Case list july 18

1. Palacio v. Sudario, 7 Phil. 275
2. RC Bishop of Jaro v. De La Pena, 26 Phil. 144 (1913)
3. CA Agro- Indust. Dev. v. CA, 219 SCRA 426 (1993)
4. Baron v. David, 51 Phil. 2 (1927)
5. Bank of the Phil. Islands v. CA, 232 SCRA 302 (1994)
6. Fidelity Savings vs. Cenzon (184 SCRA 141)
7. Goodman v. Lichauco, 71 Phil. 237

[1907V11] ANICETA PALACIO, plaintiff-appellee, vs. DIONISIO SUDARIO,
defendant-appellant.1907 Jan 21st DivisionG.R. No. 2980D E C I S I O N


At an interview at which were present the defendant and three herdsmen, the
plaintiff made an arrangement for the pasturing of eighty-one head of cattle, in
return for which she was to give one-half of the calves that might be born and
was to pay the defendant one-half peso for each calf branded. On demand for
the whole, forty-eight head of cattle were afterwards returned to her and this
action is brought to recover the remaining thirty-three.

It is claimed as a first defense that arrangement was made between the plaintiff
and the herdsmen, the defendant, who was president of the municipality,
tendering his good offices only. Upon this question, the finding of the court below
is conclusive in favor of the plaintiff and is fully justified by the proofs, especially
by a letter of the defendant in reply to the demand for the cattle, in which he
seeks to excuse himself for the loss of the missing animals.

As a second defense it is claimed that the thirty-three cows either died of disease
or were drowned in a flood. As to this point, on which the trial court has made no
specific finding, the proof is conflicting in many particulars and indicates that at
least some of these cattle were living at the time of the surrender of the forty-
eight head. The defendant's witnesses swore that of the cows that perished, six
die from overfeeding, and they failed to make clear the happening of any flood
sufficient to destroy the others.

If we consider the contract as one of deposit, then under article 1183 of the Civil
Code, the burden of explanation of the loss rested upon the depositary and
under article 1769 the fault is presumed to be his. The defendant has not
succeeded in showing that the loss occurred either without fault on his part or by
reason of caso fortuito.

If, however, the contract be not one strictly of deposit but one according to local
custom for the pasturing of cattle, the obligations of the parties remain the same.
The defendant also sets up the six years' statute of limitation, under section 43 of
the present Code of Civil Procedure. This action, having arisen before that code
went into effect, is governed by the provisions of preexisting law (sec. 38) under
which the prescription was one of fifteen years. (Civil Code, art. 1964.)

The judgment of the court below is affirmed with the costs of both instances.
After expiration of twenty days let judgment be entered in accordance herewith
and ten days thereafter the case remanded to the court from whence it came for
execution. So ordered.

EN BANC 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, defendant-appellant.


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.

Separate Opinions

TRENT, J., dissenting:

I dissent. Technically speaking, whether Father De la Peña was a trustee or an
agent of the plaintiff his books showed that in 1898 he had in his possession as
trustee or agent the sum of P6,641 belonging to the plaintiff as the head of the
church. This money was then clothed with all the immunities and protection with
which the law seeks to invest trust funds. But when De la Peña mixed this trust
fund with his own and deposited the whole in the bank to his personal account or
credit, he by this act stamped on the said fund his own private marks and
unclothed it of all the protection it had. If this money had been deposited in the
name of De la Peña as trustee or agent of the plaintiff, I think that it may be
presumed that the military authorities would not have confiscated it for the
reason that they were looking for insurgent funds only. Again, the plaintiff had no
reason to suppose that De la Peña would attempt to strip the fund of its identity,
nor had he said or done anything which tended to relieve De la Peña from the
legal reponsibility which pertains to the care and custody of trust funds.

The Supreme Court of the United States in the United State vs. Thomas (82 U.
S., 337), at page 343, said: "Trustees are only bound to exercise the same care
and solicitude with regard to the trust property which they would exercise with
regard to their own. Equity will not exact more of them. They are not liable for a
loss by theft without their fault. But this exemption ceases when they mix the
trust-money with their own, whereby it loses its identity, and they become mere

If this proposition is sound and is applicable to cases arising in this jurisdiction,
and I entertain no doubt on this point, the liability of the estate of De la Peña
cannot be doubted. But this court in the majority opinion says: "The fact that he
(Agustin de la Peña) 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. . . . There was no law prohibiting him from
depositing it as he did, and there was no law which changed his responsibility, by
reason of the deposit."

I assume that the court in using the language which appears in the latter part of
the above quotation meant to say that there was no statutory law regulating the
question. Questions of this character are not usually governed by statutory law.
The law is to be found in the very nature of the trust itself, and, as a general rule,
the courts say what facts are necessary to hold the trustee as a debtor.

If De la Peña, after depositing the trust fund in his personal account, had used
this money for speculative purposes, such as the buying and selling of sugar or
other products of the country, thereby becoming a debtor, there would have been
no doubt as to the liability of his estate. Whether he used this money for that
purpose the record is silent, but it will be noted that a considerable length of time
intervened from the time of the deposit until the funds were confiscated by the
military authorities. In fact the record shows that De la Peña deposited on June
27, 1898, P5,259, on June 28 of that year P3,280, and on August 5 of the same
year P6,000. The record also shows that these funds were withdrawn and again
deposited all together on the 29th of May, 1900, this last deposit amounting to
P18,970. These facts strongly indicate that De la Peña had as a matter of fact
been using the money in violation of the trust imposed in him.

If the doctrine announced in the majority opinion be followed in cases hereafter
arising in this jurisdiction trust funds will be placed in precarious condition. The
position of the trustee will cease to be one of trust.

G.R. No. 90027 March 3, 1993
COMPANY, respondents.


Is the contractual relation between a commercial bank and another party in a
contract of rent of a safety deposit box with respect to its contents placed by the
latter one of bailor and bailee or one of lessor and lessee?

This is the crux of the present controversy.

On 3 July 1979, petitioner (through its President, Sergio Aguirre) and the
spouses Ramon and Paula Pugao entered into an agreement whereby the
former purchased from the latter two (2) parcels of land for a consideration of
P350,625.00. Of this amount, P75,725.00 was paid as downpayment while the
balance was covered by three (3) postdated checks. Among the terms and
conditions of the agreement embodied in a Memorandum of True and Actual
Agreement of Sale of Land were that the titles to the lots shall be transferred to
the petitioner upon full payment of the purchase price and that the owner's
copies of the certificates of titles thereto, Transfer Certificates of Title (TCT) Nos.
284655 and 292434, shall be deposited in a safety deposit box of any bank. The
same could be withdrawn only upon the joint signatures of a representative of the
petitioner and the Pugaos upon full payment of the purchase price. Petitioner,
through Sergio Aguirre, and the Pugaos then rented Safety Deposit Box No.
1448 of private respondent Security Bank and Trust Company, a domestic
banking corporation hereinafter referred to as the respondent Bank. For this
purpose, both signed a contract of lease (Exhibit "2") which contains, inter alia,
the following conditions:

13. The bank is not a depositary of the contents of the safe and it has
neither the possession nor control of the same.

14. The bank has no interest whatsoever in said contents, except herein
expressly provided, and it assumes absolutely no liability in connection therewith.

After the execution of the contract, two (2) renter's keys were given to the renters
— one to Aguirre (for the petitioner) and the other to the Pugaos. A guard key
remained in the possession of the respondent Bank. The safety deposit box has
two (2) keyholes, one for the guard key and the other for the renter's key, and
can be opened only with the use of both keys. Petitioner claims that the
certificates of title were placed inside the said box.

Thereafter, a certain Mrs. Margarita Ramos offered to buy from the petitioner the
two (2) lots at a price of P225.00 per square meter which, as petitioner alleged in
its complaint, translates to a profit of P100.00 per square meter or a total of
P280,500.00 for the entire property. Mrs. Ramos demanded the execution of a
deed of sale which necessarily entailed the production of the certificates of title.
In view thereof, Aguirre, accompanied by the Pugaos, then proceeded to the
respondent Bank on 4 October 1979 to open the safety deposit box and get the
certificates of title. However, when opened in the presence of the Bank's
representative, the box yielded no such certificates. Because of the delay in the
reconstitution of the title, Mrs. Ramos withdrew her earlier offer to purchase the
lots; as a consequence thereof, the petitioner allegedly failed to realize the
expected profit of P280,500.00. Hence, the latter filed on 1 September 1980 a
complaint 2 for damages against the respondent Bank with the Court of First
Instance (now Regional Trial Court) of Pasig, Metro Manila which docketed the
same as Civil Case No. 38382.

