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Chapter on DEPOSIT

CA Agro-Industrial vs. CA, G.R. No. 90027, March 3, 1993


Baron vs. David, G.R. Nos. L-26948 and L-26949, October 8, 1927
Serrano vs. Central Bank, 96 SCRA 96
De los Santos vs. Tan Khey, O.G. No. 26695-R, July 30, 1962
YHT Realty vs. CA, G.R. 126780, February 17, 2005
Durban Apartments vs Pioneer Insurance, G.R. No. 179419 January 12, 2011
Guingona, Jr., et. al. vs. City Fiscal of Manila, G.R. No. L-60033 April 4, 1984

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withdrawn only upon the joint signatures of a representative of the petitioner and the Pugaos upon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 safedeposit 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 safedeposit 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 Act23 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 asdepositories 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 safedeposit 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.
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
acommodatum; 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 crosscomplaint 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.
1awph!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 thirdparty 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.
Avancea, 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.
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. 1Petitioner 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-% 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. L29352, 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).

G.R. No. 126780

February 17, 2005

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


vs.
THE COURT OF APPEALS and MAURICE McLOUGHLIN, respondents.
DECISION
TINGA, J.:
The primary question of interest before this Court is the only legal issue in the case: It is whether a
hotel may evade liability for the loss of items left with it for safekeeping by its guests, by having these
guests execute written waivers holding the establishment or its employees free from blame for such
loss in light of Article 2003 of the Civil Code which voids such waivers.
Before this Court is a Rule 45 petition for review of the Decision1 dated 19 October 1995 of the Court
of Appeals which affirmed the Decision2 dated 16 December 1991 of the Regional Trial Court (RTC),
Branch 13, of Manila, finding YHT Realty Corporation, Brunhilda Mata-Tan (Tan), Erlinda Lainez
(Lainez) and Anicia Payam (Payam) jointly and solidarily liable for damages in an action filed by
Maurice McLoughlin (McLoughlin) for the loss of his American and Australian dollars deposited in the
safety deposit box of Tropicana Copacabana Apartment Hotel, owned and operated by YHT Realty
Corporation.
The factual backdrop of the case follow.
Private respondent McLoughlin, an Australian businessman-philanthropist, used to stay at Sheraton
Hotel during his trips to the Philippines prior to 1984 when he met Tan. Tan befriended McLoughlin
by showing him around, introducing him to important people, accompanying him in visiting
impoverished street children and assisting him in buying gifts for the children and in distributing the
same to charitable institutions for poor children. Tan convinced McLoughlin to transfer from Sheraton

Hotel to Tropicana where Lainez, Payam and Danilo Lopez were employed. Lopez served as
manager of the hotel while Lainez and Payam had custody of the keys for the safety deposit boxes
of Tropicana. Tan took care of McLoughlin's booking at the Tropicana where he started staying
during his trips to the Philippines from December 1984 to September 1987. 3
On 30 October 1987, McLoughlin arrived from Australia and registered with Tropicana. He rented a
safety deposit box as it was his practice to rent a safety deposit box every time he registered at
Tropicana in previous trips. As a tourist, McLoughlin was aware of the procedure observed by
Tropicana relative to its safety deposit boxes. The safety deposit box could only be opened through
the use of two keys, one of which is given to the registered guest, and the other remaining in the
possession of the management of the hotel. When a registered guest wished to open his safety
deposit box, he alone could personally request the management who then would assign one of its
employees to accompany the guest and assist him in opening the safety deposit box with the two
keys.4
McLoughlin allegedly placed the following in his safety deposit box: Fifteen Thousand US Dollars
(US$15,000.00) which he placed in two envelopes, one envelope containing Ten Thousand US
Dollars (US$10,000.00) and the other envelope Five Thousand US Dollars (US$5,000.00); Ten
Thousand Australian Dollars (AUS$10,000.00) which he also placed in another envelope; two (2)
other envelopes containing letters and credit cards; two (2) bankbooks; and a checkbook, arranged
side by side inside the safety deposit box.5
On 12 December 1987, before leaving for a brief trip to Hongkong, McLoughlin opened his safety
deposit box with his key and with the key of the management and took therefrom the envelope
containing Five Thousand US Dollars (US$5,000.00), the envelope containing Ten Thousand
Australian Dollars (AUS$10,000.00), his passports and his credit cards. 6 McLoughlin left the other
items in the box as he did not check out of his room at the Tropicana during his short visit to
Hongkong. When he arrived in Hongkong, he opened the envelope which contained Five Thousand
US Dollars (US$5,000.00) and discovered upon counting that only Three Thousand US Dollars
(US$3,000.00) were enclosed therein.7 Since he had no idea whether somebody else had tampered
with his safety deposit box, he thought that it was just a result of bad accounting since he did not
spend anything from that envelope.8
After returning to Manila, he checked out of Tropicana on 18 December 1987 and left for Australia.
When he arrived in Australia, he discovered that the envelope with Ten Thousand US Dollars
(US$10,000.00) was short of Five Thousand US Dollars (US$5,000). He also noticed that the jewelry
which he bought in Hongkong and stored in the safety deposit box upon his return to Tropicana was
likewise missing, except for a diamond bracelet.9
When McLoughlin came back to the Philippines on 4 April 1988, he asked Lainez if some money
and/or jewelry which he had lost were found and returned to her or to the management. However,
Lainez told him that no one in the hotel found such things and none were turned over to the
management. He again registered at Tropicana and rented a safety deposit box. He placed therein
one (1) envelope containing Fifteen Thousand US Dollars (US$15,000.00), another envelope
containing Ten Thousand Australian Dollars (AUS$10,000.00) and other envelopes containing his
traveling papers/documents. On 16 April 1988, McLoughlin requested Lainez and Payam to open his

safety deposit box. He noticed that in the envelope containing Fifteen Thousand US Dollars
(US$15,000.00), Two Thousand US Dollars (US$2,000.00) were missing and in the envelope
previously containing Ten Thousand Australian Dollars (AUS$10,000.00), Four Thousand Five
Hundred Australian Dollars (AUS$4,500.00) were missing.10
When McLoughlin discovered the loss, he immediately confronted Lainez and Payam who admitted
that Tan opened the safety deposit box with the key assigned to him.11 McLoughlin went up to his
room where Tan was staying and confronted her. Tan admitted that she had stolen McLoughlin's key
and was able to open the safety deposit box with the assistance of Lopez, Payam and
Lainez.12 Lopez also told McLoughlin that Tan stole the key assigned to McLoughlin while the latter
was asleep.13
McLoughlin requested the management for an investigation of the incident. Lopez got in touch with
Tan and arranged for a meeting with the police and McLoughlin. When the police did not arrive,
Lopez and Tan went to the room of McLoughlin at Tropicana and thereat, Lopez wrote on a piece of
paper a promissory note dated 21 April 1988. The promissory note reads as follows:
I promise to pay Mr. Maurice McLoughlin the amount of AUS$4,000.00 and US$2,000.00 or its
equivalent in Philippine currency on or before May 5, 1988. 14
Lopez requested Tan to sign the promissory note which the latter did and Lopez also signed as a
witness. Despite the execution of promissory note by Tan, McLoughlin insisted that it must be the
hotel who must assume responsibility for the loss he suffered. However, Lopez refused to accept the
responsibility relying on the conditions for renting the safety deposit box entitled "Undertaking For
the Use Of Safety Deposit Box,"15specifically paragraphs (2) and (4) thereof, to wit:
2. To release and hold free and blameless TROPICANA APARTMENT HOTEL from any liability
arising from any loss in the contents and/or use of the said deposit box for any cause whatsoever,
including but not limited to the presentation or use thereof by any other person should the key be
lost;
...
4. To return the key and execute the RELEASE in favor of TROPICANA APARTMENT HOTEL upon
giving up the use of the box.16
On 17 May 1988, McLoughlin went back to Australia and he consulted his lawyers as to the validity
of the abovementioned stipulations. They opined that the stipulations are void for being violative of
universal hotel practices and customs. His lawyers prepared a letter dated 30 May 1988 which was
signed by McLoughlin and sent to President Corazon Aquino. 17 The Office of the President referred
the letter to the Department of Justice (DOJ) which forwarded the same to the Western Police
District (WPD).18
After receiving a copy of the indorsement in Australia, McLoughlin came to the Philippines and
registered again as a hotel guest of Tropicana. McLoughlin went to Malacaang to follow up on his
letter but he was instructed to go to the DOJ. The DOJ directed him to proceed to the WPD for

