Page 36 of 37
Republic of the PhilippinesSUPREME COURTManilaEN BANCG.R. No.
4015 August 24, 1908ANGEL JAVELLANA,plaintiff-appellee,vs.JOSE LIM,
ET AL.,defendants-appellants.R. Zaldarriaga for appellants.B.
Montinola for appellee.TORRES,J.:The attorney for the plaintiff,
Angel Javellana, file a complaint on the 30th of October, 1906,
with the Court of First Instance of Iloilo, praying that the
defendants, Jose Lim and Ceferino Domingo Lim, he sentenced to
jointly and severally pay the sum of P2,686.58, with interest
thereon at the rate of 15 per cent per annum from the 20th of
January, 1898, until full payment should be made, deducting from
the amount of interest due the sum of P1,102.16, and to pay the
costs of the proceedings.Authority from the court having been
previously obtained, the complaint was amended on the 10th of
January, 1907; it was then alleged, on the 26th of May, 1897, the
defendants executed and subscribed a document in favor of the
plaintiff reading as follows:We have received from Angel Javellana,
as a deposit without interest, the sum of two thousand six hundred
and eighty-six cents ofpesos fuertes, which we will return to the
said gentleman, jointly and severally, on the 20th of January,
1898. Jaro, 26th of May, 1897. Signed Jose Lim. Signed: Ceferino
Domingo Lim.That, when the obligation became due, the defendants
begged the plaintiff for an extension of time for the payment
thereof, building themselves to pay interest at the rate of 15 per
cent on the amount of their indebtedness, to which the plaintiff
acceded; that on the 15th of May, 1902, the debtors paid on account
of interest due the sum of P1,000 pesos, with the exception of
either capital or interest, had thereby been subjected to loss and
damages.A demurrer to the original complaint was overruled, and on
the 4th of January, 1907, the defendants answered the original
complaint before its amendment, setting forth that they
acknowledged the facts stated in Nos. 1 and 2 of the complaint;
that they admitted the statements of the plaintiff relative to the
payment of 1,102.16 pesos made on the 15th of November, 1902, not,
however, as payment of interest on the amount stated in the
foregoing document, but on account of the principal, and denied
that there had been any agreement as to an extension of the time
for payment and the payment of interest at the rate of 15 per cent
per annum as alleged in paragraph 3 of the complaint, and also
denied all the other statements contained therein.As a
counterclaim, the defendants alleged that they had paid to the
plaintiff sums which, together with the P1,102.16 acknowledged in
the complaint, aggregated the total sum of P5,602.16, and that,
deducting therefrom the total sum of P2,686.58 stated in the
document transcribed in the complaint, the plaintiff still owed the
defendants P2,915.58; therefore, they asked that judgment be
entered absolving them, and sentencing the plaintiff to pay them
the sum of P2,915.58 with the costs.Evidence was adduced by both
parties and, upon their exhibits, together with an account book
having been made of record, the court below rendered judgment on
the 15th of January, 1907, in favor of the plaintiff for the
recovery of the sum of P5,714.44 and costs.The defendants excepted
to the above decision and moved for a new trial. This motion was
overruled and was also excepted to by them; the bill of exceptions
presented by the appellants having been approved, the same was in
due course submitted to this court.The document of indebtedness
inserted in the complaint states that the plaintiff left on deposit
with the defendants a given sum of money which they were jointly
and severally obliged to return on a certain date fixed in the
document; but that, nevertheless, when the document appearing as
Exhibits 2, written in the Visayan dialect and followed by a
translation into Spanish was executed, it was acknowledged, at the
date thereof, the 15th of November, 1902, that the amount deposited
had not yet been returned to the creditor, whereby he was subjected
to losses and damages amounting to 830 pesos since the 20th of
January, 1898, when the return was again stipulated with the
further agreement that the amount deposited should bear interest at
the rate of 15 per cent per annum, from the aforesaid date of
January 20, and that the 1,000 pesos paid to the depositor on the
15th of May, 1900, according to the receipt issued by him to the
debtors, would be included, and that the said rate of interest
would obtain until the debtors on the 20th of May, 1897, it is
called a deposit consisted, and they could have accomplished the
return agreed upon by the delivery of a sum equal to the one
received by them. For this reason it must be understood that the
debtors were lawfully authorized to make use of the amount
deposited, which they have done, as subsequent shown when asking
for an extension of the time for the return thereof, inasmuch as,
acknowledging that they have subjected the letter, their creditor,
to losses and damages for not complying with what had been
stipulated, and being conscious that they had used, for their own
profit and gain, the money that they received apparently as a
deposit, they engaged to pay interest to the creditor from the date
named until the time when the refund should be made. Such conduct
on the part of the debtors is unquestionable evidence that the
transaction entered into between the interested parties was not a
deposit, but a real contract of loan.Article 1767 of the Civil Code
provides that The depository cannot make use of the thing deposited
without the express permission of the depositor.Otherwise he shall
be liable for losses and damages.Article 1768 also provides that
When the depository has permission to make use of the thing
deposited, the contract loses the character of a deposit and
becomes a loan or bailment.The permission shall not be presumed,
and its existence must be proven.When on one of the latter days of
January, 1898, Jose Lim went to the office of the creditor asking
for an extension of one year, in view of the fact the money was
scare, and because neither himself nor the other defendant were
able to return the amount deposited, for which reason he agreed to
