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Credit Transactions

Atty. William M. Varias


Filed by Dorothy Joy A. Cay-an

IV. DEPOSITS
A.
B.
C.
D.

In general (Arts. 1962-1967)


Voluntary Deposits (Arts. 1968-1995)
Necessary Deposits (Arts. 1996-2004)
Judicial Deposits (Arts. 2005-2009)

CASES:

Case Title : BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. THE


INTERMEDIATE APPELLATE COURT and RIZALDY T. ZSHORNACK,
respondents.Case Nature : APPEAL from the decision of the Intermediate
Appellate Court.
Syllabi Class : Civil Procedure|Corporation Law|Banking Laws|Civil Law|
Causes of Action|Actionable Documents|Central Bank Laws|Foreign
Exchange Transactions|CB Circular No. 281|Obligations and Contracts|
Contract of Deposit|Void Contracts
Syllabi:
1. Civil Procedure; Causes of Action; Actionable Documents; As the
second cause of action was based on an actionable document, it is
incumbent upon the bank to deny under oath the due execution of the
document, as provided in Rule 8, Sec. 8 of the Rules of Court. The second cause of action is based on a document purporting to be signed
by COMTRUST, a copy of which document was attached to the complaint. In
short, the second cause of action was based on an actionable document. It
was therefore incumbent upon the bank to specifically deny under oath the
due execution of the document, as prescribed under Rule 8, Section 8, if it
desired: (1) to question the authority of Garcia to bind the corporation; and,
(2) to deny its capacity to enter into such contract. [See, E.B. Merchant v.
International Banking Corporation, 6 Phil. 314 (1906).] No sworn answer
denying the due execution of the document in question, or questioning the
authority of Garcia to bind the bank, or denying the banks capacity to enter
into the contract, was ever filed. Hence, the bank is deemed to have
admitted not only Garcias authority, but also the banks power, to enter into
the contract in question.
2. Corporation Law; Unauthorized Acts of Corporate Officers; To absolve a
corporation from liability arising from the unauthorized acts of its corporate
officers, there must be proper allegation or proof that the corporation has
not authorized nor ratified the officers act.-

Petitioners argument must also be rejected for another reason. The


practical effect of absolving a corporation from liability every time an officer
enters into a contract which is beyond corporate powers, even without the
proper allegation or proof that the corporation has not authorized nor
ratified the officers act, is to cast corporations in so perfect a mold that
transgressions and wrongs by such artificial beings become impossible
[Bissell v. Michigan Southern and N.I.R. Cos, 22 N.Y. 258 (1860).] To say
that a corporation has no right to do unauthorized acts is only to put forth a
very plain truism; but to say that such bodies have no power or capacity to
err is to impute to them an excellence which does not belong to any created
existence with which we are acquainted. The distinction between power and
right is no more to be lost sight of in respect to artificial than in respect to
natural persons.
3. Banking Laws; Central Bank Laws; Foreign Exchange
Transactions; CB Circular No. 281; Sec. 6 of CB Circular No. 281 requires
that all receipts of foreign exchange by any resident person shall be sold to
authorized Central Bank agents within one business day following the receipt
of said foreign exchange.Paragraph 4 (a) above was modified by Section 6 of Central Bank Circular
No. 281, Regulations on Foreign Exchange, promulgated on November 26,
1969 by limiting its coverage to Philippine residents only. Section 6
provides: SEC. 6. All receipts of foreign exchange by any resident person,
firm, company or corporation shall be sold to authorized agents of the
Central Bank by the recipients within one business day following the receipt
of such foreign exchange. Any resident person, firm, company or corporation
residing or located within the Philippines, who acquires foreign exchange
shall not, unless authorized by the Central Bank, dispose of such foreign
exchange in whole or in part, nor receive less than its full value, nor delay
taking ownership thereof except as such delay is customary; Provided, That,
within one business day upon taking ownership or receiving payment of
foreign exchange the aforementioned persons and entities shall sell such
foreign exchange to the authorized agents of the Central Bank. As earlier
stated, the document and the subsequent acts of the parties show that they
intended the bank to safekeep the foreign exchange, and return it later to
Zshornack, who alleged in his complaint that he is a Philippine resident. The
parties did not intend to sell the US dollars to the Central Bank within one
business day from receipt. Otherwise, the contract of depositum would
never have been entered into at all. Since the mere safekeeping of the
greenbacks, without selling them to the Central Bank within one business
day from receipt, is a transaction which is not authorized by CB Circular No.
20, it must be considered as one which falls under the general class of
prohibited transactions.

4. Civil Law; Obligations and Contracts; Contract of Deposit; The


contract between Zshornack and the bank, as to the $3,000.00, was a
contract of deposit defined under Art. 1962 of the New Civil Code. The document which embodies the contract states that the US$3,000.00
was received by the bank for safekeeping. The subsequent acts of the
parties also show that the intent of the parties was really for the bank to
safely keep the dollars and to return it to Zshornack at a later time. Thus,
Zshornack demanded the return of the money on May 10, 1976, or over five
months later. The above arrangement is that contract defined under Article
1962, New Civil Code, which reads: Art. 1962. A deposit is constituted from
the moment a person receives a thing belonging to another, with the
obligation of safely keeping it and for returning the same. If the safekeeping
of the thing delivered is not the principal purpose of the contract, there is no
deposit but some other contract.
5. Civil Law; Obligations and Contracts; Void Contracts; The contract
between the parties being void, affords neither of the parties a cause of
action against each other.Hence, pursuant to Article 5 of the Civil Code, it is void, having been
executed against the provisions of a mandatory/prohibitory law. More
importantly, it affords neither of the parties a cause of action against the
other. When the nullity proceeds from the illegality of the cause or object of
the contract, and the act constitutes a criminal offense, both parties being in
pari delicto, they shall have no cause of action against each other . . . [Art.
1411, New Civil Code.] The only remedy is one on behalf of the State to
prosecute the parties for violating the law.
Division: THIRD DIVISION
Docket Number: No. L-66826
Counsel: Pacis & Reyes Law Office, Ernesto T. Zshornack, Jr.
Ponente: CORTS
Dispositive Portion:
WHEREFORE, the decision appealed from is hereby MODIFIED. Petitioner is
ordered to restore to the dollar savings account of private respondent the
amount of US$1,000.00 as of October 27, 1975 to earn interest at the rate
fixed by the bank for dollar savings deposits. Petitioner is further ordered to
pay private respondent the amount of P8,000.00 as damages. The other
causes of action of private respondent are ordered dismissed.

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


BANK OF THE PHILIPPINE ISLANDS, petitioner,
vs.
THE INTERMEDIATE APPELLATE COURT and ZSHORNACK respondents.
Pacis & Reyes Law Office for petitioner.
Ernesto T. Zshornack, Jr. for private respondent.

CORTES, J.:
The original parties to this case were Rizaldy T. Zshornack and the Commercial Bank and Trust
Company of the Philippines [hereafter referred to as "COMTRUST."] In 1980, the Bank of the
Philippine Islands (hereafter referred to as BPI absorbed COMTRUST through a corporate merger,
and was substituted as party to the case.
Rizaldy Zshornack initiated proceedings on June 28,1976 by filing in the Court of First Instance of
Rizal Caloocan City a complaint against COMTRUST alleging four causes of action. Except for
the third cause of action, the CFI ruled in favor of Zshornack. The bank appealed to the Intermediate
Appellate Court which modified the CFI decision absolving the bank from liability on the fourth cause
of action. The pertinent portions of the judgment, as modified, read:
IN VIEW OF THE FOREGOING, the Court renders judgment as follows:
1. Ordering the defendant COMTRUST to restore to the dollar savings account of
plaintiff (No. 25-4109) the amount of U.S $1,000.00 as of October 27, 1975 to earn
interest together with the remaining balance of the said account at the rate fixed by
the bank for dollar deposits under Central Bank Circular 343;
2. Ordering defendant COMTRUST to return to the plaintiff the amount of U.S.
$3,000.00 immediately upon the finality of this decision, without interest for the
reason that the said amount was merely held in custody for safekeeping, but was not
actually deposited with the defendant COMTRUST because being cash currency, it
cannot by law be deposited with plaintiffs dollar account and defendant's only
obligation is to return the same to plaintiff upon demand;
xxx xxx xxx
5. Ordering defendant COMTRUST to pay plaintiff in the amount of P8,000.00 as
damages in the concept of litigation expenses and attorney's fees suffered by plaintiff
as a result of the failure of the defendant bank to restore to his (plaintiffs) account the
amount of U.S. $1,000.00 and to return to him (plaintiff) the U.S. $3,000.00 cash left
for safekeeping.
Costs against defendant COMTRUST.

SO ORDERED. [Rollo, pp. 47-48.]


Undaunted, the bank comes to this Court praying that it be totally absolved from any liability to
Zshornack. The latter not having appealed the Court of Appeals decision, the issues facing this
Court are limited to the bank's liability with regard to the first and second causes of action and its
liability for damages.
1. We first consider the first cause of action, On the dates material to this case, Rizaldy Zshornack
and his wife, Shirley Gorospe, maintained in COMTRUST, Quezon City Branch, a dollar savings
account and a peso current account.
On October 27, 1975, an application for a dollar draft was accomplished by Virgilio V. Garcia,
Assistant Branch Manager of COMTRUST Quezon City, payable to a certain Leovigilda D. Dizon in
the amount of $1,000.00. In the application, Garcia indicated that the amount was to be charged to
Dollar Savings Acct. No. 25-4109, the savings account of the Zshornacks; the charges for
commission, documentary stamp tax and others totalling P17.46 were to be charged to Current Acct.
No. 210465-29, again, the current account of the Zshornacks. There was no indication of the name
of the purchaser of the dollar draft.
On the same date, October 27,1975, COMTRUST, under the signature of Virgilio V. Garcia, issued a
check payable to the order of Leovigilda D. Dizon in the sum of US $1,000 drawn on the Chase
Manhattan Bank, New York, with an indication that it was to be charged to Dollar Savings Acct. No.
25-4109.
When Zshornack noticed the withdrawal of US$1,000.00 from his account, he demanded an
explanation from the bank. In answer, COMTRUST claimed that the peso value of the withdrawal
was given to Atty. Ernesto Zshornack, Jr., brother of Rizaldy, on October 27, 1975 when he (Ernesto)
encashed with COMTRUST a cashier's check for P8,450.00 issued by the Manila Banking
Corporation payable to Ernesto.
Upon consideration of the foregoing facts, this Court finds no reason to disturb the ruling of both the
trial court and the Appellate Court on the first cause of action. Petitioner must be held liable for the
unauthorized withdrawal of US$1,000.00 from private respondent's dollar account.
In its desperate attempt to justify its act of withdrawing from its depositor's savings account, the bank
has adopted inconsistent theories. First, it still maintains that the peso value of the amount
withdrawn was given to Atty. Ernesto Zshornack, Jr. when the latter encashed the Manilabank
Cashier's Check. At the same time, the bank claims that the withdrawal was made pursuant to an
agreement where Zshornack allegedly authorized the bank to withdraw from his dollar savings
account such amount which, when converted to pesos, would be needed to fund his peso current
account. If indeed the peso equivalent of the amount withdrawn from the dollar account was credited
to the peso current account, why did the bank still have to pay Ernesto?
At any rate, both explanations are unavailing. With regard to the first explanation, petitioner bank has
not shown how the transaction involving the cashier's check is related to the transaction involving the
dollar draft in favor of Dizon financed by the withdrawal from Rizaldy's dollar account. The two
transactions appear entirely independent of each other. Moreover, Ernesto Zshornack, Jr.,
possesses a personality distinct and separate from Rizaldy Zshornack. Payment made to Ernesto
cannot be considered payment to Rizaldy.

As to the second explanation, even if we assume that there was such an agreement, the evidence
do not show that the withdrawal was made pursuant to it. Instead, the record reveals that the amount
withdrawn was used to finance a dollar draft in favor of Leovigilda D. Dizon, and not to fund the
current account of the Zshornacks. There is no proof whatsoever that peso Current Account No. 210465-29 was ever credited with the peso equivalent of the US$1,000.00 withdrawn on October 27,
1975 from Dollar Savings Account No. 25-4109.
2. As for the second cause of action, the complaint filed with the trial court alleged that on December
8, 1975, Zshornack entrusted to COMTRUST, thru Garcia, US $3,000.00 cash (popularly known as
greenbacks) forsafekeeping, and that the agreement was embodied in a document, a copy of which
was attached to and made part of the complaint. The document reads:
Makati Cable Address:
Philippines "COMTRUST"
COMMERCIAL BANK AND TRUST COMPANY
of the Philippines
Quezon City Branch
Decem
ber 8,
1975
MR. RIZALDY T. ZSHORNACK
&/OR MRS SHIRLEY E. ZSHORNACK
Sir/Madam:
We acknowledged (sic) having received from you today the sum of
US DOLLARS: THREE THOUSAND ONLY (US$3,000.00) for
safekeeping.
Receiv
ed by:
(Sgd.)
VIRGIL
IO V.
GARCI
A
It was also alleged in the complaint that despite demands, the bank refused to return the money.
In its answer, COMTRUST averred that the US$3,000 was credited to Zshornack's peso current
account at prevailing conversion rates.

It must be emphasized that COMTRUST did not deny specifically under oath the authenticity and
due execution of the above instrument.
During trial, it was established that on December 8, 1975 Zshornack indeed delivered to the bank
US $3,000 for safekeeping. When he requested the return of the money on May 10, 1976,
COMTRUST explained that the sum was disposed of in this manner: US$2,000.00 was sold on
December 29, 1975 and the peso proceeds amounting to P14,920.00 were deposited to Zshornack's
current account per deposit slip accomplished by Garcia; the remaining US$1,000.00 was sold on
February 3, 1976 and the peso proceeds amounting to P8,350.00 were deposited to his current
account per deposit slip also accomplished by Garcia.
Aside from asserting that the US$3,000.00 was properly credited to Zshornack's current account at
prevailing conversion rates, BPI now posits another ground to defeat private respondent's claim. It
now argues that the contract embodied in the document is the contract of depositum (as defined in
Article 1962, New Civil Code), which banks do not enter into. The bank alleges that Garcia exceeded
his powers when he entered into the transaction. Hence, it is claimed, the bank cannot be liable
under the contract, and the obligation is purely personal to Garcia.
Before we go into the nature of the contract entered into, an important point which arises on the
pleadings, must be considered.
The second cause of action is based on a document purporting to be signed by COMTRUST, a copy
of which document was attached to the complaint. In short, the second cause of action was based
on an actionable document. It was therefore incumbent upon the bank to specifically deny under
oath the due execution of the document, as prescribed under Rule 8, Section 8, if it desired: (1) to
question the authority of Garcia to bind the corporation; and (2) to deny its capacity to enter into
such contract. [See, E.B. Merchant v. International Banking Corporation, 6 Phil. 314 (1906).] No
sworn answer denying the due execution of the document in question, or questioning the authority of
Garcia to bind the bank, or denying the bank's capacity to enter into the contract, was ever filed.
Hence, the bank is deemed to have admitted not only Garcia's authority, but also the bank's power,
to enter into the contract in question.
In the past, this Court had occasion to explain the reason behind this procedural requirement.
The reason for the rule enunciated in the foregoing authorities will, we think, be
readily appreciated. In dealing with corporations the public at large is bound to rely to
a large extent upon outward appearances. If a man is found acting for a corporation
with the external indicia of authority, any person, not having notice of want of
authority, may usually rely upon those appearances; and if it be found that the
directors had permitted the agent to exercise that authority and thereby held him out
as a person competent to bind the corporation, or had acquiesced in a contract and
retained the benefit supposed to have been conferred by it, the corporation will be
bound, notwithstanding the actual authority may never have been granted
... Whether a particular officer actually possesses the authority which he assumes to
exercise is frequently known to very few, and the proof of it usually is not readily
accessible to the stranger who deals with the corporation on the faith of the
ostensible authority exercised by some of the corporate officers. It is therefore
reasonable, in a case where an officer of a corporation has made a contract in its

name, that the corporation should be required, if it denies his authority, to state such
defense in its answer. By this means the plaintiff is apprised of the fact that the
agent's authority is contested; and he is given an opportunity to adduce evidence
showing either that the authority existed or that the contract was ratified and
approved. [Ramirez v. Orientalist Co. and Fernandez, 38 Phil. 634, 645- 646 (1918).]
Petitioner's argument must also be rejected for another reason. The practical effect of absolving a
corporation from liability every time an officer enters into a contract which is beyond corporate
powers, even without the proper allegation or proof that the corporation has not authorized nor
ratified the officer's act, is to cast corporations in so perfect a mold that transgressions and wrongs
by such artificial beings become impossible [Bissell v. Michigan Southern and N.I.R. Cos 22 N.Y 258
(1860).] "To say that a corporation has no right to do unauthorized acts is only to put forth a very
plain truism but to say that such bodies have no power or capacity to err is to impute to them an
excellence which does not belong to any created existence with which we are acquainted. The
distinction between power and right is no more to be lost sight of in respect to artificial than in
respect to natural persons." [Ibid.]
Having determined that Garcia's act of entering into the contract binds the corporation, we now
determine the correct nature of the contract, and its legal consequences, including its enforceability.
The document which embodies the contract states that the US$3,000.00 was received by the bank
for safekeeping. The subsequent acts of the parties also show that the intent of the parties was
really for the bank to safely keep the dollars and to return it to Zshornack at a later time, Thus,
Zshornack demanded the return of the money on May 10, 1976, or over five months later.
The above arrangement is that contract defined under Article 1962, New Civil Code, which reads:
Art. 1962. A deposit is constituted from the moment a person receives a thing
belonging to another, with the obligation of safely keeping it and of returning the
same. If the safekeeping of the thing delivered is not the principal purpose of the
contract, there is no deposit but some other contract.
Note that the object of the contract between Zshornack and COMTRUST was foreign exchange.
Hence, the transaction was covered by Central Bank Circular No. 20, Restrictions on Gold and
Foreign Exchange Transactions, promulgated on December 9, 1949, which was in force at the time
the parties entered into the transaction involved in this case. The circular provides:
xxx xxx xxx
2. Transactions in the assets described below and all dealings in them of whatever
nature, including, where applicable their exportation and importation, shall NOT be
effected, except with respect to deposit accounts included in sub-paragraphs (b) and
(c) of this paragraph, when such deposit accounts are owned by and in the name of,
banks.
(a) Any and all assets, provided they are held through, in, or with
banks or banking institutions located in the Philippines,
including money, checks, drafts, bullions bank drafts, deposit
accounts (demand, time and savings), all debts, indebtedness or

obligations, financial brokers and investment houses, notes,


debentures, stocks, bonds, coupons, bank acceptances, mortgages,
pledges, liens or other rights in the nature of security, expressed in
foreign currencies, or if payable abroad, irrespective of the currency
in which they are expressed, and belonging to any person, firm,
partnership, association, branch office, agency, company or other
unincorporated body or corporation residing or located within the
Philippines;
(b) Any and all assets of the kinds included and/or described in
subparagraph (a) above, whether or not held through, in, or with
banks or banking institutions, and existent within the Philippines,
which belong to any person, firm, partnership, association, branch
office, agency, company or other unincorporated body or corporation
not residing or located within the Philippines;
(c) Any and all assets existent within the Philippines including money,
checks, drafts, bullions, bank drafts, all debts, indebtedness or
obligations, financial securities commonly dealt in by bankers,
brokers and investment houses, notes, debentures, stock, bonds,
coupons, bank acceptances, mortgages, pledges, liens or other rights
in the nature of security expressed in foreign currencies, or if payable
abroad, irrespective of the currency in which they are expressed, and
belonging to any person, firm, partnership, association, branch office,
agency, company or other unincorporated body or corporation
residing or located within the Philippines.
xxx xxx xxx
4. (a) All receipts of foreign exchange shall be sold daily to the Central Bank by those
authorized to deal in foreign exchange. All receipts of foreign exchange by any
person, firm, partnership, association, branch office, agency, company or other
unincorporated body or corporation shall be sold to the authorized agents of the
Central Bank by the recipients within one business day following the receipt of such
foreign exchange. Any person, firm, partnership, association, branch office, agency,
company or other unincorporated body or corporation, residing or located within the
Philippines, who acquires on and after the date of this Circular foreign exchange
shall not, unless licensed by the Central Bank, dispose of such foreign exchange in
whole or in part, nor receive less than its full value, nor delay taking ownership
thereof except as such delay is customary; Provided, further, That within one day
upon taking ownership, or receiving payment, of foreign exchange the
aforementioned persons and entities shall sell such foreign exchange to designated
agents of the Central Bank.
xxx xxx xxx
8. Strict observance of the provisions of this Circular is enjoined; and any person,
firm or corporation, foreign or domestic, who being bound to the observance thereof,
or of such other rules, regulations or directives as may hereafter be issued in

implementation of this Circular, shall fail or refuse to comply with, or abide by, or shall
violate the same, shall be subject to the penal sanctions provided in the Central
Bank Act.
xxx xxx xxx
Paragraph 4 (a) above was modified by Section 6 of Central Bank Circular No. 281, Regulations on
Foreign Exchange, promulgated on November 26, 1969 by limiting its coverage to Philippine
residents only. Section 6 provides:
SEC. 6. All receipts of foreign exchange by any resident person, firm, company or
corporation shall be sold to authorized agents of the Central Bank by the recipients
within one business day following the receipt of such foreign exchange.
Any resident person, firm, company or corporation residing or located within the
Philippines, who acquires foreign exchange shall not, unless authorized by the
Central Bank, dispose of such foreign exchange in whole or in part, nor receive less
than its full value, nor delay taking ownership thereof except as such delay is
customary; Provided, That, within one business day upon taking ownership or
receiving payment of foreign exchange the aforementioned persons and entities shall
sell such foreign exchange to the authorized agents of the Central Bank.
As earlier stated, the document and the subsequent acts of the parties show that they intended the
bank to safekeep the foreign exchange, and return it later to Zshornack, who alleged in his complaint
that he is a Philippine resident. The parties did not intended to sell the US dollars to the Central Bank
within one business day from receipt. Otherwise, the contract of depositum would never have been
entered into at all.
Since the mere safekeeping of the greenbacks, without selling them to the Central Bank within one
business day from receipt, is a transaction which is not authorized by CB Circular No. 20, it must be
considered as one which falls under the general class of prohibited transactions. Hence, pursuant to
Article 5 of the Civil Code, it is void, having been executed against the provisions of a
mandatory/prohibitory law. More importantly, it affords neither of the parties a cause of action against
the other. "When the nullity proceeds from the illegality of the cause or object of the contract, and the
act constitutes a criminal offense, both parties being in pari delicto, they shall have no cause of
action against each other. . ." [Art. 1411, New Civil Code.] The only remedy is one on behalf of the
State to prosecute the parties for violating the law.
We thus rule that Zshornack cannot recover under the second cause of action.
3. Lastly, we find the P8,000.00 awarded by the courts a quo as damages in the concept of litigation
expenses and attorney's fees to be reasonable. The award is sustained.
WHEREFORE, the decision appealed from is hereby MODIFIED. Petitioner is ordered to restore to
the dollar savings account of private respondent the amount of US$1,000.00 as of October 27, 1975
to earn interest at the rate fixed by the bank for dollar savings deposits. Petitioner is further ordered
to pay private respondent the amount of P8,000.00 as damages. The other causes of action of
private respondent are ordered dismissed.
SO ORDERED.