documentation. But McLoughlin went back to Australia as he had an urgent business matter to
attend to.
For several times, McLoughlin left for Australia to attend to his business and came back to the
Philippines to follow up on his letter to the President but he failed to obtain any concrete
assistance.19
McLoughlin left again for Australia and upon his return to the Philippines on 25 August 1989 to
pursue his claims against petitioners, the WPD conducted an investigation which resulted in the
preparation of an affidavit which was forwarded to the Manila City Fiscal's Office. Said affidavit
became the basis of preliminary investigation. However, McLoughlin left again for Australia without
receiving the notice of the hearing on 24 November 1989. Thus, the case at the Fiscal's Office was
dismissed for failure to prosecute. Mcloughlin requested the reinstatement of the criminal charge for
theft. In the meantime, McLoughlin and his lawyers wrote letters of demand to those having
responsibility to pay the damage. Then he left again for Australia.
Upon his return on 22 October 1990, he registered at the Echelon Towers at Malate, Manila.
Meetings were held between McLoughlin and his lawyer which resulted to the filing of a complaint for
damages on 3 December 1990 against YHT Realty Corporation, Lopez, Lainez, Payam and Tan
(defendants) for the loss of McLoughlin's money which was discovered on 16 April 1988. After filing
the complaint, McLoughlin left again for Australia to attend to an urgent business matter. Tan and
Lopez, however, were not served with summons, and trial proceeded with only Lainez, Payam and
YHT Realty Corporation as defendants.
After defendants had filed their Pre-Trial Brief admitting that they had previously allowed and
assisted Tan to open the safety deposit box, McLoughlin filed an Amended/Supplemental
Complaint20 dated 10 June 1991 which included another incident of loss of money and jewelry in the
safety deposit box rented by McLoughlin in the same hotel which took place prior to 16 April
1988.21 The trial court admitted the Amended/Supplemental Complaint.
During the trial of the case, McLoughlin had been in and out of the country to attend to urgent
business in Australia, and while staying in the Philippines to attend the hearing, he incurred
expenses for hotel bills, airfare and other transportation expenses, long distance calls to Australia,
Meralco power expenses, and expenses for food and maintenance, among others. 22
After trial, the RTC of Manila rendered judgment in favor of McLoughlin, the dispositive portion of
which reads:
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
attorney's fees, and a fee of P3,000.00 for every appearance; and
7. Plus costs of suit.
SO ORDERED.23
The trial court found that McLoughlin's allegations as to the fact of loss and as to the amount of
money he lost were sufficiently shown by his direct and straightforward manner of testifying in court
and found him to be credible and worthy of belief as it was established that McLoughlin's money,
kept in Tropicana's safety deposit box, was taken by Tan without McLoughlin's consent. The taking
was effected through the use of the master key which was in the possession of the management.
Payam and Lainez allowed Tan to use the master key without authority from McLoughlin. The trial
court added that if McLoughlin had not lost his dollars, he would not have gone through the trouble
and personal inconvenience of seeking aid and assistance from the Office of the President, DOJ,
police authorities and the City Fiscal's Office in his desire to recover his losses from the hotel
management and Tan.24
As regards the loss of Seven Thousand US Dollars (US$7,000.00) and jewelry worth approximately
One Thousand Two Hundred US Dollars (US$1,200.00) which allegedly occurred during his stay at
Tropicana previous to 4 April 1988, no claim was made by McLoughlin for such losses in his
complaint dated 21 November 1990 because he was not sure how they were lost and who the
responsible persons were. But considering the admission of the defendants in their pre-trial brief that
on three previous occasions they allowed Tan to open the box, the trial court opined that it was
logical and reasonable to presume that his personal assets consisting of Seven Thousand US
Dollars (US$7,000.00) and jewelry were taken by Tan from the safety deposit box without
McLoughlin's consent through the cooperation of Payam and Lainez. 25
The trial court also found that defendants acted with gross negligence in the performance and
exercise of their duties and obligations as innkeepers and were therefore liable to answer for the
losses incurred by McLoughlin.26

Moreover, the trial court ruled that paragraphs (2) and (4) of the "Undertaking For The Use Of Safety
Deposit Box" are not valid for being contrary to the express mandate of Article 2003 of the New Civil
Code and against public policy.27 Thus, there being fraud or wanton conduct on the part of
defendants, they should be responsible for all damages which may be attributed to the nonperformance of their contractual obligations.28
The Court of Appeals affirmed the disquisitions made by the lower court except as to the amount of
damages awarded. The decretal text of the appellate court's decision reads:
THE FOREGOING CONSIDERED, the appealed Decision is hereby AFFIRMED but modified as
follows:
The appellants are directed jointly and severally to pay the plaintiff/appellee the following amounts:
1) 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 attorney's fees.
With costs.
SO ORDERED.29
Unperturbed, YHT Realty Corporation, Lainez and Payam went to this Court in this appeal
by certiorari.

Petitioners submit for resolution by this Court the following issues: (a) whether the appellate court's
conclusion on the alleged prior existence and subsequent loss of the subject money and jewelry is
supported by the evidence on record; (b) whether the finding of gross negligence on the part of
petitioners in the performance of their duties as innkeepers is supported by the evidence on record;
(c) whether the "Undertaking For The Use of Safety Deposit Box" admittedly executed by private
respondent is null and void; and (d) whether the damages awarded to private respondent, as well as
the amounts thereof, are proper under the circumstances.30
The petition is devoid of merit.
It is worthy of note that the thrust of Rule 45 is the resolution only of questions of law and any
peripheral factual question addressed to this Court is beyond the bounds of this mode of review.
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.
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The trial court had the occasion to observe the demeanor of McLoughlin while testifying which
reflected the veracity of the facts testified to by him. On this score, we give full credence to the
appreciation of testimonial evidence by the trial court especially if what is at issue is the credibility of
the witness. The oft-repeated principle is that where the credibility of a witness is an issue, the
established rule is that great respect is accorded to the evaluation of the credibility of witnesses by
the trial court.31 The trial court is in the best position to assess the credibility of witnesses and their
testimonies because of its unique opportunity to observe the witnesses firsthand and note their
demeanor, conduct and attitude under grilling examination. 32
We are also not impressed by petitioners' argument that the finding of gross negligence by the lower
court as affirmed by the appellate court is not supported by evidence. The evidence reveals that two
keys are required to open the safety deposit boxes of Tropicana. One key is assigned to the guest
while the other remains in the possession of the management. If the guest desires to open his safety
deposit box, he must request the management for the other key to open the same. In other words,
the guest alone cannot open the safety deposit box without the assistance of the management or its
employees. With more reason that access to the safety deposit box should be denied if the one
requesting for the opening of the safety deposit box is a stranger. Thus, in case of loss of any item
deposited in the safety deposit box, it is inevitable to conclude that the management had at least a
hand in the consummation of the taking, unless the reason for the loss is force majeure.
Noteworthy is the fact that Payam and Lainez, who were employees of Tropicana, had custody of
the master key of the management when the loss took place. In fact, they even admitted that they
assisted Tan on three separate occasions in opening McLoughlin's safety deposit box. 33 This only

