[G.R. No. 90828.

September 5, 2000]

MELVIN
COLINARES
and
LORDINO
VELOSO, petitioners,
vs. HONORABLE COURT OF APPEALS, and THE PEOPLE OF
THE PHILIPPINES,respondents.
DECISION
DAVIDE, JR., C.J.:

In 1979 Melvin Colinares and Lordino Veloso (hereafter Petitioners) were contracted
for a consideration of P40,000 by the Carmelite Sisters of Cagayan de Oro City to
renovate the latters convent at Camaman-an, Cagayan de Oro City.
On 30 October 1979, Petitioners obtained 5,376 SF Solatone acoustical board
2x4x, 300 SF tanguile wood tiles 12x12, 260 SF Marcelo economy tiles and 2
gallons UMYLIN cement adhesive from CM Builders Centre for the construction project.
[1]
The following day, 31 October 1979, Petitioners applied for a commercial letter of
credit[2] with the Philippine Banking Corporation, Cagayan de Oro City branch (hereafter
PBC) in favor of CM Builders Centre. PBC approved the letter of credit [3] for P22,389.80
to cover the full invoice value of the goods. Petitioners signed a pro-forma trust
receipt[4] as security. The loan was due on 29 January 1980.
On 31 October 1979, PBC debited P6,720 from Petitioners marginal deposit as
partial payment of the loan.[5]
On 7 May 1980, PBC wrote[6] to Petitioners demanding that the amount be paid
within seven days from notice. Instead of complying with PBCs demand, Veloso
confessed that they lost P19,195.83 in the Carmelite Monastery Project and requested
for a grace period of until 15 June 1980 to settle the account. [7]
PBC sent a new demand letter [8]to Petitioners on 16 October 1980 and informed
them that their outstanding balance as of 17 November 1979 was P20,824.40 exclusive
of attorneys fees of 25%.[9]
On 2 December 1980, Petitioners proposed [10] that the terms of payment of the loan
be modified as follows: P2,000 on or before 3 December 1980, and P1,000 per month
starting 31 January 1980 until the account is fully paid. Pending approval of the
proposal, Petitioners paid P1,000 to PBC on 4 December 1980, [11] and thereafter P500
on 11 February 1981,[12] 16 March 1981,[13] and 20 April 1981.[14] Concurrently with the

separate demand for attorneys fees by PBCs legal counsel, PBC continued to demand
payment of the balance.[15]
On 14 January 1983, Petitioners were charged with the violation of P.D. No. 115
(Trust Receipts Law) in relation to Article 315 of the Revised Penal Code in an
Information which was filed with Branch 18, Regional Trial Court of Cagayan de Oro
City. The accusatory portion of the Information reads:

That on or about October 31, 1979, in the City of Cagayan de Oro, Philippines, and
within the jurisdiction of this Honorable Court, the above-named accused entered into
a trust receipt agreement with the Philippine Banking Corporation at Cagayan de Oro
City wherein the accused, as entrustee, received from the entruster the following
goods to wit:
Solatone Acoustical board
Tanguile Wood Tiles
Marcelo Cement Tiles
Umylin Cement Adhesive
with a total value of P22,389.80, with the obligation on the part of the accusedentrustee to hold the aforesaid items in trust for the entruster and/or to sell on cash
basis or otherwise dispose of the said items and to turn over to the entruster the
proceeds of the sale of said goods or if there be no sale to return said items to the
entruster on or before January 29, 1980 but that the said accused after receipt of the
goods, with intent to defraud and cause damage to the entruster, conspiring,
confederating together and mutually helping one another, did then and there wilfully,
unlawfully and feloniously fail and refuse to remit the proceeds of the sale of the
goods to the entruster despite repeated demands but instead converted,
misappropriated and misapplied the proceeds to their own personal use, benefit and
gain, to the damage and prejudice of the Philippine Banking Corporation, in the
aforesaid sum of P22,389.80, Philippine Currency.
Contrary to PD 115 in relation to Article 315 of the Revised Penal Code. [16]
The case was docketed as Criminal Case No. 1390.

During trial, petitioner Veloso insisted that the transaction was a clean loan as per
verbal guarantee of Cayo Garcia Tuiza, PBCs former manager. He and petitioner
Colinares signed the documents without reading the fine print, only learning of the trust
receipt implication much later. When he brought this to the attention of PBC, Mr. Tuiza
assured him that the trust receipt was a mere formality.[17]
On 7 July 1986, the trial court promulgated its decision [18] convicting Petitioners of
estafa for violating P.D. No. 115 in relation to Article 315 of the Revised Penal Code and
sentencing each of them to suffer imprisonment of two years and one day of prision
correccional as minimum to six years and one day of prision mayor as maximum, and to
solidarily indemnify PBC the amount of P20,824.44, with legal interest from 29 January
1980, 12 % penalty charge per annum, 25% of the sums due as attorneys fees, and
costs.
The trial court considered the transaction between PBC and Petitioners as a trust
receipt transaction under Section 4, P.D. No. 115. It considered Petitioners use of the
goods in their Carmelite monastery project an act of disposing as contemplated under
Section 13, P.D. No. 115, and treated the charge invoice [19] for goods issued by CM
Builders Centre as a document within the meaning of Section 3 thereof. It concluded
that the failure of Petitioners to turn over the amount they owed to PBC constituted
estafa.
Petitioners appealed from the judgment to the Court of Appeals which was docketed
as CA-G.R. CR No. 05408. Petitioners asserted therein that the trial court erred in ruling
that they violated the Trust Receipt Law, and in holding them criminally liable therefor. In
the alternative, they contend that at most they can only be made civilly liable for
payment of the loan.
In its decision[20] 6 March 1989, the Court of Appeals modified the judgment of the
trial court by increasing the penalty to six years and one day of prision mayor as
minimum to fourteen years eight months and one day of reclusion temporal as
maximum. It held that the documentary evidence of the prosecution prevails over
Velosos testimony, discredited Petitioners claim that the documents they signed were
in blank, and disbelieved that they were coerced into signing them.
On
25
March
1989,
Petitioners
filed
a
Motion
for
New
[21]
Trial/Reconsideration alleging that the Disclosure Statement on Loan/Credit
Transaction[22] (hereafter Disclosure Statement) signed by them and Tuiza was
suppressed by PBC during the trial. That document would have proved that the
transaction was indeed a loan as it bears a 14% interest as opposed to the trust receipt
which does not at all bear any interest. Petitioners further maintained that when PBC

allowed them to pay in installment, the agreement was novated and a creditor-debtor
relationship was created.
In its resolution[23]of 16 October 1989 the Court of Appeals denied the Motion for
New Trial/Reconsideration because the alleged newly discovered evidence was actually
forgotten evidence already in existence during the trial, and would not alter the result of
the case.
Hence, Petitioners filed with us the petition in this case on 16 November 1989. They
raised the following issues:

I. WHETHER OR NOT THE DENIAL OF THE MOTION FOR NEW TRIAL ON

THE GROUND OF NEWLY DISCOVERED EVIDENCE, NAMELY,
DISCLOSURE ON LOAN/CREDIT TRANSACTION, WHICH IF
INTRODUCED AND ADMITTED, WOULD CHANGE THE JUDGMENT, DOES
NOT CONSTITUTE A DENIAL OF DUE PROCESS.
2. ASSUMING THERE WAS A VALID TRUST RECEIPT, WHETHER OR NOT
THE ACCUSED WERE PROPERLY CHARGED, TRIED AND CONVICTED FOR
VIOLATION OF SEC. 13, PD NO. 115 IN RELATION TO ARTICLE 315
PARAGRAPH (I) (B) NOTWITHSTANDING THE NOVATION OF THE SOCALLED TRUST RECEIPT CONVERTING THE TRUSTOR-TRUSTEE
RELATIONSHIP TO CREDITOR-DEBTOR SITUATION.
In its Comment of 22 January 1990, the Office of the Solicitor General urged us to
deny the petition for lack of merit.
On 28 February 1990 Petitioners filed a Motion to Dismiss the case on the ground
that they had already fully paid PBC on 2 February 1990 the amount of P70,000 for the
balance of the loan, including interest and other charges, as evidenced by the different
receipts issued by PBC,[24] and that the PBC executed an Affidavit of desistance. [25]
We required the Solicitor General to comment on the Motion to Dismiss.
In its Comment of 30 July 1990, the Solicitor General opined that payment of the
loan was akin to a voluntary surrender or plea of guilty which merely serves to mitigate
Petitioners culpability, but does not in any way extinguish their criminal liability.
In the Resolution of 13 August 1990, we gave due course to the Petition and
required the parties to file their respective memoranda.

The parties subsequently filed their respective memoranda.

It was only on 18 May 1999 when this case was assigned to
the ponente. Thereafter, we required the parties to move in the premises and for
Petitioners to manifest if they are still interested in the further prosecution of this case
and inform us of their present whereabouts and whether their bail bonds are still valid.
Petitioners submitted their Compliance.
The core issues raised in the petition are the denial by the Court of Appeals of
Petitioners Motion for New Trial and the true nature of the contract between Petitioners
and the PBC. As to the latter, Petitioners assert that it was an ordinary loan, not a trust
receipt agreement under the Trust Receipts Law.
The grant or denial of a motion for new trial rests upon the discretion of the
judge. New trial may be granted if: (1) errors of law or irregularities have been
committed during the trial prejudicial to the substantial rights of the accused; or (2) new
and material evidence has been discovered which the accused could not with
reasonable diligence have discovered and produced at the trial, and which, if introduced
and admitted, would probably change the judgment. [26]
For newly discovered evidence to be a ground for new trial, such evidence must be
(1) discovered after trial; (2) could not have been discovered and produced at the trial
even with the exercise of reasonable diligence; and (3) material, not merely cumulative,
corroborative, or impeaching, and of such weight that, if admitted, would probably
change the judgment.[27] It is essential that the offering party exercised reasonable
diligence in seeking to locate the evidence before or during trial but nonetheless failed
to secure it.[28]
We find no indication in the pleadings that the Disclosure Statement is a newly
discovered evidence.
Petitioners could not have been unaware that the two-page document exists. The
Disclosure Statement itself states, NOTICE TO BORROWER: YOU ARE ENTITLED
TO A COPY OF THIS PAPER WHICH YOU SHALL SIGN. [29] Assuming Petitioners copy
was then unavailable, they could have compelled its production in court, [30] which they
never did. Petitioners have miserably failed to establish the second requisite of the rule
on newly discovered evidence.
Petitioners themselves admitted that they searched again their voluminous records,
meticulously and patiently, until they discovered this new and material evidence only

upon learning of the Court of Appeals decision and after they were shocked by the
penalty imposed.[31] Clearly, the alleged newly discovered evidence is mere forgotten
evidence that jurisprudence excludes as a ground for new trial. [32]
However, the second issue should be resolved in favor of Petitioners.
Section 4, P.D. No. 115, the Trust Receipts Law, defines a trust receipt transaction
as any transaction by and between a person referred to as the entruster, and another
person referred to as the entrustee, whereby the entruster who owns or holds absolute
title or security interest over certain specified goods, documents or instruments,
releases the same to the possession of the entrustee upon the latters execution and
delivery to the entruster of a signed document called a trust receipt wherein the
entrustee binds himself to hold the designated goods, documents or instruments with
the obligation to turn over to the entruster the proceeds thereof to the extent of the
amount owing to the entruster or as appears in the trust receipt or the goods,
documents or instruments themselves if they are unsold or not otherwise disposed of, in
accordance with the terms and conditions specified in the trust receipt.
There are two possible situations in a trust receipt transaction. The first is covered
by the provision which refers to money received under the obligation involving the duty
to deliver it (entregarla) to the owner of the merchandise sold. The second is covered by
the provision which refers to merchandise received under the obligation to return it
(devolvera) to the owner.[33]
Failure of the entrustee to turn over the proceeds of the sale of the goods, covered
by the trust receipt to the entruster or to return said goods if they were not disposed of
in accordance with the terms of the trust receipt shall be punishable as estafa under
Article 315 (1) of the Revised Penal Code, [34] without need of proving intent to defraud.
A thorough examination of the facts obtaining in the case at bar reveals that the
transaction intended by the parties was a simple loan, not a trust receipt agreement.
Petitioners received the merchandise from CM Builders Centre on 30 October
1979. On that day, ownership over the merchandise was already transferred to
Petitioners who were to use the materials for their construction project. It was only a day
later, 31 October 1979, that they went to the bank to apply for a loan to pay for the
merchandise.
This situation belies what normally obtains in a pure trust receipt transaction where
goods are owned by the bank and only released to the importer in trust subsequent to
the grant of the loan. The bank acquires a security interest in the goods as holder of a

security title for the advances it had made to the entrustee. [35] The ownership of the
merchandise continues to be vested in the person who had advanced payment until he
has been paid in full, or if the merchandise has already been sold, the proceeds of the
sale should be turned over to him by the importer or by his representative or successor
in interest.[36] To secure that the bank shall be paid, it takes full title to the goods at the
very beginning and continues to hold that title as his indispensable security until the
goods are sold and the vendee is called upon to pay for them; hence, the importer has
never owned the goods and is not able to deliver possession. [37] In a certain manner,
trust receipts partake of the nature of a conditional sale where the importer becomes
absolute owner of the imported merchandise as soon as he has paid its price. [38]
Trust receipt transactions are intended to aid in financing importers and retail
dealers who do not have sufficient funds or resources to finance the importation or
purchase of merchandise, and who may not be able to acquire credit except through
utilization, as collateral, of the merchandise imported or purchased. [39]
The antecedent acts in a trust receipt transaction consist of the application and
approval of the letter of credit, the making of the marginal deposit and the effective
importation of goods through the efforts of the importer.[40]
PBC attempted to cover up the true delivery date of the merchandise, yet the trial
court took notice even though it failed to attach any significance to such fact in the
judgment. Despite the Court of Appeals contrary view that the goods were delivered to
Petitioners previous to the execution of the letter of credit and trust receipt, we find that
the records of the case speak volubly and this fact remains uncontroverted. It is not
uncommon for us to peruse through the transcript of the stenographic notes of the
proceedings to be satisfied that the records of the case do support the conclusions of
the trial court.[41] After such perusal Grego Mutia, PBCs credit investigator, admitted
thus:
ATTY. CABANLET: (continuing)
Q Do you know if the goods subject matter of this letter of credit and trust receipt agreement
were received by the accused?
A Yes, sir
Q Do you have evidence to show that these goods subject matter of this letter of credit and
trust receipt were delivered to the accused?
A Yes, sir.

Q I am showing to you this charge invoice, are you referring to this document?
A Yes, sir.

xxx
Q What is the date of the charge invoice?
A October 31, 1979.
COURT:
Make it of record as appearing in Exhibit D, the zero in 30 has been superimposed with
numeral 1.[42]

During the cross and re-direct examinations he also impliedly admitted that the
transaction was indeed a loan. Thus:
Q In short the amount stated in your Exhibit C, the trust receipt was a loan to the accused
you admit that?
A Because in the bank the loan is considered part of the loan.

xxx
RE-DIRECT BY ATTY. CABANLET:
ATTY. CABANLET (to the witness)
Q What do you understand by loan when you were asked?
A Loan is a promise of a borrower from the value received. The borrower will pay the bank
on a certain specified date with interest[43]

Such statement is akin to an admission against interest binding upon PBC.

Petitioner Velosos claim that they were made to believe that the transaction was a
loan was also not denied by PBC. He declared:
Q Testimony was given here that that was covered by trust receipt. In short it was a special
kind of loan. What can you say as to that?

A I dont think that would be a trust receipt because we were made to understand by the
manager who encouraged us to avail of their facilities that they will be granting us a
loan[44]

PBC could have presented its former bank manager, Cayo Garcia Tuiza, who
contracted with Petitioners, to refute Velosos testimony, yet it only presented credit
investigator Grego Mutia.Nowhere from Mutias testimony can it be gleaned that PBC
represented to Petitioners that the transaction they were entering into was not a pure
loan but had trust receipt implications.
The Trust Receipts Law does not seek to enforce payment of the loan, rather it
punishes the dishonesty and abuse of confidence in the handling of money or goods to
the prejudice of another regardless of whether the latter is the owner. [45] Here, it is crystal
clear that on the part of Petitioners there was neither dishonesty nor abuse of
confidence in the handling of money to the prejudice of PBC. Petitioners continually
endeavored to meet their obligations, as shown by several receipts issued by PBC
acknowledging payment of the loan.
The Information charges Petitioners with intent to defraud and misappropriating the
money for their personal use. The mala prohibita nature of the alleged offense
notwithstanding, intent as a state of mind was not proved to be present in Petitioners
situation. Petitioners employed no artifice in dealing with PBC and never did they evade
payment of their obligation nor attempt to abscond. Instead, Petitioners sought
favorable terms precisely to meet their obligation.
Also noteworthy is the fact that Petitioners are not importers acquiring the goods for
re-sale, contrary to the express provision embodied in the trust receipt. They are
contractors who obtained the fungible goods for their construction project. At no time did
title over the construction materials pass to the bank, but directly to the Petitioners from
CM Builders Centre. This impresses upon the trust receipt in question vagueness and
ambiguity, which should not be the basis for criminal prosecution in the event of
violation of its provisions.[46]
The practice of banks of making borrowers sign trust receipts to facilitate collection
of loans and place them under the threats of criminal prosecution should they be unable
to pay it may be unjust and inequitable, if not reprehensible. Such agreements are
contracts of adhesion which borrowers have no option but to sign lest their loan be
disapproved. The resort to this scheme leaves poor and hapless borrowers at the mercy
of banks, and is prone to misinterpretation, as had happened in this case. Eventually,
PBC showed its true colors and admitted that it was only after collection of the money,
as manifested by its Affidavit of Desistance.

WHEREFORE, the challenged Decision of 6 March 1989 and the Resolution of 16

October 1989 of the Court of Appeals in CA-GR. No. 05408 are REVERSED and
SET ASIDE.Petitioners are hereby ACQUITTED of the crime charged, i.e., for violation
of P.D. No. 115 in relation to Article 315 of the Revised Penal Code.
No costs.
SO ORDERED.

UNITED
BANK,

COCONUT

PLANTERS

Petitioner,

- versus -

G.R. No. 159912

Present:
YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.

SPOUSES SAMUEL and ODETTE

Promulgated:
BELUSO,
Respondents.
August 17, 2007
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, which
seeks to annul the Court of Appeals Decision [1] dated 21 January 2003 and its
Resolution[2] dated 9 September 2003 in CA-G.R. CV No. 67318. The assailed Court of Appeals
Decision and Resolution affirmed in turn the Decision [3] dated 23 March 2000 and Order[4] dated
8 May 2000 of the Regional Trial Court (RTC), Branch 65 of Makati City, in Civil Case No. 99314, declaring void the interest rate provided in the promissory notes executed by the
respondents Spouses Samuel and Odette Beluso (spouses Beluso) in favor of petitioner United
Coconut Planters Bank (UCPB).
The procedural and factual antecedents of this case are as follows:
On 16 April 1996, UCPB granted the spouses Beluso a Promissory Notes Line under a
Credit Agreement whereby the latter could avail from the former credit of up to a maximum
amount of P1.2 Million pesos for a term ending on 30 April 1997. The spouses Beluso
constituted, other than their promissory notes, a real estate mortgage over parcels of land
in Roxas City, covered by Transfer Certificates of Title No. T-31539 and T-27828, as additional
security for the obligation. The Credit Agreement was subsequently amended to increase the
amount of the Promissory Notes Line to a maximum of P2.35 Million pesos and to extend the
term thereof to 28 February 1998.

The spouses Beluso availed themselves of the credit line under the following Promissory
Notes:
PN #
8314-96-00083-3
8314-96-00085-0
8314-96-000292-2

Date of PN
29 April 1996
2 May 1996
20 November 1996

Maturity Date
27 August 1996
30 August 1996
20 March 1997

Amount Secured
P 700,000
P 500,000
P 800,000

The three promissory notes were renewed several times. On 30 April 1997, the payment
of the principal and interest of the latter two promissory notes were debited from the spouses
Belusos account with UCPB; yet, a consolidated loan for P1.3 Million was again released to the
spouses Beluso under one promissory note with a due date of 28 February 1998.
To completely avail themselves of the P2.35 Million credit line extended to them by
UCPB, the spouses Beluso executed two more promissory notes for a total ofP350,000.00:
PN #
97-00363-1
98-00002-4

Date of PN
11 December 1997
2 January 1998

Maturity Date
28 February 1998
28 February 1998

Amount Secured
P 200,000
P 150,000

However, the spouses Beluso alleged that the amounts covered by these last two promissory
notes were never released or credited to their account and, thus, claimed that the principal
indebtedness was only P2 Million.
In any case, UCPB applied interest rates on the different promissory notes ranging from
18% to 34%. From 1996 to February 1998 the spouses Beluso were able to pay the total sum
of P763,692.03.
From 28 February 1998 to 10 June 1998, UCPB continued to charge interest and penalty
on the obligations of the spouses Beluso, as follows:
PN #
97-00363-1
97-00366-6

Amount Secured
P 200,000
P 700,000

97-00368-2

P 1,300,000

98-00002-4

P 150,000

Interest
31%
30.17%
(7 days)
28%
(2 days)
33%
(102 days)

Penalty
36%
32.786%
(102 days)
30.41%
(102 days)
36%

Total
P 225,313.24
P 795,294.72
P 1,462,124.54
P 170,034.71

The spouses Beluso, however, failed to make any payment of the foregoing amounts.
On 2 September 1998, UCPB demanded that the spouses Beluso pay their total obligation
of P2,932,543.00 plus 25% attorneys fees, but the spouses Beluso failed to comply
therewith. On 28 December 1998, UCPB foreclosed the properties mortgaged by the spouses
Beluso to secure their credit line, which, by that time, already ballooned toP3,784,603.00.
On 9 February 1999, the spouses Beluso filed a Petition for Annulment, Accounting and
Damages against UCPB with the RTC of Makati City.
On 23 March 2000, the RTC ruled in favor of the spouses Beluso, disposing of the case
as follows:
PREMISES CONSIDERED, judgment is hereby rendered declaring the interest
rate used by [UCPB] void and the foreclosure and Sheriffs Certificate
of Sale void. [UCPB] is hereby ordered to return to [the spouses Beluso] the properties
subject of the foreclosure; to pay [the spouses Beluso] the amount of P50,000.00 by way
of attorneys fees; and to pay the costs of suit. [The spouses Beluso] are hereby ordered to
pay [UCPB] the sum of P1,560,308.00.[5]

On 8 May 2000, the RTC denied UCPBs Motion for Reconsideration, [6] prompting
UCPB to appeal the RTC Decision with the Court of Appeals. The Court of Appeals affirmed
the RTC Decision, to wit:
WHEREFORE, premises considered, the decision dated March 23, 2000 of the
Regional Trial Court, Branch 65, Makati City in Civil Case No. 99-314 is hereby
AFFIRMED subject to the modification that defendant-appellant UCPB is not liable for
attorneys fees or the costs of suit.[7]