Gutierrez, Jr. and Bidin, JJ., concur.


Fernan, C.J., took no part
Feliciano, J., concur in the result.

Case Title : THE ROMAN CATHOLIC BISHOP OF JARO, plaintiff and appellee,
vs. GREGORIO DE LA PEA, administrator of the estate of Father Agustin de
la Pea, defendant and appellant.Case Nature : APPEAL from a judgment of
the Court of First Instance of Iloilo. Powell, J.
Syllabi Class : TRUST FUNDS|ID.|ID.
Docket Number: No. 6913
Counsel: J. Lopez Vito, Arroyo & Horrilleno
Ponente: MORELAND
Dispositive Portion:
The judgment is therefore reversed, and it is decreed that the plaintiff shall
take nothing by his complaint

Citation Ref:
G.R. No. L-6913

November 21, 1913

THE ROMAN CATHOLIC BISHOP OF JARO, plaintiff-appellee,


vs.
GREGORIO DE LA PEA, administrator of the estate of Father Agustin de la Pea, defendantappellant.
J. Lopez Vito, for appellant.
Arroyo and Horrilleno, for appellee.

MORELAND, J.:

This is an appeal by the defendant from a judgment of the Court of First Instance of Iloilo, awarding
to the plaintiff the sum of P6,641, with interest at the legal rate from the beginning of the action.
It is established in this case that the plaintiff is the trustee of a charitable bequest made for the
construction of a leper hospital and that father Agustin de la Pea was the duly authorized
representative of the plaintiff to receive the legacy. The defendant is the administrator of the estate of
Father De la Pea.
In the year 1898 the books Father De la Pea, as trustee, showed that he had on hand as such
trustee the sum of P6,641, collected by him for the charitable purposes aforesaid. In the same year
he deposited in his personal account P19,000 in the Hongkong and Shanghai Bank at Iloilo. Shortly
thereafter and during the war of the revolution, Father De la Pea was arrested by the military
authorities as a political prisoner, and while thus detained made an order on said bank in favor of the
United States Army officer under whose charge he then was for the sum thus deposited in said bank.
The arrest of Father De la Pea and the confiscation of the funds in the bank were the result of the
claim of the military authorities that he was an insurgent and that the funds thus deposited had been
collected by him for revolutionary purposes. The money was taken from the bank by the military
authorities by virtue of such order, was confiscated and turned over to the Government.
While there is considerable dispute in the case over the question whether the P6,641 of trust funds
was included in the P19,000 deposited as aforesaid, nevertheless, a careful examination of the case
leads us to the conclusion that said trust funds were a part of the funds deposited and which were
removed and confiscated by the military authorities of the United States.
That branch of the law known in England and America as the law of trusts had no exact counterpart
in the Roman law and has none under the Spanish law. In this jurisdiction, therefore, Father De la
Pea's liability is determined by those portions of the Civil Code which relate to obligations. (Book 4,
Title 1.)
Although the Civil Code states that "a person obliged to give something is also bound to preserve it
with the diligence pertaining to a good father of a family" (art. 1094), it also provides, following the
principle of the Roman law, major casus est, cui humana infirmitas resistere non potest, that "no one
shall be liable for events which could not be foreseen, or which having been foreseen were
inevitable, with the exception of the cases expressly mentioned in the law or those in which the
obligation so declares." (Art. 1105.)
By placing the money in the bank and mixing it with his personal funds De la Pea did not thereby
assume an obligation different from that under which he would have lain if such deposit had not
been made, nor did he thereby make himself liable to repay the money at all hazards. If the had
been forcibly taken from his pocket or from his house by the military forces of one of the combatants
during a state of war, it is clear that under the provisions of the Civil Code he would have been
exempt from responsibility. The fact that he placed the trust fund in the bank in his personal account
does not add to his responsibility. Such deposit did not make him a debtor who must respond at all
hazards.
We do not enter into a discussion for the purpose of determining whether he acted more or less
negligently by depositing the money in the bank than he would if he had left it in his home; or
whether he was more or less negligent by depositing the money in his personal account than he
would have been if he had deposited it in a separate account as trustee. We regard such discussion

as substantially fruitless, inasmuch as the precise question is not one of negligence. There was no
law prohibiting him from depositing it as he did and there was no law which changed his
responsibility be reason of the deposit. While it may be true that one who is under obligation to do or
give a thing is in duty bound, when he sees events approaching the results of which will be
dangerous to his trust, to take all reasonable means and measures to escape or, if unavoidable, to
temper the effects of those events, we do not feel constrained to hold that, in choosing between two
means equally legal, he is culpably negligent in selecting one whereas he would not have been if he
had selected the other.
The court, therefore, finds and declares that the money which is the subject matter of this action was
deposited by Father De la Pea in the Hongkong and Shanghai Banking Corporation of Iloilo; that
said money was forcibly taken from the bank by the armed forces of the United States during the war
of the insurrection; and that said Father De la Pea was not responsible for its loss.
The judgment is therefore reversed, and it is decreed that the plaintiff shall take nothing by his
complaint.
Arellano, C.J., Torres and Carson, JJ., concur.

Separate Opinions
TRENT, J., dissenting:
I dissent. Technically speaking, whether Father De la Pea 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 Pea 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 Pea 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 Pea would attempt to strip the fund of its identity, nor had he said or done anything which
tended to relieve De la Pea 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 debtors."
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 Pea cannot be doubted. But this court in the
majority opinion says: "The fact that he (Agustin de la Pea) 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 Pea, 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 Pea 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 Pea had as a matter of fact been
using the money in violation of the trust imposed in him.
lawph!1.net

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.

Case Title : CA AGRO-INDUSTRIAL DEVELOPMENT CORP., petitioner, vs.


THE HONORABLE COURT OF APPEALS and SECURITY BANK AND TRUST
COMPANY, respondents.Case Nature : PETITION for review on certiorari to
set aside the decision of the Court of Appeals.
Syllabi Class : Civil Law|Deposit|Commercial Law|Banks and Banking
Syllabi:
1. Civil Law; Deposit; Commercial Law; Banks and Banking; A contract
for the rent of a safety deposit box is not an ordinary contract of lease but a
special kind of deposit.We agree with the peti tioner's contention that the contract for the rent of
the safety deposi t 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; 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.
2. Civil Law; Deposit; Commercial Law; Banks and Banking; Primary
function of banking institutions authorized to rent out safety deposit box,
within the parameters of contract of deposit in accord with General Banking
Act which adopts prevailing rule in American jurisprudence. -

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
pertinently provides: xxx 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
conjunc- tion with, this principal function.
3. Civil Law; Deposit; Commercial Law; Banks and Banking; Any
stipulation exempting depository from liability for loss of thing deposited on
account of fraud, negligence or delay considered void for being contrary to
law and 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 perform: ng its obligation, it
is found guilty of fraud, negligence, delay or contravention of the tenor of
the agreement. In the absence of any s tipulation prescribing the degree of
diligence required, that of a good father of a family is to be observed.
Hence, any stipulation exempting ng 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.
4. Civil Law; Deposit; Commercial Law; Banks and Banking; Liability of
lessor in contract of lease of safety deposit box can be limited by stipulation
but any stipulation for exemption shall be held ineffective. With respect to property deposited in a safe-deposit box by a customer of a
safedeposit company, the parties, since the relation is a contractual one,
may by special contract define their respective duties or provide for
increasing or limiting the liability of the deposit company, provided such
contract is not in violation of law or public policy. xxx The company, in
renting safe-deposit boxes, cannot exempt itself from liability for loss of the
contents by its own fraud or negligence or that of its agents or servants, and
if a provision of the contract may be construed as an attempt to do so, it will
be held ineffective for the purpose. Although it has been held that the lessor
of a safe-deposit box cannot limit its liability for loss of the contents thereof
through its own negligence, the view has been taken that such a lessor may
limit its liability to some extent by agreement or stipulation.
5. Civil Law; Deposit; Commercial Law; Banks and Banking; Bank's
exoneration from liability not by virtue of characterization of impugned
contract as a contract of lease but by reason of the absence of proof as to its
knowledge about existing\agreement between the other parties, as well as,
that the loss of certificates not attributable to its negligence or fraud. -

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 re om this
Court's determination that the contract involved was one of deposit.
Division: THIRD DIVISION
Docket Number: G.R. No. 90027
Counsel: Dolorfino & Dominguez Law Offices, Danilo B. Banares
Ponente: DAVIDE, JR.
Dispositive Portion:
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 CAG.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.
G.R. No. 90027 March 3, 1993
CA AGRO-INDUSTRIAL DEVELOPMENT CORP., petitioner,
vs.
THE HONORABLE COURT OF APPEALS and SECURITY BANK AND TRUST
COMPANY, respondents.
Dolorfino & Dominguez Law Offices for petitioner.
Danilo B. Banares for private respondent.

DAVIDE, JR., J.:

Is the contractual relation between a commercial bank and another party in a contract of rent of a
safety deposit box with respect to its contents placed by the latter one of bailor and bailee or one of
lessor and lessee?
This is the crux of the present controversy.
On 3 July 1979, petitioner (through its President, Sergio Aguirre) and the spouses Ramon and Paula
Pugao entered into an agreement whereby the former purchased from the latter two (2) parcels of
land for a consideration of P350,625.00. Of this amount, P75,725.00 was paid as downpayment
while the balance was covered by three (3) postdated checks. Among the terms and conditions of
the agreement embodied in a Memorandum of True and Actual Agreement of Sale of Land were that
the titles to the lots shall be transferred to the petitioner upon full payment of the purchase price and
that the owner's copies of the certificates of titles thereto, Transfer Certificates of Title (TCT) Nos.
284655 and 292434, shall be deposited in a safety deposit box of any bank. The same could be
withdrawn only upon the joint signatures of a representative of the petitioner and the Pugaos upon
full payment of the purchase price. Petitioner, through Sergio Aguirre, and the Pugaos then rented
Safety Deposit Box No. 1448 of private respondent Security Bank and Trust Company, a domestic
banking corporation hereinafter referred to as the respondent Bank. For this purpose, both signed a
contract of lease (Exhibit "2") which contains, inter alia, the following conditions:
13. The bank is not a depositary of the contents of the safe and it has neither the
possession nor control of the same.
14. The bank has no interest whatsoever in said contents, except herein expressly
provided, and it assumes absolutely no liability in connection therewith. 1
After the execution of the contract, two (2) renter's keys were given to the renters one to Aguirre
(for the petitioner) and the other to the Pugaos. A guard key remained in the possession of the
respondent Bank. The safety deposit box has two (2) keyholes, one for the guard key and the other
for the renter's key, and can be opened only with the use of both keys. Petitioner claims that the
certificates of title were placed inside the said box.
Thereafter, a certain Mrs. Margarita Ramos offered to buy from the petitioner the two (2) lots at a
price of P225.00 per square meter which, as petitioner alleged in its complaint, translates to a profit
of P100.00 per square meter or a total of P280,500.00 for the entire property. Mrs. Ramos
demanded the execution of a deed of sale which necessarily entailed the production of the
certificates of title. In view thereof, Aguirre, accompanied by the Pugaos, then proceeded to the
respondent Bank on 4 October 1979 to open the safety deposit box and get the certificates of title.
However, when opened in the presence of the Bank's representative, the box yielded no such
certificates. Because of the delay in the reconstitution of the title, Mrs. Ramos withdrew her earlier
offer to purchase the lots; as a consequence thereof, the petitioner allegedly failed to realize the
expected profit of P280,500.00. Hence, the latter filed on 1 September 1980 a complaint 2 for
damages against the respondent Bank with the Court of First Instance (now Regional Trial Court) of
Pasig, Metro Manila which docketed the same as Civil Case No. 38382.
In its Answer with Counterclaim, 3 respondent Bank alleged that the petitioner has no cause of action
because of paragraphs 13 and 14 of the contract of lease (Exhibit "2"); corollarily, loss of any of the items
or articles contained in the box could not give rise to an action against it. It then interposed a counterclaim

for exemplary damages as well as attorney's fees in the amount of P20,000.00. Petitioner subsequently
filed an answer to the counterclaim. 4

In due course, the trial court, now designated as Branch 161 of the Regional Trial Court (RTC) of
Pasig, Metro Manila, rendered a decision 5 adverse to the petitioner on 8 December 1986, the
dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered dismissing
plaintiff's complaint.
On defendant's counterclaim, judgment is hereby rendered ordering plaintiff to pay
defendant the amount of FIVE THOUSAND (P5,000.00) PESOS as attorney's fees.
With costs against plaintiff. 6
The unfavorable verdict is based on the trial court's conclusion that under paragraphs 13 and 14 of
the contract of lease, the Bank has no liability for the loss of the certificates of title. The court
declared that the said provisions are binding on the parties.
Its motion for reconsideration 7 having been denied, petitioner appealed from the adverse decision to the
respondent Court of Appeals which docketed the appeal as CA-G.R. CV No. 15150. Petitioner urged the
respondent Court to reverse the challenged decision because the trial court erred in (a) absolving the
respondent Bank from liability from the loss, (b) not declaring as null and void, for being contrary to law,
public order and public policy, the provisions in the contract for lease of the safety deposit box absolving
the Bank from any liability for loss, (c) not concluding that in this jurisdiction, as well as under American
jurisprudence, the liability of the Bank is settled and (d) awarding attorney's fees to the Bank and denying
the petitioner's prayer for nominal and exemplary damages and attorney's fees. 8
In its Decision promulgated on 4 July 1989, 9 respondent Court affirmed the appealed decision
principally on the theory that the contract (Exhibit "2") executed by the petitioner and respondent Bank is
in the nature of a contract of lease by virtue of which the petitioner and its co-renter were given control
over the safety deposit box and its contents while the Bank retained no right to open the said box
because it had neither the possession nor control over it and its contents. As such, the contract is
governed by Article 1643 of the Civil Code 10 which provides:
Art. 1643. In the lease of things, one of the parties binds himself to give to another
the enjoyment or use of a thing for a price certain, and for a period which may be
definite or indefinite. However, no lease for more than ninety-nine years shall be
valid.
It invoked Tolentino vs. Gonzales 11 which held that the owner of the property loses his
control over the property leased during the period of the contract and Article 1975 of the Civil
Code which provides:
Art. 1975. The depositary holding certificates, bonds, securities or instruments which
earn interest shall be bound to collect the latter when it becomes due, and to take
such steps as may be necessary in order that the securities may preserve their value
and the rights corresponding to them according to law.
The above provision shall not apply to contracts for the rent of safety deposit boxes.

and then concluded that "[c]learly, the defendant-appellee is not under any duty to maintain
the contents of the box. The stipulation absolving the defendant-appellee from liability is in
accordance with the nature of the contract of lease and cannot be regarded as contrary to
law, public order and public policy." 12 The appellate court was quick to add, however, that under
the contract of lease of the safety deposit box, respondent Bank is not completely free from
liability as it may still be made answerable in case unauthorized persons enter into the vault area
or when the rented box is forced open. Thus, as expressly provided for in stipulation number 8 of
the contract in question:
8. The Bank shall use due diligence that no unauthorized person shall be admitted to
any rented safe and beyond this, the Bank will not be responsible for the contents of
any safe rented from it. 13
Its motion for reconsideration 14 having been denied in the respondent Court's Resolution of 28 August
1989, 15petitioner took this recourse under Rule 45 of the Rules of Court and urges Us to review and set
aside the respondent Court's ruling. Petitioner avers that both the respondent Court and the trial court (a)
did not properly and legally apply the correct law in this case, (b) acted with grave abuse of discretion or
in excess of jurisdiction amounting to lack thereof and (c) set a precedent that is contrary to, or is a
departure from precedents adhered to and affirmed by decisions of this Court and precepts in American
jurisprudence adopted in the Philippines. It reiterates the arguments it had raised in its motion to
reconsider the trial court's decision, the brief submitted to the respondent Court and the motion to
reconsider the latter's decision. In a nutshell, petitioner maintains that regardless of nomenclature, the
contract for the rent of the safety deposit box (Exhibit "2") is actually a contract of deposit governed by
Title XII, Book IV of the Civil Code of the
Philippines. 16 Accordingly, it is claimed that the respondent Bank is liable for the loss of the certificates of
title pursuant to Article 1972 of the said Code which provides:
Art. 1972. The depositary is obliged to keep the thing safely and to return it, when
required, to the depositor, or to his heirs and successors, or to the person who may
have been designated in the contract. His responsibility, with regard to the
safekeeping and the loss of the thing, shall be governed by the provisions of Title I of
this Book.
If the deposit is gratuitous, this fact shall be taken into account in determining the
degree of care that the depositary must observe.
Petitioner then quotes a passage from American Jurisprudence 17 which is supposed to
expound on the prevailing rule in the United States, to wit:
The prevailing rule appears to be that where a safe-deposit company leases a safedeposit box or safe and the lessee takes possession of the box or safe and places
therein his securities or other valuables, the relation of bailee and bail or is created
between the parties to the transaction as to such securities or other valuables; the
fact that the
safe-deposit company does not know, and that it is not expected that it shall know,
the character or description of the property which is deposited in such safe-deposit
box or safe does not change that relation. That access to the contents of the safedeposit box can be had only by the use of a key retained by the lessee ( whether it is
the sole key or one to be used in connection with one retained by the lessor) does
not operate to alter the foregoing rule. The argument that there is not, in such a case,

a delivery of exclusive possession and control to the deposit company, and that
therefore the situation is entirely different from that of ordinary bailment, has been
generally rejected by the courts, usually on the ground that as possession must be
either in the depositor or in the company, it should reasonably be considered as in
the latter rather than in the former, since the company is, by the nature of the
contract, given absolute control of access to the property, and the depositor cannot
gain access thereto without the consent and active participation of the company. . . .
(citations omitted).
and a segment from Words and Phrases 18 which states that a contract for the rental of a bank
safety deposit box in consideration of a fixed amount at stated periods is a bailment for hire.
Petitioner further argues that conditions 13 and 14 of the questioned contract are contrary to law and
public policy and should be declared null and void. In support thereof, it cites Article 1306 of the Civil
Code which provides that parties to a contract may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals, good
customs, public order or public policy.
After the respondent Bank filed its comment, this Court gave due course to the petition and required
the parties to simultaneously submit their respective Memoranda.
The petition is partly meritorious.
We agree with the petitioner's contention that the contract for the rent of the safety deposit box is not
an ordinary contract of lease as defined in Article 1643 of the Civil Code. However, We do not fully
subscribe to its view that the same is a contract of deposit that is to be strictly governed by the
provisions in the Civil Code on deposit; 19the contract in the case at bar is a special kind of deposit. It
cannot be characterized as an ordinary contract of lease under Article 1643 because the full and absolute
possession and control of the safety deposit box was not given to the joint renters the petitioner and
the Pugaos. The guard key of the box remained with the respondent Bank; without this key, neither of the
renters could open the box. On the other hand, the respondent Bank could not likewise open the box
without the renter's key. In this case, the said key had a duplicate which was made so that both renters
could have access to the box.
Hence, the authorities cited by the respondent Court 20 on this point do not apply. Neither could Article
1975, also relied upon by the respondent Court, be invoked as an argument against the deposit theory.
Obviously, the first paragraph of such provision cannot apply to a depositary of certificates, bonds,
securities or instruments which earn interest if such documents are kept in a rented safety deposit box. It
is clear that the depositary cannot open the box without the renter being present.
We observe, however, that the deposit theory itself does not altogether find unanimous support even
in American jurisprudence. We agree with the petitioner that under the latter, the prevailing rule is
that the relation between a bank renting out safe-deposit boxes and its customer with respect to the
contents of the box is that of a bail or and bailee, the bailment being for hire and mutual
benefit. 21 This is just the prevailing view because:
There is, however, some support for the view that the relationship in question might
be more properly characterized as that of landlord and tenant, or lessor and lessee. It
has also been suggested that it should be characterized as that of licensor and
licensee. The relation between a bank, safe-deposit company, or storage company,

and the renter of a safe-deposit box therein, is often described as contractual,


express or implied, oral or written, in whole or in part. But there is apparently no
jurisdiction in which any rule other than that applicable to bailments governs
questions of the liability and rights of the parties in respect of loss of the contents of
safe-deposit boxes. 22 (citations omitted)
In the context of our laws which authorize banking institutions to rent out safety deposit boxes, it is
clear that in this jurisdiction, the prevailing rule in the United States has been adopted. Section 72 of
the General Banking Act23 pertinently provides:
Sec. 72. In addition to the operations specifically authorized elsewhere in this Act,
banking institutions other than building and loan associations may perform the
following services:
(a) Receive in custody funds, documents, and valuable objects, and
rent safety deposit boxes for the safeguarding of such effects.
xxx xxx xxx
The banks shall perform the services permitted under subsections (a), (b) and (c) of
this section asdepositories or as agents. . . . 24 (emphasis supplied)
Note that the primary function is still found within the parameters of a contract of deposit, i.e., the
receiving in custody of funds, documents and other valuable objects for safekeeping. The renting out
of the safety deposit boxes is not independent from, but related to or in conjunction with, this
principal function. A contract of deposit may be entered into orally or in writing 25 and, pursuant to
Article 1306 of the Civil Code, the parties thereto may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals, good customs,
public order or public policy. The depositary's responsibility for the safekeeping of the objects deposited in
the case at bar is governed by Title I, Book IV of the Civil Code. Accordingly, the depositary would be
liable if, in performing its obligation, it is found guilty of fraud, negligence, delay or contravention of the
tenor of the agreement. 26 In the absence of any stipulation prescribing the degree of diligence required,
that of a good father of a family is to be observed. 27 Hence, any stipulation exempting the depositary from
any liability arising from the loss of the thing deposited on account of fraud, negligence or delay would be
void for being contrary to law and public policy. In the instant case, petitioner maintains that conditions 13
and 14 of the questioned contract of lease of the safety deposit box, which read:
13. The bank is not a depositary of the contents of the safe and it has neither the
possession nor control of the same.
14. The bank has no interest whatsoever in said contents, except herein expressly
provided, and it assumes absolutely no liability in connection therewith. 28
are void as they are contrary to law and public policy. We find Ourselves in agreement with
this proposition for indeed, said provisions are inconsistent with the respondent Bank's
responsibility as a depositary under Section 72(a) of the General Banking Act. Both exempt
the latter from any liability except as contemplated in condition 8 thereof which limits its duty
to exercise reasonable diligence only with respect to who shall be admitted to any rented
safe, to wit:

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

modified, and subject to the pronouncement We made above on the nature of the relationship
between the parties in a contract of lease of safety deposit boxes, the dispositive portion of the said
Decision is hereby AFFIRMED and the instant Petition for Review is otherwise DENIED for lack of
merit.
No pronouncement as to costs.
SO ORDERED.
Feliciano, Bidin, Romero and Melo, JJ., concur.
Gutierrez, Jr., J., is on leave.