proves that Tropicana had prior knowledge that a person aside from the registered guest had access
to the safety deposit box. Yet the management failed to notify McLoughlin of the incident and waited
for him to discover the taking before it disclosed the matter to him. Therefore, Tropicana should be
held responsible for the damage suffered by McLoughlin by reason of the negligence of its
employees.
The management should have guarded against the occurrence of this incident considering that
Payam admitted in open court that she assisted Tan three times in opening the safety deposit box of
McLoughlin at around 6:30 A.M. to 7:30 A.M. while the latter was still asleep.34 In light of the
circumstances surrounding this case, it is undeniable that without the acquiescence of the
employees of Tropicana to the opening of the safety deposit box, the loss of McLoughlin's money
could and should have been avoided.
The management contends, however, that McLoughlin, by his act, made its employees believe that
Tan was his spouse for she was always with him most of the time. The evidence on record, however,
is bereft of any showing that McLoughlin introduced Tan to the management as his wife. Such an
inference from the act of McLoughlin will not exculpate the petitioners from liability in the absence of
any showing that he made the management believe that Tan was his wife or was duly authorized to
have access to the safety deposit box. Mere close companionship and intimacy are not enough to
warrant such conclusion considering that what is involved in the instant case is the very safety of
McLoughlin's deposit. If only petitioners exercised due diligence in taking care of McLoughlin's safety
deposit box, they should have confronted him as to his relationship with Tan considering that the
latter had been observed opening McLoughlin's safety deposit box a number of times at the early
hours of the morning. Tan's acts should have prompted the management to investigate her
relationship with McLoughlin. Then, petitioners would have exercised due diligence required of them.
Failure to do so warrants the conclusion that the management had been remiss in complying with
the obligations imposed upon hotel-keepers under the law.
Under Article 1170 of the New Civil Code, those who, in the performance of their obligations, are
guilty of negligence, are liable for damages. As to who shall bear the burden of paying damages,
Article 2180, paragraph (4) of the same Code provides that the owners and managers of an
establishment or enterprise are likewise responsible for damages caused by their employees in the
service of the branches in which the latter are employed or on the occasion of their functions. Also,
this Court has ruled that if an employee is found negligent, it is presumed that the employer was
negligent in selecting and/or supervising him for it is hard for the victim to prove the negligence of
such employer.35 Thus, given the fact that the loss of McLoughlin's money was consummated
through the negligence of Tropicana's employees in allowing Tan to open the safety deposit box
without the guest's consent, both the assisting employees and YHT Realty Corporation itself, as
owner and operator of Tropicana, should be held solidarily liable pursuant to Article 2193. 36
The issue of whether the "Undertaking For The Use of Safety Deposit Box" executed by McLoughlin
is tainted with nullity presents a legal question appropriate for resolution in this petition. Notably, both
the trial court and the appellate court found the same to be null and void. We find no reason to
reverse their common conclusion. Article 2003 is controlling, thus:

Art. 2003. The hotel-keeper cannot free himself from responsibility by posting notices to the effect
that he is not liable for the articles brought by the guest. Any stipulation between the hotel-keeper
and the guest whereby the responsibility of the former as set forth in Articles 1998 to 2001 37 is
suppressed or diminished shall be void.
Article 2003 was incorporated in the New Civil Code as an expression of public policy precisely to
apply to situations such as that presented in this case. The hotel business like the common carrier's
business is imbued with public interest. Catering to the public, hotelkeepers are bound to provide not
only lodging for hotel guests and security to their persons and belongings. The twin duty constitutes
the essence of the business. The law in turn does not allow such duty to the public to be negated or
diluted by any contrary stipulation in so-called "undertakings" that ordinarily appear in prepared
forms imposed by hotel keepers on guests for their signature.
In an early case,38 the Court of Appeals through its then Presiding Justice (later Associate Justice of
the Court) Jose P. Bengzon, ruled that to hold hotelkeepers or innkeeper liable for the effects of their
guests, it is not necessary that they be actually delivered to the innkeepers or their employees. It is
enough that such effects are within the hotel or inn.39 With greater reason should the liability of the
hotelkeeper be enforced when the missing items are taken without the guest's knowledge and
consent from a safety deposit box provided by the hotel itself, as in this case.
Paragraphs (2) and (4) of the "undertaking" manifestly contravene Article 2003 of the New Civil Code
for they allow Tropicana to be released from liability arising from any loss in the contents and/or use
of the safety deposit box for any cause whatsoever.40 Evidently, the undertaking was intended to bar
any claim against Tropicana for any loss of the contents of the safety deposit box whether or not
negligence was incurred by Tropicana or its employees. The New Civil Code is explicit that the
responsibility of the hotel-keeper shall extend to loss of, or injury to, the personal property of the
guests even if caused by servants or employees of the keepers of hotels or inns as well as by
strangers, except as it may proceed from any force majeure.41 It is the loss through force
majeure that may spare the hotel-keeper from liability. In the case at bar, there is no showing that the
act of the thief or robber was done with the use of arms or through an irresistible force to qualify the
same as force majeure.42
Petitioners likewise anchor their defense on Article 200243 which exempts the hotel-keeper from
liability if the loss is due to the acts of his guest, his family, or visitors. Even a cursory reading of the
provision would lead us to reject petitioners' contention. The justification they raise would render
nugatory the public interest sought to be protected by the provision. What if the negligence of the
employer or its employees facilitated the consummation of a crime committed by the registered
guest's relatives or visitor? Should the law exculpate the hotel from liability since the loss was due to
the act of the visitor of the registered guest of the hotel? Hence, this provision presupposes that the
hotel-keeper is not guilty of concurrent negligence or has not contributed in any degree to the
occurrence of the loss. A depositary is not responsible for the loss of goods by theft, unless his
actionable negligence contributes to the loss.44
In the case at bar, the responsibility of securing the safety deposit box was shared not only by the
guest himself but also by the management since two keys are necessary to open the safety deposit
box. Without the assistance of hotel employees, the loss would not have occurred. Thus, Tropicana

was guilty of concurrent negligence in allowing Tan, who was not the registered guest, to open the
safety deposit box of McLoughlin, even assuming that the latter was also guilty of negligence in
allowing another person to use his key. To rule otherwise would result in undermining the safety of
the safety deposit boxes in hotels for the management will be given imprimatur to allow any person,
under the pretense of being a family member or a visitor of the guest, to have access to the safety
deposit box without fear of any liability that will attach thereafter in case such person turns out to be
a complete stranger. This will allow the hotel to evade responsibility for any liability incurred by its
employees in conspiracy with the guest's relatives and visitors.
Petitioners contend that McLoughlin's case was mounted on the theory of contract, but the trial court
and the appellate court upheld the grant of the claims of the latter on the basis of tort. 45 There is
nothing anomalous in how the lower courts decided the controversy for this Court has pronounced a
jurisprudential rule that tort liability can exist even if there are already contractual relations. The act
that breaks the contract may also be tort.46
As to damages awarded to McLoughlin, we see no reason to modify the amounts awarded by the
appellate court for the same were based on facts and law. It is within the province of lower courts to
settle factual issues such as the proper amount of damages awarded and such finding is binding
upon this Court especially if sufficiently proven by evidence and not unconscionable or excessive.
Thus, the appellate court correctly awarded McLoughlin Two Thousand US Dollars (US$2,000.00)
and Four Thousand Five Hundred Australian dollars (AUS$4,500.00) or their peso equivalent at the
time of payment,47 being the amounts duly proven by evidence.48The alleged loss that took place
prior to 16 April 1988 was not considered since the amounts alleged to have been taken were not
sufficiently established by evidence. The appellate court also correctly awarded the sum
ofP308,880.80, representing the peso value for the air fares from Sydney to Manila and back for a
total of eleven (11) trips;49 one-half of P336,207.05 or P168,103.52 representing payment to
Tropicana;50 one-half ofP152,683.57 or P76,341.785 representing payment to Echelon Tower; 51 onehalf of P179,863.20 or P89,931.60 for the taxi or transportation expenses from McLoughlin's
residence to Sydney Airport and from MIA to the hotel here in Manila, for the eleven (11) trips; 52 onehalf of P7,801.94 or P3,900.97 representing Meralco power expenses;53 one-half of P356,400.00
or P178,000.00 representing expenses for food and maintenance. 54
The amount of P50,000.00 for moral damages is reasonable. Although trial courts are given
discretion to determine the amount of moral damages, the appellate court may modify or change the
amount awarded when it is palpably and scandalously excessive. Moral damages are not intended
to enrich a complainant at the expense of a defendant. They are awarded only to enable the injured
party to obtain means, diversion or amusements that will serve to alleviate the moral suffering he
has undergone, by reason of defendants' culpable action. 55
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The awards of P10,000.00 as exemplary damages and P200,000.00 representing attorney's fees are
likewise sustained.
WHEREFORE, foregoing premises considered, the Decision of the Court of Appeals dated 19
October 1995 is hereby AFFIRMED. Petitioners are directed, jointly and severally, to pay private
respondent the following amounts:

(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
McLoughlin's 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 attorney's fees.
With costs.
SO ORDERED.
Puno, (Chairman), Callejo, Sr., and Chico-Nazario, JJ., concur.
Austria-Martinez, J., no part.

DURBAN APARTMENTS
CORPORATION, doing business under
the name and style of City Garden Hotel,
Petitioner,

- versus -

PIONEER INSURANCE AND SURETY


CORPORATION,
Respondent.

