IV. Deposits

IV.
DEPOSITS
THIRD DIVISION
[G.R. No. 90027. March 3, 1993.]
CA AGRO-INDUSTRIAL DEVELOPMENT CORP., Petitioner, v. THE HONORABLE COURT OF APPEALS and

SECURITY BANK AND TRUST COMPANY, Respondents.
Dolorfino & Dominguez Law Offices for Petitioner.
Danilo B. Banares for Private Respondent.
SYLLABUS
1. CIVIL LAW; CONTRACTS; CONTRACT FOR RENT OF SAFETY DEPOSIT BOX; A SPECIAL KIND OF DEPOSIT
NOT STRICTLY GOVERNED BY CIVIL CODE PROVISIONS ON DEPOSIT. — 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; the
contract in the case at bar is a special kind of deposit. It cannot be characterized as an ordinary contract
of lease under Article 1643 because the full and absolute possession and control of the safety deposit
box was not given to the joint renters — the petitioner and the Pugaos. The guard key of the box
remained with the respondent Bank; without this key, neither of the renters could open the box. On the
other hand, the respondent Bank could not likewise open the box without the renter’s key. In this case,
the said key had a duplicate which was made so that both renters could have access to the box.
2. ID.; ID.; ID.; PREVAILING RULE IN AMERICAN JURISPRUDENCE ADOPTED IN THIS JURISDICTION. — 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 bailor and bailee, the bailment being for hire and mutual benefit. 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." 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: "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. . . . The banks shall perform the services
permitted under subsections (a), (b) and (c) of this section as depositories or as agents. . . ." 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.
3. ID.; ID.; ID.; DEGREE OF DILIGENCE REQUIRED OF DEPOSITARY; FREEDOM TO STIPULATE; EXCEPTION.
— A contract of deposit may be entered into orally or in writing 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 depository would be liable if, in
performing its obligation, it is found guilty of fraud, negligence, delay or contravention of the tenor of
the agreement. In the absence of any stipulation prescribing the degree of diligence required, that of a
good father of a family is to be observed. 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. . . . It has been said: "With respect to property
deposited in a safe-deposit box by a customer of a safe-deposit company, the parties, since the relation
is a contractual one, may by special contract define their respective duties or provide for increasing or
limiting the liability of the deposit company, provided such contract is not in violation of law or public
policy. It must clearly appear that there actually was such a special contract, however, in order to vary
the ordinary obligations implied by law from the relationship of the parties; liability of the deposit
company will not be enlarged or restricted by words of doubtful meaning. The company, in renting safe-
deposit boxes, cannot exempt itself from liability for loss of the contents by its own fraud or negligence
or that of its agents or servants, and if a provision of the contract may be construed as an attempt to do
so, it will be held ineffective for the purpose. Although it has been held that the lessor of a safe-deposit
box cannot limit its liability for loss of the contents thereof through its own negligence, the view has
been taken that such a lessor may limit its liability to some extent by agreement or stipulation."cralaw
virtua1aw library
4. ID.; ID.; ID.; ID.; ID.; ID.; CASE AT BAR. — 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. That bank is not a
depositary of the contents of the safe and it has neither the possession nor control of the same. 14. The
bank has no interest whatsoever in said contents, except herein expressly provided, and it assumes
absolutely no liability in connection therewith." are void as they are contrary to law and public policy.
We find Ourselves in agreement with this proposition for indeed, said provisions are inconsistent with
the respondent Bank’s responsibility as a depositary under Section 72(a) of the General Banking Act.
Both exempt the latter from any liability except as contemplated in condition 8 thereof which limits its
duty to exercise reasonable diligence only with respect to who shall be admitted to any rented safe, to
wit: "8. The Bank shall use due diligence that no unauthorized person shall be admitted to any rented
safe and beyond this, the Bank will not be responsible for the contents of any safe rented from it."
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.
DECISION
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.chanrobles virtualawlibrary

chanrobles.com:chanrobles.com.ph
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:jgc:chanrobles.com.ph
"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.chanrobles virtual lawlibrary
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:jgc:chanrobles.com.ph
"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:jgc:chanrobles.com.ph
"ARTICLE 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."cralaw virtua1aw library
It invoked Tolentino v. 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:jgc:chanrobles.com.ph
"ARTICLE 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."cralaw virtua1aw
library
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:jgc:chanrobles.com.ph
"8. The Bank shall use due diligence that no unauthorized person shall be admitted to any rented safe
and beyond this, the Bank will not be responsible for the contents of any safe rented from it." 13
Its motion for reconsideration 14 having been denied in the respondent Court’s Resolution of 28 August
1989, 15 petitioner took this recourse under Rule 45 of the Rules of Court and urges Us to review and
set aside the respondent Court’s ruling. Petitioner avers that both the respondent Court and the trial
court (a) did not properly and legally apply the correct law in this case, (b) acted with grave abuse of
discretion or in excess of jurisdiction amounting to lack thereof and (c) set a precedent that is contrary
to, or is a departure from precedents adhered to and affirmed by decisions of this Court and precepts in
American jurisprudence adopted in the Philippines. It reiterates the arguments it had raised in its
motion to reconsider the trial court’s decision, the brief submitted to the respondent Court and the
motion to reconsider the latter’s decision. In a nutshell, petitioner maintains that regardless of
nomenclature, the contract for the rent of the safety deposit box (Exhibit "2") is actually a contract of
deposit governed by Title XII, Book IV of the Civil Code of the Philippines. 16 Accordingly, it is claimed
that the respondent Bank is liable for the loss of the certificates of title pursuant to Article 1972 of the
said Code which provides:chanrobles.com.ph : virtual law library
"ARTICLE 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."cralaw virtua1aw library
Petitioner then quotes a passage from American Jurisprudence 17 which is supposed to expound on the
prevailing rule in the United States, to wit:jgc:chanrobles.com.ph
"The prevailing rule appears to be that where a safe-deposit company leases a safe-deposit box or safe
and the lessee takes possession of the box or safe and places therein his securities or other valuables,
the relation of bailee and bailor is created between the parties to the transaction as to such securities or
other valuables; the fact that the safe-deposit company does not know, and that it is not expected that
it shall know, the character or description of the property which is deposited in such safe-deposit box or
safe does not change that relation. That access to the contents of the safe-deposit box can be had only
by the use of a key retained by the lessee (whether it is the sole key or one to be used in connection
with one retained by the lessor) does not operate to alter the foregoing rule. The argument that there is
not, in such a case, a delivery of exclusive possession and control to the deposit company, and that
therefore the situation is entirely different from that of ordinary bailment, has been generally rejected
by the courts, usually on the ground that as possession must be either in the depositor or in the
company, it should reasonably be considered as in the latter rather than in the former, since the
company is, by the nature of the contract, given absolute control of access to the property, and the
depositor cannot gain access thereto without the consent and active participation of the company. . . ."
(Citations omitted).
and a segment from Words and Phrases 18 which states that a contract for the rental of a bank safety
deposit box in consideration of a fixed amount at stated periods is a bailment for hire.
Petitioner further argues that conditions 13 and 14 of the questioned contract are contrary to law and
public policy and should be declared null and void. In support thereof, it cites Article 1306 of the Civil
Code which provides that parties to a contract may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals, good customs,
public order or public policy.
After the respondent Bank filed its comment, this Court gave due course to the petition and required the
parties to simultaneously submit their respective Memoranda.
The petition is partly meritorious.
We agree with the petitioner’s contention that the contract for the rent of the safety deposit box is not
an ordinary contract of lease as defined in Article 1643 of the Civil Code. However, We do not fully
subscribe to its view that the same is a contract of deposit that is to be strictly governed by the
provisions in the Civil Code on deposit; 19 the contract in the case at bar is a special kind of deposit. It
cannot be characterized as an ordinary contract of lease under Article 1643 because the full and
absolute possession and control of the safety deposit box was not given to the 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.chanrobles.com :
virtual law library
We observe, however, that the deposit theory itself does not altogether find unanimous support even in
contents of the box is that of a bailor and bailee, the bailment being for hire and mutual benefit. 21 This
is just the prevailing view because:jgc:chanrobles.com.ph
"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 suggest that should be
characterized as that of licensor and licensee. The relation between a bank, safe-deposit company, or
storage company, and the renter of a safe-deposit box therein, is often described as contractual, express
or implied, oral or written, in whole or in part. But there is apparently no jurisdiction in which any rule
other than that applicable to bailments governs questions of the liability and rights of the parties in
respect of loss of the contents of safe-deposit boxes." 22 (Citations omitted).
In the context of our laws which authorize banking institutions to rent out safety deposit boxes, it is
clear that in this jurisdiction, the prevailing rule in the United States has been adopted. Section 72 of the
General Banking Act 23 pertinently provides:jgc:chanrobles.com.ph
"SECTION 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:chanrob1es
virtual 1aw library
(a) Receive in custody funds, documents, and valuable objects, and rent safety deposit boxes for the
safeguarding of such effects.
x x x
The banks shall perform the services permitted under subsections (a), (b) and (c) of this section as
depositories or as agents. . . ." 24 (Emphasis supplied).
Note that the primary function is still found within the parameters of a contract of deposit, i.e., the
receiving in custody of funds, documents and other valuable objects for safekeeping. The renting out of
the safety deposit boxes is not independent from, but related to or in conjunction with, this principal
function. A contract of deposit may be entered into orally or in writing 25 and, pursuant to Article 1306
of the Civil Code, the parties thereto may establish such stipulations, clauses, terms and conditions as
they may deem convenient, provided they are not contrary to law, morals, good customs, public order
or public policy. The depositary’s responsibility for the safekeeping of the objects deposited in the case
at bar is governed by Title I, Book IV of the Civil Code. Accordingly, the depositary would be liable if, in
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
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:jgc:chanrobles.com.ph
"13. The bank is not a depositary of the contents of the safe and it has neither the possession nor
control of the same.chanrobles law library
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:jgc:chanrobles.com.ph
"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
ineffective. It has been said:jgc:chanrobles.com.ph
"With respect to property deposited in a safe-deposit box by a customer of a safe-deposit company, the
parties, since the relation is a contractual one may by special contract define their respective duties or
provide for increasing or limiting the liability of the deposit company, provided such contract is not in
violation of law or public policy. It must clearly appear that there actually was such a special contract,
however, in order to vary the ordinary obligations implied by law from the relationship of the parties;
liability of the deposit company will not be enlarged or restricted by words of doubtful meaning. The
company, in renting safe-deposit boxes, cannot exempt itself from liability for loss of the contents by its
own fraud or negligence or that of its agents or servants, and if a provision of the contract may be
construed as an attempt to do so, it will be held ineffective for the purpose. Although it has been held
that the lessor of a safe-deposit box cannot limit its liability for loss of the contents thereof through its
own negligence, the view has been taken that such a lessor may limit 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.chanrobles law
library : red
No pronouncement as to costs.
SO ORDERED.
Feliciano, Bidin, Romero and Melo, JJ., concur.
Gutierrez, Jr., J., is on terminal leave.

Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
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.
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 decision5 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 reconsideration7 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, 15 petitioner took this recourse under Rule 45 of the Rules of Court and urges Us to review and set
aside the respondent Court's ruling. Petitioner avers that both the respondent Court and the trial court
(a) did not properly and legally apply the correct law in this case, (b) acted with grave abuse of discretion
or in excess of jurisdiction amounting to lack thereof and (c) set a precedent that is contrary to, or is a
departure from precedents adhered to and affirmed by decisions of this Court and precepts in American
jurisprudence adopted in the Philippines. It reiterates the arguments it had raised in its motion to
reconsider the trial court's decision, the brief submitted to the respondent Court and the motion to
reconsider the latter's decision. In a nutshell, petitioner maintains that regardless of nomenclature, the
contract for the rent of the safety deposit box (Exhibit "2") is actually a contract of deposit governed by
Title XII, Book IV of the Civil Code of the
Philippines. 16 Accordingly, it is claimed that the respondent Bank is liable for the loss of the certificates
of title pursuant to Article 1972 of the said Code which provides:
Art. 1972. The depositary is obliged to keep the thing safely and to return it, when required, to the
depositor, or to his heirs and successors, or to the person who may have been designated in the
contract. His responsibility, with regard to the safekeeping and the loss of the thing, shall be governed
by the provisions of Title I of this Book.
If the deposit is gratuitous, this fact shall be taken into account in determining the degree of care that
the depositary must observe.
Petitioner then quotes a passage from American Jurisprudence 17 which is supposed to expound on the
prevailing rule in the United States, to wit:
The prevailing rule appears to be that where a safe-deposit company leases a safe-deposit box or safe
and the lessee takes possession of the box or safe and places therein his securities or other valuables,
the relation of bailee and bail or is created between the parties to the transaction as to such securities
or other valuables; the fact that the
safe-deposit company does not know, and that it is not expected that it shall know, the character or
description of the property which is deposited in such safe-deposit box or safe does not change that
relation. That access to the contents of the safe-deposit box can be had only by the use of a key retained
by the lessee ( whether it is the sole key or one to be used in connection with one retained by the lessor)
does not operate to alter the foregoing rule. The argument that there is not, in such a case, a delivery of
exclusive possession and control to the deposit company, and that therefore the situation is entirely
different from that of ordinary bailment, has been generally rejected by the courts, usually on the
ground that as possession must be either in the depositor or in the company, it should reasonably be
considered as in the latter rather than in the former, since the company is, by the nature of the contract,
given absolute control of access to the property, and the depositor cannot gain access thereto without
the consent and active participation of the company. . . . (citations omitted).
and a segment from Words and Phrases 18 which states that a contract for the rental of a bank safety
deposit box in consideration of a fixed amount at stated periods is a bailment for hire.
Petitioner further argues that conditions 13 and 14 of the questioned contract are contrary to law and
public policy and should be declared null and void. In support thereof, it cites Article 1306 of the Civil
Code which provides that parties to a contract may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals, good customs,
public order or public policy.
After the respondent Bank filed its comment, this Court gave due course to the petition and required the
parties to simultaneously submit their respective Memoranda.
The petition is partly meritorious.
We agree with the petitioner's contention that the contract for the rent of the safety deposit box is not
an ordinary contract of lease as defined in Article 1643 of the Civil Code. However, We do not fully
subscribe to its view that the same is a contract of deposit that is to be strictly governed by the
provisions in the Civil Code on deposit; 19 the contract in the case at bar is a special kind of deposit. It
cannot be characterized as an ordinary contract of lease under Article 1643 because the full and
absolute possession and control of the safety deposit box was not given to the joint renters — the
petitioner and the Pugaos. The guard key of the box remained with the respondent Bank; without this
key, neither of the renters could open the box. On the other hand, the respondent Bank could not
likewise open the box without the renter's key. In this case, the said key had a duplicate which was
made so that both renters could have access to the box.
Hence, the authorities cited by the respondent Court 20 on this point do not apply. Neither could Article
1975, also relied upon by the respondent Court, be invoked as an argument against the deposit theory.
Obviously, the first paragraph of such provision cannot apply to a depositary of certificates, bonds,
securities or instruments which earn interest if such documents are kept in a rented safety deposit box.
It is clear that the depositary cannot open the box without the renter being present.
We observe, however, that the deposit theory itself does not altogether find unanimous support even in
contents of the box is that of a bail or and bailee, the bailment being for hire and mutual benefit. 21 This
is just the prevailing view because:
There is, however, some support for the view that the relationship in question might be more properly
characterized as that of landlord and tenant, or lessor and lessee. It has also been suggested that it
should be characterized as that of licensor and licensee. The relation between a bank, safe-deposit
company, or storage company, and the renter of a safe-deposit box therein, is often described as
contractual, express or implied, oral or written, in whole or in part. But there is apparently no
jurisdiction in which any rule other than that applicable to bailments governs questions of the liability
and rights of the parties in respect of loss of the contents of safe-deposit boxes. 22 (citations omitted)
In the context of our laws which authorize banking institutions to rent out safety deposit boxes, it is
clear that in this jurisdiction, the prevailing rule in the United States has been adopted. Section 72 of the
General Banking Act 23 pertinently 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
as depositories or as agents. . . . 24 (emphasis supplied)
Note that the primary function is still found within the parameters of a contract of deposit, i.e., the
receiving in custody of funds, documents and other valuable objects for safekeeping. The renting out of
the safety deposit boxes is not independent from, but related to or in conjunction with, this principal
function. A contract of deposit may be entered into orally or in writing 25 and, pursuant to Article 1306 of
the Civil Code, the parties thereto may establish such stipulations, clauses, terms and conditions as they
may deem convenient, provided they are not contrary to law, morals, good customs, public order or
public policy. The depositary's responsibility for the safekeeping of the objects deposited in the case at
bar is governed by Title I, Book IV of the Civil Code. Accordingly, the depositary would be liable if, in
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
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.
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
ineffective. It has been said:
With respect to property deposited in a safe-deposit box by a customer of a safe-deposit company, the
parties, since the relation is a contractual one, may by special contract define their respective duties or
provide for increasing or limiting the liability of the deposit company, provided such contract is not in
violation of law or public policy. It must clearly appear that there actually was such a special contract,
however, in order to vary the ordinary obligations implied by law from the relationship of the parties;
liability of the deposit company will not be enlarged or restricted by words of doubtful meaning. The
company, in renting
safe-deposit boxes, cannot exempt itself from liability for loss of the contents by its own fraud or
negligence or that of its agents or servants, and if a provision of the contract may be construed as an
attempt to do so, it will be held ineffective for the purpose. Although it has been held that the lessor of a
safe-deposit box cannot limit its liability for loss of the contents thereof through its own negligence, the
view has been taken that such a lessor may limits its liability to some extent by agreement or
stipulation. 30 (citations omitted)
Thus, we reach the same conclusion which the Court of Appeals arrived at, that is, that the petition
should be dismissed, but on grounds quite different from those relied upon by the Court of Appeals. In
the instant case, the respondent Bank's exoneration cannot, contrary to the holding of the Court of
Appeals, be based on or proceed from a characterization of the impugned contract as a contract of
lease, but rather on the fact that no competent proof was presented to show that respondent Bank was
aware of the agreement between the petitioner and the Pugaos to the effect that the certificates of title
were withdrawable from the safety deposit box only upon both parties' joint signatures, and that no
evidence was submitted to reveal that the loss of the certificates of title was due to the fraud or
negligence of the respondent Bank. This in turn flows from this Court's determination that the contract
involved was one of deposit. Since both the petitioner and the Pugaos agreed that each should have one
(1) renter's key, it was obvious that either of them could ask the Bank for access to the safety deposit
box and, with the use of such key and the Bank's own guard key, could open the said box, without the
other renter being present.
Since, however, the petitioner cannot be blamed for the filing of the complaint and no bad faith on its
part had been established, the trial court erred in condemning the petitioner to pay the respondent
Bank attorney's fees. To this extent, the Decision (dispositive portion) of public respondent Court of
Appeals must be modified.
WHEREFORE, the Petition for Review is partially GRANTED by deleting the award for attorney's fees from
the 4 July 1989 Decision of the respondent Court of Appeals in CA-G.R. CV No. 15150. As modified, and
subject to the pronouncement We made above on the nature of the relationship between the parties in
a contract of lease of safety deposit boxes, the dispositive portion of the said Decision is hereby
AFFIRMED and the instant Petition for Review is otherwise DENIED for lack of merit.
No pronouncement as to costs.
SO ORDERED.
Feliciano, Bidin, Romero and Melo, JJ., concur.
Gutierrez, Jr., J., is on leave.

