G.R. No.

L-6913

November 21, 1913

THE ROMAN CATHOLIC BISHOP OF JARO, plaintiff-appellee, vs. GREGORIO DE LA PEÑA, administrator of the estate of Father Agustin de la Peña, defendantappellant. J. Lopez Vito, for appellant. Arroyo and Horrilleno, for appellee.

MORELAND, J.: This is an appeal by the defendant from a judgment of the Court of First Instance of Iloilo, awarding to the plaintiff the sum of P6,641, with interest at the legal rate from the beginning of the action. It is established in this case that the plaintiff is the trustee of a charitable bequest made for the construction of a leper hospital and that father Agustin de la Peña was the duly authorized representative of the plaintiff to receive the legacy. The defendant is the administrator of the estate of Father De la Peña. In the year 1898 the books Father De la Peña, 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 Peña 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 Peña 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 Peña'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 Peña 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 Peña 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 Peña 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.

G.R. No. 90027 March 3, 1993 CA AGRO-INDUSTRIAL DEVELOPMENT CORP., petitioner, vs. THE HONORABLE COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents. Dolorfino & Dominguez Law Offices for petitioner. Danilo B. Banares for private respondent.

DAVIDE, JR., J.:
Is the contractual relation between a commercial bank and another party in a contract of rent of a safety deposit box with respect to its contents placed by the latter one of bailor and bailee or one of lessor and lessee? This is the crux of the present controversy. On 3 July 1979, petitioner (through its President, Sergio Aguirre) and the spouses Ramon and Paula Pugao entered into an agreement whereby the former purchased from the latter two (2) parcels of land for a consideration of P350,625.00. Of this amount, P75,725.00 was paid as downpayment while the balance was covered by three (3) postdated checks. Among the terms and conditions of the agreement embodied in a Memorandum of True and Actual Agreement of Sale of Land were that the titles to the lots shall be transferred to the petitioner upon full payment of the purchase price and that the owner's copies of the certificates of titles thereto, Transfer Certificates of Title (TCT) Nos. 284655 and 292434, shall be deposited in a safety deposit box of any bank. The same could be withdrawn only upon the joint signatures of a representative of the petitioner and the Pugaos upon full payment of the purchase price. Petitioner, through Sergio Aguirre, and the Pugaos then rented Safety Deposit Box No. 1448 of private respondent Security Bank and Trust Company, a domestic banking corporation hereinafter referred to as the respondent Bank. For this purpose, both signed a contract of lease (Exhibit "2") which contains, inter alia, the following conditions: 13. The bank is not a depositary of the contents of the safe and it has neither the possession nor control of the same.

14. The bank has no interest whatsoever in said contents, except herein expressly provided, and it assumes absolutely no liability in connection therewith. 1
After the execution of the contract, two (2) renter's keys were given to the renters — one to Aguirre (for the petitioner) and the other to the Pugaos. A guard key remained in the possession of the respondent Bank. The safety deposit box has two (2) keyholes, one for the guard key and the other for the renter's key, and can be opened only with the use of both keys. Petitioner claims that the certificates of title were placed inside the said box.

Thereafter, a certain Mrs. Margarita Ramos offered to buy from the petitioner the two (2) lots at a price of P225.00 per square meter which, as petitioner alleged in its complaint, translates to a profit of P100.00 per square meter or a total of P280,500.00 for the entire property. Mrs. Ramos demanded the execution of a deed of sale which necessarily entailed the production of the certificates of title. In view thereof, Aguirre, accompanied by the Pugaos, then proceeded to the respondent Bank on 4 October 1979 to open the safety deposit box and get the certificates of title. However, when opened in the presence of the Bank's representative, the box yielded no such certificates. Because of the delay in the reconstitution of the title, Mrs. Ramos withdrew her earlier offer to purchase the lots; as a consequence thereof, the petitioner allegedly failed to realize the expected profit of P280,500.00. Hence, the latter filed on 1 September 1980 a complaint 2for 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.

15 petitioner took this recourse under Rule 45 of the Rules of Court and urges Us to review and set aside the respondent Court's ruling. in such a case. to the depositor. the defendant-appellee is not under any duty to maintain the contents of the box. however. The Bank shall use due diligence that no unauthorized person shall be admitted to any rented safe and beyond this. shall be governed by the provisions of Title I of this Book. 1972. In a nutshell. a delivery of exclusive possession and control to the deposit company. as expressly provided for in stipulation number 8 of the contract in question: 8. and the depositor cannot gain access thereto without the consent and active participation of the company. the character or description of the property which is deposited in such safe-deposit box or safe does not change that relation. it should reasonably be considered as in the latter rather than in the former. (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. the Bank will not be responsible for the contents of any safe rented from it. since the company is. and that it is not expected that it shall know. 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. or is a departure from precedents adhered to and affirmed by decisions of this Court and precepts in American jurisprudence adopted in the Philippines. The argument that there is not. this fact shall be taken into account in determining the degree of care that the depositary must observe. or to his heirs and successors. . the relation of bailee and bail or is created between the parties to the transaction as to such securities or other valuables."12 The appellate court was quick to add. and that therefore the situation is entirely different from that of ordinary bailment. Petitioner then quotes a passage from American Jurisprudence 17 which is supposed to expound on the prevailing rule in the United States.and then concluded that "[c]learly. (citations omitted). The depositary is obliged to keep the thing safely and to return it. 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. petitioner maintains that regardless of nomenclature. 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. Thus. 16 Accordingly. usually on the ground that as possession must be either in the depositor or in the company. with regard to the safekeeping and the loss of the thing. by the nature of the contract. His responsibility. 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. or to the person who may have been designated in the contract. 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. the contract for the rent of the safety deposit box (Exhibit "2") is actually a contract of deposit governed by Title XII. . . given absolute control of access to the property. It reiterates the arguments it had raised in its motion to reconsider the trial court's decision. If the deposit is gratuitous. . the brief submitted to the respondent Court and the motion to reconsider the latter's decision. 13 Its motion for reconsideration 14 having been denied in the respondent Court's Resolution of 28 August 1989. that under the contract of lease of the safety deposit box. Book IV of the Civil Code of the Philippines. the fact that the safe-deposit company does not know. has been generally rejected by the courts. 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. Petitioner avers that both the respondent Court and the trial court (a) did not properly and legally apply the correct law in this case. when required.

that the deposit theory itself does not altogether find unanimous support even in American jurisprudence. 19 the contract in the case at bar is a special kind of deposit. it cites Article 1306 of the Civil Code which provides that parties to a contract may establish such stipulations. The petition is partly meritorious. 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. 21 This is just the prevailing view because: There is. morals. the first paragraph of such provision cannot apply to a depositary of certificates. Obviously. some support for the view that the relationship in question might be more properly characterized as that of landlord and tenant. On the other hand. bonds. clauses. good customs. this Court gave due course to the petition and required the parties to simultaneously submit their respective Memoranda. banking institutions other than building and loan associations may perform the following services: (a) Receive in custody funds. without this key. be invoked as an argument against the deposit theory. and rent safety deposit boxes for the safeguarding of such effects. 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. After the respondent Bank filed its comment. and valuable objects. We observe. 72. xxx xxx xxx . safe-deposit company. Neither could Article 1975. also relied upon by the respondent Court. 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 bailment being for hire and mutual benefit. Section 72 of the General Banking Act 23 pertinently provides: Sec. however. terms and conditions as they may deem convenient. 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. 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. In this case. documents. oral or written. the authorities cited by the respondent Court 20 on this point do not apply. In support thereof. We agree with the petitioner that under the latter. It is clear that the depositary cannot open the box without the renter being present. or storage company. public order or public policy. However. It has also been suggested that it should be characterized as that of licensor and licensee. the respondent Bank could not likewise open the box without the renter's key. 22 (citations omitted) In the context of our laws which authorize banking institutions to rent out safety deposit boxes. is often described as contractual. or lessor and lessee. the said key had a duplicate which was made so that both renters could have access to the box. neither of the renters could open the box.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. The relation between a bank. securities or instruments which earn interest if such documents are kept in a rented safety deposit box. Hence. provided they are not contrary to law. it is clear that in this jurisdiction. The guard key of the box remained with the respondent Bank. the prevailing rule in the United States has been adopted. express or implied. and the renter of a safe-deposit box therein. In addition to the operations specifically authorized elsewhere in this Act. in whole or in part.

14. the parties. moreover. the respondent Bank keeps the guard key to the said box. and if a provision of the contract may be construed as an attempt to do so. in order to vary the ordinary obligations implied by law from the relationship of the parties. terms and conditions as they may deem convenient. said provisions are inconsistent with the respondent Bank's responsibility as a depositary under Section 72(a) of the General Banking Act. The company. It is not correct to assert that the Bank has neither the possession nor control of the contents of the box since in fact. 26 In the absence of any stipulation prescribing the degree of diligence required. Clearly then. i. It has been said: With respect to property deposited in a safe-deposit box by a customer of a safe-deposit company. provided such contract is not in violation of law or public policy. public order or public policy. We find Ourselves in agreement with this proposition for indeed. documents and other valuable objects for safekeeping. . The renting out of the safety deposit boxes is not independent from. 29 Furthermore. but related to or in conjunction with. The Bank shall use due diligence that no unauthorized person shall be admitted to any rented safe and beyond this. . morals.e. liability of the deposit company will not be enlarged or restricted by words of doubtful meaning. cannot exempt itself from liability for loss of the contents by its own fraud or negligence or that of its agents or servants. Book IV of the Civil Code.. good customs. the receiving in custody of funds.The banks shall perform the services permitted under subsections (a). 24 (emphasis supplied) Note that the primary function is still found within the parameters of a contract of deposit. condition 13 stands on a wrong premise and is contrary to the actual practice of the Bank. Accordingly. the depositary would be liable if. Although it has been held that the lessor of a safe-deposit box cannot limit its liability for loss of the . In the instant case. The bank is not a depositary of the contents of the safe and it has neither the possession nor control of the same. to the extent above stated. since the relation is a contractual one. 28 are void as they are contrary to law and public policy. The bank has no interest whatsoever in said contents. however. 27 Hence. the foregoing conditions in the contract in question are void and ineffective. in renting safe-deposit boxes. . it will be held ineffective for the purpose. renters cannot open their respective boxes unless the Bank cooperates by presenting and using this guard key. It must clearly appear that there actually was such a special contract. provided they are not contrary to law. except herein expressly provided. it is found guilty of fraud. pursuant to Article 1306 of the Civil Code. the Bank will not be responsible for the contents of any safe rented from it. this principal function. clauses. A contract of deposit may be entered into orally or in writing 25 and. in performing its obligation. that of a good father of a family is to be observed. negligence. the parties thereto may establish such stipulations. any stipulation exempting the depositary from any liability arising from the loss of the thing deposited on account of fraud. delay or contravention of the tenor of the agreement. may by special contract define their respective duties or provide for increasing or limiting the liability of the deposit company. to wit: 8. 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. and it assumes absolutely no liability in connection therewith. (b) and (c) of this section asdepositories or as agents. negligence or delay would be void for being contrary to law and public policy. which read: 13. petitioner maintains that conditions 13 and 14 of the questioned contract of lease of the safety deposit box. the safety deposit box itself is located in its premises and is under its absolute control. The depositary's responsibility for the safekeeping of the objects deposited in the case at bar is governed by Title I. As stated earlier.

the respondent Bank's exoneration cannot. the Decision (dispositive portion) of public respondent Court of Appeals must be modified. contrary to the holding of the Court of Appeals. 15150. Since both the petitioner and the Pugaos agreed that each should have one (1) renter's key.R. that the petition should be dismissed. it was obvious that either of them could ask the Bank for access to the safety deposit box and. 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. however. without the other renter being present. SO ORDERED. we reach the same conclusion which the Court of Appeals arrived at. be based on or proceed from a characterization of the impugned contract as a contract of lease. could open the said box. As modified. Since. the dispositive portion of the said Decision is hereby AFFIRMED and the instant Petition for Review is otherwise DENIED for lack of merit. 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. with the use of such key and the Bank's own guard key. No pronouncement as to costs. the view has been taken that such a lessor may limits its liability to some extent by agreement or stipulation. CV No. the trial court erred in condemning the petitioner to pay the respondent Bank attorney's fees. 30 (citations omitted) Thus. but on grounds quite different from those relied upon by the Court of Appeals. In the instant case. 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. To this extent. This in turn flows from this Court's determination that the contract involved was one of deposit.contents thereof through its own negligence. that is. the petitioner cannot be blamed for the filing of the complaint and no bad faith on its part had been established. WHEREFORE. 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. .

