Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 118492

August 15, 2001

GREGORIO H. REYES and CONSUELO

PUYAT-REYES, petitioners,
vs.
THE HON. COURT OF APPEALS and FAR
EAST BANK AND TRUST
COMPANY, respondents.
DE LEON, JR., J.:
Before us is a petition for review of the
Decision1 dated July 22, 1994 and
Resolution2 dated December 29, 1994
of the Court of Appeals3 affirming with
modification the Decision4 dated
November 12, 1992 of the Regional
Trial Court of Makati, Metro Manila,
Branch 64, which dismissed the
complaint for damages of petitioners
spouses Gregorio H. Reyes and
Consuelo Puyat-Reyes against
respondent Far East Bank and Trust
Company.
The undisputed facts of the case are
as follows:
In view of the 20th Asian Racing
Conference then scheduled to be held
in September, 1988 in Sydney,
Australia, the Philippine Racing Club,
Inc. (PRCI, for brevity) sent four (4)
delegates to the said conference.
Petitioner Gregorio H. Reyes, as vicepresident for finance, racing manager,
treasurer, and director of PRCI, sent
Godofredo Reyes, the club's chief
cashier, to the respondent bank to

apply for a foreign exchange demand

draft in Australian dollars.
Godofredo went to respondent bank's
Buendia Branch in Makati City to apply
for a demand draft in the amount One
Thousand Six Hundred Ten Australian
Dollars (AU$1,610.00) payable to the
order of the 20th Asian Racing
Conference Secretariat of Sydney,
Australia. He was attended to by
respondent bank's assistant cashier,
Mr. Yasis, who at first denied the
application for the reason that
respondent bank did not have an
Australian dollar account in any bank
in Sydney. Godofredo asked if there
could be a way for respondent bank to
accommodate PRCI's urgent need to
remit Australian dollars to Sydney.
Yasis of respondent bank then
informed Godofredo of a roundabout
way of effecting the requested
remittance to Sydney thus: the
respondent bank would draw a
demand draft against Westpac Bank in
Sydney, Australia (Westpac-Sydney for
brevity) and have the latter reimburse
itself from the U.S. dollar account of
the respondent in Westpac Bank in
New York, U.S.A. (Westpac-New York
for brevity). This arrangement has
been customarily resorted to since the
1960's and the procedure has proven
to be problem-free. PRCI and the
petitioner Gregorio H. Reyes, acting
through Godofredo, agreed to this
arrangement or approach in order to
effect the urgent transfer of Australian
dollars payable to the Secretariat of
the 20th Asian Racing Conference.
On July 28, 1988, the respondent bank
approved the said application of PRCI

and issued Foreign Exchange Demand

Draft (FXDD) No. 209968 in the sum
applied for, that is, One Thousand Six
Hundred Ten Australian Dollars (AU$
1,610.00), payable to the order of the
20th Asian Racing Conference
Secretariat of Sydney, Australia, and
addressed to Westpac-Sydney as the
drawee bank.1wphi1.nt
On August 10, 1988, upon due
presentment of the foreign exchange
demand draft, denominated as FXDD
No. 209968, the same was dishonored,
with the notice of dishonor stating the
following: "xxx No account held with
Westpac." Meanwhile, on August 16,
1988, Wespac-New York sent a cable
to respondent bank informing the
latter that its dollar account in the
sum of One Thousand Six Hundred Ten
Australian Dollars (AU$ 1,610.00) was
debited. On August 19, 1988, in
response to PRCI's complaint about
the dishonor of the said foreign
exchange demand draft, respondent
bank informed Westpac-Sydney of the
issuance of the said demand draft
FXDD No. 209968, drawn against the
Wespac-Sydney and informing the
latter to be reimbursed from the
respondent bank's dollar account in
Westpac-New York. The respondent
bank on the same day likewise
informed Wespac-New York requesting
the latter to honor the reimbursement
claim of Wespac-Sydney. On
September 14, 1988, upon its second
presentment for payment, FXDD No.
209968 was again dishonored by
Westpac-Sydney for the same reason,
that is, that the respondent bank has
no deposit dollar account with the
drawee Wespac-Sydney.

On September 17, 1988 and

September 18, 1988, respectively,
petitioners spouses Gregorio H. Reyes
and Consuelo Puyat-Reyes left for
Australia to attend the said racing
conference. When petitioner Gregorio
H. Reyes arrived in Sydney in the
morning of September 18, 1988, he
went directly to the lobby of Hotel
Regent Sydney to register as a
conference delegate. At the
registration desk, in the presence of
other delegates from various member
of the conference secretariat that he
could not register because the foreign
exchange demand draft for his
registration fee had been dishonored
for the second time. A discussion
ensued in the presence and within the
hearing of many delegates who were
also registering. Feeling terribly
embarrassed and humiliated,
petitioner Gregorio H. Reyes asked the
lady member of the conference
secretariat that he be shown the
subject foreign exchange demand
draft that had been dishonored as well
as the covering letter after which he
promised that he would pay the
registration fees in cash. In the
meantime he demanded that he be
given his name plate and conference
kit. The lady member of the
conference secretariat relented and
gave him his name plate and
conference kit. It was only two (2)
days later, or on September 20, 1988,
that he was given the dishonored
demand draft and a covering letter. It
was then that he actually paid in cash
the registration fees as he had earlier
promised.

Meanwhile, on September 19, 1988,

petitioner Consuelo Puyat-Reyes
arrived in Sydney. She too was
embarassed and humiliated at the
registration desk of the conference
secretariat when she was told in the
presence and within the hearing of
other delegates that she could not be
registered due to the dishonor of the
subject foreign exchange demand
draft. She felt herself trembling and
unable to look at the people around
her. Fortunately, she saw her husband,
coming toward her. He saved the
situation for her by telling the
secretariat member that he had
already arranged for the payment of
the registration fee in cash once he
was shown the dishonored demand
draft. Only then was petitioner PuyatReyes given her name plate and
conference kit.
At the time the incident took place,
petitioner Consuelo Puyat-Reyes was a
member of the House of
Representatives representing the lone
Congressional District of Makati, Metro
Manila. She has been an officer of the
Manila Banking Corporation and was
cited by Archbishop Jaime Cardinal Sin
as the top lady banker of the year in
connection with her conferment of the
Pro-Ecclesia et Pontifice Award. She
has also been awarded a plaque of
appreciation from the Philippine
Tuberculosis Society for her
extraordinary service as the Society's
campaign chairman for the ninth (9th)
consecutive year.
On November 23, 1988, the
petitioners filed in the Regional Trial
Court of Makati, Metro Manila, a

complaint for damages, docketed as

Civil Case No. 88-2468, against the
respondent bank due to the dishonor
of the said foreign exchange demand
draft issued by the respondent bank.
The petitioners claim that as a result
of the dishonor of the said demand
draft, they were exposed to
unnecessary shock, social humiliation,
and deep mental anguish in a foreign
country, and in the presence of an
international audience.
On November 12, 1992, the trial court
rendered judgment in favor of the
defendant (respondent bank) and
against the plaintiffs (herein
petitioners), the dispositive portion of
which states:
WHEREFORE, judgment is hereby
rendered in favor of the defendant,
dismissing plaintiff's complaint, and
ordering plaintiffs to pay to defendant,
on its counterclaim, the amount of
P50,000.00, as reasonable attorney's
fees. Costs against the plaintiff.
SO ORDERED.5
The petitioners appealed the decision
of the trial court to the Court of
Appeals. On July 22, 1994, the
appellate court affirmed the decision
of the trial court but in effect deleted
the award of attorney's fees to the
defendant (herein respondent bank)
and the pronouncement as to the
costs. The decretal portion of the
decision of the appellate court states:
WHEREFORE, the judgment appealed
from, insofar as it dismissed plaintiff's
complaint, is hereby AFFIRMED, but is
hereby REVERSED and SET ASIDE in all

other respect. No special

pronouncement as to costs.
SO ORDERED.6
According to the appellate court, there
is no basis to hold the respondent
bank liable for damages for the reason
that it exerted every effort for the
subject foreign exchange demand
draft to be honored. The appellate
court found and declared that:
xxx

xxx

xxx

Thus, the Bank had every reason to

believe that the transaction finally
went through smoothly, considering
that its New York account had been
debited and that there was no
miscommunication between it and
Westpac-New York. SWIFT is a world
wide association used by almost all
banks and is known to be the most
reliable mode of communication in the
international banking business.
Besides, the above procedure, with
the Bank as drawer and WestpacSydney as drawee, and with WestpacNew York as the reimbursement Bank
had been in place since 1960s and
there was no reason for the Bank to
suspect that this particular demand
draft would not be honored by
Westpac-Sydney.
From the evidence, it appears that the
root cause of the miscommunications
of the Bank's SWIFT message is the
erroneous decoding on the part of
Westpac-Sydney of the Bank's SWIFT
message as an MT799 format.
However, a closer look at the Bank's
Exhs. "6" and "7" would show that
despite what appears to be an asterick