SUPREME COURT
Manila
EN BANC
G.R. No. L-6913 November 21, 1913
THE ROMAN CATHOLIC BISHOP OF JARO, plaintiff-appellee,

vs.
GREGORIO DE LA PEÑA, administrator of the estate of Father Agustin de la Peña, defendant-appellant.
J. Lopez Vito, for appellant.
Arroyo and Horrilleno, for appellee.
MORELAND, J.:
This is an appeal by the defendant from a judgment of the Court of First Instance of Iloilo, awarding to
the plaintiff the sum of P6,641, with interest at the legal rate from the beginning of the action.
It is established in this case that the plaintiff is the trustee of a charitable bequest made for the
construction of a leper hospital and that father Agustin de la Peña was the duly authorized
representative of the plaintiff to receive the legacy. The defendant is the administrator of the estate of
Father De la Peña.
In the year 1898 the books Father De la Peña, as trustee, showed that he had on hand as such trustee
the sum of P6,641, collected by him for the charitable purposes aforesaid. In the same year he deposited
in his personal account P19,000 in the Hongkong and Shanghai Bank at Iloilo. Shortly thereafter and
during the war of the revolution, Father De la Peña was arrested by the military authorities as a political
prisoner, and while thus detained made an order on said bank in favor of the United States Army officer
under whose charge he then was for the sum thus deposited in said bank. The arrest of Father De la
Peña and the confiscation of the funds in the bank were the result of the claim of the military authorities
that he was an insurgent and that the funds thus deposited had been collected by him for revolutionary
purposes. The money was taken from the bank by the military authorities by virtue of such order, was
confiscated and turned over to the Government.
While there is considerable dispute in the case over the question whether the P6,641 of trust funds was
included in the P19,000 deposited as aforesaid, nevertheless, a careful examination of the case leads us
to the conclusion that said trust funds were a part of the funds deposited and which were removed and
confiscated by the military authorities of the United States.
That branch of the law known in England and America as the law of trusts had no exact counterpart in
the Roman law and has none under the Spanish law. In this jurisdiction, therefore, Father De la Peña's
liability is determined by those portions of the Civil Code which relate to obligations. (Book 4, Title 1.)
Although the Civil Code states that "a person obliged to give something is also bound to preserve it with
the diligence pertaining to a good father of a family" (art. 1094), it also provides, following the principle
of the Roman law, major casus est, cui humana infirmitas resistere non potest, that "no one shall be
liable for events which could not be foreseen, or which having been foreseen were inevitable, with the
exception of the cases expressly mentioned in the law or those in which the obligation so declares." (Art.
1105.)
By placing the money in the bank and mixing it with his personal funds De la Peña did not thereby
assume an obligation different from that under which he would have lain if such deposit had not been
made, nor did he thereby make himself liable to repay the money at all hazards. If the had been forcibly
taken from his pocket or from his house by the military forces of one of the combatants during a state of
war, it is clear that under the provisions of the Civil Code he would have been exempt from
responsibility. The fact that he placed the trust fund in the bank in his personal account does not add to
his responsibility. Such deposit did not make him a debtor who must respond at all hazards.
We do not enter into a discussion for the purpose of determining whether he acted more or less
negligently by depositing the money in the bank than he would if he had left it in his home; or whether
he was more or less negligent by depositing the money in his personal account than he would have been
if he had deposited it in a separate account as trustee. We regard such discussion as substantially
fruitless, inasmuch as the precise question is not one of negligence. There was no law prohibiting him
from depositing it as he did and there was no law which changed his responsibility be reason of the
deposit. While it may be true that one who is under obligation to do or give a thing is in duty bound,
when he sees events approaching the results of which will be dangerous to his trust, to take all
reasonable means and measures to escape or, if unavoidable, to temper the effects of those events, we
do not feel constrained to hold that, in choosing between two means equally legal, he is culpably
negligent in selecting one whereas he would not have been if he had selected the other.
The court, therefore, finds and declares that the money which is the subject matter of this action was
deposited by Father De la Peña in the Hongkong and Shanghai Banking Corporation of Iloilo; that said
money was forcibly taken from the bank by the armed forces of the United States during the war of the
insurrection; and that said Father De la Peña was not responsible for its loss.
The judgment is therefore reversed, and it is decreed that the plaintiff shall take nothing by his
complaint.
Arellano, C.J., Torres and Carson, JJ., concur.
Separate Opinions
TRENT, J., dissenting:
I dissent. Technically speaking, whether Father De la Peña was a trustee or an agent of the plaintiff his
books showed that in 1898 he had in his possession as trustee or agent the sum of P6,641 belonging to
the plaintiff as the head of the church. This money was then clothed with all the immunities and
protection with which the law seeks to invest trust funds. But when De la Peña mixed this trust fund
with his own and deposited the whole in the bank to his personal account or credit, he by this act
stamped on the said fund his own private marks and unclothed it of all the protection it had. If this
money had been deposited in the name of De la Peña as trustee or agent of the plaintiff, I think that it
may be presumed that the military authorities would not have confiscated it for the reason that they
were looking for insurgent funds only. Again, the plaintiff had no reason to suppose that De la Peña
would attempt to strip the fund of its identity, nor had he said or done anything which tended to relieve
De la Peña from the legal reponsibility which pertains to the care and custody of trust funds.
The Supreme Court of the United States in the United State vs. Thomas (82 U. S., 337), at page 343, said:
"Trustees are only bound to exercise the same care and solicitude with regard to the trust property
which they would exercise with regard to their own. Equity will not exact more of them. They are not
liable for a loss by theft without their fault. But this exemption ceases when they mix the trust-money
with their own, whereby it loses its identity, and they become mere 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 Peña cannot be doubted. But this court in the majority
opinion says: "The fact that he (Agustin de la Peña) placed the trust fund in the bank in his personal
account does not add to his responsibility. Such deposit did not make him a debtor who must respond at
all hazards. . . . There was no law prohibiting him from depositing it as he did, and there was no law
which changed his responsibility, by reason of the deposit."
I assume that the court in using the language which appears in the latter part of the above quotation
meant to say that there was no statutory law regulating the question. Questions of this character are
not usually governed by statutory law. The law is to be found in the very nature of the trust itself, and,
as a general rule, the courts say what facts are necessary to hold the trustee as a debtor.
If De la Peña, after depositing the trust fund in his personal account, had used this money for speculative
purposes, such as the buying and selling of sugar or other products of the country, thereby becoming a
debtor, there would have been no doubt as to the liability of his estate. Whether he used this money for
that purpose the record is silent, but it will be noted that a considerable length of time intervened from
the time of the deposit until the funds were confiscated by the military authorities. In fact the record
shows that De la Peña deposited on June 27, 1898, P5,259, on June 28 of that year P3,280, and on
August 5 of the same year P6,000. The record also shows that these funds were withdrawn and again
deposited all together on the 29th of May, 1900, this last deposit amounting to P18,970. These facts
strongly indicate that De la Peña had as a matter of fact been using the money in violation of the trust
imposed in him. 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.
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 179419 January 12, 2011
DURBAN APARTMENTS CORPORATION, doing business under the name and style of City Garden
Hotel, Petitioner,
vs.
PIONEER INSURANCE AND SURETY CORPORATION, Respondent.
DECISION
NACHURA, J.:
For review is the Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 86869, which affirmed the
decision2 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 See’s (See’s) 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. See’s [the insured’s] 2001 Suzuki Grand Vitara x x x with Plate No. XBH-510 under
Policy No. MC-CV-HO-01-0003846-00-D in the amount of ₱1,175,000.00; 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 o’clock 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 Non- Recovery issued by the PNP TMG; it paid the ₱1,163,250.00 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
See’s 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 See’s
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
customer’s 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 customer’s 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 Adjusters-Appraisers [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 ₱1,163,250.00 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 See’s claim when the latter reported the incident to
[respondent] Pioneer Insurance; [respondent] Pioneer Insurance assigned the case to Vesper who
verified See’s 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 adjuster’s report, and eventually recommended for its settlement for
the sum of ₱1,163,250.00 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 ₱100,000.00 as attorney’s fees plus ₱3,000.00 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 See’s 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 Anti-
Carnapping Unit of the Makati City Police; upon verification with the PNP TMG [Unit] in Camp Crame, he
learned that See’s Vitara has not yet been recovered; upon evaluation, Vesper recommended to
[respondent] Pioneer Insurance to settle See’s claim for ₱1,045,750.00; 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 See’s contention, tendered the sum of ₱1,163,250.00 as
settlement, the former accepted it, and signed a release of claim and subrogation receipt.
The lower court denied the Motion to Admit Pre-Trial 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
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 ₱1,163,250.00 with legal interest
thereon from July 22, 2003 until the obligation is fully paid and attorney’s fees and litigation expenses
amounting to ₱120,000.00.
SO ORDERED.4
On appeal, the appellate court affirmed the decision of the trial court, viz.:
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
See’s Suzuki Grand Vitara.
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 attorney’s fees in the amount of ₱120,000.00; and
4. Ultimately, whether petitioner is liable to respondent for the loss of See’s 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 ex-parte. Likewise, the lower courts did not err in holding petitioner
liable for the loss of See’s 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 court’s 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 counsel’s 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 pre-trial 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 non-appearance 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
pre-trial conference. Worse, they did not file a pre-trial brief. Their non-appearance 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 petitioner’s 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 pre-trial 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 ex-
parte.
Former Chief Justice Andres R. Narvasa’s 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 non-suiting 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 one’s 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
client’s 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
non-suited or considered as in default," notwithstanding his lawyer’s or delegate’s presence. 9
We are not unmindful that defendant’s (petitioner’s) 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
plaintiff’s 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.1avvphi1 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 latter’s employee, Justimbaste. In turn, Justimbaste issued a claim stub to
See. Thus, the contract of deposit was perfected from See’s 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 See’s vehicle.
Lastly, petitioner assails the lower courts’ award of attorney’s fees to respondent in the amount of
₱120,000.00. Petitioner claims that the award is not substantiated by the evidence on record.
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 attorney’s fees. Attorney’s 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 refused to answer for the loss of See’s vehicle, which was deposited with it for
safekeeping. This refusal constrained respondent, the insurer of See, and subrogated to the latter’s
right, to litigate and incur expenses. However, we reduce the award of ₱120,000.00 to ₱60,000.00 in
view of the simplicity of the issues involved in this case.
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 attorney’s fees is reduced to ₱60,000.00. Costs
against petitioner.
SO ORDERED.
ANTONIO EDUARDO B. NACHURA

Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
Chairperson
DIOSDADO M. PERALTA ROBERTO A. ABAD

Associate Justice Associate Justice
JOSE CATRAL MENDOZA

Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.
ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I certify
that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.
RENATO C. CORONA
Chief Justice
SECOND DIVISION
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,"15 specifically 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 Malacaňang 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 ₱342,000.00, more or less, and the sum of AUS$4,500.00 or its equivalent in
Philippine Currency of ₱99,000.00, or a total of ₱441,000.00, 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 ₱3,674,238.00 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 ₱500,000.00 as moral damages
(Item X, Exh. "CC");
4. Ordering defendants, jointly and severally, to pay plaintiff the sum of ₱350,000.00 as exemplary
damages (Item XI, Exh. "CC");
5. And ordering defendants, jointly and severally, to pay litigation expenses in the sum of ₱200,000.00
(Item XII, Exh. "CC");
6. Ordering defendants, jointly and severally, to pay plaintiff the sum of ₱200,000.00 as attorney's fees,
and a fee of ₱3,000.00 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 non-performance 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) ₱153,200.00 representing the peso equivalent of US$2,000.00 and AUS$4,500.00;
2) ₱308,880.80, 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 ₱336,207.05 or ₱168,103.52 representing payment to Tropicana Apartment Hotel;
4) One-half of ₱152,683.57 or ₱76,341.785 representing payment to Echelon Tower;
5) One-half of ₱179,863.20 or ₱89,931.60 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 ₱7,801.94 or ₱3,900.97 representing Meralco power expenses;
7) One-half of ₱356,400.00 or ₱178,000.00 representing expenses for food and maintenance;
8) ₱50,000.00 for moral damages;
9) ₱10,000.00 as exemplary damages; and
10) ₱200,000 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.l^vvphi1.net 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.1awphi1.nét
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 2002 43 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. 48 The 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 of ₱308,880.80,
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 ₱336,207.05 or ₱168,103.52 representing payment to Tropicana; 50 one-half of
₱152,683.57 or ₱76,341.785 representing payment to Echelon Tower; 51 one-half of ₱179,863.20 or
₱89,931.60 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 one-half of ₱7,801.94 or ₱3,900.97
representing Meralco power expenses;53 one-half of ₱356,400.00 or ₱178,000.00 representing expenses
for food and maintenance.54
The amount of ₱50,000.00 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.l^vvphi1.net Moral damages are not intended to
enrich a complainant at the expense of a defendant.l^vvphi1.net 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
The awards of ₱10,000.00 as exemplary damages and ₱200,000.00 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) ₱308,880.80, 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 ₱336,207.05 or ₱168,103.52 representing payment to Tropicana Copacabana Apartment
Hotel;
(4) One-half of ₱152,683.57 or ₱76,341.785 representing payment to Echelon Tower;
(5) One-half of ₱179,863.20 or ₱89,931.60 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 ₱7,801.94 or ₱3,900.97 representing Meralco power expenses;
(7) One-half of ₱356,400.00 or ₱178,200.00 representing expenses for food and maintenance;
(8) ₱50,000.00 for moral damages;
(9) ₱10,000.00 as exemplary damages; and
(10) ₱200,000 representing attorney's fees.
With costs.
SO ORDERED.
Puno, (Chairman), Callejo, Sr., and Chico-Nazario, JJ., concur.

