G.R. No. 104612 May 10, 1994 order of CBTC with interest at 14% per annum.
f CBTC with interest at 14% per annum. 5 The note was
BANK OF THE PHILIPPINE ISLANDS (successor-in-
interest of COMMERCIAL AND TRUST CO.), petitioner,
vs.
HON. COURT OF APPEALS, EASTERN PLYWOOD CORP.
and BENIGNO D. LIM, respondents.
Leonen, Ramirez & Associates for petitioner.
Constante A. Ancheta for private respondents.
DAVIDE, JR., J.:
The petitioner urges us to review and set aside the amended
Decision 1 of 6 March 1992 of respondent Court of Appeals in
CA- G.R. CV No. 25739 which modified the Decision of 15
November 1990 of Branch 19 of the Regional Trial Court (RTC)
of Manila in Civil Case No. 87-42967, entitled Bank of the
Philippine Islands (successor-in-interest of Commercial Bank
and Trust Company) versus Eastern Plywood Corporation and
Benigno D. Lim. The Court of Appeals had affirmed the
dismissal of the complaint but had granted the defendants'
counterclaim for P331,261.44 which represents the
outstanding balance of their account with the plaintiff.
As culled from the records and the pleadings of the parties, the
following facts were duly established:
Private respondents Eastern Plywood Corporation (Eastern)
and
Benigno D. Lim (Lim), an officer and stockholder of Eastern,
held at least one joint bank account ("and/or" account) with the
Commercial Bank and Trust Co. (CBTC), the predecessor-in-
interest of petitioner Bank of the Philippine Islands (BPI).
Sometime in March 1975, a joint checking account ("and"
account) with Lim in the amount of P120,000.00 was opened
by Mariano Velasco with funds withdrawn from the account of
Eastern and/or Lim. Various amounts were later deposited or
withdrawn from the joint account of Velasco and Lim. The
money therein was placed in the money market.
Velasco died on 7 April 1977. At the time of his death, the
outstanding balance of the account stood at P662,522.87. On
5 May 1977, by virtue of an Indemnity Undertaking executed
by Lim for himself and as President and General Manager of
Eastern, 2 one-half of this amount was provisionally released
and transferred to one of the bank accounts of Eastern with
CBTC. 3
Thereafter, on 18 August 1978, Eastern obtained a loan of
P73,000.00 from CBTC as "Additional Working Capital,"
evidenced by the "Disclosure Statement on Loan/Credit
Transaction" (Disclosure Statement) signed by CBTC through
its branch manager, Ceferino Jimenez, and Eastern, through
Lim, as its President and General Manager. 4 The loan was
payable on demand with interest at 14% per annum.
For this loan, Eastern issued on the same day a negotiable
promissory note for P73,000.00 payable on demand to the
signed by Lim both in his own capacity and as President and
General Manager of Eastern. No reference to any security for
the loan appears on the note. In the Disclosure Statement, the
box with the printed word "UNSECURED" was marked with "X"
meaning unsecured, while the line with the words "this loan
is wholly/partly secured by" is followed by the typewritten
words "Hold-Out on a 1:1 on C/A No. 2310-001-42," which
refers to the joint account of Velasco and Lim with a balance of
P331,261.44.
In addition, Eastern and Lim, and CBTC signed another
document entitled "Holdout Agreement," also dated 18 August
1978, 6 wherein it was stated that "as security for the Loan [Lim
and Eastern] have offered [CBTC] and the latter accepts a
holdout on said [Current Account No. 2310-011-42 in the joint
names of Lim and Velasco] to the full extent of their alleged
interests therein as these may appear as a result of final and
definitive judicial action or a settlement between and among
the contesting parties thereto." 7 Paragraph 02 of the
Agreement provides as follows:
Eastply [Eastern] and Mr. Lim hereby confer
upon Comtrust [CBTC], when and if their
alleged interests in the Account Balance
shall have been established with finality,
ample and sufficient power as shall be
necessary to retain said Account Balance
and enable Comtrust to apply the Account
Balance for the purpose of liquidating the
Loan in respect of principal and/or accrued
interest.
And paragraph 05 thereof reads:
The acceptance of this holdout shall not
impair the right of Comtrust to declare the
loan payable on demand at any time, nor
shall the existence hereof and the non-
resolution of the dispute between the
contending parties in respect of entitlement
to the Account Balance, preclude Comtrust
from instituting an action for recovery against
Eastply and/or Mr. Lim in the event the Loan
is declared due and payable and Eastply
and/or Mr. Lim shall default in payment of all
obligations and liabilities thereunder.
In the meantime, a case for the settlement of Velasco's estate
was filed with Branch 152 of the RTC of Pasig, entitled "In re
Intestate Estate of Mariano Velasco," and docketed as Sp.
Proc. No. 8959. In the said case, the whole balance of
P331,261.44 in the aforesaid joint account of Velasco and Lim
was being claimed as part of Velasco's estate. On 9
September 1986, the intestate court granted the urgent motion
of the heirs of Velasco to withdraw the deposit under the joint
account of Lim and Velasco and authorized the heirs to divide
among themselves the amount withdrawn. 8
Sometime in 1980, CBTC was merged with BPI. 9 On 2
December 1987, BPI filed with the RTC of Manila a complaint
against Lim and Eastern demanding payment of the
promissory note for P73,000.00. The complaint was docketed
as Civil Case No. 87- 42967 and was raffled to Branch 19 of
the said court, then presided over by Judge Wenceslao M.
Polo. Defendants Lim and Eastern, in turn, filed a counterclaim
against BPI for the return of the balance in the disputed
account subject of the Holdout Agreement and the interests
thereon after deducting the amount due on the promissory
note.
After due proceedings, the trial court rendered its decision on
15 November 1990 dismissing the complaint because BPI
failed to make out its case. Furthermore, it ruled that "the
promissory note in question is subject to the 'hold-out'
agreement," 10 and that based on this agreement, "it was the
duty of plaintiff Bank [BPI] to debit the account of the
defendants under the promissory note to set off the loan even
though the same has no fixed maturity." 11 As to the
defendants' counterclaim, the trial court, recognizing the fact
that the entire amount in question had been withdrawn by
Velasco's heirs pursuant to the order of the intestate court in
Sp. Proc. No. 8959, denied it because the "said claim cannot
be awarded without disturbing the resolution" of the intestate
court. 12
Both parties appealed from the said decision to the Court of
Appeals. Their appeal was docketed as CA-G.R. CV No.
25739.
On 23 January 1991, the Court of Appeals rendered a decision
affirming the decision of the trial court. It, however, failed to
rule on the defendants' (private respondents') partial appeal
from the trial court's denial of their counterclaim. Upon their
motion for reconsideration, the Court of Appeals promulgated
on 6 March 1992 an Amended Decision 13 wherein it ruled that
the settlement of Velasco's estate had nothing to do with the
claim of the defendants for the return of the balance of their
account with CBTC/BPI as they were not privy to that case,
and that the defendants, as depositors of CBTC/BPI, are the
latter's creditors; hence, CBTC/BPI should have protected the
defendants' interest in Sp. Proc. No. 8959 when the said
account was claimed by Velasco's estate. It then ordered BPI
"to pay defendants the amount of P331,261.44 representing
the outstanding balance in the bank account of defendants." 14
On 22 April 1992, BPI filed the instant petition alleging therein
that the Holdout Agreement in question was subject to a
suspensive condition stated therein, viz., that the "P331,261.44
shall become a security for respondent Lim's promissory note
only if respondents' Lim and Eastern Plywood Corporation's
interests to that amount are established as a result of a final
and definitive judicial action or a settlement between and
among the contesting parties thereto." 15 Hence, BPI asserts,
the Court of Appeals erred in affirming the trial court's decision
dismissing the complaint on the ground that it was the duty of
CBTC to debit the account of the defendants to set off the
amount of P73,000.00 covered by the promissory note.
Private respondents Eastern and Lim dispute the "suspensive
condition" argument of the petitioner. They interpret the
findings of both the trial and appellate courts that the money
deposited in the joint account of Velasco and Lim came from
Eastern and Lim's own account as a finding that the money
deposited in the joint account of Lim and Velasco "rightfully
belong[ed] to Eastern Plywood Corporation and/or Benigno
Lim." And because the latter are the rightful owners of the
money in question, the suspensive condition does not find any
application in this case and the bank had the duty to set off this
deposit with the loan. They add that the ruling of the lower
court that they own the disputed amount is the final and
definitive judicial action required by the Holdout Agreement;
hence, the petitioner can only hold the amount of P73,000.00
representing the security required for the note and must return
the rest. 16
The petitioner filed a Reply to the aforesaid Comment. The
private respondents filed a Rejoinder thereto.
We gave due course to the petition and required the parties to
submit simultaneously their memoranda.
The key issues in this case are whether BPI can demand
payment of the loan of P73,000.00 despite the existence of the
Holdout Agreement and whether BPI is still liable to the private
respondents on the account subject of the Holdout Agreement
after its withdrawal by the heirs of Velasco.
The collection suit of BPI is based on the promissory note for
P73,000.00. On its face, the note is an unconditional promise
to pay the said amount, and as stated by the respondent Court
of Appeals, "[t]here is no question that the promissory note is a
negotiable instrument." 17 It further correctly ruled that BPI was
not a holder in due course because the note was not indorsed
to BPI by the payee, CBTC. Only a negotiation by indorsement
could have operated as a valid transfer to make BPI a holder in
due course. It acquired the note from CBTC by the contract of
merger or sale between the two banks. BPI, therefore, took the
note subject to the Holdout Agreement.
We disagree, however, with the Court of Appeals in its
interpretation of the Holdout Agreement. It is clear from
paragraph 02 thereof that CBTC, or BPI as its successor-in-
interest, had every right to demand that Eastern and Lim settle
their liability under the promissory note. It cannot be compelled
to retain and apply the deposit in Lim and Velasco's joint
account to the payment of the note. What the agreement
conferred on CBTC was a power, not a duty. Generally, a bank
is under no duty or obligation to make the application. 18 To
apply the deposit to the payment of a loan is a privilege, a right
of set-off which the bank has the option to exercise. 19
Also, paragraph 05 of the Holdout Agreement itself states that
notwithstanding the agreement, CBTC was not in any way
precluded from demanding payment from Eastern and from
instituting an action to recover payment of the loan. What it
provides is an alternative, not an exclusive, method of
enforcing its claim on the note. When it demanded payment of
the debt directly from Eastern and Lim, BPI had opted not to
exercise its right to apply part of the deposit subject of the
Holdout Agreement to the payment of the promissory note for
P73,000.00. Its suit for the enforcement of the note was then in
order and it was error for the trial court to dismiss it on the
theory that it was set off by an equivalent portion in C/A No.
2310-001-42 which BPI should have debited. The Court of
Appeals also erred in affirming such dismissal.
The "suspensive condition" theory of the petitioner is,
therefore, untenable.
The Court of Appeals correctly decided on the counterclaim. WHEREFORE, the instant petition is partly GRANTED. The
The counterclaim of Eastern and Lim for the return of the challenged amended decision in CA-G.R. CV No. 25735 is
P331,261.44 20 was equivalent to a demand that they be hereby MODIFIED. As modified:
allowed to withdraw their deposit with the bank. Article 1980 of
the Civil Code expressly provides that "[f]ixed, savings, and (1) Private respondents are ordered to pay
current deposits of money in banks and similar institutions shall the petitioner the promissory note for
be governed by the provisions concerning simple loan." P73,000.00 with interest at:
In Serrano vs. Central Bank of the Philippines, 21 we held that
bank deposits are in the nature of irregular deposits; they are
(a) 14% per annum on the
really loans because they earn interest. The relationship then
principal, computed from
between a depositor and a bank is one of creditor and debtor.
18 August 1978 until
The deposit under the questioned account was an ordinary
payment;
bank deposit; hence, it was payable on demand of the
depositor. 22
(b) 12% per annum on the
interest which had accrued
The account was proved and established to belong to Eastern
up to the date of the filing
even if it was deposited in the names of Lim and Velasco. As
of the complaint,
the real creditor of the bank, Eastern has the right to withdraw
computed from that date
it or to demand payment thereof. BPI cannot be relieved of its
until payment pursuant to
duty to pay Eastern simply because it already allowed the heirs
Article 2212 of the Civil
of Velasco to withdraw the whole balance of the account. The
Code.
petitioner should not have allowed such withdrawal because it
had admitted in the Holdout Agreement the questioned
ownership of the money deposited in the account. As early as (2) The award of P331,264.44 in favor of the
12 May 1979, CBTC was notified by the Corporate Secretary private respondents shall bear interest at the
of Eastern that the deposit in the joint account of Velasco and rate of 12%per annum computed from the
Lim was being claimed by them and that one-half was being filing of the counterclaim.
claimed by the heirs of Velasco. 23
No pronouncement as to costs.
Moreover, the order of the court in Sp. Proc. No. 8959 merely
authorized the heirs of Velasco to withdraw the account. BPI SO ORDERED.
was not specifically ordered to release the account to the said
heirs; hence, it was under no judicial compulsion to do so. The
authorization given to the heirs of Velasco cannot be construed
as a final determination or adjudication that the account
belonged to Velasco. We have ruled that when the ownership G.R. No. 179952 December 4, 2009
of a particular property is disputed, the determination by a
probate court of whether that property is included in the estate METROPOLITAN BANK AND TRUST COMPANY (formerly
of a deceased is merely provisional in character and cannot be ASIANBANK CORPORATION), Petitioner,
the subject of execution. 24 vs.
BA FINANCE CORPORATION and MALAYAN INSURANCE
Because the ownership of the deposit remained undetermined, CO., INC., Respondents.
BPI, as the debtor with respect thereto, had no right to pay to
persons other than those in whose favor the obligation was DECISION
constituted or whose right or authority to receive payment is
indisputable. The payment of the money deposited with BPI CARPIO MORALES, J.:
that will extinguish its obligation to the creditor-depositor is
payment to the person of the creditor or to one authorized by
Lamberto Bitanga (Bitanga) obtained from respondent BA
him or by the law to receive it. 25 Payment made by the debtor
Finance Corporation (BA Finance) a P329,2801 loan to secure
to the wrong party does not extinguish the obligation as to the
which, he mortgaged his car to respondent BA Finance. 2 The
creditor who is without fault or negligence, even if the debtor
mortgage contained the following stipulation:
acted in utmost good faith and by mistake as to the person of
the creditor, or through error induced by fraud of a third
person. 26 The payment then by BPI to the heirs of Velasco, The MORTGAGOR covenants and agrees that he/it will cause
even if done in good faith, did not extinguish its obligation to the property(ies) hereinabove mortgaged to be insured against
the true depositor, Eastern. loss or damage by accident, theft and fire for a period of one
year from date hereof with an insurance company or
companies acceptable to the MORTGAGEE in an amount not
In the light of the above findings, the dismissal of the
less than the outstanding balance of mortgage obligations and
petitioner's complaint is reversed and set aside. The award on
that he/it will make all loss, if any, under such policy or
the counterclaim is sustained subject to a modification of the
policies, payable to the MORTGAGEE or its assigns as its
interest.
interest may appear x x x.3 (emphasis and underscoring
supplied)
Bitanga thus had the mortgaged car insured by respondent
Malayan Insurance Co., Inc. (Malayan Insurance)4which issued
a policy stipulating that, inter alia,
Loss, if any shall be payable to BA FINANCE CORP. as its
interest may appear. It is hereby expressly understood that this
policy or any renewal thereof, shall not be cancelled without
prior notification and conformity by BA FINANCE
CORPORATION.5 (emphasis and underscoring supplied)
The car was stolen. On Bitangas claim, Malayan Insurance
issued a check payable to the order of "B.A. Finance
Corporation and Lamberto Bitanga" for P224,500, drawn
against China Banking Corporation (China Bank). The check
was crossed with the notation "For Deposit Payees Account
Only."6
Without the indorsement or authority of his co-payee BA
Finance, Bitanga deposited the check to his account with the
Asianbank Corporation (Asianbank), now merged with herein
petitioner Metropolitan Bank and Trust Company (Metrobank).