In its Answer with Counterclaim, 3 respondent Bank alleged that the petitioner
has no cause of action because of paragraphs 13 and 14 of the contract of lease
(Exhibit "2"); corollarily, loss of any of the items or articles contained in the box
could not give rise to an action against it. It then interposed a counterclaim for
exemplary damages as well as attorney's fees in the amount of P20,000.00.
Petitioner subsequently filed an answer to the counterclaim. 4

In due course, the trial court, now designated as Branch 161 of the Regional Trial
Court (RTC) of Pasig, Metro Manila, rendered a decision 5 adverse to the
petitioner on 8 December 1986, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered dismissing
plaintiff's complaint.

On defendant's counterclaim, judgment is hereby rendered ordering plaintiff to
pay defendant the amount of FIVE THOUSAND (P5,000.00) PESOS as
attorney's fees.

With costs against plaintiff. 6

The unfavorable verdict is based on the trial court's conclusion that under
paragraphs 13 and 14 of the contract of lease, the Bank has no liability for the
loss of the certificates of title. The court declared that the said provisions are
binding on the parties.

Its motion for reconsideration 7 having been denied, petitioner appealed from the
adverse decision to the respondent Court of Appeals which docketed the appeal
as CA-G.R. CV No. 15150. Petitioner urged the respondent Court to reverse the
challenged decision because the trial court erred in (a) absolving the respondent
Bank from liability from the loss, (b) not declaring as null and void, for being
contrary to law, public order and public policy, the provisions in the contract for
lease of the safety deposit box absolving the Bank from any liability for loss, (c)
not concluding that in this jurisdiction, as well as under American jurisprudence,
the liability of the Bank is settled and (d) awarding attorney's fees to the Bank
and denying the petitioner's prayer for nominal and exemplary damages and
attorney's fees. 8

In its Decision promulgated on 4 July 1989, 9 respondent Court affirmed the
appealed decision principally on the theory that the contract (Exhibit "2")
executed by the petitioner and respondent Bank is in the nature of a contract of
lease by virtue of which the petitioner and its co-renter were given control over
the safety deposit box and its contents while the Bank retained no right to open
the said box because it had neither the possession nor control over it and its
contents. As such, the contract is governed by Article 1643 of the Civil Code 10
which provides:

Art. 1643. In the lease of things, one of the parties binds himself to give to
another the enjoyment or use of a thing for a price certain, and for a period which
may be definite or indefinite. However, no lease for more than ninety-nine years
shall be valid.

It invoked Tolentino vs. Gonzales 11 — which held that the owner of the property
loses his control over the property leased during the period of the contract — and
Article 1975 of the Civil Code which provides:

Art. 1975. The depositary holding certificates, bonds, securities or instruments
which earn interest shall be bound to collect the latter when it becomes due, and
to take such steps as may be necessary in order that the securities may preserve
their value and the rights corresponding to them according to law.

The above provision shall not apply to contracts for the rent of safety deposit

and then concluded that "[c]learly, the defendant-appellee is not under any duty
to maintain the contents of the box. The stipulation absolving the defendant-
appellee from liability is in accordance with the nature of the contract of lease
and cannot be regarded as contrary to law, public order and public policy." 12
The appellate court was quick to add, however, that under the contract of lease
of the safety deposit box, respondent Bank is not completely free from liability as
it may still be made answerable in case unauthorized persons enter into the vault
area or when the rented box is forced open. Thus, as expressly provided for in
stipulation number 8 of the contract in question:

8. The Bank shall use due diligence that no unauthorized person shall be
admitted to any rented safe and beyond this, the Bank will not be responsible for
the contents of any safe rented from it. 13

Its motion for reconsideration 14 having been denied in the respondent Court's
Resolution of 28 August 1989, 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. Petitioner avers that both the respondent Court and the trial court (a) did
not properly and legally apply the correct law in this case, (b) acted with grave
abuse of discretion or in excess of jurisdiction amounting to lack thereof and (c)
set a precedent that is contrary to, or is a departure from precedents adhered to
and affirmed by decisions of this Court and precepts in American jurisprudence
adopted in the Philippines. It reiterates the arguments it had raised in its motion
to reconsider the trial court's decision, the brief submitted to the respondent
Court and the motion to reconsider the latter's decision. In a nutshell, petitioner
maintains that regardless of nomenclature, the contract for the rent of the safety
deposit box (Exhibit "2") is actually a contract of deposit governed by Title XII,
Book IV of the Civil Code of the
Philippines. 16 Accordingly, it is claimed that the respondent Bank is liable for the
loss of the certificates of title pursuant to Article 1972 of the said Code which

Art. 1972. The depositary is obliged to keep the thing safely and to return it,
when required, to the depositor, or to his heirs and successors, or to the person
who may have been designated in the contract. His responsibility, with regard to
the safekeeping and the loss of the thing, shall be governed by the provisions of
Title I of this Book.

If the deposit is gratuitous, this fact shall be taken into account in determining the
degree of care that the depositary must observe.

Petitioner then quotes a passage from American Jurisprudence 17 which is
supposed to expound on the prevailing rule in the United States, to wit:

The prevailing rule appears to be that where a safe-deposit company leases a
safe-deposit box or safe and the lessee takes possession of the box or safe and
places therein his securities or other valuables, the relation of bailee and bail or
is created between the parties to the transaction as to such securities or other
valuables; the fact that the
safe-deposit company does not know, and that it is not expected that it shall
know, the character or description of the property which is deposited in such
safe-deposit box or safe does not change that relation. That access to the
contents of the safe-deposit box can be had only by the use of a key retained by
the lessee ( whether it is the sole key or one to be used in connection with one
retained by the lessor) does not operate to alter the foregoing rule. The argument
that there is not, in such a case, a delivery of exclusive possession and control to
the deposit company, and that therefore the situation is entirely different from
that of ordinary bailment, has been generally rejected by the courts, usually on
the ground that as possession must be either in the depositor or in the company,
it should reasonably be considered as in the latter rather than in the former, since
the company is, by the nature of the contract, given absolute control of access to
the property, and the depositor cannot gain access thereto without the consent
and active participation of the company. . . . (citations omitted).

and a segment from Words and Phrases 18 which states that a contract for the
rental of a bank safety deposit box in consideration of a fixed amount at stated
periods is a bailment for hire.

Petitioner further argues that conditions 13 and 14 of the questioned contract are
contrary to law and public policy and should be declared null and void. In support
thereof, it cites Article 1306 of the Civil Code which provides that parties to a
contract may establish such stipulations, clauses, terms and conditions as they
may deem convenient, provided they are not contrary to law, morals, good
customs, public order or public policy.

After the respondent Bank filed its comment, this Court gave due course to the
petition and required the parties to simultaneously submit their respective

The petition is partly meritorious.

We agree with the petitioner's contention that the contract for the rent of the
safety deposit box is not an ordinary contract of lease as defined in Article 1643
of the Civil Code. However, We do not fully subscribe to its view that the same is
a contract of deposit that is to be strictly governed by the provisions in the Civil
Code on deposit; 19 the contract in the case at bar is a special kind of deposit. It
cannot be characterized as an ordinary contract of lease under Article 1643
because the full and absolute possession and control of the safety deposit box
was not given to the joint renters — the petitioner and the Pugaos. The guard
key of the box remained with the respondent Bank; without this key, neither of
the renters could open the box. On the other hand, the respondent Bank could
not likewise open the box without the renter's key. In this case, the said key had
a duplicate which was made so that both renters could have access to the box.

Hence, the authorities cited by the respondent Court 20 on this point do not
apply. Neither could Article 1975, also relied upon by the respondent Court, be
invoked as an argument against the deposit theory. Obviously, the first
paragraph of such provision cannot apply to a depositary of certificates, bonds,
securities or instruments which earn interest if such documents are kept in a
rented safety deposit box. It is clear that the depositary cannot open the box
without the renter being present.