Austria-Martinez, J., no part.
Triple-V Food Services, Inc. vs. Filipino Merchants Insurance Corp., G.R. No. 160544, February 25, 2005
FIRST DIVISION
G.R. No. 120528 January 29, 2001
ATTY. DIONISIO CALIBO, JR., petitioner,

vs.
COURT OF APPEALS and DR. PABLO U. ABELLA, respondents.
QUISUMBING, J.:
Before us is the petition for review on certiorari by petitioner Dionisio Calibo, Jr., assailing the decision
of the Court of Appeals in CA-G.R. CV No. 39705, which affirmed the decision of the Regional Trial Court
of Cebu, Branch 11, declaring private respondent as the lawful possessor of a tractor subject of a
replevin suit and ordering petitioner to pay private respondent actual damages and attorney's fees.
The facts of the case, as summarized by respondent court, are undisputed.
"…on January 25, 1979, plaintiff-appellee [herein petitioner] Pablo U. Abella purchased an MF 210
agricultural tractor with Serial No. 00105 and Engine No. P126M00199 (Exhibit A; Record, p.5) which he
used in his farm in Dagohoy, Bohol.
Sometimes in October or November 1985, Pablo Abella's son, Mike abella rented for residential purpose
the house of defendant-appellant Dionosio R. Calibo, Jr., in Tagbilaran City.
In October 1986, Pablo Abella pulled out his aforementioned tractor from his farm in Dagohoy, Bohol,
and left it in the safekeeping of his son, Mike Abella, in Tagbilaran City. Mike kept the tractor in the
garage of the house he was leasing from Calibo.
Since he started renting Calibo's house, Mike had been religiously paying the monthly rentals therefor,
but beginning November of 1986, he stopped doing so. The following month, Calibo learned that Mike
had never paid the charges for electric and water consumption in the leased premises which the latter
was duty-bound to shoulder. Thus, Calibo confronted Mike about his rental arrears and the unpaid
electric and water bills. During this confrontation, Mike informed Calibo that he (Mike) would be staying
in the leased property only until the end of December 1986. Mike also assured Calibo that he would be
settling his account with the latter, offering the tractor as security. Mike even asked Calibo to help him
find a buyer for the tractor so he could sooner pay his outstanding obligation.1âwphi1.nêt
In January 1987 when a new tenant moved into the house formerly leased to Mike, Calibo had the
tractor moved to the garage of his father's house, also in Tagbilaran City.
Apprehensive over Mike's unsettled account, Calibo visited him in his Cebu City address in January,
February and March, 1987 and tried to collect payment. On all three occasions, Calibo was unable to talk
to Mike as the latter was reportedly out of town. On his third trip to Cebu City, Calibo left word with the
occupants of the Abella residence thereat that there was a prospective buyer for the tractor. The
following week, Mike saw Calibo in Tagbilaran City to inquire about the possible tractor buyer. The sale,
however, did not push through as the buyer did not come back anymore. When again confronted with
his outstanding obligation, Mike reassured Calibo that the tractor would stand as a guarantee for its
payment. That was the last time Calibo saw or heard from Mike.
After a long while, or on November 22, 1988, Mike's father, Pablo Abella, came to Tagbilaran City to
claim and take possession of the tractor. Calibo, however, informed Pablo that Mike left the tractor with
him as security for the payment of Mike's obligation to him. Pablo offered to write Mike a check for
P2,000.00 in payment of Mike's unpaid lease rentals, in addition to issuing postdated checks to cover
the unpaid electric and water bills the correctness of which Pablo said he still had to verify with Mike.
Calibo told Pablo that he would accept the P2,000.00-check only if the latter would execute a
promissory note in his favor to cover the amount of the unpaid electric and water bills. Pablo was not
amenable to this proposal. The two of them having failed to come to an agreement, Pablo left and went
back to Cebu City, unsuccessful in his attempt to take possession of the tractor." 1
On November 25, 1988, private respondent instituted an action for replevin, claiming ownership of the
tractor and seeking to recover possession thereof from petitioner. As adverted to above, the trial court
ruled in favor of private respondent; so did the Court of Appeals when petitioner appealed.
The Court of Appeals sustained the ruling of the trial court that Mike Abella could not have validly
pledged the subject tractor to petitioner since he was not the owner thereof, nor was he authorized by
its owner to pledge the tractor. Respondent court also rejected petitioner's contention that, if not a
pledge, then a deposit was created. The Court of Appeals said that under the Civil Code, the primary
purpose of a deposit is only safekeeping and not, as in this case, securing payment of a debt.
The Court of Appeals reduced the amount of actual damages payable to private respondent, deducting
therefrom the cost of transporting the tractor from Tagbilaran, Bohol, to Cebu City.
Hence, this petition.
Essentially, petitioner claims that the tractor in question was validly pledged to him by private
respondent's son Mike Abella to answer for the latter's monetary obligations to petitioner. In the
alternative, petitioner asserts that the tractor was left with him, in the concept of an innkeeper, on
deposit and that he may validly hold on thereto until Mike Abella pays his obligations.
Petitioner maintains that even if Mike Abella were not the owner of the tractor, a principal-agent
relationship may be implied between Mike Abella and private respondent. He contends that the latter
failed to repudiate the alleged agency, knowing that his son is acting on his behalf without authority
when he pledged the tractor to petitioner. Petitioner argues that, under Article 1911 of the Civil Code,
private respondent is bound by the pledge, even if it were beyond the authority of his son to pledge the
tractor, since he allowed his son to act as though he had full powers.
On the other hand, private respondent asserts that respondent court had correctly ruled on the matter.
In a contract of pledge, the creditor is given the right to retain his debtor's movable property in his
possession, or in that of a third person to whom it has been delivered, until the debt is paid. For the
contract to be valid, it is necessary that: (1) the pledge is constituted to secure the fulfillment of a
principal obligation; (2) the pledgor be the absolute owner of the thing pledged; and (3) the person
constituting the pledge has the free disposal of his property, and in the absence thereof, that he be
legally authorized for the purpose.2
As found by the trial court and affirmed by respondent court, the pledgor in this case, Mike Abella, was
not the absolute owner of the tractor that was allegedly pledged to petitioner. The tractor was owned
by his father, private respondent, who left the equipment with him for safekeeping. Clearly, the second
requisite for a valid pledge, that the pledgor be the absolute owner of the property, is absent in this
case. Hence, there is no valid pledge.
"He who is not the owner or proprietor of the property pledged or mortgaged to guarantee the
fulfillment of a principal obligation, cannot legally constitute such a guaranty as may validly bind the
property in favor of his creditor, and the pledgee or mortgagee in such a case acquires no right
whatsoever in the property pledged or mortgaged." 3
There also does not appear to be any agency in this case. We agree with the Court of Appeals that:
"As indicated in Article 1869, for an agency relationship to be deemed as implied, the principal must
know that another person is acting on his behalf without authority. Here, appellee categorically stated
that the only purpose for his leaving the subject tractor in the care and custody of Mike Abella was for
safekeeping, and definitely not for him to pledge or alienate the same. If it were true that Mike pledged
appeellee's tractor to appellant, then Mike was acting not only without appellee's authority but without
the latter's knowledge as well.
Article 1911, on the other hand, mandates that the principal is solidarily liable with the agent if the
former allowed the latter to act as though he had full powers. Again, in view of appellee's lack of
knowledge of Mike's pledging the tractor without any authority from him, it stands to reason that the
former could not have allowed the latter to pledge the tractor as if he had full powers to do so." 4
There is likewise no valid deposit in this case. In a contract of deposit, a person receives an object
belonging to another with the obligation of safely keeping it and of returning the same. 5 Petitioner
himself states that he received the tractor not to safely keep it but as a form of security for the payment
of Mike Abella's obligations. There is no deposit where the principal purpose for receiving the object is
not safekeeping.6
Consequently, petitioner had no right to refuse delivery of the tractor to its lawful owner. On the other
hand, private respondent, as owner, had every right to seek to repossess the tractor, including the
institution of the instant action for replevin.1âwphi1.nêt
We do not here pass upon the other assignment of errors made by petitioner concerning alleged
irregularities in the raffle and disposition of the case at the trial court. A petition for review on certiorari
is not the proper vehicle for such allegations.
WHEREFORE, the instant petition is DENIED for lack of merit, and the decision of the Court of Appeals in
CA-G.R. CV No. 39705 is AFFIRMED. Costs against petitioner.
SO ORDERED.
Bellosillo, Mendoza, Buena, and De Leon, Jr., JJ., concur.

[G.R. No. 160544. February 21, 2005]
TRIPLE-V vs. FILIPINO MERCHANTS
THIRD DIVISION
Gentlemen:
Quoted hereunder, for your information, is a resolution of this Court dated FEB 21 2005.
G.R. No. 160544 (Triple-V Food Services, Inc. vs. Filipino Merchants Insurance Company, Inc.)
Assailed in this petition for review on certiorari is the decision [1]cralaw dated October 21, 2003 of the
Court of Appeals in CA-G.R. CV No. 71223, affirming an earlier decision of the Regional Trial Court at
Makati City, Branch 148, in its Civil Case No. 98-838, an action for damages thereat filed by respondent
Filipino Merchants Insurance, Company, Inc., against the herein petitioner, Triple-V Food Services, Inc.
On March 2, 1997, at around 2:15 o'clock in the afternoon, a certain Mary Jo-Anne De Asis (De Asis)
dined at petitioner's Kamayan Restaurant at 15 West Avenue, Quezon City. De Asis was using a
Mitsubishi Galant Super Saloon Model 1995 with plate number UBU 955, assigned to her by her
employer Crispa Textile Inc. (Crispa). On said date, De Asis availed of the valet parking service of
petitioner and entrusted her car key to petitioner's valet counter. A corresponding parking ticket was
issued as receipt for the car. The car was then parked by petitioner's valet attendant, a certain
Madridano, at the designated parking area. Few minutes later, Madridano noticed that the car was not
in its parking slot and its key no longer in the box where valet attendants usually keep the keys of cars
entrusted to them. The car was never recovered. Thereafter, Crispa filed a claim against its insurer,
herein respondent Filipino Merchants Insurance Company, Inc. (FMICI). Having indemnified Crispa in the
amount of P669.500 for the loss of the subject vehicle, FMICI, as subrogee to Crispa's rights, filed with
the RTC at Makati City an action for damages against petitioner Triple-V Food Services, Inc., thereat
docketed as Civil Case No. 98-838 which was raffled to Branch 148.
In its answer, petitioner argued that the complaint failed to aver facts to support the allegations of
recklessness and negligence committed in the safekeeping and custody of the subject vehicle, claiming
that it and its employees wasted no time in ascertaining the loss of the car and in informing De Asis of
the discovery of the loss. Petitioner further argued that in accepting the complimentary valet parking
service, De Asis received a parking ticket whereunder it is so provided that "[Management and staff will
not be responsible for any loss of or damage incurred on the vehicle nor of valuables contained therein",
a provision which, to petitioner's mind, is an explicit waiver of any right to claim indemnity for the loss of
the car; and that De Asis knowingly assumed the risk of loss when she allowed petitioner to park her
vehicle, adding that its valet parking service did not include extending a contract of insurance or
warranty for the loss of the vehicle.
During trial, petitioner challenged FMICI's subrogation to Crispa's right to file a claim for the loss of the
car, arguing that theft is not a risk insured against under FMICI's Insurance Policy No. PC-5975 for the
subject vehicle.
In a decision dated June 22, 2001, the trial court rendered judgment for respondent FMICI, thus:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff (FMICI) and
against the defendant Triple V (herein petitioner) and the latter is hereby ordered to pay plaintiff the
following:
1. The amount of P669,500.00, representing actual damages plus compounded (sic);
2. The amount of P30,000.00 as acceptance fee plus the amount equal to 25% of the total amount due
as attorney's fees;
3. The amount of P50,000.00 as exemplary damages;
4. Plus, cost of suit.
Defendant Triple V is not therefore precluded from taking appropriate action against defendant
Armando Madridano.
SO ORDERED.
Obviously displeased, petitioner appealed to the Court of Appeals reiterating its argument that it was
not a depositary of the subject car and that it exercised due diligence and prudence in the safe keeping
of the vehicle, in handling the car-napping incident and in the supervision of its employees. It further
argued that there was no valid subrogation of rights between Crispa and respondent FMICI.
In a decision dated October 21, 2003,[2]cralaw the Court of Appeals dismissed petitioner's appeal and
affirmed the appealed decision of the trial court, thus:
WHEREFORE, based on the foregoing premises, the instant appeal is hereby DISMISSED. Accordingly, the
assailed June 22, 2001 Decision of the RTC of Makati City - Branch 148 in Civil Case No. 98-838 is
AFFIRMED.
SO ORDERED.
In so dismissing the appeal and affirming the appealed decision, the appellate court agreed with the
findings and conclusions of the trial court that: (a) petitioner was a depositary of the subject vehicle; (b)
petitioner was negligent in its duties as a depositary thereof and as an employer of the valet attendant;
and (c) there was a valid subrogation of rights between Crispa and respondent FMICI.
Hence, petitioner's present recourse.
We agree with the two (2) courts below.
When De Asis entrusted the car in question to petitioners valet attendant while eating at
petitioner's Kamayan Restaurant, the former expected the car's safe return at the end of her meal.
Thus, petitioner was constituted as a depositary of the same car. Petitioner cannot evade liability by
arguing that neither a contract of deposit nor that of insurance, guaranty or surety for the loss of the car
was constituted when De Asis availed of its free valet parking service.
In a contract of deposit, a person receives an object belonging to another with the obligation of safely
keeping it and returning the same. [3]cralaw A deposit may be constituted even without any
consideration. It is not necessary that the depositary receives a fee before it becomes obligated to keep
the item entrusted for safekeeping and to return it later to the depositor.
Specious is petitioner's insistence that the valet parking claim stub it issued to De Asis contains a clear
exclusion of its liability and operates as an explicit waiver by the customer of any right to claim
indemnity for any loss of or damage to the vehicle.
The parking claim stub embodying the terms and conditions of the parking, including that of relieving
petitioner from any loss or damage to the car, is essentially a contract of adhesion, drafted and prepared
as it is by the petitioner alone with no participation whatsoever on the part of the customers, like De
Asis, who merely adheres to the printed stipulations therein appearing. While contracts of adhesion are
not void in themselves, yet this Court will not hesitate to rule out blind adherence thereto if they prove
to be one-sided under the attendant facts and circumstances. [4]cralaw
Hence, and as aptly pointed out by the Court of Appeals, petitioner must not be allowed to use its
parking claim stub's exclusionary stipulation as a shield from any responsibility for any loss or damage to
vehicles or to the valuables contained therein. Here, it is evident that De Asis deposited the car in
question with the petitioner as part of the latter's enticement for customers by providing them a safe
parking space within the vicinity of its restaurant. In a very real sense, a safe parking space is an added
attraction to petitioner's restaurant business because customers are thereby somehow assured that
their vehicle are safely kept, rather than parking them elsewhere at their own risk. Having entrusted the
subject car to petitioner's valet attendant, customer De Asis, like all of petitioner's customers, fully
expects the security of her car while at petitioner's premises/designated parking areas and its safe
return at the end of her visit at petitioner's restaurant.
Petitioner's argument that there was no valid subrogation of rights between Crispa and FMICI because
theft was not a risk insured against under FMICI's Insurance Policy No. PC-5975 holds no water.
Insurance Policy No. PC-5975 which respondent FMICI issued to Crispa contains, among others things,
the following item: "Insured's Estimate of Value of Scheduled Vehicle- P800.000".[5]cralaw On the basis
of such item, the trial court concluded that the coverage includes a full comprehensive insurance of the
vehicle in case of damage or loss. Besides, Crispa paid a premium of P10,304 to cover theft. This is
clearly shown in the breakdown of premiums in the same policy. [6]cralaw Thus, having indemnified
CRISPA for the stolen car, FMICI, as correctly ruled by the trial court and the Court of Appeals, was
properly subrogated to Crispa's rights against petitioner, pursuant to Article 2207 of the New Civil
Code[7].
Anent the trial court's findings of negligence on the part of the petitioner, which findings were affirmed
by the appellate court, we have consistently ruled that findings of facts of trial courts, more so when
affirmed, as here, by the Court of Appeals, are conclusive on this Court unless the trial court itself
ignored, overlooked or misconstrued facts and circumstances which, if considered, warrant a reversal of
the outcome of the case.[8]cralaw This is not so in the case at bar. For, we have ourselves reviewed the
records and find no justification to deviate from the trial court's findings.
WHEREFORE, petition is hereby DENIED DUE COURSE.
SO ORDERED.
Very truly yours,

(Sgd.) LUCITA ABJELINA-SORIANO
Clerk of Court
SUPREME COURT
Manila
EN BANC
G.R. No. 4015 August 24, 1908
ANGEL JAVELLANA, plaintiff-appellee,
vs.
JOSE LIM, ET AL., defendants-appellants.
R. Zaldarriaga for appellants.