On 9 September 2003, the Court of Appeals denied UCPBs Motion for Reconsideration
for lack of merit. UCPB thus filed the present petition, submitting the following issues for our
resolution:
I
WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED
SERIOUS AND REVERSIBLE ERROR WHEN IT AFFIRMED THE DECISION OF
THE TRIAL COURT WHICH DECLARED VOID THE PROVISION ON INTEREST
RATE AGREED UPON BETWEEN PETITIONER AND RESPONDENTS
II
WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED
SERIOUS AND REVERSIBLE ERROR WHEN IT AFFIRMED THE COMPUTATION
BY THE TRIAL COURT OF RESPONDENTS INDEBTEDNESS AND ORDERED

RESPONDENTS TO PAY PETITIONER THE AMOUNT OF ONLY ONE MILLION

FIVE HUNDRED SIXTY THOUSAND THREE HUNDRED EIGHT PESOS
(P1,560,308.00)
III
WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED
SERIOUS AND REVERSIBLE ERROR WHEN IT AFFIRMED THE DECISION OF
THE TRIAL COURT WHICH ANNULLED THE FORECLOSURE BY PETITIONER
OF THE SUBJECT PROPERTIES DUE TO AN ALLEGED INCORRECT
COMPUTATION OF RESPONDENTS INDEBTEDNESS
IV
WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED
SERIOUS AND REVERSIBLE ERROR WHEN IT AFFIRMED THE DECISION OF
THE TRIAL COURT WHICH FOUND PETITIONER LIABLE FOR VIOLATION OF
THE TRUTH IN LENDING ACT
V
WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED
SERIOUS AND REVERSIBLE ERROR WHEN IT FAILED TO ORDER THE
DISMISSAL OF THE CASE BECAUSE THE RESPONDENTS ARE GUILTY OF
FORUM SHOPPING[8]

Validity of the Interest Rates

The Court of Appeals held that the imposition of interest in the following provision found
in the promissory notes of the spouses Beluso is void, as the interest rates and the bases therefor
were determined solely by petitioner UCPB:
FOR VALUE RECEIVED, I, and/or We, on or before due date, SPS. SAMUEL
AND ODETTE BELUSO (BORROWER), jointly and severally promise to pay to
UNITED COCONUT PLANTERS BANK (LENDER) or order at UCPB Bldg., Makati
Avenue, Makati City, Philippines, the sum of ______________ PESOS, (P_____),
Philippine Currency, with interest thereon at the rate indicative of DBD retail rate or as
determined by the Branch Head.[9]

UCPB asserts that this is a reversible error, and claims that while the interest rate was not
numerically quantified in the face of the promissory notes, it was nonetheless categorically fixed,
at the time of execution thereof, at the rate indicative of the DBD retail rate. UCPB contends
that said provision must be read with another stipulation in the promissory notes subjecting to
review the interest rate as fixed:

The interest rate shall be subject to review and may be increased or decreased by
the LENDER considering among others the prevailing financial and monetary conditions;
or the rate of interest and charges which other banks or financial institutions charge or
offer to charge for similar accommodations; and/or the resulting profitability to the
LENDER after due consideration of all dealings with the BORROWER. [10]

In this regard, UCPB avers that these are valid reference rates akin to a prevailing rate
or prime rate allowed by this Court in Polotan v. Court of Appeals.[11] Furthermore, UCPB
argues that even if the proviso as determined by the branch head is considered void, such a
declaration would not ipso facto render the connecting clause indicative of DBD retail rate
void in view of the separability clause of the Credit Agreement, which reads:
Section 9.08 Separability Clause. If any one or more of the provisions contained
in this AGREEMENT, or documents executed in connection herewith shall be declared
invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of
the remaining provisions hereof shall not in any way be affected or impaired. [12]

According to UCPB, the imposition of the questioned interest rates did not infringe on
the principle of mutuality of contracts, because the spouses Beluso had the liberty to choose
whether or not to renew their credit line at the new interest rates pegged by petitioner. [13] UCPB
also claims that assuming there was any defect in the mutuality of the contract at the time of its
inception, such defect was cured by the subsequent conduct of the spouses Beluso in availing
themselves of the credit line from April 1996 to February 1998 without airing any protest with
respect to the interest rates imposed by UCPB. According to UCPB, therefore, the spouses
Beluso are in estoppel.[14]
We agree with the Court of Appeals, and find no merit in the contentions of UCPB.
Article 1308 of the Civil Code provides:
Art. 1308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.

We applied this provision in Philippine National Bank v. Court of Appeals,[15] where we

held:
In order that obligations arising from contracts may have the force of law between
the parties, there must be mutuality between the parties based on their essential equality. A
contract containing a condition which makes its fulfillment dependent exclusively upon
the uncontrolled will of one of the contracting parties, is void (Garcia vs. Rita Legarda,
Inc., 21 SCRA 555). Hence, even assuming that the P1.8 million loan agreement between
the PNB and the private respondent gave the PNB a license (although in fact there was
none) to increase the interest rate at will during the term of the loan, that license would
have been null and void for being violative of the principle of mutuality essential in
contracts. It would have invested the loan agreement with the character of a contract of
adhesion, where the parties do not bargain on equal footing, the weaker party's (the

debtor) participation being reduced to the alternative "to take it or leave it" (Qua vs. Law
Union & Rock Insurance Co., 95 Phil. 85). Such a contract is a veritable trap for the
weaker party whom the courts of justice must protect against abuse and imposition.

The provision stating that the interest shall be at the rate indicative of DBD retail rate or
as determined by the Branch Head is indeed dependent solely on the will of petitioner
UCPB. Under such provision, petitioner UCPB has two choices on what the interest rate shall
be: (1) a rate indicative of the DBD retail rate; or (2) a rate as determined by the Branch
Head. As UCPB is given this choice, the rate should be categorically determinable
in both choices. If either of these two choices presents an opportunity for UCPB to fix the rate at
will, the bank can easily choose such an option, thus making the entire interest rate provision
violative of the principle of mutuality of contracts.
Not just one, but rather both, of these choices are dependent solely on the will of
UCPB. Clearly, a rate as determined by the Branch Head gives the latter unfettered discretion
on what the rate may be. The Branch Head may choose any rate he or she desires. As regards
the rate indicative of the DBD retail rate, the same cannot be considered as valid for being akin
to a prevailing rate or prime rate allowed by this Court in Polotan. The interest rate
in Polotan reads:
The Cardholder agrees to pay interest per annum at 3% plus the prime rate of Security
Bank and Trust Company. x x x.[16]

In this provision in Polotan, there is a fixed margin over the reference rate: 3%. Thus, the parties
can easily determine the interest rate by applying simple arithmetic. On the other hand, the
provision in the case at bar does not specify any margin above or below the DBD retail
rate. UCPB can peg the interest at any percentage above or below the DBD retail rate, again
giving it unfettered discretion in determining the interest rate.
The stipulation in the promissory notes subjecting the interest rate to review does not
render the imposition by UCPB of interest rates on the obligations of the spouses Beluso
valid. According to said stipulation:
The interest rate shall be subject to review and may be increased or decreased by
the LENDER considering among others the prevailing financial and monetary conditions;
or the rate of interest and charges which other banks or financial institutions charge or
offer to charge for similar accommodations; and/or the resulting profitability to the
LENDER after due consideration of all dealings with the BORROWER. [17]

It should be pointed out that the authority to review the interest rate was given UCPB alone as
the lender. Moreover, UCPB may apply the considerations enumerated in this provision as it
wishes. As worded in the above provision, UCPB may give as much weight as it desires to each
of the following considerations: (1) the prevailing financial and monetary condition; (2) the rate

of interest and charges which other banks or financial institutions charge or offer to charge for
similar accommodations; and/or (3) the resulting profitability to the LENDER (UCPB) after due
consideration of all dealings with the BORROWER (the spouses Beluso). Again, as in the case
of the interest rate provision, there is no fixed margin above or below these considerations.
In view of the foregoing, the Separability Clause cannot save either of the two options of
UCPB as to the interest to be imposed, as both options violate the principle of mutuality of
contracts.
UCPB likewise failed to convince us that the spouses Beluso were in estoppel.
Estoppel cannot be predicated on an illegal act. As between the parties to a contract,
validity cannot be given to it by estoppel if it is prohibited by law or is against public policy.[18]
The interest rate provisions in the case at bar are illegal not only because of the
provisions of the Civil Code on mutuality of contracts, but also, as shall be discussed later,
because they violate the Truth in Lending Act. Not disclosing the true finance charges in
connection with the extensions of credit is, furthermore, a form of deception which we cannot
countenance. It is against the policy of the State as stated in the Truth in Lending Act:
Sec. 2. Declaration of Policy. It is hereby declared to be the policy of the State
to protect its citizens from a lack of awareness of the true cost of credit to the user by
assuring a full disclosure of such cost with a view of preventing the uninformed use of
credit to the detriment of the national economy.[19]

Moreover, while the spouses Beluso indeed agreed to renew the credit line, the offending
provisions are found in the promissory notes themselves, not in the credit line. In fixing the
interest rates in the promissory notes to cover the renewed credit line, UCPB still reserved to
itself the same two options (1) a rate indicative of the DBD retail rate; or (2) a rate as
determined by the Branch Head.
Error in Computation
UCPB asserts that while both the RTC and the Court of Appeals voided the interest rates
imposed by UCPB, both failed to include in their computation of the outstanding obligation of
the spouses Beluso the legal rate of interest of 12% per annum. Furthermore, the penalty charges
were also deleted in the decisions of the RTC and the Court of Appeals. Section 2.04, Article II
on Interest and other Bank Charges of the subject Credit Agreement, provides:
Section 2.04 Penalty Charges. In addition to the interest provided for in Section
2.01 of this ARTICLE, any principal obligation of the CLIENT hereunder which is not
paid when due shall be subject to a penalty charge of one percent (1%) of the amount of
such obligation per month computed from due date until the obligation is paid in full. If

the bank accelerates teh (sic) payment of availments hereunder pursuant to ARTICLE
VIII hereof, the penalty charge shall be used on the total principal amount outstanding
and unpaid computed from the date of acceleration until the obligation is paid in full. [20]

Paragraph 4 of the promissory notes also states:

In case of non-payment of this Promissory Note (Note) at maturity, I/We, jointly
and severally, agree to pay an additional sum equivalent to twenty-five percent (25%) of
the total due on the Note as attorneys fee, aside from the expenses and costs of collection
whether actually incurred or not, and a penalty charge of one percent (1%) per month on
the total amount due and unpaid from date of default until fully paid. [21]

Petitioner further claims that it is likewise entitled to attorneys fees, pursuant to Section
9.06 of the Credit Agreement, thus:
If the BANK shall require the services of counsel for the enforcement of its rights
under this AGREEMENT, the Note(s), the collaterals and other related documents, the
BANK shall be entitled to recover attorneys fees equivalent to not less than twenty-five
percent (25%) of the total amounts due and outstanding exclusive of costs and other
expenses.[22]

Another alleged computational error pointed out by UCPB is the negation of the
Compounding Interest agreed upon by the parties under Section 2.02 of the Credit Agreement:
Section 2.02 Compounding Interest. Interest not paid when due shall form part of the
principal and shall be subject to the same interest rate as herein stipulated. [23]

and paragraph 3 of the subject promissory notes:

Interest not paid when due shall be added to, and become part of the principal and shall
likewise bear interest at the same rate.[24]

UCPB lastly avers that the application of the spouses Belusos payments in the disputed
computation does not reflect the parties agreement. The RTC deducted the payment made by
the spouses Beluso amounting to P763,693.00 from the principal of P2,350,000.00. This was
allegedly inconsistent with the Credit Agreement, as well as with the agreement of the parties as
to the facts of the case. In paragraph 7 of the spouses Belusos Manifestation and Motion on
Proposed Stipulation of Facts and Issues vis--visUCPBs Manifestation, the parties agreed that
the amount of P763,693.00 was applied to the interest and not to the principal, in accord with
Section 3.03, Article II of the Credit Agreement on Order of the Application of Payments,
which provides:

Section 3.03 Application of Payment. Payments made by the CLIENT shall be

applied in accordance with the following order of preference:
1. Accounts receivable and other out-of-pocket expenses
2. Front-end Fee, Origination Fee, Attorneys Fee and other expenses of
collection;
3. Penalty charges;
4. Past due interest;
5. Principal amortization/Payment in arrears;
6. Advance interest;
7. Outstanding balance; and
8. All other obligations of CLIENT to the BANK, if any.[25]

Thus, according to UCPB, the interest charges, penalty charges, and attorneys fees had
been erroneously excluded by the RTC and the Court of Appeals from the computation of the
total amount due and demandable from spouses Beluso.
The spouses Belusos defense as to all these issues is that the demand made by UCPB is
for a considerably bigger amount and, therefore, the demand should be considered void. There
being no valid demand, according to the spouses Beluso, there would be no default, and therefore
the interests and penalties would not commence to run. As it was likewise improper to foreclose
the mortgaged properties or file a case against the spouses Beluso, attorneys fees were not
warranted.
We agree with UCPB on this score. Default commences upon judicial or extrajudicial
demand.[26] The excess amount in such a demand does not nullify the demand itself, which is
valid with respect to the proper amount. A contrary ruling would put commercial transactions in
disarray, as validity of demands would be dependent on the exactness of the computations
thereof, which are too often contested.
There being a valid demand on the part of UCPB, albeit excessive, the spouses Beluso
are considered in default with respect to the proper amount and, therefore, the interests and the
penalties began to run at that point.
As regards the award of 12% legal interest in favor of petitioner, the RTC actually
recognized that said legal interest should be imposed, thus: There being no valid stipulation as
to interest, the legal rate of interest shall be charged. [27] It seems that the RTC inadvertently
overlooked its non-inclusion in its computation.
The spouses Beluso had even originally asked for the RTC to impose this legal rate of
interest in both the body and the prayer of its petition with the RTC:
12. Since the provision on the fixing of the rate of interest by the sole will of the
respondent Bank is null and void, only the legal rate of interest which is 12% per annum

can be legally charged and imposed by the bank, which would amount to only about
P599,000.00 since 1996 up to August 31, 1998.
xxxx
WHEREFORE, in view of the foregoing, petiitoners pray for judgment or order:
xxxx
2. By way of example for the public good against the Banks taking unfair
advantage of the weaker party to their contract, declaring the legal rate of 12% per
annum, as the imposable rate of interest up to February 28, 1999 on the loan of 2.350
million.[28]

All these show that the spouses Beluso had acknowledged before the RTC their obligation to pay
a 12% legal interest on their loans. When the RTC failed to include the 12% legal interest in its
computation, however, the spouses Beluso merely defended in the appellate courts this noninclusion, as the same was beneficial to them. We see, however, sufficient basis to impose a 12%
legal interest in favor of petitioner in the case at bar, as what we have voided is merely the
stipulated rate of interest and not the stipulation that the loan shall earn interest.
We must likewise uphold the contract stipulation providing the compounding of
interest. The provisions in the Credit Agreement and in the promissory notes providing for the
compounding of interest were neither nullified by the RTC or the Court of Appeals, nor assailed
by the spouses Beluso in their petition with the RTC. The compounding of interests has
furthermore been declared by this Court to be legal. We have held in Tan v. Court of Appeals,
[29]
that:
Without prejudice to the provisions of Article 2212, interest due and unpaid shall
not earn interest. However, the contracting parties may by stipulation capitalize the
interest due and unpaid, which as added principal, shall earn new interest.

As regards the imposition of penalties, however, although we are likewise upholding the
imposition thereof in the contract, we find the rate iniquitous. Like in the case of grossly
excessive interests, the penalty stipulated in the contract may also be reduced by the courts if it is
iniquitous or unconscionable.[30]
We find the penalty imposed by UCPB, ranging from 30.41% to 36%, to be iniquitous
considering the fact that this penalty is already over and above the compounded interest likewise
imposed in the contract. If a 36% interest in itself has been declared unconscionable by this
Court,[31] what more a 30.41% to 36% penalty, over and above the payment of compounded
interest? UCPB itself must have realized this, as it gave us a sample computation of the spouses
Belusos obligation if both the interest and the penalty charge are reduced to 12%.

As regards the attorneys fees, the spouses Beluso can actually be liable therefor even if
there had been no demand. Filing a case in court is the judicial demand referred to in Article
1169[32] of the Civil Code, which would put the obligor in delay.
The RTC, however, also held UCPB liable for attorneys fees in this case, as the spouses
Beluso were forced to litigate the issue on the illegality of the interest rate provision of the
promissory notes. The award of attorneys fees, it must be recalled, falls under the sound
discretion of the court.[33] Since both parties were forced to litigate to protect their respective
rights, and both are entitled to the award of attorneys fees from the other, practical reasons
dictate that we set off or compensate both parties liabilities for attorneys fees. Therefore,
instead of awarding attorneys fees in favor of petitioner, we shall merely affirm the deletion of
the award of attorneys fees to the spouses Beluso.
In sum, we hold that spouses Beluso should still be held liable for a compounded legal
interest of 12% per annum and a penalty charge of 12% per annum. We also hold that, instead of
awarding attorneys fees in favor of petitioner, we shall merely affirm the deletion of the award
of attorneys fees to the spouses Beluso.
Annulment of the Foreclosure Sale
Properties of spouses Beluso had been foreclosed, titles to which had already been
consolidated on 19 February 2001 and 20 March 2001 in the name of UCPB, as the spouses
Beluso failed to exercise their right of redemption which expired on 25 March 2000. The RTC,
however, annulled the foreclosure of mortgage based on an alleged incorrect computation of the
spouses Belusos indebtedness.
UCPB alleges that none of the grounds for the annulment of a foreclosure sale are present
in the case at bar. Furthermore, the annulment of the foreclosure proceedings and the certificates
of sale were mooted by the subsequent issuance of new certificates of title in the name of said
bank. UCPB claims that the spouses Belusos action for annulment of foreclosure constitutes a
collateral attack on its certificates of title, an act proscribed by Section 48 of Presidential Decree
No. 1529, otherwise known as the Property Registration Decree, which provides:
Section 48. Certificate not subject to collateral attack. A certificate of title
shall not be subject to collateral attack. It cannot be altered, modified or cancelled except
in a direct proceeding in accordance with law.

The spouses Beluso retort that since they had the right to refuse payment of an excessive
demand on their account, they cannot be said to be in default for refusing to pay the
same. Consequently, according to the spouses Beluso, the enforcement of such illegal and
overcharged demand through foreclosure of mortgage should be voided.

We agree with UCPB and affirm the validity of the foreclosure proceedings. Since we
already found that a valid demand was made by UCPB upon the spouses Beluso, despite being
excessive, the spouses Beluso are considered in default with respect to the proper amount of their
obligation to UCPB and, thus, the property they mortgaged to secure such amounts may be
foreclosed. Consequently, proceeds of the foreclosure sale should be applied to the extent of the
amounts to which UCPB is rightfully entitled.
As argued by UCPB, none of the grounds for the annulment of a foreclosure sale are
present in this case. The grounds for the proper annulment of the foreclosure sale are the
following: (1) that there was fraud, collusion, accident, mutual mistake, breach of trust or
misconduct by the purchaser; (2) that the sale had not been fairly and regularly conducted; or
(3) that the price was inadequate and the inadequacy was so great as to shock the conscience of
the court.[34]

Liability for Violation of Truth in Lending Act

The RTC, affirmed by the Court of Appeals, imposed a fine of P26,000.00 for UCPBs
alleged violation of Republic Act No. 3765, otherwise known as the Truth in Lending Act.
UCPB challenges this imposition, on the argument that Section 6(a) of the Truth in
Lending Act which mandates the filing of an action to recover such penalty must be made under
the following circumstances:
Section 6. (a) Any creditor who in connection with any credit transaction fails to
disclose to any person any information in violation of this Act or any regulation issued
thereunder shall be liable to such person in the amount of P100 or in an amount equal to
twice the finance charge required by such creditor in connection with such transaction,
whichever is greater, except that such liability shall not exceed P2,000 on any credit
transaction. Action to recover such penalty may be brought by such person within
one year from the date of the occurrence of the violation, in any court of competent
jurisdiction. x x x (Emphasis ours.)

According to UCPB, the Court of Appeals even stated that [a]dmittedly the original
complaint did not explicitly allege a violation of the Truth in Lending Act and no action to
formally admit the amended petition [which expressly alleges violation of the Truth in Lending
Act] was made either by [respondents] spouses Beluso and the lower court. x x x.[35]
UCPB further claims that the action to recover the penalty for the violation of the Truth
in Lending Act had been barred by the one-year prescriptive period provided for in the
Act. UCPB asserts that per the records of the case, the latest of the subject promissory notes had
been executed on 2 January 1998, but the original petition of the spouses Beluso was filed before

the RTC on 9 February 1999, which was after the expiration of the period to file the same on 2
January 1999.
On the matter of allegation of the violation of the Truth in Lending Act, the Court of
Appeals ruled:
Admittedly the original complaint did not explicitly allege a violation of the
Truth in Lending Act and no action to formally admit the amended petition was made
either by [respondents] spouses Beluso and the lower court. In such transactions, the
debtor and the lending institutions do not deal on an equal footing and this law was
intended to protect the public from hidden or undisclosed charges on their loan
obligations, requiring a full disclosure thereof by the lender. We find that its
infringement may be inferred or implied from allegations that when [respondents]
spouses Beluso executed the promissory notes, the interest rate chargeable thereon were
left blank. Thus, [petitioner] UCPB failed to discharge its duty to disclose in full to
[respondents] Spouses Beluso the charges applicable on their loans. [36]

We agree with the Court of Appeals. The allegations in the complaint, much more than
the title thereof, are controlling. Other than that stated by the Court of Appeals, we find that the
allegation of violation of the Truth in Lending Act can also be inferred from the same allegation
in the complaint we discussed earlier:
b.) In unilaterally imposing an increased interest rates (sic) respondent bank has
relied on the provision of their promissory note granting respondent bank the power to
unilaterally fix the interest rates, which rate was not determined in the promissory note
but was left solely to the will of the Branch Head of the respondent Bank, x x x. [37]

The allegation that the promissory notes grant UCPB the power to unilaterally fix the
interest rates certainly also means that the promissory notes do not contain a clear statement in
writing of (6) the finance charge expressed in terms of pesos and centavos; and (7) the
percentage that the finance charge bears to the amount to be financed expressed as a simple
annual rate on the outstanding unpaid balance of the obligation. [38] Furthermore, the spouses
Belusos prayer for such other reliefs just and equitable in the premises should be deemed to
include the civil penalty provided for in Section 6(a) of the Truth in Lending Act.
UCPBs contention that this action to recover the penalty for the violation of the Truth in
Lending Act has already prescribed is likewise without merit. The penalty for the violation of
the act is P100 or an amount equal to twice the finance charge required by such creditor in
connection with such transaction, whichever is greater, except that such liability shall not
exceed P2,000.00 on any credit transaction.[39] As this penalty depends on the finance charge
required of the borrower, the borrowers cause of action would only accrue when such finance
charge is required. In the case at bar, the date of the demand for payment of the finance charge
is 2 September 1998, while the foreclosure was made on 28 December 1998. The filing of the
case on 9 February 1999 is therefore within the one-year prescriptive period.