We observe, however, that the deposit theory itself does not altogether find
unanimous support even in American jurisprudence. We agree with the petitioner
that under the latter, the prevailing rule is that the relation between a bank
renting out safe-deposit boxes and its customer with respect to the contents of
the box is that of a bail or and bailee, the bailment being for hire and mutual
benefit. 21 This is just the prevailing view because:

There is, however, some support for the view that the relationship in question
might be more properly characterized as that of landlord and tenant, or lessor
and lessee. It has also been suggested that it should be characterized as that of
licensor and licensee. The relation between a bank, safe-deposit company, or
storage company, and the renter of a safe-deposit box therein, is often described
as contractual, express or implied, oral or written, in whole or in part. But there is
apparently no jurisdiction in which any rule other than that applicable to
bailments governs questions of the liability and rights of the parties in respect of
loss of the contents of safe-deposit boxes. 22 (citations omitted)

In the context of our laws which authorize banking institutions to rent out safety
deposit boxes, it is clear that in this jurisdiction, the prevailing rule in the United
States has been adopted. Section 72 of the General Banking Act 23 pertinently

Sec. 72. In addition to the operations specifically authorized elsewhere in this
Act, banking institutions other than building and loan associations may perform
the following services:

(a) Receive in custody funds, documents, and valuable objects, and rent
safety deposit boxes for the safeguarding of such effects.

xxx xxx xxx

The banks shall perform the services permitted under subsections (a), (b) and (c)
of this section as depositories or as agents. . . . 24 (emphasis supplied)

Note that the primary function is still found within the parameters of a contract of
deposit, i.e., the receiving in custody of funds, documents and other valuable
objects for safekeeping. The renting out of the safety deposit boxes is not
independent from, but related to or in conjunction with, this principal function. A
contract of deposit may be entered into orally or in writing 25 and, pursuant to
Article 1306 of the Civil Code, the parties thereto may establish such stipulations,
clauses, terms and conditions as they may deem convenient, provided they are
not contrary to law, morals, good customs, public order or public policy. The
depositary's responsibility for the safekeeping of the objects deposited in the
case at bar is governed by Title I, Book IV of the Civil Code. Accordingly, the
depositary would be liable if, in performing its obligation, it is found guilty of fraud,
negligence, delay or contravention of the tenor of the agreement. 26 In the
absence of any stipulation prescribing the degree of diligence required, that of a
good father of a family is to be observed. 27 Hence, any stipulation exempting
the depositary from any liability arising from the loss of the thing deposited on
account of fraud, negligence or delay would be void for being contrary to law and
public policy. In the instant case, petitioner maintains that conditions 13 and 14 of
the questioned contract of lease of the safety deposit box, which read:

13. The bank is not a depositary of the contents of the safe and it has
neither the possession nor control of the same.

14. The bank has no interest whatsoever in said contents, except herein
expressly provided, and it assumes absolutely no liability in connection therewith.

are void as they are contrary to law and public policy. We find Ourselves in
agreement with this proposition for indeed, said provisions are inconsistent with
the respondent Bank's responsibility as a depositary under Section 72(a) of the
General Banking Act. Both exempt the latter from any liability except as
contemplated in condition 8 thereof which limits its duty to exercise reasonable
diligence only with respect to who shall be admitted to any rented safe, to wit:

8. The Bank shall use due diligence that no unauthorized person shall be
admitted to any rented safe and beyond this, the Bank will not be responsible for
the contents of any safe rented from it. 29

Furthermore, condition 13 stands on a wrong premise and is contrary to the
actual practice of the Bank. It is not correct to assert that the Bank has neither
the possession nor control of the contents of the box since in fact, the safety
deposit box itself is located in its premises and is under its absolute control;
moreover, the respondent Bank keeps the guard key to the said box. As stated
earlier, renters cannot open their respective boxes unless the Bank cooperates
by presenting and using this guard key. Clearly then, to the extent above stated,
the foregoing conditions in the contract in question are void and ineffective. It has
been said:

With respect to property deposited in a safe-deposit box by a customer of a safe-
deposit company, the parties, since the relation is a contractual one, may by
special contract define their respective duties or provide for increasing or limiting
the liability of the deposit company, provided such contract is not in violation of
law or public policy. It must clearly appear that there actually was such a special
contract, however, in order to vary the ordinary obligations implied by law from
the relationship of the parties; liability of the deposit company will not be enlarged
or restricted by words of doubtful meaning. The company, in renting
safe-deposit boxes, cannot exempt itself from liability for loss of the contents by
its own fraud or negligence or that of its agents or servants, and if a provision of
the contract may be construed as an attempt to do so, it will be held ineffective
for the purpose. Although it has been held that the lessor of a safe-deposit box
cannot limit its liability for loss of the contents thereof through its own negligence,
the view has been taken that such a lessor may limits its liability to some extent
by agreement or stipulation. 30 (citations omitted)

Thus, we reach the same conclusion which the Court of Appeals arrived at, that
is, that the petition should be dismissed, but on grounds quite different from
those relied upon by the Court of Appeals. In the instant case, the respondent
Bank's exoneration cannot, contrary to the holding of the Court of Appeals, be
based on or proceed from a characterization of the impugned contract as a
contract of lease, but rather on the fact that no competent proof was presented to
show that respondent Bank was aware of the agreement between the petitioner
and the Pugaos to the effect that the certificates of title were withdrawable from
the safety deposit box only upon both parties' joint signatures, and that no
evidence was submitted to reveal that the loss of the certificates of title was due
to the fraud or negligence of the respondent Bank. This in turn flows from this
Court's determination that the contract involved was one of deposit. Since both
the petitioner and the Pugaos agreed that each should have one (1) renter's key,
it was obvious that either of them could ask the Bank for access to the safety
deposit box and, with the use of such key and the Bank's own guard key, could
open the said box, without the other renter being present.

Since, however, the petitioner cannot be blamed for the filing of the complaint
and no bad faith on its part had been established, the trial court erred in
condemning the petitioner to pay the respondent Bank attorney's fees. To this
extent, the Decision (dispositive portion) of public respondent Court of Appeals
must be modified.

WHEREFORE, the Petition for Review is partially GRANTED by deleting the
award for attorney's fees from the 4 July 1989 Decision of the respondent Court
of Appeals in CA-G.R. CV No. 15150. As modified, and subject to the
pronouncement We made above on the nature of the relationship between the
parties in a contract of lease of safety deposit boxes, the dispositive portion of
the said Decision is hereby AFFIRMED and the instant Petition for Review is
otherwise DENIED for lack of merit.

No pronouncement as to costs.

[1927V113E] SILVESTRA BARON, plaintiff-appellant, vs. PABLO DAVID,
defendant and appellant,And
GUILLERMO BARON, plaintiff and appellant, vs. PABLO DAVID, defendant-
appellant.1927 Oct 8En BancG.R. Nos. 26948 and 26949D E C I S I O N


These two actions were instituted in the Court of First Instance of the Province of
Pampanga by the respective plaintiffs, Silvestra Baron and Guillermo Baron, for
the purpose of recovering from the defendant, Pablo David, the value of palay
alleged to have been sold by the plaintiffs to the defendant in the year 1920.
Owing to the fact that the defendant is the same in both cases and that the two
cases depend in part upon the same facts, the cases were heard together in the
trial court and determined in a single opinion. The same course will accordingly
be followed here.

In the first case, i. e., that in which Silvestra Baron is plaintiff, the court gave
judgment for her to recover of the defendant the sum of P5,238.51, with costs.
From this judgment both the plaintiff and the defendant appealed.

In the second case, i. e., that in which Guillermo Baron is plaintiff, the court gave
judgment for him to recover of the defendant the sum of P5,734.60, with costs,
from which judgment both the plaintiff and the defendant also appealed. In the
same case the defendant interposed a counterclaim in which he asked credit for
the sum of P2,800 which he had advanced to the plaintiff Guillermo Baron on
various occasions. This credit was admitted by the plaintiff and allowed by the
trial court. But the defendant also interposed a cross-action against Guillermo
Baron in which the defendant claimed compensation for damages alleged to
have been suffered by him by reason of the alleged malicious and false
statements made by the plaintiff against the defendant in suing out an
attachment against the defendant's property soon after the institution of the
action. In the same cross-action the defendant also sought compensation for
damages incident to the shutting down of the defendant's rice mill for the period
of one hundred seventy days during which the above-mentioned attachment was
in force. The trial judge disallowed these claims for damages, and from this
feature of the decision the defendant appealed. We are therefore confronted with
five distinct appeals in this record.

Prior to January 17,1921, the defendant Pablo David had been engaged in
running a rice mill in the municipality of Magalang, in the Province of Pampanga,
a mill which was well patronized by the rice growers of the vicinity and almost
constantly running. On the date stated a fire occurred that destroyed the mill and
its contents, and it was some time before the mill could be rebuilt and put in
operation again. Silvestra Baron, the plaintiff in the first of the actions before us,
is an aunt of the defendant; while Guillermo Baron, the plaintiff in the other
action, is his uncle. In the months of March, April, and May, 1920, Silvestra
Baron placed a quantity of palay in the defendant's mill; and this, in connection
with some that she took over from Guillermo Baron, amounted to 1,012 cavans
and 24 kilos. During approximately the same period Guillermo Baron placed
other 1,865 cavans and 43 kilos of palay in the mill. No compensation has ever
been received by Silvestra Baron upon account of the palay thus placed with the
defendant. As against the palay delivered by Guillermo Baron, he has received
from the defendant advancements amounting to P2,800; but apart from this he
has not been compensated. Both the plaintiffs claim that the palay which was
delivered by them to the defendant was sold to the defendant; while the
defendant, on the other hand, claims that the palay was deposited subject to
future withdrawal by the depositors or subject to some future sale which was
never effected. He therefore supposes himself to be relieved from all
responsibility by virtue of the fire of January 17, 1921, already mentioned.

