
received the sum represented by the United States treasury, warrant, which is in question, the
appeal will thus determine the amount, if any, which should be paid to the plaintiff by the defendant.

The parties to the case are Paulino Gullas and the Philippine National Bank. The first named is a
member of the Philippine Bar, resident in the City of Cebu. The second named is a banking
corporation with a branch in the same city. Attorney Gullas has had a current account with the bank.

It appears from the record that on August 2, 1933, the Treasurer of the United States for the United
States Veterans Bureau issued a Warrant in the amount of $361, payable to the order of Francisco
Sabectoria Bacos. Paulino Gullas and Pedro Lopez signed as endorsers of this check. Thereupon it
was cashed by the Philippine National Bank. Subsequently the treasury warrant was dishonored by
the Insular Treasurer.

At that time the outstanding balance of Attorney Gullas on the books of the bank was P509. Against
this balance he had issued certain cheeks which could not be paid when the money was
sequestered by the On August 20, 1933, Attorney Gullas left his residence for Manila.

The bank on learning of the dishonor of the treasury warrant sent notices by mail to Mr. Gullas which
could not be delivered to him at that time because he was in Manila. In the bank's letter of August
21, 1933, addressed to Messrs. Paulino Gulla and Pedro Lopez, they were informed that the United
States Treasury warrant No. 20175 in the name of Francisco Sabectoria Bacos for $361 or P722,
the payment for which had been received has been returned by our Manila office with the notation
that the payment of his check has been stopped by the Insular Treasurer. "In view of this therefore
we have applied the outstanding balances of your current accounts with us to the part payment of
the foregoing check", namely, Mr. Paulino Gullas P509. On the return of Attorney Gullas to Cebu on
August 31, 1933, notice of dishonor was received and the unpaid balance of the United States
Treasury warrant was immediately paid by him.
As a consequence of these happenings, two occurrences transpired which inconvenienced Attorney
Gullas. In the first place, as above indicated, checks including one for his insurance were not paid
because of the lack of funds standing to his credit in the bank. In the second place, periodicals in the
vicinity gave prominence to the news to the great mortification of Gullas. lawphil.net

A variety of incidental questions have been suggested on the record which it can be taken for
granted as having been adversely disposed of in this opinion. The main issues are two, namely, (1)
as to the right of Philippine National Bank, and to apply a deposit to the debt of depositor to the bank
and (2) as to the amount damages, if any, which should be awarded Gullas.

The Civil Code contains provisions regarding compensation (set off) and deposit. (Articles 1195 et
seq., 1758 et seq. The portions of Philippine law provide that compensation shall take place when
two persons are reciprocally creditor and debtor of each other (Civil Code, article 1195). In his
connection, it has been held that the relation existing between a depositor and a bank is that of
creditor and debtor. (Fulton Iron Works Co. vs. China Banking Corporation [1933], 59 Phil., 59.)

The Negotiable Instruments Law contains provisions establishing the liability of a general indorser
and giving the procedure for a notice of dishonor. The general indorser of negotiable instrument
engages that if he be dishonored and the, necessary proceedings of dishonor be duly taken, he will
pay the amount thereof to the holder. (Negotiable Instruments Law, sec. 66.) In this connection, it
has been held a long line of authorities that notice of dishonor is in order to charge all indorser and
that the right of action against him does not accrue until the notice is given. (Asia Banking
Corporation vs. Javier [1923] 44 Phil., 777; 5 Uniform Laws Annotated.)

As a general rule, a bank has a right of set off of the deposits in its hands for the payment of any
indebtedness to it on the part of a depositor. In Louisiana, however, a civil law jurisdiction, the rule is
denied, and it is held that a bank has no right, without an order from or special assent of the
depositor to retain out of his deposit an amount sufficient to meet his indebtedness. The basis of the
Louisiana doctrine is the theory of confidential contracts arising from irregular deposits, e. g., the
deposit of money with a banker. With freedom of selection and after full preference to the minority
rule as more in harmony with modern banking practice. (1 Morse on Banks and Banking, 5th ed.,
sec. 324; Garrison vs. Union Trust Company [1905], 111 A.S.R., 407; Louisiana Civil Code
Annotated, arts. 2207 et seq.; Gordon & Gomila vs. Muchler [1882], 34 L. Ann., 604; 8
Manresa, Comentarios al Codigo Civil Español, 4th ed., 359 et seq., 11 Manresa pp. 694 et seq.)

Starting, therefore, from the premise that the Philippine National Bank had with respect to the
deposit of Gullas a right of set off, we next consider if that remedy was enforced properly. The fact
we believe is undeniable that prior to the mailing of notice of dishonor, and without waiting for any
action by Gullas, the bank made use of the money standing in his account to make good for the
treasury warrant. At this point recall that Gullas was merely an indorser and had issued 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.) The decision cited represents the minority doctrine, for on principle it would seem that
notice is not necessary to a maker because the right is based on the doctrine that the relationship is
that of creditor and debtor. However this may be, as to an indorser the situation is different, and
notice should actually have been given him in order that he might protect his interests.

We accordingly are of the opinion that the action of the bank was prejudicial to Gullas. But to follow
up that statement with others proving exact damages is not so easy. For instance, for alleged
libelous articles the bank would not be primarily liable. The same remark could be made relative to
the loss of business which Gullas claims but which could not be traced definitely to this occurrence.
Also Gullas having eventually been reimbursed lost little through the actual levy by the bank on his
funds. On the other hand, it was not agreeable for one to draw checks in all good faith, then, leave
for Manila, and on return find that those checks had not been cashed because of the action taken by
the bank. That caused a disturbance in Gullas' finances, especially with reference to his insurance,
which was injurious to him. All facts and circumstances considered, we are of the opinion that Gullas
should be awarded nominal damages because of the premature action of the bank against which
Gullas had no means of protection, and have finally determined that the amount should be P250.