pay interest at the rate of 15 per cent per annum, it was because,
as a matter of fact, he did not have in his possession the amount
deposited, he having made use of the same in his business and for
his own profit; and the creditor, by granting them the extension,
evidently confirmed the express permission previously given to use
and dispose of the amount stated as having been deposited, which,
in accordance with the loan, to all intents and purposes
gratuitously, until the 20th of January, 1898, and from that dated
with interest at 15 per cent per annum until its full payment,
deducting from the total amount of interest the sum of 1,000 pesos,
in accordance with the provisions of article 1173 of the Civil
Code.Notwithstanding that it does not appear that Jose Lim signed
the document (Exhibit 2) executed in the presence of three
witnesses on the 15th of November, 1902, by Ceferino Domingo Lim on
behalf of himself and the former, nevertheless, the said document
has not been contested as false, either by a criminal or by a civil
proceeding, nor has any doubt been cast upon the authenticity of
the signatures of the witnesses who attested the execution of the
same; and from the evidence in the case one is sufficiently
convinced that the said Jose Lim was perfectly aware of and
authorized his joint codebtor to liquidate the interest, to pay the
sum of 1,000 pesos, on account thereof, and to execute the
aforesaid document No. 2. A true ratification of the original
document of deposit was thus made, and not the least proof is shown
in the record that Jose Lim had ever paid the whole or any part of
the capital stated in the original document, Exhibit 1.If the
amount, together with interest claimed in the complaint, less 1,000
pesos appears as fully established, such is not the case with the
defendant's counterclaim for P5,602.16, because the existence and
certainty of said indebtedness imputed to the plaintiff has not
been proven, and the defendants, who call themselves creditors for
the said amount have not proven in a satisfactory manner that the
plaintiff had received partial payments on account of the same; the
latter alleges with good reason, that they should produce the
receipts which he may have issued, and which he did issue whenever
they paid him any money on account. The plaintiffs allegation that
the two amounts of 400 and 1,200 pesos, referred to in documents
marked "C" and "D" offered in evidence by the defendants, had been
received from Ceferino Domingo Lim on account of other debts of
his, has not been contradicted, and the fact that in the original
complaint the sum of 1,102.16 pesos, was expressed in lieu of 1,000
pesos, the only payment made on account of interest on the amount
deposited according to documents No. 2 and letter "B" above
referred to, was due to a mistake.Moreover, for the reason above
set forth it may, as a matter of course, be inferred that there was
no renewal of the contract deposited converted into a loan,
because, as has already been stated, the defendants received said
amount by virtue of real loan contract under the name of a deposit,
since the so-called bailees were forthwith authorized to dispose of
the amount deposited. This they have done, as has been clearly
shown.The original joint obligation contracted by the defendant
debtor still exists, and it has not been shown or proven in the
proceedings that the creditor had released Joe Lim from complying
with his obligation in order that he should not be sued for or
sentenced to pay the amount of capital and interest together with
his codebtor, Ceferino Domingo Lim, because the record offers
satisfactory evidence against the pretension of Jose Lim, and it
further appears that document No. 2 was executed by the other
debtor, Ceferino Domingo Lim, for himself and on behalf of Jose
Lim; and it has also been proven that Jose Lim, being fully aware
that his debt had not yet been settled, took steps to secure an
extension of the time for payment, and consented to pay interest in
return for the concession requested from the creditor.In view of
the foregoing, and adopting the findings in the judgment appealed
from, it is our opinion that the same should be and is hereby
affirmed with the costs of this instance against the appellant,
provided that the interest agreed upon shall be paid until the
complete liquidation of the debt. So ordered.Arellano, C.J.,
Carson, Willard and Tracey, JJ.,concur.
Republic of the PhilippinesSUPREME COURTManilaEN BANCG.R. Nos.
L-26948 and L-26949 October 8, 1927SILVESTRA
BARON,plaintiff-appellant,vs.PABLO
DAVID,defendant-appellant.AndGUILLERMO
BARON,plaintiff-appellant,vs.PABLO
DAVID,defendant-appellant.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
cross-complaint of the defendant in the second case. They therefore
should not have been taken into account as a credit in favor of the
defendant. Said credit must therefore be likewise of course be
without prejudice to any proper adjustment of the rights of the
parties with respect to these subsequent transactions that they
have heretofore or may hereafter effect.The preceding discussion
disposes of all vital contentions relative to the liability of the
defendant upon the causes of action stated in the complaints. We
proceed therefore now to consider the question of the liability of
the plaintiff Guillermo Baron upon the cross-complaint of Pablo
David in case R. G. No. 26949. In this cross-action the defendant
seek, as the stated in the third paragraph of this opinion, to
recover damages for the wrongful suing out of an attachment by the
plaintiff and the levy of the same upon the defendant's rice mill.
It appears that about two and one-half months after said action was
begun, the plaintiff, Guillermo Baron, asked for an attachment to
be issued against the property of the defendant; and to procure the
issuance of said writ the plaintiff made affidavit to the effect
that the defendant was disposing, or attempting the plaintiff. Upon
this affidavit an attachment was issued as prayed, and on March 27,
1924, it was levied upon the defendant's rice mill, and other
property, real and personal.1awph!l.netUpon attaching the property
the sheriff closed the mill and placed it in the care of a deputy.