714. together with the P1. 1908 ANGEL JAVELLANA.686. the plaintiff still owed the defendants P2. and sentencing the plaintiff to pay them the sum of P2.16. the sum of two thousand six hundred and eighty-six cents of pesos fuertes. jointly and severally. it was then alleged. Authority from the court having been previously obtained.16 pesos made on the 15th of November. when the obligation became due.58. Montinola for appellee. vs. Zaldarriaga for appellants. as a deposit without interest. Angel Javellana. Jose Lim and Ceferino Domingo Lim. That.R. 1907.: The attorney for the plaintiff. 1907. building themselves to pay interest at the rate of 15 per cent on the amount of their indebtedness. 1897.000 pesos. . setting forth that they acknowledged the facts stated in Nos. together with an account book having been made of record.58 stated in the document transcribed in the complaint. 1897. deducting from the amount of interest due the sum of P1. 1902. 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. aggregated the total sum of P5. — Signed: Ceferino Domingo Lim. 1898. 1906. the court below rendered judgment on the 15th of January. and on the 4th of January. 1898.16. ET AL. however.G..915. as payment of interest on the amount stated in the foregoing document. with the Court of First Instance of Iloilo. therefore. to which the plaintiff acceded. which we will return to the said gentleman. and that.602. and to pay the costs of the proceedings. praying that the defendants. 1907.58 with the costs. As a counterclaim. deducting therefrom the total sum of P2. defendants-appellants. 1902. had thereby been subjected to loss and damages. No. 26th of May. upon their exhibits. TORRES. 4015 August 24. J. in favor of the plaintiff for the recovery of the sum of P5. plaintiff-appellee. the defendants answered the original complaint before its amendment. until full payment should be made. the defendants executed and subscribed a document in favor of the plaintiff reading as follows: We have received from Angel Javellana. that on the 15th of May. the complaint was amended on the 10th of January. that they admitted the statements of the plaintiff relative to the payment of 1. JOSE LIM. the defendants alleged that they had paid to the plaintiff sums which.102. he sentenced to jointly and severally pay the sum of P2. R. B. the debtors paid on account of interest due the sum of P1.915. on the 26th of May.58. not. file a complaint on the 30th of October.102. with interest thereon at the rate of 15 per cent per annum from the 20th of January. — Jaro. but on account of the principal. 1 and 2 of the complaint.102. Evidence was adduced by both parties and.16 acknowledged in the complaint. — Signed Jose Lim. and also denied all the other statements contained therein.686. A demurrer to the original complaint was overruled.44 and costs. on the 20th of January. they asked that judgment be entered absolving them. the defendants begged the plaintiff for an extension of time for the payment thereof. with the exception of either capital or interest.

1897. 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. and the creditor. to losses and damages for not complying with what had been stipulated. Such conduct on the part of the debtors is unquestionable evidence that the transaction entered into between the interested parties was not a deposit. The permission shall not be presumed. whereby he was subjected to losses and damages amounting to 830 pesos since the 20th of January. that the amount deposited had not yet been returned to the creditor. the said document has not been contested as false. and that the 1. he having made use of the same in his business and for his own profit. 1900. Article 1768 also provides that — When the depository has permission to make use of the thing deposited. but that. it was acknowledged. This motion was overruled and was also excepted to by them. to all intents and purposes gratuitously.The defendants excepted to the above decision and moved for a new trial. as subsequent shown when asking for an extension of the time for the return thereof. nevertheless. which they have done. and being conscious that they had used. 1902. 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. by granting them the extension. at the date thereof. in accordance with the loan. 1898. inasmuch as. it is called a deposit consisted. the 15th of November. and because neither himself nor the other defendant were able to return the amount deposited. in view of the fact the money was scare. the same was in due course submitted to this court. and that the said rate of interest would obtain until the debtors on the 20th of May.000 pesos. 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. would be included. 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 a real contract of loan. 1898. from the aforesaid date of January 20. deducting from the total amount of interest the sum of 1. the bill of exceptions presented by the appellants having been approved. and its existence must be proven. written in the Visayan dialect and followed by a translation into Spanish was executed. nor has any doubt been cast upon the authenticity of the signatures of . When on one of the latter days of January. 1898. by Ceferino Domingo Lim on behalf of himself and the former. until the 20th of January. and they could have accomplished the return agreed upon by the delivery of a sum equal to the one received by them. according to the receipt issued by him to the debtors. evidently confirmed the express permission previously given to use and dispose of the amount stated as having bee deposited. For this reason it must be understood that the debtors were lawfully authorized to make use of the amount deposited. acknowledging that they have subjected the letter. he did not have in his possession the amount deposited. and from that dated with interest at 15 per cent per annum until its full payment. for which reason he agreed to pay interest at the rate of 15 per cent per annum. when the document appearing as Exhibits 2. 1902. either by a criminal or by a civil proceeding. their creditor. which. as a matter of fact. the money that they received apparently as a deposit. Otherwise he shall be liable for losses and damages. in accordance with the provisions of article 1173 of the Civil Code. it was because. they engaged to pay interest to the creditor from the date named until the time when the refund should be made. Jose Lim went to the office of the creditor asking for an extension of one year.000 pesos paid to the depositor on the 15th of May. the contract loses the character of a deposit and becomes a loan or bailment. nevertheless. for their own profit and gain.

Ceferino Domingo Lim. 2 was executed by the other debtor. 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. The plaintiffs allegation that the two amounts of 400 and 1. 2.16.200 pesos. 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. referred to in documents marked "C" and "D" offered in evidence by the defendants. and it further appears that document No.102. The original joint obligation contracted by the defendant debtor still exists. and consented to pay interest in return for the concession requested from the creditor. the only payment made on account of interest on the amount deposited according to documents No.000 pesos. and to execute the aforesaid document No.16 pesos. being fully aware that his debt had not yet been settled. because the existence and certainty of said indebtedness imputed to the plaintiff has not been proven. be inferred that there was no renewal of the contract deposited converted into a loan. and it has also been proven that Jose Lim. was due to a mistake. on account thereof. since the so-called bailees were forthwith authorized to dispose of the amount deposited. 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. has not been contradicted. less 1.000 pesos. together with interest claimed in the complaint. for himself and on behalf of Jose Lim. for the reason above set forth it may. the defendants received said amount by virtue of real loan contract under the name of a deposit. Exhibit 1. to pay the sum of 1. This they have done. was expressed in lieu of 1. because the record offers satisfactory evidence against the pretension of Jose Lim. Ceferino Domingo Lim. and which he did issue whenever they paid him any money on account. took steps to secure an extension of the time for payment.602. as has already been stated. If the amount. In view of the foregoing. such is not the case with the defendant's counterclaim for P5. 2 and letter "B" above referred to. Moreover. 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. because. as has been clearly shown.000 pesos appears as fully established.the witnesses who attested the execution of the same. So ordered. that they should produce the receipts which he may have issued. and adopting the findings in the judgment appealed from. the latter alleges with good reason. and the defendants. and the fact that in the original complaint the sum of 1. A true ratification of the original document of deposit was thus made. 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. as a matter of course. had been received from Ceferino Domingo Lim on account of other debts of his.

e. and May. In the first case. Silvestra Baron placed a quantity of palay in the defendant's mill. 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. STREET. the defendant Pablo David has been engaged in running a rice mill in the municipality of Magalang. L-26948 and L-26949 SILVESTRA BARON. 1927 GUILLERMO BARON. The same course will accordingly be followed here. Silvestra Baron.238. Nos. that which Silvestra Baron is plaintiff. During approximately the same period Guillermo Baron placed other 1. the value of palay alleged to have been sold by the plaintiffs to the defendant in the year 1920. in the Province of Pampanga. with costs. amounted to 1. From this judgment both the plaintiff and the defendant appealed. 1921.800 which he had advanced to the plaintiff Guillermo Baron on various occasions. We are therefore confronted with five distinct appeals in this record. Jose Gutierrez David for plaintiff-appellant in case of No. from which judgment both the plaintiff and the defendant also appealed. vs. Prior to January 17. and this. the plaintiff in the first of the actions before us. On the date stated a fire occurred that destroyed the mill and its contents. that in which Guillermo Baron. is his uncle. and from this feature of the decision the defendant appealed. vs. i. Silvestra Baron and Guillermo Baron. 26948. i.012 cavans and 24 kilos.60. with costs. defendant-appellant. Lualhati & Lopez and Jose Gutierrez David for plaintiff-appellant in case No. In the second case. the plaintiff in the other action. the court gave judgment for her to recover of the defendant the sum of P5. plaintiff-appellant. the cases were heard together in the trial court and determined in a single opinion. Gregorio Perfecto for defendant-appellant in both cases. is plaintiff. in connection with some that she took over from Guillermo Baron. And October 8. Francisco.G. In the same case the defendant interposed a counterclaim in which he asked credit for the sum of P2. In the months of March. The trial judge disallowed these claims for damages. plaintiff-appellant. April. e..865 cavans and 43 kilos of palay in the mill.. No .R. 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. for the purpose of recovering from the defendant.: These two actions were instituted in the Court of First Instance of the Province of Pampanga by the respective plaintiffs. 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. 26949. PABLO DAVID. defendant-appellant. 1920. This credit was admitted by the plaintiff and allowed by the trial court.51. PABLO DAVID. Pablo David.734. and it was some time before the mill could be rebuilt and put in operation again. the court gave judgment for him to recover of the defendant the sum of P5. a mill which was well patronized by the rice growers of the vicinity and almost constantly running. is an aunt of the defendant. while Guillermo Baron. J.

it is necessary that they should be able to establish that the plaintiffs' palay was delivered in the character of a sale. the contract loses the character of mere deposit and becomes a loan or a commodatum.50 per cavan. but apart from this he has not been compensated. 1920. leads us to the conclusion that the plaintiffs did. 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. May. and his liability was not extinguished by the occurence of the fire. In fact the defendant admits that the plaintiffs' palay was mixed with that of others. it is quite certain that all of the plaintiffs' palay. proper allowance being made for storage and shrinkage. though rarely. But the case does not depend precisely upon this explicit alternative. and they say that in August of that year the defendant promised to pay them severally the price of P8. The plaintiff further say that their palay was delivered to the defendant at his special request. 1921.15 per cavan. 1920. and the incredulity of the court upon this point seems to us to be justified. it result that he is bound to account for its value. The highest point was touched in this season was apparently about P8. on the other hand. while the defendant. Considering the fact that the defendant had thus milled and doubtless sold the plaintiffs' palay prior to the date of the fire. claims that the palay was deposited subject to future withdrawal by the depositors or subject to some future sale which was never effected. 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. nevertheless if it was understood that the defendant might mill the palay and he has in fact appropriated it to his own use. provided they would wait for payment until December. he is of course bound to account for its value. 1921. already mentioned. and June. been milled and disposed of long prior to the fire of January 17. or other rice markets. Upon this point the trial judge fixed upon P6. which was about the top of the market for the season.800. the bailee becomes responsible for its value. he has received from the defendant advancements amounting to P2. and of course by appropriating the thing. the proof shows that when the fire occurred there could not have been more than about 360 cavans of palay in the mill.40 per cavan. Nor is the liability of the defendant in any wise affected by the circumstance that. 1920. by a custom prevailing among rice millers in this country. the defendant should prove that the delivery was made in the character of deposit. subject to future sale or withdrawal at plaintiffs' election. 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. make demand upon the defendant for a settlement. He therefore supposes himself to be relieved from all responsibility by virtue of the fire of January 17. on the contrary.compensation has ever been received by Silvestra Baron upon account of the palay delivered by Guillermo Baron. 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. when the depository has permission to make use of the thing deposited. all things considered. and although we are not exactly in agreement with him as to the propriety of the method by which he arrived at this figure. which was put in before June 1. The trial judge found that no such promise had been given. it was impossible to keep the plaintiffs' palay segregated. Under article 1768 of the Civil Code. persons placing palay with them without special agreement as to price are at liberty to withdraw it later. none of which by any reasonable probability could have been any part of the palay delivered by the plaintiffs. Both the plaintiffs claim that the palay which was delivered by them to the defendant was sold to the defendant. 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. In view of the nature of the defendant's activities and the way in which the palay was handled in the defendant's mill. we are nevertheless of the opinion that. It appears that the price of palay during the months of April. the defendant should be absolved. 1921. In the briefs before us it seems to have been assumed by the opposing attorneys that in order for the plaintiffs to recover. but the market began to sag in . A careful examination of the proof. Furthermore. which he evaded or postponed leaving the exact amount due to the plaintiffs undetermined. however. some time in the early part of August. and that if. a thing that is sometimes done. and as palay was daily coming in from many customers and as rice was being constantly shipped by the defendant to Manila. the result is approximately correct. The mill was actively running during the entire season. for even supposing that the palay may have been delivered in the character of deposit.