The plaintiffs further say that their palay was delivered to the defendant at his
special request, coupled with a promise on his part to pay for the same at the
highest price per cavan at which palay would sell during the year 1920; and they
say that in August of that year the defendant promised to pay them severally the
price of P8.40 per cavan, which was about the top of the market for the season,
provided they would wait for payment until December. The trial judge found that
no such promise had been given; and the incredulity of the court upon this point
seems to us to be justified. A careful examination of the proof, however, leads us
to the conclusion that the plaintiffs did, some time in the early part of August,
1920, make demand upon the defendant for a settlement, which he evaded or
postponed, leaving the exact amount due to the plaintiffs undetermined.

It should be stated that the palay in question was placed by the plaintiffs in the
defendant's mill with the understanding that the defendant was at liberty to
convert it into rice and dispose of it at his pleasure. The mill was actively running
during the entire season, and as palay was daily coming in from many customers
and as rice was being constantly shipped by the defendant to Manila, or other
rice markets, it was impossible to keep the plaintiffs' palay segregated. In fact
the defendant admits that the plaintiffs' palay was mixed with that of others. In
view of the nature of the defendant's activities and the way in which the palay
was handled in the defendant's mill, it is quite certain that all of the plaintiffs'
palay, which was put in before June 1,1920, had been milled and disposed of
long prior to the fire of January 17, 1921. Furthermore, the proof shows that
when the fire occurred there could not have been more than about 360 cavans of
palay in the mill, none of which by any reasonable probability could have been
any part of the palay delivered by the plaintiffs. Considering the fact that the
defendant had thus milled and doubtless sold the plaintiffs' palay prior to the date
of the fire, it results that he is bound to account for its value, and his liability was
not extinguished by the occurrence of the fire. In the briefs before us it seems to
have been assumed by the opposing attorneys that in order for the plaintiffs to
recover, it is necessary that they should be able to establish that the plaintiffs'
palay was delivered in the character of a sale, and that if, on the contrary, the
defendant should prove that the delivery was made in the character of deposit,
the defendant should be absolved. But the case does not depend precisely upon
this explicit alternative; for even supposing that the palay may have been
delivered in the character of deposit, subject to future sale or withdrawal at
plaintiffs' election, nevertheless if it was understood that the defendant might mill
the palay and he has in fact appropriated it to his own use, he is of course bound
to account for its value. Under article 1768 of the Civil Code, when the depositary
has permission to make use of the thing deposited, the contract loses the
character of mere deposit and becomes a loan or a commodatum; and of course
by appropriating the thing, the bailee becomes responsible for its value. In this
connection we wholly reject the defendant's pretense that the palay delivered by
the plaintiffs or any part of it was actually consumed in the fire of January, 1921.
Nor is the liability of the defendant in any wise affected by the circumstance that,
by a custom prevailing among rice millers in this country, persons placing palay
with them without special agreement as to price are at liberty to withdraw it later,
proper allowance being made for storage and shrinkage, a thing that is
sometimes done, though rarely.

In view of what has been said it becomes necessary to discover the price which
the defendant should be required to pay for the plaintiffs' palay. Upon this point
the trial judge fixed upon P6.15 per cavan; and although we are not exactly in
agreement with him as to the propriety of the method by which he arrived at this
figure, we are nevertheless of the opinion that, all things considered, the result is
approximately correct. It appears that the price of palay during the months of
April, May, and June, 1920, had been excessively high in the Philippine Islands,
and even prior to that period the Government of the Philippine Islands had been
attempting to hold the price in check by executive regulation. The highest point
which was touched in this season was apparently about P8.50 per cavan, but the
market began to sag in May or June and presently entered upon a precipitate
decline. As We have already stated, the plaintiffs made demand upon the
defendant for settlement in the early part of August; and, so far as we are able to
judge from the proof, the price of P6.15 per cavan, fixed by the trial court, is
about the price at which the defendant should be required to settle as of that
date. It was the date of the demand of the plaintiffs for settlement that
determined the price to be paid by the defendant, and this is true whether the
palay was delivered in the character of sale with price undetermined or in the
character of deposit subject to use by the defendant. It results that the plaintiffs
are respectively entitled to recover the value of the palay which they had placed
with the defendant during the period referred to, with interest from the date of the
filing of their several complaints.

As already stated, the trial court found that at the time of the fire there were
about 360 cavans of palay in the mill and that this palay was destroyed. His
Honor assumed that this was part of the palay delivered by the plaintiffs, and he
held that the defendant should be credited with said amount. His Honor therefore
deducted from the claims of the plaintiffs their respective proportionate shares of
this amount of palay. We are unable to see the propriety of this feature of the
decision. There were many customers of the defendant's rice mill who had
placed their palay with the defendant under the same conditions as the plaintiffs,
and nothing can be more certain than that the palay which was burned did not
belong to the plaintiffs. That palay without a doubt had long been sold and
marketed. The assignments of error of each of the plaintiffs-appellants in which
this feature of the decision is attacked are therefore well taken; and the appealed
judgments must be modified by eliminating the deductions which the trial court
allowed from the plaintiffs' claims.

The trial judge also allowed a deduction from the claim of the plaintiff Guillermo
Baron of 167 cavans of palay, as indicated in Exhibits 12, 13, 14, and 16. This
was also erroneous. These exhibits relate to transactions that occurred nearly
two years after the transactions with which we are here concerned, and they
were offered in evidence merely to show the character of subsequent
transactions between the parties, it appearing that at the time said exhibits came
into existence the defendant had reconstructed his mill and that business
relations with Guillermo Baron had been resumed. The transactions shown by
these exhibits (which relate to palay withdrawn by the plaintiff from the
defendant's mill) were not made the subject of controversy in either the complaint
or the cross-complaint of that defendant in the second case. They therefore
should not have been taken into account as a credit in favor of the defendant.
Said credit must therefore be likewise disallowed, though this feature of our
decision will of course be without prejudice to any proper adjustment of the rights
of the parties with respect to these subsequent transactions that they have
heretofore or may hereafter effect.

The preceding discussion disposes of all vital contentions relative to the liability
of the defendant upon the causes of action stated in the complaints. We proceed
therefore now to consider the question of the liability of the plaintiff Guillermo
Baron upon the cross-complaint of Pablo David in case R. G. No. 26949. In this
cross-action the defendant seeks, as stated in the third paragraph of this opinion,
to recover damages for the wrongful suing out of an attachment by the plaintiff
and the levy of the same upon the defendant's rice mill. It appears that about two
and one half months after said action was begun, the plaintiff, Guillermo Baron,
asked for an attachment to be issued against the property of the defendant; and
to procure the issuance of said writ the plaintiff made affidavit to the effect that
the defendant was disposing, or attempting to dispose of his property for the
purpose of defrauding the plaintiff. Upon this affidavit an attachment was issued
as prayed, and on March 27, 1924, it was levied upon the defendant's rice mill,
and other property, real and personal.

Upon attaching the property the sheriff closed the mill and placed it in the care of
a deputy. Operations were not resumed until September 13,1924, when the
attachment was dissolved by an order of the court and the defendant was
permitted to resume control. At the time the attachment was levied there were, in
the bodega, more than 20,000 cavans of palay belonging to persons who held
receipts therefor; and in order to get this grain away from the sheriff, twenty-four
of the depositors found it necessary to submit third-party claims to the sheriff.
When these claims were put in the sheriff notified the plaintiff that a bond in the
amount of P50,000 must be given, otherwise the grain would be released. The
plaintiff, being unable or unwilling to give this bond, the sheriff surrendered the
palay to the claimants; but the attachment on the rice mill was maintained until
September 13, as above stated, covering a period of one hundred seventy days
during which the mill was idle. The ground upon which the attachment was
based, as set forth in the plaintiff's affidavit, was that the defendant was
disposing or attempting to dispose of his property for the purpose of defrauding
the plaintiff. That this allegation was false is clearly apparent, and not a word of
proof has been submitted in support of the assertion. On the contrary, the
defendant testified that at the time this attachment was secured he was solvent
and could have paid his indebtedness to the plaintiff if judgment had been
rendered against him in ordinary course. His financial condition was of course
well known to the plaintiff, who is his uncle. The defendant also states that he
had not conveyed away any of his property, nor had intended to do so, for the
purpose of defrauding the plaintiff. We have before us therefore a case of a
baseless attachment, recklessly sued out upon a false affidavit and levied upon
the defendant's property to his great and needless damage. That the act of the
plaintiff in suing out the writ was wholly unjustifiable is perhaps also indicated in
the circumstance that the attachment was finally dissolved upon the motion of
the plaintiff himself.