written over the figure before "99", the

figure can still be distinctly seen as a
number "1" and not number "7", to the
effect that Westpac-Sydney was
responsible for the dishonor and not
the Bank.
Moreover, it is not said asterisk that
caused the misleading on the part of
the Westpac-Sydney of the numbers
"1" to "7", since Exhs. "6" and "7" are
just documentary copies of the cable
message sent to Wespac-Sydney.
Hence, if there was mistake
committed by Westpac-Sydney in
decoding the cable message which
caused the Bank's message to be sent
to the wrong department, the mistake
was Westpac's, not the Bank's. The
Bank had done what an ordinary
prudent person is required to do in the
particular situation, although
appellants expect the Bank to have
done more. The Bank having done
everything necessary or usual in the
ordinary course of banking
transaction, it cannot be held liable for
any embarrassment and
corresponding damage that appellants
may have incurred.7
xxx

xxx

xxx

Hence, this petition, anchored on the

following assignment of errors:
I
THE HONORABLE COURT OF APPEALS
ERRED IN FINDING PRIVATE
RESPONDENT NOT NEGLIGENT BY
ERRONEOUSLY APPLYING THE
STANDARD OF DILIGENCE OF AN
"ORDINARY PRUDENT PERSON" WHEN
IN TRUTH A HIGHER DEGREE OF

DILIGENCE IS IMPOSED BY LAW UPON

THE BANKS.
II
THE HONORABLE COURT OF APPEALS
ERRED IN ABSOLVING PRIVATE
RESPONDENT FROM LIABILITY BY
OVERLOOKING THE FACT THAT THE
DISHONOR OF THE DEMAND DRAFT
WAS A BREACH OF PRIVATE
RESPONDENT'S WARRANTY AS THE
DRAWER THEREOF.
III
THE HONORABLE COURT OF APPEALS
ERRED IN NOT HOLDING THAT AS
SHOWN OVERWHELMINGLY BY THE
EVIDENCE, THE DISHONOR OF THE
DEMAND DRAFT AS DUE TO PRIVATE
RESPONDENT'S NEGLIGENCE AND NOT
THE DRAWEE BANK.8
The petitioners contend that due to
the fiduciary nature of the relationship
between the respondent bank and its
clients, the respondent should have
exercised a higher degree of diligence
than that expected of an ordinary
prudent person in the handling of its
affairs as in the case at bar. The
appellate court, according to
petitioners, erred in applying the
standard of diligence of an ordinary
prudent person only. Petitioners also
claim that the respondent bank violate
Section 61 of the Negotiable
Instruments Law9 which provides the
warranty of a drawer that "xxx on due
presentment, the instrument will be
accepted or paid, or both, according to
its tenor xxx." Thus, the petitioners
argue that respondent bank should be
held liable for damages for violation of

this warranty. The petitioners pray this

Court to re-examine the facts to cite
certain instances of negligence.
It is our view and we hold that there is
no reversible error in the decision of
the appellate court.
Section 1 of Rule 45 of the Revised
Rules of Court provides that "(T)he
petition (for review) shall raise only
questions of law which must be
distinctly set forth." Thus, we have
ruled that factual findings of the Court
of Appeals are conclusive on the
parties and not reviewable by this
Court and they carry even more
weight when the Court of Appeals
affirms the factual findings of the trial
court.10
The courts a quo found that
respondent bank did not misrepresent
that it was maintaining a deposit
account with Westpac-Sydney.
Respondent bank's assistant cashier
explained to Godofredo Reyes,
representing PRCI and petitioner
Gregorio H. Reyes, how the transfer of
Australian dollars would be effected
through Westpac-New York where the
respondent bank has a dollar account
to Westpac-Sydney where the subject
foreign exchange demand draft (FXDD
No. 209968) could be encashed by the
payee, the 20th Asian Racing
Conference Secretariat. PRCI and its
Vice-President for finance, petitioner
Gregorio H. Reyes, through their said
representative, agreed to that
arrangement or procedure. In other
words, the petitioners are estopped
from denying the said arrangement or
procedure. Similar arrangements have
been a long standing practice in

banking to facilitate international

commercial transactions. In fact, the
SWIFT cable message sent by
respondent bank to the drawee bank,
Westpac-Sydney, stated that it may
claim reimbursement from its New
York branch, Westpac-New York, where
respondent bank has a deposit dollar
account. The facts as found by the
courts a quo show that respondent
bank did not cause an erroneous
transmittal of its SWIFT cable message
to Westpac-Sydney. It was the
erroneous decoding of the cable
message on the part of WestpacSydney that caused the dishonor of
the subject foreign exchange demand
draft. An employee of Westpac-Sydney
in Sydney, Australia mistakenly read
the printed figures in the SWIFT cable
message of respondent bank as
"MT799" instead of as "MT199". As a
result, Westpac-Sydney construed the
said cable message as a format for a
letter of credit, and not for a demand
draft. The appellate court correct
found that "the figure before '99' can
still be distinctly seen as a number '1'
and not number '7'." Indeed, the line
of a "7" is in a slanting position while
the line of a "1" is in a horizontal
position. Thus, the number "1" in
"MT199" cannot be construed as
"7".11
The evidence also shows that the
respondent bank exercised that
degree of diligence expected of an
ordinary prudent person under the
circumstances obtaining. Prior to the
first dishonor of the subject foreign
exchange demand draft, the
respondent bank advised WestpacNew York to honor the reimbursement

claim of Westpac-Sydney and to debit

the dollar account12 of respondent
bank with the former. As soon as the
demand draft was dishonored, the
respondent bank, thinking that the
problem was with the reimbursement
and without any idea that it was due
to miscommunication, re-confirmed
the authority of Westpac-New York to
debit its dollar account for the purpose
of reimbursing WestpacSydney.13 Respondent bank also sent
two (2) more cable messages to
Westpac-New York inquiring why the
demand draft was not honored.14
With these established facts, we now
determine the degree of diligence that
banks are required to exert in their
commercial dealings. In Philippine
Bank of Commerce v. Court of
Appeals15 upholding a long standing
doctrine, we ruled that the degree of
diligence required of banks, is more
than that of a good father of a
family where the fiduciary nature of
their relationship with their depositors
is concerned. In other words banks are
duty bound to treat the deposit
accounts of their depositors with
the highest degree of care. But the
said ruling applies only to cases where
banks act under their fiduciary
capacity, that is, as depositary of the
deposits of their depositors. But the
same higher degree of diligence is not
expected to be exerted by banks in
commercial transactions that do not
involve their fiduciary relationship with
their depositors.
Considering the foregoing, the
respondent bank was not required to
exert more than the diligence of a

good father of a family in regard to the

sale and issuance of the subject
foreign exchange demand draft. The
case at bar does not involve the
handling of petitioners' deposit, if any,
with the respondent bank. Instead, the
relationship involved was that of a
buyer and seller, that is, between the
respondent bank as the seller of the
subject foreign exchange demand
draft, and PRCI as the buyer of the
same, with the 20th Asian Racing
conference Secretariat in Sydney,
Australia as the payee thereof. As
earlier mentioned, the said foreign
exchange demand draft was intended
for the payment of the registration
fees of the petitioners as delegates of
the PRCI to the 20th Asian Racing
Conference in Sydney.
The evidence shows that the
respondent bank did everything within
its power to prevent the dishonor of
the subject foreign exchange demand
draft. The erroneous reading of its
cable message to Westpac-Sydney by
an employee of the latter could not
have been foreseen by the respondent
bank. Being unaware that its
employee erroneously read the said
cable message, Westpac-Sydney
merely stated that the respondent
bank has no deposit account with it to
cover for the amount of One Thousand
Six Hundred Ten Australian Dollar (AU
$1610.00) indicated in the foreign
exchange demand draft. Thus, the
respondent bank had the impression
that Westpac-New York had not yet
made available the amount for
reimbursement to Westpac-Sydney
despite the fact that respondent bank
has a sufficient deposit dollar account

with Westpac-New York. That was the

reason why the respondent bank had
to re-confirm and repeatedly notify
Westpac-New York to debit its
(respondent bank's) deposit dollar
account with it and to transfer or
credit the corresponding amount to
Westpac-Sydney to cover the amount
of the said demand draft.
In view of all the foregoing, and
considering that the dishonor of the
subject foreign exchange demand
draft is not attributable to any fault of
the respondent bank, whereas the
petitioners appeared to be under
estoppel as earlier mentioned, it is no
longer necessary to discuss the
alleged application of Section 61 of
the Negotiable Instruments Law to the
case at bar. In any event, it was
established that the respondent bank
acted in good faith and that it did not
cause the embarrassment of the
petitioners in Sydney, Australia.
Hence, the Court of Appeals did not
commit any reversable error in its
challenged decision.
WHEREFORE, the petition is
hereby DENIED, and the assailed
decision of the Court of Appeals
is AFFIRMED. Costs against the
petitioners.
SO ORDERED.1wphi1.nt
Bellosillo, Mendoza, Quisumbing, and
Buena, JJ., concur.
DIGEST