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. and he held that the defendant should be credited with said amount. As we have already stated. fixed by the trial court. otherwise the grain would be released. When these claims were put in the sheriff notified the plaintiff that a bond in the amount of P50. It appears that about two and one-half months after said action was begun. Guillermo Baron. the plaintiffs made demand upon the defendant for settlement in the early part of August. it was levied upon the defendant's rice mill. 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. or attempting the plaintiff. That palay without a doubt had long been sold and marketed. the plaintiff. 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. being unable or unwilling to give this bond. twenty-four of the depositors found it necessary to submit third-party claims to the sheriff.15 per cavan. 26949. and. As already stated.000 must be given. the price of P6. 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. more than 20. 1awph!l . 1924. The transactions shown by these exhibits (which relate to palay withdrawn by the plaintiff from the defendant's mill) were not made the subject of controversy in either the complaint or the cross-complaint of the defendant in the second case. 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. 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. Upon this affidavit an attachment was issued as prayed. The trial judge also allowed a deduction from the claim of the plaintiff Guillermo Baron of 167 cavans of palay. 13. and 16. so far as we are able to judge from the proof. and the appealed judgments must be modified by eliminating the deductions which the trial court allowed from the plaintiffs' claims. as above stated. 14. in the bodega. They therefore should not have been taken into account as a credit in favor of the defendant. as the stated in the third paragraph of this opinion. At the time the attachment was levied there were. It was the date of the demand of the plaintiffs for settlement that determined the price to be paid by the defendant.000 cavans of palay belonging to persons who held receipts therefor. The assignments of error of each of the plaintiffs-appellants in which this feature of the decision is attacked are therefore well taken. Operations were not resumed until September 13. His Honor therefore deducted from the claims of the plaintiffs their respective proportionate shares of this amount of palay. 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.May or June and presently entered upon a precipitate decline. covering a period of . His Honor assumed that this was part of the palay delivered by the plaintiffs. and other property. and nothing can be more certain than that the palay which was burned did not belong to the plaintiffs. is about the price at which the defendant should be required to settle as of that date. the sheriff surrendered the palay to the claimants. We are unable to see the propriety of this feature of the decision. No. 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. This was also erroneous. The plaintiff. 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 on March 27. when the attachment was dissolved by an order of the court and the defendant was permitted to resume control. with interest from the date of the filing of their several complaints. real and personal. and in order to get this grain away from the sheriff. and to procure the issuance of said writ the plaintiff made affidavit to the effect that the defendant was disposing. The preceding discussion disposes of all vital contentions relative to the liability of the defendant upon the causes of action stated in the complaints. In this cross-action the defendant seek. 1924. asked for an attachment to be issued against the property of the defendant.net Upon attaching the property the sheriff closed the mill and placed it in the care of a deputy. as indicated in Exhibit 12. but the attachment on the rice mill was maintained until September 13.

As against the defendant's proof showing the facts above stated the plaintiff submitted no evidence whatever. 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. The defendant also stated that the expense of running the mill per day was from P18 to P25. 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. It is clear that with respect to these damages the cross-action cannot be maintained.400 for injury to the good-will of his business. 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. When the attachment was dissolved and the mill again opened. So slow. On the contrary. The trial court. As the mill was not accustomed to run on Sundays and holiday. It was of course the duty of the sheriff. in the ordinary course of events. This singular suggestion will not bear a moment's criticism. For this amount the defendant must recover judgment on his cross-complaint. which would appear to be a conservative estimate. The defendant testified that his mill was accustomed to clean from 400 to 450 cavans of palay per day. consequence of the attachment. The ground upon which the attachment was based. we estimate that the defendant lost the profit that would have been earned on not less than one hundred forty work days. recklessly sued out upon a false affidavit and levied upon the defendant's property to his great and needless damage. would have been milled in this plant by the defendant. But this is not all. and that the net profit per day on the mill was more than P40. nor had intended to do so. making a total of P7. who is his uncle.600. owing to the unpleasant experience which they had in getting back their grain from the sheriff to the mill of the defendant. 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. to take the attached property into his possession. and to the extent of P1. That this allegation was false is clearly apparent. stated that. 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. 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. though they had previously had much confidence in him.600. Several of these individuals. The additional sum of P5.000 cavans of palay. and even after the next season opened many of his old customers did not return. The defendant also states that he had not conveyed away any of his property. One feature of the cross-complaint consist in the claim of the defendant (cross-complaint) for the sum of P20. testifying as witnesses in this case. for the purpose of defrauding the plaintiff. the actual net loss resulting from his failure to operate the mill during the time stated could not have been less than P5. For the damage thus inflicted upon the defendant the plaintiff is undoubtedly responsible. We have before us therefore a case of a baseless attachment.000 as damages caused to the defendant by the false and alleged malicious statements contained in the affidavit upon which the attachment was procured. in dismissing the defendant's cross-complaint for damages resulting from the wrongful suing out of the attachment. the defendant found that his customers had become scattered and could not be easily gotten back. and the closure of the mill was a natural. 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 even necessary. producing 225 cavans of rice of 57 kilos each.one hundred seventy days during which the mill was idle. in levying the attachment.000. We are therefore constrained to hold that the defendant was damaged by the attachment to the extent of P5. But though the affidavit is not . and it is therefore privileged.000 is also claimed as exemplary damages. His financial conditions was of course well known to the plaintiff. in profits lost by the closure of the mill. and not a word of proof has been submitted in support of the assertion. The price charged for cleaning each cavan rice was 30 centavos. practically all of which. indeed. 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. Figuring his profits at P40 per day.

G. No. G. This connection is not well founded.75. 1924. may be read by either party and will then be deemed the evidence of the party reading it. 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. 26949. as plaintiff in the cross-complaint. this fact in no obstacle to the maintenance of an action to recover the damage resulting from the levy of the attachment. and with costs. It is true that in section 364 of the Code of Civil Procedure it is said that a deposition. will recover of Guillermo Baron the sum of P7. with interest from November 21. once taken. No. G. the date of the filing of her complaint. 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.actionable as a libelous publication. So ordered.669. No.227. 26949 the plaintiff Guillermo Baron will recover of the defendant Pablo David the sum of P8. In this connection it appears that the deposition of Guillermo Baron was presented in court as evidence and was admitted as an exhibit. 26948 and 26949 and must be reversed in respect to the disposition of the cross-complaint interposed by the defendant in case R. 26949.000. with interest from January 9. 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. with the following result: In case R. 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. In case R. it is not necessary that the deposition should be actually read when presented as evidence. without costs. In the same case the defendant Pablo David. without being actually read to the court. No. Nos. . 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. But in courts of equity. 1923.24. 26948 the plaintiff Silvestra Baron will recover of the Pablo David the sum of P6. G. and in all courts where judges have the evidence before them for perusal at their pleasure.

J.498 in favor of the principal. plaintiff-appellee. The document setting forth the obligation reads: We hold at the disposal of Eugenio Veraguth the sum of two thousand four hundred and ninety-eight pesos (P2. that the sum of P2. surely in no other sense than to take care of them. 1758. There is no doubt that if Veraguth accepted the receipt for P2. 1911. They remained in his possession. IGPUARA. he could indorse and negotiate it like any other commercial instrument. that the instrument drawn up in the form of a deposit certificate could be indorsed or negotiated like any other commercial instrument.) Then." (Brief. No. because only .498 it was because at that time he agreed with the defendant to consider the operation of sale on commission closed.498 in an instrument payable on demand. to pay Juana Montilla P2. for Ramirez and Co.498 Philippine currency. W. (Art. 3 and 4. Juana Montilla. but on August 23 of the same year Veraguth demanded for him through a notarial instrument restitution of them.G. — Iloilo. (2) that this commission was settled with a balance of P2.498).498 is a fact proven. 1911.R. not to exceed one-third of the principal penalty. L. and (3) that this balance remained in the possession of the defendant. It is erroneous to assert that the certificate of deposit in question is negotiable like any other commercial instrument: First. both erroneous: One. he has drawn two conclusions. A deposit is constituted from the time a person receives a thing belonging to another with the obligation of keeping and returning it. Thos. for they remained has no other purpose. defendant-appellant. — Jose Igpuara.50 per day.498 Philippine currency. which he had take on deposit from the former to be at the latter's disposal. vs. JOSE M. The Court of First Instance of Iloilo sentenced the defendant to two years of presidio correccional. A. leaving the collection of said sum until later. who drew up an instrument payable on demand. June 26. L-7593 March 27. which he could not have said had he not received them. because every commercial instrument is not negotiable. (2) holding the existence of a deposit. alleging as errors: (1) Holding that the document executed by him was a certificate of deposit. The appellant says: "Juana Montilla's agent voluntarily accepted the sum of P2. without precedent transfer or delivery of the P2. Civil Code. Office of the Solicitor-General Harvey for appellee. and Jose Robles Lahesa for appellant. Hartigan. and the costs. ARELLANO. Kincaid. the balance from Juana Montilla's sugar. and to date he has not restored them. and second. after averring the true facts: (1) that a sales commission was precedent.) That the defendant received P2. C. They remained in the defendant's possession at the disposal of Veraguth. and the other. and (3) classifying the facts in the case as the crime of estafa. which sum remained as a loan payable upon presentation of the receipt. The defendant appealed. The defendant drew up a document declaring that they remained in his possession. for having swindled Juana Montilla and Eugenio Veraguth out of P2.: The defendant therein is charged with the crime of estafa. 1913 THE UNITED STATES.498.498 remained in defendant's possession as a loan. and in case of insolvency to subsidiary imprisonment at P2. and as no attempt was made to cash it until August 23.

the principle was laid down that: "Since he commits the crime of estafa under article 548 of the Penal Code of Spain who to another's detriment appropriates to himself or abstracts money or goods received on commission for delivery. but merely possession for its custody or safekeeping. and the rules and provisions applicable to commercial loans. or for administration. and if he makes use of it. commission.) The defendant has shown no authorization whatsoever or the consent of the depositary for using or disposing of the P2. Whereupon the commentators say: In this case the deposit becomes in fact a loan. 1895. since he has not restored them. or any contract entered into with the depositor to convert the deposit into a loan. does not imply such permission to use the thing deposited as would convert the deposit into a loan. or for any other purpose which produces the obligation of delivering it or returning it.instruments payable to order are negotiable. according to it. In a loan the lender transmits to the borrower the use of the thing lent. Hence. commission. which was immediately due. the court rightly applied this article to the appellant. or contract which took the place of the deposit shall be observed. those who to the prejudice of another appropriate or abstract for their own use money. Article 408 of the Code of Commerce of 1829. That demand was not made for restitution of the sum deposited. while in a deposit the use of the thing is not transmitted.498. It is also erroneous to assert that sum of money set forth in said certificate is. In a decision of an appeal. and deny having received it. shall suffer the penalty of the preceding article. No. September 28. In order that the depositary may use or dispose oft he things deposited. which could have been claimed on the same or the next day after the certificate was signed. the depositor's consent is required. in the defendant's possession as a loan. or signify anything except the intention not to press it. goods. he shall be responsible for all damages that may accrue and shall respond to the depositor for the legal interest on the amount. According to article 548. as a just punishment imposed upon him who abuses the sacred nature of a deposit and as a means of preventing the desire of gain from leading him into speculations that may be disastrous to the depositor. or other personal property which they may have received as a deposit. who. The corresponding article of the Penal Code of the Philippines in 535. does not operate against the depositor. it is not negotiable. Failure to claim at once or delay for sometime in demanding restitution of the things deposited. on commission. 309. No. (Art. to the manifest detriment of the owner or owners of the securities. which the certificate acknowledges." . Code of Commerce. or other contract. 5." which punishes such act as the crime of estafa. of the Penal Code. provided: The depositary of an amount of money cannot use the amount. who is much better secured while the deposit exists when he only has a personal action for recovery. and then: The rights and obligations of the depositary and of the depositor shall cease. previous to the one now in force. 5. willfully and wrongfully disposed of them by appropriating them to himself or at least diverting them from the purpose to which he was charged to devote them. this instrument not being to order but to bearer.

In the first of said cases there was no evidence that the defendant had appropriated the grain deposited in his possession. . it is entirely probable that. Rep. and of the depositor. and U. Likewise erroneous is the construction apparently at tempted to be given to two decisions of this Supreme Court (U. S. vs. 1898. the agent could not be found guilty of the crime of estafa. with costs." and there being no proof of the appropriation. Being in accord and the merits of the case. but that it was necessary to prove that the depositary had appropriated it to himself or diverted the deposit to his own or another's benefit. Juana Montilla. S. On the contrary. after the departure of the defendant from Libmanan on September 20. So much for the crime of omission. Rep. the judgment appealed from is affirmed. it was not held in that decision that appropriation or diversion of the thing deposited would not constitute the crime of estafa. Morales and Morco. 2 Phil. two days after the uprising of the civil guard in Nueva Caceres. 580. In this connection it was held that failure to return the thing deposited was not sufficient.It is unquestionable that in no sense did the P2. such as they were. 15 Phil.498 which he willfully and wrongfully disposed of to the detriments of his principal.. vs. Those. belong to the defendant. but denial of having received same. Dominguez. He was accused or refusing to restore. now with reference to the crime of commission. and it was held that the code does not penalize refusal to restore but denial of having received. the rice was seized by the revolutionalists and appropriated to their own uses. In the second of said decisions.. Eugenio Veraguth. he turned over to the owner. 236) as implying that what constitutes estafa is not the disposal of money deposited. the accused "kept none of the proceeds of the sales.