G.R. No. 179419


Present:
CARPIO, J.,
Chairperson,
NACHURA,
PERALTA,
ABAD, and
MENDOZA, JJ.

Promulgated:
January 12, 2011

x------------------------------------------------------------------------------------x
DECISION
NACHURA, J.:
For review is the Decision[1] of the Court of Appeals (CA) in CA-G.R. CV No.
86869, which affirmed the decision [2] of the Regional Trial Court (RTC), Branch
66, Makati City, in Civil Case No. 03-857, holding petitioner Durban Apartments
Corporation solely liable to respondent Pioneer Insurance and Surety Corporation
for the loss of Jeffrey Sees (Sees) vehicle.
The facts, as found by the CA, are simple.
On July 22, 2003, [respondent] Pioneer Insurance and Surety
Corporation x x x, by right of subrogation, filed [with the RTC of Makati
City] a Complaint for Recovery of Damages against [petitioner] Durban
Apartments Corporation, doing business under the name and style of
City Garden Hotel, and [defendant before the RTC] Vicente Justimbaste
x x x. [Respondent averred] that: it is the insurer for loss and damage of
Jeffrey S. Sees [the insureds] 2001 Suzuki Grand Vitara x x x with Plate

No. XBH-510 under Policy No. MC-CV-HO-01-0003846-00-D in the


amount of P1,175,000.00; on April 30, 2002, See arrived and checked in
at the City Garden Hotel in Makati corner Kalayaan Avenues, Makati
City before midnight, and its parking attendant, defendant x x x
Justimbaste got the key to said Vitara from See to park it[. O]n May 1,
2002, at about 1:00 oclock in the morning, See was awakened in his
room by [a] telephone call from the Hotel Chief Security Officer who
informed him that his Vitara was carnapped while it was parked
unattended at the parking area of Equitable PCI Bank along Makati
Avenue between the hours of 12:00 [a.m.] and 1:00 [a.m.]; See went to
see the Hotel Chief Security Officer, thereafter reported the incident to
the Operations Division of the Makati City Police Anti-Carnapping Unit,
and a flash alarm was issued; the Makati City Police Anti-Carnapping
Unit investigated Hotel Security Officer, Ernesto T. Horlador, Jr. x x x
and defendant x x x Justimbaste; See gave his Sinumpaang Salaysay to
the police investigator, and filed a Complaint Sheet with the PNP Traffic
Management Group in Camp Crame, Quezon City; the Vitara has not yet
been recovered since July 23, 2002 as evidenced by a Certification of
Non- Recovery issued by the PNP TMG; it paid the P1,163,250.00
money claim of See and mortgagee ABN AMRO Savings Bank, Inc. as
indemnity for the loss of the Vitara; the Vitara was lost due to the
negligence of [petitioner] Durban Apartments and [defendant]
Justimbaste because it was discovered during the investigation that this
was the second time that a similar incident of carnapping happened in
the valet parking service of [petitioner] Durban Apartments and no
necessary precautions were taken to prevent its repetition; [petitioner]
Durban Apartments was wanting in due diligence in the selection and
supervision of its employees particularly defendant x x x Justimbaste;
and defendant x x x Justimbaste and [petitioner] Durban Apartments
failed and refused to pay its valid, just, and lawful claim despite written
demands.
Upon service of Summons, [petitioner] Durban Apartments and
[defendant] Justimbaste filed their Answer with Compulsory
Counterclaim alleging that: See did not check in at its hotel, on the
contrary, he was a guest of a certain Ching Montero x x x; defendant x x
x Justimbaste did not get the ignition key of Sees Vitara, on the contrary,
it was See who requested a parking attendant to park the Vitara at any
available parking space, and it was parked at the Equitable Bank parking
area, which was within Sees view, while he and Montero were waiting in
front of the hotel; they made a written denial of the demand of

[respondent] Pioneer Insurance for want of legal basis; valet parking


services are provided by the hotel for the convenience of its customers
looking for a parking space near the hotel premises; it is a special
privilege that it gave to Montero and See; it does not include
responsibility for any losses or damages to motor vehicles and its
accessories in the parking area; and the same holds true even if it was
See himself who parked his Vitara within the premises of the hotel as
evidenced by the valet parking customers claim stub issued to him; the
carnapper was able to open the Vitara without using the key given earlier
to the parking attendant and subsequently turned over to See after the
Vitara was stolen; defendant x x x Justimbaste saw the Vitara speeding
away from the place where it was parked; he tried to run after it, and
blocked its possible path but to no avail; and See was duly and
immediately informed of the carnapping of his Vitara; the matter was
reported to the nearest police precinct; and defendant x x x Justimbaste,
and Horlador submitted themselves to police investigation.
During the pre-trial conference on November 28, 2003, counsel for
[respondent] Pioneer Insurance was present. Atty. Monina Lee x x x,
counsel of record of [petitioner] Durban Apartments and Justimbaste was
absent, instead, a certain Atty. Nestor Mejia appeared for [petitioner]
Durban Apartments and Justimbaste, but did not file their pre-trial brief.
On November 5, 2004, the lower court granted the motion of
[respondent] Pioneer Insurance, despite the opposition of [petitioner]
Durban Apartments and Justimbaste, and allowed [respondent] Pioneer
Insurance to present its evidence ex parte before the Branch Clerk of
Court.
See testified that: on April 30, 2002, at about 11:30 in the evening, he
drove his Vitara and stopped in front of City Garden Hotel in Makati
Avenue, Makati City; a parking attendant, whom he had later known to
be defendant x x x Justimbaste, approached and asked for his ignition
key, told him that the latter would park the Vitara for him in front of the
hotel, and issued him a valet parking customers claim stub; he and
Montero, thereafter, checked in at the said hotel; on May 1, 2002, at
around 1:00 in the morning, the Hotel Security Officer whom he later
knew to be Horlador called his attention to the fact that his Vitara was
carnapped while it was parked at the parking lot of Equitable PCI Bank
which is in front of the hotel; his Vitara was insured with [respondent]
Pioneer Insurance; he together with Horlador and defendant x x x

Justimbaste went to Precinct 19 of the Makati City Police to report the


carnapping incident, and a police officer came accompanied them to the
Anti-Carnapping Unit of the said station for investigation, taking of their
sworn statements, and flashing of a voice alarm; he likewise reported the
said incident in PNP TMG in Camp Crame where another alarm was
issued; he filed his claim with [respondent] Pioneer Insurance, and a
representative of the latter, who is also an adjuster of Vesper Insurance
Adjusters-Appraisers [Vesper], investigated the incident; and
[respondent] Pioneer Insurance required him to sign a Release of Claim
and Subrogation Receipt, and finally paid him the sum of P1,163,250.00
for his claim.
Ricardo F. Red testified that: he is a claims evaluator of [petitioner]
Pioneer Insurance tasked, among others, with the receipt of claims and
documents from the insured, investigation of the said claim, inspection
of damages, taking of pictures of insured unit, and monitoring of the
processing of the claim until its payment; he monitored the processing of
Sees claim when the latter reported the incident to [respondent] Pioneer
Insurance; [respondent] Pioneer Insurance assigned the case to Vesper
who verified Sees report, conducted an investigation, obtained the
necessary documents for the processing of the claim, and tendered a
settlement check to See; they evaluated the case upon receipt of the
subrogation documents and the adjusters report, and eventually
recommended for its settlement for the sum of P1,163,250.00 which was
accepted by See; the matter was referred and forwarded to their counsel,
R.B. Sarajan & Associates, who prepared and sent demand letters to
[petitioner] Durban Apartments and [defendant] Justimbaste, who did
not pay [respondent] Pioneer Insurance notwithstanding their receipt of
the demand letters; and the services of R.B. Sarajan & Associates were
engaged, for P100,000.00 as attorneys fees plus P3,000.00 per court
appearance, to prosecute the claims of [respondent] Pioneer Insurance
against [petitioner] Durban Apartments and Justimbaste before the lower
court.
Ferdinand Cacnio testified that: he is an adjuster of Vesper; [respondent]
Pioneer Insurance assigned to Vesper the investigation of Sees case, and
he was the one actually assigned to investigate it; he conducted his
investigation of the matter by interviewing See, going to the City Garden
Hotel, required subrogation documents from See, and verified the
authenticity of the same; he learned that it is the standard procedure of
the said hotel as regards its valet parking service to assist their guests as