B. Montinola for appellee.
TORRES, J.:
The attorney for the plaintiff, Angel Javellana, file a complaint on the 30th of October, 1906, with the
Court of First Instance of Iloilo, praying that the defendants, Jose Lim and Ceferino Domingo Lim, he
sentenced to jointly and severally pay the sum of P2,686.58, with interest thereon at the rate of 15 per
cent per annum from the 20th of January, 1898, until full payment should be made, deducting from the
amount of interest due the sum of P1,102.16, and to pay the costs of the proceedings.
Authority from the court having been previously obtained, the complaint was amended on the 10th of
January, 1907; it was then alleged, on the 26th of May, 1897, the defendants executed and subscribed a
document in favor of the plaintiff reading as follows:
We have received from Angel Javellana, as a deposit without interest, the sum of two thousand six
hundred and eighty-six cents of pesos fuertes, which we will return to the said gentleman, jointly and
severally, on the 20th of January, 1898. — Jaro, 26th of May, 1897. — Signed Jose Lim. — Signed:
Ceferino Domingo Lim.
That, when the obligation became due, the defendants begged the plaintiff for an extension of time for
the payment thereof, building themselves to pay interest at the rate of 15 per cent on the amount of
their indebtedness, to which the plaintiff acceded; that on the 15th of May, 1902, the debtors paid on
account of interest due the sum of P1,000 pesos, with the exception of either capital or interest, had
thereby been subjected to loss and damages.
A demurrer to the original complaint was overruled, and on the 4th of January, 1907, the defendants
answered the original complaint before its amendment, setting forth that they acknowledged the facts
stated in Nos. 1 and 2 of the complaint; that they admitted the statements of the plaintiff relative to the
payment of 1,102.16 pesos made on the 15th of November, 1902, not, however, as payment of interest
on the amount stated in the foregoing document, but on account of the principal, and denied that there
had been any agreement as to an extension of the time for payment and the payment of interest at the
rate of 15 per cent per annum as alleged in paragraph 3 of the complaint, and also denied all the other
statements contained therein.
As a counterclaim, the defendants alleged that they had paid to the plaintiff sums which, together with
the P1,102.16 acknowledged in the complaint, aggregated the total sum of P5,602.16, and that,
deducting therefrom the total sum of P2,686.58 stated in the document transcribed in the complaint,
the plaintiff still owed the defendants P2,915.58; therefore, they asked that judgment be entered
absolving them, and sentencing the plaintiff to pay them the sum of P2,915.58 with the costs.
Evidence was adduced by both parties and, upon their exhibits, together with an account book having
been made of record, the court below rendered judgment on the 15th of January, 1907, in favor of the
plaintiff for the recovery of the sum of P5,714.44 and costs.
The defendants excepted to the above decision and moved for a new trial. This motion was overruled
and was also excepted to by them; the bill of exceptions presented by the appellants having been
approved, the same was in due course submitted to this court.
The document of indebtedness inserted in the complaint states that the plaintiff left on deposit with the
defendants a given sum of money which they were jointly and severally obliged to return on a certain
date fixed in the document; but that, nevertheless, when the document appearing as Exhibits 2, written
in the Visayan dialect and followed by a translation into Spanish was executed, it was acknowledged, at
the date thereof, the 15th of November, 1902, that the amount deposited had not yet been returned to
the creditor, whereby he was subjected to losses and damages amounting to 830 pesos since the 20th of
January, 1898, when the return was again stipulated with the further agreement that the amount
deposited should bear interest at the rate of 15 per cent per annum, from the aforesaid date of January
20, and that the 1,000 pesos paid to the depositor on the 15th of May, 1900, according to the receipt
issued by him to the debtors, would be included, and that the said rate of interest would obtain until the
debtors on the 20th of May, 1897, it is called a deposit consisted, and they could have accomplished the
return agreed upon by the delivery of a sum equal to the one received by them. For this reason it must
be understood that the debtors were lawfully authorized to make use of the amount deposited, which
they have done, as subsequent shown when asking for an extension of the time for the return thereof,
inasmuch as, acknowledging that they have subjected the letter, their creditor, to losses and damages
for not complying with what had been stipulated, and being conscious that they had used, for their own
profit and gain, the money that they received apparently as a deposit, they engaged to pay interest to
the creditor from the date named until the time when the refund should be made. Such conduct on the
part of the debtors is unquestionable evidence that the transaction entered into between the interested
parties was not a deposit, but a real contract of loan.
Article 1767 of the Civil Code provides that —
The depository can not make use of the thing deposited without the express permission of the
depositor.
Otherwise he shall be liable for losses and damages.
Article 1768 also provides that —
When the depository has permission to make use of the thing deposited, the contract loses the
character of a deposit and becomes a loan or bailment.
The permission shall not be presumed, and its existence must be proven.
When on one of the latter days of January, 1898, Jose Lim went to the office of the creditor asking for an
extension of one year, in view of the fact the money was scare, and because neither himself nor the
other defendant were able to return the amount deposited, for which reason he agreed to pay interest
at the rate of 15 per cent per annum, it was because, as a matter of fact, he did not have in his
possession the amount deposited, he having made use of the same in his business and for his own
profit; and the creditor, by granting them the extension, evidently confirmed the express permission
previously given to use and dispose of the amount stated as having bee deposited, which, in accordance
with the loan, to all intents and purposes gratuitously, until the 20th of January, 1898, and from that
dated with interest at 15 per cent per annum until its full payment, deducting from the total amount of
interest the sum of 1,000 pesos, in accordance with the provisions of article 1173 of the Civil Code.
Notwithstanding that it does not appear that Jose Lim signed the document (Exhibit 2) executed in the
presence of three witnesses on the 15th of November, 1902, by Ceferino Domingo Lim on behalf of
himself and the former, nevertheless, the said document has not been contested as false, either by a
criminal or by a civil proceeding, nor has any doubt been cast upon the authenticity of the signatures of
the witnesses who attested the execution of the same; and from the evidence in the case one is
sufficiently convinced that the said Jose Lim was perfectly aware of and authorized his joint codebtor to
liquidate the interest, to pay the sum of 1,000 pesos, on account thereof, and to execute the aforesaid
document No. 2. A true ratification of the original document of deposit was thus made, and not the least
proof is shown in the record that Jose Lim had ever paid the whole or any part of the capital stated in
the original document, Exhibit 1.
If the amount, together with interest claimed in the complaint, less 1,000 pesos appears as fully
established, such is not the case with the defendant's counterclaim for P5,602.16, because the existence
and certainty of said indebtedness imputed to the plaintiff has not been proven, and the defendants,
who call themselves creditors for the said amount have not proven in a satisfactory manner that the
plaintiff had received partial payments on account of the same; the latter alleges with good reason, that
they should produce the receipts which he may have issued, and which he did issue whenever they paid
him any money on account. The plaintiffs allegation that the two amounts of 400 and 1,200 pesos,
referred to in documents marked "C" and "D" offered in evidence by the defendants, had been received
from Ceferino Domingo Lim on account of other debts of his, has not been contradicted, and the fact
that in the original complaint the sum of 1,102.16 pesos, was expressed in lieu of 1,000 pesos, the only
payment made on account of interest on the amount deposited according to documents No. 2 and letter
"B" above referred to, was due to a mistake.
Moreover, for the reason above set forth it may, as a matter of course, be inferred that there was no
renewal of the contract deposited converted into a loan, because, as has already been stated, the
defendants received said amount by virtue of real loan contract under the name of a deposit, since the
so-called bailees were forthwith authorized to dispose of the amount deposited. This they have done, as
has been clearly shown.
The original joint obligation contracted by the defendant debtor still exists, and it has not been shown or
proven in the proceedings that the creditor had released Joe Lim from complying with his obligation in
order that he should not be sued for or sentenced to pay the amount of capital and interest together
with his codebtor, Ceferino Domingo Lim, because the record offers satisfactory evidence against the
pretension of Jose Lim, and it further appears that document No. 2 was executed by the other debtor,
Ceferino Domingo Lim, for himself and on behalf of Jose Lim; and it has also been proven that Jose Lim,
being fully aware that his debt had not yet been settled, took steps to secure an extension of the time
for payment, and consented to pay interest in return for the concession requested from the creditor.
In view of the foregoing, and adopting the findings in the judgment appealed from, it is our opinion that
the same should be and is hereby affirmed with the costs of this instance against the appellant, provided
that the interest agreed upon shall be paid until the complete liquidation of the debt. So ordered.
Arellano, C.J., Carson, Willard and Tracey, JJ., concur.

THIRD DIVISION
G.R. No. 142591 April 30, 2003
JOSEPH CHAN, WILSON CHAN and LILY CHAN, petitioners,

vs.
BONIFACIO S. MACEDA, JR., * respondent.
SANDOVAL-GUTIERREZ, J.:
A judgment of default does not automatically imply admission by the defendant of the facts and causes
of action of the plaintiff. The Rules of Court require the latter to adduce evidence in support of his
allegations as an indispensable condition before final judgment could be given in his favor. 1 The trial
judge has to evaluate the allegations with the highest degree of objectivity and certainty. He may
sustain an allegation for which the plaintiff has adduced sufficient evidence, otherwise, he has to reject
it. In the case at bar, judicial review is imperative to avert the award of damages that is unreasonable
and without evidentiary support.
Assailed in this petition for review under Rule 45 of the 1997 Rules of Civil Procedure, as amended, is the
Decision2 dated June 17, 1999 of the Court of Appeals in CA-G.R. CV No. 57323, entitled "Bonifacio S.
Maceda, Jr. versus Joseph Chan, et al.," affirming in toto the Decision3 dated December 26, 1996 of the
Regional Trial Court, Branch 160, Pasig City, in Civil Case No. 53044.
The essential antecedents are as follows:
On July 28, 1976, Bonifacio S. Maceda, Jr., herein respondent, obtained a P7.3 million loan from the
Development Bank of the Philippines for the construction of his New Gran Hotel Project in Tacloban City.
Thereafter, on September 29, 1976, respondent entered into a building construction contract with
Moreman Builders Co., Inc., (Moreman). They agreed that the construction would be finished not later
than December 22, 1977.
Respondent purchased various construction materials and equipment in Manila. Moreman, in turn,
deposited them in the warehouse of Wilson and Lily Chan, herein petitioners. The deposit was free of
charge.
Unfortunately, Moreman failed to finish the construction of the hotel at the stipulated time. Hence, on
February 1, 1978, respondent filed with the then Court of First Instance (CFI, now Regional Trial Court),
Branch 39, Manila, an action for rescission and damages against Moreman, docketed as Civil Case No.
113498.
On November 28, 1978, the CFI rendered its Decision 4 rescinding the contract between Moreman and
respondent and awarding to the latter P445,000.00 as actual, moral and liquidated
damages; P20,000.00 representing the increase in the construction materials; and P35,000.00 as
attorney's fees. Moreman interposed an appeal to the Court of Appeals but the same was dismissed on
March 7, 1989 for being dilatory. He elevated the case to this Court via a petition for review on
certiorari. In a Decision5 dated February 21, 1990, we denied the petition. On April 23, 1990, 6 an Entry of
Judgment was issued.
Meanwhile, during the pendency of the case, respondent ordered petitioners to return to him the
construction materials and equipment which Moreman deposited in their warehouse. Petitioners,
however, told them that Moreman withdrew those construction materials in 1977.
Hence, on December 11, 1985, respondent filed with the Regional Trial Court, Branch 160, Pasig City, an
action for damages with an application for a writ of preliminary attachment against
petitioners,7 docketed as Civil Case No. 53044.
In the meantime, on October 30, 1986, respondent was appointed Judge of the Regional Trial Court,
Branch 12, San Jose Antique.8
On August 25, 1989, or after almost four (4) years, the trial court dismissed respondent's complaint for
his failure to prosecute and for lack of interest." 9 On September 6, 1994, or five years thereafter,
respondent filed a motion for reconsideration, but the same was denied in the Order dated September
9, 1994 because of the failure of respondent and his counsel to appear on the scheduled hearing. 10
On October 14, 1994, respondent filed a second motion for reconsideration. This time, the motion was
granted and the case was ordered reinstated on January 10, 1995, or ten (10) years from the time the
action was originally filed.11 Thereafter, summons, together with the copies of the complaint and its
annexes, were served on petitioners.
On March 2, 1995, counsel for petitioners filed a motion to dismiss on several grounds. 12 Respondent, on
the other hand, moved to declare petitioners in default on the ground that their motion to dismiss was
filed out of time and that it did not contain any notice of hearing. 13
On April 27, 1995, the trial court issued an order declaring petitioners in default. 14
Petitioners filed with the Court of Appeals a petition for certiorari 15 to annul the trial court's order of
default, but the same was dismissed in its Order 16 dated August 31, 1995. The case reached this Court,
and in a Resolution dated October 25, 1995,17 we affirmed the assailed order of the Court of Appeals. On
November 29, 1995,18 the corresponding Entry of Judgment was issued.
Thus, upon the return of the records to the RTC, Branch 160, Pasig City, respondent was allowed to
present his evidence ex-parte.
Upon motion of respondent, which was granted by the trial court in its Order dated April 29, 1996, 19 the
depositions of his witnesses, namely, Leonardo Conge, Alfredo Maceda and Engr. Damiano Nadera were
taken in the Metropolitan Trial Court in Cities, Branch 2, Tacloban City. 20 Deponent Leonardo Conge, a
labor contractor, testified that on December 14 up to December 24, 1977, he was contracted by
petitioner Lily Chan to get bags of cement from the New Gran Hotel construction site and to store the
same into the latter's warehouse in Tacloban City. Aside from those bags of cement, deponent also
hauled about 400 bundles of steel bars from the same construction site, upon order of petitioners.
Corresponding delivery receipts were presented and marked as Exhibits "A", "A-1", "A-2", "A-3" and "A-
4".21
Deponent Alfredo Maceda testified that he was respondent's Disbursement and Payroll Officer who
supervised the construction and kept inventory of the properties of the New Gran Hotel. While
conducting the inventory on November 23, 1977, he found that the approximate total value of the
materials stored in petitioners' warehouse was P214,310.00. This amount was accordingly reflected in
the certification signed by Mario Ramos, store clerk and representative of Moreman who was present
during the inventory.22
Deponent Damiano Nadera testified on the current cost of the architectural and structural requirements
needed to complete the construction of the New Gran Hotel. 23
On December 26, 1996, the trial court rendered a decision in favor of respondent, thus:
"WHEREFORE, foregoing considered, judgment is hereby rendered ordering defendants to jointly and
severally pay plaintiff:
1) P1,930,000.00 as actual damages;
2) P2,549,000.00 as actual damages;
3) Moral damages of P150,000.00; exemplary damages of P50,000.00 and attorney's fees of P50,000.00
and to pay the costs.
"SO ORDERED."
The trial court ratiocinated as follows:
"The inventory of other materials, aside from the steel bars and cement is found highly reliable based on
first, the affidavit of Arthur Edralin dated September 15, 1979, personnel officer of Moreman Builders
that he was assigned with others to guard the warehouse; (Exhs. "M" & "O"); secondly, the inventory
(Exh. "C") dated November 23, 1977 shows (sic) deposit of assorted materials; thirdly, that there were
items in the warehouse as of February 3, 1978 as shown in the balance sheet of Moreman's stock clerk
Jose Cedilla.
"Plaintiff is entitled to payment of damages for the overhauling of materials from the construction site
by Lily Chan without the knowledge and consent of its owner. Article 20 of the Civil Code provides:
'Art. 20. Every person who contrary to law, willfully or negligently caused damage to another, shall
indemnify the latter for the same.'
"As to the materials stored inside the bodega of defendant Wilson Chan, the inventory (Exh. "C") show
(sic), that the same were owned by the New Gran Hotel. Said materials were stored by Moreman
Builders Co., Inc. since it was attested to by the warehouseman as without any lien or encumbrances,
the defendants are duty bound to release it. Article 21 of the Civil Code provides:
'Art. 21. Any person who willfully caused loss or injury to another in a manner that is contrary to morals,
good customs or public policy shall compensate the latter for the damage.'
"Plaintiff is entitled to payment of actual damages based on the inventory as of November 23, 1977
amounting to P1,930,080.00 (Exhs. "Q" & "Q-1"). The inventory was signed by the agent Moreman
Builders Corporation and defendants.
"Plaintiff is likewise entitled to payment of 12,500 bags of cement and 400 bundles of steel bars totaling
P2,549,000.00 (Exhs. "S" & "S-1"; Exhs. "B" & "B-3").
"Defendants should pay plaintiff moral damages of P150,000.00; exemplary damages of P50,000.00 and
attorney's fees of P50,000.00 and to pay the costs.
"The claim of defendant for payment of damages with respect to the materials appearing in the balance
sheets as of February 3, 1978 in the amount of P3,286,690.00, not having been established with enough
preponderance of evidence cannot be given weight." 24
Petitioners then elevated the case to the Court of Appeals, docketed as CA-G.R. CV No. 57323. On June
17, 1999, the Appellate Court rendered the assailed Decision 25 affirming in toto the trial court's
judgment, ratiocinating as follows:
"Moreover, although the prayer in the complaint did not specify the amount of damages sought, the
same was satisfactorily proved during the trial. For damages to be awarded, it is essential that the
claimant satisfactorily prove during the trial the existence of the factual basis thereof and its causal
connection with the adverse party's act (PAL, Inc. vs. NLRC, 259 SCRA 459). In sustaining appellee's claim
for damages, the court a quo held as follows:
'The Court finds the contention of plaintiff that materials and equipment of plaintiff were stored in the
warehouse of defendants and admitted by defendants in the certification issued to Sheriff Borja. x x x
'Evidence further revealed that assorted materials owned by the New Gran Hotel (Exh. "C") were
deposited in the bodega of defendant Wilson Chan with a total market value of P1,930,000.00, current
price.
'The inventory of other materials, aside from the steel bars and cement, is highly reliable based on first,
the affidavit of Arthur Edralin dated September 15, 1979, personnel officer of Moreman Builders; that
he was assigned, with others to guard the warehouse (Exhs. M & O); secondly, the inventory (Exh. C)
November 23, 1977 shows deposit of assorted materials; thirdly, that there were items in the
warehouse as of February 3, 1978, as shown in the balance sheet of Moreman's stock clerk, Jose Cedilla
(pp. 60–61, Rollo).'
"The Court affirms the above findings.
"Well settled is the rule that 'absent any proper reason to depart from the rule, factual conclusions
reached by the trial court are not to be disturbed (People vs. Dupali, 230 SCRA 62).' Hence, in the
absence of any showing that serious and substantial errors were committed by the lower court in the
appraisal of the evidence, the trial judge's assessment of the credibility of the witnesses is accorded
great weight and respect (People vs. Jain, 254 SCRA 686). And, there being absolutely nothing on record
to show that the court a quo overlooked, disregarded, or misinterpreted facts of weight and
significance, its factual findings and conclusions must be given great weight and should not be disturbed
on appeal.
"WHEREFORE, being in accord with law and evidence, the appealed decision is hereby AFFIRMED in
toto."
Hence, this petition for review on certiorari anchored on the following grounds:
"I
The Court of Appeals acted with grave abuse of discretion and under a misapprehension of the law and
the facts when it affirmed in toto the award of actual damages made by the trial court in favor of
respondent in this case.
II
The awards of moral and exemplary damages of the trial court to respondent in this case and
affirmed in toto by the Court of Appeals are unwarranted by the evidence presented by respondent at
the ex parte hearing of this case and should, therefore, be eliminated or at least reduced.
III
The award of attorney's fees by the trial court to respondent in this case and affirmed by the Court of
Appeals should be deleted because of the failure of the trial court to state the legal and factual basis of
such award."
Petitioners contend inter alia that the actual damages claimed by respondent in the present case were
already awarded to him in Civil Case No. 113498 26 and hence, cannot be recovered by him again. Even
assuming that respondent is entitled to damages, he can not recover P4,479,000.00 which is eleven (11)
times more than the total actual damages of P365,000.00 awarded to him in Civil Case No. 113498. 27
In his comment on the petition, respondent maintains that petitioners, as depositaries under the law,
have both the fiduciary and extraordinary obligations not only to safely keep the construction material
deposited, but also to return them with all their products, accessories and accessions, pursuant to
Articles 1972,28 1979,29 1983,30 and 198831 of the Civil Code. Considering that petitioners' duty to return
the construction materials in question has already become impossible, it is only proper that the prices of
those construction materials in 1996 should be the basis of the award of actual damages. This is the only
way to fulfill the "duty to return" contemplated in the applicable laws. 32 Respondent further claims that
petitioners must bear the increase in market prices from 1977 to 1996 because liability for fraud
includes "all damages which may be reasonably attributed to the non-performance of the obligation."
Lastly, respondent insists that there can be no double recovery because in Civil Case No. 113498, 33 the
parties were respondent himself and Moreman and the cause of action was the rescission of their
building contract. In the present case, however, the parties are respondent and petitioners and the
cause of action between them is for recovery of damages arising from petitioners' failure to return the
construction materials and equipment.
Obviously, petitioners' assigned errors call for a review of the lower court's findings of fact.
Succinct is the rule that this Court is not a trier of facts and does not normally undertake the re-
examination of the evidence submitted by the contending parties during the trial of the case considering
that findings of fact of the Court of Appeals are generally binding and conclusive on this Court. 34 The
jurisdiction of this Court in a petition for review on certiorari is limited to reviewing only errors of
law,35 not of fact, unless it is shown, inter alia, that: (1) the conclusion is a finding grounded on
speculations, surmises or conjectures; (2) the inference is manifestly mistaken, absurd and impossible;
(3) there is grave abuse of discretion; (4) the judgment is based on misapprehension of facts; (5) the
findings of fact are conflicting; and (6) the Court of Appeals, in making its findings went beyond the
issues of the case and the same is contrary to the admission of both parties. 36
Petitioners submit that this case is an exception to the general rule since both the trial court and the
Court of Appeals based their judgments on misapprehension of facts.
We agree.
At the outset, the case should have been dismissed outright by the trial court because of patent
procedural infirmities. It bears stressing that the case was originally filed on December 11, 1985. Four (4)
years thereafter, or on August 25, 1989, the case was dismissed for respondent's failure to prosecute.
Five (5) years after, or on September 6, 1994, respondent filed his motion for reconsideration. From
here, the trial court already erred in its ruling because it should have dismissed the motion for
reconsideration outright as it was filed far beyond the fifteen-day reglementary period. 37 Worse, when
respondent filed his second motion for reconsideration on October 14, 1994, a prohibited pleading, 38 the
trial court still granted the same and reinstated the case on January 10, 1995. This is a glaring gross
procedural error committed by both the trial court and the Court of Appeals.
Even without such serious procedural flaw, the case should also be dismissed for utter lack of merit.
It must be stressed that respondent's claim for damages is based on petitioners' failure to return or to
release to him the construction materials and equipment deposited by Moreman to their warehouse.
Hence, the essential issues to be resolved are: (1) Has respondent presented proof that the construction
materials and equipment were actually in petitioners' warehouse when he asked that the same be
turned over to him? (2) If so, does respondent have the right to demand the release of the said
materials and equipment or claim for damages?
Under Article 1311 of the Civil Code, contracts are binding upon the parties (and their assigns and heirs)
who execute them. When there is no privity of contract, there is likewise no obligation or liability to
speak about and thus no cause of action arises. Specifically, in an action against the depositary, the
burden is on the plaintiff to prove the bailment or deposit and the performance of conditions precedent
to the right of action.39 A depositary is obliged to return the thing to the depositor, or to his heirs or
successors, or to the person who may have been designated in the contract. 40
In the present case, the record is bereft of any contract of deposit, oral or written, between petitioners
and respondent. If at all, it was only between petitioners and Moreman. And granting arguendo that
there was indeed a contract of deposit between petitioners and Moreman, it is still incumbent upon
respondent to prove its existence and that it was executed in his favor. However, respondent miserably
failed to do so. The only pieces of evidence respondent presented to prove the contract of deposit were
the delivery receipts.41 Significantly, they are unsigned and not duly received or authenticated by either
Moreman, petitioners or respondent or any of their authorized representatives. Hence, those delivery
receipts have no probative value at all. While our laws grant a person the remedial right to prosecute or
institute a civil action against another for the enforcement or protection of a right, or the prevention or
redress of a wrong,42 every cause of action ex-contractu must be founded upon a contract, oral or
written, express or implied.
Moreover, respondent also failed to prove that there were construction materials and equipment in
petitioners' warehouse at the time he made a demand for their return.
Considering that respondent failed to prove (1) the existence of any contract of deposit between him
and petitioners, nor between the latter and Moreman in his favor, and (2) that there were construction
materials in petitioners' warehouse at the time of respondent's demand to return the same, we hold
that petitioners have no corresponding obligation or liability to respondent with respect to those
construction materials.
Anent the issue of damages, petitioners are still not liable because, as expressly provided for in Article
2199 of the Civil Code,43 actual or compensatory damages cannot be presumed, but must be proved
with reasonable degree of certainty. A court cannot rely on speculations, conjectures, or guesswork as
to the fact and amount of damages, but must depend upon competent proof that they have been
suffered by the injured party and on the best obtainable evidence of the actual amount thereof. It must
point out specific facts which could afford a basis for measuring whatever compensatory or actual
damages are borne.44
Considering our findings that there was no contract of deposit between petitioners and respondent or
Moreman and that actually there were no more construction materials or equipment in petitioners'
warehouse when respondent made a demand for their return, we hold that he has no right whatsoever
to claim for damages.
As we stressed in the beginning, a judgment of default does not automatically imply admission by the
defendant of plaintiff's causes of action. Here, the trial court merely adopted respondent's allegations in
his complaint and evidence without evaluating them with the highest degree of objectivity and
certainty.
WHEREFORE, the petition is GRANTED. The challenged Decision of the Court of Appeals dated June 17,
1999 is REVERSED and SET ASIDE. Costs against respondent.
SO ORDERED.
Puno, Panganiban, Corona and Carpio Morales, JJ ., concur.