Reyes vs. Court of Appeals

G.R. No. 118492, August
15, 2001

The degree of extraordinary diligence

applies only to cases where banks act
under their fiduciary capacity, that is,
as depositary of the deposits of their
depositors. But the same higher
degree of diligence is not expected to
be exerted by banks in commercial
transactions that do not involve their
fiduciary relationship with their
depositors.
Facts: Godofredo, Casheir of the
Philippine Racing Club (PCRI), went to
respondent bank to apply for a
demand draft in the amount
AU$1,610.00 payable to the order of
the 20th Asian Racing Conference
Secretariat of Sydney, Australia. He
was attended to by respondent banks
assistant cashier, Mr. Yasis, who at first
denied the application for the reason
that respondent bank did not have an
Australian dollar account in any bank
in Sydney. Godofredo asked if there
could be a way for respondent bank to
accommodate PRCIs urgent need to
remit Australian dollars to Sydney.
Yasis of respondent bank then
informed Godofredo of a roundabout
way of effecting the requested
remittance to Sydney thus: the
respondent bank would draw a
demand draft against Westpac Bank in
Sydney, Australia (Westpac-Sydney)
and have the latter reimburse itself
from the U.S. dollar account of the
respondent in Westpac Bank in New
York, U.S.A. (Westpac-New York).
However, upon due presentment of
the foreign exchange demand draft,
the same was dishonored, with the
notice of dishonor stating that there is
No account held with Westpac.

Meanwhile, Wespac-New York sent a

cable to respondent bank informing
the latter that its dollar account in the
sum of AU$ 1,610.00 was debited. In
response to PRCIs complaint about
the dishonor of the said foreign
exchange demand draft, respondent
bank informed Westpac-Sydney of the
issuance of the said demand draft,
drawn against the Wespac-Sydney and
informing the latter to be reimbursed
from the respondent banks dollar
account in Westpac-New York. The
respondent bank on the same day
likewise informed Wespac-New York
requesting the latter to honor the
reimbursement claim of WespacSydney. Upon its second presentment
for payment, the demand draft was
again dishonored by Westpac-Sydney
for the same reason, that is, that the
respondent bank has no deposit dollar
account with the drawee WespacSydney. Gregorio Reyes and Consuelo
Puyat-Reyes arrived in Sydney on a
separate date and both were
humiliated and embarrassed in the
presence of international audience
after being denied registration of the
conference secretariat since the
foreign exchange draft was
dishonored. Petitioners were only able
to attend the conference after
promising to pay in cash instead which
they fulfilled
Issue: Whether or not respondent
bank is liable for damages due to the
dishonor of the foreign exchange
demand drafts.
Held: Yes. The evidence also shows
that the respondent bank exercised
that degree of diligence expected of

an ordinary prudent person under the

circumstances obtaining; the
respondent bank advised WestpacNew York to honor the reimbursement
claim of Westpac-Sydney and to debit
the dollar accountof respondent bank
with the former. The degree of
diligence required of banks, is more
than that of a good father of a family
where the fiduciary nature of their
relationship with their depositors is
concerned. In other words banks are
duty bound to treat the deposit
accounts of their depositors with the
highest degree of care. But the said
ruling applies only to cases where
banks act under their fiduciary
capacity, that is, as depositary of the
deposits of their depositors. But the
same higher degree of diligence is not
expected to be exerted by banks in
commercial transactions that do not
involve their fiduciary relationship with
their depositors. The case at bar does
not involve the handling of petitioners
deposit, if any, with the respondent
bank. Instead, the relationship
involved was that of a buyer and
seller.
***
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-60033 April 4, 1984
TEOFISTO GUINGONA, JR., ANTONIO I.
MARTIN, and TERESITA
SANTOS, petitioners,
vs.
THE CITY FISCAL OF MANILA, HON.

JOSE B. FLAMINIANO, ASST. CITY

FISCAL FELIZARDO N. LOTA and
CLEMENT DAVID, respondents.

MAKASIAR, Actg. C.J.:

This is a petition for prohibition and
injunction with a prayer for the
immediate issuance of restraining
order and/or writ of preliminary
injunction filed by petitioners on March
26, 1982.
On March 31, 1982, by virtue of a
court resolution issued by this Court
on the same date, a temporary
restraining order was duly issued
ordering the respondents, their
officers, agents, representatives
and/or person or persons acting upon
their (respondents') orders or in their
place or stead to refrain from
proceeding with the preliminary
investigation in Case No. 8131938 of
the Office of the City Fiscal of Manila
(pp. 47-48, rec.). On January 24, 1983,
private respondent Clement David
filed a motion to lift restraining order
which was denied in the resolution of
this Court dated May 18, 1983.
As can be gleaned from the above, the
instant petition seeks to prohibit public
respondents from proceeding with the
preliminary investigation of I.S. No. 8131938, in which petitioners were
charged by private respondent
Clement David, with estafa and
violation of Central Bank Circular No.
364 and related regulations regarding
foreign exchange transactions
principally, on the ground of lack of
jurisdiction in that the allegations of

the charged, as well as the testimony

of private respondent's principal
witness and the evidence through said
witness, showed that petitioners'
obligation is civil in nature.
For purposes of brevity, We hereby
adopt the antecedent facts narrated
by the Solicitor General in its
Comment dated June 28,1982, as
follows:
On December 23,1981, private
respondent David filed I.S. No. 8131938 in the Office of the City Fiscal of
Manila, which case was assigned to
respondent Lota for preliminary
investigation (Petition, p. 8).
In I.S. No. 81-31938, David charged
petitioners (together with one Robert
Marshall and the following directors of
the Nation Savings and Loan
Association, Inc., namely Homero
Gonzales, Juan Merino, Flavio
Macasaet, Victor Gomez, Jr., Perfecto
Manalac, Jaime V. Paz, Paulino B.
Dionisio, and one John Doe) with
estafa and violation of Central Bank
Circular No. 364 and related Central
Bank regulations on foreign exchange
transactions, allegedly committed as
follows (Petition, Annex "A"):
"From March 20, 1979 to March, 1981,
David invested with the Nation
Savings and Loan Association,
(hereinafter called NSLA) the sum of
P1,145,546.20 on nine deposits,
P13,531.94 on savings account
deposits (jointly with his sister, Denise
Kuhne), US$10,000.00 on time
deposit, US$15,000.00 under a receipt
and guarantee of payment and
US$50,000.00 under a receipt dated

June 8, 1980 (au jointly with Denise

Kuhne), that David was induced into
making the aforestated investments
by Robert Marshall an Australian
national who was allegedly a close
associate of petitioner Guingona Jr.,
then NSLA President, petitioner Martin,
then NSLA Executive Vice-President of
NSLA and petitioner Santos, then NSLA
General Manager; that on March 21,
1981 N LA was placed under
receivership by the Central Bank, so
that David filed claims therewith for
his investments and those of his
sister; that on July 22, 1981 David
received a report from the Central
Bank that only P305,821.92 of those
investments were entered in the
records of NSLA; that, therefore, the
respondents in I.S. No. 81-31938
misappropriated the balance of the
investments, at the same time
violating Central Bank Circular No. 364
and related Central Bank regulations
on foreign exchange transactions; that
after demands, petitioner Guingona Jr.
paid only P200,000.00, thereby
reducing the amounts misappropriated
to P959,078.14 and US$75,000.00."
Petitioners, Martin and Santos, filed a
joint counter-affidavit (Petition, Annex'
B') in which they stated the following.
"That Martin became President of
NSLA in March 1978 (after the
resignation of Guingona, Jr.) and
served as such until October 30, 1980,
while Santos was General Manager up
to November 1980; that because NSLA
was urgently in need of funds and at
David's insistence, his investments
were treated as special- accounts with
interest above the legal rate, an

recorded in separate confidential

documents only a portion of which
were to be reported because he did
not want the Australian government to
tax his total earnings (nor) to know his
total investments; that all transactions
with David were recorded except the
sum of US$15,000.00 which was a
personal loan of Santos; that David's
check for US$50,000.00 was cleared
through Guingona, Jr.'s dollar account
because NSLA did not have one, that a
draft of US$30,000.00 was placed in
the name of one Paz Roces because of
a pending transaction with her; that
the Philippine Deposit Insurance
Corporation had already reimbursed
David within the legal limits; that
majority of the stockholders of NSLA
had filed Special Proceedings No. 821695 in the Court of First Instance to
contest its (NSLA's) closure; that after
NSLA was placed under receivership,
Martin executed a promissory note in
David's favor and caused the transfer
to him of a nine and on behalf (9 1/2)
carat diamond ring with a net value of
P510,000.00; and, that the liabilities of
NSLA to David were civil in nature."