UCPB argues that a violation of the Truth in Lending Act, being a criminal offense,
cannot be inferred nor implied from the allegations made in the complaint. [40] Pertinent
provisions of the Act read:
Sec. 6. (a) Any creditor who in connection with any credit transaction fails to
disclose to any person any information in violation of this Act or any regulation issued
thereunder shall be liable to such person in the amount of P100 or in an amount equal to
twice the finance charge required by such creditor in connection with such transaction,
whichever is the greater, except that such liability shall not exceed P2,000 on any credit
transaction. Action to recover such penalty may be brought by such person within one
year from the date of the occurrence of the violation, in any court of competent
jurisdiction. In any action under this subsection in which any person is entitled to a
recovery, the creditor shall be liable for reasonable attorneys fees and court costs as
determined by the court.
xxxx
(c)
Any person who willfully violates any provision of this Act or any
regulation issued thereunder shall be fined by not less than P1,000 or more than P5,000 or
imprisonment for not less than 6 months, nor more than one year or both.

As can be gleaned from Section 6(a) and (c) of the Truth in Lending Act, the violation of the said
Act gives rise to both criminal and civil liabilities. Section 6(c) considers a criminal offense the
willful violation of the Act, imposing the penalty therefor of fine, imprisonment or
both. Section 6(a), on the other hand, clearly provides for a civil cause of action for failure
to disclose any information of the required information to any person in violation of the Act. The
penalty therefor is an amount of P100 or in an amount equal to twice the finance charge required
by the creditor in connection with such transaction, whichever is greater, except that the liability
shall not exceed P2,000.00 on any credit transaction. The action to recover such penalty may be
instituted by the aggrieved private person separately and independently from the criminal case
for the same offense.
In the case at bar, therefore, the civil action to recover the penalty under Section 6(a) of
the Truth in Lending Act had been jointly instituted with (1) the action to declare the interests in
the promissory notes void, and (2) the action to declare the foreclosure void. This joinder is
allowed under Rule 2, Section 5 of the Rules of Court, which provides:
SEC. 5. Joinder of causes of action.A party may in one pleading assert, in the
alternative or otherwise, as many causes of action as he may have against an opposing
party, subject to the following conditions:
(a)
The party joining the causes of action shall comply with the rules on
joinder of parties;

(b)
The joinder shall not include special civil actions or actions governed by
special rules;
(c)
Where the causes of action are between the same parties but pertain to
different venues or jurisdictions, the joinder may be allowed in the Regional Trial Court
provided one of the causes of action falls within the jurisdiction of said court and the
venue lies therein; and
(d)
Where the claims in all the causes of action are principally for recovery of
money, the aggregate amount claimed shall be the test of jurisdiction.

In attacking the RTCs disposition on the violation of the Truth in Lending Act since the
same was not alleged in the complaint, UCPB is actually asserting a violation of due
process. Indeed, due process mandates that a defendant should be sufficiently apprised of the
matters he or she would be defending himself or herself against. However, in the 1 July
1999 pre-trial brief filed by the spouses Beluso before the RTC, the claim for civil sanctions for
violation of the Truth in Lending Act was expressly alleged, thus:
Moreover, since from the start, respondent bank violated the Truth in Lending Act in not
informing the borrower in writing before the execution of the Promissory Notes of the
interest rate expressed as a percentage of the total loan, the respondent bank instead is
liable to pay petitioners double the amount the bank is charging petitioners by way of
sanction for its violation.[41]

In the same pre-trial brief, the spouses Beluso also expressly raised the following issue:
b.) Does the expression indicative rate of DBD retail (sic) comply with the Truth
in Lending Act provision to express the interest rate as a simple annual percentage of the
loan?[42]

These assertions are so clear and unequivocal that any attempt of UCPB to feign
ignorance of the assertion of this issue in this case as to prevent it from putting up a defense
thereto is plainly hogwash.
Petitioner further posits that it is the Metropolitan Trial Court which has jurisdiction to
try and adjudicate the alleged violation of the Truth in Lending Act, considering that the present
action allegedly involved a single credit transaction as there was only one Promissory Note Line.
We disagree. We have already ruled that the action to recover the penalty under Section
6(a) of the Truth in Lending Act had been jointly instituted with (1) the action to declare the
interests in the promissory notes void, and (2) the action to declare the foreclosure void. There
had been no question that the above actions belong to the jurisdiction of the RTC. Subsection (c)
of the above-quoted Section 5 of the Rules of Court on Joinder of Causes of Action provides:

(c) Where the causes of action are between the same parties but pertain to
different venues or jurisdictions, the joinder may be allowed in the Regional Trial Court
provided one of the causes of action falls within the jurisdiction of said court and the
venue lies therein.

Furthermore, opening a credit line does not create a credit transaction of loan or mutuum,
since the former is merely a preparatory contract to the contract of loan ormutuum. Under such
credit line, the bank is merely obliged, for the considerations specified therefor, to lend to the
other party amounts not exceeding the limit provided. The credit transaction thus occurred not
when the credit line was opened, but rather when the credit line was availed of. In the case at
bar, the violation of the Truth in Lending Act allegedly occurred not when the parties executed
the Credit Agreement, where no interest rate was mentioned, but when the parties executed the
promissory notes, where the allegedly offending interest rate was stipulated.
UCPB further argues that since the spouses Beluso were duly given copies of the subject
promissory notes after their execution, then they were duly notified of the terms thereof, in
substantial compliance with the Truth in Lending Act.
Once more, we disagree. Section 4 of the Truth in Lending Act clearly provides that the
disclosure statement must be furnished prior to the consummation of the transaction:
SEC. 4. Any creditor shall furnish to each person to whom credit is
extended, prior to the consummation of the transaction, a clear statement in writing
setting forth, to the extent applicable and in accordance with rules and regulations
prescribed by the Board, the following information:
(1) the cash price or delivered price of the property or service to be acquired;
(2) the amounts, if any, to be credited as down payment and/or trade-in;
(3) the difference between the amounts set forth under clauses (1) and (2)
(4) the charges, individually itemized, which are paid or to be paid by such
person in connection with the transaction but which are not incident to the
extension of credit;
(5) the total amount to be financed;
(6) the finance charge expressed in terms of pesos and centavos; and
(7) the percentage that the finance bears to the total amount to be financed
expressed as a simple annual rate on the outstanding unpaid balance of the
obligation.

The rationale of this provision is to protect users of credit from a lack of awareness of the
true cost thereof, proceeding from the experience that banks are able to conceal such true cost by
hidden charges, uncertainty of interest rates, deduction of interests from the loaned amount, and
the like. The law thereby seeks to protect debtors by permitting them to fully appreciate the true
cost of their loan, to enable them to give full consent to the contract, and to properly evaluate
their options in arriving at business decisions. Upholding UCPBs claim of substantial
compliance would defeat these purposes of the Truth in Lending Act. The belated discovery of
the true cost of credit will too often not be able to reverse the ill effects of an already
consummated business decision.
In addition, the promissory notes, the copies of which were presented to the spouses
Beluso after execution, are not sufficient notification from UCPB. As earlier discussed, the
interest rate provision therein does not sufficiently indicate with particularity the interest rate to
be applied to the loan covered by said promissory notes.
Forum Shopping
UCPB had earlier moved to dismiss the petition (originally Case No. 99-314 in
RTC, Makati City) on the ground that the spouses Beluso instituted another case (Civil Case No.
V-7227) before the RTC of Roxas City, involving the same parties and issues. UCPB claims that
while Civil Case No. V-7227 initially appears to be a different action, as it prayed for the
issuance of a temporary restraining order and/or injunction to stop foreclosure of spouses
Belusos properties, it poses issues which are similar to those of the present case. [43] To prove its
point, UCPB cited the spouses Belusos Amended Petition in Civil Case No. V-7227, which
contains similar allegations as those in the present case. The RTC of Makati denied UCPBs
Motion to Dismiss Case No. 99-314 for lack of merit. Petitioner UCPB raised the same issue
with the Court of Appeals, and is raising the same issue with us now.
The spouses Beluso claim that the issue in Civil Case No. V-7227 before the RTC of
Roxas City, a Petition for Injunction Against Foreclosure, is the propriety of the foreclosure
before the true account of spouses Beluso is determined. On the other hand, the issue in Case
No. 99-314 before the RTC of Makati City is the validity of the interest rate provision. The
spouses Beluso claim that Civil Case No. V-7227 has become moot because, before the RTC of
Roxas City could act on the restraining order, UCPB proceeded with the foreclosure and auction
sale. As the act sought to be restrained by Civil Case No. V-7227 has already been
accomplished, the spouses Beluso had to file a different action, that of Annulment of the
Foreclosure Sale, Case No. 99-314 with the RTC, Makati City.
Even if we assume for the sake of argument, however, that only one cause of action is
involved in the two civil actions, namely, the violation of the right of the spouses Beluso not to
have their property foreclosed for an amount they do not owe, the Rules of Court nevertheless
allows the filing of the second action. Civil Case No. V-7227 was dismissed by the RTC of

Roxas City before the filing of Case No. 99-314 with the RTC of Makati City, since the venue of
litigation as provided for in the Credit Agreement is inMakati City.
Rule 16, Section 5 bars the refiling of an action previously dismissed only in the
following instances:
SEC. 5. Effect of dismissal.Subject to the right of appeal, an order granting a
motion to dismiss based on paragraphs (f), (h) and (i) of section 1 hereof shall bar the
refiling of the same action or claim. (n)

Improper venue as a ground for the dismissal of an action is found in paragraph (c) of
Section 1, not in paragraphs (f), (h) and (i):
SECTION 1. Grounds.Within the time for but before filing the answer to the
complaint or pleading asserting a claim, a motion to dismiss may be made on any of the
following grounds:
(a) That the court has no jurisdiction over the person of the defending party;
(b) That the court has no jurisdiction over the subject matter of the claim;
(c) That venue is improperly laid;
(d) That the plaintiff has no legal capacity to sue;
(e) That there is another action pending between the same parties for the same
cause;
(f) That the cause of action is barred by a prior judgment or by the statute of
limitations;
(g) That the pleading asserting the claim states no cause of action;
(h) That the claim or demand set forth in the plaintiffs pleading has been
paid, waived, abandoned, or otherwise extinguished;
(i) That the claim on which the action is founded is unenforceable under the
provisions of the statute of frauds; and
[44]

(j) That a condition precedent for filing the claim has not been complied with.
(Emphases supplied.)

When an action is dismissed on the motion of the other party, it is only when the ground
for the dismissal of an action is found in paragraphs (f), (h) and (i) that the action cannot be
refiled. As regards all the other grounds, the complainant is allowed to file same action, but

should take care that, this time, it is filed with the proper court or after the accomplishment of the
erstwhile absent condition precedent, as the case may be.
UCPB, however, brings to the attention of this Court a Motion for Reconsideration filed
by the spouses Beluso on 15 January 1999 with the RTC of Roxas City, which Motion had not
yet been ruled upon when the spouses Beluso filed Civil Case No. 99-314 with the RTC of
Makati. Hence, there were allegedly two pending actions between the same parties on the same
issue at the time of the filing of Civil Case No. 99-314 on 9 February 1999 with the RTC of
Makati. This will still not change our findings. It is indeed the general rule that in cases where
there are two pending actions between the same parties on the same issue, it should be the later
case that should be dismissed. However, this rule is not absolute. According to this Court
in Allied Banking Corporation v. Court of Appeals[45]:
In these cases, it is evident that the first action was filed in anticipation of the
filing of the later action and the purpose is to preempt the later suit or provide a basis for
seeking the dismissal of the second action.
Even if this is not the purpose for the filing of the first action, it may
nevertheless be dismissed if the later action is the more appropriate vehicle for the
ventilation of the issues between the parties. Thus, in Ramos v. Peralta, it was held:
[T]he rule on litis pendentia does not require that the later case
should yield to the earlier case. What is required merely is that there be
another pending action, not a prior pending action. Considering the
broader scope of inquiry involved in Civil Case No. 4102 and the
location of the property involved, no error was committed by the lower
court in deferring to the Bataan court's jurisdiction.
Given, therefore, the pendency of two actions, the following are the relevant
considerations in determining which action should be dismissed: (1) the date of filing,
with preference generally given to the first action filed to be retained; (2) whether the
action sought to be dismissed was filed merely to preempt the later action or to anticipate
its filing and lay the basis for its dismissal; and (3) whether the action is the appropriate
vehicle for litigating the issues between the parties.

In the case at bar, Civil Case No. V-7227 before the RTC of Roxas City was an action for
injunction against a foreclosure sale that has already been held, while Civil Case No. 99-314
before the RTC of Makati City includes an action for the annulment of said foreclosure, an action
certainly more proper in view of the execution of the foreclosure sale. The former case was
improperly filed in Roxas City, while the latter was filed in Makati City, the proper venue of the
action as mandated by the Credit Agreement. It is evident, therefore, that Civil Case No. 99-314
is the more appropriate vehicle for litigating the issues between the parties, as compared to Civil
Case No. V-7227. Thus, we rule that the RTC of Makati City was not in error in not dismissing
Civil Case No. 99-314.

WHEREFORE, the Decision of the Court of Appeals is hereby AFFIRMED with the
following MODIFICATIONS:
1.

2.

3.

In addition to the sum of P2,350,000.00 as determined by the courts a quo,

respondent spouses Samuel and Odette Beluso are also liable for the following
amounts:
a. Penalty of 12% per annum on the amount due[46] from the date of demand; and
b. Compounded legal interest of 12% per annum on the amount due [47] from date
of demand;
The following amounts shall be deducted from the liability of the spouses Samuel
and Odette Beluso:
a. Payments made by the spouses in the amount of P763,692.00. These
payments shall be applied to the date of actual payment of the following in
the order that they are listed, to wit:
i. penalty charges due and demandable as of the time of payment;
ii. interest due and demandable as of the time of payment;
iii. principal amortization/payment in arrears as of the time of payment;
iv. outstanding balance.
b. Penalty under Republic Act No. 3765 in the amount of P26,000.00. This
amount shall be deducted from the liability of the spouses Samuel and Odette
Beluso on9 February 1999 to the following in the order that they are listed,
to wit:
i. penalty charges due and demandable as of time of payment;
ii. interest due and demandable as of the time of payment;
iii. principal amortization/payment in arrears as of the time of payment;
iv. outstanding balance.
The foreclosure of mortgage is hereby declared VALID. Consequently, the
amounts which the Regional Trial Court and the Court of Appeals ordered
respondents to pay, as modified in this Decision, shall be deducted from the
proceeds of the foreclosure sale.

SO ORDERED.

G.R. No. L-66826 August 19, 1988

BANK OF THE PHILIPPINE ISLANDS, petitioner,
vs.
THE INTERMEDIATE APPELLATE COURT and ZSHORNACK respondents.
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 xxx
5. Ordering defendant COMTRUST to pay plaintiff in the amount of P8,000.00 as
damages in the concept of litigation expenses and attorney's fees suffered by plaintiff
as a result of the failure of the defendant bank to restore to his (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. 210465-29 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 $3,000.00 cash (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 COMPANY
of the Philippines
Quezon City Branch
Decem
ber 8,
1975
MR. RIZALDY T. ZSHORNACK
&/OR MRS SHIRLEY E. ZSHORNACK
Sir/Madam:
We acknowledged (sic) having received from you today the sum of
US DOLLARS: THREE THOUSAND ONLY (US$3,000.00) for
safekeeping.
Receiv
ed by:

(Sgd.)
VIRGIL
IO V.
GARCI
A
It was also alleged in the complaint that despite demands, the bank refused to return the money.
In its answer, COMTRUST averred that the US$3,000 was credited to Zshornack's peso current
account at prevailing conversion rates.
It must be emphasized that COMTRUST did not deny specifically under oath the authenticity and
due execution of the above instrument.
During trial, it was established that on December 8, 1975 Zshornack indeed delivered to the bank
US $3,000 for safekeeping. When he requested the return of the money on May 10, 1976,
COMTRUST explained that the sum was disposed of in this manner: US$2,000.00 was sold on
December 29, 1975 and the peso proceeds amounting to P14,920.00 were deposited to Zshornack's
current account per deposit slip accomplished by Garcia; the remaining US$1,000.00 was sold on
February 3, 1976 and the peso proceeds amounting to P8,350.00 were deposited to his current
account per deposit slip also accomplished by Garcia.
Aside from asserting that the US$3,000.00 was properly credited to Zshornack's current account at
prevailing conversion rates, BPI now posits another ground to defeat private respondent's claim. It
now argues that the contract embodied in the document is the contract of depositum (as defined in
Article 1962, New Civil Code), which banks do not enter into. The bank alleges that Garcia exceeded
his powers when he entered into the transaction. Hence, it is claimed, the bank cannot be liable
under the contract, and the obligation is purely personal to Garcia.
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 xxx
2. Transactions in the assets described below and all dealings in them of whatever
nature, including, where applicable their exportation and importation, shall NOT be
effected, except with respect to deposit accounts included in sub-paragraphs (b) and
(c) of this paragraph, when such deposit accounts are owned by and in the name of,
banks.
(a) Any and all assets, provided they are held through, in, or with
banks or banking institutions located in the Philippines,
including money, checks, drafts, bullions bank drafts, deposit
accounts (demand, time and savings), all debts, indebtedness or
obligations, financial brokers and investment houses, notes,
debentures, stocks, bonds, coupons, bank acceptances, mortgages,
pledges, liens or other rights in the nature of security, expressed in
foreign currencies, or if payable abroad, irrespective of the currency
in which they are expressed, and belonging to any person, firm,
partnership, association, branch office, agency, company or other
unincorporated body or corporation residing or located within the
Philippines;
(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 xxx

4. (a) All receipts of foreign exchange shall be sold daily to the Central Bank by those
authorized to deal in foreign exchange. All receipts of foreign exchange by any
person, firm, partnership, association, branch office, agency, company or other
unincorporated body or corporation shall be sold to the authorized agents of the
Central Bank by the recipients within one business day following the receipt of such
foreign exchange. Any person, firm, partnership, association, branch office, agency,
company or other unincorporated body or corporation, residing or located within the
Philippines, who acquires on and after the date of this Circular foreign exchange
shall not, unless licensed by the Central Bank, dispose of such foreign exchange in
whole or in part, nor receive less than its full value, nor delay taking ownership
thereof except as such delay is customary; Provided, further, That within one day
upon taking ownership, or receiving payment, of foreign exchange the
aforementioned persons and entities shall sell such foreign exchange to designated
agents of the Central Bank.
xxx xxx xxx
8. Strict observance of the provisions of this Circular is enjoined; and any person,
firm or corporation, foreign or domestic, who being bound to the observance thereof,
or of such other rules, regulations or directives as may hereafter be issued in
implementation of this Circular, shall fail or refuse to comply with, or abide by, or shall
violate the same, shall be subject to the penal sanctions provided in the Central
Bank Act.
xxx xxx xxx
Paragraph 4 (a) above was modified by Section 6 of Central Bank Circular No. 281, Regulations on
Foreign Exchange, promulgated on November 26, 1969 by limiting its coverage to Philippine
residents only. Section 6 provides:
SEC. 6. All receipts of foreign exchange by any resident person, firm, company or
corporation shall be sold to authorized agents of the Central Bank by the recipients
within one business day following the receipt of such foreign exchange.
Any resident person, firm, company or corporation residing or located within the
Philippines, who acquires foreign exchange shall not, unless authorized by the
Central Bank, dispose of such foreign exchange in whole or in part, nor receive less
than its full value, nor delay taking ownership thereof except as such delay is
customary; Provided, That, within one business day upon taking ownership or
receiving payment of foreign exchange the aforementioned persons and entities shall
sell such foreign exchange to the authorized agents of the Central Bank.
As earlier stated, the document and the subsequent acts of the parties show that they intended the
bank to safekeep the foreign exchange, and return it later to Zshornack, who alleged in his complaint
that he is a Philippine resident. The parties did not intended to sell the US dollars to the Central Bank
within one business day from receipt. Otherwise, the contract of depositum would never have been
entered into at all.

Since the mere safekeeping of the greenbacks, without selling them to the Central Bank within one
business day from receipt, is a transaction which is not authorized by CB Circular No. 20, it must be
considered as one which falls under the general class of prohibited transactions. Hence, pursuant to
Article 5 of the Civil Code, it is void, having been executed against the provisions of a
mandatory/prohibitory law. More importantly, it affords neither of the parties a cause of action against
the other. "When the nullity proceeds from the illegality of the cause or object of the contract, and the
act constitutes a criminal offense, both parties being in pari delicto, they shall have no cause of
action against each other. . ." [Art. 1411, New Civil Code.] The only remedy is one on behalf of the
State to prosecute the parties for violating the law.
We thus rule that Zshornack cannot recover under the second cause of action.
3. Lastly, we find the P8,000.00 awarded by the courts a quo as 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.

G.R. No. L-6913

November 21, 1913

THE ROMAN CATHOLIC BISHOP OF JARO, plaintiff-appellee,

vs.
GREGORIO DE LA PEA, administrator of the estate of Father Agustin de la Pea, defendantappellant.
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.

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. 173654-765

August 28, 2008

PEOPLE OF THE PHILIPPINES, petitioner,

vs.
TERESITA PUIG and ROMEO PORRAS, respondents.
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review under Rule 45 of the Revised Rules of Court with petitioner
People of the Philippines, represented by the Office of the Solicitor General, praying for
the reversal of the Orders dated 30 January 2006 and 9 June 2006 of the Regional Trial
Court (RTC) of the 6th Judicial Region, Branch 68, Dumangas, Iloilo, dismissing the 112
cases of Qualified Theft filed against respondents Teresita Puig and Romeo Porras, and
denying petitioners Motion for Reconsideration, in Criminal Cases No. 05-3054 to 053165.
The following are the factual antecedents:
On 7 November 2005, the Iloilo Provincial Prosecutors Office filed before Branch 68 of
the RTC in Dumangas, Iloilo, 112 cases of Qualified Theft against respondents Teresita
Puig (Puig) and Romeo Porras (Porras) who were the Cashier and Bookkeeper,
respectively, of private complainant Rural Bank of Pototan, Inc. The cases were
docketed as Criminal Cases No. 05-3054 to 05-3165.
The allegations in the Informations1 filed before the RTC were uniform and pro-forma,
except for the amounts, date and time of commission, to wit:
INFORMATION
That on or about the 1st day of August, 2002, in the Municipality of Pototan,
Province of Iloilo, Philippines, and within the jurisdiction of this Honorable Court,
above-named [respondents], conspiring, confederating, and helping one
another, with grave abuse of confidence, being
the Cashier and Bookkeeper of the Rural Bank of Pototan, Inc., Pototan, Iloilo,
without the knowledge and/or consent of the management of the Bank and with
intent of gain, did then and there willfully, unlawfully and feloniously take, steal
and carry away the sum of FIFTEEN THOUSAND PESOS (P15,000.00),
Philippine Currency, to the damage and prejudice of the said bank in the
aforesaid amount.