Operations were not resumed until September 13, 1924, when the
attachment was dissolved by an order of the court and the defendant
was permitted to resume control. At the time the attachment was
levied there were, in the bodega, more than 20,000 cavans of palay
belonging to persons who held receipts therefor; and in order to
get this grain away from the sheriff, twenty-four of the depositors
found it necessary to submit third-party claims to the sheriff.
When these claims were put in the sheriff notified the plaintiff
that a bond in the amount of P50,000 must be given, otherwise the
grain would be released. The plaintiff, being unable or unwilling
to give this bond, the sheriff surrendered the palay to the
claimants; but the attachment on the rice mill was maintained until
September 13, as above stated, covering a period of one hundred
seventy days during which the mill was idle. The ground upon which
the attachment was based, as set forth in the plaintiff's affidavit
was that the defendant was disposing or attempting to dispose of
his property for the purpose of defrauding the plaintiff. That this
allegation was false is clearly apparent, and not a word of proof
has been submitted in support of the assertion. On the contrary,
the defendant testified that at the time this attachment was
secured he was solvent and could have paid his indebtedness to the
plaintiff if judgment had been rendered against him in ordinary
course. His financial conditions was of course well known to the
plaintiff, who is his uncle. The defendant also states that he had
not conveyed away any of his property, nor had intended to do so,
for the purpose of defrauding the plaintiff. We have before us
therefore a case of a baseless attachment, recklessly sued out upon
a false affidavit and levied upon the defendant's property to his
great and needless damage. That the act of the plaintiff in suing
out the writ was wholly unjustifiable is perhaps also indicated in
the circumstance that the attachment was finally dissolved upon the
motion of the plaintiff himself.The defendant testified that his
mill was accustomed to clean from 400 to 450 cavans of palay per
day, producing 225 cavans of rice of 57 kilos each. The price
charged for cleaning each cavan rice was 30 centavos. The defendant
also stated that the expense of running the mill per day was from
P18 to P25, and that the net profit per day on the mill was more
than P40. As the mill was not accustomed to run on Sundays and
holiday, we estimate that the defendant lost the profit that would
have been earned on not less than one hundred forty work days.
Figuring his profits at P40 per day, which would appear to be a
conservative estimate, the actual net loss resulting from his
failure to operate the mill during the time stated could not have
been less than P5,600. The reasonableness of these figures is also
indicated in the fact that the twenty-four customers who intervened
with third-party claims took out of thecamarin20,000 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.
Republic of the PhilippinesSUPREME COURTManilaTHIRD DIVISIONG.R.
No. L-66826 August 19, 1988BANK OF THE PHILIPPINE
ISLANDS,petitioner,vs.THE INTERMEDIATE APPELLATE COURT and
ZSHORNACKrespondents.Pacis & Reyes Law Office for
petitioner.Ernesto T. Zshornack, Jr. for private
respondent.CORTES,J.:The original parties to this case were Rizaldy
T. Zshornack and the Commercial Bank and Trust Company of the
Philippines [hereafter referred to as "COMTRUST."] In 1980, the
Bank of the Philippine Islands (hereafter referred to as BPI
absorbed COMTRUST through a corporate merger, and was substituted
as party to the case.Rizaldy Zshornack initiated proceedings on
June 28,1976 by filing in the Court of First Instance of Rizal
Caloocan City a complaint against COMTRUST alleging four causes of
action. Except for the third cause of action, the CFI ruled in
favor of Zshornack. The bank appealed to the Intermediate Appellate
Court which modified the CFI decision absolving the bank from
liability on the fourth cause of action. The pertinent portions of
the judgment, as modified, read:IN VIEW OF THE FOREGOING, the Court
renders judgment as follows:1. Ordering the defendant COMTRUST to
restore to the dollar savings account of plaintiff (No. 25-4109)
the amount of U.S $1,000.00 as of October 27, 1975 to earn interest
together with the remaining balance of the said account at the rate
fixed by the bank for dollar deposits under Central Bank Circular
343;2. Ordering defendant COMTRUST to return to the plaintiff the
amount of U.S. $3,000.00 immediately upon the finality of this
decision, without interest for the reason that the said amount was
merely held in custody for safekeeping, but was not actually
deposited with the defendant COMTRUST because being cash currency,
it cannot by law be deposited with plaintiffs dollar account and
defendant's only obligation is to return the same to plaintiff upon
demand;xxx xxx xxx5. Ordering defendant COMTRUST to pay plaintiff
in the amount of P8,000.00 as damages in the concept of litigation
expenses and attorney's fees suffered by plaintiff as a result of
the failure of the defendant bank to restore to his (plaintiffs)
account the amount of U.S. $1,000.00 and to return to him
(plaintiff) the U.S. $3,000.00 cash left for safekeeping.Costs
against defendant COMTRUST.SO ORDERED. [Rollo, pp.
47-48.]Undaunted, the bank comes to this Court praying that it be
totally absolved from any liability to Zshornack. The latter not
having appealed the Court of Appeals decision, the issues facing
this Court are limited to the bank's liability with regard to the
first and second causes of action and its liability for damages.1.