Promissory Note dated June 17, 1981

(Petition, Annex "D") he (Guingona, Jr.)
bound himself to pay David the sums
of P668.307.01 and US$37,500.00 in
stated installments; that he
(Guingona, Jr.) secured payment of
those amounts with second mortgages
over two (2) parcels of land under a
deed of Second Real Estate Mortgage
(Petition, Annex "E") in which it was
provided that the mortgage over one
(1) parcel shall be cancelled upon
payment of one-half of the obligation
to David; that he (Guingona, Jr.) paid
P200,000.00 and tendered another
P300,000.00 which David refused to
accept, hence, he (Guingona, Jr.) filed
Civil Case No. Q-33865 in the Court of
First Instance of Rizal at Quezon City,
to effect the release of the mortgage
over one (1) of the two parcels of land
conveyed to David under second
mortgages."

Petitioner, Guingona, Jr., in his counteraffidavit (Petition, Annex' C') stated

the following:

At the inception of the preliminary

investigation before respondent Lota,
petitioners moved to dismiss the
charges against them for lack of
jurisdiction because David's claims
allegedly comprised a purely civil
obligation which was itself novated.
Fiscal Lota denied the motion to
dismiss (Petition, p. 8).

"That he had no hand whatsoever in

the transactions between David and
NSLA since he (Guingona Jr.) had
resigned as NSLA president in March
1978, or prior to those transactions;
that he assumed a portion o; the
liabilities of NSLA to David because of
the latter's insistence that he placed
his investments with NSLA because of
his faith in Guingona, Jr.; that in a

But, after the presentation of David's

principal witness, petitioners filed the
instant petition because: (a) the
production of the Promisory Notes,
Banker's Acceptance, Certificates of
Time Deposits and Savings Account
allegedly showed that the transactions
between David and NSLA were simple
loans, i.e., civil obligations on the part
of NSLA which were novated when

Guingona, Jr. and Martin assumed

them; and (b) David's principal witness
allegedly testified that the duplicate
originals of the aforesaid instruments
of indebtedness were all on file with
NSLA, contrary to David's claim that
some of his investments were not
record (Petition, pp. 8-9).
Petitioners alleged that they did not
exhaust available administrative
remedies because to do so would be
futile (Petition, p. 9) [pp. 153-157,
rec.].
As correctly pointed out by the
Solicitor General, the sole issue for
resolution is whether public
respondents acted without jurisdiction
when they investigated the charges
(estafa and violation of CB Circular No.
364 and related regulations regarding
foreign exchange transactions) subject
matter of I.S. No. 81-31938.
There is merit in the contention of the
petitioners that their liability is civil in
nature and therefore, public
respondents have no jurisdiction over
the charge of estafa.
A casual perusal of the December 23,
1981 affidavit. complaint filed in the
Office of the City Fiscal of Manila by
private respondent David against
petitioners Teopisto Guingona, Jr.,
Antonio I. Martin and Teresita G.
Santos, together with one Robert
Marshall and the other directors of the
Nation Savings and Loan Association,
will show that from March 20, 1979 to
March, 1981, private respondent
David, together with his sister, Denise
Kuhne, invested with the Nation
Savings and Loan Association the sum

of P1,145,546.20 on time deposits

covered by Bankers Acceptances and
Certificates of Time Deposits and the
sum of P13,531.94 on savings account
deposits covered by passbook nos. 6632 and 29-742, or a total of
P1,159,078.14 (pp. 15-16, roc.). It
appears further that private
respondent David, together with his
sister, made investments in the
aforesaid bank in the amount of
US$75,000.00 (p. 17, rec.).
Moreover, the records reveal that
when the aforesaid bank was placed
under receivership on March 21, 1981,
petitioners Guingona and Martin, upon
the request of private respondent
David, assumed the obligation of the
bank to private respondent David by
executing on June 17, 1981 a joint
promissory note in favor of private
respondent acknowledging an
indebtedness of Pl,336,614.02 and
US$75,000.00 (p. 80, rec.). This
promissory note was based on the
statement of account as of June 30,
1981 prepared by the private
respondent (p. 81, rec.). The amount
of indebtedness assumed appears to
be bigger than the original claim
because of the added interest and the
inclusion of other deposits of private
respondent's sister in the amount of
P116,613.20.
Thereafter, or on July 17, 1981,
petitioners Guingona and Martin
agreed to divide the said
indebtedness, and petitioner Guingona
executed another promissory note
antedated to June 17, 1981 whereby
he personally acknowledged an
indebtedness of P668,307.01 (1/2 of

P1,336,614.02) and US$37,500.00 (1/2

of US$75,000.00) in favor of private
respondent (p. 25, rec.). The aforesaid
promissory notes were executed as a
result of deposits made by Clement
David and Denise Kuhne with the
Nation Savings and Loan Association.

Coast Biscuit Co. vs. Chinese Grocers

Association 65 Phil. 375; Fletcher
American National Bank vs. Ang Chong
UM 66 PWL 385; Pacific Commercial
Co. vs. American Apothecaries Co., 65
PhiL 429; Gopoco Grocery vs. Pacific
Coast Biscuit CO.,65 Phil. 443)."

Furthermore, the various pleadings

and documents filed by private
respondent David, before this Court
indisputably show that he has indeed
invested his money on time and
savings deposits with the Nation
Savings and Loan Association.

This Court also declared in the recent

case of Serrano vs. Central Bank of the
Philippines (96 SCRA 102 [1980]) that:

It must be pointed out that when

private respondent David invested his
money on nine. and savings deposits
with the aforesaid bank, the contract
that was perfected was a contract of
simple loan or mutuum and not a
contract of deposit. Thus, Article 1980
of the New Civil Code provides
that:t.hqw
Article 1980. Fixed, savings, and
current deposits of-money in banks
and similar institutions shall be
governed by the provisions concerning
simple loan.
In the case of Central Bank of the
Philippines vs. Morfe (63 SCRA
114,119 [1975], We said:
It should be noted that fixed, savings,
and current deposits of money in
banks and similar institutions are hat
true deposits. are considered simple
loans and, as such, are not preferred
credits (Art. 1980 Civil Code; In re
Liquidation of Mercantile Batik of
China Tan Tiong Tick vs. American
Apothecaries Co., 66 Phil 414; Pacific

Bank deposits are in the nature of

irregular deposits. They are really
'loans because they earn interest. All
kinds of bank deposits, whether fixed,
savings, or current are to be treated as
loans and are to be covered by the law
on loans (Art. 1980 Civil Code Gullas
vs. Phil. National Bank, 62 Phil.
519). Current and saving deposits, are
loans to a bank because it can use
the same. The petitioner here in
making time deposits that earn
interests will respondent Overseas
Bank of Manila was in reality a creditor
of the respondent Bank and not a
depositor. The respondent Bank was in
turn a debtor of petitioner. Failure of
the respondent Bank to honor the time
deposit is failure to pay its obligation
as a debtor and not a breach of
trust arising from a depositary's failure
to return the subject matter of the
deposit (Emphasis supplied).
Hence, the relationship between the
private respondent and the Nation
Savings and Loan Association is that of
creditor and debtor; consequently, the
ownership of the amount deposited
was transmitted to the Bank upon the
perfection of the contract and it can
make use of the amount deposited for
its banking operations, such as to pay

interests on deposits and to pay

withdrawals. While the Bank has the
obligation to return the amount
deposited, it has, however, no
obligation to return or deliver
the same money that was deposited.
And, the failure of the Bank to return
the amount deposited will not
constitute estafa through
misappropriation punishable under
Article 315, par. l(b) of the Revised
Penal Code, but it will only give rise to
civil liability over which the public
respondents have no- jurisdiction.
WE have already laid down the rule
that:
In order that a person can be
convicted under the above-quoted
provision, it must be proven that he
has the obligation to deliver
or return the some money, goods or
personal property that he
received Petitioners had no such
obligation to return the same money,
i.e., the bills or coins, which they
received from private respondents.
This is so because as clearly as stated
in criminal complaints, the related civil
complaints and the supporting sworn
statements, the sums of money that
petitioners received were loans.
The nature of simple loan is defined in
Articles 1933 and 1953 of the Civil
Code.
"Art. 1933. By the contract of loan,
one of the parties delivers to another,
either something not consumable so
that the latter may use the same for a
certain time- and return it, in which
case the contract is called a
commodatum; or money or other