Agreeable to the foregoing, the errors assigned by the parties will in the main be overruled, with the
result that the judgment of the trial court will be modified by sentencing the defendant to pay the
plaintiff the sum of P250, and the costs of both instances.

Villa-Real, Imperial, Butte, and Goddard, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-30511 February 14, 1980

MANUEL M. SERRANO, petitioner,

vs.
CENTRAL BANK OF THE PHILIPPINES; OVERSEAS BANK OF MANILA; EMERITO M. RAMOS,
SUSANA B. RAMOS, EMERITO B. RAMOS, JR., JOSEFA RAMOS DELA RAMA, HORACIO
DELA RAMA, ANTONIO B. RAMOS, FILOMENA RAMOS LEDESMA, RODOLFO LEDESMA,
VICTORIA RAMOS TANJUATCO, and TEOFILO TANJUATCO, respondents.

Rene Diokno for petitioner.

F.E. Evangelista & Glecerio T. Orsolino for respondent Central Bank of the Philippines.

Feliciano C. Tumale, Pacifico T. Torres and Antonio B. Periquet for respondent Overseas Bank of
Manila.

Josefina G. Salonga for all other respondents.

CONCEPCION, JR., J.:

Petition for mandamus and prohibition, with preliminary injunction, that seeks the establishment of
joint and solidary liability to the amount of Three Hundred Fifty Thousand Pesos, with interest,
against respondent Central Bank of the Philippines and Overseas Bank of Manila and its
stockholders, on the alleged failure of the Overseas Bank of Manila to return the time deposits made
by petitioner and assigned to him, on the ground that respondent Central Bank failed in its duty to
exercise strict supervision over respondent Overseas Bank of Manila to protect depositors and the
general public. 1 Petitioner also prays that both respondent banks be ordered to execute the proper and
necessary documents to constitute all properties fisted in Annex "7" of the Answer of respondent Central
Bank of the Philippines in G.R. No. L-29352, entitled "Emerita M. Ramos, et al vs. Central Bank of the
Philippines," into a trust fund in favor of petitioner and all other depositors of respondent Overseas Bank
of Manila. It is also prayed that the respondents be prohibited permanently from honoring, implementing,
or doing any act predicated upon the validity or efficacy of the deeds of mortgage, assignment. and/or
conveyance or transfer of whatever nature of the properties listed in Annex "7" of the Answer of
respondent Central Bank in G.R. No. 29352. 2

A sought for ex-parte preliminary injunction against both respondent banks was not given by this
Court.

Undisputed pertinent facts are:

On October 13, 1966 and December 12, 1966, petitioner made a time deposit, for one year with 6%
interest, of One Hundred Fifty Thousand Pesos (P150,000.00) with the respondent Overseas Bank
of Manila. 3 Concepcion Maneja also made a time deposit, for one year with 6-½% interest, on March 6,
1967, of Two Hundred Thousand Pesos (P200,000.00) with the same respondent Overseas Bank of
Manila. 4

On August 31, 1968, Concepcion Maneja, married to Felixberto M. Serrano, assigned and conveyed
to petitioner Manuel M. Serrano, her time deposit of P200,000.00 with respondent Overseas Bank of
Manila. 5

Notwithstanding series of demands for encashment of the aforementioned time deposits from the
respondent Overseas Bank of Manila, dating from December 6, 1967 up to March 4, 1968, not a
single one of the time deposit certificates was honored by respondent Overseas Bank of Manila. 6

Respondent Central Bank admits that it is charged with the duty of administering the banking system
of the Republic and it exercises supervision over all doing business in the Philippines, but denies the
petitioner's allegation that the Central Bank has the duty to exercise a most rigid and stringent
supervision of banks, implying that respondent Central Bank has to watch every move or activity of
all banks, including respondent Overseas Bank of Manila. Respondent Central Bank claims that as
of March 12, 1965, the Overseas Bank of Manila, while operating, was only on a limited degree of
banking operations since the Monetary Board decided in its Resolution No. 322, dated March 12,
1965, to prohibit the Overseas Bank of Manila from making new loans and investments in view of its
chronic reserve deficiencies against its deposit liabilities. This limited operation of respondent
Overseas Bank of Manila continued up to 1968. 7

Respondent Central Bank also denied that it is guarantor of the permanent solvency of any banking
institution as claimed by petitioner. It claims that neither the law nor sound banking supervision
requires respondent Central Bank to advertise or represent to the public any remedial measures it
may impose upon chronic delinquent banks as such action may inevitably result to panic or bank
"runs". In the years 1966-1967, there were no findings to declare the respondent Overseas Bank of
Manila as insolvent. 8

Respondent Central Bank likewise denied that a constructive trust was created in favor of petitioner
and his predecessor in interest Concepcion Maneja when their time deposits were made in 1966 and
1967 with the respondent Overseas Bank of Manila as during that time the latter was not an
insolvent bank and its operation as a banking institution was being salvaged by the respondent
Central Bank. 9

Respondent Central Bank avers no knowledge of petitioner's claim that the properties given by
respondent Overseas Bank of Manila as additional collaterals to respondent Central Bank of the
Philippines for the former's overdrafts and emergency loans were acquired through the use of
depositors' money, including that of the petitioner and Concepcion Maneja. 10

