G.R. No. 2908 ANICETA PALACIO, plaintiff-appellee, vs. DIONISIO SUDARIO, defendant-appellant.

At an interview in which were present the defendant and three herdsmen, the plaintiff made an arrangement for the pasturing of eighty-one head of cattle, in return for which she has to give one-half of the calves that might be born and was to pay the defendant one-half peso for each calf branded. On demand for the whole, forty-eight head of cattle were afterwards returned to her and this action is brought to recover the remaining thirty-three. It is claimed as a first defense that the arrangement was made between the plaintiff and the herdsmen, the defendant, who was president of the municipality, tendering his good offices only. Upon this question, the finding of the court below is conclusive in favor of the plaintiff and is fully justified by the proofs, especially by a letter of the defendant in reply to the demand for the cattle, in which he seeks to excuse himself for the loss of the missing animals. As a second defense it is claimed that the thirty-three cows either died of disease or were drowned in a flood. As to this point, on which the trial court has made no specific finding, the proof is conflicting in many particulars and indicates that at least some of these cattle were living at the time of the surrender of the forty-eight head. The defendant's witnesses swore that of the cows that perished, six died from overfeeding, and they failed to make clear the happening of any flood sufficient to destroy the others. If we consider the contract as one of deposit, then under article 1183 of the Civil Code, the burden of explanation of the loss rested upon the depositary and under article 1769 the fault is presumed to be his. The defendant has not succeeded in showing that the loss occurred either without fault on his part or by reason of caso fortuito. If, however, the contract be not one strictly of deposit but one according to a local custom for the pasturing of cattle, the obligations of the parties remain the same kNnttTC3. The defendant also sets up the six years statute of limitation, under section 43 of the present Code of Civil Procedure. This action, having arisen before that code went into effect, is governed by the provisions of preexisting law (sec. 38) under which the prescription was one of fifteen years. (Civil Code, art. 1964.) The judgment of the court below is affirmed with the costs of both instances. After expiration of twenty days let judgment be entered in accordance herewith and ten days thereafter the case remanded to the court from whence it came for execution. So ordered. G.R. No. L-6913 November 21, 1913 THE ROMAN CATHOLIC BISHOP OF JARO, plaintiff-appellee, vs. GREGORIO DE LA PEA, administrator of the estate of Father Agustin de la Pea, defendant-appellant. J. Lopez Vito, for appellant. Arroyo and Horrilleno, for appellee. MORELAND, J.: This is an appeal by the defendant from a judgment of the Court of First Instance of Iloilo, awarding to the plaintiff the sum of P6,641, with interest at the legal rate from the beginning of the action. It is established in this case that the plaintiff is the trustee of a charitable bequest made for the construction of a leper hospital and that father Agustin de la Pea was the duly authorized representative of the plaintiff to receive the legacy. The defendant is the administrator of the estate of Father De la Pea. In the year 1898 the books Father De la Pea, as trustee, showed that he had on hand as such trustee the sum of P6,641, collected by him for the charitable purposes aforesaid. In the same year he

deposited in his personal account P19,000 in the Hongkong and Shanghai Bank at Iloilo. Shortly thereafter and during the war of the revolution, Father De la Pea was arrested by the military authorities as a political prisoner, and while thus detained made an order on said bank in favor of the United States Army officer under whose charge he then was for the sum thus deposited in said bank. The arrest of Father De la Pea and the confiscation of the funds in the bank were the result of the claim of the military authorities that he was an insurgent and that the funds thus deposited had been collected by him for revolutionary purposes. The money was taken from the bank by the military authorities by virtue of such order, was confiscated and turned over to the Government. While there is considerable dispute in the case over the question whether the P6,641 of trust funds was included in the P19,000 deposited as aforesaid, nevertheless, a careful examination of the case leads us to the conclusion that said trust funds were a part of the funds deposited and which were removed and confiscated by the military authorities of the United States. That branch of the law known in England and America as the law of trusts had no exact counterpart in the Roman law and has none under the Spanish law. In this jurisdiction, therefore, Father De la Pea's liability is determined by those portions of the Civil Code which relate to obligations. (Book 4, Title 1.) Although the Civil Code states that "a person obliged to give something is also bound to preserve it with the diligence pertaining to a good father of a family" (art. 1094), it also provides, following the principle of the Roman law, major casus est, cui humana infirmitas resistere non potest, that "no one shall be liable for events which could not be foreseen, or which having been foreseen were inevitable, with the exception of the cases expressly mentioned in the law or those in which the obligation so declares." (Art. 1105.) By placing the money in the bank and mixing it with his personal funds De la Pea did not thereby assume an obligation different from that under which he would have lain if such deposit had not been made, nor did he thereby make himself liable to repay the money at all hazards. If the had been forcibly taken from his pocket or from his house by the military forces of one of the combatants during a state of war, it is clear that under the provisions of the Civil Code he would have been exempt from responsibility. The fact that he placed the trust fund in the bank in his personal account does not add to his responsibility. Such deposit did not make him a debtor who must respond at all hazards. We do not enter into a discussion for the purpose of determining whether he acted more or less negligently by depositing the money in the bank than he would if he had left it in his home; or whether he was more or less negligent by depositing the money in his personal account than he would have been if he had deposited it in a separate account as trustee. We regard such discussion as substantially fruitless, inasmuch as the precise question is not one of negligence. There was no law prohibiting him from depositing it as he did and there was no law which changed his responsibility be reason of the deposit. While it may be true that one who is under obligation to do or give a thing is in duty bound, when he sees events approaching the results of which will be dangerous to his trust, to take all reasonable means and measures to escape or, if unavoidable, to temper the effects of those events, we do not feel constrained to hold that, in choosing between two means equally legal, he is culpably negligent in selecting one whereas he would not have been if he had selected the other. The court, therefore, finds and declares that the money which is the subject matter of this action was deposited by Father De la Pea in the Hongkong and Shanghai Banking Corporation of Iloilo; that said money was forcibly taken from the bank by the armed forces of the United States during the war of the insurrection; and that said Father De la Pea was not responsible for its loss. The judgment is therefore reversed, and it is decreed that the plaintiff shall take nothing by his complaint. Arellano, C.J., Torres and Carson, JJ., concur. LA SOCIEDAD DALISAY, plaintiff-appellant, vs. JANUARIO DE LOS REYES, defendant-appellee. -----------------------------------G.R. No. L-32466 December 20, 1930. RAMON BARTOLAZO, plaintiff-appellant, vs. LA SOCIEDAD DALISAY, defendant-appellee.

On October 3, 1924, Ramon Bartolazo brought an action against the "Sociedad Dalisay" in the court of First Instance of Laguna (civil case No. 4179, G. R. No. 32466) for the return of 1,158 cavanes of palay and 27 cavanes of rice or the value thereof, amounting to P 6,073.50, plus P1,500 as damages, and the costs. The defendant answered with a general denial, a special defense, and a counterclaim, praying that it absolved from the complaint, and that the plaintiff be sentenced to pay it P2,000 as damages and any other sum which the court may deem just, and the costs. The plaintiff answered the counterclaim denying the facts alleged therein. Later on, said plaintiff amended clause (e) of paragraph II, and the first paragraph of the prayer of his complaint. On February 18,1926, the "Dalisay" brought an action against Januario de los Reyes in the same court (civil case No. 4582, G. R. No. 32465) for the return of the goods listed in Exhibit A, attached to the complaint, or, in default thereof, for the payment of their cash value, plus P4,000 as damages, and the costs. The defendant, admitting certain paragraphs of the complaint and denying others, set up special defenses and counterclaim upon two grounds, praying that the delivery to the owners of 568 cavanes of palay, the sale of 882 cavanes of the grain for the net amount of P2,239.98, and the delivery of certain items of Exhibit A to Jacinto Francisco, the defendant's successor be declared justified .He also asked that he be allowed to recover of the plaintiff the total amount of P2,811.50 mentioned in his counterclaim and to apply thereto the amount of P2,238.98 which he had in his possession, and that the plaintiff be sentenced to pay him the balance of P572.52, with legal interest. Finding that there were parties in interest not included in the case, the court ordered that they be summoned, and Matilde Laudato, Paula Carballo, Paz C. de Arambulo, Ricardo Perlas and Mariano Perlas, and Pablo Perlas, appeared and answered, indicating their willingness to accept whatever the plaintiff might decide to give them with respect to the value of the palay belonging to each one of them and saved from the fire which gave rise to the controversy. The municipality of Santa Rosa, Laguna, through the provincial fiscal, appeared and alleged that, without prejudice to any right which it might have against the plaintiff for the burning of the intermediate school building of the municipality, it was agreeable to receive its proportionate share of the palay saved from the fire. In this latter case, Domingo Zavalla filed a third party claim against the plaintiff entity and the defendant Januario de los Reyes, praying that the "Dalisay" be ordered to deliver to him the palay belonging to him according to the books of said entity, or, in lieu thereof, its value at P5 per cavan, with legal interest and that Januario de los Reyes be ordered to render an account of the palay sold, and to deliver to him the balance according to the account to be rendered. The "Dalisay" answered this claim with a general denial and a special defense, and asked that it be denied. Later, Ramon Bartolazo, Alfonza Casapang, Teodora Nevalga, Segundo Papagayo, Segunda Ligaya, and Miguel Lim Ako, appeared as parties with Januario de los Reyes, claiming their palay or its value from the plaintiff. According to the bill of exceptions (p.34), when case No. 4582 was again called for trial, the parties agreed, with the approval of the court, that civil case No. 4179 be considered a third-party claim, and that all the pleadings therein be deemed presented. On August 21,1929, the trial court decided both cases, the dispositive part of the decision reading as follows: Wherefore, the court hereby adjudges as follows: 1. Sentencing the "Sociedad Dalisay" to deliver to the above-mentioned depositors, except to those who have waived their claim, their proportionate share of the palay which was stored in the warehouse at the time of the fire; that is 3,572 cavanes, or, in lieu thereof, the value of same at P5 per cavan. 2. Ordering Januario de los Reyes to pay to the Dalisay the amount of P2,238.98 the net proceeds of the 882 cavanes of palay saved, after deducting therefrom his proportionate share of the 3,572 cavanes mentioned above. 3. Finding that Januario de los Reyes is not entitled to the 170 cavanes of palay which he claims to have saved; and. 4. Approving the return of the 568 cavanes of palay placed in sacks identified by the several owners which were outside the warehouse and saved from the fire. Without express pronouncement of costs. (Pages 49 and 50, Bill of Exceptions.) From this judgment the partnership "Dalisay" appealed, making the following assignments of error:

1. The trial court erred in finding that at the time of the fire, there were only 3,035 cavanes of palay in the warehouse, that is 1,017 cavanes less than the amount that should have been there at the time. 2. The lower court erred in admitting Exhibit 13, the report of the clerk of the office of the engineer of the Province of Laguna. 3. The lower court erred in holding that the manager of the appellant company made no attempt to save the palay in its warehouse. 4. The lower court erred in holding that had the company's manager attempted to save the palay in time, not more than ten per cent would have been destroyed. 5. The lower court erred in sentencing the company to deliver to the several owners of the palay damaged by the fire the amount they had in the warehouse, after deducing ten per cent as loss, or, in lieu thereof, its value at P5 per cavan, except to those who had waived their right. 6. The lower court erred in holding that the appellees and intervenors were not estopped to claim all of their palay in the company's warehouse at the time of the fire. 7. The lower court erred in ordering that from the value of the palay saved and scorched, amounting to P2,238.98, which Januario de los Reyes was sentenced to return to the company, there must be deducted his proportionate share of the 3,572 cavanes of palay for which the company was held responsible. 8. The lower court erred in failing to sentence the appellee Ramon Bartolazo to pay the company P6,000 as damages suffered on account of the preliminary attachment issued by the court at his instance against the company's property. 9. The lower court erred in denying the motion for a new trial filed by the company in both cases. The evidence shows the following facts: That the entity known as "Dalisay" is an industrial partnership legally existing, located in the municipality of Santa Rosa, Laguna, P. I.; that prior to May 20, 1923, said partnership received in its warehouse located at the place mentioned, certain lots of palay belonging to several persons; that early on the morning of that day, May 20, 1923, a fire broke out in said warehouse which at that time contained thousands of cavanes of palay, the exact number being disputed, and 568 cavanes outside; that 1,052 cavanes of palay stored in the warehouse were saved, and that the 568 cavanes of palay outside of the warehouse were all saved. The lower court failed to find that the fire was intentional, or was caused by the negligence of the officials of the plaintiff company, and from these findings no appeal proper in form has been taken, for which reason, they must be accepted as indisputable. Of the 1,052 cavanes saved from the warehouse, 170 were distributed by way of remuneration among those who helped to save them. The remaining 882 cavanes of palay were hulled and sold, yielding the net sum of P2,238.98. The appellant contends that there were 4,620 cavanes of palay inside the warehouse at the time of the fire. The appellees allege in their brief that there should have been 4,620 cavanes in the warehouse at the time of the fire, but that, as a matter of fact, there were only 2,284 cavanes of palay. The trial court found that there were only 3,035 cavanes of palay at the time, and this finding is assailed in the first assignment of error, which shall be considered together with the second. In order to arrive at such a conclusion, the trial court took into account the ocular inspection and certain testimonies. It should be remembered that such ocular inspection was made over four years after the fire occurred by Judge Recto, who is not the judge who decided this case, but Judge Jugo. The judge should have based the finding of 3,035 cavanes upon the report, Exhibit 13, wherein the exact number is given; but it happens that said report, objected to, and admitted with due exception, is neither competent nor admissible evidence, for neither is it a deposition taken in accordance with the law, nor has the appellant been given an opportunity to cross-examine the person making it. The parol evidence on the point is insufficient. At any rate, in considering this matter, due credit should be given to the testimony of Valeriano Tatlonghari, subpoenaed by Judge Recto on the occasion of the ocular inspection, and according to which, the warehouse was divided into three compartments which contained palay at the time of the fire, designated in said inspection under No. 6, and which were not taken into account either by the clerk Pabello in his report Exhibit 13, or by the judge in his decision. The first two assignments of error are well taken. As to the third, we have examined the record and find with preponderance of evidence that the manager of the appellant company attempted to save the palay in the warehouse. Witnesses Jose Zavalla and Hipolito Alibudbud have so declared, besides the manager, Perlas, himself, whom the court did not

believe on account of finding various contradictions in his testimony touching certain remarks made by a woman called Honoria Zerrate, who advised him not to remove the palay during the fire in order to avoid a greater loss by fire. Aside from the fact that such contradictions have, to our mind, been sufficiently explained by the witness Perlas, even supposing them to exist, they cannot have the effect of discrediting said witness in all respect, including his testimony with regard to his efforts to save the palay .Nor can such contradictions, if present, destroy the credibility of the other witnesses, such as Zavalla and Alibudbud. The evidence leads us to believe that the third assignment of error is well taken. With regard to the fourth and fifth assignments of error which are a consequence of the third and which we also deem well founded, suffice it to say that inasmuch as the fire, according to the judgment appealed from was neither intentional nor due to negligence of the appellant company or its official; and it appearing from the evidence that the then manager of said company promptly ran to the fire and attempted to save the palay, said fourth and fifth assignments of error should also be deemed established. The sixth assignment of error has no merit. The resolution No. 1, Exhibit D, does not constitute estoppel to the claim set up in these cases by the appellees and intervenors, for it is different from that provided in section 333, No. 1, of the Code of Civil Procedure. The seventh assignment of error refers to the deduction to be made from the amount which Januario de los Reyes was, by the judgment appealed from, ordered to return to the partnership. There is not sufficient reason to order said deduction, it appearing that all the palay deposited in said warehouse, according to the receipts, was there at the time of the fire, and all that grain was burned except the portion saved, and it further appearing, in our opinion, that there was no negligence on the part of the manager, Perlas in saving the palay. There is no merit in the eight assignment of error for the evidence does not sufficiently show the damages alleged by the appellant company as a consequence of the preliminary attachment of its property. The ninth assignment of error is a consequence of the preceeding ones. Although the appellees did not take an appeal, they have assigned errors to the judgment appealed from, which are not substantiated by the evidence. It is contended that the appellant has not alleged that the palay burned was destroyed without negligence on its part. The fact is, the appellant in its special defense alleged that the palay was burned .There was no need to make such an allegation for the presumption is that every person is deemed innocent of crime or wrong, and that he takes ordinary care of his own concerns. (Nos. 1 and 4, section 334, Code of Civil Procedure.) As to the trial court not having found the fire in question to be intentional or the result of negligence on the appellants part, the evidence supports the said court's finding, in that it does not show sufficiently that the fire was intentional, or was due to negligence on the part of the "Dalisay" partnership, or of the manager Perlas. The lower court acted correctly in not adjudicating said 170 cavanes of palay to Januario de los Reyes; and the only reason which would justify said adjudication would be a statement to that effect from Ricardo Perlas, which he could not make, because said palay belonged neither to him nor to the company. Wherefore, the judgment appealed from is modified absolving the appellant company form distributing or returning to the appellees any quantity of palay, or the value thereof, except that saved from the fire, amounting to P2,238.98, which sum is to be distributed by said company among the depositors mentioned in the dispositive part of the judgment, in proportion to the amount of palay which each of them had in the warehouse at the time of the fire; and this distribution shall be made as soon as Januario de los Reyes delivers to said appellant partnership, without any deduction, the aforesaid sum of P2,238.98, comprising the net proceeds of the palay saved. In all other respects the judgment appealed from is affirmed without express pronouncement of costs. So ordered. Avancea, C.J., Johnson, Malcolm, Villamor and Villa-Real, JJ., concur.