No.20 on nine deposits. On January 24. 81-31938. agents. Inc.S.94 on savings account deposits (jointly with his sister. FLAMINIANO. Flavio Macasaet. rec. Denise Kuhne). For purposes of brevity. so that David filed claims therewith for his investments and those of his sister. petitioners. by virtue of a court resolution issued by this Court on the same date. US$15. Paulino B. In I. 1979 to March.00 under a receipt dated June 8. THE CITY FISCAL OF MANILA.000..1981. private respondent David filed I. private respondent Clement David filed a motion to lift restraining order which was denied in the resolution of this Court dated May 18. JR. 364 and related Central Bank regulations on foreign exchange transactions. allegedly committed as follows (Petition.£ªwph! 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. that on March 21. US$10.G.). Dionisio.S. (hereinafter called NSLA) the sum of P1. petitioner Martin. C. MAKASIAR.1982..821. ANTONIO I. 8). 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.£îhqw ⣠"From March 20.546. 1980 (au jointly with Denise Kuhne). 47-48. in which petitioners were charged by private respondent Clement David. and TERESITA SANTOS. p. Annex "A"): têñ. 364 and related regulations regarding foreign exchange transactions principally. respondents. vs. namely Homero Gonzales. 1982. Perfecto Manalac.531. Juan Merino.S. as well as the testimony of private respondent's principal witness and the evidence through said witness. 1981 N LA was placed under receivership by the Central Bank. Actg. ASST. then NSLA Executive Vice-President of NSLA and petitioner Santos. L-60033 April 4.. and one John Doe) with estafa and violation of Central Bank Circular No. JOSE B. 81-31938. 1981. MARTIN. showed that petitioners' obligation is civil in nature.000. HON. 1984 TEOFISTO GUINGONA.145. that on July 22. 8131938 of the Office of the City Fiscal of Manila (pp. CITY FISCAL FELIZARDO N.J. with estafa and violation of Central Bank Circular No.£îhqw⣠On December 23. We hereby adopt the antecedent facts narrated by the Solicitor General in its Comment dated June 28. then NSLA President. 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. 1983. 1982. Victor Gomez.000. their officers. 81-31938 in the Office of the City Fiscal of Manila.00 under a receipt and guarantee of payment and US$50. LOTA and CLEMENT DAVID. David invested with the Nation Savings and Loan Association. on the ground of lack of jurisdiction in that the allegations of the charged. as follows: têñ. No. No. which case was assigned to respondent Lota for preliminary investigation (Petition. Jaime V.. then NSLA General Manager. Jr. As can be gleaned from the above. On March 31. 1983. Paz.R.92 of those investments were entered in the . P13. No. David charged petitioners (together with one Robert Marshall and the following directors of the Nation Savings and Loan Association.00 on time deposit. 1981 David received a report from the Central Bank that only P305.: ñ é+. the instant petition seeks to prohibit public respondents from proceeding with the preliminary investigation of I. a temporary restraining order was duly issued ordering the respondents.

) filed Civil Case No. 821695 in the Court of First Instance to contest its (NSLA's) closure. to effect the release of the mortgage over one (1) of the two parcels of land conveyed to David under second mortgages.000.£îhqw ⣠"That Martin became President of NSLA in March 1978 (after the resignation of Guingona.) secured payment of those amounts with second mortgages over two (2) parcels of land under a deed of Second Real Estate Mortgage (Petition. 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. p.00. Banker's Acceptance. Certificates of .000.'s dollar account because NSLA did not have one. 1981 (Petition.078. that David's check for US$50. that in a Promissory Note dated June 17. that he assumed a portion o.000. hence. 8). or prior to those transactions. that he (Guingona.S.. 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.000. that all transactions with David were recorded except the sum of US$15.14 and US$75. 81-31938 misappropriated the balance of the investments. that after demands..01 and US$37.£îhqw ⣠"That he had no hand whatsoever in the transactions between David and NSLA since he (Guingona Jr. thereby reducing the amounts misappropriated to P959.000. the respondents in I. Guingona. 1980. that he (Guingona. Fiscal Lota denied the motion to dismiss (Petition. in his counter-affidavit (Petition. that.00 was cleared through Guingona. Annex "D") he (Guingona. he (Guingona. paid only P200.307. Jr. Jr.00 and tendered another P300. Jr.00.500. his investments were treated as special. filed a joint counter-affidavit (Petition. 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." At the inception of the preliminary investigation before respondent Lota. 364 and related Central Bank regulations on foreign exchange transactions. But. Jr. 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.) bound himself to pay David the sums of P668. No. after the presentation of David's principal witness. 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.000.) paid P200. Jr.00 which David refused to accept. that majority of the stockholders of NSLA had filed Special Proceedings No. and. that the liabilities of NSLA to David were civil in nature.000. petitioner Guingona Jr.00 was placed in the name of one Paz Roces because of a pending transaction with her. Q-33865 in the Court of First Instance of Rizal at Quezon City. therefore.00 which was a personal loan of Santos.00 in stated installments.00.accounts with interest above the legal rate. têñ. Jr. that a draft of US$30. Jr.000. Martin and Santos. Jr. at the same time violating Central Bank Circular No. that because NSLA was urgently in need of funds and at David's insistence.records of NSLA. petitioners filed the instant petition because: (a) the production of the Promisory Notes." Petitioners. Annex' C') stated the following: têñ. that after NSLA was placed under receivership. that the Philippine Deposit Insurance Corporation had already reimbursed David within the legal limits." Petitioner.) had resigned as NSLA president in March 1978. while Santos was General Manager up to November 1980. Annex' B') in which they stated the following.) and served as such until October 30.

1981 prepared by the private respondent (p. 1979 to March.531. public respondents have no jurisdiction over the charge of estafa.00 (p.14 (pp. 1981. are considered simple loans and.546. 1981. the contract that was perfected was a contract of simple loan or mutuum and not a contract of deposit. savings. rec. 81-31938. together with his sister. upon the request of private respondent David.614.336. Thus.02 and US$75.00 (1/2 of US$75. together with his sister. Martin and Teresita G. 153-157.). and current deposits of money in banks and similar institutions are hat true deposits.02) and US$37.Time Deposits and Savings Account allegedly showed that the transactions between David and NSLA were simple loans.. civil obligations on the part of NSLA which were novated when Guingona.000. pp.). 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.20 on time deposits covered by Bankers Acceptances and Certificates of Time Deposits and the sum of P13. the records reveal that when the aforesaid bank was placed under receivership on March 21. rec.500.078.£îhqw⣠Article 1980. made investments in the aforesaid bank in the amount of US$75. together with one Robert Marshall and the other directors of the Nation Savings and Loan Association. or on July 17.000. 9) [pp. In the case of Central Bank of the Philippines vs. Petitioners alleged that they did not exhaust available administrative remedies because to do so would be futile (Petition. 81. Santos. 17. Denise Kuhne. Moreover.). 8-9). A casual perusal of the December 23. This promissory note was based on the statement of account as of June 30. as such. It appears further that private respondent David.145. 25. Morfe (63 SCRA 114. 6-632 and 29-742.e. 1981.).119 [1975]. Jr. As correctly pointed out by the Solicitor General.336.£îhqw ⣠It should be noted that fixed. savings. No. 15-16.. There is merit in the contention of the petitioners that their liability is civil in nature and therefore. or a total of P1. petitioners Guingona and Martin.00) in favor of private respondent (p. 1981 whereby he personally acknowledged an indebtedness of P668. It must be pointed out that when private respondent David invested his money on nine.94 on savings account deposits covered by passbook nos. 80. Furthermore. Jr.614. 1981 affidavit. Antonio I. before this Court indisputably show that he has indeed invested his money on time and savings deposits with the Nation Savings and Loan Association.000.00 (p. and savings deposits with the aforesaid bank.).].613. assumed the obligation of the bank to private respondent David by executing on June 17. the sole issue for resolution is whether public respondents acted without jurisdiction when they investigated the charges (estafa and violation of CB Circular No. and petitioner Guingona executed another promissory note antedated to June 17.159. Article 1980 of the New Civil Code provides that: têñ. and (b) David's principal witness allegedly testified that the duplicate originals of the aforesaid instruments of indebtedness were all on file with NSLA. Thereafter. We said: têñ. complaint filed in the Office of the City Fiscal of Manila by private respondent David against petitioners Teopisto Guingona. i. 1981 a joint promissory note in favor of private respondent acknowledging an indebtedness of Pl. invested with the Nation Savings and Loan Association the sum of P1.01 (1/2 of P1. and current deposits of-money in banks and similar institutions shall be governed by the provisions concerning simple loan. the various pleadings and documents filed by private respondent David. will show that from March 20. rec. rec.S. private respondent David. petitioners Guingona and Martin agreed to divide the said indebtedness.20. are not preferred .307. Fixed. roc. 364 and related regulations regarding foreign exchange transactions) subject matter of I. 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. p. contrary to David's claim that some of his investments were not record (Petition. and Martin assumed them.

however.£îhqw ⣠In order that a person can be convicted under the above-quoted provision. The nature of simple loan is defined in Articles 1933 and 1953 of the Civil Code. 1933. either something not consumable so that the latter may use the same for a certain time. the relationship between the private respondent and the Nation Savings and Loan Association is that of creditor and debtor. And. goods or personal property that he received Petitioners had no such obligation to return the same money. 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). Pacific Coast Biscuit Co. or current are to be treated as loans and are to be covered by the law on loans (Art. Chinese Grocers Association 65 Phil. — By the contract of loan. no obligation to return or deliver the same money that was deposited. Pacific Commercial Co. it has.. consequently. in which case the contract is called a commodatum.65 Phil. American Apothecaries Co. Gopoco Grocery vs. i. whether fixed. American Apothecaries Co. Phil. are loans to a bank because it can use the same. which they received from private respondents. The respondent Bank was in turn a debtor of petitioner.£îhqw⣠Bank deposits are in the nature of irregular deposits. 443). têñ. the bills or coins. savings.credits (Art. Central Bank of the Philippines (96 SCRA 102 [1980]) that: têñ. Pacific Coast Biscuit CO. vs. 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. All kinds of bank deposits..£îhqw ⣠"Art. While the Bank has the obligation to return the amount deposited. or money or other consumable thing. but it will only give rise to civil liability over which the public respondents have no. 375. "In commodatum the bailor retains the ownership of the thing loaned while in simple loan. 519). 66 Phil 414. 65 PhiL 429. vs. Current and saving deposits." This Court also declared in the recent case of Serrano vs.jurisdiction. 1980 Civil Code Gullas vs. WE have already laid down the rule that: têñ. In re Liquidation of Mercantile Batik of China Tan Tiong Tick vs. 62 Phil. "Commodatum is essentially gratuitous. par. Hence.e. National Bank. the failure of the Bank to return the amount deposited will not constitute estafa through misappropriation punishable under Article 315.. it must be proven that he has the obligation to deliver or return the some money. 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. such as to pay interests on deposits and to pay withdrawals. the related civil complaints and the supporting sworn statements. 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. 1980 Civil Code. l(b) of the Revised Penal Code.. the sums of money that petitioners received were loans. This is so because as clearly as stated in criminal complaints.and return it. They are really 'loans because they earn interest. Fletcher American National Bank vs. "Simple loan may be gratuitous or with a stipulation to pay interest. Ang Chong UM 66 PWL 385. ownership passes to the borrower. . one of the parties delivers to another.