We first consider the first cause of action, On the dates material
to this case, Rizaldy Zshornack and his wife, Shirley Gorospe,
maintained in COMTRUST, Quezon City Branch, a dollar savings
account and a peso current account.On October 27, 1975, an
application for a dollar draft was accomplished by Virgilio V.
Garcia, Assistant Branch Manager of COMTRUST Quezon City, payable
to a certain Leovigilda D. Dizon in the amount of $1,000.00. In the
application, Garcia indicated that the amount was to be charged to
Dollar Savings Acct. No. 25-4109, the savings account of the
Zshornacks; the charges for commission, documentary stamp tax and
others totalling P17.46 were to be charged to Current Acct. No.
210465-29, again, the current account of the Zshornacks. There was
no indication of the name of the purchaser of the dollar draft.On
the same date, October 27,1975, COMTRUST, under the signature of
Virgilio V. Garcia, issued a check payable to the order of
Leovigilda D. Dizon in the sum of US $1,000 drawn on the Chase
Manhattan Bank, New York, with an indication that it was to be
charged to Dollar Savings Acct. No. 25-4109.When Zshornack noticed
the withdrawal of US$1,000.00 from his account, he demanded an
explanation from the bank. In answer, COMTRUST claimed that the
peso value of the withdrawal was given to Atty. Ernesto Zshornack,
Jr., brother of Rizaldy, on October 27, 1975 when he (Ernesto)
encashed with COMTRUST a cashier's check for P8,450.00 issued by
the Manila Banking Corporation payable to Ernesto.Upon
consideration of the foregoing facts, this Court finds no reason to
disturb the ruling of both the trial court and the Appellate Court
on the first cause of action. Petitioner must be held liable for
the unauthorized withdrawal of US$1,000.00 from private
respondent's dollar account.In its desperate attempt to justify its
act of withdrawing from its depositor's savings account, the bank
has adopted inconsistent theories. First, it still maintains that
the peso value of the amount withdrawn was given to Atty. Ernesto
Zshornack, Jr. when the latter encashed the Manilabank Cashier's
Check. At the same time, the bank claims that the withdrawal was
made pursuant to an agreement where Zshornack allegedly authorized
the bank to withdraw from his dollar savings account such amount
which, when converted to pesos, would be needed to fund his peso
current account. If indeed the peso equivalent of the amount
withdrawn from the dollar account was credited to the peso current
account, why did the bank still have to pay Ernesto?At any rate,
both explanations are unavailing. With regard to the first
explanation, petitioner bank has not shown how the transaction
involving the cashier's check is related to the transaction
involving the dollar draft in favor of Dizon financed by the
withdrawal from Rizaldy's dollar account. The two transactions
appear entirely independent of each other. Moreover, Ernesto
Zshornack, Jr., possesses a personality distinct and separate from
Rizaldy Zshornack. Payment made to Ernesto cannot be considered
payment to Rizaldy.As to the second explanation, even if we assume
that there was such an agreement, the evidence do not show that the
withdrawal was made pursuant to it. Instead, the record reveals
that the amount withdrawn was used to finance a dollar draft in
favor of Leovigilda D. Dizon, and not to fund the current account
of the Zshornacks. There is no proof whatsoever that peso Current
Account No. 210-465-29 was ever credited with the peso equivalent
of the US$1,000.00 withdrawn on October 27, 1975 from Dollar
Savings Account No. 25-4109.2. As for the second cause of action,
the complaint filed with the trial court alleged that on December
8, 1975, Zshornack entrusted to COMTRUST, thru Garcia, US
$3,000.00cash(popularly known as greenbacks) forsafekeeping,and
that the agreement was embodied in a document, a copy of which was
attached to and made part of the complaint. The document
reads:Makati Cable Address:Philippines "COMTRUST"COMMERCIAL BANK
AND TRUST COMPANYof the PhilippinesQuezon City BranchDecember 8,
1975MR. RIZALDY T. ZSHORNACK&/OR MRS SHIRLEY E.