EN BANC
G.R. No. L-6913 November 21, 1913
THE ROMAN CATHOLIC BISHOP OF JARO, Plaintiff-Appellee, vs. GREGORIO DE LA PEÑA, administrator

of the estate of Father Agustin de la Peña, Defendant-Appellant.
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.chanroblesvirtualawlibrary chanrobles virtual law library
It is established in this case that the plaintiff is the trustee of a charitable bequest made for the
construction of a leper hospital and that father Agustin de la Peña was the duly authorized
representative of the plaintiff to receive the legacy. The defendant is the administrator of the estate of
Father De la Peña.chanroblesvirtualawlibrary chanrobles virtual law library
In the year 1898 the books Father De la Peña, as trustee, showed that he had on hand as such trustee
the sum of P6,641, collected by him for the charitable purposes aforesaid. In the same year he deposited
in his personal account P19,000 in the Hongkong and Shanghai Bank at Iloilo. Shortly thereafter and
during the war of the revolution, Father De la Peña was arrested by the military authorities as a political
prisoner, and while thus detained made an order on said bank in favor of the United States Army officer
under whose charge he then was for the sum thus deposited in said bank. The arrest of Father De la
Peña and the confiscation of the funds in the bank were the result of the claim of the military authorities
that he was an insurgent and that the funds thus deposited had been collected by him for revolutionary
purposes. The money was taken from the bank by the military authorities by virtue of such order, was
confiscated and turned over to the Government.chanroblesvirtualawlibrary chanrobles virtual law
library
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.chanroblesvirtualawlibrary chanrobles virtual
law library
That branch of the law known in England and America as the law of trusts had no exact counterpart in
the Roman law and has none under the Spanish law. In this jurisdiction, therefore, Father De la Peña's
liability is determined by those portions of the Civil Code which relate to obligations. (Book 4, Title
1.) chanrobles virtual law library
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.) chanrobles virtual law library
By placing the money in the bank and mixing it with his personal funds De la Peña did not thereby
assume an obligation different from that under which he would have lain if such deposit had not been
made, nor did he thereby make himself liable to repay the money at all hazards. If the had been forcibly
taken from his pocket or from his house by the military forces of one of the combatants during a state of
war, it is clear that under the provisions of the Civil Code he would have been exempt from
responsibility. The fact that he placed the trust fund in the bank in his personal account does not add to
his responsibility. Such deposit did not make him a debtor who must respond at all
hazards.chanroblesvirtualawlibrary chanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual law library
The court, therefore, finds and declares that the money which is the subject matter of this action was
deposited by Father De la Peña in the Hongkong and Shanghai Banking Corporation of Iloilo; that said
money was forcibly taken from the bank by the armed forces of the United States during the war of the
insurrection; and that said Father De la Peña was not responsible for its
loss.chanroblesvirtualawlibrary chanrobles virtual law library
The judgment is therefore reversed, and it is decreed that the plaintiff shall take nothing by his
complaint.chanroblesvirtualawlibrary chanrobles virtual law library
Arellano, C.J., Torres and Carson, JJ., concur.
Separate Opinions
chanrobles virtual law library
TRENT, J., dissenting: chanrobles virtual law library
I dissent. Technically speaking, whether Father De la Peña was a trustee or an agent of the plaintiff his
books showed that in 1898 he had in his possession as trustee or agent the sum of P6,641 belonging to
the plaintiff as the head of the church. This money was then clothed with all the immunities and
protection with which the law seeks to invest trust funds. But when De la Peña mixed this trust fund
with his own and deposited the whole in the bank to his personal account or credit, he by this act
stamped on the said fund his own private marks and unclothed it of all the protection it had. If this
money had been deposited in the name of De la Peña as trustee or agent of the plaintiff, I think that it
may be presumed that the military authorities would not have confiscated it for the reason that they
were looking for insurgent funds only. Again, the plaintiff had no reason to suppose that De la Peña
would attempt to strip the fund of its identity, nor had he said or done anything which tended to relieve
De la Peña from the legal reponsibility which pertains to the care and custody of trust
funds.chanroblesvirtualawlibrary chanrobles virtual law library
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." chanrobles virtual law
library
If this proposition is sound and is applicable to cases arising in this jurisdiction, and I entertain no doubt
on this point, the liability of the estate of De la Peña cannot be doubted. But this court in the majority
opinion says: "The fact that he (Agustin de la Peña) placed the trust fund in the bank in his personal
account does not add to his responsibility. Such deposit did not make him a debtor who must respond at
all hazards. . . . There was no law prohibiting him from depositing it as he did, and there was no law
which changed his responsibility, by reason of the deposit." chanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual law library
If De la Peña, after depositing the trust fund in his personal account, had used this money for speculative
purposes, such as the buying and selling of sugar or other products of the country, thereby becoming a
debtor, there would have been no doubt as to the liability of his estate. Whether he used this money for
that purpose the record is silent, but it will be noted that a considerable length of time intervened from
the time of the deposit until the funds were confiscated by the military authorities. In fact the record
shows that De la Peña deposited on June 27, 1898, P5,259, on June 28 of that year P3,280, and on
August 5 of the same year P6,000. The record also shows that these funds were withdrawn and again
deposited all together on the 29th of May, 1900, this last deposit amounting to P18,970. These facts
strongly indicate that De la Peña had as a matter of fact been using the money in violation of the trust
imposed in him.chanroblesvirtualawlibrary chanrobles virtual law library
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.
FIRST DIVISION
[G.R. No. 6. November 14, 1901. ]
MANUEL GARCIA GAVIERES, Plaintiff-Appellant, v. T. H. PARDO DE TAVERA, Defendant-Appellee.
E . M. Llanos, for Appellant.
Simplicio del Rosario, for Appellee.
SYLLABUS
1. INTERPRETATION OF CONTRACTS; LOAN; DEPOSIT. — An instrument acknowledging receipt of a sum

of money as a deposit returnable two months after notice with interest is evidence of a contract of loan
and not of deposit.
2. EVIDENCE; LOAN; PAYMENT. — Where plaintiff’s receipt for a sum of money, paid by defendant in
satisfaction of an unidentified balance, is introduced to prove payment of an obligation sued upon, it will
be regarded after a lapse of thirty years as satisfaction of the obligation in question in the absence of
showing of other obligations between the parties.
3. ID. — Laches in the commencement of an action causing a possible failure of proof will prevent court
from applying strict rules of evidence.
DECISION
COOPER, J. :
The present appeal has been interposed in the declarative action of greater import filed in the Court of
First Instance of Tondo, commenced on January 10, 1900, by Don Manuel Garcia Gavieres as plaintiff
and successor in interest of the deceased Doña Ignacia de Gorricho against Doña Trinidad H. Pardo de
Tavera as universal heir of the deceased Don Felix Pardo de Tavera for the collection of a balance of
1,423 pesos 75 cents, remaining due on an original obligation of 3,000 pesos which, as the plaintiff
alleges, was the amount of a deposit delivered by Doña Ignacia Gorricho, deceased, to Don Felix Pardo
de Tavera, deceased, on the 31st day of October, 1859. The agreement between the parties appears in
the following writing:jgc:chanrobles.com.ph
"Received of Señorita Ignacia de Gorricho the sum of 3,000 pesos, gold (3,000 pesos), as a deposit
payable on two months’ notice in advance, with interest at 6 per cent per annum with an hypothecation
of the goods now owned by me or which may be owned hereafter, as security of the payment.
In witness whereof I sign in Binondo, January 31, 1859.
"FELIX PARDO DE TAVERA."cralaw virtua1aw library
The defendant answering complaint of plaintiff alleges among other things as a defense, that the
document upon which the complaint is based was not a contract of deposit as alleged in the complaint,
but a contract of loan, and setting forth furthermore the payment of the original obligation as well as
the prescription of the action. The defendant contends that the document upon which the action is
based is not evidence of a deposit, as the plaintiff maintains, but of a contract of loan, and that the
prescription applicable to loans has extinguished the right of action. Although in the document in
question a deposit is spoken of, nevertheless from an examination of the entire document it clearly
appears that the contract was a loan and that such was the intention of the parties. It is unnecessary to
recur to the canons of interpretation to arrive at this conclusion. The obligation of the depositary to pay
interest at the rate of 6 per cent to the depositor suffices to cause the obligation to be considered as a
loan and makes it likewise evident that it was the intention of the parties that the depositary should
have the right to make use of the amount deposited, since it was stipulated that the amount could be
collected after notice of two months in advance. Such being the case, the contract lost the character of a
deposit and acquired that of a loan. (Art. 1768, Civil Code.)
All personal actions, such as those which arise from a contract of loan, cease to have legal effect after
twenty years according to the Civil Code now in force. The date of the document is January 31, 1859.
The proof of payment in support of the defense we consider likewise sufficient to establish such
defense. The document dated January 8, 1869, executed by Don Felix Garcia Gavieres, husband and
legal representative of Doña Ignacia Gorricho, acknowledges the receipt of 1,224 pesos from Don
Manuel Darvin, representative of the deceased Don Felix Pardo de Tavera. This sum is declared in said
document to be the balance due upon the debt of 2,000 pesos. This was slightly more or less the
amount which remained as due upon the original obligation after deducting the payments which are
admitted to have been made. In the absence of evidence disclosing that there were other claims in favor
of Gavieres it is reasonably to be supposed that this payment was made to satisfy the balance due upon
the original obligation.
The original contract between the parties was celebrated nearly a half century ago; the contracting
parties have ceased to exist long since; it may be that there exists or may have existed documents
proving a total payment between the parties and that this document has some time ago suffered the
common fate of perishable things. He who by laches in the exercise of his rights has caused a failure of
proof has no right to complain if the court does not apply the strict rules of evidence which are
applicable in ordinary cases, and admits to a certain extent the presumption to which the conduct of the
interested party himself naturally gives rise.
It is our opinion that the judgment of the Court of First Instance should be affirmed, and it is so ordered,
with costs of appeal taxed against the Appellant.
Arellano, C.J., Torres, Willard and Mapa, JJ., concur.
Ladd, J., did not sit in this case.

SUPREME COURT
Manila
EN BANC
G.R. Nos. L-26948 and L-26949 October 8, 1927
SILVESTRA BARON, plaintiff-appellant,
vs.
PABLO DAVID, defendant-appellant.
And
GUILLERMO BARON, plaintiff-appellant,
vs.
PABLO DAVID, defendant-appellant.
Jose Gutierrez David for plaintiff-appellant in case of No. 26948.