Consequently. the borrower can dispose of the thing borrowed (Article 248. Moreover. 580-581 [1983] ). there is no dispute that petitioners Guingona and Martin executed a promissory note on June 17."Art.£îhqw ⣠As pointed out in People vs. Thus. 124 SCRA 578. vs. Villareal. Consequently. because when the aforesaid bank was placed under receivership by the Central Bank. as aforestated. 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. People. 27 Phil. petitioners Guingona and Martin assumed the obligation of the bank to private respondent David. Gervacio. as distinguished from the civil. 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. declaring that: têñ. 1981 assuming the obligation of the bank to private respondent David. The crime being an offense against the state. Serrano ( 25 SCRA 64. as when money loaned is made to appear as a deposit. 42 Phil. People vs. In the case at bar. 34 [1979]. 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. Montanes. goods or personal property borrowed Being the owner. Emphasis supplied). 620). vs. while it is true that novation does not extinguish criminal liability. it is clear that novation occurred long before the filing of the criminal complaint with the Office of the City Fiscal." It can be readily noted from the above-quoted provisions that in simple loan (mutuum). Court of Appeals (L-58476. . prevent the rise of criminal liability as long as it occurs prior to the filing of the criminal information in court.S. Hence. Again. U. or other similar disguise is resorted to (cf. 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 creditordebtor relation. 1981 with the Office of the City Fiscal. in the latest case of Ong vs. hence. it may however. 54 Off. Gaz. as contrasted to commodatum the borrower acquires ownership of the money. 94 SCRA 30. only the latter can renounce it (People vs. this Court reiterated the ruling in People vs. Velasco. U. 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. 481). But after the justice authorities have taken cognizance of the crime and instituted action in court. Nery ( 10 SCRA 244 [1964] ). in Gonzales vs.£îhqw ⣠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. 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. 69 [1968]) We held that: têñ. while the criminal complaint for estafa was filed on December 23. 8 Phil. Abeto vs. 76. the offended party may no longer divest the prosecution of its power to exact the criminal liability.S. and place the complainant in estoppel to insist on the original transaction or "cast doubt on the true nature" thereof. 2898. 1953. Civil Code) and his act will not be considered misappropriation thereof' (Yam vs. — A person who receives a loan of money or any other fungible thing acquires the ownership thereof. Malik. 581. nevertheless any incipient criminal liability was deemed avoided. 90 Phil. Nery. and is bound to pay to the creditor an equal amount of the same kind and quality. thereby placing the complainant in estoppel to insist on the original trust. 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.

would work great injustice to petitioners and would render meaningless the proper administration of justice. and that the transaction was regular and fair. are allowed in the following instances: têñ. 1982 reply to public respondents' comment and reiterated in petitioners' memorandum filed on October 30.000. because the bank is presumed to have followed the ordinary course of the business which is to accept deposits in Philippine currency only. 364 and other related regulations regarding foreign exchange transactions by accepting foreign currency deposit in the amount of US$75.S. the bank draft was endorsed by respondent David to petitioner Guingona." Exceptions. for the orderly administration of justice. Accordingly. Immediately after the bank draft was cleared.£îhqw ⣠"1. in petitioners' reply filed on May 7.00 were really converted into Philippine currency before they were accepted and deposited into Nation Savings and Loan Association. in the absence of a clear and convincing evidence to the contrary (see paragraphs p and q.Petitioners herein were likewise charged with violation of Section 3 of Central Bank Circular No. thereby adding more support to the conclusion that the US$75.000. even if the petitioners could have appealed to the Ministry of Justice. Sec. Municipality of Urdaneta. They contend however. who in turn deposited it to his dollar account with the Security Bank and Trust Company.00 with the Nation Savings and Loan Association. respondent David should have promptly denied petitioners' allegation. this court has recognized the resort to the extraordinary writs of prohibition and injunction in extreme cases. petitioner Guingona authorized Nation Savings and Loan Association to withdraw the same in order to be utilized by the bank for its operations. 1982. 2. Pangasinan. in proper cases. Petitioners' contention is worthy of behelf for the following reasons: 1. "5. 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. public respondents should be restrained from further proceeding with the criminal case for to allow the case to continue. 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. however. the prosecution in a criminal offense cannot be the subject of prohibition and injunction. dollars were converted first into Philippine pesos before they were accepted and deposited in Nation Savings and Loan Association. While as a rule. Considering that this might adversely affect his case. "4. Rule 131. 93 . "2.£îhqw⣠On the issue of whether a writ of injunction can restrain the proceedings in Criminal Case No. to afford adequate protection to constitutional rights. "3. 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. to prevent the use of the strong arm of the law in an oppressive and vindictive manner. It is safe to assume that the U. the general rule is that "ordinarily. because the statute relied upon is unconstitutional or was held invalid" ( Primicias vs. 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. thus: têñ. to avoid multiplicity of actions. 1982 to private respondent's comment and in the July 27. Rules of Court). 3140. criminal prosecution may not be blocked by court prohibition or injunction. Consequently. the same had to be cleared first and converted into Philippine currency. 5. In conclusion. 3. We hold that the public respondents acted without jurisdiction when they investigated the charges against the petitioners. Respondent David has not denied the aforesaid contention of herein petitioners despite the fact that it was raised.00 without authority from the Central Bank.000.

43 Phil. Albano. 63 Phil. WHEREFORE. Nepomuceno. to prevent the unlawful and oppressive exercise of legal authority and to provide for a fair and orderly administration of justice. our action in the premises being based on the public welfare policy the advancement of public policy. 304. 1äwphï1. Thus. THE PETITION IS HEREBY GRANTED. SO ORDERED. And in Arevalo vs. intended to annul void proceedings. We also admitted a petition to restrain the prosecution of certain chiropractors although. Fajardo. Trinidad. 385. Torres. 19 SCRA 95. et al. 621-622 [1966]). if convicted. The City Judge. COSTS AGAINST THE PRIVATE RESPONDENT. are in the ultimate analysis. and Hernandez vs. We held that: têñ. in Yu Kong Eng vs. Likewise. InDimayuga vs. as extraordinary legal remedies.£îhqw ⣠The writs of certiorari and prohibition. THE TEMPORARY RESTRAINING ORDER PREVIOUSLY ISSUED IS MADE PERMANENT. 47 Phil. they could have appealed. 96 [1967]). 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. 25 SCRA 557 [1968]. citing Ramos vs. ( 18 SCRA 616. 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.ñët .SCRA 462. in Lopez vs. 469-470 [1979]. 627. 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.

she inaccurately wrote 2900823. made regular deposits.e. Agoncillo for private respondent.204. 1994 CITYTRUST BANKING CORPORATION. on 27 February 1984. reversing the trial court's decision.00 007387 — 4. in its answer. thus: WHEREFORE.281. DISMISSING the complaint for lack of merit.: This case emanated from a complaint filed by private respondent Emme Herrero for damages against petitioner Citytrust Banking Corporation.262.507. petitioner.00 007492 — 6. on 15 July 1988.299.000.000. respondents. It averred that instead of stating her correct account number.000. in cash. she deposited with petitioner the amount of Thirty One Thousand Five Hundred Pesos (P31. Laguna. vs. 007400. Amount 007383 — P1. In her complaint. On 15 May 1980. dismissed the complaint for lack of merit. private respondent averred that she. i.. starting September of 1979. VITUG.00).00 007400 — 4.00 007384 — 1. it rendered judgment. however. was personally redeemed by private respondent in cash before it could be redeposited. Private respondent went to the Court of Appeals. collaborating counsel for private respondent. which found the appeal meritorious. Hence. Petitioner. viz: Check No.000. the judgment appealed from is REVERSED and a new one entered thereby ordering defendant to pay plaintiff nominal damages of P2.00 007387 — 2. in her deposit slip. in order to amply cover six (6) postdated checks she issued. temperate and moderate damages of P5.00 When presented for encashment upon maturity. THE INTERMEDIATE APPELLATE COURT and EMME HERRERO. with petitioner Citytrust Banking Corporation at its Burgos branch in Calamba. No. Agcaoili and Associates for petitioner. judgment is hereby rendered in favor of the defendant and against the plaintiff. a businesswoman.00.716. ." The last check No. plaintiff is hereby adjudged to pay the defendant reasonable attorney's fee in the amount of FIVE THOUSAND PESOS (P5. The appellate court ruled: WHEREFORE.R. Basco.G. J. 84281 May 27. The Regional Trial Court (Branch XXXIV) of Calamba. 29000823. Laguna.00. David B.00) plus cost of suit.00. all the checks were dishonored due to "insufficient funds. and attorney's fees of P4. Humberto B.500. asserted that it was due to private respondent's fault that her checks were dishonored.

For then she could have readily detected that the account number in the name of "Emma E. We are not persuaded that defendant bank was not free from blame for the fiasco. which. obviously. yet. . Bank clients are supposed to rely on the services extended by the bank. the teller should not have accepted plaintiff's deposit without correcting the account number on the deposit slip which. Exactly the same issue was addressed by the appellate court. We agree with plaintiff that — . That is. and that the deposit was made in her name. That is the responsibility of the bank and its employees. Petitioner Citytrust Banking Corporation is now before us in this petition for review on certiorari. the complete name of plaintiff depositor appears in bold letters on the deposit slip (Exh. Among such rules. We view the use of numbers as simply for the convenience of the bank but was never intended to disregard the real name of its depositors. if any. The bank is engaged in business impressed with public interest. "B"). who are supposed to be always "on-the-go". efficient and satisfactory service. the depositors are not concerned with banking procedure. and it is its duty to protect in return its many clients and depositors who transact business with it. This is so because it is not likely to commit an error in one's name than merely relying on numbers which are difficult to remember. is the following printed provision: In making a deposit . kindly insure accuracy in filing said deposit slip forms as we hold ourselves free of any liability for loss due to an incorrect account number indicated in the deposit slip although the name of the depositor is correctly written. Herrero" was erroneous and would be rejected by the computer. defendant's teller should not have fed her deposit slip to the computer knowing that her account number written thereon was wrong as it contained only seven (7) digits. according to defendant. after its deliberations. In the first place. is clearly written on said deposit slip (Exh. On the other hand. contained in its "brochures" governing current account deposits. particularly businessmen. it is a fact that her name. it contends. could have been avoided at the first instance had the teller of defendant bank performed her duties efficiently and well. and withdrawing therefrom. especially a number with eight (8) digits as the account numbers of defendant's depositors. private respondent has also the duty to use her account in accordance with the rules of petitioner bank to which she has contractually acceded. . For.The counterclaim of defendant is dismissed for lack of merit. It should not be a matter of the bank alone receiving deposits. made the following findings and conclusions: 1 We cannot uphold the position of defendant. "Emme E. In the case before Us. even if it be true that there was error on the part of the plaintiff in omitting a "zero" in her account number. Second. it contained only seven (7) digits instead of eight (8). plaintiff's deposit had to be consigned to the suspense accounts pending verification. There could be no mistaking in her name. Petitioner bank concedes that it is its obligation to honor checks issued by private respondent which are sufficiently funded. At least. This is controlling in determining in whose account the deposit is made or should be posted. part of the training and standard operating procedure of the bank's employees. Herrero"." In fact. This. it does not earn interest. It is also its obligation to see to it that all funds invested with it are properly accounted for and duly posted in its ledgers. indeed. As it happened. earning interest thereon. including the assurance that their deposits will be duly credited them as soon as they are made. as pointed out by defendant. with costs against him. the forbearance should be commensurated with prompt. any delay in crediting their account can be embarrassing to them as in the case of plaintiff. but. "Emma E. For. or should be. "B"). like plaintiff. Depositors are only concerned with the facility of depositing their money. After all. Herrero. was erroneous because. lending out money and collecting interests. Plaintiff's account is a "current account" which should immediately be posted.

The bank must record every single transaction accurately. always having in mind the fiduciary nature of their relationship. Manila Banking Corp. We agree with petitioner. may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot. along with nominal damages. be proved with reasonable certainty (Art. 131 SCRA 271). "O" and "P"). Nominal damages are given in order that a right of the plaintiff. WHEREFORE. 4-5. 183 SCRA 360. and as promptly as possible. and not for the purpose of indemnifying the plaintiff for any loss suffered by him (Art. "J". "N". which has been violated or invaded by the defendant. As proof thereof plaintiff alludes to five particular incidents where plaintiff admittedly wrongly indicated her account number in her deposit slips (Exhs. vs. To post a deposit in somebody else's name despite the name of the depositor clearly written on the deposit slip is indeed sheer negligence which could have easily been avoided if defendant bank exercised due diligence and circumspection in the acceptance and posting of plaintiff's deposit. can cause the depositor not a little embarrassment if not also financial loss and perhaps even civil and criminal litigation. vs. Nov. This has to be done if the account is to reflect at any given time the amount of money the depositor can dispose of as he sees fit. quoting the court a quo in an almost identical set of facts. in cautioning depository banks on their fiduciary responsibility. New Civil Code. Court of Appeals. 2221. whether such account consists only of a few hundred pesos or of millions. In the instant case. CV No. that — Having accepted a deposit in the course of its business transactions. 2224. 1985. from the nature of the case. may be vindicated or recognized. we similarly said. . it behooved upon defendant bank to see to it and without recklessness — that the depositor was accurately credited therefor. such as the dishonor of a check without good reason. that — In every case. down to the last centavo. In all other respects. the appealed decision is MODIFIED by deleting the award of temperate or moderate damages. the depositor expects the bank to treat his account with utmost fidelity.. however. temperate or moderate damages. but were nevertheless properly credited her deposit (pp. that it is wrong to award. "L". the appellate court's decision is AFFIRMED. we also find need for vindicating the wrong done on private respondent. reiterated in Bank of Philippine Islands vs. Intermediate Appellate Court. ways and means are available whereby deposits with erroneous account numbers are properly credited depositor's correct account numbers. Intermediate Appellate Court. 03639. 206 SCRA 408. In Simex International (Manila). The two awards are incompatible and cannot be granted concurrently. Far East Bank & Trust Co. prom. SO ORDERED. They add that failure on the part of the defendant to do so is negligence for which they are liable. Decision).. We have already ruled in Mundin v. New Civil Code). We subscribe to the above disquisitions of the appellate court. which are more than nominal but less than compensatory damages. A blunder on the part of the bank. confident that the bank will deliver it as and to whomever he directs. Temperate or moderate damages. Inc. on the other hand. .R. 2. No costs in this instance. The point is that as a business affected with public interest and because of the nature of its functions. . even in computerized systems of accounts. the bank is under obligation to treat the accounts of its depositors with meticulous care. AC-G. and we accordingly agree with the Court of Appeals in granting to her nominal damages but not in similarly awarding temperate or moderate damages.