ZSHORNACKSir/Madam:We acknowledged (sic) having received from you
today the sum of US DOLLARS: THREE THOUSAND ONLY (US$3,000.00) for
safekeeping.Received by:(Sgd.) VIRGILIO V. GARCIAIt was also
alleged in the complaint that despite demands, the bank refused to
return the money.In its answer, COMTRUST averred that the US$3,000
was credited to Zshornack's peso current account at prevailing
conversion rates.It must be emphasized that COMTRUST did not deny
specifically under oath the authenticity and due execution of the
above instrument.During trial, it was established that on December
8, 1975 Zshornack indeed delivered to the bank US $3,000 for
safekeeping. When he requested the return of the money on May 10,
1976, COMTRUST explained that the sum was disposed of in this
manner: US$2,000.00 was sold on December 29, 1975 and the peso
proceeds amounting to P14,920.00 were deposited to Zshornack's
current account per deposit slip accomplished by Garcia; the
remaining US$1,000.00 was sold on February 3, 1976 and the peso
proceeds amounting to P8,350.00 were deposited to his current
account per deposit slip also accomplished by Garcia.Aside from
asserting that the US$3,000.00 was properly credited to Zshornack's
current account at prevailing conversion rates, BPI now posits
another ground to defeat private respondent's claim. It now argues
that the contract embodied in the document is the contract of
depositum (as defined in Article 1962, New Civil Code), which banks
do not enter into. The bank alleges that Garcia exceeded his powers
when he entered into the transaction. Hence, it is claimed, the
bank cannot be liable under the contract, and the obligation is
purely personal to Garcia.Before we go into the nature of the
contract entered into, an important point which arises on the
pleadings, must be considered.The second cause of action is based
on a document purporting to be signed by COMTRUST, a copy of which
document was attached to the complaint. In short, the second cause
of action was based on an actionable document. It was therefore
incumbent upon the bank to specifically deny under oath the due
execution of the document, as prescribed under Rule 8, Section 8,
if it desired: (1) to question the authority of Garcia to bind the
corporation; and (2) to deny its capacity to enter into such
contract. [See, E.B. Merchant v. International Banking Corporation,
6 Phil. 314 (1906).] No sworn answer denying the due execution of
the document in question, or questioning the authority of Garcia to
bind the bank, or denying the bank's capacity to enter into the
contract, was ever filed. Hence, the bank is deemed to have
admitted not only Garcia's authority, but also the bank's power, to
enter into the contract in question.In the past, this Court had
occasion to explain the reason behind this procedural
requirement.The reason for the rule enunciated in the foregoing
authorities will, we think, be readily appreciated. In dealing with
corporations the public at large is bound to rely to a large extent
upon outward appearances. If a man is found acting for a
corporation with the external indicia of authority, any person, not
having notice of want of authority, may usually rely upon those
appearances; and if it be found that the directors had permitted
the agent to exercise that authority and thereby held him out as a
person competent to bind the corporation, or had acquiesced in a
contract and retained the benefit supposed to have been conferred
by it, the corporation will be bound, notwithstanding the actual
authority may never have been granted... Whether a particular
officer actually possesses the authority which he assumes to
exercise is frequently known to very few, and the proof of it
usually is not readily accessible to the stranger who deals with
the corporation on the faith of the ostensible authority exercised
by some of the corporate officers. It is therefore reasonable, in a
case where an officer of a corporation has made a contract in its
name, that the corporation should be required, if it denies his
authority, to state such defense in its answer. By this means the
plaintiff is apprised of the fact that the agent's authority is
contested; and he is given an opportunity to adduce evidence
showing either that the authority existed or that the contract was
ratified and approved. [Ramirez v. Orientalist Co. and Fernandez,
38 Phil. 634, 645- 646 (1918).]Petitioner's argument must also be
rejected for another reason. The practical effect of absolving a
corporation from liability every time an officer enters into a
contract which is beyond corporate powers, even without the proper
allegation or proof that the corporation has not authorized nor
ratified the officer's act, is to cast corporations in so perfect a
mold that transgressions and wrongs by such artificial beings
become impossible [Bissell v. Michigan Southern and N.I.R. Cos 22
N.Y 258 (1860).] "To say that a corporation has no right to do
unauthorized acts is only to put forth a very plain truism but to
say that such bodies have no power or capacity to err is to impute
to them an excellence which does not belong to any created
existence with which we are acquainted. The distinction between
power and right is no more to be lost sight of in respect to
artificial than in respect to natural persons." [Ibid.]Having
determined that Garcia's act of entering into the contract binds
the corporation, we now determine the correct nature of the
contract, and its legal consequences, including its
enforceability.The document which embodies the contract states that
the US$3,000.00 was received by the bank for safekeeping. The
subsequent acts of the parties also show that the intent of the
parties was really for the bank to safely keep the dollars and to
return it to Zshornack at a later time, Thus, Zshornack demanded
the return of the money on May 10, 1976, or over five months
later.The above arrangement is that contract defined under Article
1962, New Civil Code, which reads:Art. 1962. A deposit is
constituted from the moment a person receives a thing belonging to
another, with the obligation of safely keeping it and of returning
the same. If the safekeeping of the thing delivered is not the
principal purpose of the contract, there is no deposit but some
other contract.Note that the object of the contract between
Zshornack and COMTRUST was foreign exchange. Hence, the transaction
was covered by Central Bank Circular No. 20, Restrictions on Gold
and Foreign Exchange Transactions, promulgated on December 9, 1949,
which was in force at the time the parties entered into the
transaction involved in this case. The circular provides:xxx xxx