After perusing the Informations in these cases, the trial court did not find the existence
of probable cause that would have necessitated the issuance of a warrant of arrest
based on the following grounds:
(1) the element of taking without the consent of the owners was missing on
the ground that it is the depositors-clients, and not the Bank, which filed the
complaint in these cases, who are the owners of the money allegedly taken by
respondents and hence, are the real parties-in-interest; and
(2) the Informations are bereft of the phrase alleging "dependence,
guardianship or vigilance between the respondents and the offended party
that would have created a high degree of confidence between them which
the respondents could have abused."
It added that allowing the 112 cases for Qualified Theft filed against the respondents to
push through would be violative of the right of the respondents under Section 14(2),
Article III of the 1987 Constitution which states that in all criminal prosecutions, the
accused shall enjoy the right to be informed of the nature and cause of the accusation
against him. Following Section 6, Rule 112 of the Revised Rules of Criminal Procedure,
the RTC dismissed the cases on 30 January 2006 and refused to issue a warrant of
arrest against Puig and Porras.
A Motion for Reconsideration2 was filed on 17 April 2006, by the petitioner.
On 9 June 2006, an Order3 denying petitioners Motion for Reconsideration was issued
by the RTC, finding as follows:
Accordingly, the prosecutions Motion for Reconsideration should be, as it hereby,
DENIED. The Order dated January 30, 2006 STANDS in all respects.
Petitioner went directly to this Court via Petition for Review on Certiorari under Rule 45,
raising the sole legal issue of:
WHETHER OR NOT THE 112 INFORMATIONS FOR QUALIFIED THEFT
SUFFICIENTLY ALLEGE THE ELEMENT OF TAKING WITHOUT THE
CONSENT OF THE OWNER, AND THE QUALIFYING CIRCUMSTANCE OF
GRAVE ABUSE OF CONFIDENCE.
Petitioner prays that judgment be rendered annulling and setting aside the Orders dated
30 January 2006 and 9 June 2006 issued by the trial court, and that it be directed to
proceed with Criminal Cases No. 05-3054 to 05-3165.

Petitioner explains that under Article 1980 of the New Civil Code, "fixed, savings, and
current deposits of money in banks and similar institutions shall be governed by the
provisions concerning simple loans." Corollary thereto, Article 1953 of the same Code
provides that "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." Thus, it posits that the depositors who place their money
with the bank are considered creditors of the bank. The bank acquires ownership of the
money deposited by its clients, making the money taken by respondents as belonging to
the bank.
Petitioner also insists that the Informations sufficiently allege all the elements of the
crime of qualified theft, citing that a perusal of the Informations will show that they
specifically allege that the respondents were the Cashier and Bookkeeper of the Rural
Bank of Pototan, Inc., respectively, and that they took various amounts of money with
grave abuse of confidence, and without the knowledge and consent of the bank, to the
damage and prejudice of the bank.
Parenthetically, respondents raise procedural issues. They challenge the petition on the
ground that a Petition for Review on Certiorari via Rule 45 is the wrong mode of appeal
because a finding of probable cause for the issuance of a warrant of arrest presupposes
evaluation of facts and circumstances, which is not proper under said Rule.
Respondents further claim that the Department of Justice (DOJ), through the Secretary
of Justice, is the principal party to file a Petition for Review on Certiorari, considering
that the incident was indorsed by the DOJ.
We find merit in the petition.
The dismissal by the RTC of the criminal cases was allegedly due to insufficiency of the
Informations and, therefore, because of this defect, there is no basis for the existence of
probable cause which will justify the issuance of the warrant of arrest. Petitioner assails
the dismissal contending that the Informations for Qualified Theft sufficiently state facts
which constitute (a) the qualifying circumstance of grave abuse of confidence; and (b)
the element of taking, with intent to gain and without the consent of the owner, which is
the Bank.
In determining the existence of probable cause to issue a warrant of arrest, the RTC
judge found the allegations in the Information inadequate. He ruled that the Information
failed to state facts constituting the qualifying circumstance of grave abuse of
confidence and the element of taking without the consent of the owner, since the owner

of the money is not the Bank, but the depositors therein. He also cites People v. Koc
Song,4 in which this Court held:
There must be allegation in the information and proof of a relation, by reason of
dependence, guardianship or vigilance, between the respondents and the
offended party that has created a high degree of confidence between them,
which the respondents abused.
At this point, it needs stressing that the RTC Judge based his conclusion that there was
no probable cause simply on the insufficiency of the allegations in the Informations
concerning the facts constitutive of the elements of the offense charged. This, therefore,
makes the issue of sufficiency of the allegations in the Informations the focal point of
discussion.
Qualified Theft, as defined and punished under Article 310 of the Revised Penal Code,
is committed as follows, viz:
ART. 310. Qualified Theft. The crime of theft shall be punished by the penalties
next higher by two degrees than those respectively specified in the next
preceding article, if committed by a domestic servant, or with grave abuse of
confidence, or if the property stolen is motor vehicle, mail matter or large cattle or
consists of coconuts taken from the premises of a plantation, fish taken from a
fishpond or fishery or if property is taken on the occasion of fire, earthquake,
typhoon, volcanic eruption, or any other calamity, vehicular accident or civil
disturbance. (Emphasis supplied.)
Theft, as defined in Article 308 of the Revised Penal Code, requires the physical taking
of anothers property without violence or intimidation against persons or force upon
things. The elements of the crime under this Article are:
1. Intent to gain;
2. Unlawful taking;
3. Personal property belonging to another;
4. Absence of violence or intimidation against persons or force upon things.
To fall under the crime of Qualified Theft, the following elements must concur:
1. Taking of personal property;

2. That the said property belongs to another;

3. That the said taking be done with intent to gain;
4. That it be done without the owners consent;
5. That it be accomplished without the use of violence or intimidation against
persons, nor of force upon things;
6. That it be done with grave abuse of confidence.
On the sufficiency of the Information, Section 6, Rule 110 of the Rules of Court
requires, inter alia, that the information must state the acts or omissions complained of
as constitutive of the offense.
On the manner of how the Information should be worded, Section 9, Rule 110 of the
Rules of Court, is enlightening:
Section 9. Cause of the accusation. The acts or omissions complained of as
constituting the offense and the qualifying and aggravating circumstances must
be stated in ordinary and concise language and not necessarily in the language
used in the statute but in terms sufficient to enable a person of common
understanding to know what offense is being charged as well as its qualifying
and aggravating circumstances and for the court to pronounce judgment.
It is evident that the Information need not use the exact language of the statute in
alleging the acts or omissions complained of as constituting the offense. The test is
whether it enables a person of common understanding to know the charge against him,
and the court to render judgment properly.5
The portion of the Information relevant to this discussion reads:
A]bove-named [respondents], conspiring, confederating, and helping one another, with grave abuse of confidence, being the Cashier
and Bookkeeper of the Rural Bank of Pototan, Inc., Pototan, Iloilo, without the knowledge and/or consent of the management of the Bank x
x x.

It is beyond doubt that tellers, Cashiers, Bookkeepers and other employees of a Bank
who come into possession of the monies deposited therein enjoy the confidence
reposed in them by their employer. Banks, on the other hand, where monies are
deposited, are considered the owners thereof. This is very clear not only from the
express provisions of the law, but from established jurisprudence. The relationship
between banks and depositors has been held to be that of creditor and debtor. Articles

1953 and 1980 of the New Civil Code, as appropriately pointed out by petitioner, provide
as follows:
Article 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.
Article 1980. Fixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning loan.
In a long line of cases involving Qualified Theft, this Court has firmly established the
nature of possession by the Bank of the money deposits therein, and the duties being
performed by its employees who have custody of the money or have come into
possession of it. The Court has consistently considered the allegations in the
Information that such employees acted with grave abuse of confidence, to the damage
and prejudice of the Bank, without particularly referring to it as owner of the money
deposits, as sufficient to make out a case of Qualified Theft. For a graphic illustration,
we cite Roque v. People,6 where the accused teller was convicted for Qualified Theft
based on this Information:
That on or about the 16th day of November, 1989, in the municipality of
Floridablanca, province of Pampanga, Philippines and within the jurisdiction of
his Honorable Court, the above-named accused ASUNCION GALANG ROQUE,
being then employed as teller of the Basa Air Base Savings and Loan
Association Inc. (BABSLA) with office address at Basa Air Base, Floridablanca,
Pampanga, and as such was authorized and reposed with the responsibility to
receive and collect capital contributions from its member/contributors of said
corporation, and having collected and received in her capacity as teller of the
BABSLA the sum of TEN THOUSAND PESOS (P10,000.00), said accused, with
intent of gain, with grave abuse of confidence and without the knowledge
and consent of said corporation, did then and there willfully, unlawfully and
feloniously take, steal and carry away the amount of P10,000.00, Philippine
currency, by making it appear that a certain depositor by the name of Antonio
Salazar withdrew from his Savings Account No. 1359, when in truth and in fact
said Antonio Salazar did not withdr[a]w the said amount of P10,000.00 to the
damage and prejudice of BABSLA in the total amount of P10,000.00, Philippine
currency.
In convicting the therein appellant, the Court held that:

[S]ince the teller occupies a position of confidence, and the bank places money
in the tellers possession due to the confidence reposed on the teller, the felony
of qualified theft would be committed. 7
Also in People v. Sison,8 the Branch Operations Officer was convicted of the crime of
Qualified Theft based on the Information as herein cited:
That in or about and during the period compressed between January 24, 1992
and February 13, 1992, both dates inclusive, in the City of Manila, Philippines,
the said accused did then and there wilfully, unlawfully and feloniously, with intent
of gain and without the knowledge and consent of the owner thereof, take, steal
and carry away the following, to wit:
Cash money amounting to P6,000,000.00 in different denominations belonging to
the PHILIPPINE COMMERCIAL INTERNATIONAL BANK (PCIBank for brevity),
Luneta Branch, Manila represented by its Branch Manager, HELEN U. FARGAS,
to the damage and prejudice of the said owner in the aforesaid amount
of P6,000,000.00, Philippine Currency.
That in the commission of the said offense, herein accused acted with grave
abuse of confidence and unfaithfulness, he being the Branch Operation Officer of
the said complainant and as such he had free access to the place where the said
amount of money was kept.
The judgment of conviction elaborated thus:
The crime perpetuated by appellant against his employer, the Philippine
Commercial and Industrial Bank (PCIB), is Qualified Theft. Appellant could not
have committed the crime had he not been holding the position of Luneta Branch
Operation Officer which gave him not only sole access to the bank vault xxx. The
management of the PCIB reposed its trust and confidence in the appellant as its
Luneta Branch Operation Officer, and it was this trust and confidence which he
exploited to enrich himself to the damage and prejudice of PCIB x x x. 9
From another end, People v. Locson,10 in addition to People v. Sison, described the
nature of possession by the Bank. The money in this case was in the possession of the
defendant as receiving teller of the bank, and the possession of the defendant was the
possession of the Bank. The Court held therein that when the defendant, with grave
abuse of confidence, removed the money and appropriated it to his own use without the
consent of the Bank, there was taking as contemplated in the crime of Qualified Theft. 11

Conspicuously, in all of the foregoing cases, where the Informations merely alleged the
positions of the respondents; that the crime was committed with grave abuse of
confidence, with intent to gain and without the knowledge and consent of the Bank,
without necessarily stating the phrase being assiduously insisted upon by respondents,
"of a relation by reason of dependence, guardianship or vigilance, between the
respondents and the offended party that has created a high degree of confidence
between them, which respondents abused,"12 and without employing the word
"owner" in lieu of the "Bank" were considered to have satisfied the test of sufficiency of
allegations.
As regards the respondents who were employed as Cashier and Bookkeeper of the
Bank in this case, there is even no reason to quibble on the allegation in the
Informations that they acted with grave abuse of confidence. In fact, the Information
which alleged grave abuse of confidence by accused herein is even more precise, as
this is exactly the requirement of the law in qualifying the crime of Theft.
In summary, the Bank acquires ownership of the money deposited by its clients; and the
employees of the Bank, who are entrusted with the possession of money of the Bank
due to the confidence reposed in them, occupy positions of confidence. The
Informations, therefore, sufficiently allege all the essential elements constituting the
crime of Qualified Theft.
On the theory of the defense that the DOJ is the principal party who may file the instant
petition, the ruling in Mobilia Products, Inc. v. Hajime Umezawa13 is instructive. The
Court thus enunciated:
In a criminal case in which the offended party is the State, the interest of the
private complainant or the offended party is limited to the civil liability arising
therefrom. Hence, if a criminal case is dismissed by the trial court or if there is an
acquittal, a reconsideration of the order of dismissal or acquittal may be
undertaken, whenever legally feasible, insofar as the criminal aspect thereof is
concerned and may be made only by the public prosecutor; or in the case of an
appeal, by the State only, through the OSG. x x x.
On the alleged wrong mode of appeal by petitioner, suffice it to state that the rule is
well-settled that in appeals by certiorari under Rule 45 of the Rules of Court, only errors
of law may be raised,14 and herein petitioner certainly raised a question of law.
As an aside, even if we go beyond the allegations of the Informations in these cases, a
closer look at the records of the preliminary investigation conducted will show that,
indeed, probable cause exists for the indictment of herein respondents. Pursuant to

Section 6, Rule 112 of the Rules of Court, the judge shall issue a warrant of arrest only
upon a finding of probable cause after personally evaluating the resolution of the
prosecutor and its supporting evidence. Soliven v. Makasiar,15 as reiterated inAllado v.
Driokno,16 explained that probable cause for the issuance of a warrant of arrest is the
existence of such facts and circumstances that would lead a reasonably discreet and
prudent person to believe that an offense has been committed by the person sought to
be arrested.17 The records reasonably indicate that the respondents may have, indeed,
committed the offense charged.
Before closing, let it be stated that while it is truly imperative upon the fiscal or the
judge, as the case may be, to relieve the respondents from the pain of going through a
trial once it is ascertained that no probable cause exists to form a sufficient belief as to
the guilt of the respondents, conversely, it is also equally imperative upon the judge to
proceed with the case upon a showing that there is a prima facie case against the
respondents.
WHEREFORE, premises considered, the Petition for Review on Certiorari is
hereby GRANTED. The Orders dated 30 January 2006 and 9 June 2006 of the RTC
dismissing Criminal Cases No. 05-3054 to 05-3165 are REVERSED and SET ASIDE.
Let the corresponding Warrants of Arrest issue against herein respondents TERESITA
PUIG and ROMEO PORRAS. The RTC Judge of Branch 68, in Dumangas, Iloilo, is
directed to proceed with the trial of Criminal Cases No. 05-3054 to 05-3165, inclusive,
with reasonable dispatch. No pronouncement as to costs.
SO ORDERED.

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.
l^vvphi1.net

1awphi1.nt

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
l^vvphi1.net

l^vvphi1.net

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.

G.R. No. 102970 May 13, 1993

LUZAN SIA, petitioner,
vs.
COURT OF APPEALS and SECURITY BANK and TRUST COMPANY, respondents.
Asuncion Law Offices for petitioner.
Cauton, Banares, Carpio & Associates for private respondent.

DAVIDE, JR., J.:

The Decision of public respondent Court of Appeals in CA-G.R. CV No. 26737, promulgated on 21
August 1991, 1reversing and setting aside the Decision, dated 19 February 1990, 2 of Branch 47 of the
Regional Trial Court (RTC) of Manila in Civil Case No. 87-42601, entitled "LUZAN SIA vs. SECURITY
BANK and TRUST CO.," is challenged in this petition for review on certiorari under Rule 45 of the Rules
Court.
Civil Case No. 87-42601 is an action for damages arising out of the destruction or loss of the stamp
collection of the plaintiff (petitioner herein) contained in Safety Deposit Box No. 54 which had been
rented from the defendant pursuant to a contract denominated as a Lease Agreement. 3 Judgment
therein was rendered in favor of the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
plaintiff and against the defendant, Security Bank & Trust Company, ordering the
defendant bank to pay the plaintiff the sum of
a) Twenty Thousand Pesos (P20,000.00), Philippine Currency, as actual damages;
b) One Hundred Thousand Pesos (P100,000.00), Philippine Currency, as moral
damages; and
c) Five Thousand Pesos (P5,000.00), Philippine Currency, as attorney's fees and
legal expenses.
The counterclaim set up by the defendant are hereby dismissed for lack of merit.
No costs.
SO ORDERED. 4
The antecedent facts of the present controversy are summarized by the public respondent in its
challenged decision as follows:

The plaintiff rented on March 22, 1985 the Safety Deposit Box No. 54 of the
defendant bank at its Binondo Branch located at the Fookien Times Building, Soler
St., Binondo, Manila wherein he placed his collection of stamps. The said safety
deposit box leased by the plaintiff was at the bottom or at the lowest level of the
safety deposit boxes of the defendant bank at its aforesaid Binondo Branch.
During the floods that took place in 1985 and 1986, floodwater entered into the
defendant bank's premises, seeped into the safety deposit box leased by the plaintiff
and caused, according to the plaintiff, damage to his stamps collection. The
defendant bank rejected the plaintiff's claim for compensation for his damaged
stamps collection, so, the plaintiff instituted an action for damages against the
defendant bank.
The defendant bank denied liability for the damaged stamps collection of the plaintiff
on the basis of the "Rules and Regulations Governing the Lease of Safe Deposit
Boxes" (Exhs. "A-1", "1-A"), particularly paragraphs 9 and 13, which reads (sic):
"9. The liability of the Bank by reason of the lease, is limited to the exercise of the
diligence to prevent the opening of the safe by any person other than the Renter, his
authorized agent or legal representative;
xxx xxx xxx
"13. The Bank is not a depository of the contents of the safe and it has neither the
possession nor the control of the same. The Bank has no interest whatsoever in said
contents, except as herein provided, and it assumes absolutely no liability in
connection therewith."
The defendant bank also contended that its contract with the plaintiff over safety
deposit box No. 54 was one of lease and not of deposit and, therefore, governed by
the lease agreement (Exhs. "A", "L") which should be the applicable law; that the
destruction of the plaintiff's stamps collection was due to a calamity beyond
obligation on its part to notify the plaintiff about the floodwaters that inundated its
premises at Binondo branch which allegedly seeped into the safety deposit box
leased to the plaintiff.
The trial court then directed that an ocular inspection on (sic) the contents of the
safety deposit box be conducted, which was done on December 8, 1988 by its clerk
of court in the presence of the parties and their counsels. A report thereon was then
submitted on December 12, 1988 (Records, p. 98-A) and confirmed in open court by
both parties thru counsel during the hearing on the same date (Ibid., p. 102) stating:
"That the Safety Box Deposit No. 54 was opened by both plaintiff
Luzan Sia and the Acting Branch Manager Jimmy B. Ynion in the
presence of the undersigned, plaintiff's and defendant's counsel. Said
Safety Box when opened contains two albums of different sizes and

thickness, length and width and a tin box with printed word 'Tai Ping
Shiang Roast Pork in pieces with Chinese designs and character."
Condition of the above-stated Items
"Both albums are wet, moldy and badly damaged.
1. The first album measures 10 1/8 inches in length, 8 inches in width and 3/4 in
thick. The leaves of the album are attached to every page and cannot be lifted
without destroying it, hence the stamps contained therein are no longer visible.
2. The second album measure 12 1/2 inches in length, 9 3/4 in width 1 inch thick.
Some of its pages can still be lifted. The stamps therein can still be distinguished but
beyond restoration. Others have lost its original form.
3. The tin box is rusty inside. It contains an album with several pieces of papers stuck
up to the cover of the box. The condition of the album is the second abovementioned
album." 5
The SECURITY BANK AND TRUST COMPANY, hereinafter referred to as SBTC, appealed the trial
court's decision to the public respondent Court of Appeals. The appeal was docketed as CA-G.R. CV No.
26737.

In urging the public respondent to reverse the decision of the trial court, SBTC contended that the
latter erred in (a) holding that the lease agreement is a contract of adhesion; (b) finding that the
defendant had failed to exercise the required diligence expected of a bank in maintaining the safety
deposit box; (c) awarding to the plaintiff actual damages in the amount of P20,000.00, moral
damages in the amount of P100,000.00 and attorney's fees and legal expenses in the amount of
P5,000.00; and (d) dismissing the counterclaim.
On 21 August 1991, the respondent promulgated its decision the dispositive portion of which reads:
WHEREFORE, the decision appealed from is hereby REVERSED and instead the
appellee's complaint is hereby DISMISSED. The appellant bank's counterclaim is
likewise DISMISSED. No costs. 6
In reversing the trial court's decision and absolving SBTC from liability, the public respondent found and
ruled that:

a) the fine print in the "Lease Agreement " (Exhibits "A" and "1" ) constitutes the terms and
conditions of the contract of lease which the appellee (now petitioner) had voluntarily and knowingly
executed with SBTC;
b) the contract entered into by the parties regarding Safe Deposit Box No. 54 was not a contract of
deposit wherein the bank became a depositary of the subject stamp collection; hence, as contended
by SBTC, the provisions of Book IV, Title XII of the Civil Code on deposits do not apply;

c) The following provisions of the questioned lease agreement of the safety deposit box limiting
SBTC's liability:
9. The liability of the bank by reason of the lease, is limited to the exercise of the
diligence to prevent the opening of the Safe by any person other than the Renter, his
authorized agent or legal representative.
xxx xxx xxx
13. The bank is not a depository of the contents of the Safe and it has neither the
possession nor the control of the same. The Bank has no interest whatsoever in said
contents, except as herein provided, and it assumes absolutely no liability in
connection therewith.
are valid since said stipulations are not contrary to law, morals, good customs, public order or public
policy; and
d) there is no concrete evidence to show that SBTC failed to exercise the required diligence in
maintaining the safety deposit box; what was proven was that the floods of 1985 and 1986, which
were beyond the control of SBTC, caused the damage to the stamp collection; said floods were
fortuitous events which SBTC should not be held liable for since it was not shown to have
participated in the aggravation of the damage to the stamp collection; on the contrary, it offered its
services to secure the assistance of an expert in order to save most of the stamps, but the appellee
refused; appellee must then bear the lose under the principle of "res perit domino."
Unsuccessful in his bid to have the above decision reconsidered by the public
respondent, 7 petitioner filed the instant petition wherein he contends that:
I
IT WAS A GRAVE ERROR OR AN ABUSE OF DISCRETION ON THE PART OF
THE RESPONDENT COURT WHEN IT RULED THAT RESPONDENT SBTC DID
NOT FAIL TO EXERCISE THE REQUIRED DILIGENCE IN MAINTAINING THE
SAFETY DEPOSIT BOX OF THE PETITIONER CONSIDERING THAT
SUBSTANTIAL EVIDENCE EXIST (sic) PROVING THE CONTRARY.
II
THE RESPONDENT COURT SERIOUSLY ERRED IN EXCULPATING PRIVATE
RESPONDENT FROM ANY LIABILITY WHATSOEVER BY REASON OF THE
PROVISIONS OF PARAGRAPHS 9 AND 13 OF THE AGREEMENT (EXHS. "A" AND
"A-1").
III

THE RESPONDENT COURT SERIOUSLY ERRED IN NOT UPHOLDING THE

AWARDS OF THE TRIAL COURT FOR ACTUAL AND MORAL DAMAGES,
INCLUDING ATTORNEY'S FEES AND LEGAL EXPENSES, IN FAVOR OF THE
PETITIONER. 8
We subsequently gave due course the petition and required both parties to submit their respective
memoranda, which they complied with. 9
Petitioner insists that the trial court correctly ruled that SBTC had failed "to exercise the required diligence
expected of a bank maintaining such safety deposit box . . . in the light of the environmental circumstance
of said safety deposit box after the floods of 1985 and 1986." He argues that such a conclusion is
supported by the evidence on record, to wit: SBTC was fully cognizant of the exact location of the safety
deposit box in question; it knew that the premises were inundated by floodwaters in 1985 and 1986 and
considering that the bank is guarded twenty-four (24) hours a day , it is safe to conclude that it was also
aware of the inundation of the premises where the safety deposit box was located; despite such
knowledge, however, it never bothered to inform the petitioner of the flooding or take any appropriate
measures to insure the safety and good maintenance of the safety deposit box in question.