soon as they get to the lobby entrance, park the cars for their guests, and
place the ignition keys in their safety key box; considering that the hotel
has only twelve (12) available parking slots, it has an agreement with
Equitable PCI Bank permitting the hotel to use the parking space of the
bank at night; he also learned that a Hyundai Starex van was carnapped
at the said place barely a month before the occurrence of this incident
because Liberty Insurance assigned the said incident to Vespers, and
Horlador and defendant x x x Justimbaste admitted the occurrence of the
same in their sworn statements before the Anti-Carnapping Unit of the
Makati City Police; upon verification with the PNP TMG [Unit] in Camp
Crame, he learned that Sees Vitara has not yet been recovered; upon
evaluation, Vesper recommended to [respondent] Pioneer Insurance to
settle Sees claim for P1,045,750.00; See contested the recommendation
of Vesper by reasoning out that the 10% depreciation should not be
applied in this case considering the fact that the Vitara was used for
barely eight (8) months prior to its loss; and [respondent] Pioneer
Insurance acceded to Sees contention, tendered the sum
of P1,163,250.00 as settlement, the former accepted it, and signed a
release of claim and subrogation receipt.
The lower court denied the Motion to Admit Pre-Trial Brief and Motion
for Reconsideration field by [petitioner] Durban Apartments and
Justimbaste in its Orders dated May 4, 2005 and October 20, 2005,
respectively, for being devoid of merit.[3]

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


follows:
WHEREFORE, judgment is hereby rendered ordering [petitioner Durban
Apartments Corporation] to pay [respondent Pioneer Insurance and
Surety Corporation] the sum of P1,163,250.00 with legal interest thereon
from July 22, 2003 until the obligation is fully paid and attorneys fees
and litigation expenses amounting to P120,000.00.
SO ORDERED.[4]

On appeal, the appellate court affirmed the decision of the trial court, viz.:
WHEREFORE, premises considered, the Decision dated January 27,
2006 of the RTC, Branch 66, Makati City in Civil Case No. 03-857 is

hereby AFFIRMED insofar as it holds [petitioner] Durban Apartments


Corporation solely liable to [respondent] Pioneer Insurance and Surety
Corporation for the loss of Jeffrey Sees Suzuki Grand Vitara.
SO ORDERED.[5]

Hence, this recourse by petitioner.


The issues for our resolution are:
1. Whether the lower courts erred in declaring petitioner as in default for failure to
appear at the pre-trial conference and to file a pre-trial brief;
2. Corollary thereto, whether the trial court correctly allowed respondent to present
evidence ex-parte;
3. Whether petitioner is liable to respondent for attorneys fees in the amount
of P120,000.00; and
4. Ultimately, whether petitioner is liable to respondent for the loss of Sees vehicle.
The petition must fail.
We are in complete accord with the common ruling of the lower courts that
petitioner was in default for failure to appear at the pre-trial conference and to file
a pre-trial brief, and thus, correctly allowed respondent to present evidence exparte. Likewise, the lower courts did not err in holding petitioner liable for the loss
of Sees vehicle.
Well-entrenched in jurisprudence is the rule that factual findings of the trial court,
especially when affirmed by the appellate court, are accorded the highest degree of
respect and are considered conclusive between the parties. [6] A review of such
findings by this Court is not warranted except upon a showing of highly
meritorious circumstances, such as: (1) when the findings of a trial court are
grounded entirely on speculation, surmises, or conjectures; (2) when a lower courts
inference from its factual findings is manifestly mistaken, absurd, or impossible;

(3) when there is grave abuse of discretion in the appreciation of facts; (4) when
the findings of the appellate court go beyond the issues of the case, or fail to notice
certain relevant facts which, if properly considered, will justify a different
conclusion; (5) when there is a misappreciation of facts; (6) when the findings of
fact are conclusions without mention of the specific evidence on which they are
based, are premised on the absence of evidence, or are contradicted by evidence on
record.[7]None of the foregoing exceptions permitting a reversal of the assailed
decision exists in this instance.
Petitioner urges us, however, that strong [and] compelling reason[s] such as the
prevention of miscarriage of justice warrant a suspension of the rules and excuse
its and its counsels non-appearance during the pre-trial conference and their failure
to file a pre-trial brief.
We are not persuaded.
Rule 18 of the Rules of Court leaves no room for equivocation; appearance of
parties and their counsel at the pre-trial conference, along with the filing of a
corresponding pre-trial brief, is mandatory, nay, their duty. Thus, Section 4 and
Section 6 thereof provide:
SEC. 4. Appearance of parties.It shall be the duty of the parties and their
counsel to appear at the pre-trial. The non-appearance of a party may be
excused only if a valid cause is shown therefor or if a representative
shall appear in his behalf fully authorized in writing to enter into an
amicable settlement, to submit to alternative modes of dispute resolution,
and to enter into stipulations or admissions of facts and documents.
SEC. 6. Pre-trial brief.The parties shall file with the court and serve on
the adverse party, in such manner as shall ensure their receipt thereof at
least three (3) days before the date of the pre-trial, their respective pretrial briefs which shall contain, among others:
xxxx
Failure to file the pre-trial brief shall have the same effect as failure to
appear at the pre-trial.

Contrary to the foregoing rules, petitioner and its counsel of record were not
present at the scheduled pre-trial conference. Worse, they did not file a pre-trial
brief. Their non-appearance cannot be excused as Section 4, in relation to Section
6, allows only two exceptions: (1) a valid excuse; and (2) appearance of a
representative on behalf of a party who is fully authorized in writing to enter into
an amicable settlement, to submit to alternative modes of dispute resolution, and to
enter into stipulations or admissions of facts and documents.
Petitioner is adamant and harps on the fact that November 28, 2003 was merely the
first scheduled date for the pre-trial conference, and a certain Atty. Mejia appeared
on its behalf. However, its assertion is belied by its own admission that, on said
date, this Atty. Mejia did not have in his possession the Special Power of Attorney
issued by petitioners Board of Directors.
As pointed out by the CA, petitioner, through Atty. Lee, received the notice of pretrial on October 27, 2003, thirty-two (32) days prior to the scheduled conference.
In that span of time, Atty. Lee, who was charged with the duty of notifying
petitioner of the scheduled pre-trial conference, [8] petitioner, and Atty. Mejia should
have discussed which lawyer would appear at the pre-trial conference with
petitioner, armed with the appropriate authority therefor. Sadly, petitioner failed to
comply with not just one rule; it also did not proffer a reason why it likewise failed
to file a pre-trial brief. In all, petitioner has not shown any persuasive reason why it
should be exempt from abiding by the rules.
The appearance of Atty. Mejia at the pre-trial conference, without a pre-trial brief
and with only his bare allegation that he is counsel for petitioner, was correctly
rejected by the trial court. Accordingly, the trial court, as affirmed by the appellate
court, did not err in allowing respondent to present evidence ex-parte.
Former Chief Justice Andres R. Narvasas words continue to resonate, thus:
Everyone knows that a pre-trial in civil actions is mandatory, and has
been so since January 1, 1964. Yet to this day its place in the scheme of
things is not fully appreciated, and it receives but perfunctory treatment
in many courts. Some courts consider it a mere technicality, serving no
useful purpose save perhaps, occasionally to furnish ground for non-

suiting the plaintiff, or declaring a defendant in default, or, wistfully, to


bring about a compromise. The pre-trial device is not thus put to full use.
Hence, it has failed in the main to accomplish the chief objective for it:
the simplification, abbreviation and expedition of the trial, if not indeed
its dispensation. This is a great pity, because the objective is attainable,
and with not much difficulty, if the device were more intelligently and
extensively handled.
xxxx
Consistently with the mandatory character of the pre-trial, the
Rules oblige not only the lawyers but the parties as well to appear for
this purpose before the Court, and when a party fails to appear at a pretrial conference (he) may be non-suited or considered as in default. The
obligation to appear denotes not simply the personal appearance, or the
mere physical presentation by a party of ones self, but connotes as
importantly, preparedness to go into the different subject assigned by law
to a pre-trial. And in those instances where a party may not himself be
present at the pre-trial, and another person substitutes for him, or his
lawyer undertakes to appear not only as an attorney but in substitution of
the clients person, it is imperative for that representative of the lawyer to
have special authority to make such substantive agreements as only the
client otherwise has capacity to make. That special authority should
ordinarily be in writing or at the very least be duly established by
evidence other than the self-serving assertion of counsel (or the
proclaimed representative) himself. Without that special authority, the
lawyer or representative cannot be deemed capacitated to appear in place
of the party; hence, it will be considered that the latter has failed to put in
an appearance at all, and he [must] therefore be non-suited or considered
as in default, notwithstanding his lawyers or delegates presence. [9]