xxx2. Transactionsin the assets described below and all dealings in
them of whatever nature, including, where applicable their
exportation and importation,shall NOT be effected, except with
respect to deposit accounts included in sub-paragraphs (b) and (c)
of this paragraph, when such deposit accounts are owned by and in
the name of, banks.(a) Any and all assets, provided they are held
through, in, or with banks or banking institutions located in the
Philippines, includingmoney, checks, drafts, bullions bank drafts,
deposit accounts (demand, time and savings), all debts,
indebtedness or obligations, financial brokers and investment
houses, notes, debentures, stocks, bonds, coupons, bank
acceptances, mortgages, pledges, liens or other rights in the
nature of security,expressed in foreign currencies, or if payable
abroad, irrespective of the currency in which they are expressed,
and belonging to any person, firm, partnership, association, branch
office, agency, company or other unincorporated body or corporation
residing or located within the Philippines;(b) Any and all assets
of the kinds included and/or described in subparagraph (a) above,
whether or not held through, in, or with banks or banking
institutions, and existent within the Philippines, which belong to
any person, firm, partnership, association, branch office, agency,
company or other unincorporated body or corporation not residing or
located within the Philippines;(c) Any and all assets existent
within the Philippines including money, checks, drafts, bullions,
bank drafts, all debts, indebtedness or obligations, financial
securities commonly dealt in by bankers, brokers and investment
houses, notes, debentures, stock, bonds, coupons, bank acceptances,
mortgages, pledges, liens or other rights in the nature of security
expressed in foreign currencies, or if payable abroad, irrespective
of the currency in which they are expressed, and belonging to any
person, firm, partnership, association, branch office, agency,
company or other unincorporated body or corporation residing or
located within the Philippines.xxx xxx xxx4. (a)All receipts of
foreign exchange shall be sold daily to theCentral Bankby those
authorized to deal in foreign exchange. All receipts of foreign
exchange by any person, firm, partnership, association, branch
office, agency, company or other unincorporated body or corporation
shall be sold to the authorized agents of the Central Bank by
therecipients within one business day following the receipt of such
foreign exchange. Any person, firm, partnership, association,
branch office, agency, company or other unincorporated body or
corporation, residing or located within the Philippines, who
acquires on and after the date of this Circular foreign exchange
shall not, unless licensed by the Central Bank, dispose of such
foreign exchange in whole or in part, nor receive less than its
full value, nor delay taking ownership thereof except as such delay
is customary; Provided, further, That within one day upon taking
ownership, or receiving payment, of foreign exchange the
aforementioned persons and entities shall sell such foreign
exchange to designated agents of the Central Bank.xxx xxx xxx8.
Strict observance of the provisions of this Circular is enjoined;
and any person, firm or corporation, foreign or domestic, who being
bound to the observance thereof, or of such other rules,
regulations or directives as may hereafter be issued in
implementation of this Circular, shall fail or refuse to comply
with, or abide by, or shall violate the same, shall besubject to
the penal sanctions provided in the Central Bank Act.xxx xxx
xxxParagraph 4 (a) above was modified by Section 6 of Central Bank
Circular No. 281, Regulations on Foreign Exchange, promulgated on
November 26, 1969 by limiting its coverage to Philippine residents
only. Section 6 provides:SEC. 6. All receipts of foreign exchange
by anyresidentperson, firm, company or corporation shall be sold to
authorized agents of the Central Bank by the recipients within one
business day following the receipt of such foreign exchange.
Anyresidentperson, firm, company or corporationresiding or located
within the Philippines, who acquires foreign exchange shall not,
unless authorized by the Central Bank, dispose of such foreign
exchange in whole or in part, nor receive less than its full value,
nor delay taking ownership thereof except as such delay is
customary; Provided, That, within one business day upon taking
ownership or receiving payment of foreign exchange the
aforementioned persons and entities shall sell such foreign
exchange to the authorized agents of the Central Bank.As earlier
stated, the document and the subsequent acts of the parties show
that they intended the bank to safekeep the foreign exchange, and
return it later to Zshornack, who alleged in his complaint that he
is a Philippine resident. The parties did not intended to sell the
US dollars to the Central Bank within one business day from
receipt. Otherwise, the contract ofdepositumwould never have been
entered into at all.Since the mere safekeeping of the greenbacks,
without selling them to the Central Bank within one business day
from receipt, is a transaction which is not authorized by CB
Circular No. 20, it must be considered as one which falls under the
general class of prohibited transactions. Hence, pursuant to
Article 5 of the Civil Code, it is void, having been executed
against the provisions of a mandatory/prohibitory law. More
importantly, it affords neither of the parties a cause of action
against the other. "When the nullity proceeds from the illegality
of the cause or object of the contract, and the act constitutes a
criminal offense, both parties beingin pari delicto, they shall
have no cause of action against each other. . ." [Art. 1411, New
Civil Code.] The only remedy is one on behalf of the State to
prosecute the parties for violating the law.We thus rule that
Zshornack cannot recover under the second cause of action.3.
Lastly, we find the P8,000.00 awarded by the courtsa quoas damages
in the concept of litigation expenses and attorney's fees to be
reasonable. The award is sustained.WHEREFORE, the decision appealed
from is hereby MODIFIED. Petitioner is ordered to restore to the
dollar savings account of private respondent the amount of
US$1,000.00 as of October 27, 1975 to earn interest at the rate
fixed by the bank for dollar savings deposits. Petitioner is
further ordered to pay private respondent the amount of P8,000.00
as damages. The other causes of action of private respondent are
ordered dismissed.SO ORDERED.
Republic of the PhilippinesSUPREME COURTManilaEN BANCG.R. No.