SBTC does not squarely dispute these facts; rather, it relies on the rule that findings of facts of the
Court of Appeals, when supported by substantial exidence, are not reviewable on appeal
by certiorari. 10
The foregoing rule is, of course, subject to certain exceptions such as when there exists a disparity
between the factual findings and conclusions of the Court of Appeals and the trial court. 11 Such a disparity
obtains in the present case.

As We see it, SBTC's theory, which was upheld by the public respondent, is that the "Lease
Agreement " covering Safe Deposit Box No. 54 (Exhibit "A and "1") is just that a contract of lease
and not a contract of deposit, and that paragraphs 9 and 13 thereof, which expressly limit the
bank's liability as follows:
9. The liability of the bank by reason of the lease, is limited to the exercise of the
diligence to prevent the opening of the Safe by any person other than the Renter, his
autliorized agent or legal representative;
xxx xxx xxx
13. The bank is not a depository of the contents of the Safe and it has neither the
possession nor the control of the same. The Bank has no interest whatsoever said
contents, except as herein provided, and it assumes absolutely no liability in
connection therewith. 12
are valid and binding upon the parties. In the challenged decision, the public respondent further avers that
even without such a limitation of liability, SBTC should still be absolved from any responsibility for the
damage sustained by the petitioner as it appears that such damage was occasioned by a fortuitous event
and that the respondent bank was free from any participation in the aggravation of the injury.

We cannot accept this theory and ratiocination. Consequently, this Court finds the petition to be
impressed with merit.
In the recent case CA Agro-Industrial Development Corp. vs. Court of Appeals, 13 this Court explicitly
rejected the contention that a contract for the use of a safety deposit box is a contract of lease governed
by Title VII, Book IV of the Civil Code. Nor did We fully subscribe to the view that it is a contract of deposit
to be strictly governed by the Civil Code provision on deposit; 14 it is, as We declared, a special kind of
deposit. The prevailing rule in American jurisprudence that the relation between a bank renting out safe
deposit boxes and its customer with respect to the contents of the box is that of a bailor and bailee, the
bailment for hire and mutual benefit 15 has been adopted in this jurisdiction, thus:
In the context of our laws which authorize banking institutions to rent out safety
deposit boxes, it is clear that in this jurisdiction, the prevailing rule in the United
States has been adopted. Section 72 of the General Banking Act [R.A. 337, as
amended] 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 safequarding 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. . . ."(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 (Art. 1969, Civil Code] 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 [Art. 1170, id.]. In the absence of
any stipulation prescribing the degree of diligence required, that of a good father of a
family is to be observed [Art. 1173, id.]. 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 l4 of the questioned
contract of lease of the safety deposit box, which read:

"13. The bank is 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 as herein
expressly provided, and it assumes absolutely no liability in connection therewith."
are void as they are contrary to law and public policy. We find Ourselves in
agreement with this proposition for indeed, said provisions are inconsistent with the
respondent Bank's responsibility as a depositary under Section 72 (a) of the General
Banking Act. Both exempt the latter from any liability except as contemplated in
condition 8 thereof which limits its duty to exercise reasonable diligence only with
respect to who shall be admitted to any rented safe, to wit:
"8. The Bank shall use due diligence that no unauthorized person
shall be admitted to any rented safe and beyond this, the Bank will
not be responsible for the contents of any safe rented from it."
Furthermore condition 13 stands on a wrong premise and is contrary to the actual
practice of the Bank. It is not correct to assert that the Bank has neither the
possession nor control of the contents of the box since in fact, the safety deposit box
itself is located in its premises and is under its absolute control; moreover, the
respondent Bank keeps the guard key to the said box. As stated earlier, renters
cannot open their respective boxes unless the Bank cooperates by presenting and
using this guard key. Clearly then, to the extent above stated, the foregoing
conditions in the contract in question are void and ineffective. It has been said:
"With respect to property deposited in a safe-deposit box by a
customer of a safe-deposit company, the parties, since the relation is
a contractual one, may by special contract define their respective
duties or provide for increasing or limiting the liability of the deposit
company, provided such contract is not in violation of law or public
policy. It must clearly appear that there actually was such a special
contract, however, in order to vary the ordinary obligations implied by
law from the relationship of the parties; liability of the deposit
company will not be enlarged or restricted by words of doubtful
meaning. The company, in renting safe-deposit boxes, cannot exempt
itself from liability for loss of the contents by its own fraud or
negligence or that, of its agents or servants, and if a provision of the
contract may be construed as an attempt to do so, it will be held
ineffective for the purpose. Although it has been held that the lessor
of a safe-deposit box cannot limit its liability for loss of the contents
thereof through its own negligence, the view has been taken that
such a lessor may limit its liability to some extent by agreement or
stipulation ."[10 AM JUR 2d., 466]. (citations omitted) 16

It must be noted that conditions No. 13 and No. 14 in the Contract of Lease of Safety Deposit Box
in CA Agro-Industrial Development Corp. are strikingly similar to condition No. 13 in the instant case.
On the other hand, both condition No. 8 in CA Agro-Industrial Development Corp. and condition No.
9 in the present case limit the scope of the exercise of due diligence by the banks involved to merely
seeing to it that only the renter, his authorized agent or his legal representative should open or have
access to the safety deposit box. In short, in all other situations, it would seem that SBTC is not
bound to exercise diligence of any kind at all. Assayed in the light of Our aforementioned
pronouncements in CA Agro-lndustrial Development Corp., it is not at all difficult to conclude that
both conditions No. 9 and No. 13 of the "Lease Agreement" covering the safety deposit box in
question (Exhibits "A" and "1") must be stricken down for being contrary to law and public policy as
they are meant to exempt SBTC from any liability for damage, loss or destruction of the contents of
the safety deposit box which may arise from its own or its agents' fraud, negligence or delay.
Accordingly, SBTC cannot take refuge under the said conditions.
Public respondent further postulates that SBTC cannot be held responsible for the destruction or
loss of the stamp collection because the flooding was a fortuitous event and there was no showing of
SBTC's participation in the aggravation of the loss or injury. It states:
Article 1174 of the Civil Code provides:
"Except in cases expressly specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall be responsible for
those events which could not be foreseen, or which, though foreseen,
were inevitable.'
In its dissertation of the phrase "caso fortuito" the Enciclopedia Jurisdicada
Espaola 17 says: "In a legal sense and, consequently, also in relation to contracts, a "caso fortuito" prevents
(sic) 18 the following essential characteristics: (1) the cause of the unforeseen ands unexpected occurrence, or of the
failure of the debtor to comply with his obligation, must be independent of the human will; (2) it must be impossible to
foresee the event which constitutes the "caso fortuito," or if it can be foreseen, it must be impossible to avoid; (3) the
occurrence must be such as to render it impossible for one debtor to fulfill his obligation in a normal manner; and (4)
the obligor must be free from any participation in the aggravation of the injury resulting to the creditor." (cited in
Servando vs. Phil., Steam Navigation Co., supra). 19

Here, the unforeseen or unexpected inundating floods were independent of the will of
the appellant bank and the latter was not shown to have participated in aggravating
damage (sic) to the stamps collection of the appellee. In fact, the appellant bank
offered its services to secure the assistance of an expert to save most of the then
good stamps but the appelle refused and let (sic) these recoverable stamps inside
the safety deposit box until they were ruined. 20
Both the law and authority cited are clear enough and require no further elucidation. Unfortunately,
however, the public respondent failed to consider that in the instant case, as correctly held by the trial
court, SBTC was guilty of negligence. The facts constituting negligence are enumerated in the petition
and have been summarized in this ponencia. SBTC's negligence aggravated the injury or damage to the
stamp collection. SBTC was aware of the floods of 1985 and 1986; it also knew that the floodwaters
inundated the room where Safe Deposit Box No. 54 was located. In view thereof, it should have lost no

time in notifying the petitioner in order that the box could have been opened to retrieve the stamps, thus
saving the same from further deterioration and loss. In this respect, it failed to exercise the reasonable
care and prudence expected of a good father of a family, thereby becoming a party to the aggravation of
the injury or loss. Accordingly, the aforementioned fourth characteristic of a fortuitous event is absent
Article 1170 of the Civil Code, which reads:

Those who in the performance of their obligation are guilty of fraud, negligence, or
delay, and those who in any manner contravene the tenor thereof, are liable for
damages,
thus comes to the succor of the petitioner. The destruction or loss of the stamp collection which was,
in the language of the trial court, the "product of 27 years of patience and diligence" 21 caused the
petitioner pecuniary loss; hence, he must be compensated therefor.
We cannot, however, place Our imprimatur on the trial court's award of moral damages. Since the
relationship between the petitioner and SBTC is based on a contract, either of them may be held
liable for moral damages for breach thereof only if said party had acted fraudulently or in bad
faith. 22 There is here no proof of fraud or bad faith on the part of SBTC.
WHEREFORE, the instant petition is hereby GRANTED. The challenged Decision and Resolution of
the public respondent Court of Appeals of 21 August 1991 and 21 November 1991, respectively, in
CA-G.R. CV No. 26737, are hereby SET ASIDE and the Decision of 19 February 1990 of Branch 47
of the Regional Trial Court of Manila in Civil Case No. 87-42601 is hereby REINSTATED in full,
except as to the award of moral damages which is hereby set aside.
Costs against the private respondent.
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.

G.R. No. 93849 December 20, 1991

THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee,
vs.
DICK ONG y CHAN, LINO MORFE y GUTIERREZ, RICARDO VILLARAN and LUCILA TALABIS,
accused, DICK ONG y CHAN, accused-appellant.
The Solicitor General for plaintiff-appellee.
Leoncio T. Mercado for accused-appellant.

MEDIALDEA, J.:p
The accused, Dick Ong y Chan, Lino Morfe y Gutierrez, Ricardo Villaran and Lucila Talabis, were
charged with the crime of estafa in Criminal Case No. 44080 before the Regional Trial Court of
Manila, Branch 35. The information filed in said case reads, as follows (pp. 8-9, Rollo):
That in (sic) or about and during the period comprised between December 6, 1978
and January 31, 1979, both dates inclusive, in the City of Manila, Philippines, the
said accused, conspiring and confederating together and helping one another, did
then and there wilfully, unlawfully and feloniously defraud the Home Savings Bank in
the following manner, to wit: the said accused Dick Ong y Chan, by means of false
manifestations and fraudulent representations which he made to the management of
the Home Savings Bank, Aurea Annex Branch, located at 640 Rizal Avenue, Sta.
Cruz, in said City, to the effect that the following checks, to wit:

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or all in the total amount of P575,504.00, are good and covered with sufficient funds
in the banks, and by means of other similar deceits with the conspiracy of his coaccused Lino Morfe y Gutierrez, Ricardo Villaran and Lucila Talabis, in their
capacities as officer-in-charge, branch accountant and bank branch cashier,
respectively, of said bank (Home Savings Bank), induced and succeeded in inducing
the management of the said bank to accept said checks as deposits, all the said
accused well knowing that his (Dick Ong y Chan's) representations and
manifestations are false and untrue and were made solely for the purpose of
defrauding the said bank, and, in accordance with the conspiracy, his co-accused
Lino Morfe y Gutierrez, Ricardo Villara and Lucila Talabis, facilitated the opening of a
savings account in the name of accused Dick Ong y Chan and, thereafter, approved
said deposits; that on the strength of such deposits made and the opening of an
account, the said accused were able to withdraw the total amount of P575,504.00,
which once in their possession, with intent defraud, they thereafter wilfully, unlawfully
and feloniously misappropriated, misapplied and converted to their own personal use
and benefit, to the damage and prejudice of said Home Savings Bank in the said
amount of P575,504.00, Philippine Currency.
Contrary to law.
On October 15, 1979, the prosecution moved for the dismissal of the case, insofar as accused Lino
Morfe y Gutierrez is concerned, on the ground that after a reinvestigation, it was found that the
evidence against him is not sufficient to sustain the allegations contained in the information (p. 54,
Records). On October 31, 1979, the trial court granted the motion (p. 6 Records).
Upon being arraigned, the remaining three (3) accused entered the plea of not guilty to the crime
charged. After trial on the merits, the trial court rendered its decision on January 11, 1990, the
dispositive portion of which reads, as follows (p. 26,Rollo):
WHEREFORE, judgment is rendered: (1) pronouncing accused DICK ONG y CHAN
guilty beyond reasonable doubt, as principal, of ESTAFA defined under No. 2 (d) of
Article 315 of the Revised Penal Code, as amended by Republic Act 4885, and
penalized under the lst paragraph of the same Code as amended by Presidential
Decree No. 818, and sentencing said accused to RECLUSION PERPETUA; (2)
ACQUITTING accused Lucila Talabis and Ricardo Villaran, their guilt of (sic) the
felony charged against them not having been established beyond reasonable doubt;
(3) ordering accused Dick Ong to pay the Home Saving Bank and Trust Company
the sum of P559,381.34 as partial reparation of the damage caused to said Bank; (4)
ordering forfeited in favor of the Home Savings Bank and Trust Company the sum of
P16,122.66 the positive balance remaining outstanding in Savings Account No. 61981 of accused Dick Ong with, and in the possession of, said Bank to complete the
reparation of the damage caused by Dick Ong to the Bank; (5) ordering accused Dick
Ong to pay one-third (1/3) of the costs; and (6) ordering two-thirds (2/3) of the costs
charged de oficio.
SO ORDERED.

On February 15, 1990, the accused-appellant filed a motion for reconsideration. On March 22, 1990,
he filed a supplemental memorandum in support of the motion for reconsideration. On April 3, 1990,
said motion was denied for lack of merit (pp. 575-576, Records). Hence, the present appeal by Dick
Ong y Chan.
The facts of this case were summarized by the trial court, as follows (pp. 18-20, Rollo):
Accused Dick Ong was one of the depositors of the Home Savings Bank and Trust
Company in its Aurea Annex Branch at Rizal Avenue, Sta. Cruz, Manila, hereafter, to
be referred to as the Bank. He opened his savings account on December 6, 1978,
under the Bank's Saving Account No. 6-1981, with an initial deposit of P22.14 in cash
and P10,000.00 in (a) check.
On the same date, December 6, 1978, without his check undergoing the usual and
reglamentary (sic) clearance, which normally takes about five working days, Dick
Ong was allowed to withdraw from his savings account with the Bank the sum of
P5,000.00. The corresponding withdrawal slip was signed and approved by Lino
Morfe, then the Branch Manager, and accused Lucila Talabis, the Branch Cashier.
That initial transaction was followed by other similar transactions where Dick Ong,
upon depositing checks in his savings account with the Bank, was allowed to
withdraw against those uncleared checks and uncollected deposits. The withdrawals
were authorized and approved by accused Ricardo Villaran and Lucila Talabis,
sometimes jointly, sometimes by aither (aic) of them alone, and at other times by one
of them together with another official of the Bank. But all of those uncleared checks
deposited by Dick Ong prior to January 3, 1979 and against which he was allowed to
withdraw were subsequently honored and paid by the drawee banks. (TSN, Mar. 9,
1981, pp. 101-104; TSN, Mar. 18, 1981, pp. 144 -146.)
On January 30, 1979, Dick Ong issued and deposited in his savings account with the
Bank the following checks:

Drawee
Bank

Check
No.

Paye
e

Amount

1.
Metropolita
n Bank &
Trust Co.

82508

Cash

P49,500.0
0

2.
Equitable
Bank

2762496
1

Cash

14,569.00

3. Phil.
Bank of
Comm.

T1907265

Cash

59,600.00

4. Phil.
Bank of
Comm.

T1907249

Cash

67,400.00

TOTAL

P191,06900

Afterwards but before these checks could be cleared and the Bank could collect their
amounts from the drawee banks, Lucila Talabis allowed and approved the withdrawal
of Dick Ong against the amounts of said checks. (TSN, Mar. 18, 1981, pp. 47-48.)
On the following day, January 31, 1979, Dick Ong also issued and deposited in his
savings account with the Bank the following check;

Drawee Bank

Check
No.

Paye
e

Amount

1. China
Banking
Corporation

QC08617
A

Cash

P69,850.0
0

2. Pacific
Banking
Corporation

PCB2380
56 S

Cash

60,890.00

3. Producers
Bank of the
Phil.

C987955

Cash

49,090.00

4. Equitable
Banking

27624963

Cash

14,965.00

5. Phil. Bank
of
Communicatio
ns

1915852

Cash

63,9000.0
09

6. Phil. Bank
of
Communicatio
ns

1915855

Cash

59,860.00

7. Phil. Bank
of
Communicatio
ns

1915856

Cash

65,880.00

TOT
AL

P384,435.
00

Subsequently, but before said seven checks were cleared and the Bank had
collected their amounts, Lucila Talabis and then officer in charge of the Bank Grace
Silao allowed and approved the withdrawals of Dick Ong against the amounts of
these seven checks. (TSN, lbid., pp. 47-48.)
However, when the Bank presented those eleven checks issued and deposited by
Dick Ong on January 30, 1979 and January 3l, 1979 and against which he made
withdrawals against (sic) their amounts, to their respective drawee banks for
payment, they were all dishonored for lack or insufficiency of funds. (TSN, Jan. 7,
1981, pp. 90-101; TSN, May 8, 1981, pp. 74-75.)
The accused-appellant neither took the witness stand to testify in his behalf, nor presented any
witness to testify in his favor. Instead, he offered the following documents (p. 20, Rollo):
1. Exhibit 1 Ong. The letter dated June 27, 1980 of the Central Bank Governor
to all banks authorized to accept demand deposits, enjoining strict compliance with
Monetary Board Resolution No. 2202 dated December 21, 1979, prohibiting, as a
matter of policy, drawing against uncollected deposits effective July 1, 1980.
2. Exhibit 2 Ong. The Memorandum of the Central Bank Governor dated July 9,
1980, to all banks for their guidance, that Monetary Board Resolution No. 2202 dated
December 21, 1979, prohibiting, as a matter of policy, drawing against uncollected
deposits effective July 1, 1980, covers drawing against demand deposits as well as
withdrawals from savings deposits.

3. Exhibits 3 Ong. and 3-a. Clippings from the Bulletin Today issue on July
25, 1980 regarding on (sic) ban on DAUD (drawn against uncollected deposits)
effective July 1, 1980, and the one-day loan which replaced the DAUD arrangement.
4. Exhibit 4 Ong. The sworn statement of Lino Morfe before the METROCOM
taken on February 11, 1979.
5. Exhibit 5 Ong. The letter dated July 6, 1979, of Lino Morfe to the Assistant
Fiscal of Manila, transmitting his (Morfe's) affidavit.
6. Exhibits 5-a Ong to 5-a-3-Ong. Affidavit of Lino Morfe sworn on June 28,
1979.
7. Exhibit 5-b Ong. The Bank's Memorandum dated January 31, 1979, to all
Branch Manager/Extension Office O.I.C. (sic) requiring them to furnish the Head
Office of the Bank every Monday and Thursday with a list of all "drawn against" and
"encashment" acommodations (sic) of P1,000.00 and above granted by the Branch
during the week.
8. Exhibit 6 Ong. The sworn statement of accused Dick Ong.
On the other hand, accused Lucila Talabis admitted that she approved the withdrawals of the
accused-appellant against uncleared checks. However, she explained that her approval thereof was
in accordance with the instruction of then bank manager Lino Morfe; that this accommodation given
or extended to the accused-appellant had been going on even before she started giving the same
accommodation; that this was common practice in the bank; that she approved those withdrawals
together with one other bank official, namely, either the bank manager, the bank accountant, the
other bank cashier, or the bank assistant cashier; and that they reported those withdrawals against,
and the dishonor of, the subject checks always sending copies of their reports to the head office.
Accused Ricardo Villaran testified on his behalf that the accused-appellant was able to withdraw
against his uncleared checks because of the accommodations extended to him by bank officials Lino
Morfe, co-accused Lucila Talabis, Grace Silao, Precy Salamat, and Cora Gascon; that this practice
of drawing against uncollected deposits was a common practice in branches of the Bank; that on
December 14, 1978, the accused-appellant withdrew the sum of P75,000.00 against his uncleared
checks; that on December 21, 1978, the accused-appellant deposited several checks in the total
amount of P197,000.00 and withdrew on the same date the sum of P120,000.00; that on January
23, 1979, the accused-appellant again deposited several checks in the aggregate sum of
P260,000.00 and withdrew also on the same date, the amount of P28,000.00; and that he (Villaran)
approved these three withdrawals of the accused-appellant against his uncollected deposits.
In this appeal, the accused-appellant assigns the following errors committed by the trial court:
1) it concluded that the withdrawals against the amounts of the subject checks before clearance and
collection of the corresponding amounts thereof by the depository bank from the drawee banks is
deceit or fraud constituting estafa under Article 315, paragraph 2(d) of the Revised Penal Code, in
the total absence of evidence showing criminal intent to defraud the depository bank; and not a case
which is civil in nature governed solely by the Negotiable Instruments Law;

2) it stated that he issued and deposited the subject checks when he is not the issuer, maker, nor
drawer thereof but merely an indorser; hence, his liability, if any, is that of a general indorser under
the Negotiable Instruments Law;
3) it convicted him on mere presumption, without any evidence that he had prior knowledge of the
lack or insufficiency of funds in the drawee banks to cover the amounts of the subject checks; and
4) it failed to consider that a general indorser under the Negotiable Instruments Law warrants
payment of the value of the checks indorsed by him; no damage could have been suffered by the
depository bank because he had offered payment thereof.
To support the aforementioned assignment of errors, the accused-appellant alleges that based on
the testimonies of co-accused Lucila Talabis and Ricardo Villaran, he did not employ any deceit or
fraud on the Bank because the practice of deposit and withdrawal against uncleared checks and
uncollected deposits was tolerated by it. As soon as he learned of the dishonor of the subject
checks, he offered to pay the amounts thereof (see pp. 48-49, tsn of Felix Hocson, May 8, 1981) and
put up as security his property. The subject checks were not in payment of an obligation but were
deposited in his savings account. He was merely a general indorser of the subject checks and this
being the case, his obligations as such, if any, should be governed by Section 66 of the Negotiable
Instruments Law. * The subject checks were issued or drawn by his customers and paid to him. He could not have had any
knowledge as to the sufficiency of their funds in the drawee banks.