The defendant testified that his mill was accustomed to clean from 400 to 450
cavans of palay per clay, producing 225 cavans of rice, of 57 kilos each. The
price charged for cleaning each cavan of rice was 30 centavos. The defendant
also stated that the expense of running the mill per day was from P18 to P25,
and that the net profit per day on the mill was more than P40. As the mill was not
accustomed to run on Sundays and holidays, we estimate that the defendant lost
the profit that would have been earned on not less than one hundred forty work
days. Figuring his profits at P40 per day, which would appear to be a
conservative estimate, the actual net loss resulting from his failure to operate the
mill during the time stated could not have been less than P5,600. The
reasonableness of these figures is also indicated in the fact that the twenty-four
customers who intervened with third-party claims took out of the camarin 20,000
cavans of palay, practically all of which, in the in this plant by the defendant. And
of course other grain would have found its way to this mill if it had remained open
during the one hundred forty days when it was closed.

But this is not all. When the attachment was dissolved and the mill again opened,
the defendant found that his customers had become scattered and could not be
easily gotten back. So slow, indeed, was his patronage in returning that during
the remainder of the year 1924 the defendant was able to mill scarcely more than
the grain belonging to himself and his brothers; and even after the next season
opened many of his old customers did not return. Several of these individuals,
testifying as witnesses in this case, stated that, owing to the unpleasant
experience which they had had in getting back their grain from the sheriff in the
third-party proceedings, they had not come back to the mill of the defendant,
though they had previously had much confidence in him.

As against the defendant's proof showing the facts above stated the plaintiff
submitted no evidence whatever. We are therefore constrained to hold that the
defendant was damaged by the attachment to the extent of P5,600, in profits lost
by the closure of the mill, and to the extent of P1,400 for injury to the good-will of
his business, making a total of P7,000. For this amount the defendant must
recover judgment on his cross-complaint.

The trial court, in dismissing the defendant's cross-complaint for damages
resulting from the wrongful suing out of the attachment, suggested that the
closure of the rice mill was a mere act of the sheriff for which the plaintiff was not
responsible and that the defendant might have been permitted by the sheriff to
continue running the mill if he had applied to the sheriff for permission to operate
it. This singular suggestion will not bear a moment's criticism. It was of course
the duty of the sheriff, in levying the attachment, to take the attached property
into his possession, and the closure of the mill was a natural, and even
necessary, consequence of the attachment. For the damage thus inflicted upon
the defendant the plaintiff is undoubtedly responsible.

One feature of the cross-complaint consists in the claim of the defendant (cross-
complainant) for the sum of P20,000 as damages caused to the defendant by the
false and alleged malicious statements contained in the affidavit upon which the
attachment was procured. The additional sum of P5,000 is also claimed as
exemplary damages. It is clear that with respect to these damages the cross-
action cannot be maintained, for the reason that the affidavit in question was
used in course of a legal proceeding for the purpose of obtaining a legal remedy,
and it is therefore privileged. But though the affidavit is not actionable as a
libelous publication, this fact is no obstacle to the maintenance of an action to
recover the damage resulting from the levy of the attachment.

Before closing this opinion a word should be said upon the point raised in the first
assignment of error of Pablo David as defendant in case R. G. No. 26949. In this
connection it appears that the deposition of Guillermo Baron was presented in
court as evidence and was admitted as an exhibit, without being actually read to
the court. It is supposed in the assignment of error now under consideration that
the deposition is not available as evidence to the plaintiff because it was not
actually read out in court. This contention is not well founded. It is true that in
section 364 of the Code of Civil Procedure it is said that a deposition, once
taken, may be read by either party and will then be deemed the evidence of the
party reading it. The use of the word "read" in this section finds its explanation of
course in the American practice of trying cases for the most part before juries.
When a case is thus tried the actual reading of the deposition is necessary in
order that the jurymen may become acquainted with its contents. But in courts of
equity, and in all courts where judges have the evidence before them for perusal
at their pleasure, it is not necessary that the deposition should be actually read
when presented as evidence.

From what has been said it results that the judgment of the court below must be
modified with respect to the amounts recoverable by the respective plaintiffs in
the two actions R. G. Nos. 26948 and 26949 and must be reversed in respect to
the disposition of the cross-complaint interposed by the defendant in case R. G.
No. 26949, with the following results: In case R. G. No. 26948 the plaintiff
Silvestra Baron will recover of the defendant Pablo David the sum of P6,227.24,
with interest from November 21, 1923, the date of the filing of her complaint, and
with costs. In case R. G. No. 26949 the plaintiff Guillermo Baron will recover of
the defendant Pablo David the sum of P8,669.76, with interest from January 9,
1924. In the same case the defendant Pablo David, as plaintiff in the cross-
complaint, will recover of Guillermo Baron the sum of P7,000, without costs. So

Separate Opinions

JOHNS, J., dissenting and concurring:

The plaintiff Silvestra Baron is the aunt of the defendant, and Guillermo Baron,
the plaintiff in the other action, is his uncle. There is no dispute as to the amount
of palay which each delivered to the mill of the defendant. Owing to the fact that
they were relatives and that the plaintiffs reposed special trust and confidence in
the defendant, who was their nephew, they were not as careful and prudent in
their business dealings with him as they should have been. Plaintiffs allege that
their respective palay was delivered to the defendant at his mill with the
understanding and agreement between them that they should receive the highest
market price for the palay for that season, which was P8.50 per cavan. They
further allege that about August first they made another contract in and by which
he promised and agreed to pay them P8.40 per cavan for their palay, in
consideration of which they agreed to extend the time for payment to the first of
December of that pear. The amount of palay is not in dispute, and the defendant
admits that it was delivered to his mill, but he claims that he kept it on deposit
and as bailee without hire for the plaintiffs and at their own risk, and that the mill
was burned down, and that at the time of the fire, plaintiffs' palay was in the mill.
The lower court found as a fact that there was no merit in that defense, and that
there was but little, if any, palay in the mill at the time of the fire and that in truth
and in fact that defense was based upon perjured testimony.

The two cases were tried separately in the court below, but all of the evidence in
the one case was substituted and used in the other. Both plaintiffs testified to the
making of the respective contracts as alleged in their complaint; to wit, that they
delivered the palay to the defendant with the express understanding and
agreement that he would pay them for the palay the highest market price for the
season, and to the making of the second contract about the first of August, in
which they had a settlement, and that the defendant then agreed to pay them
P8.40 per cavan, such payment to be made on December first. It appears that
the highest market price for palay for that season was P8.50 per cavan. The
defendant denied the making of either one of those contracts, and offered no
other evidence on that question. That is to say, we have the evidence of both
Silvestra Baron and Guillermo Baron to the making of those contracts, which is
denied by the defendant only. Plaintiffs' evidence is also corroborated by the
usual and customary manner in which the growers sell their palay. That is to say,
it is their custom to sell the palay at or about the time it is delivered at the mill
and as soon as it is made ready for market in the form of rice. As stated the
lower court found as a fact that the evidence of the defendant as to plaintiffs'
palay being in the mill at the time of the fire was not worthy of belief, and that in
legal effect it was a manufactured defense. Yet, strange as it may seem, both the
lower court and this court have found as a fact that upon the question of the
alleged contracts, the evidence for the defendant is true and entitled to more
weight than the evidence of both plaintiffs which is false.