In G.R. No. L-29362, entitled "Emerita M. Ramos, et al. vs. Central Bank of the Philippines," a case
was filed by the petitioner Ramos, wherein respondent Overseas Bank of Manila sought to prevent
respondent Central Bank from closing, declaring the former insolvent, and liquidating its assets.
Petitioner Manuel Serrano in this case, filed on September 6, 1968, a motion to intervene in G.R.
No. L-29352, on the ground that Serrano had a real and legal interest as depositor of the Overseas
Bank of Manila in the matter in litigation in that case. Respondent Central Bank in G.R. No. L-29352
opposed petitioner Manuel Serrano's motion to intervene in that case, on the ground that his claim
as depositor of the Overseas Bank of Manila should properly be ventilated in the Court of First
Instance, and if this Court were to allow Serrano to intervene as depositor in G.R. No. L-29352,
thousands of other depositors would follow and thus cause an avalanche of cases in this Court. In
the resolution dated October 4, 1968, this Court denied Serrano's, motion to intervene. The contents
of said motion to intervene are substantially the same as those of the present petition. 11
This Court rendered decision in G.R. No. L-29352 on October 4, 1971, which became final and
executory on March 3, 1972, favorable to the respondent Overseas Bank of Manila, with the
dispositive portion to wit:

WHEREFORE, the writs prayed for in the petition are hereby granted and
respondent Central Bank's resolution Nos. 1263, 1290 and 1333 (that prohibit the
Overseas Bank of Manila to participate in clearing, direct the suspension of its
operation, and ordering the liquidation of said bank) are hereby annulled and set
aside; and said respondent Central Bank of the Philippines is directed to comply with
its obligations under the Voting Trust Agreement, and to desist from taking action in
violation therefor. Costs against respondent Central Bank of the Philippines. 12

Because of the above decision, petitioner in this case filed a motion for judgment in this case,
praying for a decision on the merits, adjudging respondent Central Bank jointly and severally liable
with respondent Overseas Bank of Manila to the petitioner for the P350,000 time deposit made with
the latter bank, with all interests due therein; and declaring all assets assigned or mortgaged by the
respondents Overseas Bank of Manila and the Ramos groups in favor of the Central Bank as trust
funds for the benefit of petitioner and other depositors. 13

By the very nature of the claims and causes of action against respondents, they in reality are
recovery of time deposits plus interest from respondent Overseas Bank of Manila, and recovery of
damages against respondent Central Bank for its alleged failure to strictly supervise the acts of the
other respondent Bank and protect the interests of its depositors by virtue of the constructive trust
created when respondent Central Bank required the other respondent to increase its collaterals for
its overdrafts said emergency loans, said collaterals allegedly acquired through the use of depositors
money. These claims shoud be ventilated in the Court of First Instance of proper jurisdiction as We
already pointed out when this Court denied petitioner's motion to intervene in G.R. No. L-29352.
Claims of these nature are not proper in actions for mandamus and prohibition as there is no shown
clear abuse of discretion by the Central Bank in its exercise of supervision over the other respondent
Overseas Bank of Manila, and if there was, petitioner here is not the proper party to raise that
question, but rather the Overseas Bank of Manila, as it did in G.R. No. L-29352. Neither is there
anything to prohibit in this case, since the questioned acts of the respondent Central Bank (the acts
of dissolving and liquidating the Overseas Bank of Manila), which petitioner here intends to use as
his basis for claims of damages against respondent Central Bank, had been accomplished a long
time ago.

Furthermore, both parties overlooked one fundamental principle in the nature of bank deposits when
the petitioner claimed that there should be created a constructive trust in his favor when the
respondent Overseas Bank of Manila increased its collaterals in favor of respondent Central Bank
for the former's overdrafts and emergency loans, since these collaterals were acquired by the use of
depositors' money.

Bank deposits are in the nature of irregular deposits. They are really loans because they earn
interest. All kinds of bank deposits, whether fixed, savings, or current are to be treated as loans and
are to be covered by the law on loans. 14 Current and savings deposit are loans to a bank because it
can use the same. The petitioner here in making time deposits that earn interests with respondent
Overseas Bank of Manila was in reality a creditor of the respondent Bank and not a depositor. The
respondent Bank was in turn a debtor of petitioner. Failure of he respondent Bank to honor the time
deposit is failure to pay s obligation as a debtor and not a breach of trust arising from depositary's failure
to return the subject matter of the deposit

WHEREFORE, the petition is dismissed for lack of merit, with costs against petitioner.
SO ORDERED.

Antonio, Abad Santos, JJ., concur.

Barredo (Chairman) J., concur in the judgment on the of the concurring opinion of Justice Aquino.

Separate Opinions

AQUINO, J., concurring:

The petitioner prayed that the Central Bank be ordered to pay his time deposits of P350,000, plus
interests, which he could not recover from the distressed Overseas Bank of Manila, and to declare
all the assets assigned or mortgaged by that bank and the Ramos group to the Central Bank as trust
properties for the benefit of the petitioner and other depositors.

The petitioner has no causes of action agianst the Central Bank to obtain those reliefs. They cannot
be granted in petitioner's instant original actions in this Court for mandamus and prohibition. It is not
the Central Bank's ministerial duty to pay petitioner's time deposits or to hold the mortgaged
properties in trust for the depositors of the Overseas Bank of Manila. The petitioner has no cause of
action for prohibition, a remedy usually available against any tribunal, board, corporation or person
exercising judicial or ministerial functions.