ENGRACIA LAVADIA Y OTROS, demandantes y apelados, vs. ROSARIO COSME DE MENDOZA Y OTROS, demandados y apelantes. DIAZ, J.: chanrobles virtual law library Objeto de litigo entre los demandantes y los demandados en el Juzgado de Primera Instancia de Laguna, fueron la posesion y custodia de ciertas alhajas que unas seis seoras piadosas del municipio de Pagsanjan, Laguna, llamadas Martina, Matea, Isabel, Paula, Pia y Engracia apellidadas todas Lavadia, habian mandado confeccionaren 1880, con dinero propio, para adornor y engalanar con ellas la Imagende Nuestra Seora de Guadalupe, patrona del mencionado municipio, reteniendo ellas para si, la propiedad de las mismas no cediendo sino solamente su uso a la referida Imagen, para el indicado fin. Los demandantes y los demandados, con excepcion de Engracia Lavadia que era una de las seis, son descendientes de las otras cinco primitivas dueas de las alhajas de que se trata. Porque la demandada Rosario Cosme de Mendoza que es una de las descendientes de Paula Lavadia, que tuvo ultimamente la custodia de aquellas, quiso entragar la corona que constituia parte de las mismas, al Obispo Catolico de Lipa, para que la tuviese en su poder pero sujeta al uso de la Imagen de Nuestra Seora de Guadalupe, segun la voluntad de sus dueas, los descendientes de las tres, (Isabel Lavadia, Matea Lavadia y Martina Lavadia), Engracia Lavadia que son los demandantes, promovieron esta causa en el Juzgado de su procedencia, para reclamar la posesion y custodia de todas las referidas alhajas. Estas no son otras que las descritas en el parrafo 3 de la demanda.chanroblesvirtualawlibrary chanrobles virtual law library El Juzgado decidio la causa en contra de los demandados, declarando que siendo los demandantes dueos de cuatro sextas partes proindiviso de las alhajas objeto de cuestion, y los demandados, de dos sextas partes solamente, aquellos tenian perfecto derecho a determiar quien debia encargarse de su custodia; y que, habiendo ellos decidido encomendar esta esta a Engracia Lavadia, una de las primitiva dueas, ordeno que la demandada Rosario Cosme de Mendoza haga entrega de todas ellas a dicha demandante. Contra esta decision del Juzgado, interpusieron apelacion los demandados, creyendo que el Juzgado erro (1) al declarar que la apelante Rosario Cosme de Mendoza, y sus anticesores en la posesion de las referidas alhajas, no actuaron sino solamente como depositarios, y no fiduciarios; (2) al declarar que los apelados son dueos de cuatro sextas partes de aquellas, y que les compete por dicha razon ejercer el derecho de designar a la persona a quien encomendar sucustodia; (3) al dejar de declarar que la apelante Rosario Cosme de Mendoza, siendo conduea y fiduciaria de dichas alhajas no puede ser privada de su administracion y custodia, excepto por razones que le incapacitan para ello, cuales son la de ejecutar actos contrarios a la voluntad de sus primitivas dueas, y la de disponer de las mencionadas alhajas a su antojo; (4) al dejar de declarar que Pia Lavadia y sus descendientes, hasta llegar a Rosario Cosme de Mendoza, que habian tenido la custodia y posesion de las referidas alhajas, han desempeado con fidelidad su cometido; y finalmente (5) al denegarles su peticion para una nueva vista.chanroblesvirtualawlibrary chanrobles virtual law library Para tener una idea cabal de los hechos, expongamoslos a continuacion, siguiendo el relato que de los mismos hace el Juzgado a quo en su decision apelada, ya que no los discuten ni los apelantes ni los apelados: El objeto de las causa son las joyas de la imagen de la Virgen de Ntra. Sra. De Guadalupe, en el municipio de Pagsanjan, Laguna, y consisten en una corona de oro incrustado con diamantes y brillantes, una gargantilla de diamentes y brillantes, un cinturon incrustado tambien con brillantes y diamantes, un collar de oro tambien completamente incrustado con brillantes, una pulsera de oro incrustado con brillantes y diamentes, una plancha de plata dorada en donde se colocan las joyas arriba mencionadas, y otras vairas piezas de oro o de plata dorada para la decoracion de las indumentarias de dicha imagen de Ntra. Sra. de Guadalupe. Todas estas joyas estan actualmente depositadas bajo llave en el Banco de las Islas Filipinas pues alli las habia depositado la demandada Rosario Cosme de Mendoza.chanroblesvirtualawlibrary chanrobles virtual law library La corona y las joyas arriba descritas fueron confeccionadas hacia el ao 1880 a costa de seis damas residentes del municipio de Pagsanjan, Laguna. Ellas eran las hermanas Paula Lavadia y Pia Lavadia, las hermanas Martina Lavadia y Matea Lavadia, y las hermanas Isabel Lavadia y Engracia Lavadia. Estas seoras contribuyeron alhajas que ellas tenian para la confecion de la corona y con ellasse confeccionaron las joyas arriba descritas, contribuyendo tambien el dinero con que se costeo la confecion de las mismas. Todas estas seoras y han fallecido, con excepcion de la demandante Doa Engracia Lavadia Vda. De Fernandez. Los otros demandantes son los herederos legales de Isabel Lavadia, Matea Lavadia y Martina Lavadia, mientras que la demandada Rosario Cosme de Mendoza y sus

codemandados son herederos legitimos y descendientes de Paula Lavadia.chanroblesvirtualawlibrary chanrobles virtual law library La corona y las joyas se mandaron confeccionar para el uso de la patrona titular del municipio de Pagasanjan, Ntra.Sra. de Guadalupe. Cuando ya se habian terminado de confeccionar, sus duenas convinieron en que dichas joyas se quedarian con la contribuyente Pia Lavadia. Esta tuvo bajo su custodia dichas joyas hasta su muerte en 1882, cuando su hermana Paula Lavadia le sucedio en la custodia de las mismas. A la muerte de paula Lavadia, de sucedio en el cuidado, conservacion y custodia de dichas joyas sumarido Pedro Rosales, y muerto este, su hija Paz Rosales, a su vez le sucedio en dicha custodia, conservacion y cuidado. A la muerte de Paz Rosales, la corona y las joyas pasaron a la custodia de su marido Baldomero Cosme. Despues de Baldomero Cosme, dichas joyas pasaron a Manuel Soriano quien, a su vez, fue sucedido en la custodia, conservacion y administracion por la aqui demandada Rosario Cosme de Mendoza. Todos los aos desde 1880 hasta la fecha, las joyas en cuestion se usaban para decorar la imagen de Ntra. Sra. de Guadalupe en Pagsanjan, y ninguno de los que han estado guardando o custodiando dichas joyas habia pretendido poseerlas como dueo exclusivo. La demandada Rosario Cosme de Mendoza y sus codemandados no pretenden ser dueos de las referidas alhajas. En efecto, en el intestado del finado Baldomero Cosme, actuacion especial No. 5494 de este Juzgado de Primera Instancia, dicha demandada y sus codemandados han manifestado al Juzgado de que nunca han tenido pretensiones de reclamar el dominio de dichas joyas ni parte alguna de las mismas. (Veanse Exhibitos B-2 by B-3.) chanrobles virtual law library El 9 de febrero de 1938, la demandada Rosario Cosme de Mendoza, en su capacidad de administradora del intestado del finado Baldomero Cosme, notifico a todas las personas interesadas en dichas joyas que queria hacer entrega formal de dichas joyas al Sr. Obispo de Lina el dia sabado siguiente, o sea, el 12 de febrero de 1938, informandolas que presenciaran el acto de la entrega (Vease Exhibito 4). En efecto, el 12 de febrero de 1938, la demandada y su esposo hicieron entrega formal de las joyas, otorgando el documento correspondiente a dicho efecto, documento quese presento como Exhibit E de los demandantes y 2 de los demandados. No estando los demandantes conformes con dicha entrega, unas seis personas y las demandantes en esta causa otorgaron un documento, designando a la demandante Engracia Lavadia como recamadora, quien tendria a su cuidado la corona y las alhajas en cuestion (Vease Exhibito 3). Habiendo surgido la cuestion de quien debe tener bajo su custodia la corona y las joyas en cuestion, y habiendo llegado este hecho a conocimiento del Obispo de Lipa, este, a su vez, en 21 de junio de 1938, otorgo una escritura renunciandola custodia y administracion de dichas corona y alhajas (Veanse Exhibito D de los demandantes y 1 de los demandados). Fundandose en los hechos relatados, el Juzgado declaro que el contrato habido entre las primitivas dueas de las alhajas en litigio y las primeras de ellas que tuvieron la custodia de las mismas, fue el de deposito, segun queda de finido esta contrato en los articulos 1758 y siguientes del Codigo Civil. Pia Lavadia primeramente, y despues Paula Lavadia y los descendientes de esta ultima siendo una de ellos la apelante Rosario Cosme Mendoza, recibieron y poseyeron, unos despues de otros, las referidas, solamente para fines de custodia; pues, como lo hace resaltar el Juzgado en su decision, ni aquellas ni los ultimos usaron las mismas para su propio beneficio. Si fue en virtud de un contrato de deposito como fueron recibidas las alhajas objeto de cuestion, primeramente por Pia y Paula, y despues por los descendientes de la ultima incluyendo la apelante Rosario Cosme de Mendoza, es claro que hay la obligacion de parte de esta de restituir las mismas a sus dueos en cuanto las reclamen. Lo dispone asi el articulo 1766 del Codigo Civil que dice: El depositario esta obligado a guardar la cosa y restuirla, cuando le sea pedida, al depositante, o a sus causa habientes, o a la persona que hubiese sido designada en el contrato. Su responsabilidad en cuanto a la guarda y la perdida de la cosa, se regira por lo dispuesto en el tit. I de este libro. La restitucion debe hacerse con todos los frutos y las accesiones de la cosa depositada, si los tiene, sin que le sea dado al depositario retenerla, como comenta Sanchez Roman, (IV Sanchez Roman, 885), aun bajo el prexto de obtener compensacion de otros creditos o de indemnizarse de gastos hechos para su conservacion.chanroblesvirtualawlibrary chanrobles virtual law library Las dueas primitavas de las alhajas de que se trata, convinieron en encomendar la custodia de las mismas a algunasde ellas, reservandose experesamente para si su propiedad. Esto viene a demostrar que la teoria de los apelantes de que el contrato que aquellas tuvieron no es de deposito por que despues de todo, como dicen, no pueden considerarse las alhajas como de pertenencia ajena con respecto a Rosario Cosme de Mendoza, porque ella desciende de una de susprimitivas dueas, no tiene

fuerza, porque aun entre comuneros de una cosa, uno de ellos puede ser depositario, y cuando lo es, esta sujeto a las mismas obligaciones impuestas por la ley a todo depositario, respecto a la conservacion de la cosa con el cuidado, diligencia e interes de un buen padre de familia. Joint owner. The fact that the depositary is a joint owner of the res does not alter the degree of diligence required of him. (18 C.J., 570). Los apelados son descendientes y herederos legales de Isabel Lavadia, Matea Lavadia y Martina Lavadia; y Engracia Lavadia, a quien designaron par hacerse cargo de la custodia de las alhajas objeto de cuestion, es una de las primitivas dueas de las mismas; y los apelantes son a su vez los descendientes y herederos de Pia Lavadia y PaulaLavadia. No constando en ninguna parte due las seis primitivasdueas no contibuyeron en la confeccion o adquisicion de las alhajas tantas veces mencionadas, en la misma proporcion, la conclusion mas razonable es - y esto sostenido por una presuncion de ley, (Art, 393, Codigo Civil) -, que todas ellas prorratearon el costa de las mismas pagando cada una, una cuota iqual. Si esto es cierto, entonces debemos aceptar la conclusion del Juzgado de que los apelados son dueos de cuatro sextas partes de dicha alhajas, y quelos apelantes no lo son sino solamente de las dos sextas partesrestantes. Por consiquiente, habiendo decidido la mayoria que la constituyen los apelados, encomendar la custodia y administracion de dichas alhajas para poder dar fiel cumplimiento a la voluntad de sus primitivas dueas, a la apelada Engracia Lavadia, la unica superviviente de las mismas, su decision debe respetarse, porque para la administracion y mejor disfrute de la cosa comun, segun el articulo 398 del Codigo Civil, son obligatorios los acuerdos de la mayoria de los participes.chanroblesvirtualawlibrary chanrobles virtual law library El argumento de que Rosario Cosme de Mendoza y sus antecesores han estado desempeando con fidelidad su cometidocomo depositarios, no arguye en favor de la proposicion de que no se le debe retirar el deposito, porque el contrato de deposito es tal que permite al depositante retirar del depositario la cosa depositada, en cualquier momento que quisiese, sobre todo, cuando el ultimo, como en el caso de Rosario Cosme de Mendoza, ha ejecutado un acto contrario al encargo recibido, encomendando o tratando de encomendar a otro, la custodia y administracion de la cosa depositada, por su propia cuenta y sin el consentimiento de los depositantes o sus herederos.chanroblesvirtualawlibrary chanrobles virtual law library No habiendo hallado error alguno en la decision apelada del Juzgado a quo, por la presente, la confirmamos, condenando a los apelantes a pagar las costas. Asi se ordena.chanroblesvirtualawlibrary chanrobles virtual law library Imperial, Laurel, Moran y Horrilleno, MM., estan conformes. A.M. ESSABHOY, Plaintiff-Appellee, vs. SMITH, BELL & CO., Defendants-Appellants. WILLARD, J.: chanrobles virtual law library On or about the 5th day of September, 1903, the steamship Umballa arrived in the port of Manila, having on board 50,000 bags of rice, the property of the plaintiff. Plaintiff originally intended to ship this rice from Singapore to Japan, but afterward diverted it to Manila. Upon its arrival here the plaintiff's agent made a contract with the defendants by the terms of which the defendants agreed to and the rice and store it in a bonded warehouse. In accordance with this agreement the defendants did land the rice, and stored 40,000 bags of it in a bonded warehouse, but the remaining 10,000 bags they stored in their godown in San Miguel, a warehouse which was not bonded. The plaintiff sold 4,000 of the bags of rice here in Manila, which bags were delivered out of the bonded warehouse, and customs duties paid thereon. He then determined to ship the rest of the rice to Japan, and called upon the defendants for its delivery to him. The defendants delivered to him the rice that was left in the bonded warehouse, and he was enabled to and did reship it without the payment of any customs duties thereon. As to the rice in the San Miguel godown, it then transpired that customs duties had been levied upon this rice by the Government, which duties the defendants had paid without the knowledge or consent of the plaintiff. The amount thereof was $6,000.55, United States currency. The defendants refused to deliver the rice to the plaintiff unless they were repaid this amount of $6,000.55. The plaintiff, in order to get possession of his rice, was obliged to and did pay under protest to the defendants this amount, securing the ice and reshipping it to Japan. He then brought this action to recover the amount so paid by him under protest.chanroblesvirtuallawlibrary chanrobles virtual law library Articles delivered into a bonded warehouse immediately upon arrival in Manila can be shipped out of the country from such bonded warehouse without the payment of duties. Articles delivered into a warehouse not bonded must, however, pay duties whether they are shipped out of the country or not. If

Smith, Bell & Co. had complied with their contract, and stored all of the rice in a bonded warehouse, no duties would have been charged upon any of it, and the payment of the $6,000.55 would have been avoided. A warehouseman is entitled to reimbursement for the expenses which he incurs in the performance of his contract. For expenses which he incurs in violation of his contract he is not entitled to reimbursement. The payment of these duties was an expense which Smith, Bell & Co. did not incur in the performance of their contract. They incurred it by reason of their violation of the contract, and consequently they were not entitled to reimbursement.chanroblesvirtuallawlibrary chanrobles virtual law library Plaintiff's principal argument seems to be that this is an action to recover damages for the breach of a contract on the part of the defendants, and that no damages were proven. If the plaintiff, instead of paying the defendants the $6,000.55 had refused to pay it and had brought an action to recover possession of the rice, it is very clear that in such an action the claim of the defendants to a lien upon the property for the payment of this $6,000.55, and the right to retain it until that payment had been made, could not have been sustained, and the plaintiff in such an action would have recovered the possession of the rice without paying this demand. So if Smith, Bell & Co. had delivered the rice without insisting upon a reimbursement at that time for this expense, and had afterward brought an action against the plaintiff to recover this amount, it is clear that they could not have prevailed in such an action. In neither one of these cases would the court have gone into the question as to whether the plaintiff made or lost money by the reshipment of his rice to Japan. In both of them the court would have said that the property belonged to the plaintiff, and that he had a right to dispose of it as he saw fit, and that the only right or claim which the defendants had was a right to be reimbursed for the expenses which they had incurred in the performance of their contract, and the expense which they incurred in the payment of the duties not being an expense incurred in the performance of the contract, they would neither be entitled to recover the amount in an independent action nor to retain the rice until they were repaid. What the rule would have been had an action been brought for damages for breach of the contract, it is not necessary to decide, for this is not such an action.chanroblesvirtuallawlibrary chanrobles virtual law library The plaintiff having been compelled, in order to get possession of his property, to pay an unlawful demand made by the defendants upon him, and such payment having been made under protest, the latter have in their hands money which does not belong to them, but which belongs to the plaintiff. In such cases the law imposes upon them the obligation to repay it.chanroblesvirtuallawlibrary chanrobles virtual law library The judgment of the court below is affirmed, with the costs of this instance against the appellants and after the expiration of twenty days judgment should be entered in accordance herewith and the case remanded to the court below for execution. So ordered.chanroblesvirtuallawlibrary chanrobles virtual law library G.R. No. 90027 March 3, 1993 CA AGRO-INDUSTRIAL DEVELOPMENT CORP., petitioner, vs. THE HONORABLE COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents. Is the contractual relation between a commercial bank and another party in a contract of rent of a safety deposit box with respect to its contents placed by the latter one of bailor and bailee or one of lessor and lessee? This is the crux of the present controversy. On 3 July 1979, petitioner (through its President, Sergio Aguirre) and the spouses Ramon and Paula Pugao entered into an agreement whereby the former purchased from the latter two (2) parcels of land for a consideration of P350,625.00. Of this amount, P75,725.00 was paid as downpayment while the balance was covered by three (3) postdated checks. Among the terms and conditions of the agreement embodied in a Memorandum of True and Actual Agreement of Sale of Land were that the titles to the lots shall be transferred to the petitioner upon full payment of the purchase price and that the owner's copies of the certificates of titles thereto, Transfer Certificates of Title (TCT) Nos. 284655 and 292434, shall be deposited in a safety deposit box of any bank. The same could be withdrawn only upon the joint signatures of a representative of the petitioner and the Pugaos upon full payment of the purchase price. Petitioner, through Sergio Aguirre, and the Pugaos then rented Safety Deposit Box No. 1448 of private respondent Security Bank and Trust Company, a domestic banking corporation hereinafter referred to as

the respondent Bank. For this purpose, both signed a contract of lease (Exhibit "2") which contains, inter alia, the following conditions: 13. The bank is not a depositary of the contents of the safe and it has neither the possession nor control of the same. 14. The bank has no interest whatsoever in said contents, except herein expressly provided, and it assumes absolutely no liability in connection therewith. 1 After the execution of the contract, two (2) renter's keys were given to the renters one to Aguirre (for the petitioner) and the other to the Pugaos. A guard key remained in the possession of the respondent Bank. The safety deposit box has two (2) keyholes, one for the guard key and the other for the renter's key, and can be opened only with the use of both keys. Petitioner claims that the certificates of title were placed inside the said box. Thereafter, a certain Mrs. Margarita Ramos offered to buy from the petitioner the two (2) lots at a price of P225.00 per square meter which, as petitioner alleged in its complaint, translates to a profit of P100.00 per square meter or a total of P280,500.00 for the entire property. Mrs. Ramos demanded the execution of a deed of sale which necessarily entailed the production of the certificates of title. In view thereof, Aguirre, accompanied by the Pugaos, then proceeded to the respondent Bank on 4 October 1979 to open the safety deposit box and get the certificates of title. However, when opened in the presence of the Bank's representative, the box yielded no such certificates. Because of the delay in the reconstitution of the title, Mrs. Ramos withdrew her earlier offer to purchase the lots; as a consequence thereof, the petitioner allegedly failed to realize the expected profit of P280,500.00. Hence, the latter filed on 1 September 1980 a complaint 2 for damages against the respondent Bank with the Court of First Instance (now Regional Trial Court) of Pasig, Metro Manila which docketed the same as Civil Case No. 38382. In its Answer with Counterclaim, 3 respondent Bank alleged that the petitioner has no cause of action because of paragraphs 13 and 14 of the contract of lease (Exhibit "2"); corollarily, loss of any of the items or articles contained in the box could not give rise to an action against it. It then interposed a counterclaim for exemplary damages as well as attorney's fees in the amount of P20,000.00. Petitioner subsequently filed an answer to the counterclaim. 4 In due course, the trial court, now designated as Branch 161 of the Regional Trial Court (RTC) of Pasig, Metro Manila, rendered a decision 5 adverse to the petitioner on 8 December 1986, the dispositive portion of which reads: WHEREFORE, premises considered, judgment is hereby rendered dismissing plaintiff's complaint. On defendant's counterclaim, judgment is hereby rendered ordering plaintiff to pay defendant the amount of FIVE THOUSAND (P5,000.00) PESOS as attorney's fees. With costs against plaintiff. 6 The unfavorable verdict is based on the trial court's conclusion that under paragraphs 13 and 14 of the contract of lease, the Bank has no liability for the loss of the certificates of title. The court declared that the said provisions are binding on the parties. Its motion for reconsideration 7 having been denied, petitioner appealed from the adverse decision to the respondent Court of Appeals which docketed the appeal as CA-G.R. CV No. 15150. Petitioner urged the respondent Court to reverse the challenged decision because the trial court erred in (a) absolving the respondent Bank from liability from the loss, (b) not declaring as null and void, for being contrary to law, public order and public policy, the provisions in the contract for lease of the safety deposit box absolving the Bank from any liability for loss, (c) not concluding that in this jurisdiction, as well as under American jurisprudence, the liability of the Bank is settled and (d) awarding attorney's fees to the Bank and denying the petitioner's prayer for nominal and exemplary damages and attorney's fees. 8 In its Decision promulgated on 4 July 1989, 9 respondent Court affirmed the appealed decision principally on the theory that the contract (Exhibit "2") executed by the petitioner and respondent Bank is in the nature of a contract of lease by virtue of which the petitioner and its co-renter were given control over the safety deposit box and its contents while the Bank retained no right to open the said box because it had neither the possession nor control over it and its contents. As such, the contract is governed by Article 1643 of the Civil Code 10 which provides: Art. 1643. In the lease of things, one of the parties binds himself to give to another the enjoyment or use of a thing for a price certain, and for a period which may be definite or indefinite. However, no lease for more than ninety-nine years shall be valid.