We are not unmindful that defendants (petitioners) preclusion from presenting


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

In this case, respondent substantiated the allegations in its complaint, i.e., a


contract of necessary deposit existed between the insured See and petitioner. On
this score, we find no error in the following disquisition of the appellate court:
[The] records also reveal that upon arrival at the City Garden Hotel, See
gave notice to the doorman and parking attendant of the said hotel, x x x
Justimbaste, about his Vitara when he entrusted its ignition key to the
latter. x x x Justimbaste issued a valet parking customer claim stub to
See, parked the Vitara at the Equitable PCI Bank parking area, and
placed the ignition key inside a safety key box while See proceeded to
the hotel lobby to check in. The Equitable PCI Bank parking area
became an annex of City Garden Hotel when the management of the said
bank allowed the parking of the vehicles of hotel guests thereat in the
evening after banking hours.[11]

Article 1962, in relation to Article 1998, of the Civil Code defines a contract of
deposit and a necessary deposit made by persons in hotels or inns:
Art. 1962. A deposit is constituted from the moment a person
receives a thing belonging to another, with the obligation of safely
keeping it and returning the same. If the safekeeping of the thing
delivered is not the principal purpose of the contract, there is no deposit
but some other contract.
Art. 1998. The deposit of effects made by travelers in hotels or inns shall
also be regarded as necessary. The keepers of hotels or inns shall be
responsible for them as depositaries, provided that notice was given to
them, or to their employees, of the effects brought by the guests and that,
on the part of the latter, they take the precautions which said hotelkeepers or their substitutes advised relative to the care and vigilance of
their effects.

Plainly, from the facts found by the lower courts, the insured See deposited his
vehicle for safekeeping with petitioner, through the latters employee, Justimbaste.
In turn, Justimbaste issued a claim stub to See. Thus, the contract of deposit was
perfected from Sees delivery, when he handed over to Justimbaste the keys to his
vehicle, which Justimbaste received with the obligation of safely keeping and
returning it. Ultimately, petitioner is liable for the loss of Sees vehicle.

Lastly, petitioner assails the lower courts award of attorneys fees to


respondent in the amount of P120,000.00. Petitioner claims that the award is not
substantiated by the evidence on record.
We disagree.
While it is a sound policy not to set a premium on the right to litigate, [12] we
find that respondent is entitled to reasonable attorneys fees. Attorneys fees may be
awarded when a party is compelled to litigate or incur expenses to protect its
interest,[13] or when the court deems it just and equitable.[14] In this case, petitioner
refused to answer for the loss of Sees vehicle, which was deposited with it for
safekeeping. This refusal constrained respondent, the insurer of See, and
subrogated to the latters right, to litigate and incur expenses. However, we reduce
the award of P120,000.00 to P60,000.00 in view of the simplicity of the issues
involved in this case.
WHEREFORE, the petition is DENIED. The Decision of the Court of
Appeals
in
CA-G.R.
CV
No.
86869
is AFFIRMED with
the MODIFICATION that the award of attorneys fees is reduced to P60,000.00.
Costs against petitioner.
SO ORDERED.
G.R. No. L-60033 April 4, 1984
TEOFISTO GUINGONA, JR., ANTONIO I. MARTIN, and TERESITA SANTOS, petitioners,
vs.
THE CITY FISCAL OF MANILA, HON. JOSE B. FLAMINIANO, ASST. CITY FISCAL FELIZARDO
N. LOTA and CLEMENT DAVID, respondents.

MAKASIAR, Actg. C.J.:

+.wph!1

This is a petition for prohibition and injunction with a prayer for the immediate issuance of restraining
order and/or writ of preliminary injunction filed by petitioners on March 26, 1982.
On March 31, 1982, by virtue of a court resolution issued by this Court on the same date, a
temporary restraining order was duly issued ordering the respondents, their officers, agents,
representatives and/or person or persons acting upon their (respondents') orders or in their place or

stead to refrain from proceeding with the preliminary investigation in Case No. 8131938 of the Office
of the City Fiscal of Manila (pp. 47-48, rec.). On January 24, 1983, private respondent Clement
David filed a motion to lift restraining order which was denied in the resolution of this Court dated
May 18, 1983.
As can be gleaned from the above, the instant petition seeks to prohibit public respondents from
proceeding with the preliminary investigation of I.S. No. 81-31938, in which petitioners were charged
by private respondent Clement David, with estafa and violation of Central Bank Circular No. 364 and
related regulations regarding foreign exchange transactions principally, on the ground of lack of
jurisdiction in that the allegations of the charged, as well as the testimony of private respondent's
principal witness and the evidence through said witness, showed that petitioners' obligation is civil in
nature.
For purposes of brevity, We hereby adopt the antecedent facts narrated by the Solicitor General in
its Comment dated June 28,1982, as follows:
t.hqw

On December 23,1981, private respondent David filed I.S. No. 81-31938 in the Office
of the City Fiscal of Manila, which case was assigned to respondent Lota for
preliminary investigation (Petition, p. 8).
In I.S. No. 81-31938, David charged petitioners (together with one Robert Marshall
and the following directors of the Nation Savings and Loan Association, Inc., namely
Homero Gonzales, Juan Merino, Flavio Macasaet, Victor Gomez, Jr., Perfecto
Manalac, Jaime V. Paz, Paulino B. Dionisio, and one John Doe) with estafa and
violation of Central Bank Circular No. 364 and related Central Bank regulations on
foreign exchange transactions, allegedly committed as follows (Petition, Annex "A"):

t.hqw

"From March 20, 1979 to March, 1981, David invested with the
Nation Savings and Loan Association, (hereinafter called NSLA) the
sum of P1,145,546.20 on nine deposits, P13,531.94 on savings
account deposits (jointly with his sister, Denise Kuhne),
US$10,000.00 on time deposit, US$15,000.00 under a receipt and
guarantee of payment and US$50,000.00 under a receipt dated June
8, 1980 (au jointly with Denise Kuhne), that David was induced into
making the aforestated investments by Robert Marshall an Australian
national who was allegedly a close associate of petitioner Guingona
Jr., then NSLA President, petitioner Martin, then NSLA Executive
Vice-President of NSLA and petitioner Santos, then NSLA General
Manager; that on March 21, 1981 N LA was placed under
receivership by the Central Bank, so that David filed claims therewith
for his investments and those of his sister; that on July 22, 1981
David received a report from the Central Bank that only P305,821.92
of those investments were entered in the records of NSLA; that,
therefore, the respondents in I.S. No. 81-31938 misappropriated the
balance of the investments, at the same time violating Central Bank
Circular No. 364 and related Central Bank regulations on foreign

exchange transactions; that after demands, petitioner Guingona Jr.


paid only P200,000.00, thereby reducing the amounts
misappropriated to P959,078.14 and US$75,000.00."
Petitioners, Martin and Santos, filed a joint counter-affidavit (Petition, Annex' B') in
which they stated the following.
t.hqw

"That Martin became President of NSLA in March 1978 (after the


resignation of Guingona, Jr.) and served as such until October 30,
1980, while Santos was General Manager up to November 1980; that
because NSLA was urgently in need of funds and at David's
insistence, his investments were treated as special- accounts with
interest above the legal rate, an recorded in separate confidential
documents only a portion of which were to be reported because he
did not want the Australian government to tax his total earnings (nor)
to know his total investments; that all transactions with David were
recorded except the sum of US$15,000.00 which was a personal loan
of Santos; that David's check for US$50,000.00 was cleared through
Guingona, Jr.'s dollar account because NSLA did not have one, that a
draft of US$30,000.00 was placed in the name of one Paz Roces
because of a pending transaction with her; that the Philippine Deposit
Insurance Corporation had already reimbursed David within the legal
limits; that majority of the stockholders of NSLA had filed Special
Proceedings No. 82-1695 in the Court of First Instance to contest its
(NSLA's) closure; that after NSLA was placed under receivership,
Martin executed a promissory note in David's favor and caused the
transfer to him of a nine and on behalf (9 1/2) carat diamond ring with
a net value of P510,000.00; and, that the liabilities of NSLA to David
were civil in nature."
Petitioner, Guingona, Jr., in his counter-affidavit (Petition, Annex' C') stated the
following:
t.hqw