Since the Overseas Bank of Manila was found to be insolvent and the Superintendent of Banks was
ordered to take over its assets preparatory to its liquidation under section 29 of Republic Act No. 265
(p. 197, Rollo, Manifestation of September 19, 1973), petitioner's remedy is to file his claim in the
liquidating proceeding (Central Bank vs. Morfe, L-38427, March 12, 1975, 63 SCRA 114; Hernandez
vs. Rural Bank of Lucena, Inc., L-29791, January 10, 1978, 81 SCRA 75).

Separate Opinions

AQUINO, J., concurring:

The petitioner prayed that the Central Bank be ordered to pay his time deposits of P350,000, plus
interests, which he could not recover from the distressed Overseas Bank of Manila, and to declare
all the assets assigned or mortgaged by that bank and the Ramos group to the Central Bank as trust
properties for the benefit of the petitioner and other depositors.
The petitioner has no causes of action agianst the Central Bank to obtain those reliefs. They cannot
be granted in petitioner's instant original actions in this Court for mandamus and prohibition. It is not
the Central Bank's ministerial duty to pay petitioner's time deposits or to hold the mortgaged
properties in trust for the depositors of the Overseas Bank of Manila. The petitioner has no cause of
action for prohibition, a remedy usually available against any tribunal, board, corporation or person
exercising judicial or ministerial functions.

Since the Overseas Bank of Manila was found to be insolvent and the Superintendent of Banks was
ordered to take over its assets preparatory to its liquidation under section 29 of Republic Act No. 265
(p. 197, Rollo, Manifestation of September 19, 1973), petitioner's remedy is to file his claim in the
liquidating proceeding (Central Bank vs. Morfe, L-38427, March 12, 1975, 63 SCRA 114; Hernandez
vs. Rural Bank of Lucena, Inc., L-29791, January 10, 1978, 81 SCRA 75).

Footnotes
 FIRST DIVISION

[G.R. No. 84096. January 26, 1995.]

RAUL H. SESBRENO, Petitioner, v. HONORABLE COURT OF APPEALS and HERMILO RODIS,

SR., Respondents.

SYLLABUS

1. REMEDIAL LAW; ACTIONS; APPEAL; QUESTION OF LAW, DISTINGUISHED FROM QUESTION OF FACTS. —
In Bernardo v. Court of Appeals, 216 SCRA 224 (1992), this Court clarified the distinction between a
question of law and a question of fact in this wise: ". . . As distinguished from a question of law which exists
‘when the doubt or difference arises as to what the law is on certain state of facts’ — ‘there is a question of
fact when the doubt or difference arises as to the truth or the falsehood of alleged facts;’ or when the ‘query
necessarily invites calibration of the whole evidence considering mainly the credibility of witnesses,
existence and relevancy of specific surrounding circumstances, their relation to each other and to the whole
and the probabilities of the situation." cralaw virtua 1aw lib rary

2. ID.; ID.; ID.; ISSUE AS TO WHETHER ONE CAN BE HELD LIABLE FOR ESTAFA FOR FAILURE, DESPITE
REPEATED DEMANDS, TO ACCOUNT AND TURN OVER AMOUNT INVESTED IN A MONEY MARKET
PLACEMENT, A QUESTION OF LAW WHICH FALLS WITHIN THE JURISDICTION OF THE SUPREME COURT;
CASE AT BENCH. — An examination of the petition filed before the Court of Appeals disclosed that indeed no
question of fact was raised. What private respondent asserted therein was that the facts as alleged and
proved by petitioner did not constitute a criminal offense. Clearly then, the only issue to be resolved by the
Court of Appeals, which it did resolve, was whether private respondent could be held liable for estafa under
the facts obtaining in the criminal case. This certainly is a question of law that should fall within the
jurisdiction of this Court.

3. ID.; ID.; ID.; ESTOPPEL; A PARTY IS ESTOPPED FROM RAISING THE QUESTION OF JURISDICTION FOR
THE FIRST TIME BEFORE THE SUPREME COURT. — Petitioner did not assail the jurisdiction of the Court of
Appeals during the pendency of his petition in AC-G.R. SP No. 63151. As a matter of fact, he actively
participated in the proceedings before said appellate court. While it is true that jurisdiction over the subject
matter of a case may be raised at any time of the proceedings, this rule presupposes that laches or estoppel
has not supervened. In this regard, Banaga v. Commission on the Settlement of Land Problems, 181 SCRA
599, 608-609 (1990) is most enlightening. The Court therein stated: "This Court has time and again
frowned upon the undesirable practice of party submitting his case for decision and then accepting the
judgment, only if favorable, and attacking it for lack of jurisdiction when adverse. Here, a party may be
estopped or barred from raising the question of jurisdiction for the first time in a petition before the
Supreme Court when it failed to do so in the early stages of the proceedings. This principle should deter
those who are disposed to trifle with the courts by taking inconsistent positions contrary to the elementary
principles of right dealing and good faith (Marquez v. Secretary of Labor, G.R. 80685, March 16, 1989 and
other cases cited)."cralaw virt ua1aw li bra ry

4. COMMERCIAL LAW; MONEY MARKET TRANSACTION; LIABILITY THERETO IS ONLY CIVIL, NOT CRIMINAL.
— On the pivotal issue of whether or not private respondent may be held liable for estafa under the facts
obtaining in the trial court, respondent court held that private respondent’s liability, if any, is only civil. The
nature of a money market transaction is explained by the Court in Perez v. Court of Appeal, 127 SCRA 636
(1984). The Court of Appeals, therefore, correctly ruled that a money market transaction partakes of the
nature of a loan and therefore "nonpayment thereof would not give rise to criminal liability for estafa
through misappropriation or conversion." Citing Yam v. Malik, 94 SCRA 30 (1979), the Court of Appeals
noted that private respondent or Philfinance was not obliged under the money market transaction to return
the same money he or the corporation had received from petitioner. In fact, the Court of Appeals noted that
petitioner admitted on the witness stand that he had "invested" his money; that "he was not concerned
about the same money because what is important is the same amount will be returned to me plus its
earnings, because naturally when you give the money with the same serial numbers and you entrust it for
investment purposes, when it is invested and there are returns, the same money with the same serial
numbers will not be returned to you;" and that private respondent would be "held liable to me in case of
their failure to account" for the investment.