Gregorio Perfecto for defendant-appellant in both cases.
Francisco, Lualhati & Lopez and Jose Gutierrez David for plaintiff-appellant in case No. 26949.
STREET, J.:
These two actions were instituted in the Court of First Instance of the Province of Pampanga by the
respective plaintiffs, Silvestra Baron and Guillermo Baron, for the purpose of recovering from the
defendant, Pablo David, the value of palay alleged to have been sold by the plaintiffs to the defendant in
the year 1920. Owing to the fact that the defendant is the same in both cases and that the two cases
depend in part upon the same facts, the cases were heard together in the trial court and determined in
a single opinion. The same course will accordingly be followed here.
In the first case, i. e., that which Silvestra Baron is plaintiff, the court gave judgment for her to recover of
the defendant the sum of P5,238.51, with costs. From this judgment both the plaintiff and the
defendant appealed.
In the second case, i. e., that in which Guillermo Baron, is plaintiff, the court gave judgment for him to
recover of the defendant the sum of P5,734.60, with costs, from which judgment both the plaintiff and
the defendant also appealed. In the same case the defendant interposed a counterclaim in which he
asked credit for the sum of P2,800 which he had advanced to the plaintiff Guillermo Baron on various
occasions. This credit was admitted by the plaintiff and allowed by the trial court. But the defendant also
interposed a cross-action against Guillermo Baron in which the defendant claimed compensation for
damages alleged to have Ben suffered by him by reason of the alleged malicious and false statements
made by the plaintiff against the defendant in suing out an attachment against the defendant's property
soon after the institution of the action. In the same cross-action the defendant also sought
compensation for damages incident to the shutting down of the defendant's rice mill for the period of
one hundred seventy days during which the above-mentioned attachment was in force. The trial judge
disallowed these claims for damages, and from this feature of the decision the defendant appealed. We
are therefore confronted with five distinct appeals in this record.
Prior to January 17, 1921, the defendant Pablo David has been engaged in running a rice mill in the
municipality of Magalang, in the Province of Pampanga, a mill which was well patronized by the rice
growers of the vicinity and almost constantly running. On the date stated a fire occurred that destroyed
the mill and its contents, and it was some time before the mill could be rebuilt and put in operation
again. Silvestra Baron, the plaintiff in the first of the actions before us, is an aunt of the defendant; while
Guillermo Baron, the plaintiff in the other action; is his uncle. In the months of March, April, and May,
1920, Silvestra Baron placed a quantity of palay in the defendant's mill; and this, in connection with
some that she took over from Guillermo Baron, amounted to 1,012 cavans and 24 kilos. During
approximately the same period Guillermo Baron placed other 1,865 cavans and 43 kilos of palay in the
mill. No compensation has ever been received by Silvestra Baron upon account of the palay delivered by
Guillermo Baron, he has received from the defendant advancements amounting to P2,800; but apart
from this he has not been compensated. Both the plaintiffs claim that the palay which was delivered by
them to the defendant was sold to the defendant; while the defendant, on the other hand, claims that
the palay was deposited subject to future withdrawal by the depositors or subject to some future sale
which was never effected. He therefore supposes himself to be relieved from all responsibility by virtue
of the fire of January 17, 1921, already mentioned.
The plaintiff further say that their palay was delivered to the defendant at his special request, coupled
with a promise on his part to pay for the same at the highest price per cavan at which palay would sell
during the year 1920; and they say that in August of that year the defendant promised to pay them
severally the price of P8.40 per cavan, which was about the top of the market for the season, provided
they would wait for payment until December. The trial judge found that no such promise had been
given; and the incredulity of the court upon this point seems to us to be justified. A careful examination
of the proof, however, leads us to the conclusion that the plaintiffs did, some time in the early part of
August, 1920, make demand upon the defendant for a settlement, which he evaded or postponed
leaving the exact amount due to the plaintiffs undetermined.
It should be stated that the palay in question was place by the plaintiffs in the defendant's mill with the
understanding that the defendant was at liberty to convert it into rice and dispose of it at his pleasure.
The mill was actively running during the entire season, and as palay was daily coming in from many
customers and as rice was being constantly shipped by the defendant to Manila, or other rice markets, it
was impossible to keep the plaintiffs' palay segregated. In fact the defendant admits that the plaintiffs'
palay was mixed with that of others. In view of the nature of the defendant's activities and the way in
which the palay was handled in the defendant's mill, it is quite certain that all of the plaintiffs' palay,
which was put in before June 1, 1920, been milled and disposed of long prior to the fire of January 17,
1921. Furthermore, the proof shows that when the fire occurred there could not have been more than
about 360 cavans of palay in the mill, none of which by any reasonable probability could have been any
part of the palay delivered by the plaintiffs. Considering the fact that the defendant had thus milled and
doubtless sold the plaintiffs' palay prior to the date of the fire, it result that he is bound to account for
its value, and his liability was not extinguished by the occurence of the fire. In the briefs before us it
seems to have been assumed by the opposing attorneys that in order for the plaintiffs to recover, it is
necessary that they should be able to establish that the plaintiffs' palay was delivered in the character of
a sale, and that if, on the contrary, the defendant should prove that the delivery was made in the
character of deposit, the defendant should be absolved. But the case does not depend precisely upon
this explicit alternative; for even supposing that the palay may have been delivered in the character of
deposit, subject to future sale or withdrawal at plaintiffs' election, nevertheless if it was understood that
the defendant might mill the palay and he has in fact appropriated it to his own use, he is of course
bound to account for its value. Under article 1768 of the Civil Code, when the depository has permission
to make use of the thing deposited, the contract loses the character of mere deposit and becomes a
loan or a commodatum; and of course by appropriating the thing, the bailee becomes responsible for its
value. In this connection we wholly reject the defendant's pretense that the palay delivered by the
plaintiffs or any part of it was actually consumed in the fire of January, 1921. Nor is the liability of the
defendant in any wise affected by the circumstance that, by a custom prevailing among rice millers in
this country, persons placing palay with them without special agreement as to price are at liberty to
withdraw it later, proper allowance being made for storage and shrinkage, a thing that is sometimes
done, though rarely.
In view of what has been said it becomes necessary to discover the price which the defendant should be
required to pay for the plaintiffs' palay. Upon this point the trial judge fixed upon P6.15 per cavan; and
although we are not exactly in agreement with him as to the propriety of the method by which he
arrived at this figure, we are nevertheless of the opinion that, all things considered, the result is
approximately correct. It appears that the price of palay during the months of April, May, and June,
1920, had been excessively high in the Philippine Islands and even prior to that period the Government
of the Philippine Islands had been attempting to hold the price in check by executive regulation. The
highest point was touched in this season was apparently about P8.50 per cavan, but the market began
to sag in May or June and presently entered upon a precipitate decline. As we have already stated, the
plaintiffs made demand upon the defendant for settlement in the early part of August; and, so far as we
are able to judge from the proof, the price of P6.15 per cavan, fixed by the trial court, is about the price
at which the defendant should be required to settle as of that date. It was the date of the demand of the
plaintiffs for settlement that determined the price to be paid by the defendant, and this is true whether
the palay was delivered in the character of sale with price undetermined or in the character of deposit
subject to use by the defendant. It results that the plaintiffs are respectively entitle to recover the value
of the palay which they had placed with the defendant during the period referred to, with interest from
the date of the filing of their several complaints.
As already stated, the trial court found that at the time of the fire there were about 360 cavans of palay
in the mill and that this palay was destroyed. His Honor assumed that this was part of the palay
delivered by the plaintiffs, and he held that the defendant should be credited with said amount. His
Honor therefore deducted from the claims of the plaintiffs their respective proportionate shares of this
amount of palay. We are unable to see the propriety of this feature of the decision. There were many
customers of the defendant's rice mill who had placed their palay with the defendant under the same
conditions as the plaintiffs, and nothing can be more certain than that the palay which was burned did
not belong to the plaintiffs. That palay without a doubt had long been sold and marketed. The
assignments of error of each of the plaintiffs-appellants in which this feature of the decision is attacked
are therefore well taken; and the appealed judgments must be modified by eliminating the deductions
which the trial court allowed from the plaintiffs' claims.
The trial judge also allowed a deduction from the claim of the plaintiff Guillermo Baron of 167 cavans of
palay, as indicated in Exhibit 12, 13, 14, and 16. This was also erroneous. These exhibits relate to
transactions that occurred nearly two years after the transactions with which we are here concerned,
and they were offered in evidence merely to show the character of subsequent transactions between
the parties, it appearing that at the time said exhibits came into existence the defendant had
reconstructed his mill and that business relations with Guillermo Baron had been resumed. The
transactions shown by these exhibits (which relate to palay withdrawn by the plaintiff from the
defendant's mill) were not made the subject of controversy in either the complaint or the cross-
complaint of the defendant in the second case. They therefore should not have been taken into account
as a credit in favor of the defendant. Said credit must therefore be likewise of course be without
prejudice to any proper adjustment of the rights of the parties with respect to these subsequent
transactions that they have heretofore or may hereafter effect.
The preceding discussion disposes of all vital contentions relative to the liability of the defendant upon
the causes of action stated in the complaints. We proceed therefore now to consider the question of the
liability of the plaintiff Guillermo Baron upon the cross-complaint of Pablo David in case R. G. No. 26949.
In this cross-action the defendant seek, as the stated in the third paragraph of this opinion, to recover
damages for the wrongful suing out of an attachment by the plaintiff and the levy of the same upon the
defendant's rice mill. It appears that about two and one-half months after said action was begun, the
plaintiff, Guillermo Baron, asked for an attachment to be issued against the property of the defendant;
and to procure the issuance of said writ the plaintiff made affidavit to the effect that the defendant was
disposing, or attempting the plaintiff. Upon this affidavit an attachment was issued as prayed, and on
March 27, 1924, it was levied upon the defendant's rice mill, and other property, real and
personal. 1awph!l.net
Upon attaching the property the sheriff closed the mill and placed it in the care of a deputy. Operations
were not resumed until September 13, 1924, when the attachment was dissolved by an order of the
court and the defendant was permitted to resume control. At the time the attachment was levied there
were, in the bodega, more than 20,000 cavans of palay belonging to persons who held receipts therefor;
and in order to get this grain away from the sheriff, twenty-four of the depositors found it necessary to
submit third-party claims to the sheriff. When these claims were put in the sheriff notified the plaintiff
that a bond in the amount of P50,000 must be given, otherwise the grain would be released. The
plaintiff, being unable or unwilling to give this bond, the sheriff surrendered the palay to the claimants;
but the attachment on the rice mill was maintained until September 13, as above stated, covering a
period of one hundred seventy days during which the mill was idle. The ground upon which the
attachment was based, as set forth in the plaintiff's affidavit was that the defendant was disposing or
attempting to dispose of his property for the purpose of defrauding the plaintiff. That this allegation was
false is clearly apparent, and not a word of proof has been submitted in support of the assertion. On the
contrary, the defendant testified that at the time this attachment was secured he was solvent and could
have paid his indebtedness to the plaintiff if judgment had been rendered against him in ordinary
course. His financial conditions was of course well known to the plaintiff, who is his uncle. The
defendant also states that he had not conveyed away any of his property, nor had intended to do so, for
the purpose of defrauding the plaintiff. We have before us therefore a case of a baseless attachment,
recklessly sued out upon a false affidavit and levied upon the defendant's property to his great and
needless damage. That the act of the plaintiff in suing out the writ was wholly unjustifiable is perhaps
also indicated in the circumstance that the attachment was finally dissolved upon the motion of the
plaintiff himself.
The defendant testified that his mill was accustomed to clean from 400 to 450 cavans of palay per day,
producing 225 cavans of rice of 57 kilos each. The price charged for cleaning each cavan rice was 30
centavos. The defendant also stated that the expense of running the mill per day was from P18 to P25,
and that the net profit per day on the mill was more than P40. As the mill was not accustomed to run on
Sundays and holiday, we estimate that the defendant lost the profit that would have been earned on
not less than one hundred forty work days. Figuring his profits at P40 per day, which would appear to be
a conservative estimate, the actual net loss resulting from his failure to operate the mill during the time
stated could not have been less than P5,600. The reasonableness of these figures is also indicated in the
fact that the twenty-four customers who intervened with third-party claims took out of
the camarin 20,000 cavans of palay, practically all of which, in the ordinary course of events, would have
been milled in this plant by the defendant. And of course other grain would have found its way to this
mill if it had remained open during the one hundred forty days when it was closed.
But this is not all. When the attachment was dissolved and the mill again opened, the defendant found
that his customers had become scattered and could not be easily gotten back. So slow, indeed, was his
patronage in returning that during the remainder of the year 1924 the defendant was able to mill
scarcely more than the grain belonging to himself and his brothers; and even after the next season
opened many of his old customers did not return. Several of these individuals, testifying as witnesses in
this case, stated that, owing to the unpleasant experience which they had in getting back their grain
from the sheriff to the mill of the defendant, though they had previously had much confidence in him.
As against the defendant's proof showing the facts above stated the plaintiff submitted no evidence
whatever. We are therefore constrained to hold that the defendant was damaged by the attachment to
the extent of P5,600, in profits lost by the closure of the mill, and to the extent of P1,400 for injury to
the good-will of his business, making a total of P7,000. For this amount the defendant must recover
judgment on his cross-complaint.
The trial court, in dismissing the defendant's cross-complaint for damages resulting from the wrongful
suing out of the attachment, suggested that the closure of the rice mill was a mere act of the sheriff for
which the plaintiff was not responsible and that the defendant might have been permitted by the sheriff
to continue running the mill if he had applied to the sheriff for permission to operate it. This singular
suggestion will not bear a moment's criticism. It was of course the duty of the sheriff, in levying the
attachment, to take the attached property into his possession, and the closure of the mill was a natural,
and even necessary, consequence of the attachment. For the damage thus inflicted upon the defendant
the plaintiff is undoubtedly responsible.
One feature of the cross-complaint consist in the claim of the defendant (cross-complaint) for the sum
of P20,000 as damages caused to the defendant by the false and alleged malicious statements contained
in the affidavit upon which the attachment was procured. The additional sum of P5,000 is also claimed
as exemplary damages. It is clear that with respect to these damages the cross-action cannot be
maintained, for the reason that the affidavit in question was used in course of a legal proceeding for the
purpose of obtaining a legal remedy, and it is therefore privileged. But though the affidavit is not
actionable as a libelous publication, this fact in no obstacle to the maintenance of an action to recover
the damage resulting from the levy of the attachment.
Before closing this opinion a word should be said upon the point raised in the first assignment of error of
Pablo David as defendant in case R. G. No. 26949. In this connection it appears that the deposition of
Guillermo Baron was presented in court as evidence and was admitted as an exhibit, without being
actually read to the court. It is supposed in the assignment of error now under consideration that the
deposition is not available as evidence to the plaintiff because it was not actually read out in court. This
connection is not well founded. It is true that in section 364 of the Code of Civil Procedure it is said that
a deposition, once taken, may be read by either party and will then be deemed the evidence of the party
reading it. The use of the word "read" in this section finds its explanation of course in the American
practice of trying cases for the most part before juries. When a case is thus tried the actual reading of
the deposition is necessary in order that the jurymen may become acquainted with its contents. But in
courts of equity, and in all courts where judges have the evidence before them for perusal at their
pleasure, it is not necessary that the deposition should be actually read when presented as evidence.
From what has been said it result that judgment of the court below must be modified with respect to
the amounts recoverable by the respective plaintiffs in the two actions R. G. Nos. 26948 and 26949 and
must be reversed in respect to the disposition of the cross-complaint interposed by the defendant in
case R. G. No. 26949, with the following result: In case R. G. No. 26948 the plaintiff Silvestra Baron will
recover of the Pablo David the sum of P6,227.24, with interest from November 21, 1923, the date of the
filing of her complaint, and with costs. In case R. G. No. 26949 the plaintiff Guillermo Baron will recover
of the defendant Pablo David the sum of P8,669.75, with interest from January 9, 1924. In the same case
the defendant Pablo David, as plaintiff in the cross-complaint, will recover of Guillermo Baron the sum of
P7,000, without costs. So ordered.
Avanceña, C.J., Johnson, Malcolm, Villamor, Romualdez and Villa-Real, JJ., concur.
Separate Opinions
JOHNS, J., dissenting and concurring:
The plaintiff Silvestra Baron is the aunt of the defendant, and Guillermo Baron, the plaintiff in the other
action, is his uncle. There is no dispute as to the amount of palay which each delivered to the mill of the
defendant. Owing to the fact that they were relatives and that the plaintiffs reposed special reposed
special trust and confidence in the defendant, who was their nephew, they were not as careful and
prudent in their business dealings with him as they should have been. Plaintiffs allege that their
respective palay was delivered to the defendant at his mill with the understanding and agreement
between them that they should receive the highest market price for the palay for that season, which
was P8.50 per cavan. They further allege that about August first they made another contract in and by
which he promised and agreed to pay them P8.40 per cavan for their palay, in consideration of which
they agreed to extend the time for payment to the first of December of that year. The amount of palay is
not in dispute, and the defendant admits that it was delivered to his mill, but he claims that he kept it on
deposit and as bailee without hire for the plaintiffs and at their own risk, and that the mill was burned
down, and that at the time of the fire, plaintiffs' palay was in the mill. The lower court found as a fact
that there was no merit in that defense, and that there was but little, if any, palay in the mill at the time
of the fire and that in truth and in fact that defense was based upon perjured testimony.
The two cases were tried separately in the court below, but all of the evidence in the case was
substituted and used in the other. Both plaintiffs testified to the making of the respective contracts as
alleged in their complaint; to wit, that they delivered the palay to the defendant with the express
understanding and agreement that he would pay them for the palay the highest market price for the
season, and to the making of the second contract about the first of August, in which they had a
settlement, and that the defendant then agreed to pay them P8.40 per cavan, such payment to be made
on December first. It appears that the highest market price for palay for that season was P8.50 per
cavan. The defendant denied the making of either one of those contracts, and offered no other evidence
on that question. That is to say, we have the evidence of both Silvestra Baron and Guillermo Baron to
the making of those contracts, which is denied by the defendant only. Plaintiffs' evidence is also
corroborated by the usual and customary manner in which the growers sell their palay. That is to say, it
is their custom to sell the palay at or about the time it is delivered at the mill and as soon as it is made
ready for market in the form of rice. As stated the lower court found as a fact that the evidence of the
defendants as to plaintiffs' palay being in the mill at the time of the fire was not worthy of belief, and
that in legal effect it was a manufactured defense. Yet, strange as it may seem, both the lower court and
this court have found as a fact that upon the question of the alleged contracts, the evidence for the
defendant is true and entitled to more weight than the evidence of both plaintiffs which is false.
It appears that the plaintiff Silvestra Baron is an old lady about 80 years of age and the aunt of the
defendant, and Guillermo Baron is the uncle. Under the theory of the lower court and of this court, both
of them at all the time during the high prices held their palay in defendant's mill at their own risk, and
that upon that point the evidence of the defendant, standing alone is entitled to more weight and is
more convincing than the combined evidence of the two plaintiffs. In the very nature of things, if
defendant's evidence upon that point is true, it stands to reason that, following the custom of growers,
the plaintiffs would have sold their palay during the period of high prices, and would not have waited
until it dropped from P8.50 per cavan to P6.15 per cavan about the first of August. Upon that question,
both the weight and the credibility of the evidence is with the plaintiffs, and they should have judgment
for the full amount of their palay on the basis of P8.40 per cavan. For such reason, I vigorously dissent
from the majority opinion.
I frankly concede that the attachment was wrongful, and that it should never have been levied. It
remained in force for a period of one hundred and seventy days at which time it was released on motion
of the plaintiffs. The defendant now claims, and the majority opinion has allowed him, damages for that
full period, exclusive of Sundays, at the rate, of P40 per day, found to be the net profit for the operation
of the rice mill. It further appears, and this court finds, that the defendant was a responsible man, and
that he had ample property out which to satisfy plaintiffs' claim. Assuming that to be true, there was no
valid reason why he could not had given a counter bond and released the attachment. Upon the theory
of the majority opinion, if the plaintiffs had not released the attachment, they would still be liable to the
defendant at the rate of P40 per day up to the present time. When the mill was attached, if he was in a
position to do so, it was the duty of the defendant to give a counter bond and release the attachment
and resume its operation. The majority opinion also allowed the defendant P1,400 "for injury to the
goodwill of his business." The very fact that after a delay of about four years, both of the plaintiffs were
compelled to bring to their respective actions against the defendant to recover from him on a just and
meritorious claim, as found by this court and the lower court, and the further fact that after such long
delay, the defendant has sought to defeat the actions by a sham and manufactured defense, as found by
this and the lower court, would arouse the suspicion of any customers the defendant ever had, and
shake their confidence in his business honor and integrity, and destroy any goodwill which he ever did
have. Under such conditions, it would be strange that the defendant would have any customers left. He
is not entitled to any compensation for the loss of goodwill, and P5,000 should be the very limit of the
amount of his damages for the wrongful attachment, and upon that point I vigorously dissent. In all
other respects, I agree with the majority opinion.
SUPREME COURT
Manila
EN BANC
G.R. No. L-7593 March 27, 1913
THE UNITED STATES, plaintiff-appellee,

vs.
JOSE M. IGPUARA, defendant-appellant.
W. A. Kincaid, Thos. L. Hartigan, and Jose Robles Lahesa for appellant.