Bitanga subsequently withdrew the entire proceeds of the
check.
In the meantime, Bitangas loan became past due, but despite
demands, he failed to settle it.
BA Finance eventually learned of the loss of the car and of
Malayan Insurances issuance of a crossed check payable to it
and Bitanga, and of Bitangas depositing it in his account at
Asianbank and withdrawing the entire proceeds thereof.
BA Finance thereupon demanded the payment of the value of
the check from Asianbank7 but to no avail, prompting it to file a
complaint before the Regional Trial Court (RTC) of Makati for
sum of money and damages against Asianbank and
Bitanga,8 alleging that, inter alia, it is entitled to the entire
proceeds of the check.
In its Answer with Counterclaim,9 Asianbank alleged that BA
Finance "instituted [the] complaint in bad faith to coerce [it] into
paying the whole amount of the CHECK knowing fully well that
its rightful claim, if any, is against Malayan [Insurance]."10
Asianbank thereafter filed a cross-claim against
Bitanga,11 alleging that he fraudulently induced its personnel to
release to him the full amount of the check; and that on being
later informed that the entire amount of the check did not
belong to Bitanga, it took steps to get in touch with him but he
had changed residence without leaving any forwarding
address.12
And Asianbank filed a third-party complaint against
Malayan Insurance,13 alleging that Malayan Insurance was
grossly negligent in issuing the check payable to both Bitanga
and BA Finance and delivering it to Bitanga without the
consent of BA Finance.14
Bitanga was declared in default in Asianbanks cross-claim.15
Branch 137 of the Makati RTC, finding that Malayan Insurance
was not privy to the contract between BA Finance and Bitanga,
and noting the claim of Malayan Insurance that it is its policy to
issue checks to both the insured and the financing company,
held that Malayan Insurance cannot be faulted for negligence
for issuing the check payable to both BA Finance and Bitanga.
The trial court, holding that Asianbank was negligent in
allowing Bitanga to deposit the check to his account and to
withdraw the proceeds thereof, without his co-payee BA
Finance having either indorsed it or authorized him to indorse it
in its behalf,16 found Asianbank and Bitanga jointly and
severally liable to BA Finance following Section 41 of
the Negotiable Instruments Law and Associated Bank v. Court
of Appeals.17
Thus the trial court disposed:
WHEREFORE, premises considered, judgment is hereby
rendered ordering defendants Asian Bank Corporation and
Lamberto Bitanga:
1) To pay plaintiff jointly and severally the sum of
P224,500.00 with interest thereon at the rate of 12%
from September 25, 1992 until fully paid;
2) To pay plaintiff the sum of P50,000.00 as
exemplary damages; P20,000.00 as actual damages;
P30,000.00 as attorneys fee; and
3) To pay the costs of suit.
Asianbanks and Bitangas [sic] counterclaims are dismissed.
The third party complaint of defendant/third party plaintiff
against third-party defendant Malayan Insurance, Co., Inc. is
hereby dismissed. Asianbank is ordered to pay Malayan
attorneys fee of P50,000.00 and a per appearance fee of
P500.00.
On the cross-claim of defendant Asianbank, co-defendant
Lamberto Bitanga is ordered to pay the former the
amounts the latter is ordered to pay the plaintiff in Nos. 1,
2 and 3 above-mentioned.
SO ORDERED.18 (emphasis and underscoring supplied)
Before the Court of Appeals, Asianbank, in its Appellants Brief,
submitted the following issues for consideration:
3.01.1.1 Whether BA Finance has a cause of action against
Asianbank.
3.01.1.2 Assuming that BA Finance has a valid cause of
action, may it claim from Asianbank more than one-half of the
value of the check considering that it is a mere co-payee or
joint payee of the check?
3.01.1.3 Whether BA Finance is liable to Asianbank for actual
and exemplary damages for wrongfully bringing the case to
court.
3.01.1.4 Whether Malayan is liable to Asianbank for
reimbursement of any sum of money which this Honorable
Court may award to BA Finance in this case. 19 (underscoring
supplied)
And it proffered the following arguments:
A. BA Finance has no cause of action against
Asianbank as it has no legal right and title to the
check considering that the check was not delivered to
BA Finance. Hence, BA Finance is not a holder
thereof under the Negotiable Instruments Law.
B. Asianbank, as collecting bank, is not liable to BA
Finance as there was no privity of contract between
them.
C. Asianbank, as collecting bank, is not liable to BA
Finance, considering that, as the intermediary
between the payee and the drawee Chinabank,
it merely acted on the instructions of drawee
Chinabank to pay the amount of the check to Bitanga,
hence, the consequent damage to BA Finance was
due to the negligence of Chinabank.
D. Malayans act of issuing and delivering the
check solely to Bitanga in violation of the "loss payee"
clause in the Policy, is the proximate cause of the
alleged damage to BA Finance.
E. Assuming Asianbank is liable, BA Finance can
claim only his proportionate interest on the check as it
is a joint payee thereof.
F. Bitanga alone is liable for the amount to BA
Finance on the ground of unjust enrichment or solutio
indebiti.
G. BA Finance is liable to pay Asianbank actual and
exemplary damages.20 (underscoring supplied)
The appellate court, "summarizing" the errors attributed to the
trial court by Asianbank to be "whetherBA Finance has a
cause of action against [it] even if the subject check had not
been delivered toBA Finance by the issuer itself," held in the
affirmative and accordingly affirmed the trial courts decision
but deleted the award of P20,000 as actual damages.21
Hence, the present Petition for Review on Certiorari 22 filed by
Metrobank (hereafter petitioner) to which Asianbank was, as
earlier stated, merged, faulting the appellate court
I. x x x in applying the case of Associated Bank v.
Court of Appeals, in the absence of factual similarity
and of the legal relationships necessary for the
application of the desirable shortcut rule. x x x
II. x x x in not finding that x x x the general rule that
the payee has no cause of action against the
collecting bank absent delivery to him must be
applied.
III. x x x in finding that all the elements of a cause of
action by BA Finance Corporation against Asianbank
Corporation are present.
IV. x x x in finding that Article 1208 of the Civil Code is
not applicable.
V. x x x in awarding of exemplary damages even in
the absence of moral, temperate, liquidated or
compensatory damages and a finding of fact that
Asianbank acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner.
xxxx
VII. x x x in dismissing Asianbanks counterclaim and
Third Party complaint [against Malayan
Insurance].23(italics in the original; underscoring
supplied)
Petitioner proffers the following arguments against the
application of Associated Bank v. CA to the case:
x x x [T]he rule established in the Associated Bank case has
provided a speedier remedy for the payee to recover from
erring collecting banks despite the absence of delivery of the
negotiable instrument. However, the application of the rule
demands careful consideration of the factual settings and
issues raised in the case x x x.
One of the relevant circumstances raised in Associated Bank is
the existence of forgery or unauthorized indorsement. x x x
xxxx
In the case at bar, Bitanga is authorized to indorse the check
as the drawer names him as one of the payees. Moreover, his
signature is not a forgery nor has he or anyone forged the
signature of the representative of BA Finance Corporation. No
unauthorized indorsement appears on the check.
xxxx
Absent the indispensable fact of forgery or unauthorized
indorsement, the desirable shortcut rule cannot be
applied,24 (underscoring supplied)
The petition fails.
Section 41 of the Negotiable Instruments Law provides:
Where an instrument is payable to the order of two or more
payees or indorsees who are not partners, all must
indorse unless the one indorsing has authority to indorse for
the others. (emphasis and underscoring supplied)
Bitanga alone endorsed the crossed check, and petitioner
allowed the deposit and release of the proceeds thereof,
despite the absence of authority of Bitangas co-payee BA
Finance to endorse it on its behalf.25
Denying any irregularity in accepting the check, petitioner
maintains that it followed normal banking procedure. The
testimony of Imelda Cruz, Asianbanks then accounting head,
shows otherwise, however, viz:
Q Now, could you be familiar with a particular policy of
the bank with respect to checks with joined (sic)
payees?
A Yes, sir.
Q And what would be the particular policy of the bank
regarding this transaction?
A The bank policy and procedure regarding the
joint checks. Once it is deposited to a single
account, we are not accepting joint checks for
single account, depositing to a single
account (sic).
Q What happened to the bank employee who allowed
this particular transaction to occur?
A Once the branch personnel, the bank personnel
(sic) accepted it, he is liable.
Q What do you mean by the branch personnel being
held liable?
A Because since (sic) the bank policy, we are not
supposed to accept joint checks to a [single]
account, so we mean that personnel would be
held liable in the sense that (sic) once it is
withdrawn or encashed, it will not be allowed.
Q In your experience, have you encountered any
bank employee who was subjected to disciplinary
action by not following bank policies?
A The one that happened in that case, since I really
dont know who that personnel is, he is no longer
connected with the bank.
Q What about in general, do you know of any
disciplinary action, Madam witness?
A Since theres a negligence on the part of the
bank personnel, it will be a ground for his
separation [from] the bank.26 (emphasis, italics and
underscoring supplied)
Admittedly, petitioner dismissed the employee who allowed the
deposit of the check in Bitangas account.
Petitioners argument that since there was neither forgery, nor
unauthorized indorsement because Bitanga was a co-payee in
the subject check, the dictum in Associated Bank v. CA does
not apply in the present case fails. The payment of an
instrument over a missing indorsement is the equivalent of
payment on a forged indorsement27 or an unauthorized
indorsement in itself in the case of joint payees.28
Clearly, petitioner, through its employee, was negligent when it
allowed the deposit of the crossed check, despite the lone
endorsement of Bitanga, ostensibly ignoring the fact that the
check did not, it bears repeating, carry the indorsement of BA
Finance.29
As has been repeatedly emphasized, the banking business is
imbued with public interest such that the highest degree of
diligence and highest standards of integrity and performance
are expected of banks in order to maintain the trust and
confidence of the public in general in the banking
sector.30 Undoubtedly, BA Finance has a cause of action
against petitioner.
Is petitioner liable to BA Finance for the full value of the check?
Petitioner, at all events, argue that its liability to BA Finance
should only be one-half of the amount covered by the check as
there is no indication in the check that Bitanga and BA Finance
are solidary creditors to thus make them presumptively joint
creditors under Articles 1207 and 1208 of the Civil Code which
respectively provide:
Art. 1207. The concurrence of two or more creditors or of two
or more debtors in one and the same obligation does not imply
that each one of the former has a right to demand, or that each
one of the latter is bound to render, entire compliance with the
prestations. There is a solidary liability only when the obligation
expressly so states, or when the law or the nature of the
obligation requires solidarity.
Art. 1208. If from the law, or the nature or wording of the
obligations to which the preceding article refers to the contrary
does not appear, the credit or debt shall be presumed to be
divided into as many equal shares as there are creditors or
debtors, the debts or credits being considered distinct from one
another, subject to the Rules of Court governing the multiplicity
of suits.
Petitioners argument is flawed.
The provisions of the Negotiable Instruments Law and
underlying jurisprudential teachings on the black-letter law
provide definitive justification for petitioners full liability on the
value of the check.
To be sure, a collecting bank, Asianbank in this case, where a
check is deposited and which indorses the check upon
presentment with the drawee bank, is an indorser.[31] This is
because in indorsing a check to the drawee bank, a collecting
bank stamps the back of the check with the phrase "all prior
endorsements and/or lack of endorsement guaranteed"32 and,
for all intents and purposes, treats the check as a negotiable
instrument, hence, assumes the warranty of an
indorser.33 Without Asianbanks warranty, the drawee bank
(China Bank in this case) would not have paid the value of the
subject check.
Petitioner, as the collecting bank or last indorser, generally
suffers the loss because it has the duty to ascertain the
genuineness of all prior indorsements considering that the act
of presenting the check for payment to the drawee is an
assertion that the party making the presentment has done its
duty to ascertain the genuineness of prior indorsements.34
Accordingly, one who credits the proceeds of a check to the
account of the indorsing payee is liable in conversion to the
non-indorsing payee for the entire amount of the check.35
It bears noting that in petitioners cross-claim against Bitanga,
the trial court ordered Bitanga to return to petitioner the entire
value of the check P224,500.00 with interest as well as
damages and cost of suit. Petitioner never questioned this
aspect of the trial courts disposition, yet it now prays for the
modification of its liability to BA Finance to only one-half of said
amount. To pander to petitioners supplication would certainly
amount to unjust enrichment at BA Finances expense.
Petitioners remedywhich is the reimbursement for the full
amount of the check from the perpetrator of the irregularity
lies with Bitanga.
Articles 1207 and 1208 of the Civil Code cannot be applied to
the present case as these are completely irrelevant. The
drawer, Malayan Insurance in this case, issued the check to
answer for an underlying contractual obligation (payment of
insurance proceeds). The obligation is merely reflected in the
instrument and whether the payees would jointly share in the
proceeds or not is beside the point.
Moreover, granting petitioners appeal for partial liability would
run counter to the existing principles on the liabilities of parties
on negotiable instruments, particularly on Section 68 of
the Negotiable Instruments Law which instructs that joint
payees who indorse are deemed to indorse jointly and
severally.36 Recall that when the maker dishonors the
instrument, the holder thereof can turn to those secondarily
liable the indorser for recovery.37 And since the law
explicitly mandates a solidary liability on the part of the joint
payees who indorse the instrument, the holder thereof
(assuming the check was further negotiated) can turn to either
Bitanga or BA Finance for full recompense.
Respecting petitioners challenge to the award by the appellate
court of exemplary damages to BA Finance, the same fails.
Contrary to petitioners claim that no moral, temperate,
liquidated or compensatory damages were awarded by the trial
court,38 the RTC did in fact award compensatory or actual
damages of P224,500, the value of the check, plus interest
thereon.
Petitioner argues, however, that assuming arguendo that
compensatory damages had been awarded, the same
contravened Article 2232 of the Civil Code which provides that
in contracts or quasi-contracts, the court may award exemplary
damages only if the defendant acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner. Since, so
petitioner concludes, there was no finding that it acted in a
wanton, fraudulent, reckless, oppressive, or malevolent
manner,39 it is not liable for exemplary damages.
The argument fails. To reiterate, petitioners liability is based
not on contract or quasi-contract but on quasi-delictsince there
is no pre-existing contractual relation between the
parties.40 Article 2231 of the Civil Code, which provides that
in quasi-delict, exemplary damages may be granted if the
defendant acted with gross negligence, thus applies. For
"gross negligence" implies a want or absence of or failure to
exercise even slight care or diligence, or the entire absence of
care,41 evincing a thoughtless disregard of consequences
without exerting any effort to avoid them.42
x x x The law allows the grant of exemplary damages to set an
example for the public good. The business of a bank is affected
with public interest; thus it makes a sworn profession of
diligence and meticulousness in giving irreproachable service.
For this reason, the bank should guard against in injury
attributable to negligence or bad faith on its part. The award of
exemplary damages is proper as a warning to [the petitioner]
and all concerned not to recklessly disregard their obligation to
exercise the highest and strictest diligence in serving their
depositors.43(Italics and underscoring supplied)
As for the dismissal by the appellate court of petitioners third-
party complaint against Malayan Insurance, the same is well-
taken. Petitioner based its third-party complaint on Malayan
Insurances alleged gross negligence in issuing the check
payable to both BA Finance and Bitanga, despite the
stipulation in the mortgage and in the insurance policy that
liability for loss shall be payable to BA Finance. 44 Malayan
Insurance countered, however, that it
x x x paid the amount of P224,500 to BA Finance Corporation
and Lamberto Bitanga in compliance with the decision in the
case of "Lamberto Bitanga versus Malayan Insurance Co., Inc.,
Civil Case No. 88-2802, RTC-Makati Br. 132, and affirmed on
appeal by the Supreme Court [3rd Division], G.R. no. 101964,
April 8, 1992 x x x.45(underscoring supplied)
It is noted that Malayan Insurance, which stated that it was a
matter of company policy to issue checks in the name of the
insured and the financing company, presented a witness to
rebut its supposed negligence. 46 Perforce, it thus wrote
a crossed check with joint payees so as to serve warning that
the check was issued for a definite purpose.47 Petitioner never
ever disputed these assertions.