5. ID.; ID.; ID.; CASE AT BENCH. — In money market placement, the investor is a lender who loans his
money to a borrower through a middleman or dealer. Petitioner here loaned his money to a borrower
through Philfinance. When the latter failed to deliver back petitioner’s placement with the corresponding
interest earned at the maturity date, the liability incurred by Philfinance was a civil one. As such, petitioner
could have instituted against Philfinance before the ordinary courts a simple action for recovery of the
amount he had invested and he could have prayed therein for damages (Lim Sio v. Court of Appeals, 221
SCRA 307 [1993]; Orosa, Jr., v. Court of Appeals, 193 SCRA 391 [1991]; Manila Electric Company v.
Genbancor Development Corporation, 72 SCRA 249 [1976]). However, since petitioner also alleged fraud,
the proper forum should have been the Securities and Exchange Commission (Araneta v. Court of Appeals,
211 SCRA 390 [1992]).

6. ID.; ID.; FAILURE OF CUSTODIAN-DEPOSITARY OF PROMISSORY NOTE TO PAY INVESTMENT ON

MATURITY CONSTITUTES BREACH OF DUTY; DAMAGES, RECOVERABLE. — It appears, however, that
petitioner did not even implead Philfinance in the complaint for damages arising from the nonreturn of
investment with respect to the same money market placement involved herein, which he eventually filed
against Delta Motors Corporation and Pilipinas Bank before the Regional Trial Court of Cebu City on
September 28, 1982. The said complaint having been dismissed for lack of merit, petitioner appealed to the
Court of Appeals which, on March 21, 1989, affirmed the dismissal order. The Court of Appeals held that
Philfinance is "solely and legally obligated to return the investment of plaintiff, together with its earnings,
and to answer all the damages plaintiff has suffered incident thereto." Petitioner thereafter filed a petition
for review on certiorari, which this Court docketed as G.R. No. 89252. On May 24, 1993, the Court, through
Associate Justice Feliciano, rendered a decision in G.R. No. 89252 ordering Pilipinas Bank to pay petitioner
the amount of P304,533.33 in damages plus legal interest thereon at the rate of six percent (6%) per
annum counted from April 2, 1981. Pilipinas Bank was the custodian-depositary of DMC PN No. 2731
evidencing petitioner’s money market placement. In holding Pilipinas Bank liable for damages for breach of
duty, the Court said: ". . . . By failing to deliver the Note to the petitioner as depositor-beneficiary of the
thing deposited, Pilipinas effectively and unlawfully deprived petitioner of the Note deposited with it.
Whether or not Pilipinas itself benefitted from such conversion or unlawful deprivation inflicted upon
petitioner, is of no moment for present purposes. Prima facie, the damages suffered by petitioner consisted
of P304,533.33, the portion of the DMC PN No. 2731 assigned to petitioner but lost by him by reason of
discharge of the Note by compensation, plus legal interest of six percent (6%) per annum counting from 14
March 1981. The conclusion we have here reached is, of course, without to such right of reimbursement as
Pilipinas may have vis-a-vis Philfinance."cralaw virt ua1aw lib ra ry

7. ID.; ID.; LIABILITY THERETO IS ONLY CIVIL NOT CRIMINAL; INVESTOR MAY FILE A SEPARATE CIVIL
ACTION TO RECOVER INVESTMENT. — Petitioner’s recovery of his investment and the dismissal of the
criminal aspect of the case he had filed against private respondent as a consequence of this decision
notwithstanding, he still has an opportunity to hold private respondent liable in Criminal Case No. CU-10568.
In People v. Tugbang, 196 SCRA 341 (1991), the Court categorically pronounced that." . . an accused
acquitted of a criminal charge may nevertheless be held in the same case civilly liable where the facts
established by the evidence so warrants."

DECISION

QUIASON, J.:

Private respondents Hermilo Rodis, Sr., together with Douglas Sandiego and Ricardo Silverio, Sr., was
charged with estafa before the Regional Trial Court, Branch 20, Cebu, in an information docketed as
Criminal Case No. CU-10568, which reads as follows: jgc:chanro bles. com.ph

"That on or about the 9th day of February, 1981, and for sometime prior and subsequent thereto, in the City
of Cebu, Philippines, and within the jurisdiction of this Honorable Court, the said accused, conniving and
confederating together and mutually helping one another, having received from Atty. Raul H. Sesbreno the
sum of P300,000.00 as money market placement for 32 days at 20% interest with said corporation or a
maturity date of March 13, 1981, with the obligation on their part to immediately account for and turn over
to said Atty. Raul H. Sesbreno the aforesaid sum of money including the 20% interest upon maturity, or the
total sum of P305,333.33, the said accused, once in possession of said sum of money, far from complying
with their obligation, with deliberate intent, with intent of gain and of defrauding the herein complainant, did
then and there misappropriate, misapply and convert into their own personal use and benefit the same, and
despite repeated demands made upon them by Atty. Raul H. Sesbreno, they have failed and refused and up
to the present time still fail and refuse to comply with their obligation, to the damage and prejudice of Atty.
Raul H. Sesbreno, in the aforementioned sum of P300,000.00 Philippine Currency" (Rollo, p. 80). cha nrob lesvi rtua llawlib ra ry

Respondent Rodis moved to quash the information on the ground that the Securities and Exchange
Commission (SEC), not the regular courts, had jurisdiction over the offense charged and that the facts
stated herein did not constitute an offense (Record [Folio No. I], p. 309). The trial court denied the motion
and private respondent elevated the case to the then Intermediate Appellate Court on a petition
for certiorari docketed as AC-G.R. SP No. 15448.