consumable thing, upon the condition

that the same amount of the same
kind and quality shall he paid in which
case the contract is simply called a
loan or mutuum.
"Commodatum is essentially
gratuitous.
"Simple loan may be gratuitous or with
a stipulation to pay interest.
"In commodatum the bailor retains the
ownership of the thing loaned while in
simple loan, ownership passes to the
borrower.
"Art. 1953. A person who receives a
loan of money or any other fungible
thing acquires the ownership thereof,
and is bound to pay to the creditor an
equal amount of the same kind and
quality."
It can be readily noted from the
above-quoted provisions that in simple
loan (mutuum), as contrasted to
commodatum the borrower acquires
ownership of the money, goods or
personal property borrowed Being the
owner, the borrower can dispose of
the thing borrowed (Article 248, Civil
Code) and his act will not be
considered misappropriation
thereof' (Yam vs. Malik, 94 SCRA 30,
34 [1979]; Emphasis supplied).
But even granting that the failure of
the bank to pay the time and savings
deposits of private respondent David
would constitute a violation of
paragraph 1(b) of Article 315 of the
Revised Penal Code, nevertheless any
incipient criminal liability was deemed
avoided, because when the aforesaid
bank was placed under receivership by

the Central Bank, petitioners Guingona

and Martin assumed the obligation of
the bank to private respondent David,
thereby resulting in the novation of
the original contractual obligation
arising from deposit into a contract of
loan and converting the original trust
relation between the bank and private
respondent David into an ordinary
debtor-creditor relation between the
petitioners and private respondent.
Consequently, the failure of the bank
or petitioners Guingona and Martin to
pay the deposits of private respondent
would not constitute a breach of trust
but would merely be a failure to pay
the obligation as a debtor.
Moreover, while it is true that novation
does not extinguish criminal liability, it
may however, prevent the rise of
criminal liability as long as it occurs
prior to the filing of the criminal
information in court. Thus, in Gonzales
vs. Serrano ( 25 SCRA 64, 69 [1968])
We held that:
As pointed out in People vs. Nery,
novation prior to the filing of the
criminal information as in the case
at bar may convert the relation
between the parties into an ordinary
creditor-debtor relation, and place the
complainant in estoppel to insist on
the original transaction or "cast doubt
on the true nature" thereof.
Again, in the latest case of Ong vs.
Court of Appeals (L-58476, 124 SCRA
578, 580-581 [1983] ), this Court
reiterated the ruling in People vs.
Nery ( 10 SCRA 244 [1964] ), declaring
that:

The novation theory may perhaps

apply prior to the filling of the criminal
information in court by the state
prosecutors because up to that time
the original trust relation may be
converted by the parties into an
ordinary creditor-debtor situation,
thereby placing the complainant in
estoppel to insist on the original trust.
But after the justice authorities have
taken cognizance of the crime and
instituted action in court, the offended
party may no longer divest the
prosecution of its power to exact the
criminal liability, as distinguished from
the civil. The crime being an offense
against the state, only the latter can
renounce it (People vs. Gervacio, 54
Off. Gaz. 2898; People vs. Velasco, 42
Phil. 76; U.S. vs. Montanes, 8 Phil.
620).
It may be observed in this regard that
novation is not one of the means
recognized by the Penal Code whereby
criminal liability can be extinguished;
hence, the role of novation may only
be to either prevent the rise of
criminal habihty or to cast doubt on
the true nature of the original basic
transaction, whether or not it was such
that its breach would not give rise to
penal responsibility, as when money
loaned is made to appear as a deposit,
or other similar disguise is resorted to
(cf. Abeto vs. People, 90 Phil. 581; U.S.
vs. Villareal, 27 Phil. 481).
In the case at bar, there is no dispute
that petitioners Guingona and Martin
executed a promissory note on June
17, 1981 assuming the obligation of
the bank to private respondent David;
while the criminal complaint for estafa

was filed on December 23, 1981 with

the Office of the City Fiscal. Hence, it
is clear that novation occurred long
before the filing of the criminal
complaint with the Office of the City
Fiscal.
Consequently, as aforestated, any
incipient criminal liability would be
avoided but there will still be a civil
liability on the part of petitioners
Guingona and Martin to pay the
assumed obligation.
Petitioners herein were likewise
charged with violation of Section 3 of
Central Bank Circular No. 364 and
other related regulations regarding
foreign exchange transactions by
accepting foreign currency deposit in
the amount of US$75,000.00 without
authority from the Central Bank. They
contend however, that the US dollars
intended by respondent David for
deposit were all converted into
Philippine currency before acceptance
and deposit into Nation Savings and
Loan Association.
Petitioners' contention is worthy of
behelf for the following reasons:
1. It appears from the records that
when respondent David was about to
make a deposit of bank draft issued in
his name in the amount of
US$50,000.00 with the Nation Savings
and Loan Association, the same had to
be cleared first and converted into
Philippine currency. Accordingly, the
bank draft was endorsed by
respondent David to petitioner
Guingona, who in turn deposited it to
his dollar account with the Security
Bank and Trust Company. Petitioner

Guingona merely accommodated the

request of the Nation Savings and loan
Association in order to clear the bank
draft through his dollar account
because the bank did not have a dollar
account. Immediately after the bank
draft was cleared, petitioner Guingona
authorized Nation Savings and Loan
Association to withdraw the same in
order to be utilized by the bank for its
operations.
2. It is safe to assume that the U.S.
dollars were converted first into
Philippine pesos before they were
accepted and deposited in Nation
Savings and Loan Association,
because the bank is presumed to have
followed the ordinary course of the
business which is to accept deposits in
Philippine currency only, and that the
transaction was regular and fair, in the
absence of a clear and convincing
evidence to the contrary (see
paragraphs p and q, Sec. 5, Rule 131,
Rules of Court).
3. Respondent David has not denied
the aforesaid contention of herein
petitioners despite the fact that it was
raised. in petitioners' reply filed on
May 7, 1982 to private respondent's
comment and in the July 27, 1982
reply to public respondents' comment
and reiterated in petitioners'
memorandum filed on October 30,
1982, thereby adding more support to
the conclusion that the US$75,000.00
were really converted into Philippine
currency before they were accepted
and deposited into Nation Savings and
Loan Association. Considering that this
might adversely affect his case,
respondent David should have

promptly denied petitioners'

allegation.

"4. to afford adequate protection to

constitutional rights;

In conclusion, considering that the

liability of the petitioners is purely civil
in nature and that there is no clear
showing that they engaged in foreign
exchange transactions, We hold that
the public respondents acted without
jurisdiction when they investigated the
charges against the petitioners.
Consequently, public respondents
should be restrained from further
proceeding with the criminal case for
to allow the case to continue, even if
the petitioners could have appealed to
the Ministry of Justice, would work
great injustice to petitioners and
would render meaningless the proper
administration of justice.

"5. in proper cases, because the

statute relied upon is unconstitutional
or was held invalid" ( Primicias vs.
Municipality of Urdaneta, Pangasinan,
93 SCRA 462, 469-470 [1979]; citing
Ramos vs. Torres, 25 SCRA 557 [1968];
and Hernandez vs. Albano, 19 SCRA
95, 96 [1967]).

While as a rule, the prosecution in a

criminal offense cannot be the subject
of prohibition and injunction, this court
has recognized the resort to the
extraordinary writs of prohibition and
injunction in extreme cases, thus:t.
hqw
On the issue of whether a writ of
injunction can restrain the proceedings
in Criminal Case No. 3140, the general
rule is that "ordinarily, criminal
prosecution may not be blocked by
court prohibition or injunction."
Exceptions, however, are allowed in
the following instances:t.hqw
"1. for the orderly administration of
justice;
"2. to prevent the use of the strong
arm of the law in an oppressive and
vindictive manner;
"3. to avoid multiplicity of actions;

Likewise, in Lopez vs. The City Judge,

et al. ( 18 SCRA 616, 621-622 [1966]),
We held that:t.hqw
The writs of certiorari and prohibition,
as extraordinary legal remedies, are in
the ultimate analysis, intended to
annul void proceedings; to prevent the
unlawful and oppressive exercise of
legal authority and to provide for a fair
and orderly administration of justice.
Thus, in Yu Kong Eng vs. Trinidad, 47
Phil. 385, We took cognizance of a
petition for certiorari and prohibition
although the accused in the case
could have appealed in due time from
the order complained of, our action in
the premises being based on the
public welfare policy the advancement
of public policy. In Dimayuga vs.
Fajardo, 43 Phil. 304, We also admitted
a petition to restrain the prosecution
of certain chiropractors although, if
convicted, they could have appealed.
We gave due course to their petition
for the orderly administration of
justice and to avoid possible
oppression by the strong arm of the
law. And in Arevalo vs. Nepomuceno,
63 Phil. 627, the petition for certiorari
challenging the trial court's action
admitting an amended information

was sustained despite the availability

of appeal at the proper time.
WHEREFORE, THE PETITION IS HEREBY
GRANTED; THE TEMPORARY
RESTRAINING ORDER PREVIOUSLY
ISSUED IS MADE PERMANENT. COSTS
AGAINST THE PRIVATE RESPONDENT.
SO ORDERED.1wph1.t
DIGEST

Teofisto Guingona, Jr., Antonio

Martin, and Teresita Santos vs.
The City Fiscal of Manila, Hon.
Jose Flaminiano, Asst. City
Fiscal Felizardo Lota and
Facts:

From March 1979 to March 1981,

Clement David made several
investments with the National Savings
and Loan Association. On March 21,
1981, the bank was placed under
receivership by the Bangko Sentral.
Upon Davids request, petitioners
Guingona and Martin issued a joint
promissory note, absorbing the
obligations of the bank. On July 17,
1981, they divided the indebtedness.
David filed a complaint for estafa and
violation of Central Bank Circular No.
364 and related regulations regarding
foreign exchange transactions before
the Office of the City Fiscal of Manila.
Petitioners filed the herein petition for
prohibition and injunction with a
prayer for immediate issuance of
restraining order and/or writ of
preliminary injunction to enjoin the
public respondents to proceed with the
preliminary investigation on the
ground that the petitioners obligation
is civil in nature.
Issue:
(1) Whether the contract between
NSLA and David is a contract of
depositor a contract of loan, which
answer determines whether the City
Fiscal has the jurisdiction to file a case
for estafa
(2) Whether there was a violation of
Central Bank Circular No. 364
Held:
(1) When private respondent David
invested his money on nine. and
savings deposits with the aforesaid
bank, the contract that was perfected
was a contract of simple loan

or mutuum and not a contract of

deposit. Hence, the relationship
between the private respondent and
the Nation Savings and Loan
Association is that of creditor
and debtor; consequently, the
ownership of the amount deposited
was transmitted to the Bank upon the
perfection of the contract and it can
make use of the amount deposited for
its banking operations, such as to pay
interests on deposits and to pay
withdrawals. While the Bank has the
obligation to return theamount
deposited, it has, however, no
obligation to return or deliver
the same money that was deposited.
And, the failure of the Bank to return
the amount deposited will not
constitute estafa through
misappropriation punishable under
Article 315, par. l(b) of the Revised
Penal Code, but it will only give rise to
civil liability over which the public
respondents have no jurisdiction.
But even granting that the failure of
the bank to pay the time and savings
deposits of private respondent David
would constitute a violation of
paragraph 1(b) of Article 315 of the
Revised Penal Code, nevertheless any
incipient criminal liability was deemed
avoided, because when the aforesaid
bank was placed under receivership by
the Central Bank, petitioners Guingona
and Martin assumed the obligation of
the bank to private respondent David,
thereby resulting in the novation of
the original contractual obligation
arising from deposit into a contract of
loan and converting the original trust
relation between the bank and private
respondent David into an ordinary

debtor-creditor relation between the

petitioners and private respondent.
Consequently, the failure of the bank
or petitioners Guingona and Martin to
pay the deposits of private respondent
would not constitute a breach of trust
but would merely be a failure to pay
the obligation as a debtor. Moreover,
while it is true that novation does not
extinguish criminal liability, it may
however, prevent the rise of criminal
liability as long as it occurs prior to the
filing of the criminal information in
court. In the case at bar, there is no
dispute that petitioners Guingona and
Martin executed a promissory note on
June 17, 1981 assuming the obligation
of the bank to private respondent
David; while the criminal complaint for
estafa was filed on December 23,
1981 with the Office of the City Fiscal.
Hence, it is clear that novation
occurred long before the filing of the
criminal complaint with the Office of
the City Fiscal. Consequently, as
aforestated, any incipient criminal
liability would be avoided but there
will still be a civil liability on the part of
petitioners Guingona and Martin to
pay the assumed obligation.
(2) Petitioner Guingona merely
accommodated the request of the
Nation Savings and loan Association in
order to clear the bank draft through
his dollar account because the bank
did not have a dollar account.
Immediately after the bank draft was
cleared, petitioner Guingona
authorized Nation Savings and Loan
Association to withdraw the same in
order to be utilized by the bank for its
operations. It is safe to assume that
the U.S. dollars were converted first

into Philippine pesos before they were

accepted and deposited in Nation
Savings and Loan Association,
because the bank is presumed to have
followed the ordinary course of the
business which is to accept deposits in
Philippine currency only, and that the
transaction was regular and fair, in the
absence of a clear and convincing
evidence to the contrary.
In conclusion, considering that the
liability of the petitioners is purely civil
in nature and that there is no clear
showing that they engaged in foreign
exchange transactions, We hold that
the public respondents acted without
jurisdiction when they investigated the
charges against the petitioners.
Consequently, public respondents
should be restrained from further
proceeding with the criminal case for
to allow the case to continue, even if
the petitioners could have appealed to
the Ministry of Justice, would work
great injustice to petitioners and
would render meaningless the proper
administration of justice.
***

DURBAN APARTMENTS
CORPORATION, doing business
under the name and style of City
Garden Hotel,
Petitioner,

- versus -

PIONEER INSURANCE AND

SURETY CORPORATION,
Respondent.
DECISION
NACHURA, J.:
For review is the Decision[1] of the
Court of Appeals (CA) in CA-G.R.
CV No. 86869, which affirmed the
decision[2] of the Regional Trial Court
(RTC), Branch 66, Makati City, in
Civil Case No. 03-857, holding
petitioner
Durban
Apartments
Corporation
solely
liable
to
respondent Pioneer Insurance and
Surety Corporation for the loss of
Jeffrey Sees (Sees) vehicle.
The facts, as found by the CA, are
simple.
On July 22, 2003,
[respondent]
Pioneer
Insurance and Surety
Corporation x x x, by
right of subrogation, filed
[with the RTC of Makati
City] a Complaint for
Recovery of Damages
against
[petitioner]
Durban
Apartments
Corporation,
doing
business under the name

and
style
of
City
Garden Hotel,
and
[defendant before the
RTC] Vicente Justimbaste
x
x
x. [Respondent
averred] that: it is the
insurer for loss and
damage of Jeffrey S. Sees
[the
insureds]
2001
Suzuki Grand Vitara x x x
with Plate No. XBH-510
under Policy No. MC-CVHO-01-0003846-00-D in
the
amount
of P1,175,000.00;
on
April 30, 2002, See
arrived and checked in at
the City Garden Hotel in
Makati corner Kalayaan
Avenues, Makati City
before midnight, and its
parking
attendant,
defendant
x
x
x
Justimbaste got the key to
said Vitara from See to
park it[. O]n May 1, 2002,
at about 1:00 oclock in the
morning,
See
was
awakened in his room by
[a] telephone call from the
Hotel Chief Security
Officer who informed him
that his Vitara was
carnapped while it was
parked unattended at the
parking area of Equitable
PCI Bank along Makati
Avenue between the hours
of 12:00 [a.m.] and 1:00
[a.m.]; See went to see the
Hotel Chief Security

Officer,
thereafter
reported the incident to
the Operations Division of
the Makati City Police
Anti-Carnapping
Unit,
and a flash alarm was
issued; the Makati City
Police Anti-Carnapping
Unit investigated Hotel
Security Officer, Ernesto
T. Horlador, Jr. x x x and
defendant
x
x
x
Justimbaste; See gave his
Sinumpaang Salaysay to
the police investigator,
and filed a Complaint
Sheet with the PNP
Traffic
Management
Group in Camp Crame,
Quezon City; the Vitara
has not yet been recovered
since July 23, 2002 as
evidenced
by
a
Certification of NonRecovery issued by the
PNP TMG; it paid
the P1,163,250.00 money
claim
of
See
and
mortgagee ABN AMRO
Savings Bank, Inc. as
indemnity for the loss of
the Vitara; the Vitara was
lost due to the negligence
of [petitioner] Durban
Apartments
and
[defendant] Justimbaste
because it was discovered
during the investigation
that this was the second
time that a similar
incident of carnapping

happened in the valet

parking
service
of
[petitioner]
Durban
Apartments
and
no
necessary
precautions
were taken to prevent its
repetition;
[petitioner]
Durban Apartments was
wanting in due diligence
in the selection and
supervision
of
its
employees
particularly
defendant x
x
x
Justimbaste;
and
defendant
x
x
x
Justimbaste
and
[petitioner]
Durban
Apartments failed and
refused to pay its valid,
just, and lawful claim
despite written demands.
Upon
service
of
Summons,
[petitioner]
Durban Apartments and
[defendant] Justimbaste
filed their Answer with
Compulsory Counterclaim
alleging that: See did not
check in at its hotel, on
the contrary, he was a
guest of a certain Ching
Montero x x x; defendant
x x x Justimbaste did not
get the ignition key of
Sees Vitara, on the
contrary, it was See who
requested
a
parking
attendant to park the
Vitara at any available
parking space, and it was

parked at the Equitable

Bank parking area, which
was within Sees view,
while he and Montero
were waiting in front of
the hotel; they made a
written denial of the
demand of [respondent]
Pioneer Insurance for
want of legal basis; valet
parking
services
are
provided by the hotel for
the convenience of its
customers looking for a
parking space near the
hotel premises; it is a
special privilege that it
gave to Montero and See;
it does not include
responsibility for any
losses or damages to
motor vehicles and its
accessories in the parking
area; and the same holds
true even if it was See
himself who parked his
Vitara within the premises
of the hotel as evidenced
by the valet parking
customers claim stub
issued to him; the
carnapper was able to
open the Vitara without
using the key given earlier
to the parking attendant
and subsequently turned
over to See after the
Vitara
was
stolen;
defendant
x
x
x
Justimbaste saw the Vitara
speeding away from the

place where it was parked;

he tried to run after it, and
blocked its possible path
but to no avail; and See
was duly and immediately
informed
of
the
carnapping of his Vitara;
the matter was reported to
the
nearest
police
precinct; and defendant x
x x Justimbaste, and
Horlador
submitted
themselves
to police
investigation.
During
the
pre-trial
conference on November
28, 2003, counsel for
[respondent]
Pioneer
Insurance was present.
Atty. Monina Lee x x x,
counsel of record of
[petitioner]
Durban
Apartments
and
Justimbaste was absent,
instead, a certain Atty.
Nestor Mejia appeared for
[petitioner]
Durban
Apartments
and
Justimbaste, but did not
file their pre-trial brief.
On November 5, 2004, the
lower court granted the
motion of [respondent]
Pioneer Insurance, despite
the
opposition
of
[petitioner]
Durban
Apartments
and
Justimbaste, and allowed
[respondent]
Pioneer