L-6913 November 21, 1913THE ROMAN CATHOLIC BISHOP OF
JARO,plaintiff-appellee,vs.GREGORIO DE LA PEA, administrator of the
estate of Father Agustin de la Pea,defendant-appellant.J. Lopez
Vito, for appellant.Arroyo and Horrilleno, for
appellee.MORELAND,J.:This is an appeal by the defendant from a
judgment of the Court of First Instance of Iloilo, awarding to the
plaintiff the sum of P6,641, with interest at the legal rate from
the beginning of the action.It is established in this case that the
plaintiff is the trustee of a charitable bequest made for the
construction of a leper hospital and that father Agustin de la Pea
was the duly authorized representative of the plaintiff to receive
the legacy. The defendant is the administrator of the estate of
Father De la Pea.In the year 1898 the books Father De la Pea, as
trustee, showed that he had on hand as such trustee the sum of
P6,641, collected by him for the charitable purposes aforesaid. In
the same year he deposited in his personal account P19,000 in the
Hongkong and Shanghai Bank at Iloilo. Shortly thereafter and during
the war of the revolution, Father De la Pea was arrested by the
military authorities as a political prisoner, and while thus
detained made an order on said bank in favor of the United States
Army officer under whose charge he then was for the sum thus
deposited in said bank. The arrest of Father De la Pea and the
confiscation of the funds in the bank were the result of the claim
of the military authorities that he was an insurgent and that the
funds thus deposited had been collected by him for revolutionary
purposes. The money was taken from the bank by the military
authorities by virtue of such order, was confiscated and turned
over to the Government.While there is considerable dispute in the
case over the question whether the P6,641 of trust funds was
included in the P19,000 deposited as aforesaid, nevertheless, a
careful examination of the case leads us to the conclusion that
said trust funds were a part of the funds deposited and which were
removed and confiscated by the military authorities of the United
States.That branch of the law known in England and America as the
law of trusts had no exact counterpart in the Roman law and has
none under the Spanish law. In this jurisdiction, therefore, Father
De la Pea's liability is determined by those portions of the Civil
Code which relate to obligations. (Book 4, Title 1.)Although the
Civil Code states that "a person obliged to give something is also
bound to preserve it with the diligence pertaining to a good father
of a family" (art. 1094), it also provides, following the principle
of the Roman law,major casus est, cui humana infirmitas resistere
non potest, that "no one shall be liable for events which could not
be foreseen, or which having been foreseen were inevitable, with
the exception of the cases expressly mentioned in the law or those
in which the obligation so declares." (Art. 1105.)By placing the
money in the bank and mixing it with his personal funds De la Pea
did not thereby assume an obligation different from that under
which he would have lain if such deposit had not been made, nor did
he thereby make himself liable to repay the money at all hazards.
If the had been forcibly taken from his pocket or from his house by
the military forces of one of the combatants during a state of war,
it is clear that under the provisions of the Civil Code he would
have been exempt from responsibility. The fact that he placed the
trust fund in the bank in his personal account does not add to his
responsibility. Such deposit did not make him a debtor who must
respond at all hazards.We do not enter into a discussion for the
purpose of determining whether he acted more or less negligently by
depositing the money in the bank than he would if he had left it in
his home; or whether he was more or less negligent by depositing
the money in his personal account than he would have been if he had
deposited it in a separate account as trustee. We regard such
discussion as substantially fruitless, inasmuch as the precise
question is not one of negligence. There was no law prohibiting him
from depositing it as he did and there was no law which changed his
responsibility be reason of the deposit. While it may be true that
one who is under obligation to do or give a thing is in duty bound,
when he sees events approaching the results of which will be
dangerous to his trust, to take all reasonable means and measures
to escape or, if unavoidable, to temper the effects of those
events, we do not feel constrained to hold that, in choosing
between two means equally legal, he is culpably negligent in
selecting one whereas he would not have been if he had selected the
other.The court, therefore, finds and declares that the money which
is the subject matter of this action was deposited by Father De la
Pea in the Hongkong and Shanghai Banking Corporation of Iloilo;
that said money was forcibly taken from the bank by the armed
forces of the United States during the war of the insurrection; and
that said Father De la Pea was not responsible for its loss.The
judgment is therefore reversed, and it is decreed that the
plaintiff shall take nothing by his complaint.Arellano, C.J.,
Torres and Carson, JJ., concur.
Republic of the PhilippinesSUPREME COURTManilaTHIRD DIVISIONG.R.
No. 90027 March 3, 1993CA 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.1After
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 complaint2for 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,3respondent 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.4In due course, the trial court, now designated as
Branch 161 of the Regional Trial Court (RTC) of Pasig, Metro
Manila, rendered a decision5adverse 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.6The 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 reconsideration7having 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.8In
its Decision promulgated on 4 July 1989,9respondent 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 Code10which 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 invokedTolentino vs.