On August 16, 1983, the appellate court dismissed the petition after finding no grave abuse of discretion on
the part of the trial court in denying the motion to quash (Record [Folio No. I], p. 633). The motion for
reconsideration was, likewise, denied. Thus, private respondent was, likewise, denied. Thus, private
respondent filed a petition for review on certiorari with this Court, docketed as G.R. No. 65477. On February
6, 1984, the petition was denied. chan roble s law lib ra ry : red

Hence, trial ensued in the criminal case. However, after the prosecution had rested its case, private
respondent filed a motion to dismiss on demurrer to evidence based on the core proposition that there was
no criminal offense of estafa from the non-payment of a money market placement (Record [Folio No. II], p.
210). The motion alleged that herein petitioner had also filed a similar complaint against Elizabeth de Villa
involving the same money market placement before the City Fiscal of Cebu; but, upon review of the
complaint, then Minister of Justice Estelito Mendoza directed the dismissal of the complaint on the ground
that a money market placement partook of the nature of a loan and therefore no criminal liability for estafa
could arise from non-payment thereof.

On March 13, 1985, the trial court denied the motion to dismiss (Record [Folio No. II], p. 310). On June 21,
1985, it issued an order stating that private respondent had waived his right to present evidence by his
dilatory motions to postpone the trial of the case (Ibid., p. 329).

Private respondent then filed a petition for certiorari and prohibition before the Intermediate Appellate Court
under Docket No. AC-G.R. SP No. 6315 (Ibid., p. 365) assailing the Order of March 13, 1985 as tainted with
grave abuse of discretion amounting to lack or excess of jurisdiction.

On December 29, 1987, the appellate court rendered a decision based on Perez v. Court of Appeals, 127
SCRA 636 (1984), upholding private respondent’s contention that a money market placement is in the
nature of a loan which entails the transfer of ownership of the money so invested and therefore the liability
for its return is civil in nature (Rollo, p. 79). The dispositive portion of the decision reads:
chanrob lesvi rtua llawli bra ry

"WHEREFORE, finding the present petition to be impressed with merit, the same petition to be impressed
with merit, the same is accordingly GRANTED, and the Order of March 13, 1985, as well as that of June 21,
1985 in Criminal Case No. CU-10568, are (sic) hereby set aside. The respondent Judge is directed to issue in
lieu thereof an appropriate order (i) granting petitioner’s motion to dismiss on demurrer to evidence; (ii)
dismissing Criminal Case No. CU-10568 in due course; and (iii) declaring mooted all acts, orders and
processes made and done therein during the pendency of this petition" (Rollo, p. 86).

Upon a motion for the reconsideration of said decision, the Court of Appeals modified the dispositive portion
of the decision as follows: jgc:cha nrob les.co m.ph

"WHEREFORE, finding the present petition to be impressed with merit, the same is accordingly GRANTED,
and the Order of March 13, 1985 in Criminal Case No. CU-10568, is hereby set aside. The respondent Judge
is directed to issue in lieu thereof an appropriate order (i) granting petitioner’s motion to dismiss on
demurrer to evidence; (ii) dismissing Criminal Case No. CU-10568 as against petitioner Hermilo Rodis, Sr.
only; and (iii) directing respondent judge to determine the civil liability, if any, of petitioner Hermilo Rodis,
Sr. to private respondent Raul H. Sesbreno from the evidence extant in the record of said case (CU-10568)"
(Rollo, p. 117).

Consequently, petitioner interposed the instant petition alleging that the Court of Appeals gravely erred
in:
jgc:cha nrob les.com. ph

"a. Taking cognizance over CA-GR SP No. 06315 even if it has NO JURISDICTION over the issue raised by
the petition for certiorari filed therein;
"b. Deciding CA-GR SP No. 06315 in a way probably not in accord with law or with the applicable decisions
of this Honorable Supreme Court" (Rollo, p. 10). chanrob lesvi rtua llawlib ra ry

On the issue of jurisdiction, petitioner contends that by the filing of a motion to dismiss on demurrer to
evidence, private respondent, in effect, admitted the truth of the allegations in the information, as well as
the evidence presented by the prosecution to support said allegations. Therefore, the only issue raised by
private respondent before the Court of Appeals, i.e., whether or not he can be held liable for estafa under
the facts obtaining in the case, is purely a question of law for which said appellate court had no jurisdiction
(Rollo, pp. 12-13).

In Bernardo v. Court of Appeals, 216 SCRA 224 (1992), this Court clarified the distinction between a
question of law and a question of fact in this wise: jgc:chanrob les.co m.ph

". . . . As distinguished from a question of law which exists ‘when the doubt or difference arises as to what
the law is on certain state of facts’ — ‘there is a question of fact when the doubt or difference arises as to
the truth or the falsehood of alleged facts;’ or when the ‘query necessarily invites calibration of the whole
evidence considering mainly the credibility of witnesses, existence and relevancy of specific surrounding
circumstances, their relation to each other and to the whole and the probabilities of the situation.’"