It invoked Tolentino vs. Gonzales 11 which held that the owner of the property loses his control over the property leased during the period of the contract and Article 1975 of the Civil Code which provides: Art. 1975. The depositary holding certificates, bonds, securities or instruments which earn interest shall be bound to collect the latter when it becomes due, and to take such steps as may be necessary in order that the securities may preserve their value and the rights corresponding to them according to law. The above provision shall not apply to contracts for the rent of safety deposit boxes. and then concluded that "[c]learly, the defendant-appellee is not under any duty to maintain the contents of the box. The stipulation absolving the defendant-appellee from liability is in accordance with the nature of the contract of lease and cannot be regarded as contrary to law, public order and public policy." 12 The appellate court was quick to add, however, that under the contract of lease of the safety deposit box, respondent Bank is not completely free from liability as it may still be made answerable in case unauthorized persons enter into the vault area or when the rented box is forced open. Thus, as expressly provided for in stipulation number 8 of the contract in question: 8. The Bank shall use due diligence that no unauthorized person shall be admitted to any rented safe and beyond this, the Bank will not be responsible for the contents of any safe rented from it. 13 Its motion for reconsideration 14 having been denied in the respondent Court's Resolution of 28 August 1989, 15petitioner took this recourse under Rule 45 of the Rules of Court and urges Us to review and set aside the respondent Court's ruling. Petitioner avers that both the respondent Court and the trial court (a) did not properly and legally apply the correct law in this case, (b) acted with grave abuse of discretion or in excess of jurisdiction amounting to lack thereof and (c) set a precedent that is contrary to, or is a departure from precedents adhered to and affirmed by decisions of this Court and precepts in American jurisprudence adopted in the Philippines. It reiterates the arguments it had raised in its motion to reconsider the trial court's decision, the brief submitted to the respondent Court and the motion to reconsider the latter's decision. In a nutshell, petitioner maintains that regardless of nomenclature, the contract for the rent of the safety deposit box (Exhibit "2") is actually a contract of deposit governed by Title XII, Book IV of the Civil Code of the Philippines. 16 Accordingly, it is claimed that the respondent Bank is liable for the loss of the certificates of title pursuant to Article 1972 of the said Code which provides: Art. 1972. The depositary is obliged to keep the thing safely and to return it, when required, to the depositor, or to his heirs and successors, or to the person who may have been designated in the contract. His responsibility, with regard to the safekeeping and the loss of the thing, shall be governed by the provisions of Title I of this Book. If the deposit is gratuitous, this fact shall be taken into account in determining the degree of care that the depositary must observe. Petitioner then quotes a passage from American Jurisprudence 17 which is supposed to expound on the prevailing rule in the United States, to wit: The prevailing rule appears to be that where a safe-deposit company leases a safe-deposit box or safe and the lessee takes possession of the box or safe and places therein his securities or other valuables, the relation of bailee and bail or is created between the parties to the transaction as to such securities or other valuables; the fact that the safe-deposit company does not know, and that it is not expected that it shall know, the character or description of the property which is deposited in such safe-deposit box or safe does not change that relation. That access to the contents of the safe-deposit box can be had only by the use of a key retained by the lessee ( whether it is the sole key or one to be used in connection with one retained by the lessor) does not operate to alter the foregoing rule. The argument that there is not, in such a case, a delivery of exclusive possession and control to the deposit company, and that therefore the situation is entirely different from that of ordinary bailment, has been generally rejected by the courts, usually on the ground that as possession must be either in the depositor or in the company, it should reasonably be considered as in the latter rather than in the former, since the company is, by the nature of the contract, given absolute control of access to the property, and the depositor cannot gain access thereto without the consent and active participation of the company. . . . (citations omitted). and a segment from Words and Phrases 18 which states that a contract for the rental of a bank safety deposit box in consideration of a fixed amount at stated periods is a bailment for hire.

Petitioner further argues that conditions 13 and 14 of the questioned contract are contrary to law and public policy and should be declared null and void. In support thereof, it cites Article 1306 of the Civil Code which provides that parties to a contract may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy. After the respondent Bank filed its comment, this Court gave due course to the petition and required the parties to simultaneously submit their respective Memoranda. The petition is partly meritorious. We agree with the petitioner's contention that the contract for the rent of the safety deposit box is not an ordinary contract of lease as defined in Article 1643 of the Civil Code. However, We do not fully subscribe to its view that the same is a contract of deposit that is to be strictly governed by the provisions in the Civil Code on deposit; 19the contract in the case at bar is a special kind of deposit. It cannot be characterized as an ordinary contract of lease under Article 1643 because the full and absolute possession and control of the safety deposit box was not given to the joint renters the petitioner and the Pugaos. The guard key of the box remained with the respondent Bank; without this key, neither of the renters could open the box. On the other hand, the respondent Bank could not likewise open the box without the renter's key. In this case, the said key had a duplicate which was made so that both renters could have access to the box. Hence, the authorities cited by the respondent Court 20 on this point do not apply. Neither could Article 1975, also relied upon by the respondent Court, be invoked as an argument against the deposit theory. Obviously, the first paragraph of such provision cannot apply to a depositary of certificates, bonds, securities or instruments which earn interest if such documents are kept in a rented safety deposit box. It is clear that the depositary cannot open the box without the renter being present. We observe, however, that the deposit theory itself does not altogether find unanimous support even in American jurisprudence. We agree with the petitioner that under the latter, the prevailing rule is that the relation between a bank renting out safe-deposit boxes and its customer with respect to the contents of the box is that of a bail or and bailee, the bailment being for hire and mutual benefit. 21 This is just the prevailing view because: There is, however, some support for the view that the relationship in question might be more properly characterized as that of landlord and tenant, or lessor and lessee. It has also been suggested that it should be characterized as that of licensor and licensee. The relation between a bank, safe-deposit company, or storage company, and the renter of a safe-deposit box therein, is often described as contractual, express or implied, oral or written, in whole or in part. But there is apparently no jurisdiction in which any rule other than that applicable to bailments governs questions of the liability and rights of the parties in respect of loss of the contents of safe-deposit boxes. 22 (citations omitted) In the context of our laws which authorize banking institutions to rent out safety deposit boxes, it is clear that in this jurisdiction, the prevailing rule in the United States has been adopted. Section 72 of the General Banking Act 23pertinently provides: Sec. 72. In addition to the operations specifically authorized elsewhere in this Act, banking institutions other than building and loan associations may perform the following services: (a) Receive in custody funds, documents, and valuable objects, and rent safety deposit boxes for the safeguarding of such effects. xxx xxx xxx The banks shall perform the services permitted under subsections (a), (b) and (c) of this section asdepositories or as agents. . . . 24 (emphasis supplied) Note that the primary function is still found within the parameters of a contract of deposit, i.e., the receiving in custody of funds, documents and other valuable objects for safekeeping. The renting out of the safety deposit boxes is not independent from, but related to or in conjunction with, this principal function. A contract of deposit may be entered into orally or in writing 25 and, pursuant to Article 1306 of the Civil Code, the parties thereto may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy. The depositary's responsibility for the safekeeping of the objects deposited in the case at bar is governed by Title I, Book IV of the Civil Code. Accordingly, the depositary would be liable if, in performing its obligation, it is found guilty of fraud, negligence, delay or contravention of the tenor of the agreement. 26 In the absence of any stipulation prescribing the degree of diligence required, that of a

good father of a family is to be observed. 27 Hence, any stipulation exempting the depositary from any liability arising from the loss of the thing deposited on account of fraud, negligence or delay would be void for being contrary to law and public policy. In the instant case, petitioner maintains that conditions 13 and 14 of the questioned contract of lease of the safety deposit box, which read: 13. The bank is not a depositary of the contents of the safe and it has neither the possession nor control of the same. 14. The bank has no interest whatsoever in said contents, except herein expressly provided, and it assumes absolutely no liability in connection therewith. 28 are void as they are contrary to law and public policy. We find Ourselves in agreement with this proposition for indeed, said provisions are inconsistent with the respondent Bank's responsibility as a depositary under Section 72(a) of the General Banking Act. Both exempt the latter from any liability except as contemplated in condition 8 thereof which limits its duty to exercise reasonable diligence only with respect to who shall be admitted to any rented safe, to wit: 8. The Bank shall use due diligence that no unauthorized person shall be admitted to any rented safe and beyond this, the Bank will not be responsible for the contents of any safe rented from it. 29 Furthermore, condition 13 stands on a wrong premise and is contrary to the actual practice of the Bank. It is not correct to assert that the Bank has neither the possession nor control of the contents of the box since in fact, the safety deposit box itself is located in its premises and is under its absolute control; moreover, the respondent Bank keeps the guard key to the said box. As stated earlier, renters cannot open their respective boxes unless the Bank cooperates by presenting and using this guard key. Clearly then, to the extent above stated, the foregoing conditions in the contract in question are void and ineffective. It has been said: With respect to property deposited in a safe-deposit box by a customer of a safe-deposit company, the parties, since the relation is a contractual one, may by special contract define their respective duties or provide for increasing or limiting the liability of the deposit company, provided such contract is not in violation of law or public policy. It must clearly appear that there actually was such a special contract, however, in order to vary the ordinary obligations implied by law from the relationship of the parties; liability of the deposit company will not be enlarged or restricted by words of doubtful meaning. The company, in renting safe-deposit boxes, cannot exempt itself from liability for loss of the contents by its own fraud or negligence or that of its agents or servants, and if a provision of the contract may be construed as an attempt to do so, it will be held ineffective for the purpose. Although it has been held that the lessor of a safe-deposit box cannot limit its liability for loss of the contents thereof through its own negligence, the view has been taken that such a lessor may limits its liability to some extent by agreement or stipulation. 30 (citations omitted) Thus, we reach the same conclusion which the Court of Appeals arrived at, that is, that the petition should be dismissed, but on grounds quite different from those relied upon by the Court of Appeals. In the instant case, the respondent Bank's exoneration cannot, contrary to the holding of the Court of Appeals, be based on or proceed from a characterization of the impugned contract as a contract of lease, but rather on the fact that no competent proof was presented to show that respondent Bank was aware of the agreement between the petitioner and the Pugaos to the effect that the certificates of title were withdrawable from the safety deposit box only upon both parties' joint signatures, and that no evidence was submitted to reveal that the loss of the certificates of title was due to the fraud or negligence of the respondent Bank. This in turn flows from this Court's determination that the contract involved was one of deposit. Since both the petitioner and the Pugaos agreed that each should have one (1) renter's key, it was obvious that either of them could ask the Bank for access to the safety deposit box and, with the use of such key and the Bank's own guard key, could open the said box, without the other renter being present. Since, however, the petitioner cannot be blamed for the filing of the complaint and no bad faith on its part had been established, the trial court erred in condemning the petitioner to pay the respondent Bank attorney's fees. To this extent, the Decision (dispositive portion) of public respondent Court of Appeals must be modified. WHEREFORE, the Petition for Review is partially GRANTED by deleting the award for attorney's fees from the 4 July 1989 Decision of the respondent Court of Appeals in CA-G.R. CV No. 15150. As modified, and subject to the pronouncement We made above on the nature of the relationship between the parties in

a contract of lease of safety deposit boxes, the dispositive portion of the said Decision is hereby AFFIRMED and the instant Petition for Review is otherwise DENIED for lack of merit. No pronouncement as to costs. SO ORDERED. NGEL JAVELLANA, plaintiff-appellee, vs. JOSE LIM, ET AL., defendants-appellants. R. Zaldarriaga for appellants. B. Montinola for appellee. TORRES, J.: The attorney for the plaintiff, Angel Javellana, file a complaint on the 30th of October, 1906, with the Court of First Instance of Iloilo, praying that the defendants, Jose Lim and Ceferino Domingo Lim, he sentenced to jointly and severally pay the sum of P2,686.58, with interest thereon at the rate of 15 per cent per annum from the 20th of January, 1898, until full payment should be made, deducting from the amount of interest due the sum of P1,102.16, and to pay the costs of the proceedings. Authority from the court having been previously obtained, the complaint was amended on the 10th of January, 1907; it was then alleged, on the 26th of May, 1897, the defendants executed and subscribed a document in favor of the plaintiff reading as follows: We have received from Angel Javellana, as a deposit without interest, the sum of two thousand six hundred and eighty-six cents of pesos fuertes, which we will return to the said gentleman, jointly and severally, on the 20th of January, 1898. Jaro, 26th of May, 1897. Signed Jose Lim. Signed: Ceferino Domingo Lim. That, when the obligation became due, the defendants begged the plaintiff for an extension of time for the payment thereof, building themselves to pay interest at the rate of 15 per cent on the amount of their indebtedness, to which the plaintiff acceded; that on the 15th of May, 1902, the debtors paid on account of interest due the sum of P1,000 pesos, with the exception of either capital or interest, had thereby been subjected to loss and damages. A demurrer to the original complaint was overruled, and on the 4th of January, 1907, the defendants answered the original complaint before its amendment, setting forth that they acknowledged the facts stated in Nos. 1 and 2 of the complaint; that they admitted the statements of the plaintiff relative to the payment of 1,102.16 pesos made on the 15th of November, 1902, not, however, as payment of interest on the amount stated in the foregoing document, but on account of the principal, and denied that there had been any agreement as to an extension of the time for payment and the payment of interest at the rate of 15 per cent per annum as alleged in paragraph 3 of the complaint, and also denied all the other statements contained therein. As a counterclaim, the defendants alleged that they had paid to the plaintiff sums which, together with the P1,102.16 acknowledged in the complaint, aggregated the total sum of P5,602.16, and that, deducting therefrom the total sum of P2,686.58 stated in the document transcribed in the complaint, the plaintiff still owed the defendants P2,915.58; therefore, they asked that judgment be entered absolving them, and sentencing the plaintiff to pay them the sum of P2,915.58 with the costs. Evidence was adduced by both parties and, upon their exhibits, together with an account book having been made of record, the court below rendered judgment on the 15th of January, 1907, in favor of the plaintiff for the recovery of the sum of P5,714.44 and costs. The defendants excepted to the above decision and moved for a new trial. This motion was overruled and was also excepted to by them; the bill of exceptions presented by the appellants having been approved, the same was in due course submitted to this court. The document of indebtedness inserted in the complaint states that the plaintiff left on deposit with the defendants a given sum of money which they were jointly and severally obliged to return on a certain date fixed in the document; but that, nevertheless, when the document appearing as Exhibits 2, written in the Visayan dialect and followed by a translation into Spanish was executed, it was acknowledged, at the date thereof, the 15th of November, 1902, that the amount deposited had not yet been returned to the creditor, whereby he was subjected to losses and damages amounting to 830 pesos since the 20th of January, 1898, when the return was again stipulated with the further agreement that the amount deposited should bear interest at the rate of 15 per cent per annum, from the aforesaid date of January 20, and that the 1,000 pesos paid to the depositor on the 15th of May, 1900, according to the receipt

issued by him to the debtors, would be included, and that the said rate of interest would obtain until the debtors on the 20th of May, 1897, it is called a deposit consisted, and they could have accomplished the return agreed upon by the delivery of a sum equal to the one received by them. For this reason it must be understood that the debtors were lawfully authorized to make use of the amount deposited, which they have done, as subsequent shown when asking for an extension of the time for the return thereof, inasmuch as, acknowledging that they have subjected the letter, their creditor, to losses and damages for not complying with what had been stipulated, and being conscious that they had used, for their own profit and gain, the money that they received apparently as a deposit, they engaged to pay interest to the creditor from the date named until the time when the refund should be made. Such conduct on the part of the debtors is unquestionable evidence that the transaction entered into between the interested parties was not a deposit, but a real contract of loan. Article 1767 of the Civil Code provides that The depository can not make use of the thing deposited without the express permission of the depositor. Otherwise he shall be liable for losses and damages. Article 1768 also provides that When the depository has permission to make use of the thing deposited, the contract loses the character of a deposit and becomes a loan or bailment. The permission shall not be presumed, and its existence must be proven. When on one of the latter days of January, 1898, Jose Lim went to the office of the creditor asking for an extension of one year, in view of the fact the money was scare, and because neither himself nor the other defendant were able to return the amount deposited, for which reason he agreed to pay interest at the rate of 15 per cent per annum, it was because, as a matter of fact, he did not have in his possession the amount deposited, he having made use of the same in his business and for his own profit; and the creditor, by granting them the extension, evidently confirmed the express permission previously given to use and dispose of the amount stated as having bee deposited, which, in accordance with the loan, to all intents and purposes gratuitously, until the 20th of January, 1898, and from that dated with interest at 15 per cent per annum until its full payment, deducting from the total amount of interest the sum of 1,000 pesos, in accordance with the provisions of article 1173 of the Civil Code. Notwithstanding that it does not appear that Jose Lim signed the document (Exhibit 2) executed in the presence of three witnesses on the 15th of November, 1902, by Ceferino Domingo Lim on behalf of himself and the former, nevertheless, the said document has not been contested as false, either by a criminal or by a civil proceeding, nor has any doubt been cast upon the authenticity of the signatures of the witnesses who attested the execution of the same; and from the evidence in the case one is sufficiently convinced that the said Jose Lim was perfectly aware of and authorized his joint codebtor to liquidate the interest, to pay the sum of 1,000 pesos, on account thereof, and to execute the aforesaid document No. 2. A true ratification of the original document of deposit was thus made, and not the least proof is shown in the record that Jose Lim had ever paid the whole or any part of the capital stated in the original document, Exhibit 1. If the amount, together with interest claimed in the complaint, less 1,000 pesos appears as fully established, such is not the case with the defendant's counterclaim for P5,602.16, because the existence and certainty of said indebtedness imputed to the plaintiff has not been proven, and the defendants, who call themselves creditors for the said amount have not proven in a satisfactory manner that the plaintiff had received partial payments on account of the same; the latter alleges with good reason, that they should produce the receipts which he may have issued, and which he did issue whenever they paid him any money on account. The plaintiffs allegation that the two amounts of 400 and 1,200 pesos, referred to in documents marked "C" and "D" offered in evidence by the defendants, had been received from Ceferino Domingo Lim on account of other debts of his, has not been contradicted, and the fact that in the original complaint the sum of 1,102.16 pesos, was expressed in lieu of 1,000 pesos, the only payment made on account of interest on the amount deposited according to documents No. 2 and letter "B" above referred to, was due to a mistake. Moreover, for the reason above set forth it may, as a matter of course, be inferred that there was no renewal of the contract deposited converted into a loan, because, as has already been stated, the defendants received said amount by virtue of real loan contract under the name of a deposit, since the so-called bailees were forthwith authorized to dispose of the amount deposited. This they have done, as has been clearly shown.