The Court takes exception, however, to the appellate courts
affirmance of the trial courts grant of legal interest of 12% per
annum on the value of the check. For the obligation in this
case did not arise out of a loan or forbearance of money,
goods or credit. While Article 1980 of the Civil Code provides
that:
Fixed savings, and current deposits of money in banks and
similar institutions shall be governed by the provisions
concerning simple loan,
said provision does not find application in this case since the
nature of the relationship between BA Finance and petitioner is
one of agency whereby petitioner, as collecting bank, is to
collect for BA Finance the corresponding proceeds from the
check.48 Not being a loan or forbearance of money, the interest
should be 6% per annum computed from the date of
extrajudicial demand on September 25, 1992 until finality of
judgment; and 12% per annum from finality of judgment until
payment, conformably with Eastern Shipping Lines, Inc. v.
Court of Appeals.[49]
WHEREFORE, the Decision of the Court of Appeals dated May
18, 2007 is AFFIRMED with MODIFICATION in that the rate of
interest on the judgment obligation of P224,500 should be 6%
per annum, computed from the time of extrajudicial demand on
September 25, 1992 until its full payment before finality of
judgment; thereafter, if the amount adjudged remains unpaid,
the interest rate shall be 12% per annum computed from the
time the judgment becomes final and executory until fully
satisfied.
Costs against petitioner.
SO ORDERED.
G.R. No. 118492 August 15, 2001
GREGORIO H. REYES and CONSUELO PUYAT-
REYES, petitioners,
vs.
THE HON. COURT OF APPEALS and FAR EAST BANK
AND TRUST COMPANY, respondents.
DE LEON, JR., J.:
Before us is a petition for review of the Decision 1 dated July 22,
1994 and Resolution2 dated December 29, 1994 of the Court of
Appeals3 affirming with modification the Decision4 dated
November 12, 1992 of the Regional Trial Court of Makati,
Metro Manila, Branch 64, which dismissed the complaint for
damages of petitioners spouses Gregorio H. Reyes and
Consuelo Puyat-Reyes against respondent Far East Bank and
Trust Company.
The undisputed facts of the case are as follows:
In view of the 20th Asian Racing Conference then scheduled to
be held in September, 1988 in Sydney, Australia, the Philippine
Racing Club, Inc. (PRCI, for brevity) sent four (4) delegates to
the said conference. Petitioner Gregorio H. Reyes, as vice-
president for finance, racing manager, treasurer, and director of
PRCI, sent Godofredo Reyes, the club's chief cashier, to the
respondent bank to apply for a foreign exchange demand draft
in Australian dollars.
Godofredo went to respondent bank's Buendia Branch in
Makati City to apply for a demand draft in the amount One
Thousand Six Hundred Ten Australian Dollars (AU$1,610.00)
payable to the order of the 20 th Asian Racing Conference
Secretariat of Sydney, Australia. He was attended to by
respondent bank's assistant cashier, Mr. Yasis, who at first
denied the application for the reason that respondent bank did
not have an Australian dollar account in any bank in Sydney.
Godofredo asked if there could be a way for respondent bank
to accommodate PRCI's urgent need to remit Australian dollars
to Sydney. Yasis of respondent bank then informed Godofredo
of a roundabout way of effecting the requested remittance to
Sydney thus: the respondent bank would draw a demand draft
against Westpac Bank in Sydney, Australia (Westpac-Sydney
for brevity) and have the latter reimburse itself from the U.S.
dollar account of the respondent in Westpac Bank in New York,
U.S.A. (Westpac-New York for brevity). This arrangement has
been customarily resorted to since the 1960's and the
procedure has proven to be problem-free. PRCI and the
petitioner Gregorio H. Reyes, acting through Godofredo,
agreed to this arrangement or approach in order to effect the
urgent transfer of Australian dollars payable to the Secretariat
of the 20th Asian Racing Conference.
On July 28, 1988, the respondent bank approved the said
application of PRCI and issued Foreign Exchange Demand
Draft (FXDD) No. 209968 in the sum applied for, that is, One
Thousand Six Hundred Ten Australian Dollars (AU$ 1,610.00),
payable to the order of the 20 th Asian Racing Conference
Secretariat of Sydney, Australia, and addressed to Westpac-
Sydney as the drawee bank.1wphi1.nt
On August 10, 1988, upon due presentment of the foreign
exchange demand draft, denominated as FXDD No. 209968,
the same was dishonored, with the notice of dishonor stating
the following: "xxx No account held with Westpac." Meanwhile,
on August 16, 1988, Wespac-New York sent a cable to
respondent bank informing the latter that its dollar account in
the sum of One Thousand Six Hundred Ten Australian Dollars
(AU$ 1,610.00) was debited. On August 19, 1988, in response
to PRCI's complaint about the dishonor of the said foreign
exchange demand draft, respondent bank informed Westpac-
Sydney of the issuance of the said demand draft FXDD No.
209968, drawn against the Wespac-Sydney and informing the
latter to be reimbursed from the respondent bank's dollar
account in Westpac-New York. The respondent bank on the
same day likewise informed Wespac-New York requesting the
latter to honor the reimbursement claim of Wespac-Sydney. On
September 14, 1988, upon its second presentment for
payment, FXDD No. 209968 was again dishonored by
Westpac-Sydney for the same reason, that is, that the
respondent bank has no deposit dollar account with the
drawee Wespac-Sydney.
On September 17, 1988 and September 18, 1988,
respectively, petitioners spouses Gregorio H. Reyes and
Consuelo Puyat-Reyes left for Australia to attend the said
racing conference. When petitioner Gregorio H. Reyes arrived
in Sydney in the morning of September 18, 1988, he went
directly to the lobby of Hotel Regent Sydney to register as a
conference delegate. At the registration desk, in the presence
of other delegates from various member of the conference
secretariat that he could not register because the foreign
exchange demand draft for his registration fee had been
dishonored for the second time. A discussion ensued in the
presence and within the hearing of many delegates who were
also registering. Feeling terribly embarrassed and humiliated,
petitioner Gregorio H. Reyes asked the lady member of the
conference secretariat that he be shown the subject foreign
exchange demand draft that had been dishonored as well as
the covering letter after which he promised that he would pay
the registration fees in cash. In the meantime he demanded
that he be given his name plate and conference kit. The lady
member of the conference secretariat relented and gave him
his name plate and conference kit. It was only two (2) days
later, or on September 20, 1988, that he was given the
dishonored demand draft and a covering letter. It was then that
he actually paid in cash the registration fees as he had earlier
promised.
Meanwhile, on September 19, 1988, petitioner Consuelo
Puyat-Reyes arrived in Sydney. She too was embarassed and
humiliated at the registration desk of the conference secretariat
when she was told in the presence and within the hearing of
other delegates that she could not be registered due to the
dishonor of the subject foreign exchange demand draft. She
felt herself trembling and unable to look at the people around
her. Fortunately, she saw her husband, coming toward her. He
saved the situation for her by telling the secretariat member
that he had already arranged for the payment of the
registration fee in cash once he was shown the dishonored
demand draft. Only then was petitioner Puyat-Reyes given her
name plate and conference kit.
At the time the incident took place, petitioner Consuelo Puyat-
Reyes was a member of the House of Representatives
representing the lone Congressional District of Makati, Metro
Manila. She has been an officer of the Manila Banking
Corporation and was cited by Archbishop Jaime Cardinal Sin
as the top lady banker of the year in connection with her
conferment of the Pro-Ecclesia et Pontifice Award. She has
also been awarded a plaque of appreciation from the Philippine
Tuberculosis Society for her extraordinary service as the
Society's campaign chairman for the ninth (9th) consecutive
year.
On November 23, 1988, the petitioners filed in the Regional
Trial Court of Makati, Metro Manila, a complaint for damages,
docketed as Civil Case No. 88-2468, against the respondent
bank due to the dishonor of the said foreign exchange demand
draft issued by the respondent bank. The petitioners claim that
as a result of the dishonor of the said demand draft, they were
exposed to unnecessary shock, social humiliation, and deep
mental anguish in a foreign country, and in the presence of an
international audience.
On November 12, 1992, the trial court rendered judgment in
favor of the defendant (respondent bank) and against the
plaintiffs (herein petitioners), the dispositive portion of which
states:
WHEREFORE, judgment is hereby rendered in favor
of the defendant, dismissing plaintiff's complaint, and
ordering plaintiffs to pay to defendant, on its
counterclaim, the amount of P50,000.00, as
reasonable attorney's fees. Costs against the plaintiff.
SO ORDERED.5
The petitioners appealed the decision of the trial court to the
Court of Appeals. On July 22, 1994, the appellate court
affirmed the decision of the trial court but in effect deleted the
award of attorney's fees to the defendant (herein respondent
bank) and the pronouncement as to the costs. The decretal
portion of the decision of the appellate court states:
WHEREFORE, the judgment appealed from, insofar
as it dismissed plaintiff's complaint, is hereby
AFFIRMED, but is hereby REVERSED and SET
ASIDE in all other respect. No special pronouncement
as to costs.
SO ORDERED.6
According to the appellate court, there is no basis to hold the
respondent bank liable for damages for the reason that it
exerted every effort for the subject foreign exchange demand
draft to be honored. The appellate court found and declared
that:
xxx xxx xxx
Thus, the Bank had every reason to believe that the
transaction finally went through smoothly, considering
that its New York account had been debited and that
there was no miscommunication between it and
Westpac-New York. SWIFT is a world wide
association used by almost all banks and is known to
be the most reliable mode of communication in the
international banking business. Besides, the above
procedure, with the Bank as drawer and Westpac-
Sydney as drawee, and with Westpac-New York as
the reimbursement Bank had been in place since
1960s and there was no reason for the Bank to
suspect that this particular demand draft would not be
honored by Westpac-Sydney.
From the evidence, it appears that the root cause of
the miscommunications of the Bank's SWIFT
message is the erroneous decoding on the part of
Westpac-Sydney of the Bank's SWIFT message as
an MT799 format. However, a closer look at the
Bank's Exhs. "6" and "7" would show that despite
what appears to be an asterick written over the figure
before "99", the figure can still be distinctly seen as a
number "1" and not number "7", to the effect that
Westpac-Sydney was responsible for the dishonor
and not the Bank.
Moreover, it is not said asterisk that caused the
misleading on the part of the Westpac-Sydney of the
numbers "1" to "7", since Exhs. "6" and "7" are just
documentary copies of the cable message sent to
Wespac-Sydney. Hence, if there was mistake
committed by Westpac-Sydney in decoding the cable
message which caused the Bank's message to be
sent to the wrong department, the mistake was
Westpac's, not the Bank's. The Bank had done what
an ordinary prudent person is required to do in the
particular situation, although appellants expect the
Bank to have done more. The Bank having done
everything necessary or usual in the ordinary course
of banking transaction, it cannot be held liable for any
embarrassment and corresponding damage that
appellants may have incurred.7
xxx xxx xxx
Hence, this petition, anchored on the following assignment of
errors:
I where the subject foreign exchange demand draft (FXDD No.
THE HONORABLE COURT OF APPEALS ERRED IN
FINDING PRIVATE RESPONDENT NOT
NEGLIGENT BY ERRONEOUSLY APPLYING THE
STANDARD OF DILIGENCE OF AN "ORDINARY
PRUDENT PERSON" WHEN IN TRUTH A HIGHER
DEGREE OF DILIGENCE IS IMPOSED BY LAW
UPON THE BANKS.
II
THE HONORABLE COURT OF APPEALS ERRED IN
ABSOLVING PRIVATE RESPONDENT FROM
LIABILITY BY OVERLOOKING THE FACT THAT THE
DISHONOR OF THE DEMAND DRAFT WAS A
BREACH OF PRIVATE RESPONDENT'S
WARRANTY AS THE DRAWER THEREOF.
III
THE HONORABLE COURT OF APPEALS ERRED IN
NOT HOLDING THAT AS SHOWN
OVERWHELMINGLY BY THE EVIDENCE, THE
DISHONOR OF THE DEMAND DRAFT AS DUE TO
PRIVATE RESPONDENT'S NEGLIGENCE AND NOT
THE DRAWEE BANK.8
The petitioners contend that due to the fiduciary nature of the
relationship between the respondent bank and its clients, the
respondent should have exercised a higher degree of diligence
than that expected of an ordinary prudent person in the
handling of its affairs as in the case at bar. The appellate court,
according to petitioners, erred in applying the standard of
diligence of an ordinary prudent person only. Petitioners also
claim that the respondent bank violate Section 61 of the
Negotiable Instruments Law9 which provides the warranty of a
drawer that "xxx on due presentment, the instrument will be
accepted or paid, or both, according to its tenor xxx." Thus, the
petitioners argue that respondent bank should be held liable for
damages for violation of this warranty. The petitioners pray this
Court to re-examine the facts to cite certain instances of
negligence.
It is our view and we hold that there is no reversible error in the
decision of the appellate court.
Section 1 of Rule 45 of the Revised Rules of Court provides
that "(T)he petition (for review) shall raise only questions of
law which must be distinctly set forth." Thus, we have ruled
that factual findings of the Court of Appeals are conclusive on
the parties and not reviewable by this Court and they carry
even more weight when the Court of Appeals affirms the
factual findings of the trial court.10
The courts a quo found that respondent bank did not
misrepresent that it was maintaining a deposit account with
Westpac-Sydney. Respondent bank's assistant cashier
explained to Godofredo Reyes, representing PRCI and
petitioner Gregorio H. Reyes, how the transfer of Australian
dollars would be effected through Westpac-New York where
the respondent bank has a dollar account to Westpac-Sydney
209968) could be encashed by the payee, the 20 th Asian
Racing Conference Secretariat. PRCI and its Vice-President
for finance, petitioner Gregorio H. Reyes, through their said
representative, agreed to that arrangement or procedure. In
other words, the petitioners are estopped from denying the
said arrangement or procedure. Similar arrangements have
been a long standing practice in banking to facilitate
international commercial transactions. In fact, the SWIFT cable
message sent by respondent bank to the drawee bank,
Westpac-Sydney, stated that it may claim reimbursement from
its New York branch, Westpac-New York, where respondent
bank has a deposit dollar account. The facts as found by the
courts a quo show that respondent bank did not cause an
erroneous transmittal of its SWIFT cable message to Westpac-
Sydney. It was the erroneous decoding of the cable message
on the part of Westpac-Sydney that caused the dishonor of the
subject foreign exchange demand draft. An employee of
Westpac-Sydney in Sydney, Australia mistakenly read the
printed figures in the SWIFT cable message of respondent
bank as "MT799" instead of as "MT199". As a result, Westpac-
Sydney construed the said cable message as a format for a
letter of credit, and not for a demand draft. The appellate court
correct found that "the figure before '99' can still be distinctly
seen as a number '1' and not number '7'." Indeed, the line of a
"7" is in a slanting position while the line of a "1" is in a
horizontal position. Thus, the number "1" in "MT199" cannot be
construed as "7".11
The evidence also shows that the respondent bank exercised
that degree of diligence expected of an ordinary prudent
person under the circumstances obtaining. Prior to the first
dishonor of the subject foreign exchange demand draft, the
respondent bank advised Westpac-New York to honor the
reimbursement claim of Westpac-Sydney and to debit the
dollar account12 of respondent bank with the former. As soon
as the demand draft was dishonored, the respondent bank,
thinking that the problem was with the reimbursement and
without any idea that it was due to miscommunication, re-
confirmed the authority of Westpac-New York to debit its dollar
account for the purpose of reimbursing Westpac-
Sydney.13 Respondent bank also sent two (2) more cable
messages to Westpac-New York inquiring why the demand
draft was not honored.14
With these established facts, we now determine the degree of
diligence that banks are required to exert in their commercial
dealings. In Philippine Bank of Commerce v. Court of
Appeals15 upholding a long standing doctrine, we ruled that the
degree of diligence required of banks, is more than that of
a good father of a family where the fiduciary nature of their
relationship with their depositors is concerned. In other words
banks are duty bound to treat the deposit accounts of their
depositors with the highest degree of care. But the said ruling
applies only to cases where banks act under their fiduciary
capacity, that is, as depositary of the deposits of their
depositors. But the same higher degree of diligence is not
expected to be exerted by banks in commercial transactions
that do not involve their fiduciary relationship with their
depositors.