An examination of the petition filed before the Court of Appeals disclosed that indeed no question of fact was
raised. What private respondent asserted therein was that the facts as alleged and proved by petitioner did
not constitute a criminal offense. Clearly then, the only issue to be resolved by the Court of Appeals, which
it did resolve, was whether private respondent could be held liable for estafa under the facts obtaining in the
criminal case. This certainly is a question of law that should fall within the jurisdiction of this Court.

Petitioner did not assail the jurisdiction of the Court of Appeals during the pendency of his petition in AC-
G.R. SP No. 63151. As a matter of fact, he actively participated in the proceedings before said appellate
court. While it is true that jurisdiction over the subject matter of a case may be raised at any time of the
proceedings, this rule presupposes that laches or estoppel has not supervened. In this regard, Banaga v.
Commission on the Settlement of Land Problems, 181 SCRA 599, 608-609 (1990) is most enlightening. The
Court therein stated: chanrob lesvi rtua llawlib ra ry

"This Court has time and again frowned upon the undesirable practice of party submitting his case for
decision and then accepting the judgment, only if favorable, and attacking it for lack of jurisdiction when
adverse. Here, a party may be estopped or barred from raising the question of jurisdiction for the first time
in a petition before the Supreme Court when it failed to do so in the early stages of the proceedings. This
principle should deter those who are disposed to trifle with the courts by taking inconsistent positions
contrary to the elementary principles of right dealing and good faith (Tijam v. Sibonghanoy, No. L-21450,
April 15, 1968, 23 SCRA 29; Capilitan v. dela Cruz, Nos. L-29536-37, February 28, 1974, 55 SCRA 706;
Marquez v. Secretary of Labor, G.R. 80685, March 16, 1989). . . ." cralaw virtua1aw li bra ry

On the pivotal issue of whether or not private respondent may be held liable for estafa under the facts
obtaining in the trial court, respondent court held that private respondent’s liability, if any, is only civil. The
nature of a money market transaction is explained by the Court in Perez v. Court of Appeals (supra, pp.
645-646) as follows: jgc:cha nro bles.c om.ph

". . . What is involved here in a money market transaction. As defined by Lawrence Smith, ‘the money
market is a market dealing in standardized short-term credit instruments (involving large amounts) where
lenders and borrowers do not deal directly with each other but through a middle man or dealer in the open
market.’ It involves ‘commercial papers’ which are instruments ‘evidencing indebtedness of any person or
entity . . . which are issued, endorsed, sold or transferred or in any manner conveyed to another person or
entity, with or without recourse.’ The fundamental function of the money market device in its operation is to
match and bring together in a most impersonal manner both the ‘fund users’ and the ‘fund suppliers.’ The
money market is an ‘impersonal market’, free from personal considerations. The market mechanism is
intended ‘to provide quick mobility of money and securities.’ chanro blesvi rt uallawl ibra ry

"The impersonal character of the money market device overlooks the individuals or entities concerned. The
issuer of a commercial paper in the money market necessarily knows in advance that it would be
expeditiously transacted and transferred to any investor/lender without need of notice to said issuer. In
practice, no notification is given to the borrower or issuer of commercial paper of the sale or transfer to the
investor."cralaw virtua1aw l ibra ry
The Court of Appeals, therefore, correctly ruled that a money market transaction partakes of the nature of a
loan and therefore "nonpayment thereof would not give rise to criminal liability for estafa through
misappropriation or conversion." Citing Yam v. Malik, 94 SCRA 30 (1979), the Court of Appeals noted that
private respondent or Philfinance was not obliged under the money market transaction to return the same
money he or the corporation had received from petitioner. In fact, the Court of Appeals noted that petitioner
admitted on the witness stand that he had "invested" his money; that "he was not concerned about the
same money because what is important is the same amount will be returned to me plus its earnings,
because naturally when you give the money with the same serial numbers and you entrust it for investment
purposes, when it is invested and there are returns, the same money with the same serial numbers will not
be returned to you;" and that private respondent would be "held liable to me in case of their failure to
account" for the investment (Rollo, p. 83). cha nrob lesvi rtua llawli bra ry

In money market placement, the investor is a lender who loans his money to a borrower through a
middleman or dealer. Petitioner here loaned his money to a borrower through Philfinance. When the latter
failed to deliver back petitioner’s placement with the corresponding interest earned at the maturity date, the
liability incurred by Philfinance was a civil one. As such, petitioner could have instituted against Philfinance
before the ordinary courts a simple action for recovery of the amount he had invested and he could have
prayed therein for damages (Lim Sio v. Court of Appeals, 221 SCRA 307 [1993]; Orosa, Jr., v. Court of
Appeals, 193 SCRA 391 [1991]; Manila Electric Company v. Genbancor Development Corporation, 72 SCRA
249 [1976]).