The Office of the Solicitor General disputes the allegations of the accused-appellant. According to it,
by reason of the accused-appellant's antecedent acts of issuing and depositing check and
withdrawing the amounts thereof before clearing by the drawee banks, which checks were later
honored and paid by drawee banks, he was able to gain the trust and confidence the Bank, such
that the practice, albeit contrary to sound banking policy, was tolerated by the Bank. After thus
having gained the trust and confidence of the Bank, the accused-appellant issued and deposited the
subject checks, the amounts of which he later withdrew, fully aware that he had no sufficient funds to
cover the amounts of said checks in the drawee banks. Contrary to the accused-appellant's
allegation, the trial court found that he issued and deposited the subject checks in his savings
account. As drawer of the subject checks, the accused-appellant had the obligation to maintain funds
in his current account in the drawee banks sufficient to cover the amounts thereof or, in case of
dishonor, to deposit within three (3) days from receipt notice of dishonor, the amounts necessary to
cover the check. The testimony of Felix Hocson, Senior Vice President and Treasurer of the Bank,
apart from being hearsay, does not prove that the accused-appellant made an offer to pay the
amounts covered by the subject checks. Even assuming arguendo that accused-appellant made an
offer to pay the amounts covered by the subject checks, said offer is not sufficient to rebut the prima
facie evidence of deceit. There is no showing that the accused-appellant deposited the amounts
necessary to cover the subject checks within three (3) days from receipt of notice from Bank and/or
the payee or holder that said checks have been dishonored. The damage suffered by the Bank
consists in its inability to make use of the P575,504.00 it had delivered to the accused-appellant.
We are convinced that the accused-appellant is innocent of the crime charged against him.
Article 315, paragraph 2(d) of the Revised Penal Code, as amended by Republic Act No. 4885,
provides:
Art. 315. Swindling (estafa) Any person who shall defraud another by any of the
means mentioned hereinbelow shall be punished by:

..., provided that in the four cases mentioned, the fraud be committed
by any of the following means:
xxx xxx xxx
2. By means of any of the following false pretenses or fraudulent acts
executed prior to or simultaneously with the commission of the fraud:
xxx xxx xxx
(d) By post-dating a check, or issuing a check in payment of an
obligation when the offender had no funds in the bank, or his funds
deposited therein were not sufficient to cover the amount of the
check. The failure of the drawer of the check to deposit the amount
necessary to cover his check within three (3) days from receipt of
notice from the bank and/or the payee or holder that said check has
been dishonored for lack or insufficiency of funds shall be prima facie
evidence of deceit constituting false pretense or fraudulent act.
The following are the elements of this kind of estafa: (1) postdating or issuance of a check in
payment of an obligation contracted at the time the check was issued; (2) lack or insufficiency of
funds to cover the check; and (3) damage to the payee thereof (People v. Tugbang, et al;, G.R. No.
76212, April 26, 1991; Sales v. Court of Appeals, et al., G.R. No. L-47817, August 29, 1988, 164
SCRA 717; People v. Sabio, Sr., etc., et al., G.R. No. L-45490, November 20, 1978, 86 SCRA 568).
Based thereon, the trial court concluded that the guilt of the accused-appellant has "been duly
established by the required quantum of evidence adduced by the People against (him)" (p.
22, Rollo). We shall confine Our discussion only on the first element because there is no argument
that the second and third elements are present in this case. For an orderly discussion of this
element, We will divide it into two (2) parts: first, "postdating or issuance of a check," and second, "in
payment of an obligation contracted at the time the check was issued."
Inasmuch as the first part of the first element of Article 315 paragraph 2(d) of the Revised Penal
Code is concerned with the act of "postdating or issuance of a check," the accused-appellant raises
the defense that he was neither the issuer nor drawer of the subject checks, but only an indorser
thereof. Thus, his liability, if any, should be governed by the provision of the Negotiable Instruments
Law, particularly Section 66 thereof, supra. Also, he could not have had any knowledge as to the
sufficiency of the drawers' funds in their respective banks. The Office of the Solicitor General
contend's that the trial court found as a fact that the accused-appellant issued the subject checks.
The contention of the Office of the Solicitor General is accurate only in part. In the trial court's
disquisition on the liability of the accused-appellant, it said (p. 22, Rollo):
There is no question that on January 30, 1979, accused Dick Ong issued or used
and indorsed, and deposited in his Savings Account No. 6-1981 with the Bank the
four checks ... .
There is likewise no dispute that on the following date, January 31, 1979, Dick
Ong issued or used and indorsed,and deposited in his savings account with the Bank
seven checks ... . (emphasis supplied)

On this subject matter, Fernando Esguerra, Intemal Auditor of the Bank and a witness for the
prosecution, testified that (pp. 101-103, tsn, January 7, 1981):
Court
Q: You mentioned these checks, Mr. Witness. Did you or anybody for
that matter ever verify the actual depositors of these checks whether
it is Mr. Dick Ong himself.?
A: Yes, Your Honor. Our Vice-President for Bank Operations verified
said checks and found out that one of or rather, two of those checks
are in the account of Mr. Dick Ong but the other checks are not in his
account.
Court
Q: In other words, there are checks where the depositor himself was
also Mr. Dick Ong?
A: Could I go over the checks, Your Honor.
Q: Is it indicated there?
A: Yes, Your Honor, it.is.
Q: All right, go over the checks.
A: There is one check, Your Honor. It is a China Banking Corporation
check in the amount of P69,850.00 (Witness referring to Exhibit "Z").
Q: Now, why do you say that the current checking account or current
account was opened by Mr. Dick Ong himself.
A: Because he is the drawer of the check, Your Honor.(emphasis
supplied)
Thus, the fact established by the prosecution and adopted by the trial court is that the subject checks
were either issued or indorsed by the accused-appellant.
In the case of People v. Isleta, et al., 61 Phil. 332, which was recently reiterated in the case
of Zagado v. Court of Appeals, G.R. No. 76612, September 29, 1989, 178 SCRA 146, We declared
the accused-appellant, who only negotiated the check drawn by another, guilty of estafa. This case
of People v. Isleta, et al. was relied upon by the trial court in its order dated April 3, 1990, which
denied the accused-appellant's motion for reconsideration based on the same defense. The trial
court erred in doing so. It must have overlooked the ratio decidendi of the aforementioned case. We
held the accused-appellant therein guilty of estafa because he "had guilty knowledge of the fact that
(the drawer) had no funds in the bank when he negotiated the (subject) check" (at p. 334). In the
present case, the prosecution failed to prove that the accused-appellant had such knowledge with
respect to the subject checks that he indorsed. In applying Our decisions, it is not enough that courts
take into account only the facts and the dispositive portions thereof. It is imperative that the rationale
of these decisions be read and comprehended thoroughly.

It goes without saying that with respect to the subject checks wherein the accused-appellant was the
issuer/drawer, the first part of the first element of Article 315, paragraph 2(d) of the Revised Penal
Code is applicable. However, this statement will lose its significance in Our next discussion.
Regarding the second part of the first element of Article 315, paragraph 2(d) of the Revised Penal
Code, the accused-appellant alleges that when he deposited the subject checks in his savings
account, it was clearly not in payment of an obligation to the Bank. The Office of the Solicitor
General misses this point of the accused-appenant.
This single argument of the accused-appellant spells tilting the scale to his advantage. In several
cases, We were categorical that 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 loans and are to be covered by the law on loans. Current and savings deposits are loans
to a bank because it can use the same (Serrano v. Central Bank of the Philippines, et al., G.R. No.
30511, February 14, 1980, 96 SCRA 96; Gullas v. Philippine National Bank, 62 Phil. 519; Central
Bank of the Philippines v Morfe, etc., et al., G.R. No. L-38427, March 12, 1975, 63 SC 114;
Guingona, Jr., et al. v. The City Fiscal of Manila, et al. G.R. No. 60033, April 4, 1984, 128 SCRA
577).
The elements of estafa in general are: (1) that the accused defrauded another (a) by abuse of
confidence, or (b) by means of deceit; and (2) that damage or prejudice capable of pecuniary
estimation is caused to the offended party or third person. Aside from the elements that We have
discussed earlier, in the crime of estafa by postdating or issuing a bad check, deceit and damage are
essential elements of the offense and have to be established with satisfactory proof to warrant
conviction (U.S v. Rivera, 23 Phil. 383; People, et al. v. Grospe, etc., et al., G.R No. 74053-54,
January 20, 1988,157 SCRA 154; Buaya v. Polo etc., et al., G.R. No. 75079, January 26, 1989, 169
SCRA 471).
In this connection, the Office of the Solicitor General advances the view that by reason of the
accused-appellant's antecedent acts of issuing and depositing checks, and withdrawing the amounts
thereof before clearing by the drawee banks, which checks were later honored and paid by the
drawee banks, he was able to gain the trust and confidence of the Bank, such that the practice,
albeit contrary to sound banking policy, was tolerated by the Bank. After thus having gained the trust
and confidence of the Bank, he issued and deposited the subject checks, the amounts of which he
later withdrew, fully aware that he had no sufficient funds to cover the amounts of said checks in the
drawee banks.
This view is not supported by the facts of this case. Rather, the evidence for the prosecution proved
that the Bank on its own accorded him a drawn against uncollected deposit (DAUD) privilege without
need of any pretensions on his part (pp. 7-8,supra). Moreover, this privilege was not only for the
subject checks, but for other past transactions. Fernando Esguerra and Felix Hocson even testified
that in some instances prior to July 1, 1980, especially where the depositor is an important client, the
Bank relaxed its rule and internal policy against uncleared checks and uncollected deposits, and
allowed such depositor to withdraw against his uncleared checks and uncollected deposits.
Admittedly, the accused-appellant was one of the important depositors of the Bank (pp. 2425, Rollo). Granting, in gratia argumenti, that he had in fact acted fraudulently, he could not have
done so without the active cooperation of the Banks employees. Therefore, since Lucila Talabis and
Ricardo Villaran were declared innocent of the crimes charged against them, the same should be
said for the accused-appellant (see People v. Jalandoni, G.R. No. 57555, May 30, 1983, 122 SCRA
588). True it is that the Bank suffered damage in the amount of P575,504.00 but the accusedappellant's liability thereon is only civil.

One additional statement made by the trial court in its decision requires correction. It said that "[t]he
circumstances that the drawer of a check had insufficient or no funds in the drawee bank to cover
the amount of his check at the time of its issuance and he did not inform the payee or holder of such
fact, are sufficient to make him liable for estafa" (p. 23, Rollo). This statement is no longer
controlling. We have clarified in the case of People v. Sabio, Sr., etc., et al., supra, that Republic Act
No. 4885 has eliminated the requirement under the old provision for the drawer to inform the payee
that he had no funds in the bank or the funds deposited by him were not sufficient to cover the
amount of the check.
We, therefore, find that the guilt of the accused-appellant for the crime of estafa under Article 315,
paragraph 2(d) of the Revised Penal Code has not been proven beyond reasonable doubt. However,
We find him civilly liable to the bank in the amount of P575,504.00, less the balance remaining in his
savings account with it (p. 26, Rollo), with legal interest from the date of the filing of this case until
full payment.
ACCORDINGLY, the decision and order appealed from are hereby SET ASIDE. The accusedappellant is ACQUITTED of the crime charged against him but ordered to pay the aforementioned
amount. No costs.
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:
t.hqw

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:
t.hqw

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:
t.hqw

"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:

t.hqw

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

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

MANUEL M. SERRANO, petitioner,
vs.
CENTRAL BANK OF THE PHILIPPINES; OVERSEAS BANK OF MANILA; EMERITO M. RAMOS,
SUSANA B. RAMOS, EMERITO B. RAMOS, JR., JOSEFA RAMOS DELA RAMA, HORACIO
DELA RAMA, ANTONIO B. RAMOS, FILOMENA RAMOS LEDESMA, RODOLFO LEDESMA,
VICTORIA RAMOS TANJUATCO, and TEOFILO TANJUATCO, respondents.
Rene Diokno for petitioner.
F.E. Evangelista & Glecerio T. Orsolino for respondent Central Bank of the Philippines.
Feliciano C. Tumale, Pacifico T. Torres and Antonio B. Periquet for respondent Overseas Bank of
Manila.
Josefina G. Salonga for all other respondents.

CONCEPCION, JR., J.:

Petition for mandamus and prohibition, with preliminary injunction, that seeks the establishment of
joint and solidary liability to the amount of Three Hundred Fifty Thousand Pesos, with interest,
against respondent Central Bank of the Philippines and Overseas Bank of Manila and its
stockholders, on the alleged failure of the Overseas Bank of Manila to return the time deposits made
by petitioner and assigned to him, on the ground that respondent Central Bank failed in its duty to
exercise strict supervision over respondent Overseas Bank of Manila to protect depositors and the
general public. 1 Petitioner also prays that both respondent banks be ordered to execute the proper and
necessary documents to constitute all properties fisted in Annex "7" of the Answer of respondent Central
Bank of the Philippines in G.R. No. L-29352, entitled "Emerita M. Ramos, et al vs. Central Bank of the
Philippines," into a trust fund in favor of petitioner and all other depositors of respondent Overseas Bank
of Manila. It is also prayed that the respondents be prohibited permanently from honoring, implementing,
or doing any act predicated upon the validity or efficacy of the deeds of mortgage, assignment. and/or
conveyance or transfer of whatever nature of the properties listed in Annex "7" of the Answer of
respondent Central Bank in G.R. No. 29352. 2
A sought for ex-parte preliminary injunction against both respondent banks was not given by this
Court.
Undisputed pertinent facts are:
On October 13, 1966 and December 12, 1966, petitioner made a time deposit, for one year with 6%
interest, of One Hundred Fifty Thousand Pesos (P150,000.00) with the respondent Overseas Bank
of Manila. 3 Concepcion Maneja also made a time deposit, for one year with 6-% interest, on March 6,
1967, of Two Hundred Thousand Pesos (P200,000.00) with the same respondent Overseas Bank of
Manila. 4

On August 31, 1968, Concepcion Maneja, married to Felixberto M. Serrano, assigned and conveyed
to petitioner Manuel M. Serrano, her time deposit of P200,000.00 with respondent Overseas Bank of
Manila. 5
Notwithstanding series of demands for encashment of the aforementioned time deposits from the
respondent Overseas Bank of Manila, dating from December 6, 1967 up to March 4, 1968, not a
single one of the time deposit certificates was honored by respondent Overseas Bank of Manila. 6
Respondent Central Bank admits that it is charged with the duty of administering the banking system
of the Republic and it exercises supervision over all doing business in the Philippines, but denies the
petitioner's allegation that the Central Bank has the duty to exercise a most rigid and stringent
supervision of banks, implying that respondent Central Bank has to watch every move or activity of
all banks, including respondent Overseas Bank of Manila. Respondent Central Bank claims that as
of March 12, 1965, the Overseas Bank of Manila, while operating, was only on a limited degree of
banking operations since the Monetary Board decided in its Resolution No. 322, dated March 12,
1965, to prohibit the Overseas Bank of Manila from making new loans and investments in view of its
chronic reserve deficiencies against its deposit liabilities. This limited operation of respondent
Overseas Bank of Manila continued up to 1968. 7
Respondent Central Bank also denied that it is guarantor of the permanent solvency of any banking
institution as claimed by petitioner. It claims that neither the law nor sound banking supervision
requires respondent Central Bank to advertise or represent to the public any remedial measures it
may impose upon chronic delinquent banks as such action may inevitably result to panic or bank
"runs". In the years 1966-1967, there were no findings to declare the respondent Overseas Bank of
Manila as insolvent. 8
Respondent Central Bank likewise denied that a constructive trust was created in favor of petitioner
and his predecessor in interest Concepcion Maneja when their time deposits were made in 1966 and
1967 with the respondent Overseas Bank of Manila as during that time the latter was not an
insolvent bank and its operation as a banking institution was being salvaged by the respondent
Central Bank. 9
Respondent Central Bank avers no knowledge of petitioner's claim that the properties given by
respondent Overseas Bank of Manila as additional collaterals to respondent Central Bank of the
Philippines for the former's overdrafts and emergency loans were acquired through the use of
depositors' money, including that of the petitioner and Concepcion Maneja. 10
In G.R. No. L-29362, entitled "Emerita M. Ramos, et al. vs. Central Bank of the Philippines," a case
was filed by the petitioner Ramos, wherein respondent Overseas Bank of Manila sought to prevent
respondent Central Bank from closing, declaring the former insolvent, and liquidating its assets.
Petitioner Manuel Serrano in this case, filed on September 6, 1968, a motion to intervene in G.R.
No. L-29352, on the ground that Serrano had a real and legal interest as depositor of the Overseas
Bank of Manila in the matter in litigation in that case. Respondent Central Bank in G.R. No. L-29352
opposed petitioner Manuel Serrano's motion to intervene in that case, on the ground that his claim
as depositor of the Overseas Bank of Manila should properly be ventilated in the Court of First
Instance, and if this Court were to allow Serrano to intervene as depositor in G.R. No. L-29352,

thousands of other depositors would follow and thus cause an avalanche of cases in this Court. In
the resolution dated October 4, 1968, this Court denied Serrano's, motion to intervene. The contents
of said motion to intervene are substantially the same as those of the present petition. 11
This Court rendered decision in G.R. No. L-29352 on October 4, 1971, which became final and
executory on March 3, 1972, favorable to the respondent Overseas Bank of Manila, with the
dispositive portion to wit:
WHEREFORE, the writs prayed for in the petition are hereby granted and
respondent Central Bank's resolution Nos. 1263, 1290 and 1333 (that prohibit the
Overseas Bank of Manila to participate in clearing, direct the suspension of its
operation, and ordering the liquidation of said bank) are hereby annulled and set
aside; and said respondent Central Bank of the Philippines is directed to comply with
its obligations under the Voting Trust Agreement, and to desist from taking action in
violation therefor. Costs against respondent Central Bank of the Philippines. 12
Because of the above decision, petitioner in this case filed a motion for judgment in this case,
praying for a decision on the merits, adjudging respondent Central Bank jointly and severally liable
with respondent Overseas Bank of Manila to the petitioner for the P350,000 time deposit made with
the latter bank, with all interests due therein; and declaring all assets assigned or mortgaged by the
respondents Overseas Bank of Manila and the Ramos groups in favor of the Central Bank as trust
funds for the benefit of petitioner and other depositors. 13
By the very nature of the claims and causes of action against respondents, they in reality are
recovery of time deposits plus interest from respondent Overseas Bank of Manila, and recovery of
damages against respondent Central Bank for its alleged failure to strictly supervise the acts of the
other respondent Bank and protect the interests of its depositors by virtue of the constructive trust
created when respondent Central Bank required the other respondent to increase its collaterals for
its overdrafts said emergency loans, said collaterals allegedly acquired through the use of depositors
money. These claims shoud be ventilated in the Court of First Instance of proper jurisdiction as We
already pointed out when this Court denied petitioner's motion to intervene in G.R. No. L-29352.
Claims of these nature are not proper in actions for mandamus and prohibition as there is no shown
clear abuse of discretion by the Central Bank in its exercise of supervision over the other respondent
Overseas Bank of Manila, and if there was, petitioner here is not the proper party to raise that
question, but rather the Overseas Bank of Manila, as it did in G.R. No. L-29352. Neither is there
anything to prohibit in this case, since the questioned acts of the respondent Central Bank (the acts
of dissolving and liquidating the Overseas Bank of Manila), which petitioner here intends to use as
his basis for claims of damages against respondent Central Bank, had been accomplished a long
time ago.
Furthermore, both parties overlooked one fundamental principle in the nature of bank deposits when
the petitioner claimed that there should be created a constructive trust in his favor when the
respondent Overseas Bank of Manila increased its collaterals in favor of respondent Central Bank
for the former's overdrafts and emergency loans, since these collaterals were acquired by the use of
depositors' money.

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

[G.R. No. 160544. February 21, 2005]

TRIPLE-V vs. FILIPINO MERCHANTS
THIRD DIVISION
Gentlemen:
Quoted hereunder, for your information, is a resolution of this Court dated FEB 21
2005.
G.R. No. 160544 (Triple-V Food Services, Inc. vs. Filipino Merchants Insurance
Company, Inc.)
Assailed in this petition for review on certiorari is the decision [1] dated October 21,
2003 of the Court of Appeals in CA-G.R. CV No. 71223, affirming an earlier decision
of the Regional Trial Court at Makati City, Branch 148, in its Civil Case No. 98-838,
an action for damages thereat filed by respondent Filipino Merchants Insurance,
Company, Inc., against the herein petitioner, Triple-V Food Services, Inc.
cralaw

On March 2, 1997, at around 2:15 o'clock in the afternoon, a certain Mary Jo-Anne
De Asis (De Asis) dined at petitioner's Kamayan Restaurant at 15 West Avenue,
Quezon City. De Asis was using a Mitsubishi Galant Super Saloon Model 1995 with
plate number UBU 955, assigned to her by her employer Crispa Textile Inc.
(Crispa). On said date, De Asis availed of the valet parking service of petitioner and
entrusted her car key to petitioner's valet counter. A corresponding parking ticket
was issued as receipt for the car. The car was then parked by petitioner's valet
attendant, a certain Madridano, at the designated parking area. Few minutes later,
Madridano noticed that the car was not in its parking slot and its key no longer in
the box where valet attendants usually keep the keys of cars entrusted to them.
The car was never recovered. Thereafter, Crispa filed a claim against its insurer,
herein respondent Filipino Merchants Insurance Company, Inc. (FMICI). Having
indemnified Crispa in the amount of P669.500 for the loss of the subject vehicle,
FMICI, as subrogee to Crispa's rights, filed with the RTC at Makati City an action for
damages against petitioner Triple-V Food Services, Inc., thereat docketed as Civil
Case No. 98-838 which was raffled to Branch 148.
In its answer, petitioner argued that the complaint failed to aver facts to support
the allegations of recklessness and negligence committed in the safekeeping and
custody of the subject vehicle, claiming that it and its employees wasted no time in
ascertaining the loss of the car and in informing De Asis of the discovery of the loss.
Petitioner further argued that in accepting the complimentary valet parking service,

De Asis received a parking ticket whereunder it is so provided that "[Management

and staff will not be responsible for any loss of or damage incurred on the vehicle
nor of valuables contained therein", a provision which, to petitioner's mind, is an
explicit waiver of any right to claim indemnity for the loss of the car; and that De
Asis knowingly assumed the risk of loss when she allowed petitioner to park her
vehicle, adding that its valet parking service did not include extending a contract of
insurance or warranty for the loss of the vehicle.
During trial, petitioner challenged FMICI's subrogation to Crispa's right to file a
claim for the loss of the car, arguing that theft is not a risk insured against under
FMICI's Insurance Policy No. PC-5975 for the subject vehicle.
In a decision dated June 22, 2001, the trial court rendered judgment for respondent
FMICI, thus:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
plaintiff (FMICI) and against the defendant Triple V (herein petitioner) and the latter
is hereby ordered to pay plaintiff the following:
1. The amount of P669,500.00, representing actual damages plus compounded
(sic);
2. The amount of P30,000.00 as acceptance fee plus the amount equal to 25% of
the total amount due as attorney's fees;
3. The amount of P50,000.00 as exemplary damages;
4. Plus, cost of suit.
Defendant Triple V is not therefore precluded from taking appropriate action against
defendant Armando Madridano.
SO ORDERED.
Obviously displeased, petitioner appealed to the Court of Appeals reiterating its
argument that it was not a depositary of the subject car and that it exercised due
diligence and prudence in the safe keeping of the vehicle, in handling the carnapping incident and in the supervision of its employees. It further argued that
there was no valid subrogation of rights between Crispa and respondent FMICI.
In a decision dated October 21, 2003, [2]
the Court of Appeals dismissed
petitioner's appeal and affirmed the appealed decision of the trial court, thus:
cralaw