The original joint obligation contracted by the defendant debtor still exists, and it has not been shown or proven in the proceedings that the creditor had released Joe Lim from complying with his obligation in order that he should not be sued for or sentenced to pay the amount of capital and interest together with his codebtor, Ceferino Domingo Lim, because the record offers satisfactory evidence against the pretension of Jose Lim, and it further appears that document No. 2 was executed by the other debtor, Ceferino Domingo Lim, for himself and on behalf of Jose Lim; and it has also been proven that Jose Lim, being fully aware that his debt had not yet been settled, took steps to secure an extension of the time for payment, and consented to pay interest in return for the concession requested from the creditor. In view of the foregoing, and adopting the findings in the judgment appealed from, it is our opinion that the same should be and is hereby affirmed with the costs of this instance against the appellant, provided that the interest agreed upon shall be paid until the complete liquidation of the debt. So ordered. Arellano, C.J., Carson, Willard and Tracey, JJ., concur. SILVESTRA BARON, plaintiff-appellant, vs. PABLO DAVID, defendant-appellant. And GUILLERMO BARON, plaintiff-appellant, , J.: These two actions were instituted in the Court of First Instance of the Province of Pampanga by the respective plaintiffs, Silvestra Baron and Guillermo Baron, for the purpose of recovering from the defendant, Pablo David, the value of palay alleged to have been sold by the plaintiffs to the defendant in the year 1920. Owing to the fact that the defendant is the same in both cases and that the two cases depend in part upon the same facts, the cases were heard together in the trial court and determined in a single opinion. The same course will accordingly be followed here. In the first case, i. e., that which Silvestra Baron is plaintiff, the court gave judgment for her to recover of the defendant the sum of P5,238.51, with costs. From this judgment both the plaintiff and the defendant appealed. In the second case, i. e., that in which Guillermo Baron, is plaintiff, the court gave judgment for him to recover of the defendant the sum of P5,734.60, with costs, from which judgment both the plaintiff and the defendant also appealed. In the same case the defendant interposed a counterclaim in which he asked credit for the sum of P2,800 which he had advanced to the plaintiff Guillermo Baron on various occasions. This credit was admitted by the plaintiff and allowed by the trial court. But the defendant also interposed a cross-action against Guillermo Baron in which the defendant claimed compensation for damages alleged to have Ben suffered by him by reason of the alleged malicious and false statements made by the plaintiff against the defendant in suing out an attachment against the defendant's property soon after the institution of the action. In the same cross-action the defendant also sought compensation for damages incident to the shutting down of the defendant's rice mill for the period of one hundred seventy days during which the above-mentioned attachment was in force. The trial judge disallowed these claims for damages, and from this feature of the decision the defendant appealed. We are therefore confronted with five distinct appeals in this record. Prior to January 17, 1921, the defendant Pablo David has been engaged in running a rice mill in the municipality of Magalang, in the Province of Pampanga, a mill which was well patronized by the rice growers of the vicinity and almost constantly running. On the date stated a fire occurred that destroyed the mill and its contents, and it was some time before the mill could be rebuilt and put in operation again. Silvestra Baron, the plaintiff in the first of the actions before us, is an aunt of the defendant; while Guillermo Baron, the plaintiff in the other action; is his uncle. In the months of March, April, and May, 1920, Silvestra Baron placed a quantity of palay in the defendant's mill; and this, in connection with some that she took over from Guillermo Baron, amounted to 1,012 cavans and 24 kilos. During approximately the same period Guillermo Baron placed other 1,865 cavans and 43 kilos of palay in the

mill. No compensation has ever been received by Silvestra Baron upon account of the palay delivered by Guillermo Baron, he has received from the defendant advancements amounting to P2,800; but apart from this he has not been compensated. Both the plaintiffs claim that the palay which was delivered by them to the defendant was sold to the defendant; while the defendant, on the other hand, claims that the palay was deposited subject to future withdrawal by the depositors or subject to some future sale which was never effected. He therefore supposes himself to be relieved from all responsibility by virtue of the fire of January 17, 1921, already mentioned. The plaintiff further say that their palay was delivered to the defendant at his special request, coupled with a promise on his part to pay for the same at the highest price per cavan at which palay would sell during the year 1920; and they say that in August of that year the defendant promised to pay them severally the price of P8.40 per cavan, which was about the top of the market for the season, provided they would wait for payment until December. The trial judge found that no such promise had been given; and the incredulity of the court upon this point seems to us to be justified. A careful examination of the proof, however, leads us to the conclusion that the plaintiffs did, some time in the early part of August, 1920, make demand upon the defendant for a settlement, which he evaded or postponed leaving the exact amount due to the plaintiffs undetermined. It should be stated that the palay in question was place by the plaintiffs in the defendant's mill with the understanding that the defendant was at liberty to convert it into rice and dispose of it at his pleasure. The mill was actively running during the entire season, and as palay was daily coming in from many customers and as rice was being constantly shipped by the defendant to Manila, or other rice markets, it was impossible to keep the plaintiffs' palay segregated. In fact the defendant admits that the plaintiffs' palay was mixed with that of others. In view of the nature of the defendant's activities and the way in which the palay was handled in the defendant's mill, it is quite certain that all of the plaintiffs' palay, which was put in before June 1, 1920, been milled and disposed of long prior to the fire of January 17, 1921. Furthermore, the proof shows that when the fire occurred there could not have been more than about 360 cavans of palay in the mill, none of which by any reasonable probability could have been any part of the palay delivered by the plaintiffs. Considering the fact that the defendant had thus milled and doubtless sold the plaintiffs' palay prior to the date of the fire, it result that he is bound to account for its value, and his liability was not extinguished by the occurence of the fire. In the briefs before us it seems to have been assumed by the opposing attorneys that in order for the plaintiffs to recover, it is necessary that they should be able to establish that the plaintiffs' palay was delivered in the character of a sale, and that if, on the contrary, the defendant should prove that the delivery was made in the character of deposit, the defendant should be absolved. But the case does not depend precisely upon this explicit alternative; for even supposing that the palay may have been delivered in the character of deposit, subject to future sale or withdrawal at plaintiffs' election, nevertheless if it was understood that the defendant might mill the palay and he has in fact appropriated it to his own use, he is of course bound to account for its value. Under article 1768 of the Civil Code, when the depository has permission to make use of the thing deposited, the contract loses the character of mere deposit and becomes a loan or a commodatum; and of course by appropriating the thing, the bailee becomes responsible for its value. In this connection we wholly reject the defendant's pretense that the palay delivered by the plaintiffs or any part of it was actually consumed in the fire of January, 1921. Nor is the liability of the defendant in any wise affected by the circumstance that, by a custom prevailing among rice millers in this country, persons placing palay with them without special agreement as to price are at liberty to withdraw it later, proper allowance being made for storage and shrinkage, a thing that is sometimes done, though rarely. In view of what has been said it becomes necessary to discover the price which the defendant should be required to pay for the plaintiffs' palay. Upon this point the trial judge fixed upon P6.15 per cavan; and although we are not exactly in agreement with him as to the propriety of the method by which he arrived at this figure, we are nevertheless of the opinion that, all things considered, the result is approximately correct. It appears that the price of palay during the months of April, May, and June, 1920, had been excessively high in the Philippine Islands and even prior to that period the Government of the Philippine Islands had been attempting to hold the price in check by executive regulation. The highest point was touched in this season was apparently about P8.50 per cavan, but the market began to

sag in May or June and presently entered upon a precipitate decline. As we have already stated, the plaintiffs made demand upon the defendant for settlement in the early part of August; and, so far as we are able to judge from the proof, the price of P6.15 per cavan, fixed by the trial court, is about the price at which the defendant should be required to settle as of that date. It was the date of the demand of the plaintiffs for settlement that determined the price to be paid by the defendant, and this is true whether the palay was delivered in the character of sale with price undetermined or in the character of deposit subject to use by the defendant. It results that the plaintiffs are respectively entitle to recover the value of the palay which they had placed with the defendant during the period referred to, with interest from the date of the filing of their several complaints. As already stated, the trial court found that at the time of the fire there were about 360 cavans of palay in the mill and that this palay was destroyed. His Honor assumed that this was part of the palay delivered by the plaintiffs, and he held that the defendant should be credited with said amount. His Honor therefore deducted from the claims of the plaintiffs their respective proportionate shares of this amount of palay. We are unable to see the propriety of this feature of the decision. There were many customers of the defendant's rice mill who had placed their palay with the defendant under the same conditions as the plaintiffs, and nothing can be more certain than that the palay which was burned did not belong to the plaintiffs. That palay without a doubt had long been sold and marketed. The assignments of error of each of the plaintiffs-appellants in which this feature of the decision is attacked are therefore well taken; and the appealed judgments must be modified by eliminating the deductions which the trial court allowed from the plaintiffs' claims. The trial judge also allowed a deduction from the claim of the plaintiff Guillermo Baron of 167 cavans of palay, as indicated in Exhibit 12, 13, 14, and 16. This was also erroneous. These exhibits relate to transactions that occurred nearly two years after the transactions with which we are here concerned, and they were offered in evidence merely to show the character of subsequent transactions between the parties, it appearing that at the time said exhibits came into existence the defendant had reconstructed his mill and that business relations with Guillermo Baron had been resumed. The transactions shown by these exhibits (which relate to palay withdrawn by the plaintiff from the defendant's mill) were not made the subject of controversy in either the complaint or the crosscomplaint of the defendant in the second case. They therefore should not have been taken into account as a credit in favor of the defendant. Said credit must therefore be likewise of course be without prejudice to any proper adjustment of the rights of the parties with respect to these subsequent transactions that they have heretofore or may hereafter effect. The preceding discussion disposes of all vital contentions relative to the liability of the defendant upon the causes of action stated in the complaints. We proceed therefore now to consider the question of the liability of the plaintiff Guillermo Baron upon the cross-complaint of Pablo David in case R. G. No. 26949. In this cross-action the defendant seek, as the stated in the third paragraph of this opinion, to recover damages for the wrongful suing out of an attachment by the plaintiff and the levy of the same upon the defendant's rice mill. It appears that about two and one-half months after said action was begun, the plaintiff, Guillermo Baron, asked for an attachment to be issued against the property of the defendant; and to procure the issuance of said writ the plaintiff made affidavit to the effect that the defendant was disposing, or attempting the plaintiff. Upon this affidavit an attachment was issued as prayed, and on March 27, 1924, it was levied upon the defendant's rice mill, and other property, real and personal tiI2vgdB. Upon attaching the property the sheriff closed the mill and placed it in the care of a deputy. Operations were not resumed until September 13, 1924, when the attachment was dissolved by an order of the court and the defendant was permitted to resume control. At the time the attachment was levied there were, in the bodega, more than 20,000 cavans of palay belonging to persons who held receipts therefor; and in order to get this grain away from the sheriff, twenty-four of the depositors found it necessary to submit third-party claims to the sheriff. When these claims were put in the sheriff notified the plaintiff that a bond in the amount of P50,000 must be given, otherwise the grain would be released. The plaintiff, being unable or unwilling to give this bond, the sheriff surrendered the palay to the claimants;

but the attachment on the rice mill was maintained until September 13, as above stated, covering a period of one hundred seventy days during which the mill was idle. The ground upon which the attachment was based, as set forth in the plaintiff's affidavit was that the defendant was disposing or attempting to dispose of his property for the purpose of defrauding the plaintiff. That this allegation was false is clearly apparent, and not a word of proof has been submitted in support of the assertion. On the contrary, the defendant testified that at the time this attachment was secured he was solvent and could have paid his indebtedness to the plaintiff if judgment had been rendered against him in ordinary course. His financial conditions was of course well known to the plaintiff, who is his uncle. The defendant also states that he had not conveyed away any of his property, nor had intended to do so, for the purpose of defrauding the plaintiff. We have before us therefore a case of a baseless attachment, recklessly sued out upon a false affidavit and levied upon the defendant's property to his great and needless damage. That the act of the plaintiff in suing out the writ was wholly unjustifiable is perhaps also indicated in the circumstance that the attachment was finally dissolved upon the motion of the plaintiff himself. The defendant testified that his mill was accustomed to clean from 400 to 450 cavans of palay per day, producing 225 cavans of rice of 57 kilos each. The price charged for cleaning each cavan rice was 30 centavos. The defendant also stated that the expense of running the mill per day was from P18 to P25, and that the net profit per day on the mill was more than P40. As the mill was not accustomed to run on Sundays and holiday, we estimate that the defendant lost the profit that would have been earned on not less than one hundred forty work days. Figuring his profits at P40 per day, which would appear to be a conservative estimate, the actual net loss resulting from his failure to operate the mill during the time stated could not have been less than P5,600. The reasonableness of these figures is also indicated in the fact that the twenty-four customers who intervened with third-party claims took out of the camarin 20,000 cavans of palay, practically all of which, in the ordinary course of events, would have been milled in this plant by the defendant. And of course other grain would have found its way to this mill if it had remained open during the one hundred forty days when it was closed. But this is not all. When the attachment was dissolved and the mill again opened, the defendant found that his customers had become scattered and could not be easily gotten back. So slow, indeed, was his patronage in returning that during the remainder of the year 1924 the defendant was able to mill scarcely more than the grain belonging to himself and his brothers; and even after the next season opened many of his old customers did not return. Several of these individuals, testifying as witnesses in this case, stated that, owing to the unpleasant experience which they had in getting back their grain from the sheriff to the mill of the defendant, though they had previously had much confidence in him. As against the defendant's proof showing the facts above stated the plaintiff submitted no evidence whatever. We are therefore constrained to hold that the defendant was damaged by the attachment to the extent of P5,600, in profits lost by the closure of the mill, and to the extent of P1,400 for injury to the good-will of his business, making a total of P7,000. For this amount the defendant must recover judgment on his cross-complaint. The trial court, in dismissing the defendant's cross-complaint for damages resulting from the wrongful suing out of the attachment, suggested that the closure of the rice mill was a mere act of the sheriff for which the plaintiff was not responsible and that the defendant might have been permitted by the sheriff to continue running the mill if he had applied to the sheriff for permission to operate it. This singular suggestion will not bear a moment's criticism. It was of course the duty of the sheriff, in levying the attachment, to take the attached property into his possession, and the closure of the mill was a natural, and even necessary, consequence of the attachment. For the damage thus inflicted upon the defendant the plaintiff is undoubtedly responsible. One feature of the cross-complaint consist in the claim of the defendant (cross-complaint) for the sum of P20,000 as damages caused to the defendant by the false and alleged malicious statements contained in the affidavit upon which the attachment was procured. The additional sum of P5,000 is also claimed as exemplary damages. It is clear that with respect to these damages the cross-action cannot be maintained, for the reason that the affidavit in question was used in course of a legal proceeding for the

purpose of obtaining a legal remedy, and it is therefore privileged. But though the affidavit is not actionable as a libelous publication, this fact in no obstacle to the maintenance of an action to recover the damage resulting from the levy of the attachment. Before closing this opinion a word should be said upon the point raised in the first assignment of error of Pablo David as defendant in case R. G. No. 26949. In this connection it appears that the deposition of Guillermo Baron was presented in court as evidence and was admitted as an exhibit, without being actually read to the court. It is supposed in the assignment of error now under consideration that the deposition is not available as evidence to the plaintiff because it was not actually read out in court. This connection is not well founded. It is true that in section 364 of the Code of Civil Procedure it is said that a deposition, once taken, may be read by either party and will then be deemed the evidence of the party reading it. The use of the word "read" in this section finds its explanation of course in the American practice of trying cases for the most part before juries. When a case is thus tried the actual reading of the deposition is necessary in order that the jurymen may become acquainted with its contents. But in courts of equity, and in all courts where judges have the evidence before them for perusal at their pleasure, it is not necessary that the deposition should be actually read when presented as evidence. From what has been said it result that judgment of the court below must be modified with respect to the amounts recoverable by the respective plaintiffs in the two actions R. G. Nos. 26948 and 26949 and must be reversed in respect to the disposition of the cross-complaint interposed by the defendant in case R. G. No. 26949, with the following result: In case R. G. No. 26948 the plaintiff Silvestra Baron will recover of the Pablo David the sum of P6,227.24, with interest from November 21, 1923, the date of the filing of her complaint, and with costs. In case R. G. No. 26949 the plaintiff Guillermo Baron will recover of the defendant Pablo David the sum of P8,669.75, with interest from January 9, 1924. In the same case the defendant Pablo David, as plaintiff in the cross-complaint, will recover of Guillermo Baron the sum of P7,000, without costs. So ordered. Avancea, C.J., Johnson, Malcolm, Villamor, Romualdez and Villa-Real, JJ., concur. CENTRAL BANK OF THE PHILIPPINES as Liquidator of the FIDELITY SAVINGS BANK, petitioner, vs. HONORABLE JUDGE JESUS P. MORFE, as Presiding Judge of Branch XIII, Court of First Instance of Manila, Spouses AUGUSTO and ADELAIDA PADILLA and Spouses MARCELA and JOB ELIZES,respondents. F.E. Evangelista and Agapito S. Fajardo for petitioner. Juan C. Nabong, Jr. for respondent Spouses Augusto and Adelaida Padilla. Albert R. Palacio for respondent spouses Marcela and Job Elizes. AQUINO, J.:+.wph!1 This case involves the question of whether a final judgment for the payment of a time deposit in a savings bank which judgment was obtained after the bank was declared insolvent, is a preferred claim against the bank. The question arises under the following facts: On February 18,1969 the Monetary Board found the Fidelity Savings Bank to be insolvent. The Board directed the Superintendent of Banks to take charge of its assets, forbade it to do business and instructed the Central Bank Legal Counsel to take legal actions (Resolution No. 350). On December 9, 1969 the Board involved to seek the court's assistant and supervision in the liquidation of the ban The resolution implemented only on January 25, 1972, when his Central Bank of the Philippines filed the corresponding petition for assistance and supervision in the Court of First Instance of Manila (Civil Case No. 86005 assigned to Branch XIII). Prior to the institution of the liquidation proceeding but after the declaration of insolvency, or, specifically, sometime in March, 1971, the spouses Job Elizes and Marcela P. Elizes filed a complaint in the Court of First Instance of Manila against the Fidelity Savings Bank for the recovery of the sum of P50, 584 as the balance of their time deposits (Civil Case No. 82520 assigned to Branch I). In the judgment rendered in that case on December 13, 1972 the Fidelity Savings Bank was ordered to pay the Elizes spouses the sum of P50,584 plus accumulated interest.