Office of the Solicitor-General Harvey for appellee.
ARELLANO, C.J.:
The defendant therein is charged with the crime of estafa, for having swindled Juana Montilla and
Eugenio Veraguth out of P2,498 Philippine currency, which he had take on deposit from the former to
be at the latter's disposal. The document setting forth the obligation reads:
We hold at the disposal of Eugenio Veraguth the sum of two thousand four hundred and ninety-eight
pesos (P2,498), the balance from Juana Montilla's sugar. — Iloilo, June 26, 1911, — Jose Igpuara, for
Ramirez and Co.
The Court of First Instance of Iloilo sentenced the defendant to two years of presidio correccional, to pay
Juana Montilla P2,498 Philippine currency, and in case of insolvency to subsidiary imprisonment at P2.50
per day, not to exceed one-third of the principal penalty, and the costs.
The defendant appealed, alleging as errors: (1) Holding that the document executed by him was a
certificate of deposit; (2) holding the existence of a deposit, without precedent transfer or delivery of
the P2,498; and (3) classifying the facts in the case as the crime of estafa.
A deposit is constituted from the time a person receives a thing belonging to another with the obligation
of keeping and returning it. (Art. 1758, Civil Code.)
That the defendant received P2,498 is a fact proven. The defendant drew up a document declaring that
they remained in his possession, which he could not have said had he not received them. They remained
in his possession, surely in no other sense than to take care of them, for they remained has no other
purpose. They remained in the defendant's possession at the disposal of Veraguth; but on August 23 of
the same year Veraguth demanded for him through a notarial instrument restitution of them, and to
date he has not restored them.
The appellant says: "Juana Montilla's agent voluntarily accepted the sum of P2,498 in an instrument
payable on demand, and as no attempt was made to cash it until August 23, 1911, he could indorse and
negotiate it like any other commercial instrument. There is no doubt that if Veraguth accepted the
receipt for P2,498 it was because at that time he agreed with the defendant to consider the operation of
sale on commission closed, leaving the collection of said sum until later, which sum remained as a loan
payable upon presentation of the receipt." (Brief, 3 and 4.)
Then, after averring the true facts: (1) that a sales commission was precedent; (2) that this commission
was settled with a balance of P2,498 in favor of the principal, Juana Montilla; and (3) that this balance
remained in the possession of the defendant, who drew up an instrument payable on demand, he has
drawn two conclusions, both erroneous: One, that the instrument drawn up in the form of
a deposit certificate could be indorsed or negotiated like any other commercial instrument; and the
other, that the sum of P2,498 remained in defendant's possession as a loan.
It is erroneous to assert that the certificate of deposit in question is negotiable like any other
commercial instrument: First, because every commercial instrument is not negotiable; and second,
because only instruments payable to order are negotiable. Hence, this instrument not being to order but
to bearer, it is not negotiable.
It is also erroneous to assert that sum of money set forth in said certificate is, according to it, in the
defendant's possession as a loan. In a loan the lender transmits to the borrower the use of the thing
lent, while in a deposit the use of the thing is not transmitted, but merely possession for its custody or
safe-keeping.
In order that the depositary may use or dispose oft he things deposited, the depositor's consent is
required, and then:
The rights and obligations of the depositary and of the depositor shall cease, and the rules and
provisions applicable to commercial loans, commission, or contract which took the place of the deposit
shall be observed. (Art. 309, Code of Commerce.)
The defendant has shown no authorization whatsoever or the consent of the depositary for using or
disposing of the P2,498, which the certificate acknowledges, or any contract entered into with the
depositor to convert the deposit into a loan, commission, or other contract.
That demand was not made for restitution of the sum deposited, which could have been claimed on the
same or the next day after the certificate was signed, does not operate against the depositor, or signify
anything except the intention not to press it. Failure to claim at once or delay for sometime in
demanding restitution of the things deposited, which was immediately due, does not imply such
permission to use the thing deposited as would convert the deposit into a loan.
Article 408 of the Code of Commerce of 1829, previous to the one now in force, provided:
The depositary of an amount of money cannot use the amount, and if he makes use of it, he shall be
responsible for all damages that may accrue and shall respond to the depositor for the legal interest on
the amount.
Whereupon the commentators say:
In this case the deposit becomes in fact a loan, as a just punishment imposed upon him who abuses the
sacred nature of a deposit and as a means of preventing the desire of gain from leading him into
speculations that may be disastrous to the depositor, who is much better secured while the deposit
exists when he only has a personal action for recovery.
According to article 548, No. 5, of the Penal Code, those who to the prejudice of another appropriate or
abstract for their own use money, goods, or other personal property which they may have received as a
deposit, on commission, or for administration, or for any other purpose which produces the obligation
of delivering it or returning it, and deny having received it, shall suffer the penalty of the preceding
article," which punishes such act as the crime of estafa. The corresponding article of the Penal Code of
the Philippines in 535, No. 5.
In a decision of an appeal, September 28, 1895, the principle was laid down that: "Since he commits the
crime of estafa under article 548 of the Penal Code of Spain who to another's detriment appropriates to
himself or abstracts money or goods received on commission for delivery, the court rightly applied this
article to the appellant, who, to the manifest detriment of the owner or owners of the securities, since
he has not restored them, willfully and wrongfully disposed of them by appropriating them to himself or
at least diverting them from the purpose to which he was charged to devote them."
It is unquestionable that in no sense did the P2,498 which he willfully and wrongfully disposed of to the
detriments of his principal, Juana Montilla, and of the depositor, Eugenio Veraguth, belong to the
defendant.
Likewise erroneous is the construction apparently at tempted to be given to two decisions of this
Supreme Court (U. S. vs. Dominguez, 2 Phil. Rep., 580, and U. S. vs. Morales and Morco, 15 Phil. Rep.,
236) as implying that what constitutes estafa is not the disposal of money deposited, but denial of
having received same. In the first of said cases there was no evidence that the defendant had
appropriated the grain deposited in his possession.
On the contrary, it is entirely probable that, after the departure of the defendant from Libmanan on
September 20, 1898, two days after the uprising of the civil guard in Nueva Caceres, the rice was seized
by the revolutionalists and appropriated to their own uses.
In this connection it was held that failure to return the thing deposited was not sufficient, but that it was
necessary to prove that the depositary had appropriated it to himself or diverted the deposit to his own
or another's benefit. He was accused or refusing to restore, and it was held that the code does not
penalize refusal to restore but denial of having received. So much for the crime of omission; now with
reference to the crime of commission, it was not held in that decision that appropriation or diversion of
the thing deposited would not constitute the crime of estafa.
In the second of said decisions, the accused "kept none of the proceeds of the sales. Those, such as they
were, he turned over to the owner;" and there being no proof of the appropriation, the agent could not
be found guilty of the crime of estafa.
Being in accord and the merits of the case, the judgment appealed from is affirmed, with costs.
Torres, Johnson and Trent, JJ., concur.

FIRST DIVISION
[G.R. No. 2980. January 2, 1907. ]
ANICETA PALACIO, Plaintiff-Appellee, v. DIONISIO SUDARIO, Defendant-Appellant.
Frank E. Green, for Appellant.
R. Palma, for Appellee.
SYLLABUS
1. LOSS OF PROPERTY ENTRUSTED TO ANOTHER. — When cattle taken for pasturage are claimed to have
perished, the burden of explaining the loss rests upon the person pasturing them.
2. PRESCRIPTION. — In an action arising before the present Code of Civil Procedure with into effect, the
rule of prescription to be applied is that under the Civil Code.
DECISION
TRACEY, J. :
At an interview at which were present the defendant and three herdsmen, the plaintiff made an
arrangement for the pasturing of eighty-one head of cattle, in return for which she was to give one-half
of the calves that might be born and was to pay the defendant one-half peso for each calf branded. On
demand for the whole, forty-eight head of cattle were afterwards returned to her and this action is
brought to recover the remaining thirty-three.
It is claimed as a first defense that arrangement was made between the plaintiff and the herdsmen, the
defendant, who was president of the municipality, tendering his good offices only. Upon this question,
the finding of the court below is conclusive in favor of the plaintiff and is fully justified by the proofs,
especially by a letter of the defendant in reply to the demand for the cattle, in which he seeks to excuse
himself for the loss of the missing animals.
As a second defense it is claimed that the thirty-three cows either died of disease or were drowned in a
flood. As to this point, on which the trial court has made no specific finding, the proof is conflicting in
many particulars and indicates that at least some of these cattle were living at the time of the surrender
of the forty-eight head. The defendant’s witnesses swore that of the cows that perished, six die from
overfeeding, and they failed to make clear the happening of any flood sufficient to destroy the others.
If we consider the contract as one of deposit, then under article 1183 of the Civil Code, the burden of
explanation of the loss rested upon the depositary and under article 1769 the fault is presumed to be
his. The defendant has not succeeded in showing that the loss occurred either without fault on his part
or by reason of caso fortuito.
If, however, the contract be not one strictly of deposit but one according to local custom for the
pasturing of cattle, the obligations of the parties remain the same.
The defendant also sets up the six years’ statute of limitation, under section 43 of the present Code of
Civil Procedure. This action, having arisen before that code went into effect, is governed by the
provisions of preexisting law (sec. 38) under which the prescription was one of fifteen years. (Civil Code,
art. 1964.)
The judgment of the court below is affirmed with the costs of both instances. After expiration of twenty
days let judgment be entered in accordance herewith and ten days thereafter the case remanded to the
court from whence it came for execution. So ordered.
Arellano, C.J., Torres, Mapa, Carson, and Willard, JJ., concur.

SUPREME COURT
Manila
EN BANC
G.R. No. L-43191 November 13, 1935
PAULINO GULLAS, plaintiff-appellant,
vs.
THE PHILIPPINE NATIONAL BANK, defendant-appellant.
Gullas, Lopez, Tuaño and Leuterio for plaintiff-appellant.

Jose Delgado for defendant-appellant.
MALCOLM, J.:
Both parties to this case appealed from a judgment of the Court of First Instance of Cebu, which
sentenced the defendant to return to the account of the plaintiff the sum of P5098, with legal interest
and costs, the plaintiff to secure damages in the amount of P10,000 more or less, and the defendant to
be absolved totally from the amended complaint. As it is conceded that the plaintiff has already received
the sum represented by the United States treasury, warrant, which is in question, the appeal will thus
determine the amount, if any, which should be paid to the plaintiff by the defendant.
The parties to the case are Paulino Gullas and the Philippine National Bank. The first named is a member
of the Philippine Bar, resident in the City of Cebu. The second named is a banking corporation with a
branch in the same city. Attorney Gullas has had a current account with the bank.
It appears from the record that on August 2, 1933, the Treasurer of the United States for the United
States Veterans Bureau issued a Warrant in the amount of $361, payable to the order of Francisco
Sabectoria Bacos. Paulino Gullas and Pedro Lopez signed as endorsers of this check. Thereupon it was
cashed by the Philippine National Bank. Subsequently the treasury warrant was dishonored by the
Insular Treasurer.
At that time the outstanding balance of Attorney Gullas on the books of the bank was P509. Against this
balance he had issued certain cheeks which could not be paid when the money was sequestered by the
On August 20, 1933, Attorney Gullas left his residence for Manila.
The bank on learning of the dishonor of the treasury warrant sent notices by mail to Mr. Gullas which
could not be delivered to him at that time because he was in Manila. In the bank's letter of August 21,
1933, addressed to Messrs. Paulino Gulla and Pedro Lopez, they were informed that the United States
Treasury warrant No. 20175 in the name of Francisco Sabectoria Bacos for $361 or P722, the payment
for which had been received has been returned by our Manila office with the notation that the payment
of his check has been stopped by the Insular Treasurer. "In view of this therefore we have applied the
outstanding balances of your current accounts with us to the part payment of the foregoing check",
namely, Mr. Paulino Gullas P509. On the return of Attorney Gullas to Cebu on August 31, 1933, notice of
dishonor was received and the unpaid balance of the United States Treasury warrant was immediately
paid by him.
As a consequence of these happenings, two occurrences transpired which inconvenienced Attorney

Gullas. In the first place, as above indicated, checks including one for his insurance were not paid
because of the lack of funds standing to his credit in the bank. In the second place, periodicals in the
vicinity gave prominence to the news to the great mortification of Gullas.lawphil.net
A variety of incidental questions have been suggested on the record which it can be taken for granted as
having been adversely disposed of in this opinion. The main issues are two, namely, (1) as to the right of
Philippine National Bank, and to apply a deposit to the debt of depositor to the bank and (2) as to the
amount damages, if any, which should be awarded Gullas.
The Civil Code contains provisions regarding compensation (set off) and deposit. (Articles 1195 et seq.,
1758 et seq. The portions of Philippine law provide that compensation shall take place when two
persons are reciprocally creditor and debtor of each other (Civil Code, article 1195). In his connection, it
has been held that the relation existing between a depositor and a bank is that of creditor and debtor.
(Fulton Iron Works Co. vs. China Banking Corporation [1933], 59 Phil., 59.)
The Negotiable Instruments Law contains provisions establishing the liability of a general indorser and
giving the procedure for a notice of dishonor. The general indorser of negotiable instrument engages
that if he be dishonored and the, necessary proceedings of dishonor be duly taken, he will pay the
amount thereof to the holder. (Negotiable Instruments Law, sec. 66.) In this connection, it has been held
a long line of authorities that notice of dishonor is in order to charge all indorser and that the right of
action against him does not accrue until the notice is given. (Asia Banking Corporation vs. Javier [1923]
44 Phil., 777; 5 Uniform Laws Annotated.)
As a general rule, a bank has a right of set off of the deposits in its hands for the payment of any
indebtedness to it on the part of a depositor. In Louisiana, however, a civil law jurisdiction, the rule is
denied, and it is held that a bank has no right, without an order from or special assent of the depositor
to retain out of his deposit an amount sufficient to meet his indebtedness. The basis of the Louisiana
doctrine is the theory of confidential contracts arising from irregular deposits, e. g., the deposit of
money with a banker. With freedom of selection and after full preference to the minority rule as more in
harmony with modern banking practice. (1 Morse on Banks and Banking, 5th ed., sec. 324; Garrison vs.
Union Trust Company [1905], 111 A.S.R., 407; Louisiana Civil Code Annotated, arts. 2207 et seq.; Gordon
& Gomila vs. Muchler [1882], 34 L. Ann., 604; 8 Manresa, Comentarios al Codigo Civil Español, 4th ed.,
359 et seq., 11 Manresa pp. 694 et seq.)
Starting, therefore, from the premise that the Philippine National Bank had with respect to the deposit
of Gullas a right of set off, we next consider if that remedy was enforced properly. The fact we believe is
undeniable that prior to the mailing of notice of dishonor, and without waiting for any action by Gullas,
the bank made use of the money standing in his account to make good for the treasury warrant. At this
point recall that Gullas was merely an indorser and had issued in good faith.
As to a depositor who has funds sufficient to meet payment of a check drawn by him in favor of a third
party, it has been held that he has a right of action against the bank for its refusal to pay such a check in
the absence of notice to him that the bank has applied the funds so deposited in extinguishment of past
due claims held against him. (Callahan vs. Bank of Anderson [1904], 2 Ann. Cas., 203.) The decision cited
represents the minority doctrine, for on principle it would seem that notice is not necessary to a maker
because the right is based on the doctrine that the relationship is that of creditor and debtor. However
this may be, as to an indorser the situation is different, and notice should actually have been given him
in order that he might protect his interests.
We accordingly are of the opinion that the action of the bank was prejudicial to Gullas. But to follow up
that statement with others proving exact damages is not so easy. For instance, for alleged libelous
articles the bank would not be primarily liable. The same remark could be made relative to the loss of
business which Gullas claims but which could not be traced definitely to this occurrence. Also Gullas
having eventually been reimbursed lost little through the actual levy by the bank on his funds. On the
other hand, it was not agreeable for one to draw checks in all good faith, then, leave for Manila, and on
return find that those checks had not been cashed because of the action taken by the bank. That caused
a disturbance in Gullas' finances, especially with reference to his insurance, which was injurious to him.
All facts and circumstances considered, we are of the opinion that Gullas should be awarded nominal
damages because of the premature action of the bank against which Gullas had no means of protection,
and have finally determined that the amount should be P250.
Agreeable to the foregoing, the errors assigned by the parties will in the main be overruled, with the
result that the judgment of the trial court will be modified by sentencing the defendant to pay the
plaintiff the sum of P250, and the costs of both instances.
Villa-Real, Imperial, Butte, and Goddard, JJ., concur.