Considering the foregoing, the respondent bank was not
required to exert more than the diligence of a good father of a
family in regard to the sale and issuance of the subject foreign
exchange demand draft. The case at bar does not involve the
handling of petitioners' deposit, if any, with the respondent
bank. Instead, the relationship involved was that of a buyer and
seller, that is, between the respondent bank as the seller of the
subject foreign exchange demand draft, and PRCI as the buyer
of the same, with the 20 th Asian Racing conference Secretariat
in Sydney, Australia as the payee thereof. As earlier
mentioned, the said foreign exchange demand draft was
intended for the payment of the registration fees of the
petitioners as delegates of the PRCI to the 20 th Asian Racing
Conference in Sydney.
The evidence shows that the respondent bank did everything
within its power to prevent the dishonor of the subject foreign
exchange demand draft. The erroneous reading of its cable
message to Westpac-Sydney by an employee of the latter
could not have been foreseen by the respondent bank. Being
unaware that its employee erroneously read the said cable
message, Westpac-Sydney merely stated that the respondent
bank has no deposit account with it to cover for the amount of
One Thousand Six Hundred Ten Australian Dollar (AU
$1610.00) indicated in the foreign exchange demand draft.
Thus, the respondent bank had the impression that Westpac-
New York had not yet made available the amount for
reimbursement to Westpac-Sydney despite the fact that
respondent bank has a sufficient deposit dollar account with
Westpac-New York. That was the reason why the respondent
bank had to re-confirm and repeatedly notify Westpac-New
York to debit its (respondent bank's) deposit dollar account with
it and to transfer or credit the corresponding amount to
Westpac-Sydney to cover the amount of the said demand
draft.
In view of all the foregoing, and considering that the dishonor
of the subject foreign exchange demand draft is not attributable
to any fault of the respondent bank, whereas the petitioners
appeared to be under estoppel as earlier mentioned, it is no
longer necessary to discuss the alleged application of Section
61 of the Negotiable Instruments Law to the case at bar. In any
event, it was established that the respondent bank acted in
good faith and that it did not cause the embarrassment of the
petitioners in Sydney, Australia. Hence, the Court of Appeals
did not commit any reversable error in its challenged decision.
WHEREFORE, the petition is hereby DENIED, and the
assailed decision of the Court of Appeals is AFFIRMED. Costs
against the petitioners.
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 resignation of Guingona,
deposits, P13,531.94 on Jr.) and served as such
savings account deposits until October 30, 1980,
(jointly with his sister, while Santos was General
Denise Kuhne), Manager up to November
US$10,000.00 on time 1980; that because NSLA
deposit, US$15,000.00 was urgently in need of
under a receipt and funds and at David's
guarantee of payment and insistence, his investments
US$50,000.00 under a were treated as special-
receipt dated June 8, 1980 accounts with interest
(au jointly with Denise above the legal rate, an
Kuhne), that David was recorded in separate
induced into making the confidential documents
aforestated investments by only a portion of which
Robert Marshall an were to be reported
Australian national who because he did not want
was allegedly a close the Australian government
associate of petitioner to tax his total earnings
Guingona Jr., then NSLA (nor) to know his total
President, petitioner investments; that all
Martin, then NSLA transactions with David
Executive Vice-President were recorded except the
of NSLA and petitioner sum of US$15,000.00
Santos, then NSLA which was a personal loan
General Manager; that on of Santos; that David's
March 21, 1981 N LA was check for US$50,000.00
placed under receivership was cleared through
by the Central Bank, so Guingona, Jr.'s dollar
that David filed claims account because NSLA
therewith for his did not have one, that a
investments and those of draft of US$30,000.00 was
his sister; that on July 22, placed in the name of one
1981 David received a Paz Roces because of a
report from the Central pending transaction with
Bank that only her; that the Philippine
P305,821.92 of those Deposit Insurance
investments were entered Corporation had already
in the records of NSLA; reimbursed David within
that, therefore, the the legal limits; that
respondents in I.S. No. 81- majority of the
31938 misappropriated the stockholders of NSLA had
balance of the filed Special Proceedings
investments, at the same No. 82-1695 in the Court
time violating Central Bank of First Instance to contest
Circular No. 364 and its (NSLA's) closure; that
related Central Bank after NSLA was placed
regulations on foreign under receivership, Martin
exchange transactions; executed a promissory
that after demands, note in David's favor and
petitioner Guingona Jr. caused the transfer to him
paid only P200,000.00, of a nine and on behalf (9
thereby reducing the 1/2) carat diamond ring
amounts misappropriated with a net value of
to P959,078.14 and P510,000.00; and, that the
US$75,000.00." liabilities of NSLA to David
were civil in nature."
Petitioners, Martin and Santos, filed a joint
counter-affidavit (Petition, Annex' B') in which Petitioner, Guingona, Jr., in his counter-
they stated the following.t.hqw affidavit (Petition, Annex' C') stated the
following:t.hqw
"That Martin became
President of NSLA in "That he had no hand
March 1978 (after the 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 give rise to civil liability over which the public respondents have
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
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 accepting foreign currency deposit in the amount of
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 into Philippine currency. Accordingly, the bank draft was
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
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
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 in Arevalo
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.
G.R. No. 173227 January 20, 2009
SEBASTIAN SIGA-AN, Petitioner,
vs.
ALICIA VILLANUEVA, Respondent.
DECISION
CHICO-NAZARIO, J.:
Before Us is a Petition1 for Review on Certiorari under Rule 45
of the Rules of Court seeking to set aside the Decision, 2 dated
16 December 2005, and Resolution,3 dated 19 June 2006 of
the Court of Appeals in CA-G.R. CV No. 71814, which affirmed
in toto the Decision,4 dated 26 January 2001, of the Las Pinas
City Regional Trial Court, Branch 255, in Civil Case No. LP-98-
0068.
The facts gathered from the records are as follows:
On 30 March 1998, respondent Alicia Villanueva filed a
complaint5 for sum of money against petitioner Sebastian Siga-
an before the Las Pinas City Regional Trial Court (RTC),
Branch 255, docketed as Civil Case No. LP-98-0068.
Respondent alleged that she was a businesswoman engaged
in supplying office materials and equipments to the Philippine
Navy Office (PNO) located at Fort Bonifacio, Taguig City, while
petitioner was a military officer and comptroller of the PNO
from 1991 to 1996.
Respondent claimed that sometime in 1992, petitioner
approached her inside the PNO and offered to loan her the
amount of P540,000.00. Since she needed capital for her
business transactions with the PNO, she accepted petitioners
proposal. The loan agreement was not reduced in writing. Also,
there was no stipulation as to the payment of interest for the
loan.6
On 31 August 1993, respondent issued a check
worth P500,000.00 to petitioner as partial payment of the loan.
On 31 October 1993, she issued another check in the amount
of P200,000.00 to petitioner as payment of the remaining
balance of the loan. Petitioner told her that since she paid a
total amount of P700,000.00 for the P540,000.00 worth of loan,
the excess amount of P160,000.00 would be applied as
interest for the loan. Not satisfied with the amount applied as
interest, petitioner pestered her to pay additional interest.
Petitioner threatened to block or disapprove her transactions
with the PNO if she would not comply with his demand. As all
her transactions with the PNO were subject to the approval of
petitioner as comptroller of the PNO, and fearing that petitioner
might block or unduly influence the payment of her vouchers in
the PNO, she conceded. Thus, she paid additional amounts in
cash and checks as interests for the loan. She asked petitioner
for receipt for the payments but petitioner told her that it was
not necessary as there was mutual trust and confidence
between them. According to her computation, the total amount
she paid to petitioner for the loan and interest accumulated
to P1,200,000.00.7
Thereafter, respondent consulted a lawyer regarding the
propriety of paying interest on the loan despite absence of
agreement to that effect. Her lawyer told her that petitioner
could not validly collect interest on the loan because there was
no agreement between her and petitioner regarding payment
of interest. Since she paid petitioner a total amount
of P1,200,000.00 for the P540,000.00 worth of loan, and upon
being advised by her lawyer that she made overpayment to
petitioner, she sent a demand letter to petitioner asking for the
return of the excess amount of P660,000.00. Petitioner, despite
receipt of the demand letter, ignored her claim for
reimbursement.8
Respondent prayed that the RTC render judgment ordering
petitioner to pay respondent (1) P660,000.00 plus legal interest
from the time of demand; (2) P300,000.00 as moral damages;
(3) P50,000.00 as exemplary damages; and (4) an amount
equivalent to 25% of P660,000.00 as attorneys fees.9
In his answer10 to the complaint, petitioner denied that he
offered a loan to respondent. He averred that in 1992,
respondent approached and asked him if he could grant her a
loan, as she needed money to finance her business venture
with the PNO. At first, he was reluctant to deal with respondent,
because the latter had a spotty record as a supplier of the
PNO. However, since respondent was an acquaintance of his
officemate, he agreed to grant her a loan. Respondent paid the
loan in full.11
Subsequently, respondent again asked him to give her a loan.
As respondent had been able to pay the previous loan in full,
he agreed to grant her another loan. Later, respondent
requested him to restructure the payment of the loan because
she could not give full payment on the due date. He acceded to
her request. Thereafter, respondent pleaded for another
restructuring of the payment of the loan. This time he rejected
her plea. Thus, respondent proposed to execute a promissory
note wherein she would acknowledge her obligation to him,
inclusive of interest, and that she would issue several
postdated checks to guarantee the payment of her obligation.
Upon his approval of respondents request for restructuring of
the loan, respondent executed a promissory note dated 12
September 1994 wherein she admitted having borrowed an
amount of P1,240,000.00, inclusive of interest, from petitioner
and that she would pay said amount in March 1995.
Respondent also issued to him six postdated checks
amounting to P1,240,000.00 as guarantee of compliance with
her obligation. Subsequently, he presented the six checks for
encashment but only one check was honored. He demanded
that respondent settle her obligation, but the latter failed to do
so. Hence, he filed criminal cases for Violation of the Bouncing
Checks Law (Batas Pambansa Blg. 22) against respondent.
The cases were assigned to the Metropolitan Trial Court of
Makati City, Branch 65 (MeTC).12
Petitioner insisted that there was no overpayment because
respondent admitted in the latters promissory note that her
monetary obligation as of 12 September 1994 amounted
to P1,240,000.00 inclusive of interests. He argued that
respondent was already estopped from complaining that she
should not have paid any interest, because she was given
several times to settle her obligation but failed to do so. He
maintained that to rule in favor of respondent is tantamount to
concluding that the loan was given interest-free. Based on the
foregoing averments, he asked the RTC to dismiss
respondents complaint.
After trial, the RTC rendered a Decision on 26 January 2001
holding that respondent made an overpayment of her loan
obligation to petitioner and that the latter should refund the
excess amount to the former. It ratiocinated that respondents
obligation was only to pay the loaned amount of P540,000.00,
and that the alleged interests due should not be included in the
computation of respondents total monetary debt because
there was no agreement between them regarding payment of
interest. It concluded that since respondent made an excess
payment to petitioner in the amount of P660,000.00 through
mistake, petitioner should return the said amount to
respondent pursuant to the principle of solutio indebiti.13
The RTC also ruled that petitioner should pay moral damages
for the sleepless nights and wounded feelings experienced by
respondent. Further, petitioner should pay exemplary damages
by way of example or correction for the public good, plus
attorneys fees and costs of suit.
The dispositive portion of the RTC Decision reads:
WHEREFORE, in view of the foregoing evidence and in the
light of the provisions of law and jurisprudence on the matter,
judgment is hereby rendered in favor of the plaintiff and against
the defendant as follows:
(1) Ordering defendant to pay plaintiff the amount
of P660,000.00 plus legal interest of 12% per annum
computed from 3 March 1998 until the amount is paid
in full;
(2) Ordering defendant to pay plaintiff the amount
of P300,000.00 as moral damages;
(3) Ordering defendant to pay plaintiff the amount
of P50,000.00 as exemplary damages;
(4) Ordering defendant to pay plaintiff the amount
equivalent to 25% of P660,000.00 as attorneys fees;
and
(5) Ordering defendant to pay the costs of suit.14
Petitioner appealed to the Court of Appeals. On 16 December
2005, the appellate court promulgated its Decision affirming in
toto the RTC Decision, thus:
WHEREFORE, the foregoing considered, the instant appeal is
hereby DENIED and the assailed decision [is] AFFIRMED in
toto.15
Petitioner filed a motion for reconsideration of the appellate
courts decision but this was denied.16 Hence, petitioner lodged
the instant petition before us assigning the following errors:
I.
THE RTC AND THE COURT OF APPEALS ERRED IN
RULING THAT NO INTEREST WAS DUE TO PETITIONER;
II.
THE RTC AND THE COURT OF APPEALS ERRED IN
APPLYING THE PRINCIPLE OF SOLUTIO INDEBITI.17
Interest is a compensation fixed by the parties for the use or
forbearance of money. This is referred to as monetary interest.
Interest may also be imposed by law or by courts as penalty or
indemnity for damages. This is called compensatory
interest.18 The right to interest arises only by virtue of a
contract or by virtue of damages for delay or failure to pay the
principal loan on which interest is demanded.19
Article 1956 of the Civil Code, which refers to monetary
interest,20 specifically mandates that no interest shall be due
unless it has been expressly stipulated in writing. As can be
gleaned from the foregoing provision, payment of monetary
interest is allowed only if: (1) there was an express stipulation
for the payment of interest; and (2) the agreement for the
payment of interest was reduced in writing. The concurrence of
the two conditions is required for the payment of monetary
interest. Thus, we have held that collection of interest without
any stipulation therefor in writing is prohibited by law.21
It appears that petitioner and respondent did not agree on the
payment of interest for the loan. Neither was there convincing
proof of written agreement between the two regarding the
payment of interest. Respondent testified that although she
accepted petitioners offer of loan amounting to P540,000.00,
there was, nonetheless, no verbal or written agreement for her
to pay interest on the loan.22
Petitioner presented a handwritten promissory note dated 12
September 199423 wherein respondent purportedly admitted
owing petitioner "capital and interest." Respondent, however,
explained that it was petitioner who made a promissory note
and she was told to copy it in her own handwriting; that all her
transactions with the PNO were subject to the approval of
petitioner as comptroller of the PNO; that petitioner threatened
to disapprove her transactions with the PNO if she would not
pay interest; that being unaware of the law on interest and
fearing that petitioner would make good of his threats if she
would not obey his instruction to copy the promissory note, she
copied the promissory note in her own handwriting; and that
such was the same promissory note presented by petitioner as
alleged proof of their written agreement on interest. 24 Petitioner
did not rebut the foregoing testimony. It is evident that
respondent did not really consent to the payment of interest for
the loan and that she was merely tricked and coerced by
petitioner to pay interest. Hence, it cannot be gainfully said that
such promissory note pertains to an express stipulation of
interest or written agreement of interest on the loan between
petitioner and respondent.