or of a guarantor who warrants the solvency of the debtor? Pursuant to a promissory note dated March 13. is only secondarily liable on the instrument.: Where a party signs a promissory note as a co-maker and binds herself to be jointly and severally liable with the principal debtor in case the latter defaults in the payment of the loan. REGALADO.000. she offered to settle the obligation with respondent corporation but the latter informed her that they would try to collect from the spouses Azarraga and that she need not worry about it. 1990. that the offer made by petitioner to pay the obligation is considered a valid tender of payment sufficient to discharge a person's secondary liability on the instrument. are usurious and unconscionable. Respondent Court of Appeals. the parties submitted the following issues for the resolution of the trial court: (1) what the rate of interest. 1991. LENDING CORPORATION. No payments were made after the last payment on September 26. that the interest of 6% per month compounded at the same rate per month. penalty and damages should be.700. in the amount of P30. 5 Thereafter. the parties agreed to submit the case for decision based on the pleadings filed and the memoranda to be submitted by them. on the basis of petitioner's solidary liability under the promissory note. is such undertaking of the former deemed to be that of a surety as an insurer of the debt. 1998 ESTRELLA PALMARES. private respondent M. 4 petitioner alleged that sometime in August 1990. 1 On four occasions after the execution of the promissory note and even after the loan matured. 6 This was based on the findings of the court a quo that the filing of the complaint against herein petitioner Estrella Palmares.00. 2 Consequently.R. allegedly by reason of the insolvency of the latter. and that the promissory note is a contract of adhesion. 126490 March 31. J. In her Amended Answer with Counterclaim. and rendered judgment declaring herein petitioner Palmares liable to pay respondent corporation: . Lending Corporation extended a loan to the spouses Osmeña and Merlyn Azarraga. thereby leaving a balance of P13. respondent corporation acted in bad faith in suing her alone without including the Azarragas when they were the only ones who benefited from the proceeds of the loan.00.00. respondent corporation filed a complaint 3 against petitioner Palmares as the lone party-defendant. vs. petitioner and the Azarraga spouses were able to pay a total of P16. with compounded interest at the rate of 6% per annum to be computed every 30 days from the date thereof. petitioner. respondents. together with petitioner Estrella Palmares. Branch 23.300.B. 1990.010. No. to the exclusion of the principal debtors. COURT OF APPEALS and M. as well as the penalty charges of 3% per month. 1992.00 payable on or before May 12. During the pre-trial conference. to the exclusion of the Azarraga spouses.B. as co-maker. amounted to a discharge of a prior party. and that while she agrees to be liable on the note but only upon default of the principal debtor. however. and (3) whether the defendant Estrella Palmares is only a guarantor with a subsidiary liability and not a co-maker with primary liability. On November 26. reversed the decision of the trial court. (2) whether the liability of the defendant (herein petitioner) is primary or subsidiary. the Regional Trial Court of Iloilo City. immediately after the loan matured.G. rendered judgment dismissing the complaint without prejudice to the filing of a separate action for a sum of money against the spouses Osmeña and Merlyn Azarraga who are primarily liable on the instrument. that there has already been a partial payment in the amount of P17.

it rationalized that even if the promissory note were to be considered as a contract of adhesion. The basis of petitioner Palmares' liability under the promissory note is expressed in this wise: ATTENTION TO CO-MAKERS: PLEASE READ WELL I. the same is not entirely prohibited because the one who adheres to the contract is free to reject it entirely. Plus costs of suit. The promissory note is a contract of adhesion and should be construed against M. 905. Lending Corporation. There is no sufficient basis for concluding that Palmares' liability is solidary. As such. 3.700. when she signed as a co-maker. They are further refuted by accepted doctrines in the American jurisdiction after which we patterned our statutory law on surety and guaranty. 2. Palmares cannot be compelled to pay the loan at this point. 4. 5. Mrs. the Azarraga spouses. Hence this petition for review on certiorari wherein it is asserted that: A.1. Attorney's fees at 25% of the total amount due per stipulations. Its conflicting provisions do not establish Palmares' solidary liability. The Court of Appeals erred in ruling that Palmares acted as surety and is therefore solidarily liable to pay the promissory note. B. Estrella Palmares. as the Co-maker of the above-quoted loan. The promissory note contains provisions which establish the co-maker's liability as that of a guarantor. respondent appellate court declared that petitioner Palmares is a surety since she bound herself to be jointly and severally or solidarily liable with the principal debtors. The sum equivalent to the stipulated penalty of three percent (3%) per month. of the outstanding balance. 2. Assuming that Palmares' liability is solidary. for such guidance as may be taken therefrom in similar local controversies in the future. have fully understood the contents of this Promissory Note for Short-Term Loan: . The terms of the promissory note are vague. This case then affords us the opportunity to make an extended exposition on the ramifications of these two specialized contracts. It also adverted to the fact that petitioner admitted her liability in her Answer although she claims that the Azarraga spouses should have been impleaded. if he adheres. Respondent court ordered the imposition of the stipulated 6% interest and 3% penalty charges on the ground that the Usury Law is no longer enforceable pursuant to Central Bank Circular No. the Court of Appeals erred in strictly imposing the interests and penalty charges on the outstanding balance of the promissory note.00 representing the outstanding balance still due and owing with interest at six percent (6%) per month computed from the date the loan was contracted until fully paid. 3. Finally. 4. petitioner is primarily liable on the note and hence may be sued by the creditor corporation for the entire obligation. B. he gives his consent. 1. The foregoing contentions of petitioner are denied and contradicted in their material points by respondent corporation. 7 Contrary to the findings of the trial court. The sum of P13.

Mrs.39 in favor of private respondent when. First. It is true that the complaint alleges the fact of demand. the promissory note is a contract of adhesion since it was prepared by respondent M. I am fully aware that I shall be jointly and severally or solidarily liable with the above principal maker of this note.That as Co-maker. in truth and in fact. LENDING CORPORATION may demand payment of the above loan from me in case the principal maker. petitioner avers that she could be held liable only as a guarantor for several reasons.B. under the third paragraph her liability is actually that of a mere guarantor because she bound herself to fulfill the obligation only in case the principal debtor should fail to do so. but should be read in relation to the third paragraph. the court may equitably reduce the penalty 10 on grounds of substantial justice. it is argued that the Court of Appeals gravely erred in awarding the amount of P2. Finally. 9 Petitioner accordingly concludes that her liability should be deemed restricted by the clause in the third paragraph of the promissory note to be that of a guarantor. In an attempt to reconcile the supposed conflict between the two provisions. Thus. therefore. More simply stated. That in fact. mitigate the damages to be paid since petitioner has shown a sincere desire for a compromise. the law looks upon the contract of suretyship with a jealous eye and the rule is that the obligation of the surety cannot be extended by implication beyond specified limits. although the second paragraph says that she is liable as a surety. which is the essence of a contract of guaranty. on the other hand. 11 After a judicious evaluation of the arguments of the parties. she informed said respondent of her desire to settle the obligation. Where the interest charged on the loan is exorbitant. while petitioner may have admitted in her Amended Answer that she received a demand letter from respondent corporation sometime in 1990. a 65-year old housewife who is likely to enter into such transactions without fully realizing the nature and extent of her liability. iniquitous or unconscionable. and the obligation has been partially complied with. the outstanding balance of the loan is only P13. I hereby agree that M.00. respondent corporation never refuted petitioner's allegation that immediately after the loan matured. 1377 of the Civil Code. the same did not effectively put her or the principal debtors in default for the simple reason that the latter subsequently made a partial payment on the loan in September. we are constrained to dismiss the petition for lack of merit. 1991. but to except therefrom the issue anent the propriety of the monetary award adjudged to herein respondent corporation. and her only participation was to sign thereon. According to petitioner.B. these are two conflicting provisions in the promissory note and the rule is that clauses in the contract should be interpreted in relation to one another and not by parts. In other words. the third paragraph defines the nature of her liability as that of a guarantor.745. . any apparent ambiguity in the contract should be strictly construed against private respondent pursuant to Art. but the purported demand letters were never attached to the pleadings filed by private respondent before the trial court. the words "jointly and severally or solidarily liable" used in the second paragraph are technical and legal terms which are not fully appreciated by an ordinary layman like herein petitioner. Lending Corporation. petitioner submits that she cannot as yet be compelled to pay the loan because the principal debtors cannot be considered in default in the absence of a judicial or extrajudicial demand. More importantly. On the contrary. Merlyn Azarraga defaults in the payment of the note subject to the same conditions above-contained. the second paragraph should not be taken in isolation. Third. The court should. the wordings used in the third paragraph are easier to comprehend.700. And. Moreover. the contents thereof were never explained to her. a fact which was never controverted by herein private respondent.483. The note was brought to petitioner partially filled up. 8 Petitioner contends that the provisions of the second and third paragraph are conflicting in that while the second paragraph seems to define her liability as that of a surety which is joint and solidary with the principal maker. taking into consideration the peculiar nature of a surety agreement which holds the surety liable despite the absence of any direct consideration received from either the principal obligor or the creditor. Second.

Mrs. Petitioner admits that she voluntarily affixed her signature thereto. Lending Corporation may demand payment of the above loan from me in case the principal maker. therefore. just as consistently and unhesitatingly. it has been the consistent holding of the Court that contracts of adhesion are not invalid per se and that on numerous occasions the binding effects thereof have been upheld. petitioner expressly bound herself to be jointly and severally or solidarily liable with the principal maker of the note. a surety promises to pay the principal's debt if the principal will not pay. expectedly. The purported discordance is more apparent than real. Merlyn Azarraga defaults in the payment of the note. on the other hand. 14 Having entered into the contract with full knowledge of its terms and conditions." which makes her contract one of guaranty and not suretyship. 15 The rule that ignorance of the contents of an instrument does not ordinarily affect the liability of one who signs it also applies to contracts of suretyship. The terms of the contract are clear.At the outset.18 Stated differently. 19 A surety binds himself to perform if the principal does not. By guaranty. the Court has construed obscurities and ambiguities in the restrictive provisions of contracts of adhesion strictly albeit not unreasonably against the drafter thereof when justified in light of the operative facts and surrounding circumstances. but simply that he is able to do so. does not contract that the principal will pay. A surety is an insurer of the debt. Title I of this Book shall be observed. a guaranty. petitioner is estopped to assert that she did so under a misapprehension or in ignorance of their legal effect. she cannot now be heard to claim otherwise. a surety undertakes directly for the payment . self-serving allegations. fail as it was evidenced only by her own uncorroborated and. a person called the guarantor binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. 13 In the case at bar. It is a cardinal rule in the interpretation of contracts that if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties. while a guarantor agrees that the creditor. 20 In other words. explicit and unequivocal that petitioner's liability is that of a surety. Hence. or as to the legal effect of the undertaking.B. 17 A suretyship is an undertaking that the debt shall be paid. 2047. And the mistake of a surety as to the legal effect of her obligation is ordinarily no reason for relieving her of liability. after proceeding against the principal. mere preponderance of evidence not even being adequate. 16 Petitioner would like to make capital of the fact that although she obligated herself to be jointly and severally liable with the principal maker. whereas a guarantor is an insurer of the solvency of the debtor. Any reference to the existence of fraud is unavailing. The peculiar nature of such contracts necessitate a close scrutiny of the factual milieu to which the provisions are intended to apply. 12 The factual scenario obtaining in the case before us warrants a liberal application of the rule in favor of respondent corporation. but without categorically invalidating such contracts. the provisions of Section 4. the literal meaning of its stipulation shall control. her liability is deemed restricted by the provisions of the third paragraph of her contract wherein she agreed "that M. ergo. without regard to his ability to do so. Fraud must be established by clear and convincing evidence. A guarantor. let it here be stressed that even assuming arguendo that the promissory note executed between the parties is a contract of adhesion. may proceed against the guarantor if the principal is unable to pay. Chapter 3. If a person binds himself solidarily with the principal debtor. Petitioner's attempt to prove fraud must. Her pretension that the terms "jointly and severally or solidarily liable" contained in the second paragraph of her contract are technical and legal terms which could not be easily understood by an ordinary layman like her is diametrically opposed to her manifestation in the contract that she "fully understood the contents" of the promissory note and that she is "fully aware" of her solidary liability with the principal maker. The Civil Code pertinently provides: Art. an undertaking that the debtor shall pay. In such case the contract is called a suretyship.