# Footnotes
1 Rollo, 102.
2 Annex "A" of Petition; Rollo, 28-32.
3 Annex "B", Id.; Id., 33-35.
4 Annex "C", Id.; Id., 36.
5 Annex "D" of Petition; Rollo, 38-54. Per Judge Cicero C. Jurado.
6 Id., 54.
7 Annex "E", Id.; Id., 55-68.
8 Rollo, 100-101.
9 Per Associate Justice Felipe B. Kalalo, concurred in by Associate Justices
Bienvenido C. Ejercito and Luis L. Victor. Annex "I" of Petition; Id., 89-105.
10 Citing PARAS, E.L., Civil Code of the Philippines, vol. 5, 1982 ed., 717.
11 50 Phil. 558 [1927].
12 Rollo, 103.
13 Id.
14 Annex "J" of Petition; Rollo, 106-113.
15 Annex "K", Id.; Id., 114-115.

16 Articles 1962 to 2009, inclusive.


17 10 Am Jur 2d., 440-441.
18 While the citation is 5 Words and Phrases Permanent Edition, 71-72, We failed to
locate this in the said work and volume.
19 Title XII, Book IV, Civil Code.
20 PARAS, E.L., op. cit., and Tolentino vs. Gonzales, supra.
21 10 Am Jur 2d., 441.
22 10 Am Jur 2d., 442-443.
23 R.A. No. 337, as amended.
24 "Agents" refers to paragraphs (b) and (c) while "depositories" refers to paragraph
(a).
25 Article 1969, Civil Code.
26 Article 1170, Id.
27 Article 1173, Id.
28 Supra.
29 Supra.
30 10 Am Jur 2d., 448.

Case Title : YHT REALTY CORPORATION, ERLINDA LAINEZ and ANICIA


PAYAM, petitioners, vs. THE COURT OF APPEALS and MAURICE McLOUGHLIN,
respondents.Case Nature : PETITION for review on certiorari of a decision
of the Court of Appeals.
Syllabi Class : Actions|Hotels and Inns|Damages|Appeals|Pleadings and
Practice|Deposits|Safety Deposit Boxes|Quasi-Delicts|Torts
Syllabi:
1. Actions; Appeals; Pleadings and Practice; The thrust of Rule 45 is the
resolution only of questions of law and any peripheral factual question
addressed to the Supreme Court is beyond the bounds of this mode of
review.It is worthy of note that the thrust of Rule 45 is the resolution only of
questions of law and any peripheral factual question addressed to this Court
is beyond the bounds of this mode of review. Petitioners point out that the

evidence on record is insufficient to prove the fact of prior existence of the


dollars and the jewelry which had been lost while deposited in the safety
deposit boxes of Tropicana, the basis of the trial court and the appellate
court being the sole testimony of McLoughlin as to the contents thereof.
Likewise, petitioners dispute the finding of gross negligence on their part as
not supported by the evidence on record. We are not persuaded. We adhere
to the findings of the trial court as affirmed by the appellate court that the
fact of loss was established by the credible testimony in open court by
McLoughlin. Such findings are factual and therefore beyond the ambit of the
present petition.
2. Hotels and Inns; Deposits; Safety Deposit Boxes; Mere close
companionship and intimacy are not enough to warrant the conclusion that a
hotel guest and his companion are husband and wifeit is no excuse for the
hotel to have allowed the latter to open the safety deposit box of the
former.The management contends, however, that McLoughlin, by his act, made its
employees believe that Tan was his spouse for she was always with him
most of the time. The evidence on record, however, is bereft of any showing
that McLoughlin introduced Tan to the management as his wife. Such an
inference from the act of McLoughlin will not exculpate the petitioners from
liability in the absence of any showing that he made the management
believe that Tan was his wife or was duly authorized to have access to the
safety deposit box. Mere close companionship and intimacy are not enough
to warrant such conclusion considering that what is involved in the instant
case is the very safety of McLoughlins deposit. If only petitioners exercised
due diligence in taking care of McLoughlins safety deposit box, they should
have confronted him as to his relationship with Tan considering that the
latter had been observed opening McLoughlins safety deposit box a number
of times at the early hours of the morning. Tans acts should have prompted
the management to investigate her relationship with McLoughlin. Then,
petitioners would have exercised due diligence required of them. Failure to
do so warrants the conclusion that the management had been remiss in
complying with the obligations imposed upon hotel-keepers under the law.
3. Hotels and Inns; Deposits; Safety Deposit Boxes; QuasiDelicts; Torts; Where the loss of a hotel guests money was consummated
through the negligence of the hotel employee in allowing the companion of
said guest to open the safety deposit box without the guests consent, both
the assisting employees and the hotel owner and operator are solidarily
liable.Under Article 1170 of the New Civil Code, those who, in the performance of
their obligations, are guilty of negligence, are liable for damages. As to who
shall bear the burden of paying damages, Article 2180, paragraph (4) of the
same Code provides that the owners and managers of an establishment or

enterprise are likewise responsible for damages caused by their employees


in the service of the branches in which the latter are employed or on the
occasion of their functions. Also, this Court has ruled that if an employee is
found negligent, it is presumed that the employer was negligent in selecting
and/or supervising him for it is hard for the victim to prove the negligence of
such employer. Thus, given the fact that the loss of McLoughlins money was
consummated through the negligence of Tropicanas employees in allowing
Tan to open the safety deposit box without the guests consent, both the
assisting employees and YHT Realty Corporation itself, as owner and
operator of Tropicana, should be held solidarily liable pursuant to Article
2193.
4. Hotels and Inns; Deposits; Safety Deposit Boxes; QuasiDelicts; Torts; Catering to the public, hotel-keepers are bound to provide
not only lodging for hotel guests but also security to their persons and
belongingsa twin duty which the law does not allow to be negated or
diluted by any contrary stipulation in so-called undertakings that ordinarily
appear in prepared forms imposed by hotel keepers on guests for their
signature.The issue of whether the Undertaking For The Use of Safety Deposit Box
exe- cuted by McLoughlin is tainted with nullity presents a legal question
appropriate for resolution in this petition. Notably, both the trial court and
the appellate court found the same to be null and void. We find no reason to
reverse their common conclusion. Article 2003 is controlling, thus: Art.
2003. The hotel-keeper cannot free himself from responsibility by posting
notices to the effect that he is not liable for the articles brought by the
guest. Any stipulation between the hotel-keeper and the guest whereby the
responsibility of the former as set forth in Articles 1998 to 2001 is
suppressed or diminished shall be void. Article 2003 was incorporated in the
New Civil Code as an expression of public policy precisely to apply to
situations such as that presented in this case. The hotel business like the
common carriers business is imbued with public interest. Catering to the
public, hotelkeepers are bound to provide not only lodging for hotel guests
and security to their persons and belongings. The twin duty constitutes the
essence of the business. The law in turn does not allow such duty to the
public to be negated or diluted by any contrary stipulation in so-called
undertakings that ordinarily appear in prepared forms imposed by hotel
keepers on guests for their signature.
5. Hotels and Inns; Deposits; Safety Deposit Boxes; QuasiDelicts; Torts; With greater reason should the liability of the hotelkeeper
be enforced when the missing items are taken without the guests
knowledge and consent from a safety deposit box provided by the hotel
itself.-

In an early case, the Court of Appeals through its then Presiding Justice
(later Associate Justice of the Court) Jose P. Bengzon, ruled that to hold
hotelkeepers or innkeeper liable for the effects of their guests, it is not
necessary that they be actually delivered to the innkeepers or their
employees. It is enough that such effects are within the hotel or inn. With
greater reason should the liability of the hotelkeeper be enforced when the
missing items are taken without the guests knowledge and consent from a
safety deposit box provided by the hotel itself, as in this case.
6. Hotels and Inns; Deposits; Safety Deposit Boxes; QuasiDelicts; Torts; Article 2002 of the Civil Code which exempts the hotelkeeper from liability if the loss is due to the acts of his guest, his family, or
visitors presupposes that the hotel-keeper is not guilty of concurrent
negligence or has not contributed in any degree to the occurrence of the loss
a depositary is not responsible for the loss of goods by theft, unless his
actionable negligence contributes to the loss.Petitioners likewise anchor their defense on Article 2002 which exempts the
hotel-keeper from liability if the loss is due to the acts of his guest, his
family, or visitors. Even a cursory reading of the provision would lead us to
reject petitioners contention. The justification they raise would render
nugatory the public interest sought to be protected by the provision. What if
the negligence of the employer or its employees facilitated the
consummation of a crime committed by the registered guests relatives or
visitor? Should the law exculpate the hotel from liability since the loss was
due to the act of the visitor of the registered guest of the hotel? Hence, this
provision presupposes that the hotel-keeper is not guilty of concurrent
negligence or has not contributed in any degree to the occurrence of the
loss. A depositary is not responsible for the loss of goods by theft, unless his
actionable negligence contributes to the loss.
7. Hotels and Inns; Deposits; Safety Deposit Boxes; QuasiDelicts; Torts; The hotel was guilty of concurrent negligence in allowing the
hotel guests companion, who was not the registered guest, to open the
safety deposit box of the guest, even assuming that the latter was also
guilty of negligence in allowing another person to use his keyto rule
otherwise would result in undermining the safety of the safety deposit boxes
in hotels for the management will be given imprimatur to allow any person,
under the pretense of being a family member or a visitor of the guest, to
have access to the safety deposit box without fear of any liability that will
attach thereafter in case such person turns out to be a complete stranger. In the case at bar, the responsibility of securing the safety deposit box was
shared not only by the guest himself but also by the management since two
keys are necessary to open the safety deposit box. Without the assistance of
hotel employees, the loss would not have occurred. Thus, Tropicana was
guilty of concurrent negligence in allowing Tan, who was not the registered

guest, to open the safety deposit box of McLoughlin, even assuming that the
latter was also guilty of negligence in allowing another person to use his
key. To rule otherwise would result in undermining the safety of the safety
deposit boxes in hotels for the management will be given imprimatur to
allow any person, under the pretense of being a family member or a visitor
of the guest, to have access to the safety deposit box without fear of any
liability that will attach thereafter in case such person turns out to be a
complete stranger. This will allow the hotel to evade responsibility for any
liability incurred by its employees in conspiracy with the guests relatives
and visitors.
8. Hotels and Inns; Deposits; Safety Deposit Boxes; QuasiDelicts; Torts; A tort liability can exist even if there are already contractual
relationsthe act that breaks the contract may also be tort.Petitioners contend that McLoughlins case was mounted on the theory of
contract, but the trial court and the appellate court upheld the grant of the
claims of the latter on the basis of tort. There is nothing anomalous in how
the lower courts decided the controversy for this Court has pronounced a
jurisprudential rule that tort liability can exist even if there are already
contractual relations. The act that breaks the contract may also be tort.
9. Damages; It is within the province of lower courts to settle factual issues
such as the proper amount of damages awarded.As to damages awarded to McLoughlin, we see no reason to modify the
amounts awarded by the appellate court for the same were based on facts
and law. It is within the province of lower courts to settle factual issues such
as the proper amount of damages awarded and such finding is binding upon
this Court especially if sufficiently proven by evidence and not
unconscionable or excessive.
10. Damages; Although trial courts are given discretion to determine the
amount of moral damages, the appellate court may modify or change the
amount awarded when it is palpably and scandalously excessive. The amount of P50,000.00 for moral damages is reasonable. Although trial
courts are given discretion to determine the amount of moral damages, the
appellate court may modify or change the amount awarded when it is
palpably and scandalously excessive. Moral damages are not intended to
enrich a complainant at the expense of a defendant. They are awarded only
to enable the injured party to obtain means, diversion or amusements that
will serve to alleviate the moral suffering he has undergone, by reason of
defendants culpable action.
Division: SECOND DIVISION
Docket Number: G.R. No. 126780

Counsel: Bernardo P. Fernandez, Emerito Salva & Associates


Ponente: TINGA
Dispositive Portion:
WHEREFORE, foregoing premises considered, the Decision of the Court of
Appeals dated 19 October 1995 is hereby AFFIRMED. Petitioners are
directed, jointly and severally, to pay private respondent the following
amounts:
G.R. No. 126780

February 17, 2005

YHT REALTY CORPORATION, ERLINDA LAINEZ and ANICIA PAYAM, petitioners,


vs.
THE COURT OF APPEALS and MAURICE McLOUGHLIN, respondents.
DECISION
TINGA, J.:
The primary question of interest before this Court is the only legal issue in the case: It is whether a
hotel may evade liability for the loss of items left with it for safekeeping by its guests, by having these
guests execute written waivers holding the establishment or its employees free from blame for such
loss in light of Article 2003 of the Civil Code which voids such waivers.
Before this Court is a Rule 45 petition for review of the Decision1 dated 19 October 1995 of the Court
of Appeals which affirmed the Decision2 dated 16 December 1991 of the Regional Trial Court (RTC),
Branch 13, of Manila, finding YHT Realty Corporation, Brunhilda Mata-Tan (Tan), Erlinda Lainez
(Lainez) and Anicia Payam (Payam) jointly and solidarily liable for damages in an action filed by
Maurice McLoughlin (McLoughlin) for the loss of his American and Australian dollars deposited in the
safety deposit box of Tropicana Copacabana Apartment Hotel, owned and operated by YHT Realty
Corporation.
The factual backdrop of the case follow.
Private respondent McLoughlin, an Australian businessman-philanthropist, used to stay at Sheraton
Hotel during his trips to the Philippines prior to 1984 when he met Tan. Tan befriended McLoughlin
by showing him around, introducing him to important people, accompanying him in visiting
impoverished street children and assisting him in buying gifts for the children and in distributing the
same to charitable institutions for poor children. Tan convinced McLoughlin to transfer from Sheraton
Hotel to Tropicana where Lainez, Payam and Danilo Lopez were employed. Lopez served as
manager of the hotel while Lainez and Payam had custody of the keys for the safety deposit boxes
of Tropicana. Tan took care of McLoughlin's booking at the Tropicana where he started staying
during his trips to the Philippines from December 1984 to September 1987. 3
On 30 October 1987, McLoughlin arrived from Australia and registered with Tropicana. He rented a
safety deposit box as it was his practice to rent a safety deposit box every time he registered at

Tropicana in previous trips. As a tourist, McLoughlin was aware of the procedure observed by
Tropicana relative to its safety deposit boxes. The safety deposit box could only be opened through
the use of two keys, one of which is given to the registered guest, and the other remaining in the
possession of the management of the hotel. When a registered guest wished to open his safety
deposit box, he alone could personally request the management who then would assign one of its
employees to accompany the guest and assist him in opening the safety deposit box with the two
keys.4
McLoughlin allegedly placed the following in his safety deposit box: Fifteen Thousand US Dollars
(US$15,000.00) which he placed in two envelopes, one envelope containing Ten Thousand US
Dollars (US$10,000.00) and the other envelope Five Thousand US Dollars (US$5,000.00); Ten
Thousand Australian Dollars (AUS$10,000.00) which he also placed in another envelope; two (2)
other envelopes containing letters and credit cards; two (2) bankbooks; and a checkbook, arranged
side by side inside the safety deposit box.5
On 12 December 1987, before leaving for a brief trip to Hongkong, McLoughlin opened his safety
deposit box with his key and with the key of the management and took therefrom the envelope
containing Five Thousand US Dollars (US$5,000.00), the envelope containing Ten Thousand
Australian Dollars (AUS$10,000.00), his passports and his credit cards. 6 McLoughlin left the other
items in the box as he did not check out of his room at the Tropicana during his short visit to
Hongkong. When he arrived in Hongkong, he opened the envelope which contained Five Thousand
US Dollars (US$5,000.00) and discovered upon counting that only Three Thousand US Dollars
(US$3,000.00) were enclosed therein.7 Since he had no idea whether somebody else had tampered
with his safety deposit box, he thought that it was just a result of bad accounting since he did not
spend anything from that envelope.8
After returning to Manila, he checked out of Tropicana on 18 December 1987 and left for Australia.
When he arrived in Australia, he discovered that the envelope with Ten Thousand US Dollars
(US$10,000.00) was short of Five Thousand US Dollars (US$5,000). He also noticed that the jewelry
which he bought in Hongkong and stored in the safety deposit box upon his return to Tropicana was
likewise missing, except for a diamond bracelet.9
When McLoughlin came back to the Philippines on 4 April 1988, he asked Lainez if some money
and/or jewelry which he had lost were found and returned to her or to the management. However,
Lainez told him that no one in the hotel found such things and none were turned over to the
management. He again registered at Tropicana and rented a safety deposit box. He placed therein
one (1) envelope containing Fifteen Thousand US Dollars (US$15,000.00), another envelope
containing Ten Thousand Australian Dollars (AUS$10,000.00) and other envelopes containing his
traveling papers/documents. On 16 April 1988, McLoughlin requested Lainez and Payam to open his
safety deposit box. He noticed that in the envelope containing Fifteen Thousand US Dollars
(US$15,000.00), Two Thousand US Dollars (US$2,000.00) were missing and in the envelope
previously containing Ten Thousand Australian Dollars (AUS$10,000.00), Four Thousand Five
Hundred Australian Dollars (AUS$4,500.00) were missing.10
When McLoughlin discovered the loss, he immediately confronted Lainez and Payam who admitted
that Tan opened the safety deposit box with the key assigned to him.11 McLoughlin went up to his
room where Tan was staying and confronted her. Tan admitted that she had stolen McLoughlin's key
and was able to open the safety deposit box with the assistance of Lopez, Payam and
Lainez.12 Lopez also told McLoughlin that Tan stole the key assigned to McLoughlin while the latter
was asleep.13

McLoughlin requested the management for an investigation of the incident. Lopez got in touch with
Tan and arranged for a meeting with the police and McLoughlin. When the police did not arrive,
Lopez and Tan went to the room of McLoughlin at Tropicana and thereat, Lopez wrote on a piece of
paper a promissory note dated 21 April 1988. The promissory note reads as follows:
I promise to pay Mr. Maurice McLoughlin the amount of AUS$4,000.00 and US$2,000.00 or its
equivalent in Philippine currency on or before May 5, 1988. 14
Lopez requested Tan to sign the promissory note which the latter did and Lopez also signed as a
witness. Despite the execution of promissory note by Tan, McLoughlin insisted that it must be the
hotel who must assume responsibility for the loss he suffered. However, Lopez refused to accept the
responsibility relying on the conditions for renting the safety deposit box entitled "Undertaking For
the Use Of Safety Deposit Box,"15specifically paragraphs (2) and (4) thereof, to wit:
2. To release and hold free and blameless TROPICANA APARTMENT HOTEL from any liability
arising from any loss in the contents and/or use of the said deposit box for any cause whatsoever,
including but not limited to the presentation or use thereof by any other person should the key be
lost;
...
4. To return the key and execute the RELEASE in favor of TROPICANA APARTMENT HOTEL upon
giving up the use of the box.16
On 17 May 1988, McLoughlin went back to Australia and he consulted his lawyers as to the validity
of the abovementioned stipulations. They opined that the stipulations are void for being violative of
universal hotel practices and customs. His lawyers prepared a letter dated 30 May 1988 which was
signed by McLoughlin and sent to President Corazon Aquino. 17 The Office of the President referred
the letter to the Department of Justice (DOJ) which forwarded the same to the Western Police
District (WPD).18
After receiving a copy of the indorsement in Australia, McLoughlin came to the Philippines and
registered again as a hotel guest of Tropicana. McLoughlin went to Malacaang to follow up on his
letter but he was instructed to go to the DOJ. The DOJ directed him to proceed to the WPD for
documentation. But McLoughlin went back to Australia as he had an urgent business matter to
attend to.
For several times, McLoughlin left for Australia to attend to his business and came back to the
Philippines to follow up on his letter to the President but he failed to obtain any concrete
assistance.19
McLoughlin left again for Australia and upon his return to the Philippines on 25 August 1989 to
pursue his claims against petitioners, the WPD conducted an investigation which resulted in the
preparation of an affidavit which was forwarded to the Manila City Fiscal's Office. Said affidavit
became the basis of preliminary investigation. However, McLoughlin left again for Australia without
receiving the notice of the hearing on 24 November 1989. Thus, the case at the Fiscal's Office was
dismissed for failure to prosecute. Mcloughlin requested the reinstatement of the criminal charge for
theft. In the meantime, McLoughlin and his lawyers wrote letters of demand to those having
responsibility to pay the damage. Then he left again for Australia.