It appears that the plaintiff Silvestra Baron is an old lady about 80 years of age
and the aunt of the defendant, and Guillermo Baron is the uncle. Under the
theory of the lower court and of this court, both of them at all the time during the
high prices held their palay in defendant's mill at their own risk, and that upon
that point the evidence of the defendant, standing alone, is entitled to more
weight and is more convincing than the combined evidence of the two plaintiffs.
In the very nature of things, if defendant's evidence upon that point is true, it
stands to reason that, following the custom of growers, the plaintiffs would have
sold their palay during the period of high prices, and would not have waited until
it dropped from P8.50 per cavan to P6.15 per cavan about the first of August.
Upon that question, both the weight and the credibility of the evidence is with the
plaintiffs, and they should have judgment for the full amount of their palay on the
basis of P8.40 per cavan. For such reason, I vigorously dissent from the majority

I frankly concede that the attachment was wrongful, and that it should never have
been levied. It remained in force for a period of one hundred and seventy days at
which time it was released on motion of the plaintiffs. The defendant now claims,
and the majority opinion has allowed him, damages for that full period, exclusive
of Sundays, at the rate of P40 per day, found to be the net profit for the operation
of the rice mill. It further appears, and this court finds, that the defendant was a
responsible man, and that he had ample property out of which to satisfy plaintiffs'
claim. Assuming that to be true, there was no valid reason why he could not have
given a counter bond and released the attachment. Upon the theory of the
majority opinion, if the plaintiffs had not released the attachment, that would still
be liable to the defendant at the rate of P40 per day up to the present time. When
the mill was attached, if he was in a position to do so, it was the duty of the
defendant to give a counter bond and release the attachment and resume its
operation. The majority opinion also allowed the defendant P1,400 "for injury to
the goodwill of his business." The very fact that after a delay of about four years,
both of the plaintiffs were compelled to bring their respective actions against the
defendant to recover from him on a just and meritorious claim, as found by this
court and the lower court, and the further fact that after such long delay, the
defendant has sought to defeat the actions by a sham and manufactured
defense, as found by this and the lower court, would arouse the suspicion of any
customers the defendant ever had, and shake their confidence in his business
honor and integrity, and destroy any goodwill which he ever did have. Under
such conditions, it would be strange that the defendant would have any
customers left. He is not entitled to any compensation for the loss of goodwill,
and P5,000 should be the very limit of the amount of his damages for the
wrongful attachment, and upon that point I vigorously dissent. In all other
respects, I agree with the majority opinion.

[1994V433] PILIPINAS BANK, petitioner, vs. HON. COURT OF APPEALS
AND FLORENCIO REYES, respondents1994 Jul 252nd DivisionG.R. No.
105410D E C I S I O N

PUNO, J p:

This is a petition for review of the Decision of the respondent court 1 in CA-G.R.
CV No. 29524 dated May 13, 1992 which ordered petitioner to pay the private
respondent the sum of P50,000.00 as moral damages, P25,000.00 as attorney's
fees and cost of suit.

The facts as found both by the trial court 2 and the respondent court are:

"As payments for the purchased shoe materials and rubber shoes, Florencio
Reyes issued postdated checks to Winner Industrial Corporation for P20,927.00
and Vicente Tui, for P11,419.50, with due dates on October 10 and 12, 1979,

To cover the face value of the checks, plaintiff, on October 10, 1979, requested
PCIB Money Shop's manager Mike Potenciano to effect the withdrawal of
P32,000.00 from his savings account therein and have it deposited with his
current account with Pilipinas Bank (then Filman Bank), Biñan Branch. Roberto
Santos was requested to make the deposit.

In depositing in the name of FLORENCIO REYES, he inquired from the teller the
current account number of Florencio Reyes to complete the deposit slip he was
accomplishing. He was informed that it was '815' and so this was the same
current account number he placed on the deposit slip below the depositor's

Noting that the account number coincided with the name Florencio, Efren
Alagasi, then Current Account Bookkeeper of Pilipinas Bank, thought it was for
Florencio Amador who owned the listed account number. He, thus, posted the
deposit in the latter's account not noticing that the depositor's surname in the
deposit slip was REYES.

On October 11, 1979, the October 10 check in favor of Winner Industrial
Corporation was presented for payment. Since the ledger of Florencio Reyes
indicated that his account had only a balance of P4,078.43, it was dishonored
and the payee was advised to try it for next clearing.

On October 15, 1979, the October 10, 1979 check was redeposited but was
again dishonored. Likewise, the October 12, 1979 check in favor of Vicente Tui
when presented for payment on that same date met the same fate but was
advised to try the next clearing. Two days after the October 10 check was again
dishonored, the payee returned the same to Florencio Reyes and demanded a
cash payment of its face value which he did if only to save his name. The
October 12, 1979 check was redeposited on October 18, 1979, but again
dishonored for the reason that the check was drawn against insufficient fund.

Furious over the incident, he immediately proceeded to the bank and urged an
immediate verification of his account.

Upon verification, the bank noticed the error. The P32,000.00 deposit posted in
the account of Florencio Amador was immediately transferred to the account of
Reyes upon being cleared by Florencio Amador that he did not effect a deposit in
the amount of P32,000.00. The transfer having been effected, the bank then
honored the October 12, 1979 check (Exh. "C")."

On the basis of these facts, the trial court ordered petitioner to pay to the private
respondent: (1) P200,000.00 as compensatory damages; (2) P100,000.00 as
moral damages; (3) P25,000.00 as attorney's fees, and (4) the costs of suit. On
appeal to the respondent court, the judgment was modified as aforestated.

In this petition for review, petitioner argues:

"I. Respondent Court of Appeals erred on a matter of law, in not applying the first
sentence of Article 2179, New Civil Code, in view of its own finding that
respondent Reyes' own representative committed the mistake in writing down the
correct account number;

II. Respondent Court of Appeals erred, on a matter of law, in holding that
respondent Reyes has the right to recover moral damages and in awarding the
amount of P50,000.00, when there is no legal nor factual basis for it;

III. The Honorable Court of Appeals erred, on a matter of law, in holding
petitioner liable for attorney's fees in the amount of P20,000.00, when there is no
legal nor factual basis for it."

We find no merit in the petition.

First. For Article 2179 3 of the Civil Code to apply, it must be established that
private respondent's own negligence was the immediate and proximate cause of
his injury. The concept of proximate cause is well defined in our corpus of
jurisprudence as "any cause which, in natural and continuous sequence,
unbroken by any efficient intervening cause, produces the result complained of
and without which would not have occurred and from which it ought to have been
foreseen or reasonably anticipated by a person of ordinary case that the injury
complained of or some similar injury, would result therefrom as a natural and
probable consequence." 4 In the case at bench, the proximate cause of the
injury is the negligence of petitioner's employee in erroneously posting the cash
deposit of private respondent in the name of another depositor who had a similar
first name. As held by the trial court:

xxx xxx xxx

"Applying the test, the bank employee is, on that basis, deemed to have failed to
exercise the degree of care required in the performance of his duties. As earlier
stated, the bank employee posted the cash deposit in the account of Florencio
Amador from his assumption that the name Florencio appearing on the ledger
without, however, going through the full name, is the same Florencio stated in
the deposit slip. He should have continuously gone beyond mere assumption,
which was proven to be erroneous, and proceeded with clear certainty,
considering the amount involved and the repercussions it would create on the
totality of the person notable of which is the credit standing of the person
involved should a mistake happen. The checks issued by the plaintiff in the
course of his business were dishonored by the bank because the ledger of
Florencio Reyes indicated a balance insufficient to cover the face value of

Second. In light of this negligence, the liability of petitioner for moral damages
cannot be impugned. so we held in Bank of the Philippine Islands vs. IAC, et al. 5

"The bank is not expected to be infallible but, as correctly observed by
respondent Appellate Court, in this instance, it must bear the blame for not
discovering the mistake of its teller despite the established procedure requiring
the papers and bank books to pass through a battery of bank personnel whose
duty it is to check and countercheck them for possible errors. Apparently, the
officials and employees tasked to do that did not perform their duties with due
care, as may be gathered from the testimony of the bank's lone witness, Antonio
Enciso, who casually declared that 'the approving officer does not have to see
the account numbers and all those things. Those are very petty things for the
approving manager to look into' (p. 78, Record on Appeal). Unfortunately, it was
a 'petty thing,' like the incorrect account number that the bank teller wrote on the
initial deposit slip for the newly-opened joint current account of the Canlas
spouses, that sparked this half-a-million-peso damage suit against the bank.

While the bank's negligence may not have been attended with malice and bad
faith, nevertheless, it caused serious anxiety, embarrassment and humiliation to
the private respondents for which they are entitled to recover reasonable moral
damages (American Express International, Inc. IAC, 167 SCRA 209). The award
of reasonable attorney's fees is proper for the private respondents were
compelled to litigate to protect their interest (Art. 2208, Civil Code). However, the
absence of malice and bad faith renders the award of exemplary damages
improper (Globe Mackay Cable and Radio Corp. vs. Court of Appeals, 176
SCRA 778)."