In another case, assigned to Branch XXX of the Court of First Instance of Manila, the spouses Augusta A. Padilla and Adelaida Padilla secured on April 14, 1972 a judgment against the Fidelity Savings Bank for the sums of P80,000 as the balance of their time deposits, plus interests, P70,000 as moral and exemplary damages and P9,600 as attorney's fees (Civil Case No. 84200 where the action was filed on September 6, 1971). In its orders of August 20, 1973 and February 25, 1974, the lower court (Branch XIII having cognizance of the liquidation proceeding), upon motions of the Elizes and Padilla spouses and over the opposition of the Central Bank, directed the latter as liquidator, to pay their time deposits as preferred judgments, evidenced by final judgments, within the meaning of article 2244(14)(b) of the Civil Code, if there are enough funds in the liquidator's custody in excess of the credits more preferred under section 30 of the Central Bank Law in relation to articles 2244 and 2251 of the Civil Code. From the said order, the Central Bank appealed to this Court by certiorari. It contends that the final judgments secured by the Elizes and Padilla spouses do not enjoy any preference because (a) they were rendered after the Fidelity Savings Bank was declared insolvent and (b) under the charter of the Central Bank and the General Banking Law, no final judgment can be validly obtained against an insolvent bank. Republic Act No. 265 provides:t.hqw SEC. 29. Proceeding upon insolvency.Whenever upon examination by the Superintendent or his examiners or agents into the condition of any banking institution, it shall be disclosed that the condition of the same is one of insolvency, or that its continuance in business would involve probable loss to its depositors or creditors, it shall be the duty of the Superintendent forthwith, in writing to inform the Monetary Board of the facts, and the Board, upon finding the statements of the Superintendent to be true, shall forthwith forbid the institution to do business in the Philippines and shall take charge of its assets and proceeds according to law. The Monetary Board shall thereupon determine within thirty days whether the institution may be reorganized or otherwise placed in such a condition so that it may be permitted to resume business with safety to its creditors and shall prescribe the conditions under which such resumption of business shall take place. In such case the expenses and fees in the administration of the institution shall be determined by the Board and shall be paid to the Central Bank out of the assets of such banking institution. At any time within ten days after the Monetary Board has taken charge of the assets of any banking institution, such institution may apply to the Court of First Instance for an order requiring the Monetary Board to show cause why it should not be enjoined from continuing such charge of its assets, and the court may direct the Board to refrain from further proceedings and to surrender charge of its assets. If the Monetary Board shall determine that the banking institution cannot resume business with safety to its creditors, it shall, by the Office of the Solicitor General, file a petition in the Court of First Instance reciting the proceedings which have been taken and praying the assistance and supervision of the court in the liquidation of the affairs of the same. The Superintendent shall thereafter, upon order of the Monetary Board and under the supervision of the court and with all convenient speed, convert the assets of the banking institution to money. SEC. 30. Distribution of assets.In case of liquidation of a banking institution, after payment of the costs of the proceedings, including reasonable expenses and fees of the Central Bank to be allowed by the court, the Central Bank shall pay the debts of such institution, under the order of the court, in accordance with their legal priority. The General Banking Act, Republic Act No. 337, provides:t.hqw SEC. 85. Any director or officer of any banking institution who receives or permits or causes to be received in said bank any deposit, or who pays out or permits or causes to be paid out any funds of said bank, or who transfers or permits or causes to be transferred any securities or property of said bank, after said bank becomes insolvent, shall be punished by fine of not less than one thousand nor more than ten thousand pesos and by imprisonment for not less than two nor more than ten years. The Civil Code provides:t.hqw ART. 2237. Insolvency shall be governed by special laws insofar as they are not inconsistent with this Code. (n) ART. 2244. With reference to other property, real and personal, of the debtor, the following claims or credits shall be preferred in the order named: xxx xxx xxx

(14) Credits which, without special privilege, appear in (a) a public instrument; or (b) in a final judgment, if they have been the subject of litigation. These credits shall have preference among themselves in the order of priority of the dates of the instruments and of the judgments, respectively. (1924a) ART. 2251. Those credits which do not enjoy any preference with respect to specific property, and those which enjoy preference, as to the amount not paid, shall be satisfied according to the following rules: (1) In the order established in article 2244; (2) Common credits referred to in article 2245 shall be paid pro rata regardless of dates. (1929a) The trial court or, to be exact, the liquidation court noted that there is no provision in the charter of the Central Bank in the General Banking Law (Republic Acts Nos. 265 and 337, respectively) which suspends or abates civil actions against an insolvent bank pending in courts other than the liquidation court. It reasoned out that, because such actions are not suspended, judgments against insolvent banks could be considered as preferred credits under article 2244(14)(b) of the Civil Code. It further noted that, in contrast with the Central Act, section 18 of the Insolvency Law provides that upon the issuance by the court of an order declaring a person insolvent "all civil proceedings against the said insolvent shall be stayed." The liquidation court directed the Central Bank to honor the writs of execution issued by Branches I and XXX for the enforcement of the judgments obtained by the Elizes and Padilla spouses. It suggested that, after satisfaction of the judgment the Central Bank, as liquidator, should include said judgments in the list of preferred credits contained in the "Project of Distribution" "with the notation "already paid" " On the other hand, the Central Bank argues that after the Monetary Board has declared that a bank is insolvent and has ordered it to cease operations, the Board becomes the trustee of its assets "for the equal benefit of all the creditors, including the depositors". The Central Bank cites the ruling that "the assets of an insolvent banking institution are held in trust for the equal benefit of all creditors, and after its insolvency, one cannot obtain an advantage or a preference over another by an attachment, execution or otherwise" (Rohr vs. Stanton Trust & Savings Bank, 76 Mont. 248, 245 Pac. 947). The stand of the Central Bank is that all depositors and creditors of the insolvent bank should file their actions with the liquidation court. In support of that view it cites the provision that the Insolvency Law does not apply to banks (last sentence, sec. 52 of Act No. 1956). It also invokes the provision penalizing a director officer of a bank who disburses, or allows disbursement, of the funds of the bank after it becomes insolvent (Sec. 85, General Banking Act, Republic Act No. 337). It cites the ruling that "a creditor of an insolvent state bank in the hands of a liquidator who recovered a judgment against it is not entitled to a preference for (by) the mere fact that he is a judgment creditor" (Thomas H. Briggs & Sons, Inc. vs. Allen, 207 N. Carolina 10, 175 S. E. 838, Braver Liquidation of Financial Institutions, p. 922). It should be noted that fixed, savings, and current deposits of money in banks and similar institutions are not true deposits. They are considered simple loans and, as such, are not preferred credits (Art. 1980, Civil Code; In re Liquidation of Mercantile Bank of China: Tan Tiong Tick vs. American Apothecaries Co., 65 Phil. 414; Pacific Coast Biscuit Co. vs. Chinese Grocers Association, 65 Phil. 375; Fletcher American National Bank vs. Ang Cheng Lian, 65 Phil. 385; Pacific Commercial Co. vs. American Apothecaries Co., 65 Phil. 429; Gopoco Grocery vs. Pacific Coast Biscuit Co., 65 Phil. 443). The aforequoted section 29 of the Central Bank's charter explicitly provides that when a bank is found to be insolvent, the Monetary Board shall forbid it to do business and shall take charge of its assets. The Board in its Resolution No. 350 dated February 18,1969 banned the Fidelity Savings Bank from doing business. It took charge of the bank's assets. Evidently, one purpose in prohibiting the insolvent bank from doing business is to prevent some depositors from having an undue or fraudulent preference over other creditors and depositors. That purpose would be nullified if, as in this case, after the bank is declared insolvent, suits by some depositors could be maintained and judgments would be rendered for the payment of their deposits and then such judgments would be considered preferred credits under article 2244 (14) (b) of the Civil Code. We are of the opinion that such judgments cannot be considered preferred and that article 2244(14)(b) does not apply to judgments for the payment of the deposits in an insolvent savings bank which were obtained after the declaration of insolvency. A contrary rule or practice would be productive of injustice, mischief and confusion. To recognize such judgments as entitled to priority would mean that depositors in insolvent banks, after learning that the bank is insolvent as shown by the fact that it can no longer pay withdrawals or that it has closed its doors

or has been enjoined by the Monetary Board from doing business, would rush to the courts to secure judgments for the payment of their deposits. In such an eventuality, the courts would be swamped with suits of that character. Some of the judgments would be default judgments. Depositors armed with such judgments would pester the liquidation court with claims for preference on the basis of article 2244(14)(b). Less alert depositors would be prejudiced. That inequitable situation could not have been contemplated by the framers of section 29. The Rohr case (supra) supplies some illumination on the disposition of the instant case. It appears in that case that the Stanton Trust & Savings Bank of Great Falls closed its doors to business on July 9, 1923. On November 7,1924 the bank (then already under liquidation) issued to William Rohr a certificate stating that he was entitled to claim from the bank $1,191.72 and that he was entitled to dividends thereon. Later, Rohr sued the bank for the payment of his claim. The bank demurred to the complaint. The trial court sustained the demurrer. Rohr appealed. In affirming the order sustaining the demurrer, the Supreme Court of Montana said:t.hqw The general principle of equity that the assets of an insolvent are to he distributed ratably among general creditors applies with full force to the distribution of the assets of a bank. A general depositor of a bank is merely a general creditor, and, as such, is not entitled to any preference or priority over other general creditors. The assets of a bank in process of liquidation are held in trust for the equal benefit of all creditors, and one cannot be permitted to obtain an advantage or preference over another by an attachment, execution or otherwise. A disputed claim of a creditor may be adjudicated, but those whose claims are recognized and admitted may not successfully maintain action thereon. So to permit would defeat the very purpose of the liquidation of a bank whether being voluntarily accomplished or through the intervention of a receiver. xxx xxx xxx The available assets of such a bank are held in trust, and so conserved that each depositor or other creditor shall receive payment or dividend according to the amount of his debt, and that none of equal class shall receive any advantage or preference over another. And with respect to a national bank under voluntary liquidation, the court noted in the Rohr case that the assets of such a bank "become a trust fund, to be administered for the benefit of all creditors pro rata and, while the bank retains its corporate existence, and may be sued, the effect of a judgment obtained against it by a creditor is only to fix the amount of debt. He can acquire no lien which will give him any preference or advantage over other general creditors. (245 Pac. 249). * Considering that the deposits in question, in their inception, were not preferred credits, it does not seem logical and just that they should be raised to the category of preferred credits simply because the depositors, taking advantage of the long interval between the declaration of insolvency and the filing of the petition for judicial assistance and supervision, were able to secure judgments for the payment of their time deposits. The judicial declaration that the said deposits were payable to the depositors, as indisputably they were due, could not have given the Elizes and Padilla spouses a priority over the other depositors whose deposits were likewise indisputably due and owing from the insolvent bank but who did not want to incur litigation expenses in securing a judgment for the payment of the deposits. The circumstance that the Fidelity Savings Bank, having stopped operations since February 19, 1969, was forbidden to do business (and that ban would include the payment of time deposits) implies that suits for the payment of such deposits were prohibited. What was directly prohibited should not be encompassed indirectly. (See Maurello vs. Broadway Bank & Trust Co. of Paterson 176 Atl. 391, 114 N.J.L. 167). It is noteworthy that in the trial court's order of October 3, 1972, which contains the Bank Liquidation Rules and Regulations, it indicated in step III the procedure for processing the claims against the insolvent bank. In Step IV, the court directed the Central Bank, as liquidator, to submit a Project of Distribution which should include "a list of the preferred credits to be paid in full in the order of priorities established in Articles 2241, 2242, 2243, 2246 and 2247" of the Civil Code (note that article 2244 was not mentioned). There is no cogent reason why the Elizes and Padilla spouses should not adhere to the procedure outlined in the said rules and regulations.

WHEREFORE, the lower court's orders of August 20, 1973 and February 25, 1974 are reversed and set aside. No costs. SO ORDERED. MANUEL M. SERRANO, petitioner, vs. CENTRAL BANK OF THE PHILIPPINES; OVERSEAS BANK OF MANILA; EMERITO M. RAMOS, SUSANA B. RAMOS, EMERITO B. RAMOS, JR., JOSEFA RAMOS DELA RAMA, HORACIO DELA RAMA, ANTONIO B. RAMOS, FILOMENA RAMOS LEDESMA, RODOLFO LEDESMA, VICTORIA RAMOS TANJUATCO, and TEOFILO TANJUATCO, respondents. Rene Diokno for petitioner. F.E. Evangelista & Glecerio T. Orsolino for respondent Central Bank of the Philippines. Feliciano C. Tumale, Pacifico T. Torres and Antonio B. Periquet for respondent Overseas Bank of Manila. Josefina G. Salonga for all other respondents. CONCEPCION, JR., J.: Petition for mandamus and prohibition, with preliminary injunction, that seeks the establishment of joint and solidary liability to the amount of Three Hundred Fifty Thousand Pesos, with interest, against respondent Central Bank of the Philippines and Overseas Bank of Manila and its stockholders, on the alleged failure of the Overseas Bank of Manila to return the time deposits made by petitioner and assigned to him, on the ground that respondent Central Bank failed in its duty to exercise strict supervision over respondent Overseas Bank of Manila to protect depositors and the general public. 1 Petitioner also prays that both respondent banks be ordered to execute the proper and necessary documents to constitute all properties fisted in Annex "7" of the Answer of respondent Central Bank of the Philippines in G.R. No. L-29352, entitled "Emerita M. Ramos, et al vs. Central Bank of the Philippines," into a trust fund in favor of petitioner and all other depositors of respondent Overseas Bank of Manila. It is also prayed that the respondents be prohibited permanently from honoring, implementing, or doing any act predicated upon the validity or efficacy of the deeds of mortgage, assignment. and/or conveyance or transfer of whatever nature of the properties listed in Annex "7" of the Answer of respondent Central Bank in G.R. No. 29352. 2 A sought for ex-parte preliminary injunction against both respondent banks was not given by this Court. Undisputed pertinent facts are: On October 13, 1966 and December 12, 1966, petitioner made a time deposit, for one year with 6% interest, of One Hundred Fifty Thousand Pesos (P150,000.00) with the respondent Overseas Bank of Manila. 3 Concepcion Maneja also made a time deposit, for one year with 6-% interest, on March 6, 1967, of Two Hundred Thousand Pesos (P200,000.00) with the same respondent Overseas Bank of Manila. 4 On August 31, 1968, Concepcion Maneja, married to Felixberto M. Serrano, assigned and conveyed to petitioner Manuel M. Serrano, her time deposit of P200,000.00 with respondent Overseas Bank of Manila. 5 Notwithstanding series of demands for encashment of the aforementioned time deposits from the respondent Overseas Bank of Manila, dating from December 6, 1967 up to March 4, 1968, not a single one of the time deposit certificates was honored by respondent Overseas Bank of Manila. 6 Respondent Central Bank admits that it is charged with the duty of administering the banking system of the Republic and it exercises supervision over all doing business in the Philippines, but denies the petitioner's allegation that the Central Bank has the duty to exercise a most rigid and stringent supervision of banks, implying that respondent Central Bank has to watch every move or activity of all banks, including respondent Overseas Bank of Manila. Respondent Central Bank claims that as of March 12, 1965, the Overseas Bank of Manila, while operating, was only on a limited degree of banking operations since the Monetary Board decided in its Resolution No. 322, dated March 12, 1965, to prohibit the Overseas Bank of Manila from making new loans and investments in view of its chronic reserve deficiencies against its deposit liabilities. This limited operation of respondent Overseas Bank of Manila continued up to 1968. 7 Respondent Central Bank also denied that it is guarantor of the permanent solvency of any banking institution as claimed by petitioner. It claims that neither the law nor sound banking supervision requires respondent Central Bank to advertise or represent to the public any remedial measures it may impose

upon chronic delinquent banks as such action may inevitably result to panic or bank "runs". In the years 1966-1967, there were no findings to declare the respondent Overseas Bank of Manila as insolvent. 8 Respondent Central Bank likewise denied that a constructive trust was created in favor of petitioner and his predecessor in interest Concepcion Maneja when their time deposits were made in 1966 and 1967 with the respondent Overseas Bank of Manila as during that time the latter was not an insolvent bank and its operation as a banking institution was being salvaged by the respondent Central Bank. 9 Respondent Central Bank avers no knowledge of petitioner's claim that the properties given by respondent Overseas Bank of Manila as additional collaterals to respondent Central Bank of the Philippines for the former's overdrafts and emergency loans were acquired through the use of depositors' money, including that of the petitioner and Concepcion Maneja. 10 In G.R. No. L-29362, entitled "Emerita M. Ramos, et al. vs. Central Bank of the Philippines," a case was filed by the petitioner Ramos, wherein respondent Overseas Bank of Manila sought to prevent respondent Central Bank from closing, declaring the former insolvent, and liquidating its assets. Petitioner Manuel Serrano in this case, filed on September 6, 1968, a motion to intervene in G.R. No. L29352, on the ground that Serrano had a real and legal interest as depositor of the Overseas Bank of Manila in the matter in litigation in that case. Respondent Central Bank in G.R. No. L-29352 opposed petitioner Manuel Serrano's motion to intervene in that case, on the ground that his claim as depositor of the Overseas Bank of Manila should properly be ventilated in the Court of First Instance, and if this Court were to allow Serrano to intervene as depositor in G.R. No. L-29352, thousands of other depositors would follow and thus cause an avalanche of cases in this Court. In the resolution dated October 4, 1968, this Court denied Serrano's, motion to intervene. The contents of said motion to intervene are substantially the same as those of the present petition. 11 This Court rendered decision in G.R. No. L-29352 on October 4, 1971, which became final and executory on March 3, 1972, favorable to the respondent Overseas Bank of Manila, with the dispositive portion to wit: WHEREFORE, the writs prayed for in the petition are hereby granted and respondent Central Bank's resolution Nos. 1263, 1290 and 1333 (that prohibit the Overseas Bank of Manila to participate in clearing, direct the suspension of its operation, and ordering the liquidation of said bank) are hereby annulled and set aside; and said respondent Central Bank of the Philippines is directed to comply with its obligations under the Voting Trust Agreement, and to desist from taking action in violation therefor. Costs against respondent Central Bank of the Philippines. 12 Because of the above decision, petitioner in this case filed a motion for judgment in this case, praying for a decision on the merits, adjudging respondent Central Bank jointly and severally liable with respondent Overseas Bank of Manila to the petitioner for the P350,000 time deposit made with the latter bank, with all interests due therein; and declaring all assets assigned or mortgaged by the respondents Overseas Bank of Manila and the Ramos groups in favor of the Central Bank as trust funds for the benefit of petitioner and other depositors. 13 By the very nature of the claims and causes of action against respondents, they in reality are recovery of time deposits plus interest from respondent Overseas Bank of Manila, and recovery of damages against respondent Central Bank for its alleged failure to strictly supervise the acts of the other respondent Bank and protect the interests of its depositors by virtue of the constructive trust created when respondent Central Bank required the other respondent to increase its collaterals for its overdrafts said emergency loans, said collaterals allegedly acquired through the use of depositors money. These claims shoud be ventilated in the Court of First Instance of proper jurisdiction as We already pointed out when this Court denied petitioner's motion to intervene in G.R. No. L-29352. Claims of these nature are not proper in actions for mandamus and prohibition as there is no shown clear abuse of discretion by the Central Bank in its exercise of supervision over the other respondent Overseas Bank of Manila, and if there was, petitioner here is not the proper party to raise that question, but rather the Overseas Bank of Manila, as it did in G.R. No. L-29352. Neither is there anything to prohibit in this case, since the questioned acts of the respondent Central Bank (the acts of dissolving and liquidating the Overseas Bank of Manila), which petitioner here intends to use as his basis for claims of damages against respondent Central Bank, had been accomplished a long time ago. Furthermore, both parties overlooked one fundamental principle in the nature of bank deposits when the petitioner claimed that there should be created a constructive trust in his favor when the respondent