Upon his return on 22 October 1990, he registered at the Echelon Towers at Malate, Manila.
Meetings were held between McLoughlin and his lawyer which resulted to the filing of a complaint for
damages on 3 December 1990 against YHT Realty Corporation, Lopez, Lainez, Payam and Tan
(defendants) for the loss of McLoughlin's money which was discovered on 16 April 1988. After filing
the complaint, McLoughlin left again for Australia to attend to an urgent business matter. Tan and
Lopez, however, were not served with summons, and trial proceeded with only Lainez, Payam and
YHT Realty Corporation as defendants.
After defendants had filed their Pre-Trial Brief admitting that they had previously allowed and
assisted Tan to open the safety deposit box, McLoughlin filed an Amended/Supplemental
Complaint20 dated 10 June 1991 which included another incident of loss of money and jewelry in the
safety deposit box rented by McLoughlin in the same hotel which took place prior to 16 April
1988.21 The trial court admitted the Amended/Supplemental Complaint.
During the trial of the case, McLoughlin had been in and out of the country to attend to urgent
business in Australia, and while staying in the Philippines to attend the hearing, he incurred
expenses for hotel bills, airfare and other transportation expenses, long distance calls to Australia,
Meralco power expenses, and expenses for food and maintenance, among others. 22
After trial, the RTC of Manila rendered judgment in favor of McLoughlin, the dispositive portion of
which reads:
WHEREFORE, above premises considered, judgment is hereby rendered by this Court in favor of
plaintiff and against the defendants, to wit:
1. Ordering defendants, jointly and severally, to pay plaintiff the sum of US$11,400.00 or its
equivalent in Philippine Currency of P342,000.00, more or less, and the sum of
AUS$4,500.00 or its equivalent in Philippine Currency of P99,000.00, or a total
of P441,000.00, more or less, with 12% interest from April 16 1988 until said amount has
been paid to plaintiff (Item 1, Exhibit CC);
2. Ordering defendants, jointly and severally to pay plaintiff the sum of P3,674,238.00 as
actual and consequential damages arising from the loss of his Australian and American
dollars and jewelries complained against and in prosecuting his claim and rights
administratively and judicially (Items II, III, IV, V, VI, VII, VIII, and IX, Exh. "CC");
3. Ordering defendants, jointly and severally, to pay plaintiff the sum of P500,000.00 as
moral damages (Item X, Exh. "CC");
4. Ordering defendants, jointly and severally, to pay plaintiff the sum of P350,000.00 as
exemplary damages (Item XI, Exh. "CC");
5. And ordering defendants, jointly and severally, to pay litigation expenses in the sum
of P200,000.00 (Item XII, Exh. "CC");
6. Ordering defendants, jointly and severally, to pay plaintiff the sum of P200,000.00 as
attorney's fees, and a fee of P3,000.00 for every appearance; and
7. Plus costs of suit.
SO ORDERED.23

The trial court found that McLoughlin's allegations as to the fact of loss and as to the amount of
money he lost were sufficiently shown by his direct and straightforward manner of testifying in court
and found him to be credible and worthy of belief as it was established that McLoughlin's money,
kept in Tropicana's safety deposit box, was taken by Tan without McLoughlin's consent. The taking
was effected through the use of the master key which was in the possession of the management.
Payam and Lainez allowed Tan to use the master key without authority from McLoughlin. The trial
court added that if McLoughlin had not lost his dollars, he would not have gone through the trouble
and personal inconvenience of seeking aid and assistance from the Office of the President, DOJ,
police authorities and the City Fiscal's Office in his desire to recover his losses from the hotel
management and Tan.24
As regards the loss of Seven Thousand US Dollars (US$7,000.00) and jewelry worth approximately
One Thousand Two Hundred US Dollars (US$1,200.00) which allegedly occurred during his stay at
Tropicana previous to 4 April 1988, no claim was made by McLoughlin for such losses in his
complaint dated 21 November 1990 because he was not sure how they were lost and who the
responsible persons were. But considering the admission of the defendants in their pre-trial brief that
on three previous occasions they allowed Tan to open the box, the trial court opined that it was
logical and reasonable to presume that his personal assets consisting of Seven Thousand US
Dollars (US$7,000.00) and jewelry were taken by Tan from the safety deposit box without
McLoughlin's consent through the cooperation of Payam and Lainez. 25
The trial court also found that defendants acted with gross negligence in the performance and
exercise of their duties and obligations as innkeepers and were therefore liable to answer for the
losses incurred by McLoughlin.26
Moreover, the trial court ruled that paragraphs (2) and (4) of the "Undertaking For The Use Of Safety
Deposit Box" are not valid for being contrary to the express mandate of Article 2003 of the New Civil
Code and against public policy.27 Thus, there being fraud or wanton conduct on the part of
defendants, they should be responsible for all damages which may be attributed to the nonperformance of their contractual obligations.28
The Court of Appeals affirmed the disquisitions made by the lower court except as to the amount of
damages awarded. The decretal text of the appellate court's decision reads:
THE FOREGOING CONSIDERED, the appealed Decision is hereby AFFIRMED but modified as
follows:
The appellants are directed jointly and severally to pay the plaintiff/appellee the following amounts:
1) P153,200.00 representing the peso equivalent of US$2,000.00 and AUS$4,500.00;
2) P308,880.80, representing the peso value for the air fares from Sidney [sic] to Manila and
back for a total of eleven (11) trips;
3) One-half of P336,207.05 or P168,103.52 representing payment to Tropicana Apartment
Hotel;
4) One-half of P152,683.57 or P76,341.785 representing payment to Echelon Tower;
5) One-half of P179,863.20 or P89,931.60 for the taxi xxx transportation from the residence
to Sidney [sic] Airport and from MIA to the hotel here in Manila, for the eleven (11) trips;

6) One-half of P7,801.94 or P3,900.97 representing Meralco power expenses;


7) One-half of P356,400.00 or P178,000.00 representing expenses for food and
maintenance;
8) P50,000.00 for moral damages;
9) P10,000.00 as exemplary damages; and
10) P200,000 representing attorney's fees.
With costs.
SO ORDERED.29
Unperturbed, YHT Realty Corporation, Lainez and Payam went to this Court in this appeal
by certiorari.
Petitioners submit for resolution by this Court the following issues: (a) whether the appellate court's
conclusion on the alleged prior existence and subsequent loss of the subject money and jewelry is
supported by the evidence on record; (b) whether the finding of gross negligence on the part of
petitioners in the performance of their duties as innkeepers is supported by the evidence on record;
(c) whether the "Undertaking For The Use of Safety Deposit Box" admittedly executed by private
respondent is null and void; and (d) whether the damages awarded to private respondent, as well as
the amounts thereof, are proper under the circumstances.30
The petition is devoid of merit.
It is worthy of note that the thrust of Rule 45 is the resolution only of questions of law and any
peripheral factual question addressed to this Court is beyond the bounds of this mode of review.
Petitioners point out that the evidence on record is insufficient to prove the fact of prior existence of
the dollars and the jewelry which had been lost while deposited in the safety deposit boxes of
Tropicana, the basis of the trial court and the appellate court being the sole testimony of McLoughlin
as to the contents thereof. Likewise, petitioners dispute the finding of gross negligence on their part
as not supported by the evidence on record.
We are not persuaded. We adhere to the findings of the trial court as affirmed by the appellate court
that the fact of loss was established by the credible testimony in open court by McLoughlin. Such
findings are factual and therefore beyond the ambit of the present petition.
l^vvphi1.net

1awphi1.nt

The trial court had the occasion to observe the demeanor of McLoughlin while testifying which
reflected the veracity of the facts testified to by him. On this score, we give full credence to the
appreciation of testimonial evidence by the trial court especially if what is at issue is the credibility of
the witness. The oft-repeated principle is that where the credibility of a witness is an issue, the
established rule is that great respect is accorded to the evaluation of the credibility of witnesses by
the trial court.31 The trial court is in the best position to assess the credibility of witnesses and their
testimonies because of its unique opportunity to observe the witnesses firsthand and note their
demeanor, conduct and attitude under grilling examination. 32

We are also not impressed by petitioners' argument that the finding of gross negligence by the lower
court as affirmed by the appellate court is not supported by evidence. The evidence reveals that two
keys are required to open the safety deposit boxes of Tropicana. One key is assigned to the guest
while the other remains in the possession of the management. If the guest desires to open his safety
deposit box, he must request the management for the other key to open the same. In other words,
the guest alone cannot open the safety deposit box without the assistance of the management or its
employees. With more reason that access to the safety deposit box should be denied if the one
requesting for the opening of the safety deposit box is a stranger. Thus, in case of loss of any item
deposited in the safety deposit box, it is inevitable to conclude that the management had at least a
hand in the consummation of the taking, unless the reason for the loss is force majeure.
Noteworthy is the fact that Payam and Lainez, who were employees of Tropicana, had custody of
the master key of the management when the loss took place. In fact, they even admitted that they
assisted Tan on three separate occasions in opening McLoughlin's safety deposit box. 33 This only
proves that Tropicana had prior knowledge that a person aside from the registered guest had access
to the safety deposit box. Yet the management failed to notify McLoughlin of the incident and waited
for him to discover the taking before it disclosed the matter to him. Therefore, Tropicana should be
held responsible for the damage suffered by McLoughlin by reason of the negligence of its
employees.
The management should have guarded against the occurrence of this incident considering that
Payam admitted in open court that she assisted Tan three times in opening the safety deposit box of
McLoughlin at around 6:30 A.M. to 7:30 A.M. while the latter was still asleep.34 In light of the
circumstances surrounding this case, it is undeniable that without the acquiescence of the
employees of Tropicana to the opening of the safety deposit box, the loss of McLoughlin's money
could and should have been avoided.
The management contends, however, that McLoughlin, by his act, made its employees believe that
Tan was his spouse for she was always with him most of the time. The evidence on record, however,
is bereft of any showing that McLoughlin introduced Tan to the management as his wife. Such an
inference from the act of McLoughlin will not exculpate the petitioners from liability in the absence of
any showing that he made the management believe that Tan was his wife or was duly authorized to
have access to the safety deposit box. Mere close companionship and intimacy are not enough to
warrant such conclusion considering that what is involved in the instant case is the very safety of
McLoughlin's deposit. If only petitioners exercised due diligence in taking care of McLoughlin's safety
deposit box, they should have confronted him as to his relationship with Tan considering that the
latter had been observed opening McLoughlin's safety deposit box a number of times at the early
hours of the morning. Tan's acts should have prompted the management to investigate her
relationship with McLoughlin. Then, petitioners would have exercised due diligence required of them.
Failure to do so warrants the conclusion that the management had been remiss in complying with
the obligations imposed upon hotel-keepers under the law.
Under Article 1170 of the New Civil Code, those who, in the performance of their obligations, are
guilty of negligence, are liable for damages. As to who shall bear the burden of paying damages,
Article 2180, paragraph (4) of the same Code provides that the owners and managers of an
establishment or enterprise are likewise responsible for damages caused by their employees in the
service of the branches in which the latter are employed or on the occasion of their functions. Also,
this Court has ruled that if an employee is found negligent, it is presumed that the employer was
negligent in selecting and/or supervising him for it is hard for the victim to prove the negligence of
such employer.35 Thus, given the fact that the loss of McLoughlin's money was consummated
through the negligence of Tropicana's employees in allowing Tan to open the safety deposit box

without the guest's consent, both the assisting employees and YHT Realty Corporation itself, as
owner and operator of Tropicana, should be held solidarily liable pursuant to Article 2193. 36
The issue of whether the "Undertaking For The Use of Safety Deposit Box" executed by McLoughlin
is tainted with nullity presents a legal question appropriate for resolution in this petition. Notably, both
the trial court and the appellate court found the same to be null and void. We find no reason to
reverse their common conclusion. Article 2003 is controlling, thus:
Art. 2003. The hotel-keeper cannot free himself from responsibility by posting notices to the effect
that he is not liable for the articles brought by the guest. Any stipulation between the hotel-keeper
and the guest whereby the responsibility of the former as set forth in Articles 1998 to 2001 37 is
suppressed or diminished shall be void.
Article 2003 was incorporated in the New Civil Code as an expression of public policy precisely to
apply to situations such as that presented in this case. The hotel business like the common carrier's
business is imbued with public interest. Catering to the public, hotelkeepers are bound to provide not
only lodging for hotel guests and security to their persons and belongings. The twin duty constitutes
the essence of the business. The law in turn does not allow such duty to the public to be negated or
diluted by any contrary stipulation in so-called "undertakings" that ordinarily appear in prepared
forms imposed by hotel keepers on guests for their signature.
In an early case,38 the Court of Appeals through its then Presiding Justice (later Associate Justice of
the Court) Jose P. Bengzon, ruled that to hold hotelkeepers or innkeeper liable for the effects of their
guests, it is not necessary that they be actually delivered to the innkeepers or their employees. It is
enough that such effects are within the hotel or inn.39 With greater reason should the liability of the
hotelkeeper be enforced when the missing items are taken without the guest's knowledge and
consent from a safety deposit box provided by the hotel itself, as in this case.
Paragraphs (2) and (4) of the "undertaking" manifestly contravene Article 2003 of the New Civil Code
for they allow Tropicana to be released from liability arising from any loss in the contents and/or use
of the safety deposit box for any cause whatsoever.40 Evidently, the undertaking was intended to bar
any claim against Tropicana for any loss of the contents of the safety deposit box whether or not
negligence was incurred by Tropicana or its employees. The New Civil Code is explicit that the
responsibility of the hotel-keeper shall extend to loss of, or injury to, the personal property of the
guests even if caused by servants or employees of the keepers of hotels or inns as well as by
strangers, except as it may proceed from any force majeure.41 It is the loss through force
majeure that may spare the hotel-keeper from liability. In the case at bar, there is no showing that the
act of the thief or robber was done with the use of arms or through an irresistible force to qualify the
same as force majeure.42
Petitioners likewise anchor their defense on Article 200243 which exempts the hotel-keeper from
liability if the loss is due to the acts of his guest, his family, or visitors. Even a cursory reading of the
provision would lead us to reject petitioners' contention. The justification they raise would render
nugatory the public interest sought to be protected by the provision. What if the negligence of the
employer or its employees facilitated the consummation of a crime committed by the registered
guest's relatives or visitor? Should the law exculpate the hotel from liability since the loss was due to
the act of the visitor of the registered guest of the hotel? Hence, this provision presupposes that the
hotel-keeper is not guilty of concurrent negligence or has not contributed in any degree to the
occurrence of the loss. A depositary is not responsible for the loss of goods by theft, unless his
actionable negligence contributes to the loss.44

In the case at bar, the responsibility of securing the safety deposit box was shared not only by the
guest himself but also by the management since two keys are necessary to open the safety deposit
box. Without the assistance of hotel employees, the loss would not have occurred. Thus, Tropicana
was guilty of concurrent negligence in allowing Tan, who was not the registered guest, to open the
safety deposit box of McLoughlin, even assuming that the latter was also guilty of negligence in
allowing another person to use his key. To rule otherwise would result in undermining the safety of
the safety deposit boxes in hotels for the management will be given imprimatur to allow any person,
under the pretense of being a family member or a visitor of the guest, to have access to the safety
deposit box without fear of any liability that will attach thereafter in case such person turns out to be
a complete stranger. This will allow the hotel to evade responsibility for any liability incurred by its
employees in conspiracy with the guest's relatives and visitors.
Petitioners contend that McLoughlin's case was mounted on the theory of contract, but the trial court
and the appellate court upheld the grant of the claims of the latter on the basis of tort. 45 There is
nothing anomalous in how the lower courts decided the controversy for this Court has pronounced a
jurisprudential rule that tort liability can exist even if there are already contractual relations. The act
that breaks the contract may also be tort.46
As to damages awarded to McLoughlin, we see no reason to modify the amounts awarded by the
appellate court for the same were based on facts and law. It is within the province of lower courts to
settle factual issues such as the proper amount of damages awarded and such finding is binding
upon this Court especially if sufficiently proven by evidence and not unconscionable or excessive.
Thus, the appellate court correctly awarded McLoughlin Two Thousand US Dollars (US$2,000.00)
and Four Thousand Five Hundred Australian dollars (AUS$4,500.00) or their peso equivalent at the
time of payment,47 being the amounts duly proven by evidence.48The alleged loss that took place
prior to 16 April 1988 was not considered since the amounts alleged to have been taken were not
sufficiently established by evidence. The appellate court also correctly awarded the sum
ofP308,880.80, representing the peso value for the air fares from Sydney to Manila and back for a
total of eleven (11) trips;49 one-half of P336,207.05 or P168,103.52 representing payment to
Tropicana;50 one-half ofP152,683.57 or P76,341.785 representing payment to Echelon Tower; 51 onehalf of P179,863.20 or P89,931.60 for the taxi or transportation expenses from McLoughlin's
residence to Sydney Airport and from MIA to the hotel here in Manila, for the eleven (11) trips; 52 onehalf of P7,801.94 or P3,900.97 representing Meralco power expenses;53 one-half of P356,400.00
or P178,000.00 representing expenses for food and maintenance. 54
The amount of P50,000.00 for moral damages is reasonable. Although trial courts are given
discretion to determine the amount of moral damages, the appellate court may modify or change the
amount awarded when it is palpably and scandalously excessive. Moral damages are not intended
to enrich a complainant at the expense of a defendant. They are awarded only to enable the injured
party to obtain means, diversion or amusements that will serve to alleviate the moral suffering he
has undergone, by reason of defendants' culpable action. 55
l^vvphi1.net

l^vvphi1.net

The awards of P10,000.00 as exemplary damages and P200,000.00 representing attorney's fees are
likewise sustained.
WHEREFORE, foregoing premises considered, the Decision of the Court of Appeals dated 19
October 1995 is hereby AFFIRMED. Petitioners are directed, jointly and severally, to pay private
respondent the following amounts:
(1) US$2,000.00 and AUS$4,500.00 or their peso equivalent at the time of payment;

(2) P308,880.80, representing the peso value for the air fares from Sydney to Manila and
back for a total of eleven (11) trips;
(3) One-half of P336,207.05 or P168,103.52 representing payment to Tropicana
Copacabana Apartment Hotel;
(4) One-half of P152,683.57 or P76,341.785 representing payment to Echelon Tower;
(5) One-half of P179,863.20 or P89,931.60 for the taxi or transportation expense from
McLoughlin's residence to Sydney Airport and from MIA to the hotel here in Manila, for the
eleven (11) trips;
(6) One-half of P7,801.94 or P3,900.97 representing Meralco power expenses;
(7) One-half of P356,400.00 or P178,200.00 representing expenses for food and
maintenance;
(8) P50,000.00 for moral damages;
(9) P10,000.00 as exemplary damages; and
(10) P200,000 representing attorney's fees.
With costs.
SO ORDERED.
Puno, (Chairman), Callejo, Sr., and Chico-Nazario, JJ., concur.
Austria-Martinez, J., no part.

Footnotes
Rollo, p. 38. Decision penned by Justice Bernardo LL. Salas and concurred in by Justices
Pedro A. Ramirez and Ma. Alicia Austria-Martinez.
1

Id. at 118. Decision penned by Judge Gerardo M.S. Pepito.

Id. at 119.

Id. at 120.

Ibid.

Ibid.

Ibid.

Ibid.

Ibid.

10

Id. at 121 and 41. TSN, 9 September 1991, p. 10.

11

Id. at 42.

12

Ibid.

13

Id. at 121.

14

Exhibit V.

15

Exh. W.

16

Rollo, p. 122.

17

Ibid.

18

Ibid.

19

Id. at 123.

20

Records, p. 52.

21

Rollo, p. 125.

Exh. CC. Records (Exhibit Folder), pp. 146-147. The Itemized Claims for Damages
allegedly incurred by McLoughlin:
22

I.

CLAIMS FOR STOLEN MONIES AND PERSONAL PROPERTY:


A. US$2,000.00
US$4,500.00

P153,200.00

B. US$8,000.00 cash and US$1,200.00 with jewelry

257,600.00

II.

AIR FARES from Sydney to Manila and


back (11trips up to date of testimony)

308,880.00

III.

PAYMENTS TO TROPICANA APARTMENT HOTEL

336,207.05

IV.

PAYMENTS TO ECHELON TOWER

152,683.57

V.

Taxes, fees, transportation from residence to


Sydney airport and from MIA to hotel in Manila
and vice versa

179,863.20

VI.

MERALCO POWER EXPENSES

VII.

PLDT EXPENSES(overseas telephone calls)


Paid in the Philippines

7,811.94

5,597.68

Paid in Australia

166,795.20

VIII.

EXPENSES FOR FOOD AND MAINTENANCE

356,400.00

IX.

BUSINESS/OPPORTUNITY LOSS IN SYDNEY


WHILE IN THE PHILIPPINES BECAUSE OF CASE

X.

MORAL DAMAGES

500,000.00

XI.