Insurance to present its

evidence ex parte before
the Branch Clerk of
Court.
See testified that: on April
30, 2002, at about 11:30
in the evening, he drove
his Vitara and stopped in
front of City Garden Hotel
in Makati Avenue, Makati
City; a parking attendant,
whom he had later known
to be defendant x x x
Justimbaste, approached
and asked for his ignition
key, told him that the
latter would park the
Vitara for him in front of
the hotel, and issued him a
valet parking customers
claim stub; he and
Montero,
thereafter,
checked in at the said
hotel; on May 1, 2002, at
around 1:00 in the
morning,
the
Hotel
Security Officer whom he
later knew to be Horlador
called his attention to the
fact that his Vitara was
carnapped while it was
parked at the parking lot
of Equitable PCI Bank
which is in front of the
hotel; his Vitara was
insured with [respondent]
Pioneer Insurance; he
together with Horlador
and defendant x x x
Justimbaste
went
to

Precinct 19 of the Makati

City Police to report the
carnapping incident, and a
police
officer
came
accompanied them to the
Anti-Carnapping Unit of
the said station for
investigation, taking of
their sworn statements,
and flashing of a voice
alarm;
he
likewise
reported the said incident
in PNP TMG in Camp
Crame where another
alarm was issued; he filed
his
claim
with
[respondent]
Pioneer
Insurance,
and
a
representative
of
the
latter, who is also an
adjuster
of
Vesper
Insurance
AdjustersAppraisers
[Vesper],
investigated the incident;
and [respondent] Pioneer
Insurance required him to
sign a Release of Claim
and Subrogation Receipt,
and finally paid him the
sum of P1,163,250.00 for
his claim.
Ricardo F. Red testified
that: he is a claims
evaluator of [petitioner]
Pioneer Insurance tasked,
among others, with the
receipt of claims and
documents
from
the
insured, investigation of
the said claim, inspection

of damages, taking of
pictures of insured unit,
and monitoring of the
processing of the claim
until its payment; he
monitored the processing
of Sees claim when the
latter reported the incident
to [respondent] Pioneer
Insurance; [respondent]
Pioneer
Insurance
assigned the case to
Vesper who verified Sees
report, conducted an
investigation, obtained the
necessary documents for
the processing of the
claim, and tendered a
settlement check to See;
they evaluated the case
upon receipt of the
subrogation
documents
and the adjusters report,
and
eventually
recommended for its
settlement for the sum
of P1,163,250.00 which
was accepted by See; the
matter was referred and
forwarded
to
their
counsel, R.B. Sarajan &
Associates, who prepared
and sent demand letters to
[petitioner]
Durban
Apartments
and
[defendant] Justimbaste,
who
did
not
pay
[respondent]
Pioneer
Insurance notwithstanding
their receipt of the
demand letters; and the

services of R.B. Sarajan &

Associates were engaged,
for P100,000.00
as
attorneys
fees
plus P3,000.00 per court
appearance, to prosecute
the claims of [respondent]
Pioneer Insurance against
[petitioner]
Durban
Apartments
and
Justimbaste before the
lower court.
Ferdinand Cacnio testified
that: he is an adjuster of
Vesper;
[respondent]
Pioneer
Insurance
assigned to Vesper the
investigation of Sees case,
and he was the one
actually
assigned
to
investigate
it;
he
conducted
his
investigation of the matter
by interviewing See,
going to the City Garden
Hotel,
required
subrogation
documents
from See, and verified the
authenticity of the same;
he learned that it is the
standard procedure of the
said hotel as regards its
valet parking service to
assist their guests as soon
as they get to the lobby
entrance, park the cars for
their guests, and place the
ignition keys in their
safety
key
box;
considering that the hotel

has only twelve (12)

available parking slots, it
has an agreement with
Equitable
PCI
Bank
permitting the hotel to use
the parking space of the
bank at night; he also
learned that a Hyundai
Starex van was carnapped
at the said place barely a
month
before
the
occurrence of this incident
because Liberty Insurance
assigned the said incident
to Vespers, and Horlador
and defendant x x x
Justimbaste admitted the
occurrence of the same in
their sworn statements
before
the
AntiCarnapping Unit of the
Makati City Police; upon
verification with the PNP
TMG [Unit] in Camp
Crame, he learned that
Sees Vitara has not yet
been recovered; upon
evaluation,
Vesper
recommended
to
[respondent]
Pioneer
Insurance to settle Sees
claim for P1,045,750.00;
See
contested
the
recommendation
of
Vesper by reasoning out
that the 10% depreciation
should not be applied in
this case considering the
fact that the Vitara was
used for barely eight (8)
months prior to its loss;

and [respondent] Pioneer

Insurance acceded to Sees
contention, tendered the
sum of P1,163,250.00 as
settlement, the former
accepted it, and signed a
release of claim and
subrogation receipt.

amounting
to P120,000.00.
SO ORDERED.[4]

On appeal, the appellate court

affirmed the decision of the trial
court, viz.:

The lower court denied

the Motion to Admit PreTrial Brief and Motion for
Reconsideration field by
[petitioner]
Durban
Apartments
and
Justimbaste in its Orders
dated May 4, 2005 and
October
20,
2005,
respectively, for being
devoid of merit.[3]

WHEREFORE, premises
considered, the Decision
dated January 27, 2006 of
the
RTC,
Branch
66, Makati City in Civil
Case No. 03-857 is hereby
AFFIRMED insofar as it
holds [petitioner] Durban
Apartments Corporation
solely
liable
to
[respondent]
Pioneer
Insurance and Surety
Corporation for the loss of
Jeffrey Sees Suzuki Grand
Vitara.

Thereafter, on January 27, 2006, the

RTC rendered a decision, disposing,
as follows:
WHEREFORE, judgment
is
hereby
rendered
ordering
[petitioner
Durban
Apartments
Corporation]
to
pay
[respondent
Pioneer
Insurance and Surety
Corporation] the sum
of P1,163,250.00
with
legal interest thereon from
July 22, 2003 until the
obligation is fully paid
and attorneys fees and
litigation
expenses

SO ORDERED.[5]

Hence, this recourse by petitioner.

The issues for our resolution
are:
1. Whether the lower courts erred in
declaring petitioner as in default for
failure to appear at the pre-trial
conference and to file a pre-trial brief;

2. Corollary thereto, whether the trial

court correctly allowed respondent to
present evidence ex-parte;
3. Whether petitioner is liable to
respondent for attorneys fees in the
amount of P120,000.00; and
4. Ultimately, whether petitioner is
liable to respondent for the loss of
Sees vehicle.
The petition must fail.
We are in complete accord with the
common ruling of the lower courts
that petitioner was in default for
failure to appear at the pre-trial
conference and to file a pre-trial brief,
and
thus,
correctly
allowed
respondent to present evidence exparte. Likewise, the lower courts did
not err in holding petitioner liable for
the loss of Sees vehicle.
Well-entrenched in jurisprudence is
the rule that factual findings of the
trial court, especially when affirmed
by the appellate court, are accorded
the highest degree of respect and are
considered conclusive between the
parties.[6] A review of such findings by
this Court is not warranted except
upon a showing of highly meritorious
circumstances, such as: (1) when the
findings of a trial court are grounded