Overseas Bank of Manila increased its collaterals in favor of respondent Central Bank for the former's overdrafts and emergency loans, since these collaterals were acquired by the use of depositors' money. Bank deposits are in the nature of irregular deposits. They are really loans because they earn interest. All kinds of bank deposits, whether fixed, savings, or current are to be treated as loans and are to be covered by the law on loans. 14 Current and savings deposit are loans to a bank because it can use the same. The petitioner here in making time deposits that earn interests with respondent Overseas Bank of Manila was in reality a creditor of the respondent Bank and not a depositor. The respondent Bank was in turn a debtor of petitioner. Failure of he respondent Bank to honor the time deposit is failure to pay s obligation as a debtor and not a breach of trust arising from depositary's failure to return the subject matter of the deposit WHEREFORE, the petition is dismissed for lack of merit, with costs against petitioner. SO ORDERED. Antonio, Abad Santos, JJ., concur. TEOFISTO GUINGONA, JR., ANTONIO I. MARTIN, and TERESITA SANTOS, petitioners, vs. THE CITY FISCAL OF MANILA, HON. JOSE B. FLAMINIANO, ASST. CITY FISCAL FELIZARDO N. LOTA and CLEMENT DAVID, respondents. MAKASIAR, Actg. C.J.:+.wph!1 This is a petition for prohibition and injunction with a prayer for the immediate issuance of restraining order and/or writ of preliminary injunction filed by petitioners on March 26, 1982. On March 31, 1982, by virtue of a court resolution issued by this Court on the same date, a temporary restraining order was duly issued ordering the respondents, their officers, agents, representatives and/or person or persons acting upon their (respondents') orders or in their place or stead to refrain from proceeding with the preliminary investigation in Case No. 8131938 of the Office of the City Fiscal of Manila (pp. 47-48, rec.). On January 24, 1983, private respondent Clement David filed a motion to lift restraining order which was denied in the resolution of this Court dated May 18, 1983. As can be gleaned from the above, the instant petition seeks to prohibit public respondents from proceeding with the preliminary investigation of I.S. No. 81-31938, in which petitioners were charged by private respondent Clement David, with estafa and violation of Central Bank Circular No. 364 and related regulations regarding foreign exchange transactions principally, on the ground of lack of jurisdiction in that the allegations of the charged, as well as the testimony of private respondent's principal witness and the evidence through said witness, showed that petitioners' obligation is civil in nature. For purposes of brevity, We hereby adopt the antecedent facts narrated by the Solicitor General in its Comment dated June 28,1982, as follows:t.hqw On December 23,1981, private respondent David filed I.S. No. 81-31938 in the Office of the City Fiscal of Manila, which case was assigned to respondent Lota for preliminary investigation (Petition, p. 8). In I.S. No. 81-31938, David charged petitioners (together with one Robert Marshall and the following directors of the Nation Savings and Loan Association, Inc., namely Homero Gonzales, Juan Merino, Flavio Macasaet, Victor Gomez, Jr., Perfecto Manalac, Jaime V. Paz, Paulino B. Dionisio, and one John Doe) with estafa and violation of Central Bank Circular No. 364 and related Central Bank regulations on foreign exchange transactions, allegedly committed as follows (Petition, Annex "A"):t.hqw "From March 20, 1979 to March, 1981, David invested with the Nation Savings and Loan Association, (hereinafter called NSLA) the sum of P1,145,546.20 on nine deposits, P13,531.94 on savings account deposits (jointly with his sister, Denise Kuhne), US$10,000.00 on time deposit, US$15,000.00 under a receipt and guarantee of payment and US$50,000.00 under a receipt dated June 8, 1980 (au jointly with Denise Kuhne), that David was induced into making the aforestated investments by Robert Marshall an Australian national who was allegedly a close associate of petitioner Guingona Jr., then NSLA President, petitioner Martin, then NSLA Executive Vice-President of NSLA and petitioner Santos, then NSLA General Manager; that on March 21, 1981 N LA was placed under receivership by the Central Bank, so that David filed claims therewith for his investments and those of his sister; that on July 22, 1981 David received a report from the Central Bank that only P305,821.92 of those investments were entered in the records of NSLA; that, therefore, the respondents in I.S. No. 81-31938 misappropriated the balance of the investments, at the same time violating Central Bank Circular No. 364 and related Central Bank

regulations on foreign exchange transactions; that after demands, petitioner Guingona Jr. paid only P200,000.00, thereby reducing the amounts misappropriated to P959,078.14 and US$75,000.00." Petitioners, Martin and Santos, filed a joint counter-affidavit (Petition, Annex' B') in which they stated the following.t.hqw "That Martin became President of NSLA in March 1978 (after the resignation of Guingona, Jr.) and served as such until October 30, 1980, while Santos was General Manager up to November 1980; that because NSLA was urgently in need of funds and at David's insistence, his investments were treated as specialaccounts with interest above the legal rate, an recorded in separate confidential documents only a portion of which were to be reported because he did not want the Australian government to tax his total earnings (nor) to know his total investments; that all transactions with David were recorded except the sum of US$15,000.00 which was a personal loan of Santos; that David's check for US$50,000.00 was cleared through Guingona, Jr.'s dollar account because NSLA did not have one, that a draft of US$30,000.00 was placed in the name of one Paz Roces because of a pending transaction with her; that the Philippine Deposit Insurance Corporation had already reimbursed David within the legal limits; that majority of the stockholders of NSLA had filed Special Proceedings No. 82-1695 in the Court of First Instance to contest its (NSLA's) closure; that after NSLA was placed under receivership, Martin executed a promissory note in David's favor and caused the transfer to him of a nine and on behalf (9 1/2) carat diamond ring with a net value of P510,000.00; and, that the liabilities of NSLA to David were civil in nature." Petitioner, Guingona, Jr., in his counter-affidavit (Petition, Annex' C') stated the following:t.hqw "That he had no hand whatsoever in the transactions between David and NSLA since he (Guingona Jr.) had resigned as NSLA president in March 1978, or prior to those transactions; that he assumed a portion o; the liabilities of NSLA to David because of the latter's insistence that he placed his investments with NSLA because of his faith in Guingona, Jr.; that in a Promissory Note dated June 17, 1981 (Petition, Annex "D") he (Guingona, Jr.) bound himself to pay David the sums of P668.307.01 and US$37,500.00 in stated installments; that he (Guingona, Jr.) secured payment of those amounts with second mortgages over two (2) parcels of land under a deed of Second Real Estate Mortgage (Petition, Annex "E") in which it was provided that the mortgage over one (1) parcel shall be cancelled upon payment of one-half of the obligation to David; that he (Guingona, Jr.) paid P200,000.00 and tendered another P300,000.00 which David refused to accept, hence, he (Guingona, Jr.) filed Civil Case No. Q-33865 in the Court of First Instance of Rizal at Quezon City, to effect the release of the mortgage over one (1) of the two parcels of land conveyed to David under second mortgages." At the inception of the preliminary investigation before respondent Lota, petitioners moved to dismiss the charges against them for lack of jurisdiction because David's claims allegedly comprised a purely civil obligation which was itself novated. Fiscal Lota denied the motion to dismiss (Petition, p. 8). But, after the presentation of David's principal witness, petitioners filed the instant petition because: (a) the production of the Promisory Notes, Banker's Acceptance, Certificates of Time Deposits and Savings Account allegedly showed that the transactions between David and NSLA were simple loans, i.e., civil obligations on the part of NSLA which were novated when Guingona, Jr. and Martin assumed them; and (b) David's principal witness allegedly testified that the duplicate originals of the aforesaid instruments of indebtedness were all on file with NSLA, contrary to David's claim that some of his investments were not record (Petition, pp. 8-9). Petitioners alleged that they did not exhaust available administrative remedies because to do so would be futile (Petition, p. 9) [pp. 153-157, rec.]. As correctly pointed out by the Solicitor General, the sole issue for resolution is whether public respondents acted without jurisdiction when they investigated the charges (estafa and violation of CB Circular No. 364 and related regulations regarding foreign exchange transactions) subject matter of I.S. No. 81-31938. There is merit in the contention of the petitioners that their liability is civil in nature and therefore, public respondents have no jurisdiction over the charge of estafa. A casual perusal of the December 23, 1981 affidavit. complaint filed in the Office of the City Fiscal of Manila by private respondent David against petitioners Teopisto Guingona, Jr., Antonio I. Martin and Teresita G. Santos, together with one Robert Marshall and the other directors of the Nation Savings and Loan Association, will show that from March 20, 1979 to March, 1981, private respondent David, together with his sister, Denise Kuhne, invested with the Nation Savings and Loan Association the sum of

P1,145,546.20 on time deposits covered by Bankers Acceptances and Certificates of Time Deposits and the sum of P13,531.94 on savings account deposits covered by passbook nos. 6-632 and 29-742, or a total of P1,159,078.14 (pp. 15-16, roc.). It appears further that private respondent David, together with his sister, made investments in the aforesaid bank in the amount of US$75,000.00 (p. 17, rec.). Moreover, the records reveal that when the aforesaid bank was placed under receivership on March 21, 1981, petitioners Guingona and Martin, upon the request of private respondent David, assumed the obligation of the bank to private respondent David by executing on June 17, 1981 a joint promissory note in favor of private respondent acknowledging an indebtedness of Pl,336,614.02 and US$75,000.00 (p. 80, rec.). This promissory note was based on the statement of account as of June 30, 1981 prepared by the private respondent (p. 81, rec.). The amount of indebtedness assumed appears to be bigger than the original claim because of the added interest and the inclusion of other deposits of private respondent's sister in the amount of P116,613.20. Thereafter, or on July 17, 1981, petitioners Guingona and Martin agreed to divide the said indebtedness, and petitioner Guingona executed another promissory note antedated to June 17, 1981 whereby he personally acknowledged an indebtedness of P668,307.01 (1/2 of P1,336,614.02) and US$37,500.00 (1/2 of US$75,000.00) in favor of private respondent (p. 25, rec.). The aforesaid promissory notes were executed as a result of deposits made by Clement David and Denise Kuhne with the Nation Savings and Loan Association. Furthermore, the various pleadings and documents filed by private respondent David, before this Court indisputably show that he has indeed invested his money on time and savings deposits with the Nation Savings and Loan Association. It must be pointed out that when private respondent David invested his money on nine. and savings deposits with the aforesaid bank, the contract that was perfected was a contract of simple loan or mutuum and not a contract of deposit. Thus, Article 1980 of the New Civil Code provides that:t.hqw Article 1980. Fixed, savings, and current deposits of-money in banks and similar institutions shall be governed by the provisions concerning simple loan. In the case of Central Bank of the Philippines vs. Morfe (63 SCRA 114,119 [1975], We said:t.hqw It should be noted that fixed, savings, and current deposits of money in banks and similar institutions are hat true deposits. are considered simple loans and, as such, are not preferred credits (Art. 1980 Civil Code; In re Liquidation of Mercantile Batik of China Tan Tiong Tick vs. American Apothecaries Co., 66 Phil 414; Pacific Coast Biscuit Co. vs. Chinese Grocers Association 65 Phil. 375; Fletcher American National Bank vs. Ang Chong UM 66 PWL 385; Pacific Commercial Co. vs. American Apothecaries Co., 65 PhiL 429; Gopoco Grocery vs. Pacific Coast Biscuit CO.,65 Phil. 443)." This Court also declared in the recent case of Serrano vs. Central Bank of the Philippines (96 SCRA 102 [1980]) that:t.hqw Bank deposits are in the nature of irregular deposits. They are really 'loans because they earn interest. All kinds of bank deposits, whether fixed, savings, or current are to be treated as loans and are to be covered by the law on loans (Art. 1980 Civil Code Gullas vs. Phil. National Bank, 62 Phil. 519). Current and saving deposits, are loans to a bank because it can use the same. The petitioner here in making time deposits that earn interests will respondent Overseas Bank of Manila was in reality a creditor of the respondent Bank and not a depositor. The respondent Bank was in turn a debtor of petitioner. Failure of the respondent Bank to honor the time deposit is failure to pay its obligation as a debtor and not a breach of trust arising from a depositary's failure to return the subject matter of the deposit (Emphasis supplied). Hence, the relationship between the private respondent and the Nation Savings and Loan Association is that of creditor and debtor; consequently, the ownership of the amount deposited was transmitted to the Bank upon the perfection of the contract and it can make use of the amount deposited for its banking operations, such as to pay interests on deposits and to pay withdrawals. While the Bank has the obligation to return the amount deposited, it has, however, no obligation to return or deliver the same money that was deposited. And, the failure of the Bank to return the amount deposited will not constitute estafa through misappropriation punishable under Article 315, par. l(b) of the Revised Penal Code, but it will only give rise to civil liability over which the public respondents have no- jurisdiction. WE have already laid down the rule that:t.hqw

In order that a person can be convicted under the above-quoted provision, it must be proven that he has the obligation to deliver or return the some money, goods or personal property that he receivedPetitioners had no such obligation to return the same money, i.e., the bills or coins, which they received from private respondents. This is so because as clearly as stated in criminal complaints, the related civil complaints and the supporting sworn statements, the sums of money that petitioners received were loans. The nature of simple loan is defined in Articles 1933 and 1953 of the Civil Code.t.hqw "Art. 1933. By the contract of loan, one of the parties delivers to another, either something not consumable so that the latter may use the same for a certain time- and return it, in which case the contract is called a commodatum; or money or other consumable thing, upon the condition that the same amount of the same kind and quality shall he paid in which case the contract is simply called a loan or mutuum. "Commodatum is essentially gratuitous. "Simple loan may be gratuitous or with a stipulation to pay interest. "In commodatum the bailor retains the ownership of the thing loaned while in simple loan, ownership passes to the borrower. "Art. 1953. A person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and quality." It can be readily noted from the above-quoted provisions that in simple loan (mutuum), as contrasted to commodatum the borrower acquires ownership of the money, goods or personal property borrowed Being the owner, the borrower can dispose of the thing borrowed (Article 248, Civil Code) and his act will not be considered misappropriation thereof' (Yam vs. Malik, 94 SCRA 30, 34 [1979]; Emphasis supplied). But even granting that the failure of the bank to pay the time and savings deposits of private respondent David would constitute a violation of paragraph 1(b) of Article 315 of the Revised Penal Code, nevertheless any incipient criminal liability was deemed avoided, because when the aforesaid bank was placed under receivership by the Central Bank, petitioners Guingona and Martin assumed the obligation of the bank to private respondent David, thereby resulting in the novation of the original contractual obligation arising from deposit into a contract of loan and converting the original trust relation between the bank and private respondent David into an ordinary debtor-creditor relation between the petitioners and private respondent. Consequently, the failure of the bank or petitioners Guingona and Martin to pay the deposits of private respondent would not constitute a breach of trust but would merely be a failure to pay the obligation as a debtor. Moreover, while it is true that novation does not extinguish criminal liability, it may however, prevent the rise of criminal liability as long as it occurs prior to the filing of the criminal information in court. Thus, in Gonzales vs. Serrano ( 25 SCRA 64, 69 [1968]) We held that:t.hqw As pointed out in People vs. Nery, novation prior to the filing of the criminal information as in the case at bar may convert the relation between the parties into an ordinary creditor-debtor relation, and place the complainant in estoppel to insist on the original transaction or "cast doubt on the true nature" thereof. Again, in the latest case of Ong vs. Court of Appeals (L-58476, 124 SCRA 578, 580-581 [1983] ), this Court reiterated the ruling in People vs. Nery ( 10 SCRA 244 [1964] ), declaring that:t.hqw The novation theory may perhaps apply prior to the filling of the criminal information in court by the state prosecutors because up to that time the original trust relation may be converted by the parties into an ordinary creditor-debtor situation, thereby placing the complainant in estoppel to insist on the original trust. But after the justice authorities have taken cognizance of the crime and instituted action in court, the offended party may no longer divest the prosecution of its power to exact the criminal liability, as distinguished from the civil. The crime being an offense against the state, only the latter can renounce it (People vs. Gervacio, 54 Off. Gaz. 2898; People vs. Velasco, 42 Phil. 76; U.S. vs. Montanes, 8 Phil. 620). It may be observed in this regard that novation is not one of the means recognized by the Penal Code whereby criminal liability can be extinguished; hence, the role of novation may only be to either prevent the rise of criminal habihty or to cast doubt on the true nature of the original basic transaction, whether or not it was such that its breach would not give rise to penal responsibility, as when money loaned is made to appear as a deposit, or other similar disguise is resorted to (cf. Abeto vs. People, 90 Phil. 581; U.S. vs. Villareal, 27 Phil. 481).