Petitioner, nevertheless, claims that both the RTC and the
Court of Appeals found that he and respondent agreed on the
payment of 7% rate of interest on the loan; that the agreed 7%
rate of interest was duly admitted by respondent in her
testimony in the Batas Pambansa Blg. 22 cases he filed
against respondent; that despite such judicial admission by
respondent, the RTC and the Court of Appeals, citing Article
1956 of the Civil Code, still held that no interest was due him
since the agreement on interest was not reduced in writing;
that the application of Article 1956 of the Civil Code should not
be absolute, and an exception to the application of such
provision should be made when the borrower admits that a
specific rate of interest was agreed upon as in the present
case; and that it would be unfair to allow respondent to pay
only the loan when the latter very well knew and even admitted
in the Batas Pambansa Blg. 22 cases that there was an agreed
7% rate of interest on the loan.25
We have carefully examined the RTC Decision and found that
the RTC did not make a ruling therein that petitioner and
respondent agreed on the payment of interest at the rate of 7%
for the loan. The RTC clearly stated that although petitioner
and respondent entered into a valid oral contract of loan
amounting to P540,000.00, they, nonetheless, never intended
the payment of interest thereon.26 While the Court of Appeals
mentioned in its Decision that it concurred in the RTCs ruling
that petitioner and respondent agreed on a certain rate of
interest as regards the loan, we consider this as merely an
inadvertence because, as earlier elucidated, both the RTC and
the Court of Appeals ruled that petitioner is not entitled to the
payment of interest on the loan. The rule is that factual findings
of the trial court deserve great weight and respect especially
when affirmed by the appellate court. 27 We found no
compelling reason to disturb the ruling of both courts.
Petitioners reliance on respondents alleged admission in the
Batas Pambansa Blg. 22 cases that they had agreed on the
payment of interest at the rate of 7% deserves scant
consideration. In the said case, respondent merely testified
that after paying the total amount of loan, petitioner ordered
her to pay interest.28 Respondent did not categorically declare
in the same case that she and respondent made
an express stipulation in writing as regards payment of interest
at the rate of 7%. As earlier discussed, monetary interest is
due only if there was an express stipulation in writing for the
payment of interest.
There are instances in which an interest may be imposed even
in the absence of express stipulation, verbal or written,
regarding payment of interest. Article 2209 of the Civil Code
states that if the obligation consists in the payment of a sum of
money, and the debtor incurs delay, a legal interest of 12% per
annum may be imposed as indemnity for damages if no
stipulation on the payment of interest was agreed upon.
Likewise, Article 2212 of the Civil Code provides that interest
due shall earn legal interest from the time it is judicially
demanded, although the obligation may be silent on this point.
All the same, the interest under these two instances may be
imposed only as a penalty or damages for breach of
contractual obligations. It cannot be charged as a
compensation for the use or forbearance of money. In other
words, the two instances apply only to compensatory interest
and not to monetary interest. 29 The case at bar involves
petitioners claim for monetary interest.
Further, said compensatory interest is not chargeable in the
instant case because it was not duly proven that respondent
defaulted in paying the loan. Also, as earlier found, no interest
was due on the loan because there was no written agreement
as regards payment of interest.
Apropos the second assigned error, petitioner argues that the
principle of solutio indebiti does not apply to the instant case.
Thus, he cannot be compelled to return the alleged excess
amount paid by respondent as interest.30
Under Article 1960 of the Civil Code, if the borrower of loan
pays interest when there has been no stipulation therefor, the
provisions of the Civil Code concerning solutio indebiti shall be
applied. Article 2154 of the Civil Code explains the principle
of solutio indebiti. Said provision provides that if something is
received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises. In
such a case, a creditor-debtor relationship is created under a
quasi-contract whereby the payor becomes the creditor who
then has the right to demand the return of payment made by
mistake, and the person who has no right to receive such
payment becomes obligated to return the same. The quasi-
contract of solutio indebiti harks back to the ancient principle
that no one shall enrich himself unjustly at the expense of
another.31 The principle of solutio indebitiapplies where (1) a
payment is made when there exists no binding relation
between the payor, who has no duty to pay, and the person
who received the payment; and (2) the payment is made
through mistake, and not through liberality or some other
cause.32 We have held that the principle of solutio
indebiti applies in case of erroneous payment of undue
interest.33
It was duly established that respondent paid interest to
petitioner. Respondent was under no duty to make such
payment because there was no express stipulation in writing to
that effect. There was no binding relation between petitioner
and respondent as regards the payment of interest. The
payment was clearly a mistake. Since petitioner received
something when there was no right to demand it, he has an
obligation to return it.
We shall now determine the propriety of the monetary award
and damages imposed by the RTC and the Court of Appeals.
Records show that respondent received a loan amounting
to P540,000.00 from petitioner.34 Respondent issued two
checks with a total worth of P700,000.00 in favor of petitioner
as payment of the loan.35 These checks were subsequently
encashed by petitioner.36 Obviously, there was an excess
of P160,000.00 in the payment for the loan. Petitioner claims
that the excess of P160,000.00 serves as interest on the loan
to which he was entitled. Aside from issuing the said two
checks, respondent also paid cash in the total amount
of P175,000.00 to petitioner as interest.37 Although no receipts
reflecting the same were presented because petitioner refused
to issue such to respondent, petitioner, nonetheless, admitted
in his Reply-Affidavit38 in the Batas Pambansa Blg. 22 cases
that respondent paid him a total amount of P175,000.00 cash
in addition to the two checks. Section 26 Rule 130 of the Rules
of Evidence provides that the declaration of a party as to a
relevant fact may be given in evidence against him. Aside from
the amounts of P160,000.00 and P175,000.00 paid as interest,
no other proof of additional payment as interest was presented
by respondent. Since we have previously found that petitioner
is not entitled to payment of interest and that the principle
of solutio indebiti applies to the instant case, petitioner should
return to respondent the excess amount of P160,000.00
and P175,000.00 or the total amount of P335,000.00.
Accordingly, the reimbursable amount to respondent fixed by
the RTC and the Court of Appeals should be reduced
from P660,000.00 to P335,000.00.
As earlier stated, petitioner filed five (5) criminal cases for
violation of Batas Pambansa Blg. 22 against respondent. In the
said cases, the MeTC found respondent guilty of violating
Batas Pambansa Blg. 22 for issuing five dishonored checks to
petitioner. Nonetheless, respondents conviction therein does
not affect our ruling in the instant case. The two checks,
subject matter of this case, totaling P700,000.00 which
respondent claimed as payment of the P540,000.00 worth of
loan, were not among the five checks found to be dishonored
or bounced in the five criminal cases. Further, the MeTC found
that respondent made an overpayment of the loan by reason of
the interest which the latter paid to petitioner.39
Article 2217 of the Civil Code provides that moral damages
may be recovered if the party underwent physical suffering,
mental anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation and similar
injury. Respondent testified that she experienced sleepless
nights and wounded feelings when petitioner refused to return
the amount paid as interest despite her repeated demands.
Hence, the award of moral damages is justified. However, its
corresponding amount of P300,000.00, as fixed by the RTC
and the Court of Appeals, is exorbitant and should be equitably
reduced. Article 2216 of the Civil Code instructs that
assessment of damages is left to the discretion of the court
according to the circumstances of each case. This discretion is
limited by the principle that the amount awarded should not be
palpably excessive as to indicate that it was the result of
prejudice or corruption on the part of the trial court.40 To our
mind, the amount of P150,000.00 as moral damages is fair,
reasonable, and proportionate to the injury suffered by
respondent.
Article 2232 of the Civil Code states that in a quasi-contract,
such as solutio indebiti, exemplary damages may be imposed
if the defendant acted in an oppressive manner. Petitioner
acted oppressively when he pestered respondent to pay
interest and threatened to block her transactions with the PNO
if she would not pay interest. This forced respondent to pay
interest despite lack of agreement thereto. Thus, the award of
exemplary damages is appropriate. The amount of P50,000.00
imposed as exemplary damages by the RTC and the Court is
fitting so as to deter petitioner and other lenders from
committing similar and other serious wrongdoings.41
Jurisprudence instructs that in awarding attorneys fees, the
trial court must state the factual, legal or equitable justification
for awarding the same.42 In the case under consideration, the
RTC stated in its Decision that the award of attorneys fees
equivalent to 25% of the amount paid as interest by
respondent to petitioner is reasonable and moderate
considering the extent of work rendered by respondents
lawyer in the instant case and the fact that it dragged on for
several years.43 Further, respondent testified that she agreed to
compensate her lawyer handling the instant case such
amount.44 The award, therefore, of attorneys fees and its
amount equivalent to 25% of the amount paid as interest by
respondent to petitioner is proper.
Finally, the RTC and the Court of Appeals imposed a 12% rate
of legal interest on the amount refundable to respondent
computed from 3 March 1998 until its full payment. This is
erroneous.
We held in Eastern Shipping Lines, Inc. v. Court of
Appeals,45 that when an obligation, not constituting a loan or
forbearance of money is breached, an interest on the amount
of damages awarded may be imposed at the rate of 6% per
annum. We further declared that when the judgment of the
court awarding a sum of money becomes final and executory,
the rate of legal interest, whether it is a loan/forbearance of
money or not, shall be 12% per annum from such finality until
its satisfaction, this interim period being deemed equivalent to
a forbearance of credit.
In the present case, petitioners obligation arose from a quasi-
contract of solutio indebiti and not from a loan or forbearance
of money. Thus, an interest of 6% per annum should be
imposed on the amount to be refunded as well as on the
damages awarded and on the attorneys fees, to be computed
from the time of the extra-judicial demand on 3 March
1998,46 up to the finality of this Decision. In addition, the
interest shall become 12% per annum from the finality of this
Decision up to its satisfaction.
WHEREFORE, the Decision of the Court of Appeals in CA-
G.R. CV No. 71814, dated 16 December 2005, is
hereby AFFIRMED with the following MODIFICATIONS: (1)
the amount of P660,000.00 as refundable amount of interest is
reduced to THREE HUNDRED THIRTY FIVE THOUSAND
PESOS (P335,000.00); (2) the amount of P300,000.00
imposed as moral damages is reduced to ONE HUNDRED
FIFTY THOUSAND PESOS (P150,000.00); (3) an interest of
6% per annum is imposed on the P335,000.00, on the
damages awarded and on the attorneys fees to be computed
from the time of the extra-judicial demand on 3 March 1998 up
to the finality of this Decision; and (4) an interest of 12% per
annum is also imposed from the finality of this Decision up to
its satisfaction. Costs against petitioner.
SO ORDERED.
G.R. No. 129995 October 19, 2001
THE PROVINCE OF BATAAN, petitioner-appellant,
vs.
HON. PEDRO VILLAFUERTE, JR., as Presiding Judge of
the Regional Trial Court of Bataan (Branch 4), and THE
PRESIDENTIAL COMMISSION ON GOOD
GOVERNMENT, respondents-appellees.
BUENA, J.:
Sought to be reversed in the instant Petition for Review on
Certiorari is the Decision1 of the Court of Appeals, dated 19
December 1996, in C.A. G.R. SP. No. 33344, upholding the
twin orders dated 28 July 1993 and 11 November 1993 of the
Regional Trial Court (RTC) of Bataan, Branch 4, in Civil Case
No. 210-ML, for annulment of sale.
In its order dated 28 July 1993, 2 the lower court directed that
herein petitioner Province of Bataan remit to said court
whatever lease rentals petitioner may receive from lessees 7-R
Port Services and Marina Port Services, and that such lease
rentals be placed under a special time deposit with the Land
Bank of the Philippines, Balanga Branch, for the account of the
RTC-Balanga, Branch 4, in escrow, for the person or persons,
natural or juridical, who may be adjudged lawfully entitled
thereto. The order dated 11 November 1993,3 denied herein
petitioners motion for reconsideration of the 28 July, 1993
order.
Involved in the present controversy is an expanse of real
property (hereinafter referred to as the BASECO property)
situated at Mariveles, Bataan and formerly registered and titled
in the name of either the Bataan Shipyard and Engineering
Corporation (BASECO), the Philippine Dockyard Corporation
or the Baseco Drydock and Construction Co., Inc..
Pursuant to Presidential Decree No. 464, otherwise known as
the Real Property Tax Code of 1974, the Provincial Treasurer
of Bataan advertised for auction sale the BASECO property
due to real estate tax delinquency amounting to
P7,914,281.72, inclusive of penalties.4 At the auction sale held
on 12 February 1988, no bidder vied for said property as a
result of which, the Provincial Treasurer of Bataan adjudged
the property to, and acquired the same for, and in the name of
herein petitioner Province of Bataan. Upon the expiration of the
one-year redemption period, and without the owner exercising
its right to redeem the subject property, the Provincial
Government of Bataan consolidated its title thereon; the
corresponding certificates of title were then issued in the name
of herein petitioner Province of Bataan.
Eventually, petitioner, thru then Provincial Governor Enrique T.
Garcia, entered into a ten-year contract of lease with 7-R Port
Services, Inc., whereby portions of the BASECO property
including facilities and improvements thereon, were leased to
the latter for a minimum escalating annual rental of Eighteen
Million Pesos (P18 million). On 10 May 1993, petitioner forged
another contract of lease with Marina Port Services, over a ten-
hectare portion of the BASECO property.
On 11 May 1993, The Presidential Commission on Good
Government (PCGG), for itself and on behalf of the Republic of
the Philippines and the BASECO, the Philippine Dockyard
Corporation and the Baseco Drydock and Construction Co.
Inc., filed with the RTC-Bataan a complaint for annulment of
sale,5 principally assailing the validity of the tax delinquency
sale of the BASECO property in favor of petitioner Province of
Bataan. Among others, the complaint alleged that the auction
sale held on 12 February 1988, is void for having been
conducted:6
"a) In defiance of an injunctive order issued by the
PCGG in the exercise of its powers under Executive
Order No. 1, Series of 1986;
"b) in contravention of the Real Property Tax Code of
1974;
"c) while the issue of ownership of the Baseco
property and of whether the same partakes of the
nature of ill-gotten wealth is pending litigation in Civil
Case No. 0010 before the Sandiganbayan; and
"d) despite the inscription of the sequestration order at
the back of each title of the BASECO property."
In its prayer, the complaint asked for the following reliefs:
"1) The tax delinquency sale held on February 12,
1988 be declared null and void; and the defendant
Province of Bataan be ordered to reconvey all the
properties thus sold to its rightful owners, the
Republic of the Philippines and/or the other plaintiffs
herein;
"2) The defendants be ordered to render an
accounting to, and pay plaintiffs all earnings, fruits
and income which they have received or could have
received from the time they claimed ownership and
took possession and control of all the auctioned
properties; and to account and pay for all the losses,
deterioration and destruction thereof;
"3) The defendants be ordered, jointly and severally to
pay plaintiffs for all damages suffered by it/them by
reason of the unlawful actuations of the defendants, in
the sum herein claimed and proven at the trial of this
case, including attorneys fees and costs of suit;
"4) The defendant 7-R Port Services, Inc. be ordered
to immediately cease and desist from paying any
lease rentals to the Province of Bataan, and instead
to pay the same directly to the plaintiffs;
"5) The Register of Deeds of Bataan be ordered to
cancel the Torrens titles it had issued in favor of the
Province of Bataan, and issue a new Torrens titles
(sic) in favor of plaintiffs in lieu of the cancelled ones".
Herein respondent PCGG, upon learning of the lease contracts
entered into by and between petitioner and Marina Port
Services, filed with the RTC an urgent motion for the issuance
of a writ of preliminary injunction to enjoin herein petitioner
"from entering into a lease contract with Marina Port Services,
Inc. (Marina), or any other entity, and/or from
implementing/enforcing such lease contract, if one has already
been executed, and to maintain the status quo until further
orders from the Court."
On 06 July 1993, the lower court denied the motion
ratiocinating that the lease contract with Marina was already
a fait accompli when the motion was filed, and that Marina was
not a party to the suit for not having been impleaded as party-
defendant.
On 30 June 1993, the PCGG filed with the lower court an
"Urgent Motion to Deposit Lease Rentals," alleging inter
alia that the rentals amounting to "Hundreds of Millions of
Pesos" are "in danger of being unlawfully spent, squandered
and dissipated to the great and irreparable damage of plaintiffs
who are the rightful owners of the property leased."