WHEREFORE, based on the foregoing premises, the instant appeal is hereby

DISMISSED. Accordingly, the assailed June 22, 2001 Decision of the RTC of Makati
City - Branch 148 in Civil Case No. 98-838 is AFFIRMED.
SO ORDERED.
In so dismissing the appeal and affirming the appealed decision, the appellate court
agreed with the findings and conclusions of the trial court that: (a) petitioner was a
depositary of the subject vehicle; (b) petitioner was negligent in its duties as a
depositary thereof and as an employer of the valet attendant; and (c) there was a
valid subrogation of rights between Crispa and respondent FMICI.
Hence, petitioner's present recourse.
We agree with the two (2) courts below.
When De Asis entrusted the car in question to petitioners valet attendant while
eating at petitioner'sKamayan Restaurant, the former expected the car's safe return
at the end of her meal. Thus, petitioner was constituted as a depositary of the same
car. Petitioner cannot evade liability by arguing that neither a contract of deposit
nor that of insurance, guaranty or surety for the loss of the car was constituted
when De Asis availed of its free valet parking service.
In a contract of deposit, a person receives an object belonging to another with the
obligation of safely keeping it and returning the same. [3]
A deposit may be
constituted even without any consideration. It is not necessary that the depositary
receives a fee before it becomes obligated to keep the item entrusted for
safekeeping and to return it later to the depositor.
cralaw

Specious is petitioner's insistence that the valet parking claim stub it issued to De
Asis contains a clear exclusion of its liability and operates as an explicit waiver by
the customer of any right to claim indemnity for any loss of or damage to the
vehicle.
The parking claim stub embodying the terms and conditions of the parking,
including that of relieving petitioner from any loss or damage to the car, is
essentially a contract of adhesion, drafted and prepared as it is by the petitioner
alone with no participation whatsoever on the part of the customers, like De Asis,
who merely adheres to the printed stipulations therein appearing. While contracts
of adhesion are not void in themselves, yet this Court will not hesitate to rule out
blind adherence thereto if they prove to be one-sided under the attendant facts and
circumstances.[4]
cralaw

Hence, and as aptly pointed out by the Court of Appeals, petitioner must not be
allowed to use its parking claim stub's exclusionary stipulation as a shield from any
responsibility for any loss or damage to vehicles or to the valuables contained
therein. Here, it is evident that De Asis deposited the car in question with the
petitioner as part of the latter's enticement for customers by providing them a safe
parking space within the vicinity of its restaurant. In a very real sense, a safe
parking space is an added attraction to petitioner's restaurant business because
customers are thereby somehow assured that their vehicle are safely kept, rather
than parking them elsewhere at their own risk. Having entrusted the subject car to
petitioner's valet attendant, customer De Asis, like all of petitioner's customers,
fully expects the security of her car while at petitioner's premises/designated
parking areas and its safe return at the end of her visit at petitioner's restaurant.
Petitioner's argument that there was no valid subrogation of rights between Crispa
and FMICI because theft was not a risk insured against under FMICI's Insurance
Policy No. PC-5975 holds no water.
Insurance Policy No. PC-5975 which respondent FMICI issued to Crispa contains,
among others things, the following item: "Insured's Estimate of Value of Scheduled
Vehicle- P800.000".[5]
On the basis of such item, the trial court concluded that
the coverage includes a full comprehensive insurance of the vehicle in case of
damage or loss. Besides, Crispa paid a premium of P10,304 to cover theft. This is
clearly shown in the breakdown of premiums in the same policy. [6] Thus, having
indemnified CRISPA for the stolen car, FMICI, as correctly ruled by the trial court
and the Court of Appeals, was properly subrogated to Crispa's rights against
petitioner, pursuant to Article 2207 of the New Civil Code[7].
cralaw

cralaw

Anent the trial court's findings of negligence on the part of the petitioner, which
findings were affirmed by the appellate court, we have consistently ruled that
findings of facts of trial courts, more so when affirmed, as here, by the Court of
Appeals, are conclusive on this Court unless the trial court itself ignored, overlooked
or misconstrued facts and circumstances which, if considered, warrant a reversal of
the outcome of the case.[8]
This is not so in the case at bar. For, we have
ourselves reviewed the records and find no justification to deviate from the trial
court's findings.
cralaw

WHEREFORE, petition is hereby DENIED DUE COURSE.

SO ORDERED.

G.R. No. 179382

January 14, 2013

SPOUSES BENJAMIN C. MAMARIL AND SONIA P. MAMARIL, Petitioners,

vs.
THE BOY SCOUT OF THE PHILIPPINES, AIB SECURITY AGENCY, INC., CESARIO PEA, * AND
VICENTE GADDI, Respondents.
DECISION
PERLAS-BERNABE, J.:
This is a Petition for Review on Certiorari assailing the May 31, 2007 Decision 1 and August 16, 2007
Resolution2of the Court of Appeals (CA) in CA-G.R. CV No. 75978. The dispositive portion of the
said Decision reads:
WHEREFORE, the Decision dated November 28, 2001 and the Order dated June 11, 2002 rendered
by the Regional Trial Court of Manila, Branch 39 is hereby MODIFIED to the effect that only
defendants AIB Security Agency, Inc., Cesario Pea and Vicente Gaddi are held jointly and severally
liable to pay plaintiffs-appellees Spouses Benjamin C. Mamaril and Sonia P. Mamaril the amount of
Two Hundred Thousand Pesos (P200,000.00) representing the cost of the lost vehicle, and to pay
the cost of suit. The other monetary awards are DELETED for lack of merit and/or basis.
Defendant-Appellant Boy Scout of the Philippines is absolved from any liability.
SO ORDERED.3
The Antecedent Facts
Spouses Benjamin C. Mamaril and Sonia P. Mamaril (Sps. Mamaril) are jeepney operators since
1971. They would park their six (6) passenger jeepneys every night at the Boy Scout of the
Philippines' (BSP) compound located at 181 Concepcion Street, Malate, Manila for a fee of P300.00
per month for each unit. On May 26, 1995 at 8 o'clock in the evening, all these vehicles were parked
inside the BSP compound. The following morning, however, one of the vehicles with Plate No. DCG
392 was missing and was never recovered.4 According to the security guards Cesario Pea (Pea)
and Vicente Gaddi (Gaddi) of AIB Security Agency, Inc. (AIB) with whom BSP had contracted 5 for its
security and protection, a male person who looked familiar to them took the subject vehicle out of the
compound.
On November 20, 1996, Sps. Mamaril filed a complaint6 for damages before the Regional Trial Court
(RTC) of Manila, Branch 39, against BSP, AIB, Pea and Gaddi. In support thereof, Sps. Mamaril
averred that the loss of the subject vehicle was due to the gross negligence of the above-named
security guards on-duty who allowed the subject vehicle to be driven out by a stranger despite their
agreement that only authorized drivers duly endorsed by the owners could do so. Pea and Gaddi
even admitted their negligence during the ensuing investigation. Notwithstanding, BSP and AIB did
not heed Sps. Mamaril's demands for a conference to settle the matter. They therefore prayed that
Pea and Gaddi, together with AIB and BSP, be held liable for: (a) the value of the subject vehicle

and its accessories in the aggregate amount of P300,000.00; (b) P275.00 representing daily loss of
income/boundary reckoned from the day the vehicle was lost; (c) exemplary damages; (d) moral
damages; (e) attorney's fees; and (f) cost of suit.
In its Answer,7 BSP denied any liability contending that not only did Sps. Mamaril directly deal with
AIB with respect to the manner by which the parked vehicles would be handled, but the parking
ticket8 itself expressly stated that the "Management shall not be responsible for loss of vehicle or any
of its accessories or article left therein." It also claimed that Sps. Mamaril erroneously relied on the
Guard Service Contract. Apart from not being parties thereto, its provisions cover only the protection
of BSP's properties, its officers, and employees.
In addition to the foregoing defenses, AIB alleged that it has observed due diligence in the selection,
training and supervision of its security guards while Pea and Gaddi claimed that the person who
drove out the lost vehicle from the BSP compound represented himself as the owners' authorized
driver and had with him a key to the subject vehicle. Thus, they contended that Sps. Mamaril have
no cause of action against them.
The RTC Ruling
After due proceedings, the RTC rendered a Decision9 dated November 28, 2001 in favor of Sps.
Mamaril. The dispositive portion of the RTC decision reads:
WHEREFORE, judgment is hereby rendered ordering the defendants Boy Scout of the Philippines
and AIB Security Agency, with security guards Cesario Pena and Vicente Gaddi: 1. To pay the plaintiffs jointly and severally the cost of the vehicle which is P250,000.00 plus
accessories ofP50,000.00;
2. To pay jointly and severally to the plaintiffs the daily loss of the income/boundary of the
said jeepney to be reckoned fromits loss up to the final adjudication of the case, which
is P275.00 a day;
3. To pay jointly and severally to the plaintiffs moral damages in the amount of P50,000.00;
4. To pay jointly and severally to the plaintiffs exemplary damages in the amount
of P50,000.00;
5. To pay jointly and severally the attorney's fees of P50,000.00 and appearances in court
the amount ofP1,500.00 per appearance; and
6. To pay cost.
SO ORDERED.10
The RTC found that the act of Pea and Gaddi in allowing the entry of an unidentified person and
letting him drive out the subject vehicle in violation of their internal agreement with Sps. Mamaril

constituted gross negligence, rendering AIB and its security guards liable for the former's loss. BSP
was also adjudged liable because the Guard Service Contract it entered into with AIB offered
protection to all properties inside the BSP premises, which necessarily included Sps. Mamaril's
vehicles. Moreover, the said contract stipulated AIB's obligation to indemnify BSP for all losses or
damages that may be caused by any act or negligence of its security guards. Accordingly, the BSP,
AIB, and security guards Pea and Gaddi were held jointly and severally liable for the loss suffered
by Sps. Mamaril.
On June 11, 2002, the RTC modified its decision reducing the cost of the stolen vehicle
from P250,000.00 toP200,000.00.11
Only BSP appealed the foregoing disquisition before the CA.
The CA Ruling
In its assailed Decision,12 the CA affirmed the finding of negligence on the part of security guards
Pea and Gaddi. However, it absolved BSP from any liability, holding that the Guard Service
Contract is purely between BSP and AIB and that there was nothing therein that would indicate any
obligation and/or liability on the part of BSP in favor of third persons, such as Sps. Mamaril. Nor was
there evidence sufficient to establish that BSP was negligent.
It further ruled that the agreement between Sps. Mamaril and BSP was substantially a contract of
lease whereby the former paid parking fees to the latter for the lease of parking slots. As such, the
lessor, BSP, was not an insurer nor bound to take care and/or protect the lessees' vehicles.
On the matter of damages, the CA deleted the award of P50,000.00 representing the value of the
accessories inside the lost vehicle and the P275.00 a day for loss of income in the absence of proof
to support them. It also deleted the award of moral and exemplary damages and attorney's fees for
lack of factual and legal bases.
Sps. Mamaril's motion for reconsideration thereof was denied in the August 16, 2007 Resolution. 13
Issues Before the Court
Hence, the instant petition based on the following assignment of errors, to wit:
I.
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN ABSOLVING
RESPONDENT BOY SCOUT OF THE PHILIPPINES FROM ANY LIABILITY.
II.
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS MISTAKE WHEN IT
RULED THAT THE GUARD SERVICE CONTRACT IS PURELY BETWEEN BOY SCOUT
OF THE

PHILIPPINES AND AIB SECURITY AGENCY, INC., AND IN HOLDING THAT THERE IS
ABSOLUTELY NOTHING IN THE SAID CONTRACT THAT WOULD INDICATE ANY
OBLIGATION AND/OR LIABILITY ON THE PART OF THE PARTIES THEREIN IN FAVOR
OF THIRD PERSONS, SUCH AS PETITIONERS HEREIN.
III.
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERROR IN THE
INTERPRETATION OF LAW WHEN IT CONSIDERED THE AGREEMENT BETWEEN BOY
SCOUT OF THE PHILIPPINES AND PETITIONERS A CONTRACT OF LEASE, WHEREBY
THE BOY SCOUT IS NOT DUTY BOUND TO PROTECT OR TAKE CARE OF
PETITIONERS' VEHICLES.
IV.
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED WHEN IT RULED THAT
PETITIONERS ARE NOT ENTITLED TO DAMAGES AND ATTORNEY'S FEES.14
In fine, Sps. Mamaril maintain that: (1) BSP should be held liable for the loss of their vehicle based
on the Guard Service Contract and the parking ticket it issued; and (2) the CA erred in deleting the
RTC awards of damages and attorney's fees.
The Court's Ruling
The petition lacks merit.
Article 20 of the Civil Code provides that every person, who, contrary to law, willfully or negligently
causes damage to another, shall indemnify the latter for the same. Similarly, Article 2176 of the Civil
Code states:
Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or negligence, if there is no preexisting contractual
relation between the parties, is called a quasi-delict and is governed by the provisions of this
Chapter.
In this case, it is undisputed that the proximate cause of the loss of Sps. Mamaril's vehicle was the
negligent act of security guards Pea and Gaddi in allowing an unidentified person to drive out the
subject vehicle. Proximate cause has been defined as that cause, which, in natural and continuous
sequence, unbroken by any efficient intervening cause, produces the injury or loss, and without
which the result would not have occurred.15
Moreover, Pea and Gaddi failed to refute Sps. Mamaril's contention 16 that they readily admitted
being at fault during the investigation that ensued.

On the other hand, the records are bereft of any finding of negligence on the part of BSP. Hence, no
reversible error was committed by the CA in absolving it from any liability for the loss of the subject
vehicle based on fault or negligence.
Neither will the vicarious liability of an employer under Article 2180 17 of the Civil Code apply in this
case. It is uncontested that Pea and Gaddi were assigned as security guards by AIB to BSP
pursuant to the Guard Service Contract. Clearly, therefore, no employer-employee relationship
existed between BSP and the security guards assigned in its premises. Consequently, the latter's
negligence cannot be imputed against BSP but should be attributed to AIB, the true employer of
Pea and Gaddi.18
In the case of Soliman, Jr. v. Tuazon,19 the Court enunciated thus:
It is settled that where the security agency, as here, recruits, hires and assigns the work of its
watchmen or security guards, the agency is the employer of such guards and watchmen. Liability for
illegal or harmful acts committed by the security guards attaches to the employer agency, and not to
the clients or customers of such agency. As a general rule, a client or customer of a security agency
has no hand in selecting who among the pool of security guards or watchmen employed by the
agency shall be assigned to it; the duty to observe the diligence of a good father of a family in the
selection of the guards cannot, in the ordinary course of events, be demanded from the client whose
premises or property are protected by the security guards. The fact that a client company may give
instructions or directions to the security guards assigned to it, does not, by itself, render the client
responsible as an employer of the security guards concerned and liable for their wrongful acts or
omissions. Those instructions or directions are ordinarily no more than requests commonly
envisaged in the contract for services entered into with the security agency.20
Nor can it be said that a principal-agent relationship existed between BSP and the security guards
Pea and Gaddi as to make the former liable for the latter's complained act. Article 1868 of the Civil
Code states that "by the contract of agency, a person binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority of the latter." The
basis for agency therefore is representation,21which element is absent in the instant case. Records
show that BSP merely hired the services of AIB, which, in turn, assigned security guards, solely for
the protection of its properties and premises. Nowhere can it be inferred in the Guard Service
Contract that AIB was appointed as an agent of BSP. Instead, what the parties intended was a pure
principal-client relationship whereby for a consideration, AIB rendered its security services to BSP.
Notwithstanding, however, Sps. Mamaril insist that BSP should be held liable for their loss on the
basis of the Guard Service Contract that the latter entered into with AIB and their parking agreement
with BSP.
Such contention cannot be sustained.
Article 1311 of the Civil Code states:
Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case
where the rights and obligations arising from the contract are not transmissible by their nature, or by

stipulation or by provision of law. The heir is not liable beyond the value of the property he received
from the decedent.
If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment
provided he communicated his acceptance to the obligor before its revocation. A mere incidental
benefit or interest of a person is not sufficient. The contracting parties must have clearly and
deliberately conferred a favor upon a third person.
Thus, in order that a third person benefited by the second paragraph of Article 1311, referred to as a
stipulation pour autrui, may demand its fulfillment, the following requisites must concur: (1) There is a
stipulation in favor of a third person; (2) The stipulation is a part, not the whole, of the contract; (3)
The contracting parties clearly and deliberately conferred a favor to the third person - the favor is not
merely incidental; (4) The favor is unconditional and uncompensated; (5) The third person
communicated his or her acceptance of the favor before its revocation; and (6) The contracting
parties do not represent, or are not authorized, by the third party.22 However, none of the foregoing
elements obtains in this case.
It is undisputed that Sps. Mamaril are not parties to the Guard Service Contract. Neither did the
subject agreement contain any stipulation pour autrui. And even if there was, Sps. Mamaril did not
convey any acceptance thereof. Thus, under the principle of relativity of contracts, they cannot
validly claim any rights or favor under the said agreement. 23 As correctly found by the CA:
1wphi1

First, the Guard Service Contract between defendant-appellant BSP and defendant AIB Security
Agency is purely between the parties therein. It may be observed that although the whereas clause
of the said agreement provides that defendant-appellant desires security and protection for its
compound and all properties therein, as well as for its officers and employees, while inside the
premises, the same should be correlated with paragraph 3(a) thereof which provides that the
security agency shall indemnify defendant-appellant for all losses and damages suffered by it
attributable to any act or negligence of the former's guards.
Otherwise stated, defendant-appellant sought the services of defendant AIB Security Agency for the
purpose of the security and protection of its properties, as well as that of its officers and employees,
so much so that in case of loss of [sic] damage suffered by it as a result of any act or negligence of
the guards, the security agency would then be held responsible therefor. There is absolutely nothing
in the said contract that would indicate any obligation and/or liability on the part of the parties therein
in favor of third persons such as herein plaintiffs-appellees.24
Moreover, the Court concurs with the finding of the CA that the contract between the parties herein
was one of lease25 as defined under Article 164326 of the Civil Code. It has been held that the act of
parking a vehicle in a garage, upon payment of a fixed amount, is a lease. 27 Even in a majority of
American cases, it has been ruled that where a customer simply pays a fee, parks his car in any
available space in the lot, locks the car and takes the key with him, the possession and control of the
car, necessary elements in bailment, do not pass to the parking lot operator, hence, the contractual
relationship between the parties is one of lease. 28

In the instant case, the owners parked their six (6) passenger jeepneys inside the BSP compound for
a monthly fee of P300.00 for each unit and took the keys home with them. Hence, a lessor-lessee
relationship indubitably existed between them and BSP. On this score, Article 1654 of the Civil Code
provides that "the lessor (BSP) is obliged: (1) to deliver the thing which is the object of the contract in
such a condition as to render it fit for the use intended; (2) to make on the same during the lease all
the necessary repairs in order to keep it suitable for the use to which it has been devoted, unless
there is a stipulation to the contrary; and (3) to maintain the lessee in the peaceful and adequate
enjoyment of the lease for the entire duration of the contract." In relation thereto, Article 1664 of the
same Code states that "the lessor is not obliged to answer for a mere act of trespass which a third
person may cause on the use of the thing leased; but the lessee shall have a direct action against
the intruder." Here, BSP was not remiss in its obligation to provide Sps. Mamaril a suitable parking
space for their jeepneys as it even hired security guards to secure the premises; hence, it should not
be held liable for the loss suffered by Sps. Mamaril.
It bears to reiterate that the subject loss was caused by the negligence of the security guards in
allowing a stranger to drive out plaintiffs-appellants' vehicle despite the latter's instructions that only
their authorized drivers may do so. Moreover, the agreement with respect to the ingress and egress
of Sps. Mamaril's vehicles were coordinated only with AIB and its security guards, 29 without the
knowledge and consent of BSP. Accordingly, the mishandling of the parked vehicles that resulted in
herein complained loss should be recovered only from the tort feasors (Pea and Gaddi) and their
employer, AIB; and not against the lessor, BSP.30
Anent Sps. Mamaril's claim that the exculpatory clause: "Management shall not be responsible for
loss of vehicle or any of its accessories or article left therein"31 contained in the BSP issued parking
ticket was void for being a contract of adhesion and against public policy, suffice it to state that
contracts of adhesion are not void per se. It is binding as any other ordinary contract and a party
who enters into it is free to reject the stipulations in its entirety. If the terms thereof are accepted
without objection, as in this case, where plaintiffs-appellants have been leasing BSP's parking space
for more or less 20 years,32 then the contract serves as the law between them.33 Besides, the parking
fee of P300.00 per month or P10.00 a day for each unit is too minimal an amount to even create an
inference that BSP undertook to be an insurer of the safety of plaintiffs-appellants' vehicles.
On the matter of damages, the Court noted that while Sonia P. Mamaril testified that the subject
vehicle had accessories worth around !J50,000.00, she failed to present any receipt to substantiate
her claim.34 Neither did she submit any record or journal that would have established the
purported P275.0035 daily earnings of their jeepney. It is axiomatic that actual damages must be
proved with reasonable degree of certainty and a party is entitled only to such compensation for the
pecuniary loss that was duly proven. Thus, absent any competent proof of the amount of damages
sustained, the CA properly deleted the said awards.36
Similarly, the awards of moral and exemplary damages and attorney's fees were properly disallowed
by the CA for lack of factual and legal bases. While the RTC granted these awards in the dispositive
portion of its November 28, 2001 decision, it failed to provide sufficient justification therefor.37
WHEREFORE premises considered, the instant petition is DENIED. The May 31, 2007 Decision and
August 16, 2007 Resolution of the Court of Appeals in CA-G.R. CV No. 75978 are AFFIRMFED.

SO ORDERED.

[G.R. No. 119231. April 18, 1996]

PHILIPPINE NATIONAL BANK, petitioner, vs. HON. PRES. JUDGE

BENITO C. SE, JR., RTC, BR. 45, MANILA; NOAHS ARK SUGAR
REFINERY; ALBERTO T. LOOYUKO, JIMMY T. GO and WILSON T.
GO, respondents.
SYLLABUS
1.

COMMERCIAL LAW; WAREHOUSE RECEIPTS LAW; THE

UNCONDITIONAL PRESENTMENT OF THE RECEIPTS FOR PAYMENT
CARRIED WITH IT THE ADMISSIONS OF THE EXISTENCE AND
VALIDITY OF THE TERMS, CONDITIONS AND STIPULATIONS
WRITTEN ON THE FACE OF THE WAREHOUSE RECEIPTS,
INCLUDING THE UNQUALIFIED RECOGNITION OF THE PAYMENT OF
WAREHOUSEMANS
LIEN
FOR
STORAGE
FEES
AND
PRESERVATION EXPENSES; CASE AT BAR. - Petitioner is in estoppel
in disclaiming liability for the payment of storage fees due the private
respondents as warehouseman while claiming to be entitled to the sugar
stocks covered by the subject Warehouse Receipts on the basis of which it
anchors its claim for payment or delivery of the sugar stocks. The
unconditional presentment of the receipts by the petitioner for payment
against private respondents on the strength of the provisions of the
Warehouse Receipts Law (R.A. 2137) carried with it the admission of the
existence and validity of the terms, conditions and stipulations written on
the face of the Warehouse Receipts, including the unqualified recognition
of the payment of warehousemans lien for storage fees and preservation
expenses. Petitioner may not now retrieve the sugar stocks without paying
the lien due private respondents as warehouseman.