EXEMPLARY DAMAGES

350,000.00

XII.

LITIGATION EXPENSES

200,000.00

TOTAL

2,160,000.00

P5,135,038.64

ATTORNEY'S FEES
Plus, appearance fee of P3,000.00 for every court appearance.
23

Rollo, pp. 141-142.

24

Id. at 127.

25

Ibid.

26

Id. at 134.

27

Id. at 135.

28

Id. at 138.

29

Id. at 63-64.

30

Id. at 19-20.

People v. Andales, G.R. Nos. 152624-25, February 5, 2004; People v. Fucio, G.R. No.
151186-95, February 13, 2004; People v. Preciados, G.R. No. 122934, January 5, 2001, 349
SCRA 1; People v. Toyco, Sr., G.R. No. 138609, January 17, 2001, 349 SCRA
385; People v. Cabareo, G.R. No. 138645, January 16, 2001, 349 SCRA 297; People v.
Valdez, G.R. No. 128105, January 24, 2001, 350 SCRA 189.
31

People v. Dimacuha, G.R. Nos. 152592-93, February 13, 2004; People v. Yang, G.R. No.
148077, February 16, 2004; People v. Betonio, G.R. No. 119165, September 26, 1997, 279
SCRA 532; People v. Cabel, G.R. No. 121508, 282 SCRA 410.
32

33

Id. at 125.

34

Id. at 128.

35

Campo, et al. v. Camarote and Gemilga, 100 Phil. 459 (1956).

Art. 2194. The responsibility of two or more persons who are liable for a quasi-delict is
solidary.
36

200,000.00

Art. 1998. The deposit of effects made by travelers in hotels or inns shall also be regarded
as necessary. The keepers of hotels or inns shall be responsible for them as depositaries,
provided that notice was given to them, or to their employees, of the effects brought by the
guests and that, on the part of the latter, they take the precautions which said hotel-keepers
or their substitutes advised relative to the care and vigilance of their effects.
37

Art. 1999. The hotel-keeper is liable for the vehicles, animals and articles which have
been introduced or placed in the annexes of the hotel.
Art. 2000. The responsibility referred to in the two preceding articles shall include the
loss of, or injury to the personal property of the guests caused by the servants or
employees of the keepers of hotels or inns as well as by strangers; but not that which
may proceed from any force majeure. The fact that travellers are constrained to rely
on the vigilance of the keeper of the hotel or inn shall be considered in determining
the degree of care required of him.
Art. 2001. The act of a thief or robber, who has entered the hotel is not deemed force
majeure, unless it is done with the use of arms or through an irresistible force.
38

De Los Santos v. Tan Khey, 58 O.G. No. 45-53, p. 7693.

39

Ibid at 7694-7695.

40

Exh. W.

41

Art. 2000, New Civil Code.

42

Art. 2001, supra at note 39.

Art. 2002. The hotel-keeper is not liable for compensation if the loss is due to the acts of
the guest, his family, servants or visitors, or if the loss arises from the character of the things
brought into the hotel.
43

44

26 C.J.S. 731 citing Griffith v. Zipperwick, 28 Ohio St. 388.

45

Rollo, pp. 31-32.

46

Air France v. Carrascoso, et al., 124 Phil. 722 (1966).

Zagala v. Jimenez, G.R. No. 33050, July 23, 1987, 152 SCRA 147. "According to the case
of Phoenix Assurance Company v. Macondray & Co., Inc., (64 SCRA 15) a judgment
awarding an amount in U.S. dollars may be paid with its equivalent amount in local currency
based on the conversion rate prevailing at the time of payment. If the parties cannot agree
on the same, the trial court should determine such conversion rate. Needless to say, the
judgment debtor may simply satisfy said award by paying in full the amount in U.S. dollars."
47

48

Exh. V.

49

Exh. CC, p. 146.

Id. The Court of Appeals noted that during his stay in the Philippines, McLoughlin's time
was not totally devoted to following up his claim as he had business arrangements to look
into.
50

51

Ibid.

52

Ibid.

53

Ibid. Expenses for power and air-conditioning were separate from room payment.

54

Ibid. Business losses were rejected because of lack of proof.

55

Prudenciado v. Alliance Transport System, Inc., G.R. No. 33836, March 16, 1987.

E. Warehouse Receipts Law (Act no. 2137, as amended)


ACT NO. 2137

ACT NO. 2137 - THE WAREHOUSE RECEIPTS LAW

I THE ISSUE OF WAREHOUSE RECEIPTS

Section 1. Persons who may issue receipts. Warehouse receipts may be issued by
any warehouseman.

Sec. 2. Form of receipts; essential terms. Warehouse receipts need not be in any
particular form but every such receipt must embody within its written or printed
terms:

(a) The location of the warehouse where the goods are stored,

(b) The date of the issue of the receipt,

(c) The consecutive number of the receipt,

(d) A statement whether the goods received will be delivered to the bearer, to a
specified person or to a specified person or his order,

(e) The rate of storage charges,

(f) A description of the goods or of the packages containing them,

(g) The signature of the warehouseman which may be made by his authorized
agent,

(h) If the receipt is issued for goods of which the warehouseman is owner, either
solely or jointly or in common with others, the fact of such ownership, and

(i) A statement of the amount of advances made and of liabilities incurred for which
the warehouseman claims a lien. If the precise amount of such advances made or
of such liabilities incurred is, at the time of the issue of, unknown to the
warehouseman or to his agent who issues it, a statement of the fact that advances
have been made or liabilities incurred and the purpose thereof is sufficient.

A warehouseman shall be liable to any person injured thereby for all damages
caused by the omission from a negotiable receipt of any of the terms herein
required.

Sec. 3. Form of receipts. What terms may be inserted. A warehouseman may


insert in a receipt issued by him any other terms and conditions provided that such
terms and conditions shall not:

(a) Be contrary to the provisions of this Act.

(b) In any wise impair his obligation to exercise that degree of care in the safekeeping of the goods entrusted to him which is reasonably careful man would
exercise in regard to similar goods of his own.

Sec. 4. Definition of non-negotiable receipt. A receipt in which it is stated that the


goods received will be delivered to the depositor or to any other specified person, is
a non-negotiable receipt.

Sec. 5. Definition of negotiable receipt. A receipt in which it is stated that the


goods received will be delivered to the bearer or to the order of any person named
in such receipt is a negotiable receipt.

No provision shall be inserted in a negotiable receipt that it is non-negotiable. Such


provision, if inserted shall be void.

Sec. 6. Duplicate receipts must be so marked. When more than one negotiable
receipt is issued for the same goods, the word "duplicate" shall be plainly placed
upon the face of every such receipt, except the first one issued. A warehouseman
shall be liable for all damages caused by his failure so to do to any one who
purchased the subsequent receipt for value supposing it to be an original, even
though the purchase be after the delivery of the goods by the warehouseman to the
holder of the original receipt.

Sec. 7. Failure to mark "non-negotiable." A non-negotiable receipt shall have


plainly placed upon its face by the warehouseman issuing it "non-negotiable," or
"not negotiable." In case of the warehouseman's failure so to do, a holder of the
receipt who purchased it for value supposing it to be negotiable, may, at his option,
treat such receipt as imposing upon the warehouseman the same liabilities he
would have incurred had the receipt been negotiable.

This section shall not apply, however, to letters, memoranda, or written


acknowledgment of an informal character.

II OBLIGATIONS AND RIGHTS OF WAREHOUSEMEN UPON THEIR RECEIPTS

Sec. 8. Obligation of warehousemen to deliver. A warehouseman, in the absence


of some lawful excuse provided by this Act, is bound to deliver the goods upon a
demand made either by the holder of a receipt for the goods or by the depositor; if
such demand is accompanied with:

(a) An offer to satisfy the warehouseman's lien;

(b) An offer to surrender the receipt, if negotiable, with such indorsements as would
be necessary for the negotiation of the receipt; and

(c) A readiness and willingness to sign, when the goods are delivered, an
acknowledgment that they have been delivered, if such signature is requested by
the warehouseman.

In case the warehouseman refuses or fails to deliver the goods in compliance with a
demand by the holder or depositor so accompanied, the burden shall be upon the
warehouseman to establish the existence of a lawful excuse for such refusal.

Sec. 9. Justification of warehouseman in delivering. A warehouseman is justified


in delivering the goods, subject to the provisions of the three following sections, to
one who is:

(a) The person lawfully entitled to the possession of the goods, or his agent;

(b) A person who is either himself entitled to delivery by the terms of a nonnegotiable receipt issued for the goods, or who has written authority from the
person so entitled either indorsed upon the receipt or written upon another paper;
or

(c) A person in possession of a negotiable receipt by the terms of which the goods
are deliverable to him or order, or to bearer, or which has been indorsed to him or in
blank by the person to whom delivery was promised by the terms of the receipt or
by his mediate or immediate indorser.

Sec. 10. Warehouseman's liability for misdelivery. Where a warehouseman


delivers the goods to one who is not in fact lawfully entitled to the possession of
them, the warehouseman shall be liable as for conversion to all having a right of
property or possession in the goods if he delivered the goods otherwise than as
authorized by subdivisions (b) and (c) of the preceding section, and though he
delivered the goods as authorized by said subdivisions, he shall be so liable, if prior
to such delivery he had either:

(a) Been requested, by or on behalf of the person lawfully entitled to a right of


property or possession in the goods, not to make such deliver; or

(b) Had information that the delivery about to be made was to one not lawfully
entitled to the possession of the goods.

Sec. 11. Negotiable receipt must be cancelled when goods delivered. Except as
provided in section thirty-six, where a warehouseman delivers goods for which he
had issued a negotiable receipt, the negotiation of which would transfer the right to
the possession of the goods, and fails to take up and cancel the receipt, he shall be
liable to any one who purchases for value in good faith such receipt, for failure to
deliver the goods to him, whether such purchaser acquired title to the receipt before
or after the delivery of the goods by the warehouseman.

Sec. 12. Negotiable receipts must be cancelled or marked when part of goods
delivered. Except as provided in section thirty-six, where a warehouseman
delivers part of the goods for which he had issued a negotiable receipt and fails
either to take up and cancel such receipt or to place plainly upon it a statement of
what goods or packages have been delivered, he shall be liable to any one who
purchases for value in good faith such receipt, for failure to deliver all the goods
specified in the receipt, whether such purchaser acquired title to the receipt before
or after the delivery of any portion of the goods by the warehouseman.

Sec. 13. Altered receipts. The alteration of a receipt shall not excuse the
warehouseman who issued it from any liability if such alteration was:

(a) Immaterial,

(b) Authorized, or

(c) Made without fraudulent intent.

If the alteration was authorized, the warehouseman shall be liable according to the
terms of the receipt as altered. If the alteration was unauthorized but made without
fraudulent intent, the warehouseman shall be liable according to the terms of the
receipt as they were before alteration.

Material and fraudulent alteration of a receipt shall not excuse the warehouseman
who issued it from liability to deliver according to the terms of the receipt as
originally issued, the goods for which it was issued but shall excuse him from any
other liability to the person who made the alteration and to any person who took
with notice of the alteration. Any purchaser of the receipt for value without notice
of the alteration shall acquire the same rights against the warehouseman which
such purchaser would have acquired if the receipt had not been altered at the time
of purchase.

Sec. 14. Lost or destroyed receipts. Where a negotiable receipt has been lost or
destroyed, a court of competent jurisdiction may order the delivery of the goods
upon satisfactory proof of such loss or destruction and upon the giving of a bond
with sufficient sureties to be approved by the court to protect the warehouseman
from any liability or expense, which he or any person injured by such delivery may
incur by reason of the original receipt remaining outstanding. The court may also in
its discretion order the payment of the warehouseman's reasonable costs and
counsel fees.

The delivery of the goods under an order of the court as provided in this section,
shall not relieve the warehouseman from liability to a person to whom the
negotiable receipt has been or shall be negotiated for value without notice of the
proceedings or of the delivery of the goods.

Sec. 15. Effect of duplicate receipts. A receipt upon the face of which the word
"duplicate" is plainly placed is a representation and warranty by the warehouseman
that such receipt is an accurate copy of an original receipt properly issued and
uncanceled at the date of the issue of the duplicate, but shall impose upon him no
other liability.

Sec. 16. Warehouseman cannot set up title in himself . No title or right to the
possession of the goods, on the part of the warehouseman, unless such title or right
is derived directly or indirectly from a transfer made by the depositor at the time of
or subsequent to the deposit for storage, or from the warehouseman's lien, shall
excuse the warehouseman from liability for refusing to deliver the goods according
to the terms of the receipt.

Sec. 17. Interpleader of adverse claimants. If more than one person claims the
title or possession of the goods, the warehouseman may, either as a defense to an
action brought against him for non-delivery of the goods or as an original suit,
whichever is appropriate, require all known claimants to interplead.

Sec. 18. Warehouseman has reasonable time to determine validity of claims. If


someone other than the depositor or person claiming under him has a claim to the
title or possession of goods, and the warehouseman has information of such claim,
the warehouseman shall be excused from liability for refusing to deliver the goods,
either to the depositor or person claiming under him or to the adverse claimant until
the warehouseman has had a reasonable time to ascertain the validity of the
adverse claim or to bring legal proceedings to compel claimants to interplead.

Sec. 19. Adverse title is no defense except as above provided. Except as provided
in the two preceding sections and in sections nine and thirty-six, no right or title of a
third person shall be a defense to an action brought by the depositor or person
claiming under him against the warehouseman for failure to deliver the goods
according to the terms of the receipt.

Sec. 20. Liability for non-existence or misdescription of goods. A warehouseman


shall be liable to the holder of a receipt for damages caused by the non-existence of
the goods or by the failure of the goods to correspond with the description thereof
in the receipt at the time of its issue. If, however, the goods are described in a
receipt merely by a statement of marks or labels upon them or upon packages
containing them or by a statement that the goods are said to be goods of a certain
kind or that the packages containing the goods are said to contain goods of a
certain kind or by words of like purport, such statements, if true, shall not make
liable the warehouseman issuing the receipt, although the goods are not of the kind
which the marks or labels upon them indicate or of the kind they were said to be by
the depositor.

Sec. 21. Liability for care of goods. A warehouseman shall be liable for any loss or
injury to the goods caused by his failure to exercise such care in regard to them as
reasonably careful owner of similar goods would exercise, but he shall not be liable,
in the absence of an agreement to the contrary, for any loss or injury to the goods
which could not have been avoided by the exercise of such care.

Sec. 22. Goods must be kept separate. Except as provided in the following
section, a warehouseman shall keep the goods so far separate from goods of other
depositors and from other goods of the same depositor for which a separate receipt
has been issued, as to permit at all times the identification and redelivery of the
goods deposited.

Sec. 23. Fungible goods may be commingled if warehouseman authorized. If


authorized by agreement or by custom, a warehouseman may mingle fungible
goods with other goods of the same kind and grade. In such case, the various

depositors of the mingled goods shall own the entire mass in common and each
depositor shall be entitled to such portion thereof as the amount deposited by him
bears to the whole.

Sec. 24. Liability of warehouseman to depositors of commingled goods. The


warehouseman shall be severally liable to each depositor for the care and redelivery
of his share of such mass to the same extent and under the same circumstances as
if the goods had been kept separate.

Sec. 25. Attachment or levy upon goods for which a negotiable receipt has been
issued. If goods are delivered to a warehouseman by the owner or by a person
whose act in conveying the title to them to a purchaser in good faith for value would
bind the owner, and a negotiable receipt is issued for them, they can not thereafter,
while in the possession of the warehouseman, be attached by garnishment or
otherwise, or be levied upon under an execution unless the receipt be first
surrendered to the warehouseman or its negotiation enjoined. The warehouseman
shall in no case be compelled to deliver up the actual possession of the goods until
the receipt is surrendered to him or impounded by the court.

Sec. 26. Creditor's remedies to reach negotiable receipts. A creditor whose debtor
is the owner of a negotiable receipt shall be entitled to such aid from courts of
appropriate jurisdiction, by injunction and otherwise, in attaching such receipt or in
satisfying the claim by means thereof as is allowed at law or in equity in these
islands in regard to property which can not readily be attached or levied upon by
ordinary legal process.

Sec. 27. What claims are included in the warehouseman's lien. Subject to the
provisions of section thirty, a warehouseman shall have a lien on goods deposited or
on the proceeds thereof in his hands, for all lawful charges for storage and
preservation of the goods; also for all lawful claims for money advanced, interest,
insurance, transportation, labor, weighing, coopering and other charges and
expenses in relation to such goods, also for all reasonable charges and expenses for
notice, and advertisements of sale, and for sale of the goods where default had
been made in satisfying the warehouseman's lien.

Sec. 28. Against what property the lien may be enforced. Subject to the
provisions of section thirty, a warehouseman's lien may be enforced:

(a) Against all goods, whenever deposited, belonging to the person who is liable as
debtor for the claims in regard to which the lien is asserted, and

(b) Against all goods belonging to others which have been deposited at any time by
the person who is liable as debtor for the claims in regard to which the lien is
asserted if such person had been so entrusted with the possession of goods that a
pledge of the same by him at the time of the deposit to one who took the goods in
good faith for value would have been valid.

Sec. 29. How the lien may be lost. A warehouseman loses his lien upon goods:

(a) By surrendering possession thereof, or

(b) By refusing to deliver the goods when a demand is made with which he is bound
to comply under the provisions of this Act.

Sec. 30. Negotiable receipt must state charges for which the lien is claimed. If a
negotiable receipt is issued for goods, the warehouseman shall have no lien thereon
except for charges for storage of goods subsequent to the date of the receipt unless
the receipt expressly enumerated other charges for which a lien is claimed. In such
case, there shall be a lien for the charges enumerated so far as they are within the
terms of section twenty-seven although the amount of the charges so enumerated
is not stated in the receipt.

Sec. 31. Warehouseman need not deliver until lien is satisfied. A warehouseman
having a lien valid against the person demanding the goods may refuse to deliver
the goods to him until the lien is satisfied.

Sec. 32. Warehouseman's lien does not preclude other remedies. Whether a
warehouseman has or has not a lien upon the goods, he is entitled to all remedies
allowed by law to a creditor against a debtor for the collection from the depositor of
all charges and advances which the depositor has expressly or impliedly contracted
with the warehouseman to pay.

Sec. 33. Satisfaction of lien by sale. A warehouseman's lien for a claim which has
become due may be satisfied as follows:

(a) An itemized statement of the warehouseman's claim, showing the sum due at
the time of the notice and the date or dates when it becomes due,

(b) A brief description of the goods against which the lien exists,

(c) A demand that the amount of the claim as stated in the notice of such further
claim as shall accrue, shall be paid on or before a day mentioned, not less than ten
days from the delivery of the notice if it is personally delivered, or from the time
when the notice shall reach its destination, according to the due course of post, if
the notice is sent by mail,

(d) A statement that unless the claim is paid within the time specified, the goods
will be advertised for sale and sold by auction at a specified time and place.

In accordance with the terms of a notice so given, a sale of the goods by auction
may be had to satisfy any valid claim of the warehouseman for which he has a lien
on the goods. The sale shall be had in the place where the lien was acquired, or, if
such place is manifestly unsuitable for the purpose of the claim specified in the
notice to the depositor has elapsed, and advertisement of the sale, describing the
goods to be sold, and stating the name of the owner or person on whose account
the goods are held, and the time and place of the sale, shall be published once a
week for two consecutive weeks in a newspaper published in the place where such
sale is to be held. The sale shall not be held less than fifteen days from the time of
the first publication. If there is no newspaper published in such place, the
advertisement shall be posted at least ten days before such sale in not less than six
conspicuous places therein.

From the proceeds of such sale, the warehouseman shall satisfy his lien including
the reasonable charges of notice, advertisement and sale. The balance, if any, of
such proceeds shall be held by the warehouseman and delivered on demand to the
person to whom he would have been bound to deliver or justified in delivering
goods.

At any time before the goods are so sold, any person claiming a right of property or
possession therein may pay the warehouseman the amount necessary to satisfy his
lien and to pay the reasonable expenses and liabilities incurred in serving notices
and advertising and preparing for the sale up to the time of such payment. The
warehouseman shall deliver the goods to the person making payment if he is a
person entitled, under the provision of this Act, to the possession of the goods on
payment of charges thereon. Otherwise, the warehouseman shall retain the
possession of the goods according to the terms of the original contract of deposit.

Sec. 34. Perishable and hazardous goods. If goods are of a perishable nature, or
by keeping will deteriorate greatly in value, or, by their order, leakage,
inflammability, or explosive nature, will be liable to injure other property , the
warehouseman may give such notice to the owner or to the person in whose names
the goods are stored, as is reasonable and possible under the circumstances, to
satisfy the lien upon such goods and to remove them from the warehouse and in the
event of the failure of such person to satisfy the lien and to receive the goods within
the time so specified, the warehouseman may sell the goods at public or private
sale without advertising. If the warehouseman, after a reasonable effort, is unable
to sell such goods, he may dispose of them in any lawful manner and shall incur no
liability by reason thereof.

The proceeds of any sale made under the terms of this section shall be disposed of
in the same way as the proceeds of sales made under the terms of the preceding
section.

Sec. 35. Other methods of enforcing lien. The remedy for enforcing a lien herein
provided does not preclude any other remedies allowed by law for the enforcement
of a lien against personal property nor bar the right to recover so much of the
warehouseman's claim as shall not be paid by the proceeds of the sale of the
property.

Sec. 36. Effect of sale. After goods have been lawfully sold to satisfy a
warehouseman's lien, or have been lawfully sold or disposed of because of their
perishable or hazardous nature, the warehouseman shall not thereafter be liable for
failure to deliver the goods to the depositor or owner of the goods or to a holder of
the receipt given for the goods when they were deposited, even if such receipt be
negotiable.