On 28 July 1993, the lower court granted the PCGGs urgent
motion and issued its assailed order the dispositive portion of
which reads:
"ACCORDINGLY, the defendant Province of Bataan is
hereby ordered to remit to this Court the lease rentals
it may receive from the defendant 7-R Port Services,
Inc. and the Marina Port Services, Inc. to commence
from its receipt of this Order and for the Clerk of Court
of this Branch to deposit said amount under special
time deposit with the Land Bank of the Philippines,
Balanga Branch, in Balanga, Bataan in the name
and/or account of this Court to be held in ESCROW
for the person or persons, natural or juridical, who
may be finally adjudged lawfully entitled thereto, and
subject to further orders from this Court."7
Petitioner moved to reconsider the aforementioned order,
which motion the lower court denied via its assailed order
dated 11 November 1993.8 Aggrieved by the lower courts twin
orders, petitioner filed before the Court of Appeals a petition for
certiorari with prayer for issuance of a temporary restraining
order and writ of preliminary injunction.9
On 01 December 1995, the Bataan Shipyard and Engineering
Corporation, the Philippine Dockyard Corporation and the
Baseco Drydock and Construction Co., Inc., filed a motion for
leave to intervene before the Court of Appeals. In a Resolution
dated 26 March 1996, the appellate court granted the motion.
On 16 April 1996, the intervenors-respondents filed their
Answer-in-Intervention praying for the dismissal of the petition
before the Court of Appeals and the dissolution of the
preliminary injunction issued in favor of petitioners.10
In its Decision dated 19 December 1996, the Court of Appeals
dismissed the petition to which a motion for reconsideration
was filed by petitioner. In a Resolution dated 21 July 1997,
respondent court likewise denied the motion for
reconsideration, hence, the instant appeal where petitioner
Province of Bataan imputes to the Court of Appeals a lone
assignment of error, to wit:
"The Court of Appeals manifestly erred in refusing to
declare and/or hold that the respondent judge acted
without jurisdiction or with grave abuse of discretion in
ordering the deposit in escrow of the rental payments
pertaining to the petitioner province."
In simpler terms, the sole issue for resolution revolves around
the propriety of the escrow order issued by the lower court in
the civil suit for annulment of sale.
The instant petition is devoid of merit.
In the main, petitioner insists that the issuance of the escrow
order by the trial court "was patently irregular, if not downright
anomalous", reasoning that "nowhere in the Revised Rules of
Court is the trial court, or any court for that matter, authorized
to issue such escrow order, whether as a provisional or
permanent remedy." According to petitioner, "the escrow orders
in question are null and void ab initio for having been issued
absent any legal basis" and are "merely calculated to prejudice
the petitioner province without any practical or worthwhile,
much less legal objective."
We do not agree. An escrow11 fills a definite niche in the body
of the law; it has a distinct legal character.12 The usual
definition is that an escrow is a written instrument which by its
terms imports a legal obligation and which is deposited by the
grantor, promisor, or obligor, or his agent with a stranger or
third party, to be kept by the depositary until the performance
of a condition or the happening of a certain event, and then to
be delivered over to the grantee, promisee, or obligee.13
While originally, the doctrine of escrow applied only to deeds
by way of grant,14 or as otherwise stated, instruments for the
conveyance of land,15 under modern theories of law, the term
escrow is not limited in its application to deeds, but is applied
to the deposit of any written instrument with a third
person.16 Particular instruments which have been held to be
the subject of an escrow include bonds or covenants, deeds,
mortgages, oil and gas leases, contracts for the sale of land or
for the purchase of personal property, corporate stocks and
stock subscriptions, promissory notes or other commercial
paper, insurance applications and policies, contracts for the
settlement of will-contest cases, indentures of apprenticeship,
receipts assigning concessions and discontinuances and
releases of causes of action.17 Moreover, it is no longer open to
question that money may be delivered in escrow.18
In our jurisdiction, an escrow order issued by a court of law
may find ample basis and support in the courts intrinsic power
to issue orders and other ancillary writs and processes
incidental or reasonably necessary to the exercise of its main
jurisdiction. Evidently, judicial power connotes certain
incidental and inherent attributes reasonably necessary for an
effective administration of justice.19
In a manner of speaking, courts have not only the power to
maintain their life, but they have also the power to make that
existence effective for the purpose for which the judiciary was
created. They can, by appropriate means, do all things
necessary to preserve and maintain every quality needful to
make the judiciary an effective institution of Government.
Courts have therefore inherent power to preserve their
integrity, maintain their dignity and to insure effectiveness in
the administration of justice.20
To lend flesh and blood to this legal aphorism, Rule 135 of the
Rules of Court explicitly provides:
"Section 5. Inherent powers of courts- Every court
shall have power:
"X X X (g) To amend and control its process and
orders so as to make them conformable to law and
justice.
"Section 6. Means to carry jurisdiction into effect -
When by law jurisdiction is conferred on a court or
judicial officer, all auxiliary writs, processes and other
means necessary to carry it into effect may be
employed by such court or officer, and if the
procedure to be followed in the exercise of such
 jurisdiction is not specifically pointed out by law or by
these rules, any suitable process or mode of
proceeding may be adopted which appears
conformable to the spirit of said law or rules."
(Emphasis ours)
It is beyond dispute that the lower court exercised jurisdiction
over the main action docketed as Civil Case No. 210-ML,
which involved the annulment of sale and reconveyance of the
subject properties. Under this circumstance, we are of the firm
view that the trial court, in issuing the assailed escrow orders,
acted well within its province and sphere of power inasmuch as
the subject orders were adopted in accordance with the Rules
and jurisprudence and were merely incidental to the courts
exercise of jurisdiction over the main case, thus:
" X X X Jurisdiction attaching, the courts powers as
a necessary incident to their general jurisdiction, to
make such orders in relation to the cases pending
before them are as necessary to the progress of the
cases and the dispatch of business follow. Deming v.
Foster, 42 N.H. 165, 178 cited in Burleigh v. Wong
Sung De Leon 139 A. 184,83 N.H. 115.
"X X X XXX XXX
"X X X A court is vested, not only with the powers
expressly granted by the statute, but also with all
such powers as are incidentally necessary to the
effective exercise of the powers expressly
conferred (In re McLures Estate, 68 Mont. 556, 220 P.
527) and to render its orders, made under such
express powers effective. Brown v. Clark, 102 Tex.
323, 116 S.W. 360, 24 L.R.A. (N.S.) 670 cited in State
v. District Court, 272 P. 525.
"X X X XXX XXX
"In the absence of prohibitive legislation, courts
have inherent power to provide themselves with
appropriate procedures required for the performance
of their tasks. Ex parte Peterson, 253 U.S. 300, 312,
313, 40 S. Ct. 543, 64 L. Ed. 919; Funk v. U.S., 290
U.S. 371,381-384, 54 A. Ct. 212, 78 L.Ed. 369, 93
A.L.R. 1136 cited in Ex parte U.S. C.C.A. Wis., 101 F
2d 870.
"X X X XXX XXX
"A court has inherent power to make such
interlocutory orders as may be necessary to protect
its jurisdiction, and to make certain that its eventual
decree may not be ineffective. (Boynton v. Moffat
Tunnel Improvement Dist. C.C.A. Colo, 57 F, 2d 772.
"X X X XXX XXX
"In the ordinary case the courts can proceed to the
enforcement of the plaintiffs rights only after a trial
had in the manner prescribed by the laws of the land,
which involves due notice, the right of the trial by jury,
etc.Preliminary to such an adjucation, the power of
the court is generally to preserve the subject matter of
the litigation to maintain the status, or issue some
extraordinary writs provided by law, such as
attachments, etc. None of these powers, however, are
exercised on the theory that the court should, in
advance of the final adjudication determine the rights
of the parties in any summary way and put either of
them in the enjoyment thereof; but such actions taken
merely, as means for securing an effective
adjudication and enforcement of rights of the parties
after such adjudication. Colby c. Osgood Tex. Civ.
App., 230 S.W. 459;)"21 (emphasis ours)
On this score, the incisive disquisition of the Court of Appeals
is worthy of mention, to wit:
" X X X Given the jurisdiction of the trial court to pass
upon the raised question of ownership and
possession of the disputed property, there then can
hardly be any doubt as to the competence of the
same court, as an adjunct of its main jurisdiction, to
require the deposit in escrow of the rentals thereof
pending final resolution of such question. To
paraphrase the teaching in Manila Herald Publishing
Co., Inc. vs. Ramos (G.R. No. L-4268, January 18,
1951, cited in Francisco, Revised Rules of Court, Vol.
1, 2nd ed., p. 133), jurisdiction over an action carries
with it jurisdiction over an interlocutory matter
incidental to the cause and deemed essential to
preserve the subject matter of the suit or to protect
the parties interest. X X X
" X X X the impugned orders appear to us as a fair
response to the exigencies and equities of the
situation. Parenthetically, it is not disputed that even
before the institution of the main case below, the
Province of Bataan has been utilizing the rental
payments on the Baseco Property to meet its financial
requirements. To us, this circumstance adds a more
compelling dimension for the issuance of the assailed
orders. X X X"
Applying the foregoing principles and considering the
peculiarities of the instant case, the lower court, in the course
of adjudicating and resolving the issues presented in the main
suit, is clearly empowered to control the proceedings therein
through the adoption, formulation and issuance of orders and
other ancillary writs, including the authority to place the
properties in custodia legis, for the purpose of effectuating its
judgment or decree and protecting further the interests of the
rightful claimants of the subject property.
To trace its source, the courts authority proceeds from its
jurisdiction and power to decide, adjudicate and resolve the
issues raised in the principal suit. Stated differently, the deposit
of the rentals in escrow with the bank, in the name of the lower
court, "is only an incident in the main proceeding."22 To be sure,
placing property in litigation under judicial possession, whether
in the hands of a receiver, and administrator, or as in this case,
in a government bank,23 is an ancient and accepted
procedure.24 Consequently, we find no cogency to disturb the
questioned orders of the lower court and in effect uphold the
propriety of the subject escrow orders. (emphasis ours)
IN VIEW WHEREOF, the instant petition is hereby DENIED for
lack of merit. ACCORDINGLY, the assailed decision of the
Court of Appeals is hereby AFFIRMED.
SO ORDERED.
G.R. No. 179419 January 12, 2011
DURBAN APARTMENTS CORPORATION, doing business
under the name and style of City Garden Hotel,Petitioner,
vs.
PIONEER INSURANCE AND SURETY
CORPORATION, Respondent.
DECISION
NACHURA, J.:
For review is the Decision1 of the Court of Appeals (CA) in CA-
G.R. CV No. 86869, which affirmed the decision 2 of the
Regional Trial Court (RTC), Branch 66, Makati City, in Civil
Case No. 03-857, holding petitioner Durban Apartments
Corporation solely liable to respondent Pioneer Insurance and
Surety Corporation for the loss of Jeffrey Sees (Sees) vehicle.
The facts, as found by the CA, are simple.
On July 22, 2003, [respondent] Pioneer Insurance and Surety
Corporation x x x, by right of subrogation, filed [with the RTC of
Makati City] a Complaint for Recovery of Damages against
[petitioner] Durban Apartments Corporation, doing business
under the name and style of City Garden Hotel, and [defendant
before the RTC] Vicente Justimbaste x x x. [Respondent
averred] that: it is the insurer for loss and damage of Jeffrey S.
Sees [the insureds] 2001 Suzuki Grand Vitara x x x with Plate
No. XBH-510 under Policy No. MC-CV-HO-01-0003846-00-D
in the amount of P1,175,000.00; on April 30, 2002, See arrived
and checked in at the City Garden Hotel in Makati corner
Kalayaan Avenues, Makati City before midnight, and its
parking attendant, defendant x x x Justimbaste got the key to
said Vitara from See to park it[. O]n May 1, 2002, at about 1:00
oclock in the morning, See was awakened in his room by [a]
telephone call from the Hotel Chief Security Officer who
informed him that his Vitara was carnapped while it was parked
unattended at the parking area of Equitable PCI Bank along
Makati Avenue between the hours of 12:00 [a.m.] and 1:00
[a.m.]; See went to see the Hotel Chief Security Officer,
thereafter reported the incident to the Operations Division of
the Makati City Police Anti-Carnapping Unit, and a flash alarm
was issued; the Makati City Police Anti-Carnapping Unit
investigated Hotel Security Officer, Ernesto T. Horlador, Jr. x x
x and defendant x x x Justimbaste; See gave his Sinumpaang
Salaysay to the police investigator, and filed a Complaint Sheet
with the PNP Traffic Management Group in Camp Crame,
Quezon City; the Vitara has not yet been recovered since July
23, 2002 as evidenced by a Certification of Non- Recovery
issued by the PNP TMG; it paid the P1,163,250.00 money
claim of See and mortgagee ABN AMRO Savings Bank, Inc. as
indemnity for the loss of the Vitara; the Vitara was lost due to
the negligence of [petitioner] Durban Apartments and
[defendant] Justimbaste because it was discovered during the
investigation that this was the second time that a similar
incident of carnapping happened in the valet parking service of
[petitioner] Durban Apartments and no necessary precautions
were taken to prevent its repetition; [petitioner] Durban
Apartments was wanting in due diligence in the selection and
supervision of its employees particularly defendant x x x
Justimbaste; and defendant x x x Justimbaste and [petitioner]
Durban Apartments failed and refused to pay its valid, just, and
lawful claim despite written demands.
Upon service of Summons, [petitioner] Durban Apartments and
[defendant] Justimbaste filed their Answer with Compulsory
Counterclaim alleging that: See did not check in at its hotel, on
the contrary, he was a guest of a certain Ching Montero x x x;
defendant x x x Justimbaste did not get the ignition key of
Sees Vitara, on the contrary, it was See who requested a
parking attendant to park the Vitara at any available parking
space, and it was parked at the Equitable Bank parking area,
which was within Sees view, while he and Montero were
waiting in front of the hotel; they made a written denial of the
demand of [respondent] Pioneer Insurance for want of legal
basis; valet parking services are provided by the hotel for the
convenience of its customers looking for a parking space near
the hotel premises; it is a special privilege that it gave to
Montero and See; it does not include responsibility for any
losses or damages to motor vehicles and its accessories in the
parking area; and the same holds true even if it was See
himself who parked his Vitara within the premises of the hotel
as evidenced by the valet parking customers claim stub issued
to him; the carnapper was able to open the Vitara without using
the key given earlier to the parking attendant and subsequently
turned over to See after the Vitara was stolen; defendant x x x
Justimbaste saw the Vitara speeding away from the place
where it was parked; he tried to run after it, and blocked its
possible path but to no avail; and See was duly and
immediately informed of the carnapping of his Vitara; the
matter was reported to the nearest police precinct; and
defendant x x x Justimbaste, and Horlador submitted
themselves to police investigation.
During the pre-trial conference on November 28, 2003, counsel
for [respondent] Pioneer Insurance was present. Atty. Monina
Lee x x x, counsel of record of [petitioner] Durban Apartments
and Justimbaste was absent, instead, a certain Atty. Nestor
Mejia appeared for [petitioner] Durban Apartments and
Justimbaste, but did not file their pre-trial brief.
On November 5, 2004, the lower court granted the motion of
[respondent] Pioneer Insurance, despite the opposition of
[petitioner] Durban Apartments and Justimbaste, and allowed
[respondent] Pioneer Insurance to present its evidence ex
parte before the Branch Clerk of Court.