"That he had no hand whatsoever in the transactions between David


and NSLA since he (Guingona Jr.) had resigned as NSLA president in
March 1978, or prior to those transactions; that he assumed a portion
o; the liabilities of NSLA to David because of the latter's insistence
that he placed his investments with NSLA because of his faith in
Guingona, Jr.; that in a Promissory Note dated June 17, 1981
(Petition, Annex "D") he (Guingona, Jr.) bound himself to pay David
the sums of P668.307.01 and US$37,500.00 in stated installments;
that he (Guingona, Jr.) secured payment of those amounts with
second mortgages over two (2) parcels of land under a deed of
Second Real Estate Mortgage (Petition, Annex "E") in which it was
provided that the mortgage over one (1) parcel shall be cancelled
upon payment of one-half of the obligation to David; that he

(Guingona, Jr.) paid P200,000.00 and tendered another P300,000.00


which David refused to accept, hence, he (Guingona, Jr.) filed Civil
Case No. Q-33865 in the Court of First Instance of Rizal at Quezon
City, to effect the release of the mortgage over one (1) of the two
parcels of land conveyed to David under second mortgages."
At the inception of the preliminary investigation before respondent Lota, petitioners
moved to dismiss the charges against them for lack of jurisdiction because David's
claims allegedly comprised a purely civil obligation which was itself novated. Fiscal
Lota denied the motion to dismiss (Petition, p. 8).
But, after the presentation of David's principal witness, petitioners filed the instant
petition because: (a) the production of the Promisory Notes, Banker's Acceptance,
Certificates of Time Deposits and Savings Account allegedly showed that the
transactions between David and NSLA were simple loans, i.e., civil obligations on the
part of NSLA which were novated when Guingona, Jr. and Martin assumed them;
and (b) David's principal witness allegedly testified that the duplicate originals of the
aforesaid instruments of indebtedness were all on file with NSLA, contrary to David's
claim that some of his investments were not record (Petition, pp. 8-9).
Petitioners alleged that they did not exhaust available administrative remedies
because to do so would be futile (Petition, p. 9) [pp. 153-157, rec.].
As correctly pointed out by the Solicitor General, the sole issue for resolution is whether public
respondents acted without jurisdiction when they investigated the charges (estafa and violation of
CB Circular No. 364 and related regulations regarding foreign exchange transactions) subject matter
of I.S. No. 81-31938.
There is merit in the contention of the petitioners that their liability is civil in nature and therefore,
public respondents have no jurisdiction over the charge of estafa.
A casual perusal of the December 23, 1981 affidavit. complaint filed in the Office of the City Fiscal of
Manila by private respondent David against petitioners Teopisto Guingona, Jr., Antonio I. Martin and
Teresita G. Santos, together with one Robert Marshall and the other directors of the Nation Savings
and Loan Association, will show that from March 20, 1979 to March, 1981, private respondent David,
together with his sister, Denise Kuhne, invested with the Nation Savings and Loan Association the
sum of P1,145,546.20 on time deposits covered by Bankers Acceptances and Certificates of Time
Deposits and the sum of P13,531.94 on savings account deposits covered by passbook nos. 6-632
and 29-742, or a total of P1,159,078.14 (pp. 15-16, roc.). It appears further that private respondent
David, together with his sister, made investments in the aforesaid bank in the amount of
US$75,000.00 (p. 17, rec.).
Moreover, the records reveal that when the aforesaid bank was placed under receivership on March
21, 1981, petitioners Guingona and Martin, upon the request of private respondent David, assumed
the obligation of the bank to private respondent David by executing on June 17, 1981 a joint
promissory note in favor of private respondent acknowledging an indebtedness of Pl,336,614.02 and

US$75,000.00 (p. 80, rec.). This promissory note was based on the statement of account as of June
30, 1981 prepared by the private respondent (p. 81, rec.). The amount of indebtedness assumed
appears to be bigger than the original claim because of the added interest and the inclusion of other
deposits of private respondent's sister in the amount of P116,613.20.
Thereafter, or on July 17, 1981, petitioners Guingona and Martin agreed to divide the said
indebtedness, and petitioner Guingona executed another promissory note antedated to June 17,
1981 whereby he personally acknowledged an indebtedness of P668,307.01 (1/2 of P1,336,614.02)
and US$37,500.00 (1/2 of US$75,000.00) in favor of private respondent (p. 25, rec.). The aforesaid
promissory notes were executed as a result of deposits made by Clement David and Denise Kuhne
with the Nation Savings and Loan Association.
Furthermore, the various pleadings and documents filed by private respondent David, before this
Court indisputably show that he has indeed invested his money on time and savings deposits with
the Nation Savings and Loan Association.
It must be pointed out that when private respondent David invested his money on nine. and savings
deposits with the aforesaid bank, the contract that was perfected was a contract of simple loan
or mutuum and not a contract of deposit. Thus, Article 1980 of the New Civil Code provides that:
t.hqw

Article 1980. Fixed, savings, and current deposits of-money in banks and similar
institutions shall be governed by the provisions concerning simple loan.
In the case of Central Bank of the Philippines vs. Morfe (63 SCRA 114,119 [1975], We said:

t.hqw

It should be noted that fixed, savings, and current deposits of money in banks and
similar institutions are hat true deposits. are considered simple loans and, as such,
are not preferred credits (Art. 1980 Civil Code; In re Liquidation of Mercantile Batik of
China Tan Tiong Tick vs. American Apothecaries Co., 66 Phil 414; Pacific Coast
Biscuit Co. vs. Chinese Grocers Association 65 Phil. 375; Fletcher American National
Bank vs. Ang Chong UM 66 PWL 385; Pacific Commercial Co. vs. American
Apothecaries Co., 65 PhiL 429; Gopoco Grocery vs. Pacific Coast Biscuit CO.,65
Phil. 443)."
This Court also declared in the recent case of Serrano vs. Central Bank of the Philippines (96 SCRA
102 [1980]) that:
t.hqw

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 (Art. 1980 Civil Code
Gullas vs. Phil. National Bank, 62 Phil. 519). Current and saving deposits, are loans
to a bank because it can use the same. The petitioner here in making time deposits
that earn interests will respondent Overseas Bank of Manila was in reality a creditor
of the respondent Bank and not a depositor. The respondent Bank was in turn a
debtor of petitioner. Failure of the respondent Bank to honor the time deposit is

failure to pay its obligation as a debtor and not a breach of trust arising from a
depositary's failure to return the subject matter of the deposit (Emphasis supplied).
Hence, the relationship between the private respondent and the Nation Savings and Loan
Association is that of creditor and debtor; consequently, the ownership of the amount deposited was
transmitted to the Bank upon the perfection of the contract and it can make use of the amount
deposited for its banking operations, such as to pay interests on deposits and to pay withdrawals.
While the Bank has the obligation to return the amount deposited, it has, however, no obligation to
return or deliver the same money that was deposited. And, the failure of the Bank to return the
amount deposited will not constitute estafa through misappropriation punishable under Article 315,
par. l(b) of the Revised Penal Code, but it will only give rise to civil liability over which the public
respondents have no- jurisdiction.
WE have already laid down the rule that:

t.hqw

In order that a person can be convicted under the above-quoted provision, it must be
proven that he has the obligation to deliver or return the some money, goods or
personal property that he receivedPetitioners had no such obligation to return the
same money, i.e., the bills or coins, which they received from private respondents.
This is so because as clearly as stated in criminal complaints, the related civil
complaints and the supporting sworn statements, the sums of money that petitioners
received were loans.
The nature of simple loan is defined in Articles 1933 and 1953 of the Civil Code.