Gonzales11which 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."12The 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.13Its motion for
reconsideration14having 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
thePhilippines.16Accordingly, 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
Jurisprudence17which is supposed to expound on the prevailing rule
in the United States, to wit:The prevailing rule appears to be that
where a safe-deposit company leases a safe-deposit box or safe and
the lessee takes possession of the box or safe and places therein
his securities or other valuables, the relation of bailee and bail
or is created between the parties to the transaction as to such
securities or other valuables; the fact that thesafe-deposit
company does not know, and that it is not expected that it shall
know, the character or description of the property which is
deposited in such safe-deposit box or safe does not change that
relation. That access to the contents of the safe-deposit box can
be had only by the use of a key retained by the lessee ( whether it
is the sole key or one to be used in connection with one retained
by the lessor) does not operate to alter the foregoing rule. The
argument that there is not, in such a case, a delivery of exclusive
possession and control to the deposit company, and that therefore
the situation is entirely different from that of ordinary bailment,
has been generally rejected by the courts, usually on the ground
that as possession must be either in the depositor or in the
company, it should reasonably be considered as in the latter rather
than in the former, since the company is, by the nature of the
contract, given absolute control of access to the property, and the
depositor cannot gain access thereto without the consent and active
participation of the company. . . . (citations omitted).and a
segment from Words and Phrases18which 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 Court20on 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.21This 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
Act23pertinently 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 xxxThe banks shall perform the services permitted
under subsections (a), (b) and (c) of this section asdepositoriesor
as agents. . . .24(emphasis supplied)Note that the primary function
is still found within the parameters of a contract ofdeposit,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 writing25and, 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.26In the absence of any stipulation prescribing the
degree of diligence required, that of a good father of a family is
to be observed.27Hence, 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.28are
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.29Furthermore, condition 13
stands on a wrong premise and is contrary to the actual practice of
the Bank. It is not correct to assert that the Bank has neither the
possession nor control of the contents of the box since in fact,
the safety deposit box itself is located in its premises and is
under its absolute control; moreover, the respondent Bank keeps the
guard key to the said box. As stated earlier, renters cannot open
their respective boxes unless the Bank cooperates by presenting and
using this guard key. Clearly then, to the extent above stated, the
foregoing conditions in the contract in question are void and
ineffective. It has been said:With respect to property deposited in
a safe-deposit box by a customer of a safe-deposit company, the
parties, since the relation is a contractual one, may by special
contract define their respective duties or provide for increasing
or limiting the liability of the deposit company, provided such
contract is not in violation of law or public policy. It must
clearly appear that there actually was such a special contract,
however, in order to vary the ordinary obligations implied by law
from the relationship of the parties; liability of the deposit
company will not be enlarged or restricted by words of doubtful
meaning. The company, in rentingsafe-deposit boxes, cannot exempt
itself from liability for loss of the contents by its own fraud or
negligence or that of its agents or servants, and if a provision of
the contract may be construed as an attempt to do so, it will be
held ineffective for the purpose. Although it has been held that
the lessor of a safe-deposit box cannot limit its liability for
loss of the contents thereof through its own negligence, the view
has been taken that such a lessor may limits its liability to some
extent by agreement or stipulation.30(citations omitted)Thus, we
reach the same conclusion which the Court of Appeals arrived at,
that is, that the petition should be dismissed, but on grounds
quite different from those relied upon by the Court of Appeals. In
the instant case, the respondent Bank's exoneration cannot,
contrary to the holding of the Court of Appeals, be based on or
proceed from a characterization of the impugned contract as a
contract of lease, but rather on the fact that no competent proof
was presented to show that respondent Bank was aware of the
agreement between the petitioner and the Pugaos to the effect that
the certificates of title were withdrawable from the safety deposit
box only upon both parties' joint signatures, and that no evidence
was submitted to reveal that the loss of the certificates of title
was due to the fraud or negligence of the respondent Bank. This in
turn flows from this Court's determination that the contract
involved was one of deposit. Since both the petitioner and the
Pugaos agreed that each should have one (1) renter's key, it was
obvious that either of them could ask the Bank for access to the
safety deposit box and, with the use of such key and the Bank's own
guard key, could open the said box, without the other renter being
present.Since, however, the petitioner cannot be blamed for the
filing of the complaint and no bad faith on its part had been
established, the trial court erred in condemning the petitioner to
pay the respondent Bank attorney's fees. To this extent, the
Decision (dispositive portion) of public respondent Court of
Appeals must be modified.WHEREFORE, the Petition for Review is
partially GRANTED by deleting the award for attorney's fees from
the 4 July 1989 Decision of the respondent Court of Appeals in
CA-G.R. CV No. 15150. As modified, and subject to the pronouncement
We made above on the nature of the relationship between the parties
in a contract of lease of safety deposit boxes, the dispositive
portion of the said Decision is hereby AFFIRMED and the instant
Petition for Review is otherwise DENIED for lack of merit.No
pronouncement as to costs.SO ORDERED.
Republic of the PhilippinesSUPREME COURTManilaSECOND
DIVISIONG.R. No. 126780 February 17, 2005YHT REALTY CORPORATION,
ERLINDA LAINEZ and ANICIA PAYAM,petitioners,vs.THE COURT OF APPEALS
and MAURICE McLOUGHLIN,respondents.D E C I S I O NTINGA,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
theDecision1dated 19 October 1995 of the Court of Appeals which
affirmed theDecision2dated 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 1987.3On 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.4McLoughlin 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.5On 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.6McLoughlin 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.7Since 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.8After 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.9When 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.10When 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.11McLoughlin 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.12Lopez also told McLoughlin that Tan stole
the key assigned to McLoughlin while the latter was
asleep.13McLoughlin 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, 1988.14Lopez 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.16On 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.17The Office of the
President referred the letter to the Department of Justice (DOJ)
which forwarded the same to the Western Police District
(WPD).18After 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.19McLoughlin 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 anAmended/Supplemental
Complaint20dated 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
1988.21The trial court admitted theAmended/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