See testified that: on April 30, 2002, at about 11:30 in the
evening, he drove his Vitara and stopped in front of City
Garden Hotel in Makati Avenue, Makati City; a parking
attendant, whom he had later known to be defendant x x x
Justimbaste, approached and asked for his ignition key, told
him that the latter would park the Vitara for him in front of the
hotel, and issued him a valet parking customers claim stub; he
and Montero, thereafter, checked in at the said hotel; on May
1, 2002, at around 1:00 in the morning, the Hotel Security
Officer whom he later knew to be Horlador called his attention
to the fact that his Vitara was carnapped while it was parked at
the parking lot of Equitable PCI Bank which is in front of the
hotel; his Vitara was insured with [respondent] Pioneer
Insurance; he together with Horlador and defendant x x x
Justimbaste went to Precinct 19 of the Makati City Police to
report the carnapping incident, and a police officer came
accompanied them to the Anti-Carnapping Unit of the said
station for investigation, taking of their sworn statements, and
flashing of a voice alarm; he likewise reported the said incident
in PNP TMG in Camp Crame where another alarm was issued;
he filed his claim with [respondent] Pioneer Insurance, and a
representative of the latter, who is also an adjuster of Vesper
Insurance Adjusters-Appraisers [Vesper], investigated the
incident; and [respondent] Pioneer Insurance required him to
sign a Release of Claim and Subrogation Receipt, and finally
paid him the sum of P1,163,250.00 for his claim.
Ricardo F. Red testified that: he is a claims evaluator of
[petitioner] Pioneer Insurance tasked, among others, with the
receipt of claims and documents from the insured, investigation
of the said claim, inspection of damages, taking of pictures of
insured unit, and monitoring of the processing of the claim until
its payment; he monitored the processing of Sees claim when
the latter reported the incident to [respondent] Pioneer
Insurance; [respondent] Pioneer Insurance assigned the case
to Vesper who verified Sees report, conducted an
investigation, obtained the necessary documents for the
processing of the claim, and tendered a settlement check to
See; they evaluated the case upon receipt of the subrogation
documents and the adjusters report, and eventually
recommended for its settlement for the sum of P1,163,250.00
which was accepted by See; the matter was referred and
forwarded to their counsel, R.B. Sarajan & Associates, who
prepared and sent demand letters to [petitioner] Durban
Apartments and [defendant] Justimbaste, who did not pay
[respondent] Pioneer Insurance notwithstanding their receipt of
the demand letters; and the services of R.B. Sarajan &
Associates were engaged, for P100,000.00 as attorneys fees
plus P3,000.00 per court appearance, to prosecute the claims
of [respondent] Pioneer Insurance against [petitioner] Durban
Apartments and Justimbaste before the lower court.
Ferdinand Cacnio testified that: he is an adjuster of Vesper;
[respondent] Pioneer Insurance assigned to Vesper the
investigation of Sees case, and he was the one actually
assigned to investigate it; he conducted his investigation of the
matter by interviewing See, going to the City Garden Hotel,
required subrogation documents from See, and verified the
authenticity of the same; he learned that it is the standard
procedure of the said hotel as regards its valet parking service
to assist their guests as soon as they get to the lobby entrance,
park the cars for their guests, and place the ignition keys in
their safety key box; considering that the hotel has only twelve
(12) available parking slots, it has an agreement with Equitable
PCI Bank permitting the hotel to use the parking space of the
bank at night; he also learned that a Hyundai Starex van was
carnapped at the said place barely a month before the
occurrence of this incident because Liberty Insurance assigned
the said incident to Vespers, and Horlador and defendant x x x
Justimbaste admitted the occurrence of the same in their
sworn statements before the Anti-Carnapping Unit of the
Makati City Police; upon verification with the PNP TMG [Unit] in
Camp Crame, he learned that Sees Vitara has not yet been
recovered; upon evaluation, Vesper recommended to
[respondent] Pioneer Insurance to settle Sees claim
for P1,045,750.00; See contested the recommendation of
Vesper by reasoning out that the 10% depreciation should not
be applied in this case considering the fact that the Vitara was
used for barely eight (8) months prior to its loss; and
[respondent] Pioneer Insurance acceded to Sees contention,
tendered the sum of P1,163,250.00 as settlement, the former
accepted it, and signed a release of claim and subrogation
receipt.
The lower court denied the Motion to Admit Pre-Trial Brief and
Motion for Reconsideration field by [petitioner] Durban
Apartments and Justimbaste in its Orders dated May 4, 2005
and October 20, 2005, respectively, for being devoid of merit.3
Thereafter, on January 27, 2006, the RTC rendered a decision,
disposing, as follows:
WHEREFORE, judgment is hereby rendered ordering
[petitioner Durban Apartments Corporation] to pay [respondent
Pioneer Insurance and Surety Corporation] the sum
of P1,163,250.00 with legal interest thereon from July 22, 2003
until the obligation is fully paid and attorneys fees and litigation
expenses amounting to P120,000.00.
SO ORDERED.4
On appeal, the appellate court affirmed the decision of the trial
court, viz.:
WHEREFORE, premises considered, the Decision dated
January 27, 2006 of the RTC, Branch 66, Makati City in Civil
Case No. 03-857 is hereby AFFIRMED insofar as it holds
[petitioner] Durban Apartments Corporation solely liable to
[respondent] Pioneer Insurance and Surety Corporation for the
loss of Jeffrey Sees Suzuki Grand Vitara.
SO ORDERED.5
Hence, this recourse by petitioner.
The issues for our resolution are:
1. Whether the lower courts erred in declaring
petitioner as in default for failure to appear at the pre-
trial conference and to file a pre-trial brief;
2. Corollary thereto, whether the trial court correctly
allowed respondent to present evidence ex-parte;
3. Whether petitioner is liable to respondent for
attorneys fees in the amount of P120,000.00; and
4. Ultimately, whether petitioner is liable to respondent
for the loss of Sees vehicle.
The petition must fail.
We are in complete accord with the common ruling of the lower
courts that petitioner was in default for failure to appear at the
pre-trial conference and to file a pre-trial brief, and thus,
correctly allowed respondent to present evidence ex-parte.
Likewise, the lower courts did not err in holding petitioner liable
for the loss of Sees vehicle.
Well-entrenched in jurisprudence is the rule that factual
findings of the trial court, especially when affirmed by the
appellate court, are accorded the highest degree of respect
and are considered conclusive between the parties.6A review
of such findings by this Court is not warranted except upon a
showing of highly meritorious circumstances, such as: (1)
when the findings of a trial court are grounded entirely on
speculation, surmises, or conjectures; (2) when a lower courts
inference from its factual findings is manifestly mistaken,
absurd, or impossible; (3) when there is grave abuse of
discretion in the appreciation of facts; (4) when the findings of
the appellate court go beyond the issues of the case, or fail to
notice certain relevant facts which, if properly considered, will
justify a different conclusion; (5) when there is a
misappreciation of facts; (6) when the findings of fact are
conclusions without mention of the specific evidence on which
they are based, are premised on the absence of evidence, or
are contradicted by evidence on record.7 None of the foregoing
exceptions permitting a reversal of the assailed decision exists
in this instance.
Petitioner urges us, however, that "strong [and] compelling
reason[s]" such as the prevention of miscarriage of justice
warrant a suspension of the rules and excuse its and its
counsels non-appearance during the pre-trial conference and
their failure to file a pre-trial brief.
We are not persuaded.
Rule 18 of the Rules of Court leaves no room for equivocation;
appearance of parties and their counsel at the pre-trial
conference, along with the filing of a corresponding pre-trial
brief, is mandatory, nay, their duty. Thus, Section 4 and Section
6 thereof provide:
SEC. 4. Appearance of parties.It shall be the duty of the
parties and their counsel to appear at the pre-trial. The non-
appearance of a party may be excused only if a valid cause is
shown therefor or if a representative shall appear in his behalf
fully authorized in writing to enter into an amicable settlement,
to submit to alternative modes of dispute resolution, and to
enter into stipulations or admissions of facts and documents.
SEC. 6. Pre-trial brief.The parties shall file with the court and
serve on the adverse party, in such manner as shall ensure
their receipt thereof at least three (3) days before the date of
the pre-trial, their respective pre-trial briefs which shall contain,
among others:
xxxx
Failure to file the pre-trial brief shall have the same effect as
failure to appear at the pre-trial.
Contrary to the foregoing rules, petitioner and its counsel of
record were not present at the scheduled pre-trial conference.
Worse, they did not file a pre-trial brief. Their non-appearance
cannot be excused as Section 4, in relation to Section 6, allows
only two exceptions: (1) a valid excuse; and (2) appearance of
a representative on behalf of a party who is fully authorized in
writing to enter into an amicable settlement, to submit to
alternative modes of dispute resolution, and to enter into
stipulations or admissions of facts and documents.
Petitioner is adamant and harps on the fact that November 28,
2003 was merely the first scheduled date for the pre-trial
conference, and a certain Atty. Mejia appeared on its behalf.
However, its assertion is belied by its own admission that, on
said date, this Atty. Mejia "did not have in his possession the
Special Power of Attorney issued by petitioners Board of
Directors."
As pointed out by the CA, petitioner, through Atty. Lee,
received the notice of pre-trial on October 27, 2003, thirty-two
(32) days prior to the scheduled conference. In that span of
time, Atty. Lee, who was charged with the duty of notifying
petitioner of the scheduled pre-trial conference,8 petitioner, and
Atty. Mejia should have discussed which lawyer would appear
at the pre-trial conference with petitioner, armed with the
appropriate authority therefor. Sadly, petitioner failed to comply
with not just one rule; it also did not proffer a reason why it
likewise failed to file a pre-trial brief. In all, petitioner has not
shown any persuasive reason why it should be exempt from
abiding by the rules.
The appearance of Atty. Mejia at the pre-trial conference,
without a pre-trial brief and with only his bare allegation that he
is counsel for petitioner, was correctly rejected by the trial
court. Accordingly, the trial court, as affirmed by the appellate
court, did not err in allowing respondent to present evidence
ex-parte.
Former Chief Justice Andres R. Narvasas words continue to
resonate, thus:
Everyone knows that a pre-trial in civil actions is mandatory,
and has been so since January 1, 1964. Yet to this day its
place in the scheme of things is not fully appreciated, and it
receives but perfunctory treatment in many courts. Some
courts consider it a mere technicality, serving no useful
purpose save perhaps, occasionally to furnish ground for non-
suiting the plaintiff, or declaring a defendant in default, or,
wistfully, to bring about a compromise. The pre-trial device is
not thus put to full use. Hence, it has failed in the main to
accomplish the chief objective for it: the simplification,
abbreviation and expedition of the trial, if not indeed its
dispensation. This is a great pity, because the objective is
attainable, and with not much difficulty, if the device were more
intelligently and extensively handled.
xxxx
Consistently with the mandatory character of the pre-trial, the
Rules oblige not only the lawyers but the parties as well to
appear for this purpose before the Court, and when a party
"fails to appear at a pre-trial conference (he) may be non-
suited or considered as in default." The obligation "to appear"
denotes not simply the personal appearance, or the mere
physical presentation by a party of ones self, but connotes as
importantly, preparedness to go into the different subject
assigned by law to a pre-trial. And in those instances where a
party may not himself be present at the pre-trial, and another
person substitutes for him, or his lawyer undertakes to appear
not only as an attorney but in substitution of the clients person,
it is imperative for that representative of the lawyer to have
"special authority" to make such substantive agreements as
only the client otherwise has capacity to make. That "special
authority" should ordinarily be in writing or at the very least be
"duly established by evidence other than the self-serving
assertion of counsel (or the proclaimed representative)
himself." Without that special authority, the lawyer or
representative cannot be deemed capacitated to appear in
place of the party; hence, it will be considered that the latter
has failed to put in an appearance at all, and he [must]
therefore "be non-suited or considered as in default,"
notwithstanding his lawyers or delegates presence.9
We are not unmindful that defendants (petitioners) preclusion
from presenting evidence during trial does not automatically
result in a judgment in favor of plaintiff (respondent). The
plaintiff must still substantiate the allegations in its
complaint.10 Otherwise, it would be inutile to continue with the
plaintiffs presentation of evidence each time the defendant is
declared in default.
In this case, respondent substantiated the allegations in its
complaint, i.e., a contract of necessary deposit existed
between the insured See and petitioner. On this score, we find
no error in the following disquisition of the appellate court:
[The] records also reveal that upon arrival at the City Garden
Hotel, See gave notice to the doorman and parking attendant
of the said hotel, x x x Justimbaste, about his Vitara when he
entrusted its ignition key to the latter. x x x Justimbaste issued
a valet parking customer claim stub to See, parked the Vitara
at the Equitable PCI Bank parking area, and placed the ignition
key inside a safety key box while See proceeded to the hotel
lobby to check in. The Equitable PCI Bank parking area
became an annex of City Garden Hotel when the management
of the said bank allowed the parking of the vehicles of hotel
guests thereat in the evening after banking hours.11
Article 1962, in relation to Article 1998, of the Civil Code
defines a contract of deposit and a necessary deposit made by
persons in hotels or inns:
Art. 1962. A deposit is constituted from the moment a person
receives a thing belonging to another, with the obligation of
safely keeping it and returning the same. If the safekeeping of
the thing delivered is not the principal purpose of the contract,
there is no deposit but some other contract.
Art. 1998. The deposit of effects made by travelers in hotels or
inns shall also be regarded as necessary.1avvphi1 The
keepers of hotels or inns shall be responsible for them as
depositaries, provided that notice was given to them, or to their
employees, of the effects brought by the guests and that, on
the part of the latter, they take the precautions which said
hotel-keepers or their substitutes advised relative to the care
and vigilance of their effects.
Plainly, from the facts found by the lower courts, the insured
See deposited his vehicle for safekeeping with petitioner,
through the latters employee, Justimbaste. In turn,
Justimbaste issued a claim stub to See. Thus, the contract of
deposit was perfected from Sees delivery, when he handed
over to Justimbaste the keys to his vehicle, which Justimbaste
received with the obligation of safely keeping and returning it.
Ultimately, petitioner is liable for the loss of Sees vehicle.
Lastly, petitioner assails the lower courts award of attorneys
fees to respondent in the amount of P120,000.00. Petitioner
claims that the award is not substantiated by the evidence on
record.
We disagree.
While it is a sound policy not to set a premium on the right to
litigate,12 we find that respondent is entitled to reasonable
attorneys fees. Attorneys fees may be awarded when a party
is compelled to litigate or incur expenses to protect its
interest,13 or when the court deems it just and equitable. 14 In
this case, petitioner refused to answer for the loss of Sees
vehicle, which was deposited with it for safekeeping. This
refusal constrained respondent, the insurer of See, and
subrogated to the latters right, to litigate and incur expenses.
However, we reduce the award of P120,000.00 to P60,000.00
in view of the simplicity of the issues involved in this case.
WHEREFORE, the petition is DENIED. The Decision of the
Court of Appeals in CA-G.R. CV No. 86869 is AFFIRMED with
the MODIFICATION that the award of attorneys fees is
reduced to P60,000.00. Costs against petitioner.
SO ORDERED.
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,"15 specifically paragraphs (2) and (4) thereof, to
wit:
2. To release and hold free and blameless TROPICANA
APARTMENT HOTEL from any liability arising from any loss in
the contents and/or use of the said deposit box for any cause
whatsoever, including but not limited to the presentation or use
thereof by any other person should the key be lost;
...
4. To return the key and execute the RELEASE in favor of
TROPICANA APARTMENT HOTEL upon giving up the use of
the box.16
On 17 May 1988, McLoughlin went back to Australia and he
consulted his lawyers as to the validity of the abovementioned
stipulations. They opined that the stipulations are void for being
violative of universal hotel practices and customs. His lawyers
prepared a letter dated 30 May 1988 which was signed by
McLoughlin and sent to President Corazon Aquino.17 The
Office of the President referred the letter to the Department of
Justice (DOJ) which forwarded the same to the Western Police
District (WPD).18
After receiving a copy of the indorsement in Australia,
McLoughlin came to the Philippines and registered again as a
hotel guest of Tropicana. McLoughlin went to 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 non-performance of their contractual obligations.28
The Court of Appeals affirmed the disquisitions made by the
lower court except as to the amount of damages awarded. The
decretal text of the appellate 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.l^vvphi1.net 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.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
200137 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 of P308,880.80,
representing the peso value for the air fares from Sydney to
Manila and back for a total of eleven (11) trips; 49 one-half
of P336,207.05 or P168,103.52 representing payment to
Tropicana;50 one-half of P152,683.57 or P76,341.785
representing payment to Echelon Tower;51 one-half
of P179,863.20 or P89,931.60 for the taxi or transportation
expenses from McLoughlin's residence to Sydney Airport and
from MIA to the hotel here in Manila, for the eleven (11)
trips;52 one-half of P7,801.94 or P3,900.97 representing
Meralco power expenses;53 one-half of P356,400.00
or P178,000.00 representing expenses for food and
maintenance.54
The amount of P50,000.00 for moral damages is reasonable.