29 which is precisely the situation obtaining in this case before the Court. 25 This can only be construed to mean that the payments made by the principal debtors were considered by respondent corporation as creditable directly upon the account and inuring to the benefit of petitioner. she knew that she was directly and primarily liable upon default of her principal. and his liability is immediate and direct. which holds that when the meaning of a contract of indemnity or guaranty has once been judicially determined under the rule of reasonable construction applicable to all written contracts. there can be no doubt that the stipulation contained in the third paragraph of the controverted suretyship contract merely elucidated on and made more specific the obligation of petitioner as generally defined in the second paragraph thereof. is not to be extended beyond its strict meaning. A contract of suretyship. 22 In a desperate effort to exonerate herself from liability. The second and third paragraphs of the aforequoted portion of the promissory note do not contain any other condition for the enforcement of respondent corporation's right against petitioner. Prescinding from these jurisprudential authorities. the undertaking to pay upon default of the principal debtor does not automatically remove it from the ambit of a contract of suretyship. and the principal obligors. will apply only after it has been definitely ascertained that the contract is one of suretyship and not a contract of guaranty. the theory advanced by petitioner. and this is most revealing. while a guarantor contracts to pay if. in her mind. A surety is usually bound with his principal by the same instrument. he is an original debtor. from the time of initial payment up to the last. the debt cannot be made out of the principal debtor. 27 This is because in suretyship there is but one contract. It is a well-entrenched rule that in order to judge the intention of the contracting parties. their contemporaneous and subsequent acts shall also be principally considered. and without reference to the solvency of the principal. when petitioner was informed about the failure of the principal debtor to pay the loan. the signers were "sureties" jointly liable with the buyer. that respondent corporation agreed to proceed against herein petitioner only if and when the defaulting principal has become insolvent. it has been held that where a written agreement on the same sheet of paper with and immediately following the principal contract between the buyer and seller is executed simultaneously therewith. and the surety is bound by the same agreement which binds the principal. 21 Quintessentially. It has not been shown. she immediately offered to settle the account with respondent corporation. petitioner considered herself equally bound by the contract of the principal makers. to repeat. either in the contract or the pleadings. It will further be observed that petitioner's undertaking as co-maker immediately follows the terms and conditions stipulated between respondent corporation. is that wherein one lends his credit by joining in the principal debtor's obligation. For another. so as to render himself directly and primarily responsible with him. providing that the signers of the agreement agreed to the terms of the principal contract. 31 A surety usually enters into the same obligation as that of his principal. that she is merely a guarantor because her liability attaches only upon default of the principal debtor. as thus interpreted and construed. and the signatures of both usually appear upon the same instrument. In this regard. 30 Thus. executed at the same time and upon the same consideration. It cannot be used as an aid in determining whether a party's undertaking is that of a surety or a guarantor. from the very start. however. by the use of due diligence. Resultantly. as creditor. 28 In essence.26 and as such is deemed an original promisor and debtor from the beginning. must necessarily fail for being incongruent with the judicial pronouncements adverted to above. and the same consideration usually supports the obligation for both the principal and the surety. then the liability of the surety.and is so responsible at once if the principal debtor makes default. under his contract. Obviously. the contract of a surety starts with the agreement. The concomitant and simultaneous compliance of petitioner's obligation with that of her principals only goes to show that. 32 . petitioner presented the receipts of the payments already made.23 The rule. petitioner erroneously invokes the rule on strictissimi juris. we need only to reiterate the rule that a surety is bound equally and absolutely with the principal. which were all issued in her name and of the Azarraga spouses. For one. 24 Several attendant factors in that genre lend support to our finding that petitioner is a surety.

Significantly. the surety is not exonerated. Inasmuch as the creditor owes no duty of active diligence to take care of the interest of the surety. 33 As a surety. I hereby waive my right to notice and demand. he is held ordinarily to know every default of his principal. the obligation of the surety is the same that of the principal. is likewise immaterial. it is not necessary for the creditor to proceed against a principal in order to hold the surety liable. Petitioner has agreed that respondent corporation may demand payment of the loan from her in case the principal maker defaults. 40 Since. nor is it a requisite. there having been no judicial or extrajudicial demand made by respondent corporation. to resort to and exhaust his remedies against the principal. and whether it is yielded by the creditor through sympathy or from an inclination to favor the principal. 36 The underlying principle therefor is that a suretyship is a direct contract to pay the debt of another. before proceeding against the surety. by not attaching copies thereof to its pleadings. the creditor has the right to proceed even against the surety alone. petitioner is equally bound by such waiver. 38 Petitioner questions the propriety of the filing of a complaint solely against her to the exclusion of the principal debtors who allegedly were the only ones who benefited from the proceeds of the loan. In other words. therefore. to be given notice of the principal's default. The rule. by the terms of the contract. where. The surety is bound to take notice of the principal's default and to perform the obligation. the surety is likewise in default. mere want of diligence or forbearance does not affect the creditor's rightsvis-a-vis the surety. or is only the result of passiveness.There is no merit in petitioner's contention that the complaint was prematurely filed because the principal debtors cannot as yet be considered in default. and absolutely liable as soon as default is made. He cannot complain that the creditor has not notified him in the absence of a special agreement to that effect in the contract of suretyship. as a matter of right. even if such delay continues until . since the commencement of the suit is a sufficient demand. the surety cannot at law. without any demand upon the principal whatsoever or any notice of default. 39 Under Article 1216 of the Civil Code. and with the rule that his proper remedy is to pay the debt and pursue the principal for reimbursement. before proceeding against the sureties. require the creditor or obligee. 37 As an original promisor and debtor from the beginning. demand on the sureties is not necessary before bringing suit against them. unless the surety requires him by appropriate notice to sue on the obligation. is that if the obligation is joint and several. In the absence of a statutory or contractual requirement. it is not necessary that payment or performance of his obligation be first demanded of the principal. his mere failure to voluntarily give information to the surety of the default of the principal cannot have the effect of discharging the surety. a surety is primarily liable. The neglect of the creditor to sue the principal at the time the debt falls due does not discharge the surety. 34 On this point. Even if it were otherwise. 35 The alleged failure of respondent corporation to prove the fact of demand on the principal debtors. Such gratuitous indulgence of the principal does not discharge the surety whether given at the principal's request or without it. in accordance with the rule that. it may be worth mentioning that a surety is not even entitled. generally. 42 We agree with respondent corporation that its mere failure to immediately sue petitioner on her obligation does not release her from liability. herein respondent corporation. subject to the same conditions expressed in the promissory note. 41 Perforce. A surety is liable as much as his principal is liable. We disagree." Hence. should have proceeded first against the principal before suing on her obligation as surety. paragraph (G) of the note states that "should I fail to pay in accordance with the above schedule of payment. especially where demand would have been useless. that the principal be called on to account. demand by the creditor is no longer necessary in order that delay may exist since the contract itself already expressly so declares. What petitioner is trying to imply is that the creditor. then soon as the principal is in default. the creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. unless permitted by statute and in the absence of any agreement limiting the application of the security. A creditor's right to proceed against the surety exists independently of his right to proceed against the principal. and may be sued immediately and before any proceedings are had against the principal. Where a creditor refrains from proceeding against the principal. in the absence of statute or agreement otherwise. particularly where both principal and surety are equally bound.

Petitioner additionally theorizes that respondent corporation intentionally delayed the collection of the loan in order that the interests and penalty charges would accumulate. the interests and penalty charges on the outstanding balance of the loan cannot be imposed for being illegal and unconscionable.the principal becomes insolvent. As a final issue. Banusing's secretary. I offered to pay MB Lending by delivering to them a parcel of land which I own. I was surprised to learn that Merlyn Azarraga's loan has been released and that she has not paid the same upon its maturity. does not constitute an extension of the time of payment. such as the subsequent insolvency of the principal. 51 None of these elements are present in the instant case. I requested Mr. 49 It may not be amiss to add that leniency shown to a debtor in default. failing in which we cannot grant the relief prayed for. I received a copy of the summons and of the complaint filed against me by MB Lending before the RTC-Iloilo. it should appear that the extension was for a definite period. Mr. if the surety is dissatisfied with the degree of activity displayed by the creditor in the pursuit of his principal. In an affidavit 53 executed by petitioner. 52 herein respondent corporation. 11. herein petitioner. pursuant to an enforceable agreement between the principal and the creditor. together with interest and penalties thereon. . likewise traversed by said respondent. 50 In order to constitute an extension discharging the surety. Banusing to try to collect first from Merlyn and Osmeña Azarraga. 9. The contract must be one which precludes the creditor from. she stated. Banusing advised me not to worry because he will try to collect first from Merlyn and Osmeña Azarraga. Since I had no available funds at that time. are immaterial. in the absence of proof of resultant injury. I received a telephone call from the secretary of Mr. enforcing the principal contract within the period during which he could otherwise have enforced it. by delay permitted by the creditor without change in the time when the debt might be demanded. among others. I offered to pay MB Lending the outstanding balance of the principal obligation should he fail to collect from Merlyn and Osmeña Azarraga. petitioner claims that assuming that her liability is solidary. or at least hinders him in. 45 The consequences of the delay. 46 or the fact that the remedies against the principal may be lost by lapse of time. I instructed Sheila Gatia to go to MB Lending and reiterate my first offer to pay the outstanding balance of the principal obligation of Merlyn Azarraga in the amount of P30. During the latter part of 1990. After learning that a complaint was filed against me. Banusing who reminded that the loan of Merlyn and Osmeña Azarraga. a surety is not discharged by the creditor's mere statement that the creditor will not look to the surety. that: 8. to show that she has been discharged by some act of the creditor. At the same time. In March 1992. A year thereafter. is misleading. Verily. refused my offer for the reason that they are not interested in real estate. which would release the surety. Augusto Banusing of MB Lending informing me of this fact and of my liability arising from the promissory note which I signed. 48 At any rate. 43 And. and that it was made without the consent of the surety or with a reservation of rights with respect to him. the mere fact that respondent corporation gave the principal debtors an extended period of time within which to comply with their obligation did not effectively absolve here in petitioner from the consequences of her undertaking. The statement. I received a telephone call from Mr.00. he may pay the debt himself and become subrogated to all the rights and remedies of the creditor. however. 10. has not been paid. and which precludes the surety from paying the debt. 47 The raison d'être for the rule is that there is nothing to prevent the creditor from proceeding against the principal at any time. the burden is on the surety. 44 or that he need not trouble himself.000. Besides. Mr. which was attached to her petition.

Venus. The debtor of a thing cannot compel the creditor to receive a different one. Atty. There are a number of circumstances which conjointly inveigh against her aforesaid theory. and she offered to pay only in case the creditor fails to collect. even if there has been no performance. Banusing. and without expressing any protest or objection. Petitioner made a second attempt to settle the obligation by offering a parcel of land which she owned. the penalty may also be reduced if it is iniquitous or leonine. 58 Precisely. 54 The obligee is entitled to demand fulfillment of the obligation or performance as stipulated. Banusing if my offer to pay the outstanding balance of the principal obligation loan (sic) of Merlyn and Osmeña Azarraga is acceptable. respondent corporation cannot be blamed for refusing the amount being offered because it fell way below the amount it had computed. Banusing who referred her to Atty. we find and so hold that the penalty charge of 3% per month and attorney's fees equivalent to 25% of the total amount due are highly inequitable and unreasonable.57 Petitioner cannot compel respondent corporation to accept the amount she is willing to pay because the moment the latter accepts the performance. After the complaint was filed against her. A change of the object of the obligation would constitute novation requiring the express consent of the parties. however.B. It must be remembered that from the principal loan of P30. This notwithstanding. Atty. A person entering into a contract has a right to insist on its performance in all particulars. At any rate.00 had already been paid even before the filing of the present case. this is what respondent corporation wanted to avoid when it continually refused to settle with petitioner at less than what was actually due under their contract.12.00. And. The purported offer to pay made by petitioner can not be deemed sufficient and substantial in order to effectively discharge her from liability. counsel of MB Lending. the amount of P16. Venus informed Ms. Later. 1. 56 In other words. Respondent corporation cannot be faulted for not immediately demanding payment from petitioner. to punish the . Gatia talked to the secretary of Mr.000. It was petitioner who initially requested that the creditor try to collect from her principal first.000. although the latter may be of the same value. and which is substantially on all fours with the one at bar.300. The delay. based on the stipulated interests and penalty charges. 2. 13. Respondent corporation was acting well within its rights when it refused to accept the offer. was occasioned by the fact that respondent corporation merely acquiesced to the request of petitioner. Gatia that he will consult Mr. A debt shall not be understood to have been paid unless the thing or service in which the obligation consists has been completely delivered or rendered. Lending Corporation. The purpose for which the penalty interest is intended — that is. Venus informed Ms. there was here no actual offer of payment to speak of but only a commitment to pay if the principal does not pay. Gatia that my offer is not acceptable to Mr. 55 3. as the case may be. Article 1229 of the Civil Code provides that the court shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. then the obligation shall be deemed fully complied with. the prestation must be fulfilled completely. as owing and due from herein petitioner. Again. knowing its incompleteness or irregularity. In a case previously decided by this Court which likewise involved private respondent M. petitioner reiterated her offer to pay the outstanding balance of the obligation in the amount of P30. if any. or more valuable than that which is due. we agree with the Court of Appeals that the economic impact of the penalty interest of three percent (3 %) per month on total amount due but unpaid should be equitably reduced. Ms. we decided to eliminate altogether the penalty interest for being excessive and unwarranted under the following rationalization: Upon the matter of penalty interest.00 but the same was likewise rejected.