In the case at bar, there is no dispute that petitioners Guingona and Martin executed a promissory note on June 17, 1981 assuming the obligation of the bank to private respondent David; while the criminal complaint for estafa was filed on December 23, 1981 with the Office of the City Fiscal. Hence, it is clear that novation occurred long before the filing of the criminal complaint with the Office of the City Fiscal. Consequently, as aforestated, any incipient criminal liability would be avoided but there will still be a civil liability on the part of petitioners Guingona and Martin to pay the assumed obligation. Petitioners herein were likewise charged with violation of Section 3 of Central Bank Circular No. 364 and other related regulations regarding foreign exchange transactions by accepting foreign currency deposit in the amount of US$75,000.00 without authority from the Central Bank. They contend however, that the US dollars intended by respondent David for deposit were all converted into Philippine currency before acceptance and deposit into Nation Savings and Loan Association. Petitioners' contention is worthy of behelf for the following reasons: 1. It appears from the records that when respondent David was about to make a deposit of bank draft issued in his name in the amount of US$50,000.00 with the Nation Savings and Loan Association, the same had to be cleared first and converted into Philippine currency. Accordingly, the bank draft was endorsed by respondent David to petitioner Guingona, who in turn deposited it to his dollar account with the Security Bank and Trust Company. Petitioner Guingona merely accommodated the request of the Nation Savings and loan Association in order to clear the bank draft through his dollar account because the bank did not have a dollar account. Immediately after the bank draft was cleared, petitioner Guingona authorized Nation Savings and Loan Association to withdraw the same in order to be utilized by the bank for its operations. 2. It is safe to assume that the U.S. dollars were converted first into Philippine pesos before they were accepted and deposited in Nation Savings and Loan Association, because the bank is presumed to have followed the ordinary course of the business which is to accept deposits in Philippine currency only, and that the transaction was regular and fair, in the absence of a clear and convincing evidence to the contrary (see paragraphs p and q,Sec. 5, Rule 131, Rules of Court). 3. Respondent David has not denied the aforesaid contention of herein petitioners despite the fact that it was raised. in petitioners' reply filed on May 7, 1982 to private respondent's comment and in the July 27, 1982 reply to public respondents' comment and reiterated in petitioners' memorandum filed on October 30, 1982, thereby adding more support to the conclusion that the US$75,000.00 were really converted into Philippine currency before they were accepted and deposited into Nation Savings and Loan Association. Considering that this might adversely affect his case, respondent David should have promptly denied petitioners' allegation. In conclusion, considering that the liability of the petitioners is purely civil in nature and that there is no clear showing that they engaged in foreign exchange transactions, We hold that the public respondents acted without jurisdiction when they investigated the charges against the petitioners. Consequently, public respondents should be restrained from further proceeding with the criminal case for to allow the case to continue, even if the petitioners could have appealed to the Ministry of Justice, would work great injustice to petitioners and would render meaningless the proper administration of justice. While as a rule, the prosecution in a criminal offense cannot be the subject of prohibition and injunction, this court has recognized the resort to the extraordinary writs of prohibition and injunction in extreme cases, thus:t.hqw On the issue of whether a writ of injunction can restrain the proceedings in Criminal Case No. 3140, the general rule is that "ordinarily, criminal prosecution may not be blocked by court prohibition or injunction." Exceptions, however, are allowed in the following instances:t.hqw "1. for the orderly administration of justice; "2. to prevent the use of the strong arm of the law in an oppressive and vindictive manner; "3. to avoid multiplicity of actions; "4. to afford adequate protection to constitutional rights; "5. in proper cases, because the statute relied upon is unconstitutional or was held invalid" ( Primicias vs. Municipality of Urdaneta, Pangasinan, 93 SCRA 462, 469-470 [1979]; citing Ramos vs. Torres, 25 SCRA 557 [1968]; and Hernandez vs. Albano, 19 SCRA 95, 96 [1967]). Likewise, in Lopez vs. The City Judge, et al. ( 18 SCRA 616, 621-622 [1966]), We held that:t.hqw The writs of certiorari and prohibition, as extraordinary legal remedies, are in the ultimate analysis, intended to annul void proceedings; to prevent the unlawful and oppressive exercise of legal authority

and to provide for a fair and orderly administration of justice. Thus, in Yu Kong Eng vs. Trinidad, 47 Phil. 385, We took cognizance of a petition for certiorari and prohibition although the accused in the case could have appealed in due time from the order complained of, our action in the premises being based on the public welfare policy the advancement of public policy. In Dimayuga vs. Fajardo, 43 Phil. 304, We also admitted a petition to restrain the prosecution of certain chiropractors although, if convicted, they could have appealed. We gave due course to their petition for the orderly administration of justice and to avoid possible oppression by the strong arm of the law. And 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.1wph1.t INTEGRATED REALTY CORPORATION and RAUL L. SANTOS, petitioners, vs. PHILIPPINE NATIONAL BANK, OVERSEAS BANK OF MANILA and THE HON. COURT OF APPEALS,respondents. G.R. No. L-60907 June 28, 1989 OVERSEAS BANK OF MANILA, petitioner, vs. COURT OF APPEALS, INTEGRATED REALTY CORPORATION, and RAUL L. SANTOS, respondents. REGALADO, J.: In these petitions for review on certiorari, Integrated Realty Corporation and Raul Santos (G.R. No. 60705), and Overseas Bank of Manila (G.R. No. 60907) appeal from the decision of the Court of Appeals, 1 the decretal portion of which states: WHEREFORE, with the modification that appellee Overseas Bank of Manila is ordered to pay to the appellant Raul Santos the sum of P 700,000.00 due under the time deposit certificates Nos. 2308 and 2367 with 6 1/2 (sic) interest per annum from date of issue until fully paid, the appealed decision is affirmed in all other respects. In G.R. No. 60705, petitioners Integrated Realty Corporation (hereafter, IRC and Raul L. Santos (hereafter, Santos) seek the dismissal of the complaint filed by the Philippine National Bank (hereafter, PNB), or in the event that they be held liable thereunder, to revive and affirm that portion of the decision of the trial court ordering Overseas Bank of Manila (hereafter, OBM) to pay IRC and Santos whatever amounts the latter will pay to PNB, with interest from the date of payment. 2 On the other hand, in G.R. No. 60907, petitioner OBM challenges the decision of respondent court insofar as it holds OBM liable for interest on the time deposit with it of Santos corresponding to the period of its closure by order of the Central Bank. 3 In its assailed decision, the respondent Court of Appeals, quoting from the decision of the lower court, 4 narrated the antecedents of this case in this wise: The facts of this case are not seriously disputed by any of the parties. They are set forth in the decision of the trial court as follows: Under date 11 January 1967 defendant Raul L. Santos made a time deposit with defendant OBM in the amount of P 500,000.00. (Exhibit-10 OBM) and was issued a Certificate of Time Deposit No. 2308 (Exhibit 1 Santos, Exhibit D). Under date 6 February 1967 defendant Raul L. Santos also made a time deposit with defendant OBM in the amount of P 200,000.00 (Exhibit 11 OBM and was issued certificate of Time Deposit No. 2367 (Exhibit 2 Santos, Exhibit E). Under date 9 February 1967 defendant IRC thru its President-defendant Raul L. Santos, applied for a loan and/or credit line (Exhibit A) in the amount of P 700,000.00 with plaintiff bank. To secure the said loan, defendant Raul L. Santos executed on August 11, 1967 a Deed of Assignment (Exhibit C) of the two time deposits (Exhibits 1-Santos and 2 Santos, also Exhibits D and E) in favor of plaintiff. Defendant OBM gave its conformity to the assignment thru letter dated 11 August 1967 (Exhibit F). On the same date, defendant IRC thru its President Raul L. Santos, also executed a Deed of Conformity to Loan Conditions (Exhibit G). The defendant OBM after the due dates of the time deposit certificates, did not pay plaintiff PNB. Plaintiff demanded payment from defendants IRC and Raul L. Santos (Exhibit K) and from defendant

OBM (Exhibit L). Defendants IRC and Raul L. Santos replied that the obligation (loan) of defendant IRC was deemed paid with the irrevocable assignment of the time deposit certificates (Exhibits 5 Santos, 6 Santos and 7 Santos). On April 6, 1969 (sic), ** PNB filed a complaint to collect from IRC and Santos the loan of P 700,000.00 with interest as well as attomey's fees. It impleaded OBM as a defendant to compel it to redeem and pay to it Santos' time deposit certificates with interest, plus exemplary and corrective damages, attorney's fees, and cost. In their answer to the complaint, IRC and Santos alleged that PNB has no cause of action against them because their obligation to PNB was fully paid or extinguished upon the' irrevocable' assignment of the time deposit certificates, and that they are not answerable for the insolvency of OBM They filed a counterclaim for damages against PNB and a cross-claim against OBM alleging that OBM acted fraudulently in refusing to pay the time deposit certificates to PNB resulting in the filing of the suit against them by PNB, and that, therefore, OBM should pay them whatever amount they may be ordered by the court to pay PNB with interest. They also asked that OBM be ordered to pay them compensatory, moral, exemplary and corrective damages. In its answer to the complaint, OBM denied knowledge of the time deposit certificates because the alleged time deposit of Santos 'does not appear in its books of account. Whereupon, IRC and Santos, with leave of court, filed a third-party complaint against Emerito B. Ramos, Jr., president of OBM and Rodolfo R. Sunico, treasurer of said bank, who allegedly received the time deposits of Santos and issued the certificates therefor. Answering the third-party complaint, Ramos and Sunico alleged that IRC and Santos have no cause of action against them because they received and signed the time deposit certificates as officers of OBM that the time deposits are recorded in the subsidiary ledgers of the bank and are 'civil liabilities of the defendant OBM On November 18, 1970, OBM filed an amended or supplemental answer to the complaint, acknowledging the certificates of time deposit that it issued to Santos, and admitting its failure to pay the same due to its distressed financial situation. As affirmative defenses, it alleged that by reason of its state of insolvency its operations have been suspended by the Central Bank since August 1, 1968; that the time deposits ceased to earn interest from that date; that it may not give preference to any depositor or creditor; and that payment of the plaintiffs claim is prohibited. On January 30, 1976, the lower court rendered judgment for the plaintiff, the dispositive portion of which reads as foIlows WHEREFORE, judgment is hereby rendered, ordering: 1. The defendant Integrated Realty Corporation and Raul L. Santos to pay the plaintiff, jointly and solidarily, the total amount of P 700,000.00 plus interest at the rate of 9% per annum from maturity dates of the two promissory notes on January 11 and February 6, 1968, respectively (Exhibits M and I), plus 1-1/ 2% additional interest effective February 28, 1968 and additional penalty interest of 1% per annum of the Id amount of P 700,000.00 from the time of maturity of Id loan up to the time the said amount of P 700,000.00 is actually paid to the plaintiff; 2. The defendants topay l0% of the amount of P 700,000.00 as and for attorney's fees; 3. The defendant Overseas Bank of Manila to pay cross-plaintiffs Integrated Realty Corporation and Raul L. Santos whatever amounts the latter will pay to the plaintiff with interest from date of payment; 4. The defendant Overseas Bank of Manila to pay cross-plaintiffs Integrated Realty Corporation and Raul L. Santos the amount of P 10,000.00 as and for attorney's fees; 5. The third-party complaint and cross-claim dismissed; 6. The defendant Overseas Bank of Manila to pay the costs. SO ORDERED. 5 IRC Santos and OBM all appealed to the respondent Court of Appeals. As stated in limine, on March 16, 1982 respondent court promulgated its appealed decision, with a modification and the deletion of that portion of the judgment of the trial court ordering OBM to pay IRC and Santos whatever amounts they will pay to PNB with interest from the date of payment. Therein defendants-appellants, through separate petitions, have brought the said decision to this Court for review.

1. The first issue posed before us for resolution is whether the liability of IRC and Santos with PNB should be deemed to have been paid by virtue of the deed of assignment made by the former in favor of PNB, which reads: KNOW ALL MEN BY THESE PRESENTS; I, RAUL L. SANTOS, of legal age, Filipino, with residence and postal address at 661 Richmond St., Mandaluyong, Rizal for and in consideration of certain loans, overdrafts and other credit accommodations granted or those that may hereafter be granted to me/us by the PHILIPPINE NATIONAL BANK, have assigned, transferred and conveyed and by these presents, do hereby assign, transfer and convey by way of security unto said PHILIPPINE NATIONAL BANK its successors and assigns the following Certificates of Time Deposit issued by the OVERSEAS BANK OF MANILA, its CONFORMITY issued on August 11, 1967, hereto enclosed as Annex ' A', in favor of RAUL L. SANTOS and/or NORA S. SANTOS, in the aggregate sum of SEVEN HUNDRED THOUSAND PESOS ONLY (P 700,000.00), Philippine Currency, .... xxx xxx xxx It is also understood that the herein Assignor/s shall remain hable for any outstanding balance of his/their obligation if the Bank is unable to actually receive or collect the above assigned sums , monies or properties resulting from any agreements, orders or decisions of the court or for any other cause whatsoever. 6 xxx xxx xxx Respondent Court of Appeals did not consider the aforesaid assignment as payment, thus: The contention of IRC and Santos that the irrevocable assignment of the time deposit certificates to PNB constituted payment' of their obligation to the latter is not well taken. Where a certificate of deposit in a bank, payable at a future day, was handed over by a debtor to his creditor, it was not payment, unless there was an express agreement on the part of the creditor to receive it as such, and the question whether there was or was not such an agreement, was one of facts to be decided by the jury. (Downey vs. Hicks, 55 U.S. [14 How.] 240 L. Ed. 404; See also Michie, Vol. 5-B Banks and Banking, p. 200).7 We uphold respondent court on this score. In Lopez vs. Court of appeals, et al., 8 petitioner Benito Lopez obtained a loan for P 20,000.00 from the Prudential Bank and Trust Company. On the same day, he executed a promissory note in favor of the bank and, in addition, he executed a surety bond in which he, as principal, and Philippine American General Insurance Co., Inc. (Philamgen), as surety, bound themselves jointly and severally in favor of the bank for the payment of the loan. On the same occasion, Lopez also executed in favor of Philamgen an indemnity agreement whereby he agreed to indemnify the company against any damages which the latter may sustain in consequence of having become a surety upon the bond. At the same time, Lopez executed a deed of assignment of his shares of stock in the Baguio Military Institute, Inc. in favor of Philamgen. When Lopez' obligation matured without being settled, Philamgen caused the transfer of the shares of stocks to its name in order that it may sell the same and apply the proceeds thereof in payment of the loan to the bank. However, when no payment was still made by the principal debtor or surety, the bank filed a complaint which compelled Philamgen to pay the bank. Thereafter, Philamgen filed an action to recover the amount of the loan against Lopez. The trial court therein held that the obligation of Lopez was deemed paid when his shares of stocks were transferred in the name of Philamgen. On appeal, the Court of Appeals ruled that Lopez was still liable to Philamgen because, pending payment, Philamgen was merely holding the stock as security for the payment of Lopez' obligation. In upholding the finding therein of the Court of Appeals, We held that: Notwithstanding the express terms of the 'Stock Assignment Separate from Certificate', however, We hold and rule that the transaction should not be regarded as an absolute conveyance in view of the circumstances obtaining at the time of the execution thereof. It should be remembered that on June 2, 1959, the day Lopez obtained a loan of P 20,000.00 from Prudential Bank, Lopez executed a promissory note for P 20,000.00, plus interest at the rate of ten (10%) per cent per annum, in favor of said Bank. He likewise posted a surety bond to secure his full and faithful performance of his obligation under the promissory note with Philamgen as his surety. In return for the undertaking of Philamgen under the surety bond, Lopez executed on the same day not only an indemnity agreement but also a stock assignment. The indemnity agreement and stock assignment must be considered together as related transactions because in order to judge the intention of the contracting parties, their contemporaneous and

subsequent acts shall be principally considered. (Article 1371, New Civil Code). Thus, considering that the indemnity agreement connotes a continuing obligation of Lopez towards Philamgen while the stock assignment indicates a complete discharge of the same obligation, the existence of the indemnity agreement whereby Lopez had to pay a premium of P l,000.00 for a period of one year and agreed at all times to indemnify Philamgen of any and all kinds of losses which the latter might sustain by reason of it becoming a surety, is inconsistent with the theory of an absolute sale for and in consideration of the same undertaking of Philamgen. There would have been no necessity for the execution of the indemnity agreement if the stock assignment was really intended as an absolute conveyance. ... Along the same vein, in the case at bar it would not have been necessary on the part of IRC and Santos to execute promissory notes in favor of PNB if the assignment of the time deposits of Santos was really intended as an absolute conveyance. There are cogent reasons to conclude that the parties intended said deed of assignment to complement the promissory notes. In declaring that the deed of assignment did not operate as payment of the loan so as to extinguish the obligations of IRC and Santos with PNB, the trial court advanced several valid bases, to wit: a. It is clear from the Deed of Assignment that it was only by way of security; xxx xxx xxx b. The promissory notes (Exhibits H and I) were executed on August 16, 1967. If defendants IRC and Raul L. Santos, upon executing the Deed of Assignment on August 11, 1967 had already paid their loan of P 700,000.00 or otherwise extinguished the same, why were the promissory notes made on August 16, 1967 still executed by IRC and signed by Raul L. Santos as President? c. In the application for a credit line (Exhibit A),the time deposits were offered as collateral. 9 For all intents and purposes, the deed of assignment in this case is actually a pledge. Adverting again to the Court's pronouncements in Lopez, supra, we quote therefrom: The character of the transaction between the parties is to be determined by their intention, regardless of what language was used or what the form of the transfer was. If it was intended to secure the payment of money, it must be construed as a pledge; but if there was some other intention, it is not a pledge. However, even though a transfer, if regarded by itself, appears to have been absolute, its object and character might still be qualified and explained by a contemporaneous writing declaring it to have been a deposit of the property as collateral security. It has been said that a transfer of property by the debtor to a creditor, even if sufficient on its face to make an absolute conveyance, should be treated as a pledge if the debt continues in existence and is not discharged by the transfer, and that accordingly, the use of the terms ordinarily importing conveyance, of absolute ownership will not be given that effect in such a transaction if they are also commonly used in pledges and mortgages and therefore do not unqualifiedly indicate a transfer of absolute ownership, in the absence of clear and unambiguous language or other circumstances excluding an intent to pledge. 10 The facts and circumstances leading to the execution of the deed of assignment, as found by the court a quo and the respondent court, yield said conclusion that it is in fact a pledge. The deed of assignment has satisfied the requirements of a contract of pledge (1) that it be constituted to secure the fulfillment of a principal obligation; (2) that the pledgor be the absolute owner of the thing pledged; (3) that the persons constituting the pledge have the free disposal of their property, and in the absence thereof, that they be legally authorized for the purpose. 11 The further requirement that the thing pledged be placed in the possession of the creditor, or of a third person by common agreement 12 was complied with by the execution of the deed of assignment in favor of PNB. It must also be emphasized that Santos, as assignor, made an express undertaking that he would remain liable for any outstanding balance of his obligation should PNB be unable to actually receive or collect the assigned sums resulting from any agreements, orders or decisions of the court or for any other cause whatsoever. The term "for any cause whatsoever" is broad enough to include the situation involved in the present case. Under the foregoing circumstances and considerations, the unavoidable conclusion is that IRC and Santos should be held liable to PNB for the amount of the loan with the corresponding interest thereon. 2. We find nothing illegal in the interest of one and one-half percent (1-1/2%) imposed by PNB pursuant to the resolution of its Board which presumably was done in accordance with ordinary banking procedures. Not only did IRC and Santos fail to overcome the presumption of regularity of business transactions, but they are likewise estopped from questioning the validity thereof for the first time in

this petition. There is nothing in the records to show that they raised this issue during the trial by presenting countervailing evidence. What was merely touched upon during the proceedings in the court below was the alleged lack of notice to them of the board resolution, but not the veracity or validity thereof. 3. On the issue of whether OBM should be held liable for interests on the time deposits of IRC and Santos from the time it ceased operations until it resumed its business, the answer is in the negative. We have held in The Overseas Bank of Manila vs. Court of Appeals and Tony D. Tapia, 13 that: It is a matter of common knowledge, which We take judicial notice of, that what enables a bank to pay stipulated interest on money deposited with it is that thru the other aspects of its operation it is able to generate funds to cover the payment of such interest. Unless a bank can lend money, engage in international transactions, acquire foreclosed mortgaged properties or their proceeds and generally engage in other banking and financing activities from which it can derive income, it is inconceivable how it can carry on as a depository obligated to pay stipulated interest. Conventional wisdom dictated; this inexorable fair and just conclusion. And it can be said that all who deposit money in banks are aware of such a simple economic proposition petition. Consequently, it should be deemed read into every contract of deposit with a bank that the obligation to pay interest on the deposit ceases the moment the operation of the bank is completely suspended by the duly constituted authority, the Central Bank. We consider it of trivial consequence that the stoppage of the bank's operation by the Central Bank has been subsequently declared illegal by the Supreme Court, for before the Court's order, the bank had no alternative under the law than to obey the orders of the Central Bank. Whatever be the juridical significance of the subsequent action of the Supreme Court, the stubborn fact remained that the petitioner was totally crippled from then on from earning the income needed to meet its obligations to its depositors. If such a situation cannot, strictly speaking, be legally denominated as 'force majeure', as maintained by private respondent, We hold it is a matter of simple equity that it be treated as such. The Court further adjured that: Parenthetically, We may add for the guidance of those who might be concerned, and so that unnecessary litigations be avoided from further clogging the dockets of the courts, that in the light of the considerations expounded in the above opinion, the same formula that exempts petitioner from the payment of interest to its depositors during the whole period of factual stoppage of its operations by orders of the Central Bank, modified in effect by the decision as well as the approval of a formula of rehabilitation by this Court, should be, as a matter of consistency, applicable or followed in respect to all other obligations of petitioner which could not be paid during the period of its actual complete closure. We cannot accept the holding of the respondent Court of Appeals that the above-cited decisions apply only where the bank is in a state of liquidation. In the very case aforecited, this issue was likewise raised and We resolved: Thus, Our task is narrowed down to the resolution of the legal problem of whether or not, for purposes of the payment of the interest here in question, stoppage of the operations of a bank by a legal order of liquidation may be equated with actual cessation of the bank's operation, not different, factually speaking, in its effects, from legal liquidation the factual cessation having been ordered by the Central Bank. In the case of Chinese Grocer's Association, et al. vs. American Apothecaries, 65 Phil. 395, this Court held: As to the second assignment of error, this Court, in G.R. No. 43682, In re Liquidation of the Mercantile Bank of China, Tan Tiong Tick, claimant and appellant vs. American Apothecaries, C., et al., claimants and appellees, through Justice Imperial, held the following: 4. The court held that the appellant is not entitled to charge interest on the amounts of his claims, and this is the object of the second assignment of error, Upon this point a distinction must be made between the interest which the deposits should earn from their existence until the bank ceased to operate, and that which they may earn from the time the bank's operations were stopped until the date of payment of the deposits. As to the first-class, we hold that it should be paid because such interest has been earned in the ordinary course of the bank's businesses and before the latter has been declared in a state of liquidation. Moreover, the bank being authorized by law to make use of the deposits with the limitation stated, to invest the same in its business and other operations, it may be presumed that it bound itself to pay interest to the depositors as in fact it paid interest prior to the dates of the Id claims.