2.

ID.; ID.; ID.; WAREHOUSEMANS LIEN; POSSESSORY IN NATURE.

- While the PNB is entitled to the stocks of sugar as the endorsee of the
quedans, delivery to it shall be effected only upon payment of the storage
fees. Imperative is the right of the warehouseman to demand payment of
his lien at this juncture, because, in accordance with Section 29 of the
Warehouse Receipts Law, the warehouseman loses his lien upon goods

by surrendering possession thereof. In other words, the lien may be lost

where the warehouseman surrenders the possession of the goods without
requiring payment of his lien, because a warehousemans lien is
possessory in nature.
APPEARANCES OF COUNSEL
Rolan A. Nieto for petitioner.
Madella & Cruz Law Offices for private respondents.

DECISION
HERMOSISIMA, JR., J.:

The source of conflict herein is the question as to whether the Philippine

National Bank should pay storage fees for sugar stocks covered by five (5)
Warehouse Receipts stored in the warehouse of private respondents in the
face of the Court of Appeals decision (affirmed by the Supreme Court)
declaring the Philippine National Bank as the owner of the said sugar stocks
and ordering their delivery to the said bank. From the same facts but on a
different perspective, it can be said that the issue is: Can the warehouseman
enforce his warehousemans lien before delivering the sugar stocks as
ordered by the Court of Appeals or need he file a separate action to enforce
payment of storage fees?
The herein petition seeks to annul: (1) the Resolution of respondent Judge
Benito C. Se, Jr. of the Regional Trial Court of Manila, Branch 45, dated
December 20, 1994, in Civil Case No. 90-53023, authorizing reception of
evidence to establish the claim of respondents Noahs Ark Sugar Refinery, et
al., for storage fees and preservation expenses over sugar stocks covered by
five (5) Warehouse Receipts which is in the nature of a warehousemans lien;
and (2) the Resolution of the said respondent Judge, dated March 1, 1995,
declaring the validity of private respondents warehousemans lien under
Section 27 of Republic Act No 2137 and ordering that execution of the Court
of Appeals decision, dated December 13, 1991, be in effect held in abeyance
until the full amount of the warehousemans lien on the sugar stocks covered

by five (5) quedans subject of the action shall have been satisfied conformably
with the provisions of Section 31 of Republic Act 2137.
Also prayed for by the petition is a Writ of Prohibition to require respondent
RTC Judge to desist from further proceeding with Civil Case No. 90-53023,
except order the execution of the Supreme Court judgment; and a Writ of
Mandamus to compel respondent RTC Judge to issue a Writ of Execution in
accordance with the said executory Supreme Court decision.
THE FACTS
In accordance with Act No. 2137, the Warehouse Receipts Law, Noahs
Ark Sugar Refinery issued on several dates, the following Warehouse
Receipts (Quedans): (a) March 1, 1989, Receipt No. 18062, covering sugar
deposited by Rosa Sy; (b) March 7, 1989, Receipt No. 18080, covering sugar
deposited by RNS Merchandising (Rosa Ng Sy); (c) March 21, 1989, Receipt
No. 18081, covering sugar deposited by St. Therese Merchandising; (d)March
31, 1989, Receipt No. 18086, covering sugar deposited by St. Therese
Merchandising; and (e) April 1, 1989, Receipt No. 18087, covering sugar
deposited by RNS Merchandising. The receipts are substantially in the form,
and contains the terms, prescribed for negotiable warehouse receipts by
Section 2 of the law.
Subsequently, Warehouse Receipts Nos. 18080 and 18081 were
negotiated and endorsed to Luis T. Ramos; and Receipts Nos. 18086, 18087
and 18062 were negotiated and endorsed to Cresencia K. Zoleta. Ramos and
Zoleta then used the quedans as security for two loan agreements - one for
P15.6 million and the other for P23.5 million - obtained by them from the
Philippine National Bank. The aforementioned quedans were endorsed by
them to the Philippine National Bank.
Luis T. Ramos and Cresencia K. Zoleta failed to pay their loans upon
maturity on January 9, 1990. Consequently, on March 16, 1990, the Philippine
National Bank wrote to Noahs Ark Sugar Refinery demanding delivery of the
sugar stocks covered by the quedans endorsed to it by Zoleta and Ramos.
Noahs Ark Sugar Refinery refused to comply with the demand alleging
ownership thereof, for which reason the Philippine National Bank filed with the

Regional Trial Court of Manila a verified complaint for Specific Performance

with Damages and Application for Writ of Attachment against Noahs Ark
Sugar Refinery, Alberto T. Looyuko, Jimmy T. Go and Wilson T. Go, the last
three being identified as the sole proprietor, managing partner, and Executive
Vice President of Noahs Ark, respectively.
Respondent Judge Benito C. Se, Jr., in whose sala the case was raffled,
denied the Application for Preliminary Attachment. Reconsideration therefor
was likewise denied.
Noahs Ark and its co-defendants filed an Answer with Counterclaim and
Third-Party Complaint in which they claimed that they are the owners of the
subject quedans and the sugar represented therein, averring as they did that:
9.*** In an agreement dated April 1, 1989, defendants agreed to sell to Rosa Ng Sy
of RNS Merchandising and Teresita Ng of St. Therese Merchandising the total
volume of sugar indicated in the quedans stored at Noahs Ark Sugar Refinery for a
total consideration of P63,000,000.00,
*** The corresponding payments in the form of checks issued by the vendees in
favor of defendants were subsequently dishonored by the drawee banks by reason of
payment stopped and drawn against insufficient funds,
*** Upon proper notification to said vendees and plaintiff in due course, defendants
refused to deliver to vendees therein the quantity of sugar covered by the subject
quedans.
10. *** Considering that the vendees and first endorsers of subject quedans did not
acquire ownership thereof, the subsequent endorsers and plaintiff itself did not acquire
a better right of ownership than the original vendees/first endorsers. 1
The Answer incorporated a Third-Party Complaint by Alberto T. Looyuko,
Jimmy T. Go and Wilson T. Go, doing business under the trade name and
style Noahs Ark Sugar Refinery against Rosa Ng Sy and Teresita Ng, praying
that the latter be ordered to deliver or return to them the quedans (previously
endorsed to PNB and the subject of the suit) and pay damages and litigation
expenses.

The Answer of Rosa Ng Sy and Teresita Ng, dated September 6, 1990,

one of avoidance, is essentially to the effect that the transaction between
them, on the one hand, and Jimmy T. Go, on the other, concerning the
quedans and the sugar stocks covered by them was merely a simulated one
being part of the latters complex banking schemes and financial maneuvers,
and thus, they are not answerable in damages to him.
On January 31, 1991, the Philippine National Bank filed a Motion for
Summary Judgment in favor of the plaintiff as against the defendants for the
reliefs prayed for in the complaint.
On May 2, 1991, the Regional Trial Court issued an order denying the
Motion for Summary Judgment. Thereupon, the Philippine National Bank filed
a Petition for Certiorari with the Court of Appeals, docketed as CA-G.R. SP.
No. 25938 on December 13, 1991.
Pertinent portions of the decision of the Court of Appeals read:
In issuing the questioned Orders, the respondent Court ruled that questions of law
should be resolved after and not before, the questions of fact are properly litigated. A
scrutiny of defendants affirmative defenses does not show material questions of fact
as to the alleged nonpayment of purchase price by the vendees/first endorsers, and
which nonpayment is not disputed by PNB as it does not materially affect PNBs title
to the sugar stocks as holder of the negotiable quedans.
What is determinative of the propriety of summary judgment is not the existence of
conflicting claims from prior parties but whether from an examination of the
pleadings, depositions, admissions and documents on file, the defenses as to the main
issue do not tender material questions of fact (see Garcia vs. Court of Appeals, 167
SCRA 815) or the issues thus tendered are in fact sham, fictitious, contrived, set up in
bad faith or so unsubstantial as not to constitute genuine issues for trial. (See Vergara
vs. Suelto, et al., 156 SCRA 753; Mercado, et al. vs. Court of Appeals, 162 SCRA 75).
The questioned Orders themselves do not specify what material facts are in issue. (See
Sec. 4, Rule 34, Rules of Court).
To require a trial notwithstanding pertinent allegations of the pleadings and other
facts appearing on the record, would constitute a waste of time and an injustice to the

PNB whose rights to relief to which it is plainly entitled would be further delayed to
its prejudice.
In issuing the questioned Orders, We find the respondent Court to have acted in grave
abuse of discretion which justify holding null and void and setting aside the Orders
dated May 2 and July 4, 1990 of respondent Court, and that a summary judgment be
rendered forthwith in favor of the PNB against Noahs Ark Sugar Refinery, et al., as
prayed for in petitioners Motion for Summary Judgment. 2
On December 13, 1991, the Court of Appeals nullified and set aside the
orders of May 2 and July 4, 1990 of the Regional Trial Court and ordered the
trial court to render summary judgment in favor of the PNB. On June 18, 1992,
the trial court rendered judgment dismissing plaintiffs complaint against private
respondents for lack of cause of action and likewise dismissed private
respondents counterclaim against PNB and of the Third-Party Complaint and
the Third-Party Defendants Counterclaim. On September 4, 1992, the trial
court denied PNBs Motion for Reconsideration.
On June 9, 1992, the PNB filed an appeal from the RTC decision with the
Supreme Court, G.R. No. 107243, by way of a Petition for Review on
Certiorari under Rule 45 of the Rules of Court. This Court rendered judgment
on September 1, 1993, the dispositive portion of which reads:
WHEREFORE, the trial judges decision in Civil Case No. 90-53023, dated June 18,
1992, is reversed and set aside and a new one rendered conformably with the final
and executory decision of the Court of Appeals in CA-G.R SP. No. 25938, ordering
the private respondents Noahs Ark Sugar Refinery, Alberto T. Looyuko, Jimmy T. Go
and Wilson T. Go, jointly and severally:
(a)

to deliver to the petitioner Philippine National Bank, the sugar stocks

covered by the Warehouse Receipts/ Quedans which are now in the latters
possession as holder for value and in due course; or alternatively, to pay (said)
plaintiff actual damages in the amount of P39.1 million, with legal interest thereon
from the filing of the complaint until full payment; and

(b)

to pay plaintiff Philippine National Bank attorneys fees, litigation expenses

and judicial costs hereby fixed at the amount of One Hundred Fifty Thousand Pesos
(P150,000.00) as well as the costs.

SO ORDERED.3
On September 29, 1993, private respondents moved for reconsideration of
this decision. A Supplemental/Second Motion for Reconsideration with leave
of court was filed by private respondents on November 8, 1993. We denied
private respondents motion on January 10, 1994. .
Private respondents filed a Motion Seeking Clarification of the Decision,
dated September 1, 1993. We denied this motion in this manner:
It bears stressing that the relief granted in this Courts decision of September 1,
1993 is precisely that set out in the final and executory decision of the Court of
Appeals in CA-G.R. SP No. 25938, dated December 13, 1991, which was affirmed in
toto by this Court and which became unalterable upon becoming final and executory.
4
Private respondents thereupon filed before the trial court an Omnibus
Motion seeking among others the deferment of the proceedings until private
respondents are heard on their claim for warehousemans lien. On the other
hand, on August 22, 1994, the Philippine National Bank filed a Motion for the
Issuance of a Writ of Execution and an Opposition to the Omnibus Motion filed
by private respondents.
The trial court granted private respondents Omnibus Motion on December
20, 1994 and set reception of evidence on their claim for warehousemans
lien. The resolution of the PNBs Motion for Execution was ordered deferred
until the determination of private respondents claim.
On February 21, 1995, private respondents claim for lien was heard and
evidence was received in support thereof. The trial court thereafter gave both
parties five (5) days to file respective memoranda.
On February 28, 1995, the Philippine National Bank filed a Manifestation
with Urgent Motion to Nullify Court Proceedings. In adjudication thereof, the
trial court issued the following order on March 1, 1995:
WHEREFORE, this court hereby finds that there exists in favor of the defendants a
valid warehousemans lien under Section 27 of Republic Act 2137 and accordingly,

execution of the judgment is hereby ordered stayed and/ or precluded until the full
amount of defendants lien on the sugar stocks covered by the five (5) quedans subject
of this action shall have been satisfied conformably with the provisions of Section 31
of Republic Act 2137. 5
Consequently, the Philippine National Bank filed the herein petition to seek
the nullification of the above-assailed orders of respondent judge.
The PNB submits that:
I

PNBs RIGHT TO A WRIT OF EXECUTION IS SUPPORTED BY TWO FINAL AND

EXECUTORY DECISIONS: THE DECEMBER 13, 1991 COURT OF APPEALS
DECISION IN CA-G.R. SP. NO. 25938; AND, THE NOVEMBER 9, 1992 SUPREME
COURT DECISION IN G.R NO. 107243. RESPONDENT RTCS MINISTERIAL AND
MANDATORY DUTY IS TO ISSUE THE WRIT OF EXECUTION TO IMPLEMENT
THE DECRETAL PORTION OF SAID SUPREME COURT DECISION
II

RESPONDENT RTC IS WITHOUT JURISDICTION TO HEAR PRIVATE

RESPONDENTS OMNIBUS MOTION. THE CLAIMS SET FORTH IN SAID
MOTION: (1) WERE ALREADY REJECTED BY THE SUPREME COURT IN
ITS MARCH 9, 1994 RESOLUTION DENYING PRIVATE RESPONDENTS
MOTION FOR CLARIFICATION OF DECISION IN .G.R. NO. 107243; AND (2)
ARE BARRED FOREVER BY PRIVATE RESPONDENTS FAILURE TO INTERPOSE
THEM IN THEIR ANSWER, AND FAILURE TO APPEAL FROM THE JUNE 18,
1992 RTC DECISION IN CIVIL CASE NO. 90-52023
III

RESPONDENT RTCS ONLY JURISDICTION IS TO ISSUE THE WRIT TO

EXECUTE THE SUPREME COURT DECISION. THUS, PNB IS ENTITLED TO: (1)
A WRIT OF CERTIORARI TO ANNUL THE RTC RESOLUTION
DATED DECEMBER 20, 1994 AND THE ORDER DATED FEBRUARY 7, 1995 AND
ALL PROCEEDINGS TAKEN BY THE RTC THEREAFTER; (2) A WRIT OF
PROHIBITION TO PREVENT RESPONDENT RTC FROM FURTHER
PROCEEDING WITH CIVIL CASE NO. 90-53023 AND COMMITTING OTHER

ACTS VIOLATIVE OF THE SUPREME COURT DECISION IN G.R. NO. 107243;

AND (3) A WRIT OF MANDAMUS TO COMPEL RESPONDENT RTC TO ISSUE
THE WRIT TO EXECUTE THE SUPREME COURT JUDGMENT IN FAVOR OF
PNB
The issues presented before us in this petition revolve around the legality
of the questioned orders of respondent judge, issued as they were after we
had denied with finality private respondents contention that the PNB could not
compel them to deliver the stocks of sugar in their warehouse covered by the
endorsed quedans or pay the value of the said stocks of sugar.
Petitioners submission is on a technicality, that is, that private
respondents have lost their right to recover warehousemans lien on the sugar
stocks covered by the five (5) Warehouse Receipts for the reason that they
failed to set up said claim in their Answer before the trial court and that private
respondents did not appeal from the decision in this regard, dated June 18,
1992. Petitioner asseverates that the denial by this Court on March 9, 1994 of
the motion seeking clarification of our decision, dated September 1, 1993, has
foreclosed private respondents right to enforce their warehousemans lien for
storage fees and preservation expenses under the Warehouse Receipts Act.
On the other hand, private respondents maintain that they could not have
claimed the right to a warehouseman s lien in their Answer to the complaint
before the trial court as it would have been inconsistent with their stand that
they claim ownership of the stocks covered by the quedans since the checks
issued for payment thereof were dishonored. If they were still the owners, it
would have been absurd for them to ask payment for storage fees and
preservation expenses. They further contend that our resolution, dated March
9, 1994, denying their motion for clarification did not preclude their right to
claim their warehousemans lien under Sections 27 and 31 of Republic Act
2137, as our resolution merely affirmed and adopted the earlier decision,
dated December 13, 1991, of the Court of Appeals (6th Division) in CA-G.R.
SP. No. 25938 and did not make any finding on the matter of the
warehouseman s lien.
We find for private respondents on the foregoing issue and so the petition
necessarily must fail.

We have carefully examined our resolution, dated March 9, 1994, which

denied Noahs Arks motion for clarification of our decision, dated September
1, 1993, wherein we affirmed in full and adopted the Court of Appeals earlier
decision, dated December 13, 1991, in CA-G.R. SP. No. 25938. We are not
persuaded by the petitioners argument that our said resolution carried with it
the denial of the warehousemans lien over the sugar stocks covered by the
subject Warehouse Receipts. We have simply resolved and upheld in our
decision, datedSeptember 1, 1993, the propriety of summary judgment which
was then assailed by private respondents. In effect, we ruled therein that,
considering the circumstances obtaining before the trial court, the issuance of
the Warehouse Receipts not being disputed by the private respondents, a
summary judgment in favor of PNB was proper. We in effect further affirmed
the finding that Noahs Ark is a warehouseman which was obliged to deliver
the sugar stocks covered by the Warehouse Receipts pledged by Cresencia
K. Zoleta and Luis T. Ramos to the petitioner pursuant to the pertinent
provisions of Republic Act 2137.
In disposing of the private respondents motion for clarification, we could
not contemplate the matter of warehousemans lien because the issue to be
finally resolved then was the claim of private respondents for retaining
ownership of the stocks of sugar covered by the endorsed quedans. Stated
otherwise, there was no point in taking up the issue of warehousemans lien
since the matter of ownership was as yet being determined. Neither could
storage fees be due then while no one has been declared the owner of the
sugar stocks in question.
Of considerable relevance is the pertinent stipulation in the subject
Warehouse Receipts which provides for respondent Noahs Arks right to
impose and collect warehousemans lien:
Storage of the refined sugar quantities mentioned herein shall be free up to one (1)
week from the date of the quedans covering said sugar and thereafter, storage fees
shall be charged in accordance with the Refining Contract under which the refined
sugar covered by this Quedan was produced. 6
It is not disputed, therefore, that, under the subject Warehouse Receipts
provision, storage fees are chargeable.

Petitioner anchors its claim against private respondents on the five (5)
Warehouse Receipts issued by the latter to third-party defendants Rosa Ng Sy
of RNS Merchandising and Teresita Ng of St. Therese Merchandising, which
found their way to petitioner after they were negotiated to them by Luis T.
Ramos and Cresencia K. Zoleta for a loan of P39.1 Million. Accordingly,
petitioner PNB is legally bound to stand by the express terms and conditions
on the face of the Warehouse Receipts as to the payment of storage fees.
Even in the absence of such a provision, law and equity dictate the payment
of the warehouseman s lien pursuant to Sections 27 and 31 of the
Warehouse Receipts Law (R.A. 2137), to wit:
SECTION 27. What claims are included in the warehousemans lien. - Subject to the
provisions of section thirty, a warehouseman shall have lien on goods deposited or on
the proceeds thereof in his hands, for all lawful charges for storage and preservation
of the goods; also for all lawful claims for money advanced, interest, insurance,
transportation, labor, weighing coopering and other charges and expenses in relation
to such goods; also for all reasonable charges and expenses for notice, and
advertisement of sale, and for sale of the goods where default has been made in
satisfying the warehousemans lien.
xxx

xxx

xxx

SECTION 31. Warehouseman need not deliver until lien is satisfied. - A

warehouseman having a lien valid against the person demanding the goods may
refuse to deliver the goods to him until the lien is satisfied.
After being declared not the owner, but the warehouseman, by the Court
of Appeals on December 13, 1991 in CA-G.R. SP. No. 25938, the decision
having been affirmed by us onDecember 1, 1993, private respondents cannot
legally be deprived of their right to enforce their claim for warehousemans
lien, for reasonable storage fees and preservation expenses. Pursuant to
Section 31 which we quote hereunder, the goods under storage may not be
delivered until said lien is satisfied.
SECTION 31. Warehouseman need not deliver until lien is satisfied. - A
warehouseman having a lien valid against the person demanding the goods may
refuse to deliver the goods to him until the lien is satisfied.

Considering that petitioner does not deny the existence, validity and
genuineness of the Warehouse Receipts on which it anchors its claim for
payment against private respondents, it cannot disclaim liability for the
payment of the storage fees stipulated therein. As contracts, the receipts must
be respected by authority of Article 1159 of the Civil Code, to wit:
ART. 1159. Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith.
Petitioner is in estoppel in disclaiming liability for the payment of storage
fees due the private respondents as warehouseman while claiming to be
entitled to the sugar stocks covered by the subject Warehouse Receipts on
the basis of which it anchors its claim for payment or delivery of the sugar
stocks. The unconditional presentment of the receipts by the petitioner for
payment against private respondents on the strength of the provisions of the
Warehouse Receipts Law (R.A. 2137) carried with it the admission of the
existence and validity of the terms, conditions and stipulations written on the
face of the Warehouse Receipts, including the unqualified recognition of the
payment of warehousemans lien for storage fees and preservation expenses.
Petitioner may not now retrieve the sugar stocks without paying the lien due
private respondents as warehouseman.
In view of the foregoing, the rule may be simplified thus: While the PNB is
entitled to the stocks of sugar as the endorsee of the quedans, delivery to it
shall be effected only upon payment of the storage fees.
Imperative is the right of the warehouseman to demand payment of his
lien at this juncture, because, in accordance with Section 29 of the Warehouse
Receipts Law, the warehouseman loses his lien upon goods by surrendering
possession thereof. In other words, the lien may be lost where the
warehouseman surrenders the possession of the goods without requiring
payment of his lien, because a warehousemans lien is possessory in nature.
We, therefore, uphold and sustain the validity of the assailed orders of
public respondent, dated December 20, 1994 and March 1, 1995.

In fine, we fail to see any taint of abuse of discretion on the part of the
public respondent in issuing the questioned orders which recognized the
legitimate right of Noahs Ark, after being declared as warehouseman, to
recover storage fees before it would release to the PNB sugar stocks covered
by the five (5) Warehouse Receipts. Our resolution, dated March 9, 1994, did
not preclude private respondents unqualified right to establish its claim to
recover storage fees which is recognized under Republic Act No. 2137.
Neither did the Court of Appeals decision, dated December 13, 1991, restrict
such right.
Our Resolutions reference to the decision by the Court of Appeals,
dated December 13, 1991, in CA-G.R. SP. No. 25938, was intended to guide
the parties in the subsequent disposition of the case to its final end. We
certainly did not foreclose private respondents inherent right as
warehouseman to collect storage fees and preservation expenses as
stipulated n the face of each of the Warehouse Receipts and as provided for
in the Warehouse Receipts Law (R.A. 2137).
WHEREFORE, the petition should be, as it is, hereby dismissed for lack of
merit. The questioned orders issued by public respondent judge are affirmed.
Costs against the petitioner.
SO ORDERED.