III NEGOTIATION AND TRANSFER OF RECEIPTS

Sec. 37. Negotiation of negotiable receipt of delivery. A negotiable receipt may be


negotiated by delivery:

(a) Where, by terms of the receipt, the warehouseman undertakes to deliver the
goods to the bearer, or

(b) Where, by the terms of the receipt, the warehouseman undertakes to deliver the
goods to the order of a specified person, and such person or a subsequent indorsee
of the receipt has indorsed it in blank or to bearer.

Where, by the terms of a negotiable receipt, the goods are deliverable to bearer or
where a negotiable receipt has been indorsed in blank or to bearer, any holder may
indorse the same to himself or to any other specified person, and, in such case, the
receipt shall thereafter be negotiated only by the indorsement of such indorsee.

Sec. 38. Negotiation of negotiable receipt by indorsement. A negotiable receipt


may be negotiated by the indorsement of the person to whose order the goods are,
by the terms of the receipt, deliverable. Such indorsement may be in blank, to
bearer or to a specified person. If indorsed to a specified person, it may be again
negotiated by the indorsement of such person in blank, to bearer or to another
specified person. Subsequent negotiation may be made in like manner.

Sec. 39. Transfer of receipt. A receipt which is not in such form that it can be
negotiated by delivery may be transferred by the holder by delivery to a purchaser
or donee.

A non-negotiable receipt can not be negotiated, and the indorsement of such a


receipt gives the transferee no additional right.

Sec. 40. Who may negotiate a receipt. A negotiable receipt may be negotiated:

(a) By the owner thereof, or

(b) By any person to whom the possession or custody of the receipt has been
entrusted by the owner, if, by the terms of the receipt, the warehouseman
undertakes to deliver the goods to the order of the person to whom the possession
or custody of the receipt has been entrusted, or if, at the time of such entrusting,
the receipt is in such form that it may be negotiated by delivery.

Sec. 41. Rights of person to whom a receipt has been negotiated. A person to
whom a negotiable receipt has been duly negotiated acquires thereby:

(a) Such title to the goods as the person negotiating the receipt to him had or had
ability to convey to a purchaser in good faith for value, and also such title to the
goods as the depositor or person to whose order the goods were to be delivered by
the terms of the receipt had or had ability to convey to a purchaser in good faith for
value, and

(b) The direct obligation of the warehouseman to hold possession of the goods for
him according to the terms of the receipt as fully as if the warehouseman and
contracted directly with him.

Sec. 42. Rights of person to whom receipt has been transferred. A person to
whom a receipt has been transferred but not negotiated acquires thereby, as
against the transferor, the title of the goods subject to the terms of any agreement
with the transferor.

If the receipt is non-negotiable, such person also acquires the right to notify the
warehouseman of the transfer to him of such receipt and thereby to acquire the
direct obligation of the warehouseman to hold possession of the goods for him
according to the terms of the receipt.

Prior to the notification of the warehouseman by the transferor or transferee of a


non-negotiable receipt, the title of the transferee to the goods and the right to
acquire the obligation of the warehouseman may be defeated by the levy of an
attachment or execution upon the goods by a creditor of the transferor or by a
notification to the warehouseman by the transferor or a subsequent purchaser from
the transferor of a subsequent sale of the goods by the transferor.

Sec. 43. Transfer of negotiable receipt without indorsement. Where a negotiable


receipt is transferred for value by delivery and the indorsement of the transferor is
essential for negotiation, the transferee acquires a right against the transferor to
compel him to indorse the receipt unless a contrary intention appears. The
negotiation shall take effect as of the time when the indorsement is actually made.

Sec. 44. Warranties of a sale of receipt. A person who, for value, negotiates or
transfers a receipt by indorsement or delivery, including one who assigns for value a
claim secured by a receipt, unless a contrary intention appears, warrants:

(a) That the receipt is genuine,

(b) That he has a legal right to negotiate or transfer it,

(c) That he has knowledge of no fact which would impair the validity or worth of the
receipt, and

(d) That he has a right to transfer the title to the goods and that the goods are
merchantable or fit for a particular purpose whenever such warranties would have
been implied, if the contract of the parties had been to transfer without a receipt of
the goods represented thereby.

Sec. 45. Indorser not a guarantor. The indorsement of a receipt shall not make
the indorser liable for any failure on the part of the warehouseman or previous
indorsers of the receipt to fulfill their respective obligations.

Sec. 46. No warranty implied from accepting payment of a debt. A mortgagee,


pledgee, or holder for security of a receipt who, in good faith, demands or receives
payment of the debt for which such receipt is security, whether from a party to a
draft drawn for such debt or from any other person, shall not, by so doing, be
deemed to represent or to warrant the genuineness of such receipt or the quantity
or quality of the goods therein described.

Sec. 47. When negotiation not impaired by fraud, mistake or duress. The validity
of the negotiation of a receipt is not impaired by the fact that such negotiation was
a breach of duty on the part of the person making the negotiation or by the fact that
the owner of the receipt was induced by fraud, mistake or duress or to entrust the
possession or custody of the receipt to such person, if the person to whom the
receipt was negotiated or a person to whom the receipt was subsequently
negotiated paid value therefor, without notice of the breach of duty, or fraud,
mistake or duress.

Sec. 48. Subsequent negotiation. Where a person having sold, mortgaged, or


pledged goods which are in warehouse and for which a negotiable receipt has been
issued, or having sold, mortgaged, or pledged the negotiable receipt representing
such goods, continues in possession of the negotiable receipt, the subsequent
negotiation thereof by the person under any sale or other disposition thereof to any
person receiving the same in good faith, for value and without notice of the previous
sale, mortgage or pledge, shall have the same effect as if the first purchaser of the
goods or receipt had expressly authorized the subsequent negotiation.

Sec. 49. Negotiation defeats vendor's lien. Where a negotiable receipt has been
issued for goods, no seller's lien or right of stoppage in transitu shall defeat the
rights of any purchaser for value in good faith to whom such receipt has been
negotiated, whether such negotiation be prior or subsequent to the notification to
the warehouseman who issued such receipt of the seller's claim to a lien or right of
stoppage in transitu. Nor shall the warehouseman be obliged to deliver or justified
in delivering the goods to an unpaid seller unless the receipt is first surrendered for
cancellation.

IV CRIMINAL OFFENSES

Sec. 50. Issue of receipt for goods not received. A warehouseman, or an officer,
agent, or servant of a warehouseman who issues or aids in issuing a receipt
knowing that the goods for which such receipt is issued have not been actually
received by such warehouseman, or are not under his actual control at the time of
issuing such receipt, shall be guilty of a crime, and, upon conviction, shall be
punished for each offense by imprisonment not exceeding five years, or by a fine
not exceeding ten thousand pesos, or both.

Sec. 51. Issue of receipt containing false statement. A warehouseman, or any


officer, agent or servant of a warehouseman who fraudulently issues or aids in
fraudulently issuing a receipt for goods knowing that it contains any false
statement, shall be guilty of a crime, and upon conviction, shall be punished for
each offense by imprisonment not exceeding one year, or by a fine not exceeding
two thousand pesos, or by both.

Sec. 52. Issue of duplicate receipt not so marked. A warehouse, or any officer,
agent, or servant of a warehouseman who issues or aids in issuing a duplicate or
additional negotiable receipt for goods knowing that a former negotiable receipt for
the same goods or any part of them is outstanding and uncanceled, without plainly
placing upon the face thereof the word "duplicate" except in the case of a lost or
destroyed receipt after proceedings are provided for in section fourteen, shall be
guilty of a crime, and, upon conviction, shall be punished for each offense by
imprisonment not exceeding five years, or by a fine not exceeding ten thousand
pesos, or by both.

Sec. 53. Issue for warehouseman's goods or receipts which do not state that fact.
Where they are deposited with or held by a warehouseman goods of which he is
owner, either solely or jointly or in common with others, such warehouseman, or
any of his officers, agents, or servants who, knowing this ownership, issues or aids

in issuing a negotiable receipt for such goods which does not state such ownership,
shall be guilty of a crime, and, upon conviction, shall be punished for each offense
by imprisonment not exceeding one year, or by a fine not exceeding two thousand
pesos, or by both.

Sec. 54. Delivery of goods without obtaining negotiable receipt. A


warehouseman, or any officer, agent, or servant of a warehouseman, who delivers
goods out of the possession of such warehouseman, knowing that a negotiable
receipt the negotiation of which would transfer the right to the possession of such
goods is outstanding and uncanceled, without obtaining the possession of such
receipt at or before the time of such delivery, shall, except in the cases provided for
in sections fourteen and thirty-six, be found guilty of a crime, and, upon conviction,
shall be punished for each offense by imprisonment not exceeding one year, or by a
fine not exceeding two thousand pesos, or by both.

Sec. 55. Negotiation of receipt for mortgaged goods. Any person who deposits
goods to which he has no title, or upon which there is a lien or mortgage, and who
takes for such goods a negotiable receipt which he afterwards negotiates for value
with intent to deceive and without disclosing his want of title or the existence of the
lien or mortgage, shall be guilty of a crime, and, upon conviction, shall be punished
for each offense by imprisonment not exceeding one year, or by a fine not
exceeding two thousand pesos, or by both.

V INTERPRETATION

Sec. 56. Case not provided for in Act. Any case not provided for in this Act shall
be governed by the provisions of existing legislation, or in default thereof, by the
rule of the law merchant.

Sec. 57. Name of Act. This Act may be cited as the Warehouse Receipts Act.

Sec. 58. Definitions. (a) In this Act, unless the content or subject matter
otherwise requires:

"Action" includes counterclaim, set-off, and suits in equity as provided by law in


these islands.

"Delivery" means voluntary transfer of possession from one person to another.

"Fungible goods" means goods of which any unit is, from its nature by mercantile
custom, treated as the equivalent of any other unit.

"Goods" means chattels or merchandise in storage or which has been or is about to


be stored.

"Holder" of a receipt means a person who has both actual possession of such
receipt and a right of property therein.

"Order" means an order by indorsement on the receipt.

"Owner" does not include mortgagee.

"Person" includes a corporation or partnership or two or more persons having a joint


or common interest.

To "purchase" includes to take as mortgagee or as pledgee.

"Receipt" means a warehouse receipt.

"Value" is any consideration sufficient to support a simple contract. An antecedent


or pre-existing obligation, whether for money or not, constitutes value where a
receipt is taken either in satisfaction thereof or as security therefor.

"Warehouseman" means a person lawfully engaged in the business of storing goods


for profit.

(b) A thing is done "in good faith" within the meaning of this Act when it is in fact
done honestly, whether it be done negligently or not.

Sec. 59. Application of Act. The provisions of this Act do not apply to receipts
made and delivered prior to the taking effect hereof.

Sec. 60. Repeals. All acts and laws and parts thereof inconsistent with this Act are
hereby repealed.

Sec. 61. Time when Act takes effect. This Act shall take effect ninety days after its
publication in the Official Gazette of the Philippines shall have been completed.

Enacted: February 5, 1912

Case Title : PHILIPPINE NATIONAL BANK, petitioner, vs. NOAHS ARK


SUGAR REFINERY, ALBERTO T. LOOYUKO, JIMMY T. GO and WILSON T. GO,
respondents.Case Nature : PETITION for review of the decision of the
Regional Trial Court of Manila, Br. 45.
Syllabi Class : Remedial Law|Civil Procedure|Summary Judgment|Appeal
Syllabi:
1. Remedial Law; Civil Procedure; Summary Judgment; Even if the
answer does tender issues, and therefore a judgment on the pleadings is not
proper, a summary judgment may still be rendered on the plaintiffs motion
if he can show to the Courts satisfaction that except as to the amount of
damages, there is no genuine issue as to any material fact.The Court of Appeals found correctly that the indications in the pleadings to
the contrary notwithstanding, no substantial triable issue of fact actually
existed, and that certain issues raised in answer, even if taken as
established, would not materially change the ultimate findings relative to the
main claim. Its decision is entirely in accord with this Courts rulings
regarding the propriety of summary judgment invoked by the Appellate
Tribunal, i.e., Vergara, Sr. v. Suelto, and Mercado v. Court of Appeals.
According to Vergara for instance, even if the answer does tender issues
and therefore a judgment on the pleadings is not propera summary
judgment may still be rendered on the plaintiffs motion if he can show to
the Courts satisfaction that except as to the amount of damages, there is
no genuine issue as to any material fact, that is to say, the issues thus
tendered are not genuine, are in other words sham, fictitious, contrived, set
up in bad faith, patently unsubstantial. The determination may be made by
the Court on the basis of the pleadings, and the depositions, admissions and
affidavits that the movant may submit, as well as those which the defendant
may present in turn.
2. Remedial Law; Civil Procedure; Appeal; The conclusions of fact and
law set out in the Appellate Courts decision are undeniably binding on all
the parties to the case, the respondent Regional Trial Court Judge included. -

In any event, the conclusions of fact and law set out in the Appellate Courts
decision are undeniably binding on all the parties to the case, the
respondent Regional Trial Judge included. Having been rendered by a
competent court within its jurisdiction, and having become final and
executory, the decision now operates as the immutable law among the
parties, the respondent Trial Judge included; it has become the law of the
case and may no longer, in subsequent proceedings, be altered or modified
in any way, much less reversed or set at naught, by the latter, or any other
judge, not even by the Supreme Court; it is an unalterable determination of
the propriety of a summary judgment in the action in question, and upon all
the issues therein raised or which could have been raided relative to the
merits of said action.
3. Remedial Law; Civil Procedure; Appeal; Trial Judge may not evade
compliance with the final judgment of the Court of Appeals on the theory
that the latter had acted only on a mere interlocutory order while he had
subsequently adjudged the action for specific performance on the merits. The Trial Judge may not evade compliance with the final judgment of the
Court of Appeals on the theory that the latter had acted only on a mere
interlocutory order (the order denying PNBs motion for summary judgment)
while he had subsequently adjudged the action for specific performance on
the merits. Quite obvious is that the Court of Appeals had decided that a
summary judgment was proper in said action of specific performance, that
this was in truth a determination of the merits of the suit, that that decision
had become final and executory, and that the decision expressly
commanded. His Honor to render such a judgment. Under the
circumstances, the latters duty was clear and inescapable.
4. Remedial Law; Civil Procedure; Appeal; It was an act of
supererogation of presumptuousness, on His Honors part to disregard the
Courts clear and categorical command and to dispose of the case in a
manner dramatically opposed thereto.It was not within the Trial Judges competence or discretion to take
exception to, much less overturn, any of the factual or legal conclusions laid
down by the Court of Appeals in its verdict. He was as much bound thereby
as the private parties themselves. His only function was to implement and
carry out the Appellate Tribunals judgment. It was an act of supererogation,
of presumptuousness, on His Honors part to disregard the Courts clear and
categorical command, and to dispose of the case in a manner diametrically
opposed thereto. In doing so, the Trial Judge committed grave error which
must forthwith be corrected.
Division: SECOND DIVISION
Docket Number: G.R. No. 107243

Counsel: Santiago, Jr., Vida, Corpuz & Associates, Tomas P. Madella, Jr.
Ponente: NARVASA
Dispositive Portion:
WHEREFORE, the Trial Judges Decision in Civil Case No. 90-53023 dated
June 18, 1992 is REVERSED and SET ASIDE and a new one rendered
conformably with the final and executory Decision of the Court of Appeals in
CA-G.R. SP No. 25938, ordering the private respondents, Noahs Ark Sugar
Refinery, Alberto T. Looyuko, Jimmy T. Go and William T. Go, jointly and
severally:
G.R. No. 107243 September 1, 1993
PHILIPPINE NATIONAL BANK, petitioner,
vs.
NOAH'S ARK SUGAR REFINERY, ALBERTO T. LOOYUKO, JIMMY T. GO, WILSON T.
GO, respondents.
Santiago, Jr. Vida, Corpuz & Associates for petitioner.
Tomas P. Madella Jr. for respondents.

NARVASA, C.J.:
The case at bar involves extraordinary situation in which a Regional Trial
Judge after receiving notice to the final and executory judgment of the Court of Appeals in a
special civil action of certiorari in which said Trial Judge was a respondent, and which judgment
contained the following disposition,viz.:
In issuing the questioned Orders, We find the respondent Court to have acted in
grave abuse of discretion which justify holding null and void and setting aside the
Orders date May 2 and July 4, 1990 of respondent Court, and that a summary
judgment be rendered forthwith in favor of the PNB against Noah's Ark Sugar
Refinery, et al., as prayed for in petitioner's Motion for Summary Judgment.
SO ORDERED.
proceeded to render judgment, not "in favor of the PNB against Noah's Ark Sugar Refinery, et al.,"
but in favor of the latter and its co-defendants. That judgment has been appealed by PNB to this
Court "on pure questions of law."
No dispute exists about the facts which gave rise to the controversy at bar.

In accordance with Act No. 2137, the Warehouse Receipts Law, Noah's Ark Sugar Refinery issued
on several dates warehouse receipts (quedans) as follows:
March 1, 1989, receipt No. 18062 covering sugar deposited by Rosa Sy;
March 7, 1989, receipt No. 18080 covering sugar deposited by RNS Merchandising
(Rosa Ng Sy);
March 21, 1989, receipt No. 18081 covering sugar deposited by RNS Merchandising;
March 31, 1989, receipt No. 18086 covering sugar deposited by St. Therese
Merchandising; and
April 1, 1989, receipt No. 18087 covering sugar deposited by RNS Merchandising.
The receipts are substantially in the form, and contain the terms, prescribed for negotiable
warehouse receipts by Section 2 of the law.
Subsequently, warehouse receipts Numbered 18080 and 18081 (covering sugar deposited by RNS
Merchandising) were negotiated and indorsed to Luis T. Ramos; and receipts Numbered 18086
(sugar of St. Therese Merchandising), 18087 (sugar of RNS Merchandising) and 18062 (sugar of
Rosa Sy) were negotiated and indorsed to Cresencia K. Zoleta. Zoleta and Ramos then used
the quedans as security for loans obtained by them from the Philippine National Bank (PNB) in the
amounts of P23.5 million and P15.6 million, respectively. These quedans they indorsed to the bank.
Both Zoleta and Ramos failed to pay their loans upon maturity on January 9, 1990. Consequently on
March 16, 1990, PNB wrote to Noah's Ark Sugar Refinery (hereafter, simply Noah's Ark) demanding
delivery of the sugar covered by the quedans indorsed to it by Zoleta and Ramos. When Noah's Ark
refused to comply with the demand, PNB filed with the Regional Trial Court of Manila a verified
complaint for "Specific Performance with Damages and Application for Writ of Attachment" against
Noah's Ark, Alberto T. Looyuko, Jimmy T. Go, and Wilson T. Go, the last three being identified as "the
Sole Proprietor, Managing Partner and Executive Vice President of Noah's Ark, respectively."
The Court, by Order dated June 28, 1990, denied the application for preliminary attachment after
conducting a hearing thereon. It denied as well the motion for reconsideration thereafter filed by
PNB, by Order dated August 22, 1990.
Noah's Ark and its co-defendants then filed their responsive pleading entitled "Answer with
Counterclaim and Third Party Complaint," dated June 21, 1990 in which they claimed, inter alia, that
they "are still the legal owners of the subject quedans and the quantity of sugar represented
thereon," a claim founded on the following averments, to wit:
. . . In an agreement dated April 1, 1989, defendants agreed to sell to Rosa Ng Sy of
RNS Merchandising and Teresita Ng of St. Therese Merchandising the total volume
of sugar indicated in the quedans stored at Noah's Ark Sugar Refinery for a total
consideration of P63,000,000.00, . . . The corresponding payments in the form of
checks issued by the vendees in favor of defendants were subsequently dishonored
by the drawee banks by reason of "payment stopped" and "drawn against insufficient
funds," . . . Upon proper notification to said vendees and plaintiff in due course,

defendants refused to deliver to vendees therein the quantity of sugar covered by


subject quedans.
. . . Considering that the vendees and first indorsers of subject quedans did not
acquire ownership thereof, the subsequent indorsers and plaintiff itself did not
acquire a better right of ownership than the original vendees/first indorsers.
The defendants also adverted to PNB's supposed awareness "that subject quedans are not
negotiable instruments within the purview of the Warehouse Receipts Law but simply an internal
guarantee of defendants in the sale of their stocks of sugar. . . ."
The answer incorporated a third party complaint by Alberto Looyuko, Jimmy T. Go and Wilson T. Go
("doing business under the name and style of Noah's Ark Sugar Refinery") against Rosa Ng Sy and
Teresita Ng, praying that the latter be ordered to deliver or return to them the quedans (eventually
indorsed to the PNB and now subject of this suit) and pay damages and litigation expenses.
The answer of Rosa Ng Sy and Teresita Ng, dated September 6, 1990, was essentially to the effect
that the transaction between them and Jimmy T. Go concerning the quedans and the sugar thereby
covered was "bogus and simulated (being part of the latter's) complex banking schemes and
financial maneuvers;" that the simulated transaction "was just a tolling scheme to
avoid VAT payment and other BIR assessments (considering that) as . . . confidentially intimated (by
said Jimmy Go) . . . Noah's Ark is under sequestration by the PCGG," and that the quedans "were in
fact used by Noah's Ark Executive Director, Luis T. Ramos, and one Cresenciana K. Zoleta as
security for their loans from the bank . . . . (in the aggregate amount) of P39.1 million pesos."
On January 31, 1991, PNB filed a "Motion for Summary Judgment." It asserted that "from the
pleadings, documents, and admissions on file, there is no genuine issue as to a material fact proper
for trial and that plaintiff is entitled as a matter of law, . . . (to) a summary judgment." It contended
that the defenses set up by Noah's Ark, et al. in their responsive pleading involve purely questions of
law i.e., (a) that the vendees of the sugar covered by the quedans in dispute never acquired title
to the goods because of their failure to pay the stipulated purchase price and hence, ownership over
the sugar was retained by Noah's Ark, et al.; and (b) PNB's action is premature since as pledgee it
failed to exercise the remedies provided in the contract of pledge and the Civil Code. And it specified
in no little detail the admissions and documents on record demonstrating the absence of any
genuine factual issue. On these premises, it prayed "that a summary judgment be rendered for
plaintiff against the defendants for the reliefs prayed for in the complaint," these reliefs being:
(a) to deliver to PNB the sugar stocks covered by the Warehouse Receipts/Quedans
which are now in the latter's possession as holder for value and in due course; or
alternatively, to pay plaintiff actual damages in the amount of P39.1 Million exclusive
of interest, penalties and charges; and
(b) to pay plaintiff attorney's fees, litigation expenses and judicial costs estimated at
no less than P1 Million; (and) such other reliefs just and equitable under the
premises.
An opposition to the motion was presented by defendants Noah's Ark, et al., dated March 4, 1991,
asserting the existence of genuine issues, to wit: whether or not the sale was ever consummated
considering that "the checks issued by the first indorsees in payment of said quedans bounced," and