It appears, however, that petitioner did not even implead Philfinance in the complaint for damages arising
from the nonreturn of investment with respect to the same money market placement involved herein, which
he eventually filed against Delta Motors Corporation and Pilipinas Bank before the Regional Trial Court of
Cebu City on September 28, 1982. The said complaint having been dismissed for lack of merit, petitioner
appealed to the Court of Appeals which, on March 21, 1989, affirmed the dismissal order. The Court of
Appeals held that Philfinance is "solely and legally obligated to return the investment of plaintiff, together
with its earnings, and to answer all the damages plaintiff has suffered incident thereto." Petitioner thereafter
filed a petition for review on certiorari, which this Court docketed as G.R. No. 89252. chanrob lesvi rtua llawli bra ry

On May 24, 1993, the Court, through Associate Justice Feliciano, rendered a decision in G.R. No. 89252
ordering Pilipinas Bank to pay petitioner the amount of P304,533.33 in damages plus legal interest thereon
at the rate of six percent (6%) per annum counted from April 2, 1981. Pilipinas Bank was the custodian-
depositary of DMC PN No. 2731 evidencing petitioner’s money market placement. In holding Pilipinas Bank
liable for damages for breach of duty, the Court said: jgc:chanrob les.com. ph

". . . . By failing to deliver the Note to the petitioner as depositor-beneficiary of the thing deposited, Pilipinas
effectively and unlawfully deprived petitioner of the Note deposited with it. Whether or not Pilipinas itself
benefitted from such conversion or unlawful deprivation inflicted upon petitioner, is of no moment for
present purposes. Prima facie, the damages suffered by petitioner consisted of P304,533.33, the portion of
the DMC PN No. 2731 assigned to petitioner but lost by him by reason of discharge of the Note by
compensation, plus legal interest of six percent (6%) per annum counting from 14 March 1981.

"The conclusion we have here reached is, of course, without to such right of reimbursement as Pilipinas may
have vis-a-vis Philfinance" (G.R. No. 89252, Rollo, pp. 295-296). chan roble svirtuallaw lib rary

Petitioner’s recovery of his investment and the dismissal of the criminal aspect of the case he had filed
against private respondent as a consequence of this decision notwithstanding, he still has an opportunity to
hold private respondent liable in Criminal Case No. CU-10568. In People v. Tugbang, 196 SCRA 341 (1991),
the Court categorically pronounced that." . . an accused acquitted of a criminal charge may nevertheless be
held in the same case civilly liable where the facts established by the evidence so warrants." cralaw virt ua1aw li bra ry

WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals, as modified by its Resolution
of May 27, 1988, is AFFIRMED in toto.

SO ORDERED.
12 De los Santos v Tan Khey (1962)Facts

De los Santos (Plaintiff) lodged in the International Hotel in Iloilo City, which was owned
byTan Khey (Defendant).
o

When Plaintiff arrived in the hotel, he left shortly thereafter, depositing his revolverand bag
with a certain Abutanatin. The latter was in charge of the hotel.
o

The bag contained a birthstone ring, an eyeglass, and a pocketbook.

o

He returned that evening and took his things from Abutanatin.

o

When he got into his room, he locked the door and went to sleep.

The next morning, he woke up and found that the door to his room was open and that
hispants and bag containing the revolver was missing.

When he reported the incident to the authorities, a secret service agent investigated
thematter and found that a wall of the room of the Plaintiff was only 7 feet high and had
anopening from which one could enter from the outside.

Tan Khey disclaims liability for the loss, saying that the things were not deposited with
themanager at the time they were lost despite notice to that effect posted in the hotel.
o

He likewise claims that to be liable under Art. 1998 of the Civil Code, the followingmust
concur

Deposit of effects made by travelers in hotels or inns

Notice was given to the hotel keeper or employee of the effects brought byguests

That the guests/travelers take the precautions advised by the hotelkeepers/employees

relative to the vigilance of their effects
Issue
W/N Tan Khey, as owner of the hotel, is liable for the loss despite their being lost not while
in actualcustody of an employee of the hotel, having no notice of the effects lost, and for
failure of De losSantos to take the necessary precautions advised by the hotel.
Held
YES.
Under Art. 1998, when the law speaks of “depositing of effects by travelers in hotels or inns,” it
does not mean that there is a personal receipt by the innkeeper of such effects.

This is so because nature of the business of an innkeeper is not only to provide lodgings,
butalso to provide security to their persons and effects.
o

Such security is not only confined to those effects actually delivered to theinnkeeper for
safekeeping, but also to
all effects

brought
in the hotel.

Also, a hotel has supervision and control of the premises thereof.

o

The guests being strangers to the place, they must rely on the vigilance andprotection of
the innkeepers over the effects placed in the premises of the hotel
 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 dated 19
[1]

October 1995 of the Court of Appeals which affirmed the Decision dated 16
[2]

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. McLoughlin left
[6]

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. Since he had no idea whether
[7]

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. McLoughlin went up to his room where Tan was staying
[11]

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. Lopez also told McLoughlin that Tan stole the key assigned to
[12]

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, specifically [15]

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. The Office of the
[17]

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 dated 10 June 1991 [20]

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. The trial court admitted the Amended/Supplemental
[21]

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. Thus, there being fraud or wanton conduct on the part
[27]

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. The trial court is in the best position
[31]

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. This only
[33]

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. In light of the
[34]

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. Thus, given the fact that the loss of McLoughlins money was
[35]

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 is suppressed or diminished shall be void.
[37]

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, the Court of Appeals through its then Presiding Justice
[38]

(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. With [39]

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. Evidently, the undertaking was intended to
[40]

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. It is [41]

the loss through force majeurethat 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 which exempts

[43]

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. There is nothing anomalous in how
[45]

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, being the amounts duly proven by evidence. The alleged loss
[47] [48]

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; one-half of P336,207.05 or P168,103.52 representing
[49]

payment to Tropicana; one-half of P152,683.57 or P76,341.785 representing

[50]

payment to Echelon Tower; one-half of P179,863.20 or P89,931.60 for the

[51]

taxi or transportation expenses from McLoughlins residence to Sydney Airport

and from MIA to the hotel here in Manila, for the eleven (11) trips; one-half
[52]

of P7,801.94 or P3,900.97 representing Meralco power expenses; one-half [53]

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.