t.hqw

"Art. 1933. By the contract of loan, one of the parties delivers to


another, either something not consumable so that the latter may use
the same for a certain time- and return it, in which case the contract is
called a commodatum; or money or other consumable thing, upon
the condition that the same amount of the same kind and quality shall
he paid in which case the contract is simply called a loan or mutuum.
"Commodatum is essentially gratuitous.
"Simple loan may be gratuitous or with a stipulation to pay interest.
"In commodatum the bailor retains the ownership of the thing loaned
while in simple loan, ownership passes to the borrower.
"Art. 1953. A person who receives a loan of money or any other
fungible thing acquires the ownership thereof, and is bound to pay to
the creditor an equal amount of the same kind and quality."
It can be readily noted from the above-quoted provisions that in simple loan
(mutuum), as contrasted to commodatum the borrower acquires ownership of the
money, goods or personal property borrowed Being the owner, the borrower can

dispose of the thing borrowed (Article 248, Civil Code) and his act will not be
considered misappropriation thereof' (Yam vs. Malik, 94 SCRA 30, 34 [1979];
Emphasis supplied).
But even granting that the failure of the bank to pay the time and savings deposits of private
respondent David would constitute a violation of paragraph 1(b) of Article 315 of the Revised Penal
Code, nevertheless any incipient criminal liability was deemed avoided, because when the aforesaid
bank was placed under receivership by the Central Bank, petitioners Guingona and Martin assumed
the obligation of the bank to private respondent David, thereby resulting in the novation of the
original contractual obligation arising from deposit into a contract of loan and converting the original
trust relation between the bank and private respondent David into an ordinary debtor-creditor relation
between the petitioners and private respondent. Consequently, the failure of the bank or petitioners
Guingona and Martin to pay the deposits of private respondent would not constitute a breach of trust
but would merely be a failure to pay the obligation as a debtor.
Moreover, while it is true that novation does not extinguish criminal liability, it may however, prevent
the rise of criminal liability as long as it occurs prior to the filing of the criminal information in court.
Thus, in Gonzales vs. Serrano ( 25 SCRA 64, 69 [1968]) We held that:
t.hqw

As pointed out in People vs. Nery, novation prior to the filing of the criminal
information as in the case at bar may convert the relation between the parties
into an ordinary creditor-debtor relation, and place the complainant in estoppel to
insist on the original transaction or "cast doubt on the true nature" thereof.
Again, in the latest case of Ong vs. Court of Appeals (L-58476, 124 SCRA 578, 580-581 [1983] ),
this Court reiterated the ruling in People vs. Nery ( 10 SCRA 244 [1964] ), declaring that:
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The novation theory may perhaps apply prior to the filling of the criminal information
in court by the state prosecutors because up to that time the original trust relation
may be converted by the parties into an ordinary creditor-debtor situation, thereby
placing the complainant in estoppel to insist on the original trust. But after the justice
authorities have taken cognizance of the crime and instituted action in court, the
offended party may no longer divest the prosecution of its power to exact the criminal
liability, as distinguished from the civil. The crime being an offense against the state,
only the latter can renounce it (People vs. Gervacio, 54 Off. Gaz. 2898; People vs.
Velasco, 42 Phil. 76; U.S. vs. Montanes, 8 Phil. 620).
It may be observed in this regard that novation is not one of the means recognized
by the Penal Code whereby criminal liability can be extinguished; hence, the role of
novation may only be to either prevent the rise of criminal habihty or to cast doubt on
the true nature of the original basic transaction, whether or not it was such that its
breach would not give rise to penal responsibility, as when money loaned is made to
appear as a deposit, or other similar disguise is resorted to (cf. Abeto vs. People, 90
Phil. 581; U.S. vs. Villareal, 27 Phil. 481).

In the case at bar, there is no dispute that petitioners Guingona and Martin executed a promissory
note on June 17, 1981 assuming the obligation of the bank to private respondent David; while the
criminal complaint for estafa was filed on December 23, 1981 with the Office of the City Fiscal.
Hence, it is clear that novation occurred long before the filing of the criminal complaint with the Office
of the City Fiscal.
Consequently, as aforestated, any incipient criminal liability would be avoided but there will still be a
civil liability on the part of petitioners Guingona and Martin to pay the assumed obligation.
Petitioners herein were likewise charged with violation of Section 3 of Central Bank Circular No. 364
and other related regulations regarding foreign exchange transactions by accepting foreign currency
deposit in the amount of US$75,000.00 without authority from the Central Bank. They contend
however, that the US dollars intended by respondent David for deposit were all converted into
Philippine currency before acceptance and deposit into Nation Savings and Loan Association.
Petitioners' contention is worthy of behelf for the following reasons:
1. It appears from the records that when respondent David was about to make a deposit of bank
draft issued in his name in the amount of US$50,000.00 with the Nation Savings and Loan
Association, the same had to be cleared first and converted into Philippine currency. Accordingly, the
bank draft was endorsed by respondent David to petitioner Guingona, who in turn deposited it to his
dollar account with the Security Bank and Trust Company. Petitioner Guingona merely
accommodated the request of the Nation Savings and loan Association in order to clear the bank
draft through his dollar account because the bank did not have a dollar account. Immediately after
the bank draft was cleared, petitioner Guingona authorized Nation Savings and Loan Association to
withdraw the same in order to be utilized by the bank for its operations.
2. It is safe to assume that the U.S. dollars were converted first into Philippine pesos before they
were accepted and deposited in Nation Savings and Loan Association, because the bank is
presumed to have followed the ordinary course of the business which is to accept deposits in
Philippine currency only, and that the transaction was regular and fair, in the absence of a clear and
convincing evidence to the contrary (see paragraphs p and q,Sec. 5, Rule 131, Rules of Court).
3. Respondent David has not denied the aforesaid contention of herein petitioners despite the fact
that it was raised. in petitioners' reply filed on May 7, 1982 to private respondent's comment and in
the July 27, 1982 reply to public respondents' comment and reiterated in petitioners' memorandum
filed on October 30, 1982, thereby adding more support to the conclusion that the US$75,000.00
were really converted into Philippine currency before they were accepted and deposited into Nation
Savings and Loan Association. Considering that this might adversely affect his case, respondent
David should have promptly denied petitioners' allegation.
In conclusion, considering that the liability of the petitioners is purely civil in nature and that there is
no clear showing that they engaged in foreign exchange transactions, We hold that the public
respondents acted without jurisdiction when they investigated the charges against the petitioners.
Consequently, public respondents should be restrained from further proceeding with the criminal
case for to allow the case to continue, even if the petitioners could have appealed to the Ministry of

Justice, would work great injustice to petitioners and would render meaningless the proper
administration of justice.
While as a rule, the prosecution in a criminal offense cannot be the subject of prohibition and
injunction, this court has recognized the resort to the extraordinary writs of prohibition and injunction
in extreme cases, thus:
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On the issue of whether a writ of injunction can restrain the proceedings in Criminal
Case No. 3140, the general rule is that "ordinarily, criminal prosecution may not be
blocked by court prohibition or injunction." Exceptions, however, are allowed in the
following instances:
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"1. for the orderly administration of justice;


"2. to prevent the use of the strong arm of the law in an oppressive
and vindictive manner;
"3. to avoid multiplicity of actions;
"4. to afford adequate protection to constitutional rights;
"5. in proper cases, because the statute relied upon is
unconstitutional or was held invalid" ( Primicias vs. Municipality of
Urdaneta, Pangasinan, 93 SCRA 462, 469-470 [1979]; citing Ramos
vs. Torres, 25 SCRA 557 [1968]; and Hernandez vs. Albano, 19
SCRA 95, 96 [1967]).
Likewise, in Lopez vs. The City Judge, et al. ( 18 SCRA 616, 621-622 [1966]), We held that:

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The writs of certiorari and prohibition, as extraordinary legal remedies, are in the
ultimate analysis, intended to annul void proceedings; to prevent the unlawful and
oppressive exercise of legal authority and to provide for a fair and orderly
administration of justice. Thus, in Yu Kong Eng vs. Trinidad, 47 Phil. 385, We took
cognizance of a petition for certiorari and prohibition although the accused in the
case could have appealed in due time from the order complained of, our action in the
premises being based on the public welfare policy the advancement of public policy.
In Dimayuga vs. Fajardo, 43 Phil. 304, We also admitted a petition to restrain the
prosecution of certain chiropractors although, if convicted, they could have appealed.
We gave due course to their petition for the orderly administration of justice and to
avoid possible oppression by the strong arm of the law. And inArevalo vs.
Nepomuceno, 63 Phil. 627, the petition for certiorari challenging the trial court's
action admitting an amended information was sustained despite the availability of
appeal at the proper time.

WHEREFORE, THE PETITION IS HEREBY GRANTED; THE TEMPORARY RESTRAINING


ORDER PREVIOUSLY ISSUED IS MADE PERMANENT. COSTS AGAINST THE PRIVATE
RESPONDENT.
SO ORDERED.

1wph1.t