whether or not PNB acquired ownership over the quedans considering that "it did not dispose (of)
said quedans under Art. 2112 of the Civil Code, as specifically reflected in the contract of pledge,"
both contentions allegedly being "material facts which has (sic) to be supported by evidence."
The third-party defendants (Rosa Ng Sy and Teresita Ng) also opposed the motion for summary
judgment insofar as concerned their counterclaim in relation to the third-party complaint asserted
against them.
On May 2, 1991, the Trial Court issued an Order denying the motion for summary judgment on the
ground that an "examination of the pleadings and the record readily shows that there exists sharply
conflicting claims among the parties relative to the ownership of the sugar quedans as to whether or
not the subject quedans falls (sic) squarely within the coverage of the Warehouse Receipt Law and
whether or not the transaction between plaintiff and third party defendants is governed by contract of
pledge that would require plaintiff's compliance with Art. 2112, Civil Code on pledge as regards the
disposition of the subjects quedans." PNB's for reconsideration was denied by Order dated July 4,
1991.
PNB thereupon filed a petition for certiorari with the Court of Appeals, which was docketed as CAG.R. SP No. 25938. This special civil action eventuated in a Decision promulgated on December 13,
1991 by the Sixth Division of that Court, 1 nullifying and setting aside the challenged Orders of May 2,
1991 and July 4, 1991, and commanding that "summary judgment be rendered forthwith in favor of the
PNB against Noah's Ark Sugar Refinery, et al., as prayed for in petitioner's Motion for Summary
Judgment." Said the Appellate Court: 2
In issuing the questioned Orders, the respondent Court ruled that "questions of law
should be resolved after and not before, the questions of fact are properly litigated."
A scrutiny of defendants' affirmative defenses does not show material questions of
facts as to the alleged non-payment of purchase price by the vendees/first indorsers,
and which non-payment is not disputed by PNB as it does not materially affect PNB's
title to the sugar stock as holder of the negotiable quedans.
What is determinative of the propriety of summary judgment is not the existence of
conflicting claims for prior parties but whether from an examination of the pleadings,
depositions, admissions and documents on file, the defenses as to the main issue do
not tender material questions of fact (see Garcia vs. Court of Appeals 167 SCRA
815) or the issues thus tendered are in fact sham, fictitious, contrived, set up in bad
faith or so unsubstantial as not to constitute genuine issues for trial. (See Vergara vs.
Suelto, et al., 156 SCRA 753; Mercado, et al. vs. Court of Appeals, 162 SCRA 75).
The questioned Orders themselves do not specify what material facts are in issue.
(See Sec. 4, Rule 34, Rules of Court).
To require a trial notwithstanding pertinent allegations of the pleadings and other
facts appearing on record, would constitute a waste of time and an injustice to the
PNB whose rights to relief to which it is plainly entitled would be further delayed to its
prejudice.
In issuing the questioned Orders, We find the respondent Court to have acted in
grave abuse of discretion which justify holding null and void and setting aside the
Orders dated May 2 and July 4, 1990 of respondent Court, and that a summary

judgment be rendered forthwith in favor of the PNB against Noah's Ark Sugar
Refinery, et al., as prayed for in the petitioner's Motion for Summary Judgment.
SO ORDERED.
Noah's Ark, et al. moved for reconsideration, but their motion was denied by the Appellate Tribunal's
Resolution dated March 6, 1991.
The judgment became final. Entry of Judgment was made on May 26, 1992. Thereafter the case
was remanded to the Court of origin.
On June 18, 1992, the Regional Trial Court rendered judgment, but not in accordance with the
aforesaid decision of the Court of Appeals. As stated in the opening paragraph of this opinion,
instead of a summary judgment "in favor of the PNB against Noah's Ark Sugar Refinery, et al., as
prayed for in . . . (PNB)'s Motion for Summary Judgment," the Trial Court's verdict decreed the
dismissal of "plaintiff's complaint against defendants Noah's Ark Sugar Refinery, Alberto T. Looyuko,
Jimmy Go and Wilson T. Go . . . . for lack of cause of action;" and dismissal as well of the
counterclaim pleaded by the latter against PNB, and of the third-party complaint, and the third-party
defendant's counterclaim.
The Trial Court declared that if "the only material facts established on the basis of the pleadings,
documentary evidence on record, admissions and stipulations during the hearing on PNB's
application for a writ of preliminary attachment, are the facts as alleged by plaintiff and accepted as
established by the Court of Appeals, this Court will have no difficulty in finding for plaintiff as prayed
for in its motion for summary judgment. But are the facts alleged by plaintiff the only material facts
established on the basis of the pleadings, documentary evidence on record, stipulations and
admissions during the proceedings on the application for a writ of preliminary attachment?" To this
question the Trial Court gave a negative answer, it being its view that other facts, "as alleged by
defendants . . . (and) not disputed by PNB, have been likewise established."
The Trial Court later denied PNB's motion for reconsideration (by Order dated September 4, 1992),
evidently finding merit in the argument of Noah's Ark, et al., therein quoted, that "Certiorari as a
mode of appeal involves the review of judgment, award of final order on the merits, while the original
action for certiorari and as a special civil action is generally directed against an interlocutory order of
the Court, prior to an appeal from the judgment of the main case which in the case at bar is specific
performance . . ."
Hence, this appeal.
In CA-G.R. SP No. 25938 above mentioned, after an extensive review of the entire record of the
case before the Regional Trial Court (including the admissions of Noah's Ark, et al. and the parties'
stipulations of fact), as well as the pleadings filed by the parties before it, the Court of Appeals
arrived at the conclusion that a summary judgment was proper since "there was no substantial
controversy on a(ny) material fact, the only issues for the Court's
determination . . . (being) purely . . . questions of law, as follows:
1) Whether or not the non-payment of the purchase price for the
sugar stock evidenced by the quedans, by the original depositors/
vendees (RNS Merchandising and St. Therese Merchandising)

rendered invalid the negotiation of said quedans by vendees/first


indorsers to indorsers (Ramos and Zoleta) and the subsequent
negotiation of Ramos and Zoleta to PNB.
2) Whether or not PNB as indorsee/ pledgee of quedans was entitled
to delivery of sugar stocks from the warehouseman, Noah's Ark."
These legal questions were disposed of by the Appellate Court as follows:
The validity of the negotiation by RNS Merchandising and St. Therese Merchandising
to Ramos and Zoleta, and by the latter to PNB to secure a loan cannot be impaired
by the fact that the negotiation between Noah's Ark and RNS Merchandising and St.
Therese Merchandising was in breach of faith on the part of the merchandising firms
or by the fact that the owner (Noah's Ark) was deprived of the possession of the
same by fraud, mistake or conversion of the person to whom the warehouse
receipt/quedan was subsequently negotiated if (PNB) paid value therefor in good
faith without notice of such breach of duty, fraud, mistake or conversion. (See Article
1518, New Civil Code). And the creditor (PNB) whose debtor was the owner of the
negotiable document of title (warehouse receipt) shall be entitled to such aid from the
court of appropriate jurisdiction attaching such document or in satisfying the claim by
means as is allowed by law or in equity in regard to property which cannot be readily
attached or levied upon by ordinary process. (See Art. 1520, New Civil Code). If the
quedans were negotiable in form and duly indorsed to PNB (the creditor), the
delivery of the quedans to PNB makes the PNB the owner of the property covered by
said quedans and on deposit with Noah's Ark, the warehouseman. (See Sy Cong
Bieng & Co. vs. Hongkong & Shanghai Bank Corp., 56 Phil. 598).
In the case at bar, We found that the factual bases underlying the defendant's
affirmative defenses (upon which PNB has moved for summary judgment) are not
disputed and have been stipulated by the parties and therefore do not require
presentation of evidence. PNB's right to enforce the obligation of Noah's Ark as a
warehouseman, to deliver the sugar stock to PNB as holder of the quedans, does not
depend on the outcome of the third-party complaint because the validity of the
negotiation transferring title to the goods to PNB as holder of the quedans is not
affected by an act of RNS Merchandising and St. Therese Merchandising, in breach
of trust, fraud or conversion against Noah's Ark.
The Court considers the Appellate Court's conclusions of fact and law to be correct.
The Trial Judge's argument that the Appellate Court's decision failed to take account of other
"material facts established on the basis of the pleadings, documentary evidence on record,
stipulations and admissions during the proceedings on the application for a writ of preliminary
attachment," is quite transparently specious. For the matters cited by His Honor, as allegedly not
examined by the Court of Appeals, were in fact duly considered by the latter i.e., that "the various
postdated checks issued by the buyers (RNS Merchandising and St. Therese Merchandising) in
favor of Noah's Ark were dishonored when presented for payment . . (and hence) the buyers never
acquired title to the sugar evidenced by the quedans," 3 and that PNB "did not follow the procedure
stated in Article 2112 of the Civil Code." 4 In its decision, as just pointed out, the Court of Appeals explicitly
ruled that the "validity of the negotiation" of the quedans to PNB" cannot be impaired by the fact that the

negotiation between Noah's Ark and RNS Merchandising and St. Therese Merchandising was made in
breach of faith on the part of the merchandising firms or by the fact that the owner (Noah's Ark) was
deprived of the possession of the same by fraud, mistake or conversion . . ." 5 It also ruled that
the quedans were negotiable documents and had been duly negotiated to the PNB which thereby
acquired the rights set out in Article 1513 of the Civil Code," 6 viz.:"

(1) Such title to the goods as the person negotiating the documents to him had or
had ability to convey to a purchaser in good faith for value and also such title to the
goods as the person to whose order the goods were to be delivered by the terms of
the document had or had ability to convey to a purchaser in good faith for value; and
(2) The direct obligation of the bailee issuing the document to hold possession of the
goods for him according to the terms of the document as fully as if such bailee had
contracted directly with him.
The Court of Appeals found correctly that the indications in the pleadings to the contrary
notwithstanding, no substantial triable issue of fact actually existed, and that certain issues raised in
answer, even if taken as established, would not materially change the ultimate findings relative to the
main claim. 7 Its decision is entirely in accord with this Court's rulings regarding the propriety of summary
judgments invoked by the Appellate Tribunal, i.e.,Vergara, Sr. v. Suelto, 8 and Mercado v. Court of
Appeals. 9 According to Vergara, for instance, "even if the answer does tender issues and therefore a
judgment on the pleadings is not proper a summary judgment may still be rendered on the plaintiff's
motion if he can show to the Court's satisfaction that "except as to the amount of damages, there is no
genuine issue as to any material fact," 10 that is to say, the issues thus tendered are not genuine, are in
other words sham, fictitious, contrived, set up in bad faith, patently unsubstantial. 11 The determination
may be made by the Court on the basis of the pleadings, and the depositions, admissions and affidavits
that the movant may submit, as well as those which the defendant may present in turn." 12
In any event, the conclusions of fact and law set out in the Appellate Court's decision are undeniably
binding on all the parties to the case, the respondent Regional Trial Judge included. Having been
rendered by a competent court within its jurisdiction, and having become final and executory, the
decision now operates as the immutable law among the parties, the respondent Trial Judge
included; it has become the law of the case and may no longer, in subsequent proceedings, be
altered or modified in any way, much less reversed or set at naught, by the latter, or any other judge,
not even by the Supreme Court; it is an unalterable determination of the propriety of a summary
judgment in the action in question, and upon all the issues therein raised or which could have been
raised relative to the merits of said action. 13
The Trial Judge may not evade compliance with the final judgment of the Court of Appeals on the
theory that the latter had acted only on a mere interlocutory order (the order denying PNB's motion
for summary judgment), while he had subsequently adjudged the action for specific performance on
the merits. Quite obvious is that the Court of Appeals had decided that a summary judgment was
proper in said action of specific performance, that this was in truth a determination of the merits of
the suit, that that decision had become final and executory, and that the decision expressly
commanded His Honor to render such a judgment. Under the circumstances, the latter's duty was
clear and inescapable.
It was not within the Trial Judge's competence or discretion to take exception to, much less overturn,
any of the factual or legal conclusions laid down by the Court of Appeals in its verdict. He was as
much bound thereby as the private parties themselves. His only function was to implement and carry

out the Appellate Tribunal's judgment. It was an act of supererogation, of presumptuousness, on His
Honor's part to disregard the Court's clear and categorical command, and to dispose of the case in a
manner diametrically opposed thereto. In doing so, the Trial Judge committed grave error which
must forthwith be corrected.
WHEREFORE, the Trial Judge's Decision in Civil Case No. 90-53023 dated June 18, 1992 is
REVERSED and SET ASIDE and a new one rendered conformably with the final and executory
Decision of the Court of Appeals in CA-G.R. SP No. 25938, ordering the private respondents, Noah's
Ark Sugar Refinery, Alberto T. Looyuko, Jimmy T. Go and William T. Go, jointly and severally:
a) to deliver to the petitioner Philippine National Bank, "the sugar stocks covered by the Warehouse
Receipts/Quedans which are now in the latter's possession as holder for value and in due course; or
alternatively, to pay (said) plaintiff actual damages in the amount of P39.1 Million," with legal interest
thereon from the filing of the complaint until full payment; and
b) to pay plaintiff Philippine National Bank attorney's fees, litigation expenses and judicial costs
hereby fixed at the amount of one hundred fifty thousand pesos (150,000.00), as well as the costs.
SO ORDERED.
Padilla, Regalado, Nocon and Puno, JJ., concur.

# Footnotes
1 Campos, J., Chairman, ponente; Aldecoa, Jr. and Mendoza, F., JJ, concurring.
2 Emphasis supplied.
3 Rollo, p. 198 (RTC Decision, p. 7).
4 Id., pp. 198-199 (RTC Decision, pp. 7-8).
5 Id., p. 185 ( CA Decision, p. 7).
6 Id., pp. 183-185 (CA Decision, pp. 5-6); see also Section 8 and 41, Warehouse
Receipts Law (Act No. 2137).
7 SEE Londres v. National Life Insurance Co. of the Philippines, 94 Phil. 627, 629,
cited in Feria, J.,Civil Procedure, 1969 ed., p. 481, also adverting to Miranda v.
Malate Garage & Taxicab, 52 O.G. 5145; Capital Insurance v. Eberly, 53 O.G. 63; Go
Leting & Sons, et al. v. Leyte Land Trans. Col, L-8887, May 28, 1958; and Philippine
National Bank v. Philippine Leather Co., L-10884, March 31, 1959.
8 156 SCRA 753, 760-762 (1987).
9 162 SCRA 75, 83-85 (1988).

10 Footnote No. 18 in text: "Sec. 1, Rule 34. N.B. A defendant may also move for
summary judgment in his favor on the theory that the plaintiff's complaint raises no
genuine issue (Sec. 2, Rule 34)."
11 Footnote No. 19 in text, citing cases.
12 Footnote No. 20 in text: "Sec. 3, Rule 34, Cadirao v. Estenzo, 132 SCRA 93,
100, supra."
13 SEE Sec. 49, Rule 39, Rules of Court; see also, Zarate v. Director of Lands, 39
Phil. 749; Trinidad v. Roman Catholic Archbishop, 63 Phil. 913; People v. Pinuila, 103
Phil. 999; Rodriguez v. Director of Prisons, 47 SCRA 157; Comilang v. Court of
Appeals, 65 SCRA 79.

Case Title : PHILIPPINE NATIONAL BANK, petitioner, vs. HON. PRES. JUDGE
BENITO C. SE, JR., RTC, BR. 45, MANILA; NOAHS ARK SUGAR REFINERY;
ALBERTO T. LOOYUKO, JIMMY T. GO and WILSON T. GO, respondents.Case
Nature : PETITION to nullify a decision of the Regional Trial Court of Manila,
Br. 45.
Syllabi Class : Warehouse Receipts Law (R.A. 2137)|Warehousemans
Liens|Actions|Judgments|Contracts|Receipts|Estoppel
Syllabi:
1. Warehouse Receipts Law (R.A. 2137); Warehousemans
Liens; Actions; Judgments; A prior judgment holding that a party is a
warehouseman obligated to deliver sugar stocks covered by the Warehouse
Receipts does not necessarily carry with it a denial of the warehousemans
lien over the same sugar stocks.We have carefully examined our resolution, dated March 9, 1994, which
denied Noahs Arks motion for clarification of our decision, dated September
1, 1993, wherein we affirmed in full and adopted the Court of Appeals
earlier decision, dated December 13, 1991, in CA-G.R. SP No. 25938. We
are not persuaded by the petitioners argument that our said resolution
carried with it the denial of the warehousemans lien over the sugar stocks
covered by the subject Warehouse Receipts. We have simply resolved and
upheld in our decision, dated September 1, 1993, the propriety of summary
judgment which was then assailed by private respondents. In effect, we
ruled therein that, considering the circumstances obtaining before the trial
court, the issuance of the Warehouse Receipts not being disputed by the
private respondents, a summary judgment in favor of PNB was proper. We
in effect further affirmed the finding that Noahs Ark is a warehouseman
which was obliged to deliver the sugar stocks covered by the Warehouse
Receipts pledged by Cresencia K. Zoleta and Luis T. Ramos to the petitioner
pursuant to the pertinent provisions of Republic Act 2137. In disposing of
the private respondents motion for clarification, we could not contemplate

the matter of warehousemans lien because the issue to be finally resolved


then was the claim of private respondents for retaining ownership of the
stocks of sugar covered by the endorsed quedans. Stated otherwise, there
was no point in taking up the issue of warehousemans lien since the matter
of ownership was as yet being determined. Neither could storage fees be
due then while no one has been declared the owner of the sugar stocks in
question.
2. Warehouse Receipts Law (R.A. 2137); Warehousemans
Liens; Even in the absence of a provision in the Warehouse Receipts, law
and equity dictate the payment of the warehousemans lien pursuant to
Sections 27 and 31 of the Warehouse Receipts Law.Petitioner anchors its claim against private respondents on the five (5)
Warehouse Receipts issued by the latter to third-party defendants Rosa Ng
Sy of RNS Merchandising and Teresita Ng of St. Therese Merchandising,
which found their way to petitioner after they were negotiated to them by
Luis T. Ramos and Cresencia K. Zoleta for a loan of P39.1 Million.
Accordingly, petitioner PNB is legally bound to stand by the express terms
and conditions on the face of the Warehouse Receipts as to the payment of
storage fees. Even in the absence of such a provision, law and equity dictate
the payment of the warehousemans lien pursuant to Sections 27 and 31 of
the Warehouse Receipts Law (R.A. 2137).
3. Warehouse Receipts Law (R.A. 2137); Warehousemans
Liens; Contracts; Receipts; As contracts, warehouse receipts must be
respected by authority of Article 1159 of the Civil Code. Considering that petitioner does not deny the existence, validity and
genuineness of the Warehouse Receipts on which it anchors its claim for
payment against private respondents, it cannot disclaim liability for the
payment of the storage fees stipulated therein. As contracts, the receipts
must be respected by authority of Article 1159 of the Civil Code, to wit:
ART. 1159. Obligations arising from contracts have the force of law
between the contracting parties and should be complied with in good faith.
4. Warehouse Receipts Law (R.A. 2137); Warehousemans
Liens; Contracts; Receipts; Estoppel; A party is in estoppel in disclaiming
liability for the payment of storage fees due the warehouseman while
claiming to be entitled to the sugar stocks covered by the subject
Warehouse Receipts on the basis of which it anchors its claim for payment or
delivery of the sugar stocks.Petitioner is in estoppel in disclaiming liability for the payment of storage
fees due the private respondents as warehouseman while claiming to be
entitled to the sugar stocks covered by the subject Warehouse Receipts on
the basis of which it anchors its claim for payment or delivery of the sugar
stocks. The unconditional presentment of the receipts by the petitioner for

payment against private respondents on the strength of the provisions of


the Warehouse Receipts Law (R.A. 2137) carried with it the admission of the
existence and validity of the terms, conditions and stipulations written on
the face of the Warehouse Receipts, including the unqualified recognition of
the payment of warehousemans lien for storage fees and preservation
expenses. Petitioner may not now retrieve the sugar stocks without paying
the lien due private respondents as warehouseman.
5. Warehouse Receipts Law (R.A. 2137); Warehousemans
Liens; Imperative is the right of the warehouseman to demand payment of
his lien because he loses his lien upon goods by surrendering possession
thereof.In view of the foregoing, the rule may be simplified thus: While the PNB is
entitled to the stocks of sugar as the endorsee of the quedans, delivery to it
shall be effected only upon payment of the storage fees. Imperative is the
right of the warehouseman to demand payment of his lien at this juncture,
because, in accordance with Section 29 of the Warehouse Receipts Law, the
warehouseman loses his lien upon goods by surrendering possession
thereof. In other words, the lien may be lost where the warehouseman
surrenders the possession of the goods without requiring payment of his
lien, because a warehousemans lien is possessory in nature.
Division: FIRST DIVISION
Docket Number: G.R. No. 119231
Counsel: Rolan A. Nieto, Madella & Cruz Law Offices
Ponente: HERMOSISIMA, JR.
Dispositive Portion:
WHEREFORE, the petition should be, as it is, hereby dismissed for lack of
merit. The questioned orders issued by public respondent judge are
affirmed.