IN VIEW WHEREOF, the petition is denied there being no reversible error in the
Decision of the respondent court. Cost against petitioner. SO ORDERED.

D. CENZON, in his capacity as Presiding Judge of the Court of First
Instance of Manila (Branch XL) and SPOUSES TIMOTEO AND OLIMPIA
SANTIAGO, respondents.1990 April 052nd DivisionG.R. No. L-46208D E C I


The instant petition seeks the review, on pure questions of law, of the decision
rendered by the Court of First Instance of Manila (now Regional Trial Court),
Branch XL, on December 3, 1976 in Civil Case No. 84800, 1 ordering herein
petitioner to pay private respondents the following amounts:

"(a) P90,000.00 with accrued interest in accordance with Exhibits A and B until
fully paid;

(b) P30,000.00 as exemplary damages; and

(c) P10,000.00 as and for attorney's fees.

"The payment by the defendant Fidelity Savings and Mortgage Bank of the
aforementioned sums of money shall be subject to the Bank Liquidation Rules
and Regulations embodied in the Order of the Court of First Instance of
Manila, Branch XIII, dated October 3, 1972, Civil Case No. 86005, entitled, 'IN
RE: Liquidation of the Fidelity Savings Bank versus Central Bank of the
Philippines, Liquidator.'

"With costs against the defendant Fidelity Savings and Mortgage Bank.


Private respondents instituted this present action for a sum of money with
damages against Fidelity Savings and Mortgage Bank, Central Bank of the
Philippines, Eusebio Lopez, Jr., Arsenio M. Lopez, Sr., Arsenio S. Lopez, Jr.,
Bibiana E. Lacuna, Jose C. Morales, Leon P. Cusi, Pilar Y. Pobre-Cusi and
Ernani A. Pacana. On motion of herein private respondents, as plaintiffs, the
amended complaint was dismissed without prejudice against defendants Jose C.
Morales, Leon P. Cusi, Pilar Y. Pobre-Cusi and Ernani A. Pacana. 2 In its
aforesaid decision of December 3, 1976, the court a quo dismissed the complaint
as against defendants Central Bank of the Philippines, Eusebio Lopez, Jr.,
Arsenio S. Lopez, Jr., Arsenio M. Lopez, Sr. and Bibiana S. Lacuna.

Back on August 10, 1973, the plaintiffs (herein private respondents) and the
defendants Fidelity Savings and Mortgage Bank (petitioner herein), Central Bank
of the Philippines and Bibiana E. Lacuna had filed in said case in the lower court
a partial stipulation of facts, as follows:

"COME NOW herein plaintiffs, SPOUSES TIMOTEO M. SANTIAGO and
herein defendant BIBIANA E. LACUNA, through their respective undersigned
counsel, and before this Honorable Court most respectfully submit the following
Partial Stipulation of Facts:

"1. That herein plaintiffs are husband and wife, both of legal age, and
presently residing at No. 480 C. de la Paz Street, Sta. Elena, Marikina, Rizal;

"2. That herein defendant Fidelity Savings and Mortgage Bank is a corporation
duly organized and existing under and by virtue of the laws of the Philippines;
that defendant Central Bank of the Philippines is a corporation duly organized
and existing under and by virtue of the laws of the Philippines;

"3. That herein defendant Bibiana E. Lacuna is of legal age and a resident of
No. 42 East Lawin Street, Philamlife Homes, Quezon City; said defendant was
an Assistant Vice-President of the defendant Fidelity Savings and Mortgage

"4. That sometime on May 16, 1968, herein plaintiffs deposited with the
defendant Fidelity Savings Bank the amount of FIFTY THOUSAND PESOS
(P50,000.00) under Savings Account No. 160536; that likewise, sometime on
July 6, 1968, herein plaintiffs deposited with the defendant Fidelity Savings and
Mortgage Bank the amount of FIFTY THOUSAND PESOS (P50,000.00) under
Certificate of Time Deposit No. 0210; that the aggregate amount of deposits of
the plaintiffs with the defendant Fidelity Savings and Mortgage Bank is ONE

"5. That on February 18, 1969, the Monetary Board, after finding the report of
the Superintendent of Banks, that the condition of the defendant Fidelity Savings
and Mortgage Bank is one of insolvency, to be true, issued Resolution No. 350
deciding, among others, as follows:

'1) To forbid the Fidelity Savings Bank to do business in the Philippines;

2) To instruct the Acting Superintendent of Banks to take charge, in the
name of the Monetary Board, of the Bank's assets;'

"6. That pursuant to the above-cited instructions of the Monetary Board, the
Superintendent of Banks took charge in the name of the Monetary Board, of the
assets of defendant Fidelity Savings Bank on February 19, 1969; and that since
that date up to this date, the Superintendent of Banks (now designated as
Director, Department of Commercial and Savings Banks) has been taking charge
of the assets of defendant Fidelity Savings and Mortgage Bank;

"7. That sometime on October 10, 1969 the Philippine Deposit Insurance
Corporation paid the plaintiffs the amount of TEN THOUSAND PESOS
(P10,000.00) on the aggregate deposits of P100,000.00 pursuant to Republic Act
No. 5517, thereby leaving a deposit balance of P90,000.00;

"8. That on December 9, 1969, the Monetary Board issued its Resolution No.
2124 directing the liquidation of the affairs of defendant Fidelity Savings Bank;

"9. That on January 25, 1972, the Solicitor General of the Philippines filed a
'Petition for Assistance and Supervision in Liquidation' of the affairs of the
defendant Fidelity Savings and Mortgage Bank with the Court of First Instance of
Manila, assigned to Branch XIII and docketed as Civil Case No. 86005;

"10. That on October 3, 1972, the Liquidation Court promulgated the Bank
Rules and Regulations to govern the liquidation of the affairs of defendant
Fidelity Savings and Mortgage Bank, prescribing the rules on the conversion of
the Bank's assets into money, processing of claims against it and the manner
and time of distributing the proceeds from the assets of the Bank;

"11. That the liquidation proceedings has not been terminated and is still
pending up to the present;

"12. That herein plaintiffs, through their counsel, sent demand letters to herein
defendants, demanding the immediate payment of the aforementioned savings
and time deposits.

"WHEREFORE, it is respectfully prayed that the foregoing Partial Stipulation of
Facts be approved by this Honorable Court, without prejudice to the presentation
of additional documentary or testimonial evidence by herein parties.

"Manila, Philippines, August 10, 1973." 3

Assigning error in the judgment of the lower court quoted ab antecedente,
petitioner raises two questions of law, to wit:

1. Whether or not an insolvent bank like the Fidelity Savings and Mortgage
Bank may be adjudged to pay interest on unpaid deposits even after its closure
by the Central Bank by reason of insolvency without violating the provisions of
the Civil Code on preference of credits; and

2. Whether or not an insolvent bank like the Fidelity Savings and Mortgage
Bank may be adjudged to pay moral and exemplary damages, attorney's fees
and costs when the insolvency is caused by the anomalous real estate
transactions without violating the provisions of the Civil Code on preference of

There is merit in the petition.

It is settled jurisprudence that a banking institution which has been declared
insolvent and subsequently ordered closed by the Central Bank of the Philippines
cannot be held liable to pay interest on bank deposits which accrued during the
period when the bank is actually closed and non-operational.

In The Overseas Bank of Manila vs. Court of Appeals and Tony D. Tapia, 4 we
held that:

"It is a matter of common knowledge, which We take Judicial notice of, that what
enables a bank to pay stipulated interest on money deposited with it is that thru
the other aspects of its operation it is able to generate funds to cover the
payment of such interest. Unless a bank can lend money, engage in international
transactions, acquire foreclosed mortgaged properties or their proceeds and
generally engage in other banking and financing activities from which it can
derive income, it is inconceivable how it can carry on as a depository obligated to
pay stipulated interest. Conventional wisdom dictates this inexorable fair and just
conclusion. And it can be said that all who deposit money in banks are aware of
such a simple economic proposition.

Consequently, it should be deemed read into every contract of deposit with a
bank that the obligation to pay interest on the deposit ceases the moment the
operation of the bank is completely suspended by the duly constituted authority,
the Central Bank."

This was reiterated in the subsequent case of The Overseas Bank of Manila vs.
The Hon. Court of Appeals and Julian R. Cordero, 5 and in the recent cases of
Integrated Realty Corporation, et al. vs. Philippine National Bank, et al. and the
Overseas Bank of Manila vs. Court of Appeals, et al. 6

From the aforecited authorities, it is manifest that petitioner cannot be held liable
for interest on bank deposits which accrued from the time it was prohibited by the
Central Bank to continue with its banking operations, that is, when Resolution
No. 350 to that effect was issued on February 18, 1969.