As to the interest which may be charged from the date the bank ceased to do business because it was declared in a state of liquidation, we hold that the said interest should not be paid. The Court of Appeals considered this ruling inapplicable to the instant case, precisely because, as contended by private respondent, the said Apothecaries case had in fact in contemplation a valid order of liquidation of the bank concerned, whereas here, the order of the Central Bank of August 13, 1968 completely forbidding herein petitioner to do business preparatory to its liquidation was first restrained and then nullified by this Supreme Court. In other words, as far as private respondent is concerned, it is the legal reason for cessation of operations, not the actual cessation thereof, that matters and is decisive insofar as his right to the continued payment of the interest on his deposit during the period of cessation is concerned. In the light of the peculiar circumstances of this particular case, We disagree. It is Our considered view, after mature deliberation, that it is utterly unfair to award private respondent his prayer for payment of interest on his deposit during the period that petitioner bank was not allowed by the Central Bank to operate. 4. Lastly, IRC and Santos claim that OBM should reimburse them for whatever amounts they may be adjudged to pay PNB by way of compensation for damages incurred, pursuant to Articles 1170 and 2201 of the Civil Code. It appears that as early as April, 1967, the financial situation of OBM had already caused mounting concern in the Central Bank. 14 On December 5, 1967, new directors and officers drafted from the Central Bank (CB) itself, the Philippine National Bank (PNB) and the Development Bank of the Philippines (DBP) were elected and installed and they took over the management and control of the Overseas Bank. 15 However, it was only on July 31, 1968 when OBM was excluded from clearing with the CB under Monetary Board Resolution No. 1263. Subsequently, on August 2, 1968, pursuant to Resolution No. 1290 of the CB OBM's operations were suspended. 16 These CB resolutions were eventually annulled and set aside by this Court on October 4, 1971 in the decision rendered in the herein cited case of Ramos. Thus, when PNB demanded from OBM payment of the amounts due on the two time deposits which matured on January 11, 1968 and February 6, 1968, respectively, there was as yet no obstacle to the faithful compliance by OBM of its liabilities thereunder. Consequently, for having incurred in delay in the performance of its obligation, OBM should be held liable for damages. 17 When respondent Santos invested his money in time deposits with OBM they entered into a contract of simple loan or mutuum, 18 not a contract of deposit. While it is true that under Article 1956 of the Civil Code no interest shall be due unless it has been expressly stipulated in writing, this applies only to interest for the use of money. It does not comprehend interest paid as damages. 19 OBM contends that it had agreed to pay interest only up to the dates of maturity of the certificates of time deposit and that respondent Santos is not entitled to interest after the maturity dates had expired, unless the contracts are renewed. This is true with respect to the stipulated interest, but the obligations consisting as they did in the payment of money, under Article 1108 of the Civil Code he has the right to recover damages resulting from the default of OBM and the measure of such damages is interest at the legal rate of six percent (6%) per annum on the amounts due and unpaid at the expiration of the periods respectively provided in the contracts. In fine, OBM is being required to pay such interest, not as interest income stipulated in the certificates of time deposit, but as damages for failure and delay in the payment of its obligations which thereby compelled IRC and Santos to resort to the courts. The applicable rule is that legal interest, in the nature of damages for non-compliance with an obligation to pay a sum of money, is recoverable from the date judicial or extra-judicial demand is made, 20 Which latter mode of demand was made by PNB, after the maturity of the certificates of time deposit, on March 1, 1968. 21 The measure of such damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon in the certificates of deposit 22 Which is six and onehalf percent (61/2%). Such interest due or accrued shall further earn legal interest from the time of judicial demand. 23 We reject the proposition of IRC and Santos that OBM should reimburse them the entire amount they may be adjudged to pay PNB. It must be noted that their liability to pay the various interests of nine percent (9%) on the principal obligation, one and one-half percent (1-1/2%) additional interest and one percent (1%) penalty interest is an offshoot of their failure to pay under the terms of the two promissory notes executed in favor of PNB. OBM was never a party to Id promissory notes. There is, therefore, no privity of contract between OBM and PNB which will justify the imposition of the aforesaid interests

upon OBM whose liability should be strictly confined to and within the provisions of the certificates of time deposit involved in this case. In fact, as noted by respondent court, when OBM assigned as error that portion of the judgment of the court a quo requiring OBM to make the disputed reimbursement, IRC and Santos did not dispute that objection of OBM Besides, IRC and Santos are not without fault. They likewise acted in bad faith when they refuse to comply with their obligations under the promissory notes, thus incurring liability for all damages reasonably attributable to the non-payment of said obligations. 24 WHEREFORE, judgment is hereby rendered, ordering: 1. Integrated Realty Corporation and Raul L. Santos to pay Philippine National Bank, jointly and severally, the total amount of seven hundred thousand pesos (P 700,000.00), with interest thereon at the rate of nine percent (9%) per annum from the maturity dates of the two promissory notes on January 11 and February 6, 1968, respectively, plus one and one-half percent (1-1/2%) additional interest per annum effective February 28, 1968 and additional penalty interest of one percent (1%) per annum of the said amount of seven hundred thousand pesos (P 700,000.00) from the time of maturity of said loan up to the time the said amount of seven hundred thousand pesos (P 700,000.00) is fully paid to Philippine National Bank. 2. Integrated Realty Corporation and Raul L. Santos to pay solidarily Philippine National Bank ten percent (10%) of the amount of seven hundred thousand pesos (P 700,000.00) as and for attorney's fees. 3. Overseas Bank of Manila to pay Integrated Realty Corporation and Raul L. Santos the sum of seven hundred thousand pesos (P 700,000.00) due under Time Deposit Certificates Nos. 2308 and 2367, with interest thereon of six and one-half percent (6-1/2%) per annum from their dates of issue on January 11, 1967 and February 6, 1967, respectively, until the same are fully paid, except that no interest shall be paid during the entire period of actual cessation of operations by Overseas Bank of Manila; 4. Overseas Bank of Manila to pay Integrated Realty Corporation and Raul L. Santos six and one-half per cent (6-1/2%) interest in the concept of damages on the principal amounts of said certificates of time deposit from the date of extrajudicial demand by PNB on March 1, 1968, plus legal interest of six percent (6%) on said interest from April 6, 1968, until fifth payment thereof, except during the entire period of actual cessation of operations of said bank. 5. Overseas Bank of Manila to pay Integrated Realty Corporation and Raul L. Santos ten thousand pesos (P l0,000.00) as and for attorney's fees. SO ORDERED. Melencio-Herrera, (Chairperson), Paras, Padilla and Sarmiento, JJ., concur. FIDELITY SAVINGS AND MORTGAGE BANK, petitioner, vs. HON. PEDRO D. CENZON, in his capacity as Presiding Judge of the Court of First Instance of Manila (Branch XL) and SPOUSES TIMOTEO AND OLIMPIA SANTIAGO, respondents. The instant petition seeks the review, on pure questions of law, of the decision rendered by the Court of First Instance of Manila (now Regional Trial Court), Branch XL, on December 3, 1976 in Civil Case No. 84800, 1ordering herein petitioner to pay private respondents the following amounts: (a) P90,000.00 with accrued interest in accordance with Exhibits A and B until fully paid; (b) P30,000,00 as exemplary damages; and (c) P10,000.00 as and for attorney's fees. The payment by the defendant Fidelity Savings and Mortgage Bank of the aforementioned sums of money shall be subject to the Bank Liquidation Rules and Regulations embodied in the Order of the Court of First Instance of Manila, Branch XIII, dated October 3, 1972, Civil Case No. 86005, entitled, "IN RE: Liquidation of the Fidelity Savings Bank versus Central Bank of the Philippines, Liquidator." With costs against the defendant Fidelity Savings and Mortgage Bank. SO ORDERED. Private respondents instituted this present action for a sum of money with damages against Fidelity Savings and Mortgage Bank, Central Bank of the Philippines, Eusebio Lopez, Jr., Arsenio M. Lopez, Sr., Arsenio S. Lopez, Jr., Bibiana E. Lacuna, Jose C. Morales, Leon P. Cusi, Pilar Y. Pobre-Cusi and Ernani A. Pacana. On motion of herein private respondents, as plaintiffs, the amended complaint was dismissed without prejudice against defendants Jose C. Morales, Leon P. Cusi, Pilar Y. Pobre-Cusi and Ernani A. Pacana. 2 In its aforesaid decision of December 3, 1976, the court a quo dismissed the complaint as

against defendants Central Bank of the Philippines, Eusebio Lopez, Jr., Arsenio S. Lopez, Jr., Arsenio M. Lopez, Sr. and Bibiana S. Lacuna. Back on August 10, 1973, the plaintiffs (herein private respondents) and the defendants Fidelity Savings and Mortgage Bank (petitioner herein), Central Bank of the Philippines and Bibiana E. Lacuna had filed in said case in the lower court a partial stipulation of facts, as follows: COME NOW herein plaintiffs, SPOUSES TIMOTEO M. SANTIAGO and OLIMPIA R. SANTIAGO, herein defendants FIDELITY SAVINGS AND MORTGAGE BANK and the CENTRAL BANK OF THE PHILIPPINES, and herein defendant BIBIANA E. LACUNA, through their respective undersigned counsel, and before this Honorable Court most respectfully submit the following Partial Stipulation of Facts: 1. That herein plaintiffs are husband and wife, both of legal age, and presently residing at No. 480 C. de la Paz Street, Sta. Elena, Marikina, Rizal; 2. That herein defendant Fidelity Savings and Mortgage Bank is a corporation duly organized and existing under and by virtue of the laws of the Philippines; that defendant Central Bank of the Philippines is a corporation duly organized and existing under and by virtue of the laws of the Philippines; 3. That herein defendant Bibiana E. Lacuna is of legal age and a resident of No. 42 East Lawin Street, Philamlife Homes, Quezon City, said defendant was an assistant Vice-President of the defendant fidelity Savings and Mortgage Bank, 4. That sometime on May 16, 1968, here in plaintiffs deposited with the defendant Fidelity Savings Bank the amount of FIFTY THOUSAND PESOS (P50,000.00) under Savings Account No. 16-0536; that likewise, sometime on July 6, 1968, herein plaintiff,- deposited with the defendant Fidelity Savings and Mortgage Bank the amount of FIFTY THOUSAND PESOS (P50,000.00) under Certificate of Time Deposit No. 0210; that the aggregate amount of deposits of the plaintiffs with the defendant Fidelity Savings and Mortgage Bank is ONE HUNDRED THOUSAND PESOS (P100,000.00); 5. That on February 18, 1969, the Monetary Board, after finding the report of the Superintendent of Banks, that the condition of the defendant Fidelity Savings and Mortgage Bank is one of insolvency, to be true, issued Resolution No. 350 deciding, among others, as follows: 1) To forbid the Fidelity Savings Bank to do business in the Philippines; 2) To instruct the Acting Superintendent of Banks to take charge, in the name of the Monetary Board, of the Bank's assets 6. That pursuant to the above-cited instructions of the Monetary Board, the Superintendent of Banks took charge in the name of the Monetary Board, of the assets of defendant Fidelity Savings Bank on February 19, 1969; and that since that date up to this date, the Superintendent of Banks (now designated as Director, Department of Commercial and Savings Banks) has been taking charge of the assets of defendant Fidelity Savings and Mortgage Bank; 7. That sometime on October 10, 1969 the Philippine Deposit Insurance Corporation paid the plaintiffs the amount of TEN THOUSAND PESOS (P10,000.00) on the aggregate deposits of P100,000.00 pursuant to Republic Act No. 5517, thereby leaving a deposit balance of P90,000.00; 8. That on December 9, 1969, the Monetary Board issued its Resolution No. 2124 directing the liquidation of the affairs of defendant Fidelity Savings Bank; 9. That on January 25, 1972, the Solicitor General of the Philippines filed a "Petition for Assistance and Supervision in Liquidation" of the affairs of the defendant Fidelity Savings and Mortgage Bank with the Court of First Instance of Manila, assigned to Branch XIII and docketed as Civil Case No. 86005; 10. That on October 3, 1972, the Liquidation Court promulgated the Bank Rules and Regulations to govern the liquidation of the affairs of defendant Fidelity Savings and Mortgage Bank, prescribing the rules on the conversion of the Bank's assets into money, processing of claims against it and the manner and time of distributing the proceeds from the assets of the Bank; 11. That the liquidation proceedings has not been terminated and is still pending up to the present; 12. That herein plaintiffs, through their counsel, sent demand letters to herein defendants, demanding the immediate payment of the aforementioned savings and time deposits. WHEREFORE, it is respectfully prayed that the foregoing Partial Stipulation of Facts be approved by this Honorable Court, without prejudice to the presentation of additional documentary or testimonial evidence by herein parties. Manila, Philippines, August 10, 1973. 3 Assigning error in the judgment of the lower court quoted ab antecedents, petitioner raises two questions of law, to wit:

1. Whether or not an insolvent bank like the Fidelity Savings and Mortgage Bank may be adjudged to pay interest on unpaid deposits even after its closure by the Central Bank by reason of insolvency without violating the provisions of the Civil Code on preference of credits; and 2. Whether or not an insolvent bank like the Fidelity Savings and Mortgage Bank may be adjudged to pay moral and exemplary damages, attorney's fees and costs when the insolvency is caused b the anomalous real estate transactions without violating the provisions of the Civil Code on preference of credits. There is merit in the petition. It is settled jurisprudence that a banking institution which has been declared insolvent and subsequently ordered closed by the Central Bank of the Philippines cannot be held liable to pay interest on bank deposits which accrued during the period when the bank is actually closed and non-operational. In The Overseas Bank of Manila vs. Court of Appeals and Tony D. Tapia, 4 we held that: It is a matter of common knowledge, which We take judicial notice of, that what enables a bank to pay stipulated interest on money deposited with it is that thru the other aspects of its operation it is able to generate funds to cover the payment of such interest. Unless a bank can lend money, engage in international transactions, acquire foreclosed mortgaged properties or their proceeds and generally engage in other banking and financing activities from which it can derive income, it is inconceivable how it can carry on as a depository obligated to pay stipulated interest. Conventional wisdom dictates this inexorable fair and just conclusion. And it can be said that all who deposit money in banks are aware of such a simple economic proposition. Consequently, it should be deemed read into every contract of deposit with a bank that the obligation to pay interest on the deposit ceases the moment the operation of the bank is completely suspended by the duly constituted authority, the Central Bank. This was reiterated in the subsequent case of The Overseas Bank of Manila vs. The Hon. Court of Appeals and Julian R. Cordero. 5 and in the recent cases of Integrated Realty Corporation, et al. vs. Philippine National Bank, et al. and the Overseas Bank of Manila vs. Court of appeals, et al. 6 From the aforecited authorities, it is manifest that petitioner cannot be held liable for interest on bank deposits which accrued from the time it was prohibited by the Central Bank to continue with its banking operations, that is, when Resolution No. 350 to that effect was issued on February 18, 1969. The order, therefore, of the Central Bank as receiver/liquidator of petitioner bank allowing the claims of depositors and creditors to earn interest up to the date of its closure on February 18, 1969, 7 in line with the doctrine laid down in the jurisprudence above cited. Although petitioner's formulation of the second issue that it poses is slightly inaccurate and defective, we likewise find the awards of moral and exemplary damages and attorney's fees to be erroneous. The trial court found, and it is not disputed, that there was no fraud or bad faith on the part of petitioner bank and the other defendants in accepting the deposits of private respondents. Petitioner bank could not even be faulted in not immediately returning the amount claimed by private respondents considering that the demand to pay was made and Civil Case No. 84800 was filed in the trial court several months after the Central Bank had ordered petitioner's closure. By that time, petitioner bank was no longer in a position to comply with its obligations to its creditors, including herein private respondents. Even the trial court had to admit that petitioner bank failed to pay private respondents because it was already insolvent. 8 Further, this case is not one of the specified or analogous cases wherein moral damages may be recovered. 9 There is no valid basis for the award of exemplary damages which is supposed to serve as a warning to other banks from dissipating their assets in anomalous transactions. It was not proven by private respondents, and neither was there a categorical finding made by the trial court, that petitioner bank actually engaged in anomalous real estate transactions. The same were raised only during the testimony of the bank examiner of the Central Bank, 10 but no documentary evidence was ever presented in support thereof. Hence, it was error for the lower court to impose exemplary damages upon petitioner bank since, in contracts, such sanction requires that the offending party acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. 11 Neither does this case present the situation where attorney's fees may be awarded. 12 In the absence of fraud, bad faith, malice or wanton attitude, petitioner bank may, therefore, not be held responsible for damages which may be reasonably attributed to the non-performance of the obligation. 13Consequently, we reiterate that under the premises and pursuant to the aforementioned provisions of law, it is apparent that private respondents are not justifiably entitled to the payment of moral and exemplary damages and attorney's fees.

While we tend to agree with petitioner bank that private respondents' claims should he been filed in the liquidation proceedings in Civil Case No. 86005, entitled "In Re: Liquidation of the Fidelity Savings and Mortgage Bank," pending before Branch XIII of the then Court of First Instance of Manila, we do not believe that the decision rendered in the instant case would be violative of the legal provisions on preference and concurrence of credits. As the trial court puts it: . . . But this order of payment should not be understood as raising these deposits to the category of preferred credits of the defendant Fidelity Savings and Mortgage Bank but shall be paid in accordance with the Bank Liquidation Rules and Regulations embodied in the Order of the. Court of First Instance of Manila, Branch XIII dated October 3, 1972 (Exh. 3). . . . 14 WHEREFORE, the judgment appealed from is hereby MODIFIED. Petitioner Fidelity Savings and Mortgage Bank is hereby declared liable to pay private respondents Timoteo and Olimpia Santiago the sum of P90,000.00, with accrued interest in accordance with the terms of Savings Account Deposit No. 16-0536 (Exhibit A) and Certificate of Time Deposit No. 0210 (Exhibit B) until February 18, 1969. The awards for moral and exemplary damages, and attorney's fees are hereby DELETED. No costs. SO ORDERED.