Although trial courts are given discretion to determine the
amount of moral damages, the appellate court may modify or
change the amount awarded when it is palpably and
scandalously excessive.l^vvphi1.net Moral damages are not
intended to enrich a complainant at the expense of a
defendant.l^vvphi1.net They are awarded only to enable the
injured party to obtain means, diversion or amusements that
will serve to alleviate the moral suffering he has undergone, by
reason of defendants' culpable action.55
The awards of P10,000.00 as exemplary damages
and P200,000.00 representing 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. 143994 July 11, 2002
LOS BAOS RURAL BANK, INC., petitioner,
vs.
PACITA O. AFRICA, GLORIA AFRICA, ANTONIO AFRICA,
ARISTEO AFRICA, SOCORRO AFRICA, CONSUELO
AFRICA, AND LOURDES AFRICA, respondents.
PANGANIBAN, J.:
A writ of preliminary injunction is issued to preserve the status
quo ante, upon an applicants showing of two important
requisite conditions; namely, (1) the right to be protected exists
prima facie, and (2) the acts sought to be enjoined are violative
of that right. It must be proven that the violation sought to be
prevented would cause an irreparable injustice.
Statement of the Case
Before us is a Petition for Review under Rule 45 of the Rules
of Court, assailing the June 30, 2000 Decision 1 of the Court of
Appeals2 (CA) in CA-GR SP No. 53355. The decretal portion of
the Decision reads as follows:
"WHEREFORE, the petition is GRANTED. The Order
dated April 19, 1999 insofar as it denied the
petitioners application for the issuance of a writ of
preliminary injunction, is hereby RECALLED and SET
ASIDE.
"Let a writ of preliminary injunction issue in this case
to restrain the respondent bank from proceeding with
the foreclosure and consolidation of the title over the
subject property upon posting by petitioners of a bond
in the amount of Php20,000.00."3
The Order of the Regional Trial Court (RTC) of Quezon City
(Branch 220), which was reversed by the CA, reads as follows:
"WHEREFORE, premises considered, the Order of
the Court dated July 22, 1997 is hereby recalled and
set aside. The application for issuance of writ of
preliminary injunction is hereby DENIED.
"Issues in this case having been joined, let this case
be set for pre-trial on May 28, 1999 at 8:30 o clock in
the morning. Send notice of pre-trial to the parties and
counsels."4
The Facts
The factual antecedents of the case are summarized by the
Court of Appeals in this wise:
"Petitioner Pacita Africa (Pacita for brevity) is the
widow of Alberto Africa and the rest of her co-
petitioners are their children.
"Records disclose that sometime in June 1989, the
Quezon City Hall building where the Register of
Deeds was then holding office was razed by fire,
destroying some of its records/documents among
which was the original Transfer Certificate of Title
(TCT) No. 203492 covering a parcel of land situated
in Diliman, Quezon City, and registered in the name of
petitioner Pacita. The aforesaid property was part of
the conjugal property of petitioner Pacita and her late
husband Alberto Africa.
"On request of Pacita, private respondent Macy
Africa, the common-law wife of petitioner Antonio
Africa, worked for the reconstitution of the aforesaid
TCT No. 203492. The same was done and a new
Transfer Certificate of Title (TCT) No. RT-76140
(203492) PR-36463 was issued in the name of Pacita
Africa. While the reconstituted title was in her
possession, Macy allegedly forged, or caused the
forgery of, Pacitas signature on a Deed of Absolute
Sale dated December 29, 1992, purporting to transfer
ownership of the subject property to Macy. On the
strength of the forged Deed of Absolute Sale, Macy
was able to cause the issuance of TCT No. 81519 in
her name, without the knowledge of any of herein
petitioners.
"Still as part of the scheme to defraud petitioners,
Macy caused the preparation of a fake TCT No.
81519 in the name of Pacita, which the former
showed to the latter to make Pacita believe that the
said title was issued in her (Pacitas) name.
 "Sometime in March 1994, petitioners discovered
private respondents fraudulent act. They (petitioners)
likewise came to know that the subject property was
mortgaged by Macy to the respondent bank. To
protect their interests over the subject property,
petitioners lodged an action in court against Macy and
the respondent bank for Annulment of Title, Deed of
Absolute Sale and Deed of Mortgage. The case was
originally assigned to Branch 99 of the RTC of
Quezon City and docketed as Civil Case No. Q-94-
20898.
"After the filing of the aforesaid case, the respondent
bank in utter bad faith, foreclosed the subject property
on June 11, 1996 without due notice to the petitioners,
prompting the petitioners to amend [their] complaint,
this time incorporating therein a prayer for the
issuance of a temporary restraining order and/or writ
of preliminary injunction, to stop the respondent bank
from, among others, consolidating title to the subject
property.
"On July 2, 1997, RTC Branch 99 issued an Order
granting petitioners application for a temporary
restraining order. Meanwhile, the respondent bank
filed its Manifestation, Opposition and Motion to
Postpone dated July 11, 1997, praying, inter alia, for
the denial of petitioners application for a writ of
preliminary injunction, or in the alternative, for the
cancellation of the hearing thereon. On July 18, 1997,
the aforesaid court denied the respondent banks
motion to postpone and proceeded with the hearing of
petitioners application. Thereafter, petitioners
application was considered submitted for resolution.
"On July 22, 1997, the Court issued an Order granting
petitioners application for a writ of preliminary
injunction to which respondent bank filed a Motion for
Reconsideration dated July 11, 1997 followed by a
Motion for Inhibition on January 1, 1998 praying that
Hon. Felix M. de Guzman, presiding judge of RTC,
Branch 99, inhibit himself from further trying the case.
This latter motion was granted, and the case was re-
raffled and assigned to Branch 220.
"On April 19, 1999, RTC Branch 220, public
respondent herein, issued the questioned Order."5
Ruling of the Court of Appeals
The CA overturned the RTC Order dated April 19, 1999, and
granted the issuance of a preliminary injunction to restrain
petitioner from proceeding with the foreclosure and the
consolidation of title over the subject property. The CA ruled
that respondents had title to and possession of the property
and were deprived thereof by petitioner. Thus, respondents
had a clear and unmistakable right to protect their title and
possession.6
Hence, this Petition.7
Issues
In its Memorandum, petitioner raises the following issues for
the Courts consideration:
I
"Whether the Court of Appeals acted with patent
grave abuse of discretion in applying the ruling in
Verzosa vs. Court of Appeals, (299 SCRA 100), to the
instant case to justify its reversal of the 19 April 1999
Order of Branch 220 of the Regional Trial Court of
Quezon City in Civil Case No. Q-94-20898[;]
II
"Whether the Court of Appeals acted with patent
grave abuse of discretion when it rationalized its
decision by citing factual premises therein that are not
borne out by the records nor based on evidence and
in fact contrary to reality[;]
III
"Whether the Court of Appeals acted with patent
grave abuse of discretion when it ignored,
disregarded and/or deviated from established
jurisprudence governing the issuance of preliminary
injunction demanded by private respondents against
the petitioner bank[;]
IV
"Whether the Court [of] Appeals acted with patent
grave abuse of discretion when it disregarded the
pertinent provisions of Section 3, Rule 58, of the
Revised Rules of Court providing for the grounds for
issuance of preliminary injunction."8
In sum, the issues boil down to whether the appellate court
erred in issuing a writ of preliminary injunction to stop
petitioners consolidation of its title to the subject property.
This Courts Ruling
The Petition is not meritorious; it has not shown any reversible
error in the CAs Decision.
Main Issue:
Propriety of Preliminary Injunction
Petitioner argues that respondents do not have a right to the
relief demanded, because they merely have possession of the
property, as the legal title is in the name of Macy
Africa.9 Furthermore, it claims that the consolidation of title in
its name does not constitute an "invasion of a right that is
material and substantial."10
On the other hand, respondents maintain that they would suffer
great irreparable damage if the writ of preliminary injunction is
not granted.11 They likewise contend that if petitioner is allowed
to consolidate its title to the subject property, they would lose
their ancestral home, a loss that would result in unnecessary
and protracted proceedings involving third parties.12
We agree with respondents.
The grounds for the issuance of a writ of preliminary injunction
are enumerated in Rule 58, Section 3 of the Revised Rules of
Court, which reads as follows:
"Sec. 3. Grounds for issuance of preliminary
injunction. A preliminary injunction may be granted
when it is established;
(a)That the applicant is entitled to the relief
demanded, and the whole or part of such relief
consists in restraining the commission or continuance
of the act or acts complained of, or in requiring the
performance of an act or acts, either for a limited
period or perpetually;
(b)That the commission, continuance or non-
performance of the act or acts complained of during
the litigation would probably work injustice to the
applicant; or
(c)That a party, court, agency or a person is doing,
threatening, or is attempting to do, or is procuring or
suffering to be done, some act or acts probably in
violation of the rights of the applicant respecting the
subject of the action or proceeding, and tending to
render the judgment ineffectual."
Injunction is a preservative remedy aimed at no other purpose
than to protect the complainants substantive rights and
interests13 during the pendency of the principal action.14 A
preliminary injunction, as the term itself suggests, is merely
temporary.15 It is to be resorted to only when there is a pressing
necessity to avoid injurious consequences that cannot be
remedied under any standard of compensation.16
Moreover, injunction, like other equitable remedies, should be
issued only at the instance of a suitor who has sufficient
interest in or title to the right or the property sought to be
protected.17 It is proper only when the plaintiff appears to be
entitled to the relief demanded in the complaint. 18 In particular,
the existence of the right and the violation thereof must appear
in the allegations of the complaint19 and must constitute at least
a prima facie showing of a right to the final relief.20 Thus, there
are two requisite conditions for the issuance of a preliminary
injunction, namely, (1) the right to be protected exists prima
facie, and (2) the acts sought to be enjoined are violative of
that right.21 It must be proven that the violation sought to be
prevented would cause an irreparable injustice.
Further, while a clear showing of the right is necessary, its
existence need not be conclusively established.22 In fact, the
evidence required to justify the issuance of a writ of preliminary
injunction in the hearing thereon need not be conclusive or
complete. The evidence need only be a "sampling" intended
merely to give the court an idea of the justification for the
preliminary injunction, pending the decision of the case on the
merits.23 Thus, to be entitled to the writ, respondents are only
required to show that they have the ostensible right to the final
relief prayed for in their Complaint.24
First Requisite:
Existence of the Right
In the case at bar, we find ample justification for the issuance
of a writ of preliminary injunction. 25 Evidently, the question on
whether or not respondents possess the requisite right hinges
on the prima facie existence of their legal title to the subject
property.26 They have shown that they have that right, and that
it is directly threatened by the act sought to be enjoined.27
First, as alleged in the Complaint, 28 Respondent Pacita Africa
is the registered owner of the subject property. Her ownership
is evidenced by the reconstituted Transfer Certificate of Title
(TCT) No. RT-76140 (203492) PR-36463,29 issued by the
Registry of Deeds of Quezon City. Second, the validity of the
Deed of Sale30 dated December 29, 1992, is still in dispute
because Respondent Pacita Africa claims that her signature
was forged by the vendee, Macy Africa. 31 Third, there is doubt
as to the validity of the mortgage in favor of petitioner, because
there exists on record two TCTs covering the mortgaged
property: (1) TCT No. 8151932 registered in the name of Pacita
Africa and (2) TCT No. 81519 33 registered in the name of Macy
Africa.
If indeed the Deed of Sale is a forgery, no parcel of land was
ever transferred to the purported buyer 34 who, not being the
owner, could not have validly mortgaged the
property.35 Consequently, neither has petitioner -- the buyer
and mortgagee of the same lot -- ever acquired any title
thereto.36 Significantly, no evidence was presented by
petitioner to controvert these allegations put forward by
respondents. Clearly then, on the basis of the evidence
presented, respondents possess the right to prevent petitioner
from consolidating the title in its name. The first requisite -- the
existence of a right to be protected -- is thus present.37
Second Requisite:
Violation of Applicants Right
As to the second requisite, what is sought to be enjoined by
respondents is the consolidation of the title to the subject
property in petitioners name. After having discovered that the
property had been mortgaged to petitioner, respondents filed
on June 12, 1994 an action for Annulment of Title, Deed of
Sale, and Mortgage to protect their rights over the
property.38 This notwithstanding, petitioner foreclosed it on
June 11, 1996.39 To enjoin petitioner from consolidating the title
in its name, respondents then filed an Amended
Complaint,40 praying for a writ of preliminary injunction.
Unless legally stopped, petitioner may consolidate title to the
property in its name and enjoy the unbridled freedom to
dispose of it to third persons, to the damage and prejudice of
respondents.41 What respondents stand to lose is material and
substantial.42 They would lose their ancestral home even
without the benefit of a trial.43 Clearly, the act sought to be
enjoined is violative of their proprietary right over the property.44
A writ of preliminary injunction is issued precisely to preserve
threatened or continuous irremediable injury to some of the
parties before their claims can be thoroughly studied and
adjudicated.45 Denial of the application for the writ may make
the Complaint of respondents moot and academic.
Furthermore, it would render ineffectual a final judgment in
their favor or, at the very least, compel them to litigate
needlessly with third persons who may have acquired an
interest in the property.46 Such a situation cannot be
countenanced.47
Lis Pendens
Petitioner further contends that respondents are not entitled to
the relief prayed for, because they caused a notice of lis
pendens to be annotated at the back of TCT No. 81519,
registered in the name of Macy P. Africa; thus, that notice
provided ample protection of their rights and interests.48
We are not persuaded. A notice of lis pendens serves as an
announcement to the whole world that a particular real
property is in litigation and as a warning that those who acquire
an interest in the property do so at their own risk -- they
gamble on the result of the litigation over it.49 However, the
cancellation of such notice may be ordered by the court that
has jurisdiction over it at any given time.50 Its continuance or
removal -- like the continuance or the removal of a preliminary
attachment or injunction -- is not contingent on the existence of
a final judgment on the action and ordinarily has no effect on
the merits thereof.51 Thus, the notice of lis pendens does not
suffice to protect herein respondents rights over the
property.52 It does not provide complete and ample protection.
Status Quo Ante
Petitioner further claims that the RTC erred in enjoining the
foreclosure sale of the subject property.53 It argues that the
foreclosure may no longer be enjoined, because it has long
been effected since 1996.54 We agree with petitioner.
It is a well-entrenched rule that consummated acts can no
longer be restrained by injunction55 whose sole objective is to
preserve the status quo until the merits of the case are fully
heard.56 Status quo is defined as the last actual peaceful
uncontested situation that precedes a controversy, and its
preservation is the office of an injunctive writ.57
In the instant case, the status quo was the situation of the
parties at the time of the filing of the Amended Complaint58 with
a prayer for a writ of preliminary injunction. It was that point at
which petitioner had already foreclosed the subject property
and, hence, could no longer be enjoined from going on with the
foreclosure. However, the last actual uncontested status that
preceded the controversy was when the property in dispute
was still registered in the name of Macy Africa, petitioner not
having consolidated in its name the title thereto.59 Thus, the
issuance of the writ would no doubt preserve the status quo.60
We cannot rule on the allegation of petitioner that this case is a
"scam perpetrated by private respondents" to defraud it.61 The
truth or the falsity of that assertion cannot be ascertained by
this Court at this time. Verily, we refrain from expressing any
opinion on the merits of the case, pending a full consideration
of the evidence that would be presented by the parties.62
WHEREFORE, the Petition is DENIED and the assailed
Decision of the Court of Appeals AFFIRMED. Costs against
petitioner.
SO ORDERED.