The order, therefore, of the Central Bank as receiver/liquidator of petitioner bank
allowing the claims of depositors and creditors to earn interest up to the date of
its closure on February 18, 1969, 7 is in line with the doctrine laid down in the
jurisprudence above cited.

Although petitioner's formulation of the second issue that it poses is slightly
inaccurate and defective, we likewise find the awards of moral and exemplary
damages and attorney's fees to be erroneous.

The trial court found, and it is not disputed, that there was no fraud or bad faith
on the part of petitioner bank and the other defendants in accepting the deposits
of private respondents. Petitioner bank could not even be faulted in not
immediately returning the amount claimed by private respondents considering
that the demand to pay was made and Civil Case No. 84800 was filed in the trial
court several months after the Central Bank had ordered petitioner's closure. By
that time, petitioner bank was no longer in a position to comply with its
obligations to its creditors, including herein private respondents. Even the trial
court had to admit that petitioner bank failed to pay private respondents because
it was already insolvent. 8 Further, this case is not one of the specified or
analogous cases wherein moral damages may be recovered. 9

There is no valid basis for the award of exemplary damages which is supposed
to serve as a warning to other banks from dissipating their assets in anomalous
transactions. It was not proven by private respondents, and neither was there a
categorical finding made by the trial court, that petitioner bank actually engaged
in anomalous real estate transactions. The same were raised only during the
testimony of the bank examiner of the Central Bank, 10 but no documentary
evidence was ever presented in support thereof.

Hence, it was error for the lower court to impose exemplary damages upon
petitioner bank since, in contracts, such sanction requires that the offending party
acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. 11
Neither does this case present the situation where attorney's fees may be
awarded. 12

In the absence of fraud, bad faith, malice or wanton attitude, petitioner bank may,
therefore, not be held responsible for damages which may be reasonably
attributed to the non-performance of the obligation. 13 Consequently, we
reiterate that under the premises and pursuant to the aforementioned provisions
of law, it is apparent that private respondents are not justifiably entitled to the
payment of moral and exemplary damages and attorney's fees.

While we tend to agree with petitioner bank that private respondents' claims
should have been filed in the liquidation proceedings in Civil Case No. 86005,
entitled "In Re: Liquidation of the Fidelity Savings and Mortgage Bank," pending
before Branch XIII of the then Court of First Instance of Manila, we do not believe
that the decision rendered in the instant case would be violative of the legal
provisions on preference and concurrence of credits. As the trial court puts it:

". . . But this order of payment should not be understood as raising these
deposits to the category of preferred credits of the defendant Fidelity Savings
and Mortgage Bank but shall be paid in accordance with the Bank Liquidation
Rules and Regulations embodied in the Order of the Court of First Instance of
Manila, Branch XIII dated October 3, 1972 (Exh. 3) . . ." 14

WHEREFORE, the judgment appealed from is hereby MODIFIED. Petitioner
Fidelity Savings and Mortgage Bank is hereby declared liable to pay private
respondents Timoteo and Olimpia Santiago the sum of P90,000.00, with accrued
interest in accordance with the terms of Savings Account Deposit No. 16-0536
(Exhibit A) and Certificate of Time Deposit No. 0210 (Exhibit B) until February 18,
1969. The awards for moral and exemplary damages, and attorney's fees are
hereby DELETED. No costs.SO ORDERED.

[1941V19E] En el asunto de la insolvencia voluntaria de Edward Mitchell.
HARRY GOODMAN, peticionario-apelado, contra FAUSTINO LICHAUCO,
sindico-apelante.1941 Feb 1En BancG.R. No. 47001D E C I S I O N


Edward Mitchell, dueño del New Plaza Hotel en Manila, fue declarado
insolvente en el asunto de su insolvencia voluntaria, causa civil No 54662 del
Juzgado de Primera rnstancia de Manila. Faustino Lichauco fue nombrado
sindico de la insolvencia. El 31 de marzo de 1939 Harry Goodman presento una
peticion en la insolvencia solicitando que el Juzgado ordene al sindico que le
devuelva las siguientes propiedades personales: 1 suitcase, 2 handbags, 4 suits,
1 razor, 2 belts, 15 neckties, 1 bathrobe, 4 pairs of shoes, 6 pairs of socks, 6
shirts, 5 suits underwear, personal letters, treasurer box of coins and 1 pair of
pajamas. El peticionario alego que dichos bienes muebles eran suyos y no del
insolvente. El sindico se opuso a la peticion alegando que el peticionario habia
sido un huesped del hotel; que abandono el mi.smo estando en deber en
cantidad mavor que el valor de los bienes que reclamaba; que se habia negado
a pagar su deuda que representaba el importe de su hospedaje; y que como
sindico tenia derecho a retener los bienes muebles del peticionario en calidad de
prenda hasta que el mismo pague su deuda. Despues de haber oido a las
partes, el Juzgado por orden del 1.º de abril del mismo ano denego la peticion.
Se solicito por el peticionario reconsideracion de la citada orden por el
fundamento de que los bienes muebles que reclamaba estaban exentos de
embargo y ejecucion, de conformidad con el articulo 452 (4), del Codigo de
Procedimiento Civil y el Juzgado, por orden del 28 de junio de 1939, dejo sin
efecto la orden anterior, concedio la peticion y ordeno al sindico que devuelva al
peticionario los mencionados bienes personales. El sindico pidio reconsideracion
de la ultima orden y habiendose denegado su mocion, se excepciono de la
misma e interpuso la presente apelacion.

Esta admitido que los bienes muebles que reclama el peticionario son de su
exclusiva propiedad y que si el sindico los retiene y se ha negado a devolverlos
es porque el peticionario debe a la insolvencia cierta suma de dinero, mayor que
el valor de los bienes muebles, deuda que se ha negado a pagar hasta la fecha
en que el incidente se ha suscitado.

El peticionario alega que los bienes que reclama deben devolversele porque el
articulo 452 (4), del Codigo de Procedimiento Civil los exime de embargo y
ejecucion. El sindico sostiene que dichos bienes se hallan en prenda a favor de
la insolvencia para responder de la obligacion contraida por el peticionario que
consiste en el importe del hospedaje que dejo de pagar. El Juzgado acepto la
teoria del peticionario y declaro que los bienes deben ser devueltos porque
estan exentos de embargo y ejecucion. Opinamos que la conclusion a que se ha
llegado es erronea. El articulo 1922, 5.º, del Codigo Civil se lee como sigue:

"ART.1922. Con relacion a determinados bienes muebles del deudor, gozan de
xxx xxx xxx

"5. ºde hospedaje, sobre los muebles del deudor existentes en la posada."
El tratadista Manresa comentando dicho parrafo 5.º del articulo 1922 se expresa
en estos terminos:

"Creditos por hospedaje. Comentando Garcia Goyena el numero 4.º del articulo
1926 del proyecto de Codigo de 1851, cuyo precepto tiene analogia con el del
num. 5.º del presente articulo, decia que, en este caso, como en el anterior, la
ley establece una presuncion juris et de jure, por virtud de la cual, tienen los
posaderos el derecho de prenda en los efectos introducidos en la posada y
existentes, a la sazon en ella, animados o inanimados, de la pertenencia del
deudor, cuya garantia aparecia aun mas justa por la obligacion que tiene de
recibir a los viajeros y por la responsabilidad que para la seguridad de sus
efectos le impone la ley." (Manresa, Comentarios al Codigo Civil, Tomo XII, p.
683, edicion de 1907.)

De conformidad con el parrafo 5.º del articulo 1922 del Codigo Civil los bienes
rnuebles que reclama el peticionario estan constituidos en prenda a favor de la
insolvencia y responden del pago de lo que el peticionario adeuda por
hospedaje. El articulo 452 (4), del Codigo de Procedimiento Civil, es inaplicable
al presente caso porque no se trata de un embargo ni ejecucion. Sus
disposiciones no pugnan con el gravamen creado por el articulo 1922, 5.º, del
Codigo Civil y ambos preceptos pueden coexistir sin menoscabar los derechos
que se adquieren al amparo de 108 mismos. Los vestidos que necesita un
deudor ejecutado y todos los de su familia no pueden ser embargados ni
vendidos en ejecucion de una sentencia dictada contra el, pero si debe por
hospedaje a un dueno de hotel, este tiene derecho a retenerlos en prenda hasta
que pague su deuda por hospedaje.

Se revoca la orden recurrida del 28 de junio de 1939, con las costas de esta
instancia al peticionario-apelado. Asi se ordena.