We. as in other contracts.000.00. .00 as and for attorney's fee would be sufficient in this case. 59 Accordingly.g. the judgment appealed from is hereby AFFIRMED. that it is contrary to morals or public policy. Under the exceptional circumstances in the case at bar. in our opinion.00.obligor — will have been sufficiently served by the effects of compounded interest.000. the original amount loaned was only P15.000.. SO ORDERED. e. partial payment of P8. Finally. unreasonable and immoderate. with respect to the award of attorney's fees. 60 To that end. this Court has previously ruled that even with an agreement thereon between the parties. therefore. the penalty interest of 3% per month being imposed on petitioner should similarly be eliminated.600. and the heavy (albeit still lawful) regular compensatory interest. the penalty interest stipulated in the parties' promissory note is iniquitous and unconscionable and may be equitably reduced further by eliminating such penalty interest altogether. 61 The grant of attorney's fees equivalent to 25% of the total amount due is. considering the minimal unpaid amount involved and the extent of the work involved in this simple action for collection of a sum of money. the court may nevertheless reduce such attorney's fees fixed in the contract when the amount thereof appears to be unconscionable or unreasonable. hold that the amount of P10. subject to the MODIFICATION that the penalty interest of 3% per month is hereby deleted and the award of attorney's fees is reduced to P10. 62 WHEREFORE. it is not even necessary to show.00 was made on due date.

Inc. private respondent filed a case for the collection of a sum of money with the Regional Trial Court (RTC) of Quezon City. Furthermore. to Rosita B.3 Petitioner told private respondent that Luanzon has been engaged in business as a contractor for twenty years and she invited private respondent to lend Luanzon money at a monthly interest rate of five percent (5%). Baylon introduced private respondent Leonila Tomacruz. 1987. Luanzon replaced this check with another postdated Solidbank check no. petitioner Pacionaria C. petitioner avers that. CA418437 dated August 22. but rather as an investment in Art Enterprises and Construction. On June 22. affixing her signature under the word "guarantor.000. 1987. No. GONZAGA-REYES.R. granting arguendo that there was a loan and petitioner guaranteed the same." Luanzon also issued a postdated Solidbank check no. petitioner. thus releasing from her obligation. 1989. 1990 in Civil Case No.000. Luanzon. In her answer.7 Private respondent made a written demand upon petitioner for payment. agreed to lend Luanzon money in the amount of P150. Private respondent. — the construction business of Luanzon.500 each were also issued by Luanzon and made payable to private respondent. 1âwphi1. on May 8.R. 1991 in CA-G. Branch 88.00. in favor of the same payee and covering the same amount. impleading Mariano Baylon. In its Decision dated June 14. the lower court ruled in favor of private respondent. which petitioner did not heed.000 from private respondent and obliging herself to pay the former the said amount on or before August 22. However. are briefly narrated as follows: Sometime in 1986. Q89-2483 and the Resolution of the Court of Appeals dated April 27. Luanzon issued and signed a promissory note acknowledging receipt of the P150.G. petitioner claims that there was an extension of the maturity date of the loan without her consent. petitioner denied having guaranteed the payment of the promissory note issued by Luanzon. it stated that — The evidence and the testimonies on record clearly established a (sic) fact that the transaction between the plaintiff and defendants was a loan with five percent (5%) monthly interest and not an investment. 109941 August 17. not as loan. the co-manager of her husband at PLDT. 8 After trial on the merits. 1987 payable to Leonila Tomacruz in the amount of P150. dated June 14. 1987. 1999 PACIONARIA C.: This is a petition for review by way of certiorari under Rule 45 of the Revised Rules of Court of the decision of the Court of Appeals1 dated November 29. J. BAYLON. 1990. persuaded by the assurances of petitioner that Luanzon's business was stable and by the high interest rate. private respondent has not exhausted the property of the principal debtor nor has she resorted to all the legal remedies against the principal debtor as required by law. respondents. vs.nêt The pertinent facts. Branch 88. 1993 denying petitioner's Motion for Reconsideration. CV No. against Luanzon and petitioner herein. as an additional defendant.5 Subsequently. In fact they all admitted in their testimonies that they are not given any stock certificate but only promissory notes similar to Exhibit "B" wherein it was clearly stated that defendant Luanzon would . 432945 dated December 22.6 Several check in the amount of P7. 27779 affirming the decision2 of the Regional Trial Court of Quezon City. summons was never served upon Luanzon. to be used as capital for the latter's business. as found by the trial court and affirmed by respondent court. Finally.4 Petitioner signed the promissory note. She claimed that private respondent gave Luanzon the money. husband of petitioner. Thus. THE HONORABLE COURT OF APPEALS (Former Ninth Division) and LEONILA TOMACRUZ.

9 On appeal. At the outset. Pacionaria Baylon.00. THE LOWER COURT ERRED IN RESOLVING THAT SHE WAS NOT RELEASED FROM HER GUARANTY BY THE SUBSEQUENT TRANSACTIONS BETWEEN THE RESPONDENT-APPELLANT AND DEFENDANT LUANZON.000. DEFENDANT LUANZON. we note that petitioner's claim that the factual findings of the lower court. this present case wherein petitioner makes the following assignment of errors — I. Hence. GRANTING. WITHOUT ADMITTING. are final and conclusive and cannot be reviewed on appeal by the Supreme Court.12 none of the exceptions are in point in the present case. to pay the plaintiff the sum of P150.14 . The factual findings of the respondent court are borne out by the record and are based on substantial evidence. 13 In support of her claim. with interest at the legal rate from the filing of this complaint until full payment thereof. especially when affirmed by the Court of Appeals. were based on a misapprehension of facts and contradicted by the evidence on records10 is a bare allegation and devoid of merit. 1987.00 as attorney's fees and costs of suit. representing dividends on her investment. 1987. which were affirmed by the Court of Appeals. As a rule. xxx xxx xxx WHEREFORE. judgment is hereby rendered against the defendants Pacionaria C. but rather as an investment in the construction project of the latter.000. The evidences presented likewise show that plaintiff and others loan their money to defendant Luanzon because of the assurance of the monthly income of five percent (5%) of their money and that they could withdraw it anytime after the due date add to it the fact that their friend. that private respondent gave Luanzon the amount of P150. THAT PETITIONER-APPELLANT BAYLON WAS A "GUARANTOR" AS APPEARING IN THE NOTE (EXH." "dividends. This shows that they were never participants in the business transaction of defendant Luanzon but were creditors. expresses her unequivocal gurarantee to the payment of the amount loaned. Baylon and Mariano Baylon." and "commission" in her testimony before the lower court.pay the amount of indebtedness on the date due. the conclusions of fact of the trial court. III. the fact that private respondent received monthly checks from Luanzon in the amount of P7. not as a loan. II.000. and the fact that other employees of the Development Bank of the Philippines made similar investments in Luanzon's construction business. GRANTING.500 from July to December. Petitioner claims that there is no loan to begin with. to pay the total sum of P21. petitioner cites the use by private respondent of the words "investment. "A") THE RESPONDENT COURT ERRED IN RULING THAT PETITIONER-APPELLANT BAYLON IS LIABLE TO THE PRIVATE RESPONDENT BECAUSE THE LATTER HAS NOT TAKEN STEPS TO EXHAUST THE PROPERTY OF THE PRINCIPAL DEBTOR AND HAS NOT RESORTED TO ALL THE LEGAL REMEDIES PROVIDED BY LAW AGAINST THE DEBTOR. Postdated checks were issued simultaneously with the promissory notes to enable the plaintiff and others to withdraw their money on a certain fixed time. the trial court's decision was affirmed by the Court of Appeals. premises considered. WITHOUT ADMITTING THAT PETITIONER-APPELLANT BAYLON WAS A GUARANTOR UNDER THAT NOTE (EXHIBIT "A") DATED JUNE 22.11 Although this rule admits of several exceptions. INC. RESPONDENT COURT ERRED IN HOLDING THAT THE PRIVATE RESPONDENT TOMACRUZ WAS A CREDITOR OF DEFENDANT LUANZON AND NOT AN INVESTOR IN THE CONSTRUCTION BUSINESS OF ART ENTERPRISES & CONSTRUCTION.

all the circumstances mentioned by petitioner cannot override the clear and unequivocal terms of the June 22. we hold that it is premature for this Court to even determine whether or not petitioner is liable as a guarantor and whether she is entitled to the concomitant rights as such. 801-28-00 18 P.000. It is axiomatic that the liability of the guarantor is only subsidiary. the creditor may hold the guarantor liable only after judgment has been obtained against the principal debtor and the latter is unable to pay.19 Petitioner is invoking the benefit of excussion pursuant to article 2058 of the Civil Code. LUANZON GURARANTOR: (signed) PACIONARIA O. no attempt to read into it any alleged intention of the parties thereto may be justified. 1987 To Whom It May Concern: For value received.. No. 1987 promissory note whereby Luanzon promised to pay private respondent the amount of P150. no . BAYLON Tel. _______ dated August 22.However.00) on or before August 22. M. 1987. DBP Village Almanza.20 All the properties of the principal debtor must first be exhausted before his own is levied upon. 1987 promissory note. even though she is held to be a guarantor under the terms of the promissory note. 1987. All of petitioner's arguments are directed at uncovering the real intention of the parties in executing the promissory note.000 on or before August 22. she is not liable because private respondent did not exhaust the property of the principal debtor and has not resorted to all the legal remedies provided by the law against the debtor.M. I hereby promise to pay Mrs. since the most basic prerequisite is wanting — that is."21 This rule is embodied in article 2062 of the Civil Code which provides that the action brought by the creditor must be filed against the principal debtor alone. the literal meaning of its stipulation shall control. but no amount of argumentation will change the plain import of the terms thereof. 1987.15 If the terms of a contract are clear and leave no doubt as to the intention of the contracting parties. LEONILA TOMACRUZ the amount of ONE HUNDRED FIFTY THOUSAND PESOS ONLY (P150. Thus. The above amount is covered by __________ Check No. Las Pinas. like the benefit of excussion. Mapa St. and has resorted to all the legal remedies against the debtor. and accordingly. It is petitioner's contention that. The transaction at bench is therefore a loan. The promissory note states as follows: June 22. except in some instances when the action may be brought against both the debtor and the principal debtor. (signed) ROSITA B.17Both petitioner and private respondent do not deny the due execution and authenticity of the June 22.18 The clear terms of the promissory note establish a creditor-debtor relationship between Luanzon and private respondent. not an investment. which provides that — The guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the property of the debtor.22 Under the circumstances availing in the present case.16 Resort to extrinsic aids and other extraneous sources are not necessary in order to ascertain the parties' intent when there is no ambiguity in the terms of the agreement. "for obviously the 'exhaustion of the principal's property' — the benefit of which the guarantor claims — cannot even begin to take place before judgment has been obtained.

We hold that private respondent must first obtain a judgment against the principal debtor before assuming to run after the alleged guarantor. . 1âw phi1. the trial court never even acquired jurisdiction over the principal debtor. 1991 and Resolution dated April 27. Although the principal debtor Luanzon was impleaded as defendant. Luanzon.judgment was first obtained against the principal debtor Rosita B. No pronouncement as to costs. Thus. IN VIEW OF THE FOREGOING. 1993 are SET ASIDE. It is useless to speak of a guarantor when no debtor has been held liable for the obligation which is allegedly secured by such guarantee. the petition is granted and the questioned Decision of the Court of Appeals dated November 29.nêt SO ORDERED. there is nothing in the records to show that summons was served upon her.

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