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


PHILIPPINE NATIONAL BANK, Petitioner, v. HON. PRES.
JUDGE BENITO C. SE, JR., RTC, BR. 45, MANILA; NOAHS ARK
SUGAR REFINERY; ALBERTO T. LOOYUKO, JIMMY T. GO and
WILSON T. GO, Respondent.

.
DECISION
HERMOSISIMA, JR., J.:
The source of conflict herein is the question as to whether the
Philippine National Bank should pay storage fees for sugar stocks
covered by five (5) Warehouse Receipts stored in the warehouse of
private respondents in the face of the Court of Appeals decision
(affirmed by the Supreme Court) declaring the Philippine National
Bank as the owner of the said sugar stocks and ordering their
delivery to the said bank. From the same facts but on a different
perspective, it can be said that the issue is: Can the warehouseman
enforce his warehousemans lien before delivering the sugar stocks
as ordered by the Court of Appeals or need he file a separate action
to enforce payment of storage fees?
The herein petition seeks to annul: (1) the Resolution of respondent
Judge Benito C. Se, Jr. of the Regional Trial Court of Manila, Branch
45, dated December 20, 1994, in Civil Case No. 90-53023,
authorizing reception of evidence to establish the claim of
respondents Noahs Ark Sugar Refinery, et al., for storage fees and
preservation expenses over sugar stocks covered by
five (5) Warehouse Receipts which is in the nature of a
warehousemans lien; and (2) the Resolution of the said respondent
Judge, dated March 1, 1995, declaring the validity of private
respondents warehousemans lien under Section 27 of Republic Act
No 2137 and ordering that execution of the Court of Appeals
decision, dated December 13, 1991, be in effect held in abeyance
until the full amount of the warehousemans lien on the sugar stocks
covered by five (5) quedans subject of the action shall have been
satisfied conformably with the provisions of Section 31 of Republic
Act 2137.
Also prayed for by the petition is a Writ of Prohibition to require
respondent RTC Judge to desist from further proceeding with Civil
Case No. 90-53023, except order the execution of the Supreme
Court judgment; and a Writ of Mandamus to compel respondent RTC

Judge to issue a Writ of Execution in accordance with the said


executory Supreme Court decision.
THE FACTS
In accordance with Act No. 2137, the Warehouse Receipts Law,
Noahs Ark Sugar Refinery issued on several dates, the following
Warehouse Receipts (Quedans): (a) March 1, 1989, Receipt No.
18062, covering sugar deposited by Rosa Sy; (b) March 7, 1989,
Receipt No. 18080, covering sugar deposited by RNS Merchandising
(Rosa Ng Sy); (c) March 21, 1989, Receipt No. 18081, covering
sugar deposited by St. Therese Merchandising; (d)March 31, 1989,
Receipt No. 18086, covering sugar deposited by St. Therese
Merchandising; and (e) April 1, 1989, Receipt No. 18087, covering
sugar deposited by RNS Merchandising. The receipts are
substantially in the form, and contains the terms, prescribed for
negotiable warehouse receipts by Section 2 of the law.
Subsequently, Warehouse Receipts Nos. 18080 and 18081 were
negotiated and endorsed to Luis T. Ramos; and Receipts Nos.
18086, 18087 and 18062 were negotiated and endorsed to
Cresencia K. Zoleta. Ramos and Zoleta then used the quedans as
security for two loan agreements - one for P15.6 million and the
other for P23.5 million - obtained by them from the Philippine
National Bank. The aforementioned quedans were endorsed by
them to the Philippine National Bank.
Luis T. Ramos and Cresencia K. Zoleta failed to pay their loans upon
maturity on January 9, 1990. Consequently, on March 16, 1990, the
Philippine National Bank wrote to Noahs Ark Sugar Refinery
demanding delivery of the sugar stocks covered by the quedans
endorsed to it by Zoleta and Ramos. Noahs Ark Sugar Refinery
refused to comply with the demand alleging ownership thereof, for
which reason the Philippine National Bank filed with the Regional
Trial Court of Manila a verified complaint for "Specific Performance
with Damages and Application for Writ of Attachment" against
Noahs Ark Sugar Refinery, Alberto T. Looyuko, Jimmy T. Go and
Wilson T. Go, the last three being identified as the sole proprietor,
managing partner, and Executive Vice President of Noahs Ark,
respectively.

Respondent Judge Benito C. Se, Jr., in whose sala the case was
raffled, denied the Application for Preliminary Attachment.
Reconsideration therefor was likewise denied.
Noahs Ark and its co-defendants filed an Answer with Counterclaim
and Third-Party Complaint in which they claimed that they are the
owners of the subject quedans and the sugar represented therein,
averring as they did that:
"9.*** In an agreement dated April 1, 1989, defendants agreed to
sell to Rosa Ng Sy of RNS Merchandising and Teresita Ng of St.
Therese Merchandising the total volume of sugar indicated in the
quedans stored at Noahs Ark Sugar Refinery for a total
consideration of P63,000,000.00,
*** The corresponding payments in the form of checks issued by
the vendees in favor of defendants were subsequently dishonored
by the drawee banks by reason of payment stopped and drawn
against insufficient funds,
*** Upon proper notification to said vendees and plaintiff in due
course, defendants refused to deliver to vendees therein the
quantity of sugar covered by the subject quedans.
10. *** Considering that the vendees and first endorsers of subject
quedans did not acquire ownership thereof, the subsequent
endorsers and plaintiff itself did not acquire a better right of
ownership than the original vendees/first endorsers. "1
crlwvirtualibrry

The Answer incorporated a Third-Party Complaint by Alberto T.


Looyuko, Jimmy T. Go and Wilson T. Go, doing business under the
trade name and style Noahs Ark Sugar Refinery against Rosa Ng Sy
and Teresita Ng, praying that the latter be ordered to deliver or
return to them the quedans (previously endorsed to PNB and the
subject of the suit) and pay damages and litigation expenses.
The Answer of Rosa Ng Sy and Teresita Ng, dated September 6,
1990, one of avoidance, is essentially to the effect that the
transaction between them, on the one hand, and Jimmy T. Go, on
the other, concerning the quedans and the sugar stocks covered by

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

a waste of time and an injustice to the PNB whose rights to relief to


which it is plainly entitled would be further delayed to its prejudice.
In issuing the questioned Orders, We find the respondent Court to
have acted in grave abuse of discretion which justify holding null
and void and setting aside the Orders dated May 2 and July 4, 1990
of respondent Court, and that a summary judgment be rendered
forthwith in favor of the PNB against Noahs Ark Sugar Refinery, et
al., as prayed for in petitioners Motion for Summary Judgment." 2
On December 13, 1991, the Court of Appeals nullified and set aside
the orders of May 2 and July 4, 1990 of the Regional Trial Court and
ordered the trial court to render summary judgment in favor of the
PNB. On June 18, 1992, the trial court rendered judgment
dismissing plaintiffs complaint against private respondents for lack
of cause of action and likewise dismissed private respondents
counterclaim against PNB and of the Third-Party Complaint and the
Third-Party Defendants Counterclaim. On September 4, 1992, the
trial court denied PNBs Motion for Reconsideration.
On June 9, 1992, the PNB filed an appeal from the RTC decision with
the Supreme Court, G.R. No. 107243, by way of a Petition for
Review on Certiorari under Rule 45 of the Rules of Court. This Court
rendered judgment on September 1, 1993, the dispositive portion of
which reads:
"WHEREFORE, the trial judges decision in Civil Case No. 90-53023,
dated June 18, 1992, is reversed and set aside and a new one
rendered conformably with the final and executory decision of the
Court of Appeals in CA-G.R SP. No. 25938, ordering the private
respondents Noahs Ark Sugar Refinery, Alberto T. Looyuko, Jimmy
T. Go and Wilson T. Go, jointly and severally:
(a) to deliver to the petitioner Philippine National Bank, the sugar
stocks covered by the Warehouse Receipts/ Quedans which are now
in the latters possession as holder for value and in due course; or
alternatively, to pay (said) plaintiff actual damages in the amount of
P39.1 million, with legal interest thereon from the filing of the
complaint until full payment; and

(b) to pay plaintiff Philippine National Bank attorneys fees, litigation


expenses and judicial costs hereby fixed at the amount of One
Hundred Fifty Thousand Pesos (P150,000.00) as well as the costs.
SO ORDERED." 3

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On September 29, 1993, private respondents moved for


reconsideration of this decision. A Supplemental/Second Motion for
Reconsideration with leave of court was filed by private respondents
on November 8, 1993. We denied private respondents motion
on January 10, 1994. .
Private respondents filed a Motion Seeking Clarification of the
Decision, dated September 1, 1993. We denied this motion in this
manner:
"It bears stressing that the relief granted in this Courts decision of
September 1, 1993 is precisely that set out in the final and
executory decision of the Court of Appeals in CA-G.R. SP No.
25938, dated December 13, 1991, which was affirmed in toto by
this Court and which became unalterable upon becoming final and
executory. " 4
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Private respondents thereupon filed before the trial court an


Omnibus Motion seeking among others the deferment of the
proceedings until private respondents are heard on their claim for
warehousemans lien. On the other hand, on August 22, 1994, the
Philippine National Bank filed a Motion for the Issuance of a Writ of
Execution and an Opposition to the Omnibus Motion filed by private
respondents.
The trial court granted private respondents Omnibus Motion
on December 20, 1994 and set reception of evidence on their claim
for warehousemans lien. The resolution of the PNBs Motion for
Execution was ordered deferred until the determination of private
respondents claim.
On February 21, 1995, private respondents claim for lien was heard
and evidence was received in support thereof. The trial court

thereafter gave both parties five (5) days to file respective


memoranda.
On February 28, 1995, the Philippine National Bank filed a
Manifestation with Urgent Motion to Nullify Court Proceedings. In
adjudication thereof, the trial court issued the following order
on March 1, 1995:
"WHEREFORE, this court hereby finds that there exists in favor of
the defendants a valid warehousemans lien under Section 27 of
Republic Act 2137 and accordingly, execution of the judgment is
hereby ordered stayed and/ or precluded until the full amount of
defendants lien on the sugar stocks covered by the five (5) quedans
subject of this action shall have been satisfied conformably with the
provisions of Section 31 of Republic Act 2137. "5
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Consequently, the Philippine National Bank filed the herein petition


to seek the nullification of the above-assailed orders of respondent
judge.
The PNB submits that:
"I
PNBs RIGHT TO A WRIT OF EXECUTION IS SUPPORTED BY TWO
FINAL AND EXECUTORY DECISIONS: THE DECEMBER 13, 1991
COURT OF APPEALS DECISION IN CA-G.R. SP. NO. 25938; AND,
THE NOVEMBER 9, 1992 SUPREME COURT DECISION IN G.R NO.
107243. RESPONDENT RTCS MINISTERIAL AND MANDATORY DUTY
IS TO ISSUE THE WRIT OF EXECUTION TO IMPLEMENT THE
DECRETAL PORTION OF SAID SUPREME COURT DECISION
II
RESPONDENT RTC IS WITHOUT JURISDICTION TO HEAR PRIVATE
RESPONDENTS OMNIBUS MOTION. THE CLAIMS SET FORTH IN
SAID MOTION: (1) WERE ALREADY REJECTED BY THE SUPREME
COURT IN ITS MARCH 9, 1994 RESOLUTION DENYING PRIVATE
RESPONDENTS MOTION FOR CLARIFICATION OF DECISION IN .G.R.
NO. 107243; AND (2) ARE BARRED FOREVER BY PRIVATE

RESPONDENTS FAILURE TO INTERPOSE THEM IN THEIR ANSWER,


AND FAILURE TO APPEAL FROM THE JUNE 18, 1992 RTC DECISION
IN CIVIL CASE NO. 90-52023
III
RESPONDENT RTCS ONLY JURISDICTION IS TO ISSUE THE WRIT
TO EXECUTE THE SUPREME COURT DECISION. THUS, PNB IS
ENTITLED TO: (1) A WRIT OF CERTIORARI TO ANNUL THE RTC
RESOLUTION DATED DECEMBER 20, 1994 AND THE ORDER
DATEDFEBRUARY 7, 1995 AND ALL PROCEEDINGS TAKEN BY THE
RTC THEREAFTER; (2) A WRIT OF PROHIBITION TO PREVENT
RESPONDENT RTC FROM FURTHER PROCEEDING WITH CIVIL CASE
NO. 90-53023 AND COMMITTING OTHER ACTS VIOLATIVE OF THE
SUPREME COURT DECISION IN G.R. NO. 107243; AND (3) A WRIT
OF MANDAMUS TO COMPEL RESPONDENT RTC TO ISSUE THE WRIT
TO EXECUTE THE SUPREME COURT JUDGMENT IN FAVOR OF PNB"
The issues presented before us in this petition revolve around the
legality of the questioned orders of respondent judge, issued as
they were after we had denied with finality private respondents
contention that the PNB could not compel them to deliver the stocks
of sugar in their warehouse covered by the endorsed quedans or
pay the value of the said stocks of sugar.
Petitioners submission is on a technicality, that is, that private
respondents have lost their right to recover warehousemans lien on
the sugar stocks covered by the five (5) Warehouse Receipts for the
reason that they failed to set up said claim in their Answer before
the trial court and that private respondents did not appeal from the
decision in this regard, dated June 18, 1992. Petitioner asseverates
that the denial by this Court on March 9, 1994 of the motion
seeking clarification of our decision, dated September 1, 1993, has
foreclosed private respondents right to enforce their
warehousemans lien for storage fees and preservation expenses
under the Warehouse Receipts Act.
On the other hand, private respondents maintain that they could not
have claimed the right to a warehouseman s lien in their Answer to
the complaint before the trial court as it would have been

inconsistent with their stand that they claim ownership of the stocks
covered by the quedans since the checks issued for payment thereof
were dishonored. If they were still the owners, it would have been
absurd for them to ask payment for storage fees and preservation
expenses. They further contend that our resolution, dated March 9,
1994, denying their motion for clarification did not preclude their
right to claim their warehousemans lien under Sections 27 and 31 of
Republic Act 2137, as our resolution merely affirmed and adopted
the earlier decision, dated December 13, 1991, of the Court of
Appeals (6th Division) in CA-G.R. SP. No. 25938 and did not make
any finding on the matter of the warehouseman s lien.
We find for private respondents on the foregoing issue and so the
petition necessarily must fail.
We have carefully examined our resolution, dated March 9, 1994,
which denied Noahs Arks motion for clarification of our decision,
dated September 1, 1993, wherein we affirmed in full and adopted
the Court of Appeals earlier decision, dated December 13, 1991, in
CA-G.R. SP. No. 25938. We are not persuaded by the petitioners
argument that our said resolution carried with it the denial of the
warehousemans lien over the sugar stocks covered by the subject
Warehouse Receipts. We have simply resolved and upheld in our
decision, dated September 1, 1993, the propriety of summary
judgment which was then assailed by private respondents. In effect,
we ruled therein that, considering the circumstances obtaining
before the trial court, the issuance of the Warehouse Receipts not
being disputed by the private respondents, a summary judgment in
favor of PNB was proper. We in effect further affirmed the finding
that Noahs Ark is a warehouseman which was obliged to deliver the
sugar stocks covered by the Warehouse Receipts pledged by
Cresencia K. Zoleta and Luis T. Ramos to the petitioner pursuant to
the pertinent provisions of Republic Act 2137.
In disposing of the private respondents motion for clarification, we
could not contemplate the matter of warehousemans lien because
the issue to be finally resolved then was the claim of private
respondents for retaining ownership of the stocks of sugar covered
by the endorsed quedans. Stated otherwise, there was no point in

taking up the issue of warehousemans lien since the matter of


ownership was as yet being determined. Neither could storage fees
be due then while no one has been declared the owner of the sugar
stocks in question.
Of considerable relevance is the pertinent stipulation in the subject
Warehouse Receipts which provides for respondent Noahs Arks right
to impose and collect warehousemans lien:
"Storage of the refined sugar quantities mentioned herein shall be
free up to one (1) week from the date of the quedans covering said
sugar and thereafter, storage fees shall be charged in accordance
with the Refining Contract under which the refined sugar covered by
this Quedan was produced. " 6
It is not disputed, therefore, that, under the subject Warehouse
Receipts provision, storage fees are chargeable.
Petitioner anchors its claim against private respondents on the five
(5) Warehouse Receipts issued by the latter to third-party
defendants Rosa Ng Sy of RNS Merchandising and Teresita Ng of St.
Therese Merchandising, which found their way to petitioner after
they were negotiated to them by Luis T. Ramos and Cresencia K.
Zoleta for a loan of P39.1 Million. Accordingly, petitioner PNB is
legally bound to stand by the express terms and conditions on the
face of the Warehouse Receipts as to the payment of storage fees.
Even in the absence of such a provision, law and equity dictate the
payment of the warehouseman s lien pursuant to Sections 27 and
31 of the Warehouse Receipts Law (R.A. 2137), to wit:
"SECTION 27. What claims are included in the warehousemans lien.
- Subject to the provisions of section thirty, a warehouseman shall
have lien on goods deposited or on the proceeds thereof in his
hands, for all lawful charges for storage and preservation of the
goods; also for all lawful claims for money advanced, interest,
insurance, transportation, labor, weighing coopering and other
charges and expenses in relation to such goods; also for all
reasonable charges and expenses for notice, and advertisement of
sale, and for sale of the goods where default has been made in
satisfying the warehousemans lien.

xxx xxx xxx


SECTION 31. Warehouseman need not deliver until lien is satisfied.
- A warehouseman having a lien valid against the person
demanding the goods may refuse to deliver the goods to him until
the lien is satisfied."
After being declared not the owner, but the warehouseman, by the
Court of Appeals onDecember 13, 1991 in CA-G.R. SP. No. 25938,
the decision having been affirmed by us onDecember 1, 1993,
private respondents cannot legally be deprived of their right to
enforce their claim for warehousemans lien, for reasonable storage
fees and preservation expenses. Pursuant to Section 31 which we
quote hereunder, the goods under storage may not be delivered
until said lien is satisfied.
"SECTION 31. Warehouseman need not deliver until lien is satisfied.
- A warehouseman having a lien valid against the person
demanding the goods may refuse to deliver the goods to him until
the lien is satisfied."
Considering that petitioner does not deny the existence, validity and
genuineness of the Warehouse Receipts on which it anchors its claim
for payment against private respondents, it cannot disclaim liability
for the payment of the storage fees stipulated therein. As contracts,
the receipts must be respected by authority of Article 1159 of the
Civil Code, to wit:
"ART. 1159. Obligations arising from contracts have the force of law
between the contracting parties and should be complied with in
good faith."
Petitioner is in estoppel in disclaiming liability for the payment of
storage fees due the private respondents as warehouseman while
claiming to be entitled to the sugar stocks covered by the subject
Warehouse Receipts on the basis of which it anchors its claim for
payment or delivery of the sugar stocks. The unconditional
presentment of the receipts by the petitioner for payment against
private respondents on the strength of the provisions of the
Warehouse Receipts Law (R.A. 2137) carried with it the admission of

the existence and validity of the terms, conditions and stipulations


written on the face of the Warehouse Receipts, including the
unqualified recognition of the payment of warehousemans lien for
storage fees and preservation expenses. Petitioner may not now
retrieve the sugar stocks without paying the lien due private
respondents as warehouseman.
In view of the foregoing, the rule may be simplified thus: While the
PNB is entitled to the stocks of sugar as the endorsee of the
quedans, delivery to it shall be effected only upon payment of the
storage fees.
Imperative is the right of the warehouseman to demand payment of
his lien at this juncture, because, in accordance with Section 29 of
the Warehouse Receipts Law, the warehouseman loses his lien upon
goods by surrendering possession thereof. In other words, the lien
may be lost where the warehouseman surrenders the possession of
the goods without requiring payment of his lien, because a
warehousemans lien is possessory in nature.
We, therefore, uphold and sustain the validity of the assailed orders
of public respondent, dated December 20, 1994 and March 1, 1995.
In fine, we fail to see any taint of abuse of discretion on the part of
the public respondent in issuing the questioned orders which
recognized the legitimate right of Noahs Ark, after being declared as
warehouseman, to recover storage fees before it would release to
the PNB sugar stocks covered by the five (5) Warehouse Receipts.
Our resolution, dated March 9, 1994, did not preclude private
respondents unqualified right to establish its claim to recover
storage fees which is recognized under Republic Act No. 2137.
Neither did the Court of Appeals decision, dated December 13,
1991, restrict such right.
Our Resolutions reference to the decision by the Court of Appeals,
dated December 13, 1991, in CA-G.R. SP. No. 25938, was intended
to guide the parties in the subsequent disposition of the case to its
final end. We certainly did not foreclose private respondents
inherent right as warehouseman to collect storage fees and
preservation expenses as stipulated n the face of each of the

Warehouse Receipts and as provided for in the Warehouse Receipts


Law (R.A. 2137).
WHEREFORE, the petition should be, as it is, hereby dismissed for
lack of merit. The questioned orders issued by public respondent
judge are affirmed.
Costs against the petitioner.
SO ORDERED.
Padilla (Chairman), Bellosillo, Vitug, and Kapunan, Jr., JJ.,
concur.
Endnotes:
1 Answer with Counterclaim and Third-Party Complaint, p. 3; Rollo, p. 47.
2 Quoted in the Petition, p. 8; Rollo, p. 9.
3 Decision of the Supreme Court in G.R. No. 107243, p. 8; Rollo, p.64.
4 Resolution of the Supreme Court (Section Division) in G.R. No. 107243; Rollo, p. 71.
5 Resolution of the RTC in Civil Case No. 90-53023, p. 5; Rollo, p. 44.
6 Comment, p. 5; Rollo, p. 92.