entirely on speculation, surmises, or

conjectures; (2) when a lower courts
inference from its factual findings is
manifestly mistaken, absurd, or
impossible; (3) when there is grave
abuse of discretion in the appreciation
of facts; (4) when the findings of the
appellate court go beyond the issues
of the case, or fail to notice certain
relevant facts which, if properly
considered, will justify a different
conclusion; (5) when there is a
misappreciation of facts; (6) when the
findings of fact are conclusions
without mention of the specific
evidence on which they are based, are
premised on the absence of evidence,
or are contradicted by evidence on
record.[7] None of the foregoing
exceptions permitting a reversal of the
assailed decision exists in this
instance.
Petitioner urges us, however, that
strong [and] compelling reason[s]
such as the prevention of miscarriage
of justice warrant a suspension of the
rules and excuse its and its counsels
non-appearance during the pre-trial
conference and their failure to file a
pre-trial brief.
We are not persuaded.
Rule 18 of the Rules of Court leaves
no room for equivocation; appearance

of parties and their counsel at the pretrial conference, along with the filing
of a corresponding pre-trial brief, is
mandatory, nay, their duty. Thus,
Section 4 and Section 6 thereof
provide:
SEC. 4. Appearance of
parties.It shall be the duty
of the parties and their
counsel to appear at the
pre-trial.
The
nonappearance of a party may
be excused only if a valid
cause is shown therefor or
if a representative shall
appear in his behalf fully
authorized in writing to
enter into an amicable
settlement, to submit to
alternative
modes
of
dispute resolution, and to
enter into stipulations or
admissions of facts and
documents.
SEC.
6. Pre-trial
brief.The parties shall file
with the court and serve
on the adverse party, in
such manner as shall
ensure
their
receipt
thereof at least three (3)
days before the date of the
pre-trial, their respective
pre-trial briefs which shall
contain, among others:
xxxx

Failure to file the pre-trial

brief shall have the same
effect as failure to appear
at the pre-trial.

Contrary to the foregoing rules,

petitioner and its counsel of record
were not present at the scheduled pretrial conference. Worse, they did not
file a pre-trial brief. Their nonappearance cannot be excused as
Section 4, in relation to Section 6,
allows only two exceptions: (1) a
valid excuse; and (2) appearance of a
representative on behalf of a party
who is fully authorized in writing to
enter into an amicable settlement, to
submit to alternative modes of dispute
resolution, and to enter into
stipulations or admissions of facts and
documents.
Petitioner is adamant and harps on the
fact that November 28, 2003 was
merely the first scheduled date for the
pre-trial conference, and a certain
Atty. Mejia appeared on its behalf.
However, its assertion is belied by its
own admission that, on said date, this
Atty. Mejia did not have in his
possession the Special Power of
Attorney issued by petitioners Board
of Directors.
As pointed out by the CA, petitioner,
through Atty. Lee, received the notice

of pre-trial on October 27, 2003,

thirty-two (32) days prior to the
scheduled conference. In that span of
time, Atty. Lee, who was charged with
the duty of notifying petitioner of the
scheduled
pre-trial
conference,
[8]
petitioner, and Atty. Mejia should
have discussed which lawyer would
appear at the pre-trial conference with
petitioner, armed with the appropriate
authority therefor. Sadly, petitioner
failed to comply with not just one
rule; it also did not proffer a reason
why it likewise failed to file a pre-trial
brief. In all, petitioner has not shown
any persuasive reason why it should
be exempt from abiding by the rules.
The appearance of Atty. Mejia at the
pre-trial conference, without a pretrial brief and with only his bare
allegation that he is counsel for
petitioner, was correctly rejected by
the trial court. Accordingly, the trial
court, as affirmed by the appellate
court, did not err in allowing
respondent to present evidence exparte.
Former Chief Justice Andres R.
Narvasas words continue to resonate,
thus:
Everyone knows that a
pre-trial in civil actions is
mandatory, and has been

so since January 1, 1964.

Yet to this day its place in
the scheme of things is
not fully appreciated, and
it receives but perfunctory
treatment in many courts.
Some courts consider it a
mere technicality, serving
no useful purpose save
perhaps, occasionally to
furnish ground for nonsuiting the plaintiff, or
declaring a defendant in
default, or, wistfully, to
bring
about
a
compromise. The pre-trial
device is not thus put to
full use. Hence, it has
failed in the main to
accomplish the chief
objective for it: the
simplification,
abbreviation
and
expedition of the trial, if
not
indeed
its
dispensation. This is a
great pity, because the
objective is attainable, and
with not much difficulty,
if the device were more
intelligently
and
extensively handled.
xxxx
Consistently with
the mandatory character
of the pre-trial, the Rules
oblige not only the
lawyers but the parties as
well to appear for this

purpose before the Court,

and when a party fails to
appear at a pre-trial
conference (he) may be
non-suited or considered
as in default. The
obligation
to
appear
denotes not simply the
personal appearance, or
the
mere
physical
presentation by a party of
ones self, but connotes as
importantly, preparedness
to go into the different
subject assigned by law to
a pre-trial. And in those
instances where a party
may not himself be
present at the pre-trial,
and
another
person
substitutes for him, or his
lawyer undertakes to
appear not only as an
attorney
but
in
substitution of the clients
person, it is imperative for
that representative of the
lawyer to have special
authority to make such
substantive agreements as
only the client otherwise
has capacity to make.
That special authority
should ordinarily be in
writing or at the very least
be duly established by
evidence other than the
self-serving assertion of
counsel
(or
the
proclaimed
representative) himself.

Without
that
special
authority, the lawyer or
representative cannot be
deemed capacitated to
appear in place of the
party; hence, it will be
considered that the latter
has failed to put in an
appearance at all, and he
[must] therefore be nonsuited or considered as in
default, notwithstanding
his lawyers or delegates
presence.[9]

We are not unmindful that defendants

(petitioners)
preclusion
from
presenting evidence during trial does
not automatically result in a judgment
in favor of plaintiff (respondent). The
plaintiff must still substantiate the
allegations
in
its
complaint.
[10]
Otherwise, it would be inutile to
continue
with
the
plaintiffs
presentation of evidence each time the
defendant is declared in default.
In this case, respondent substantiated
the allegations in its complaint, i.e., a
contract of necessary deposit existed
between the insured See and
petitioner. On this score, we find no
error in the following disquisition of
the appellate court:
[The] records also reveal
that upon arrival at the

City Garden Hotel, See

gave notice to the
doorman and parking
attendant of the said hotel,
x x x Justimbaste, about
his Vitara when he
entrusted its ignition key
to the latter. x x x
Justimbaste issued a valet
parking customer claim
stub to See, parked the
Vitara at the Equitable
PCI Bank parking area,
and placed the ignition
key inside a safety key
box while See proceeded
to the hotel lobby to check
in. The Equitable PCI
Bank parking area became
an annex of City Garden
Hotel
when
the
management of the said
bank allowed the parking
of the vehicles of hotel
guests thereat in the
evening after banking
hours.[11]

Article 1962, in relation to Article

1998, of the Civil Code defines a
contract of deposit and a necessary
deposit made by persons in hotels or
inns:
Art.
1962.
A
deposit is constituted from
the moment a person
receives a thing belonging
to another, with the
obligation
of
safely
keeping it and returning
the
same.
If
the

safekeeping of the thing

delivered is not the
principal purpose of the
contract, there is no
deposit but some other
contract.
Art. 1998. The deposit of
effects made by travelers
in hotels or inns shall also
be regarded as necessary.
The keepers of hotels or
inns shall be responsible
for them as depositaries,
provided that notice was
given to them, or to their
employees, of the effects
brought by the guests and
that, on the part of the
latter, they take the
precautions which said
hotel-keepers or their
substitutes
advised
relative to the care and
vigilance of their effects.

Plainly, from the facts found by the

lower courts, the insured See
deposited his vehicle for safekeeping
with petitioner, through the latters
employee, Justimbaste. In turn,
Justimbaste issued a claim stub to
See. Thus, the contract of deposit was
perfected from Sees delivery, when he
handed over to Justimbaste the keys
to his vehicle, which Justimbaste
received with the obligation of safely
keeping and returning it. Ultimately,

petitioner is liable for the loss of Sees

vehicle.
Lastly, petitioner assails the
lower courts award of attorneys fees
to respondent in the amount
of P120,000.00. Petitioner claims that
the award is not substantiated by the
evidence on record.

refused to answer for the loss of Sees

vehicle, which was deposited with it
for
safekeeping.
This
refusal
constrained respondent, the insurer of
See, and subrogated to the latters
right, to litigate and incur expenses.
However, we reduce the award
of P120,000.00 to P60,000.00 in view
of the simplicity of the issues
involved in this case.

We disagree.
While it is a sound policy not to
set a premium on the right to litigate,
[12]
we find that respondent is entitled
to
reasonable
attorneys
fees.
Attorneys fees may be awarded when
a party is compelled to litigate or
incur expenses to protect its interest,
[13]
or when the court deems it just and
equitable.[14] In this case, petitioner

WHEREFORE, the petition

is DENIED. The Decision of the
Court of Appeals in CA-G.R. CV No.
86869
is AFFIRMED with
the MODIFICATION that the award
of attorneys fees is reduced
to P60,000.00.
Costs
against
petitioner.
SO ORDERED.