SECOND DIVISION
[G.R. No. L-30511. February 14, 1980.]
MANUEL M. SERRANO, Petitioner, v. CENTRAL BANK OF THE PHILIPPINES; OVERSEAS BANK OF

MANILA; EMERITO M. RAMOS, SUSANA B. RAMOS, EMERITO B. RAMOS, JR., JOSEFA RAMOS DELA
RAMA, HORACIO DELA RAMA, ANTONIO B. RAMOS, FILOMENA RAMOS LEDESMA, RODOLFO
LEDESMA, VICTORIA RAMOS TANJUATCO, and TEOFILO TANJUATCO, Respondents.
Rene Diokno for Petitioner.
F.E. Evangelista & Glecerio T. Orsolino for respondent Central Bank of the Philippines.
Feliciano C. Tumale, Pacifico T. Torres and Antonio B. Periquet for respondent Overseas Bank of
Manila.
Josefina G. Salonga for all other respondents.
DECISION
CONCEPCION, JR., J.:
Petition for mandamus and prohibition, with preliminary injunction, that seeks the establishment of
joint and solidary liability to the amount of Three Hundred Fifty Thousand Pesos, with interest, against
respondent Central Bank of the Philippines and Overseas Bank of Manila and its stockholders, on the
alleged failure of the Overseas Bank of Manila to return the time deposits made by petitioner and
assigned to him, on the ground that respondent Central Bank failed in its duty to exercise strict
supervision over respondent Overseas Bank of Manila to protect depositors and the general public. 1
Petitioner also prays that both respondent banks be ordered to execute the proper and necessary
documents to constitute all properties listed in Annex "7" of the Answer of respondent Central Bank of
the Philippines in G.R. No. L-29352, entitled "Emerito M. Ramos, Et. Al. v. Central Bank of the
Philippines," into a trust fund in favor of petitioner and all other depositors of respondent Overseas
Bank of Manila. It is also prayed that the respondents be prohibited permanently from honoring,
implementing, or doing any act predicated upon the validity or efficacy of the deeds of mortgage,
assignment, and/or conveyance or transfer of whatever nature of the properties listed in Annex "7" of
the Answer of respondent Central Bank in G.R. No. 29352. 2chanroblesvirtual|awlibrary
A sought for ex-parte preliminary injunction against both respondent banks was not given by this Court.
Undisputed pertinent facts are:chanrob1es virtual 1aw library
On October 13, 1966 and December 12, 1966, petitioner made a time deposit, for one year with 6%
interest, of One Hundred Fifty Thousand Pesos (P150,000.00) with the respondent Overseas Bank of
Manila. 3 Concepcion Maneja also made a time deposit, for one year with 6-1/2% interest, on March 6,
1967, of Two Hundred Thousand Pesos (P200,000.00) with the same respondent Overseas Bank of
Manila. 4
On August 31, 1968, Concepcion Maneja, married to Felixberto M. Serrano, assigned and conveyed to
petitioner Manuel M. Serrano, her time deposit of P200,000.00 with respondent Overseas Bank of
Manila. 5
Notwithstanding series of demands for encashment of the aforementioned time deposits from the
respondent Overseas Bank of Manila, dating from December 6, 1967 up to March 4, 1968, not a single
one of the time deposit certificates was honored by respondent Overseas Bank of Manila. 6
Respondent Central Bank admits that it is charged with the duty of administering the banking system of
the Republic and it exercises supervision over all doing business in the Philippines, but denies the
petitioner’s allegation that the Central Bark has the duty to exercise a most rigid and stringent
supervision of banks, implying that respondent Central Bank has to watch every move or activity of all
banks, including respondent Overseas Bank of Manila. Respondent Central Bank claims that as of March
12, 1965, the Overseas Bank of Manila, while operating, was only on a limited degree of banking
operations since the Monetary Board decided in its Resolution No. 322, dated March 12, 1965, to
prohibit the Overseas Bank of Manila from making new loans and investments in view of its chronic
reserve deficiencies against its deposit liabilities. This limited operation of respondent Overseas Bank of
Manila continued up to 1968. 7
Respondent Central Bank also denied that it is guarantor of the permanent solvency of any banking
institution as claimed by petitioner. It claims that neither the law nor sound banking supervision
requires respondent Central Bank to advertise or represent to the public any remedial measures it may
impose upon chronic delinquent banks as such action may inevitably result to panic or bank "runs." In
the years 1966-1967, there were no findings to declare the respondent Overseas Bank of Manila as
insolvent. 8
Respondent Central Bank likewise denied that a constructive trust was created in favor of petitioner and
his predecessor in interest Concepcion Maneja when their time deposits were made in 1966 and 1967
with the respondent Overseas Bank of Manila as during that time the latter was not an insolvent bank
and its operation as a banking institution was being salvaged by the respondent Central Bank. 9
Respondent Central Bank avers no knowledge of petitioner’s claim that the properties given by
respondent Overseas Bank of Manila as additional collaterals to respondent Central Bank of the
Philippines for the former’s overdrafts and emergency loans were acquire through the use of depositors’
money, including that of the petitioner and Concepcion Maneja. 10
In G.R. No. L-29352, entitled "Emerito M. Ramos, Et. Al. v. Central Bank of the Philippines," a case was
filed by the petitioner Ramos, wherein respondent Overseas Bank of Manila sought to prevent
respondent Central Bank from closing, declaring the former insolvent, and liquidating its assets.
Petitioner Manuel Serrano in this case, filed on September 6, 1968, a motion to intervene in G.R. No. L-
29352, on the ground that Serrano had a real and legal interest as depositor of the Overseas Bank of
Manila in the matter in litigation in that case. Respondent Central Bank in G.R. No. L-29352 opposed
petitioner Manuel Serrano’s motion to intervene in that case, on the ground that his claim as depositor
of the Overseas Bank of Manila should properly be ventilated in the Court of First Instance, and if this
Court were to allow Serrano to intervene as depositor in G.R. No. L-29352, thousands of other
depositors would follow and thus cause an avalanche of cases in this Court. In the resolution dated
October 4, 1968, this Court denied Serrano’s, motion to intervene. The contents of said motion to
intervene are substantially the same as those of the present petition. 11
This Court rendered decision in G.R. No. L-29352 on October 4, 1971, which became final and executory
on March 3, 1972, favorable to the respondent Overseas Bank of Manila, with the dispositive portion to
wit:chanrobles virtual lawlibrary
WHEREFORE, the writs prayed for in the petition are hereby granted and respondent Central Bank’s
resolution Nos. 1263, 1290 and 1333 (that prohibit the Overseas Bank of Manila to participate in
clearing, direct the suspension of its operation, and ordering the liquidation of said bank) are hereby
annulled and set aside; and said respondent Central Bank of the Philippines is directed to comply with its
obligations under the Voting Trust Agreement, and to desist from taking action in violation therefor.
Costs against respondent Central Bank of the Philippines." 12
Because of the above decision, petitioner in this case filed a motion for judgment in this case, praying for
a decision on the merits, adjudging respondent Central Bank jointly and severally liable with respondent
Overseas Bank of Manila to the petitioner for the P350,000 time deposit made with the latter bank, with
all interests due therein; and declaring all assets assigned or mortgaged by the respondents Overseas
Bank of Manila and the Ramos groups in favor of the Central Bank as trust funds for the benefit of
petitioner and other depositors. 13
By the very nature of the claims and causes of action against respondents, they in reality are recovery of
time deposits plus interest from respondent Overseas Bank of Manila, and recovery of damages against
respondent Central Bank for its alleged failure to strictly supervise the acts of the other respondent Bank
and protect the interests of its depositors by virtue of the constructive trust created when respondent
Central Bank required the other respondent to increase its collaterals for its overdrafts and emergency
loans, said collaterals allegedly acquired through the use of depositors money. These claims should be
ventilated in the Court of First Instance of proper jurisdiction as We already pointed out when this Court
denied petitioner’s motion to intervene in G.R. No. L-29352. Claims of these nature are not proper in
actions for mandamus and prohibition as there is no shown clear abuse of discretion by the Central Bank
in its exercise of supervision over the other respondent Overseas Bank of Manila, and if there was,
petitioner here is not the proper party to raise that question, but rather the Overseas Bank of Manila, as
it did in G.R. No. L-29352. Neither is there anything to prohibit in this case, since the questioned acts of
the respondent Central Bank (the acts of dissolving and liquidating the Overseas Bank of Manila), which
petitioner here intends to use as his basis for claims of damages against respondent Central Bank, had
been accomplished a long time ago.
Furthermore, both parties overlooked one fundamental principle in the nature of bank deposits when
the petitioner claimed that there should be created a constructive trust in his favor when the
respondent Overseas Bank of Manila increased its collaterals in favor of respondent Central Bank for the
former’s overdrafts and emergency loans, since these collaterals were acquired by the use of depositors’
money.cralawnad
Bank deposits are in the nature of irregular deposits. They are really loans because they earn interest. All
kinds of bank deposits, whether fixed, savings, or current are to be treated as loans and are to be
covered by the law on loans. 14 Current and savings deposits are loans to a bank because it can use the
same. The petitioner here in making time deposits that earn interests with respondent Overseas Bank of
Manila was in reality a creditor of the respondent Bank and not a depositor. The respondent Bank was in
turn a debtor of petitioner. Failure of 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.
WHEREFORE, the petition is dismissed for lack of merit, with costs against petitioner.
SO ORDERED.
Antonio, Abad Santos, JJ., concur.
Separate Opinions
AQUINO, J., concurring:chanrob1es virtual 1aw library
I concur in the result. The petitioner prayed that the Central Bank be ordered to pay his time deposits of
P350,000, plus interests, which he could not recover from the distressed Overseas Bank of Manila, and
to declare all the assets assigned or mortgaged by that bank and the Ramos group to the Central Bank as
trust properties for the benefit of the petitioner and other depositors.chanrobles.com:cralaw:red
The petitioner has no causes of action against the Central Bank to obtain those reliefs. They cannot be
granted in petitioner’s instant original actions in this Court for mandamus and prohibition. It is not the
Central Bank’s ministerial duty to pay petitioner’s time deposits or to hold the mortgaged properties in
trust for the depositors of the Overseas Bank of Manila. The petitioner has no cause of action for
prohibition, a remedy usually available against any tribunal, board, corporation or person exercising
judicial or ministerial functions.
Since the Overseas Bank of Manila was found to be insolvent and the Superintendent of Banks was
ordered to take over its assets preparatory to its liquidation under section 29 of Republic Act No. 265 (p.
197, Rollo, Manifestation of September 19, 1973), petitioner’s remedy is to file his claim in the
liquidation proceeding (Central Bank v. Morfe, L-38427, March 12, 1975, 63 SCRA 114; Hernandez v.
Rural Bank of Lucena, Inc., L-29791, January 10, 1978, 81 SCRA 75).
Barredo, J., concurs.
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 89252 May 24, 1993
RAUL SESBREÑO, petitioner,
vs.
HON. COURT OF APPEALS, DELTA MOTORS CORPORATION AND PILIPINAS BANK, respondents.
Salva, Villanueva & Associates for Delta Motors Corporation.
Reyes, Salazar & Associates for Pilipinas Bank.
FELICIANO, J.:
On 9 February 1981, petitioner Raul Sesbreño made a money market placement in the amount of
P300,000.00 with the Philippine Underwriters Finance Corporation ("Philfinance"), Cebu Branch; the
placement, with a term of thirty-two (32) days, would mature on 13 March 1981, Philfinance, also on 9
February 1981, issued the following documents to petitioner:
(a) the Certificate of Confirmation of Sale, "without recourse," No. 20496 of one (1) Delta Motors
Corporation Promissory Note ("DMC PN") No. 2731 for a term of 32 days at 17.0% per annum;
(b) the Certificate of securities Delivery Receipt No. 16587 indicating the sale of DMC PN No. 2731 to
petitioner, with the notation that the said security was in custodianship of Pilipinas Bank, as per
Denominated Custodian Receipt ("DCR") No. 10805 dated 9 February 1981; and
(c) post-dated checks payable on 13 March 1981 (i.e., the maturity date of petitioner's investment), with
petitioner as payee, Philfinance as drawer, and Insular Bank of Asia and America as drawee, in the total
amount of P304,533.33.
On 13 March 1981, petitioner sought to encash the postdated checks issued by Philfinance. However,
the checks were dishonored for having been drawn against insufficient funds.
On 26 March 1981, Philfinance delivered to petitioner the DCR No. 10805 issued by private respondent
Pilipinas Bank ("Pilipinas"). It reads as follows:
PILIPINAS BANK
Makati Stock Exchange Bldg.,
Ayala Avenue, Makati,
Metro Manila
February 9, 1981
———————
VALUE DATE
TO Raul Sesbreño
April 6, 1981
————————
MATURITY DATE
NO. 10805
DENOMINATED CUSTODIAN RECEIPT
This confirms that as a duly Custodian Bank, and upon instruction of PHILIPPINE UNDERWRITES FINANCE
CORPORATION, we have in our custody the following securities to you [sic] the extent herein indicated.
SERIAL MAT. FACE ISSUED REGISTERED AMOUNT

NUMBER DATE VALUE BY HOLDER PAYEE
2731 4-6-81 2,300,833.34 DMC PHIL. 307,933.33

UNDERWRITERS
FINANCE CORP.
We further certify that these securities may be inspected by you or your duly authorized representative
at any time during regular banking hours.
Upon your written instructions we shall undertake physical delivery of the above securities fully assigned
to you should this Denominated Custodianship Receipt remain outstanding in your favor thirty (30) days
after its maturity.
PILIPINAS BANK
(By Elizabeth De Villa
Illegible Signature)1
On 2 April 1981, petitioner approached Ms. Elizabeth de Villa of private respondent Pilipinas, Makati
Branch, and handed her a demand letter informing the bank that his placement with Philfinance in the
amount reflected in the DCR No. 10805 had remained unpaid and outstanding, and that he in effect was
asking for the physical delivery of the underlying promissory note. Petitioner then examined the original
of the DMC PN No. 2731 and found: that the security had been issued on 10 April 1980; that it would
mature on 6 April 1981; that it had a face value of P2,300,833.33, with the Philfinance as "payee" and
private respondent Delta Motors Corporation ("Delta") as "maker;" and that on face of the promissory
note was stamped "NON NEGOTIABLE." Pilipinas did not deliver the Note, nor any certificate of
participation in respect thereof, to petitioner.
Petitioner later made similar demand letters, dated 3 July 1981 and 3 August 1981, 2 again asking private
respondent Pilipinas for physical delivery of the original of DMC PN No. 2731. Pilipinas allegedly referred
all of petitioner's demand letters to Philfinance for written instructions, as has been supposedly agreed
upon in "Securities Custodianship Agreement" between Pilipinas and Philfinance. Philfinance did not
provide the appropriate instructions; Pilipinas never released DMC PN No. 2731, nor any other
instrument in respect thereof, to petitioner.
Petitioner also made a written demand on 14 July 1981 3 upon private respondent Delta for the partial
satisfaction of DMC PN No. 2731, explaining that Philfinance, as payee thereof, had assigned to him said
Note to the extent of P307,933.33. Delta, however, denied any liability to petitioner on the promissory
note, and explained in turn that it had previously agreed with Philfinance to offset its DMC PN No. 2731
(along with DMC PN No. 2730) against Philfinance PN No. 143-A issued in favor of Delta.
In the meantime, Philfinance, on 18 June 1981, was placed under the joint management of the Securities
and exchange commission ("SEC") and the Central Bank. Pilipinas delivered to the SEC DMC PN No.
2731, which to date apparently remains in the custody of the SEC. 4
As petitioner had failed to collect his investment and interest thereon, he filed on 28 September 1982 an
action for damages with the Regional Trial Court ("RTC") of Cebu City, Branch 21, against private
respondents Delta and Pilipinas.5 The trial court, in a decision dated 5 August 1987, dismissed the
complaint and counterclaims for lack of merit and for lack of cause of action, with costs against
petitioner.
Petitioner appealed to respondent Court of Appeals in C.A.-G.R. CV No. 15195. In a Decision dated 21
March 1989, the Court of Appeals denied the appeal and held: 6
Be that as it may, from the evidence on record, if there is anyone that appears liable for the travails of
plaintiff-appellant, it is Philfinance. As correctly observed by the trial court:
This act of Philfinance in accepting the investment of plaintiff and charging it against DMC PN No. 2731
when its entire face value was already obligated or earmarked for set-off or compensation is difficult to
comprehend and may have been motivated with bad faith. Philfinance, therefore, is solely and legally
obligated to return the investment of plaintiff, together with its earnings, and to answer all the damages
plaintiff has suffered incident thereto. Unfortunately for plaintiff, Philfinance was not impleaded as one
of the defendants in this case at bar; hence, this Court is without jurisdiction to pronounce judgement
against it. (p. 11, Decision)
WHEREFORE, finding no reversible error in the decision appealed from, the same is hereby affirmed in
toto. Cost against plaintiff-appellant.
Petitioner moved for reconsideration of the above Decision, without success.
Hence, this Petition for Review on Certiorari.
After consideration of the allegations contained and issues raised in the pleadings, the Court resolved to
give due course to the petition and required the parties to file their respective memoranda. 7
Petitioner reiterates the assignment of errors he directed at the trial court decision, and contends that
respondent court of Appeals gravely erred: (i) in concluding that he cannot recover from private
respondent Delta his assigned portion of DMC PN No. 2731; (ii) in failing to hold private respondent
Pilipinas solidarily liable on the DMC PN No. 2731 in view of the provisions stipulated in DCR No. 10805
issued in favor r of petitioner, and (iii) in refusing to pierce the veil of corporate entity between
Philfinance, and private respondents Delta and Pilipinas, considering that the three (3) entities belong to
the "Silverio Group of Companies" under the leadership of Mr. Ricardo Silverio, Sr. 8
There are at least two (2) sets of relationships which we need to address: firstly, the relationship of
petitioner vis-a-vis Delta; secondly, the relationship of petitioner in respect of Pilipinas. Actually, of
course, there is a third relationship that is of critical importance: the relationship of petitioner and
Philfinance. However, since Philfinance has not been impleaded in this case, neither the trial court nor
the Court of Appeals acquired jurisdiction over the person of Philfinance. It is, consequently, not
necessary for present purposes to deal with this third relationship, except to the extent it necessarily
impinges upon or intersects the first and second relationships.
I.
We consider first the relationship between petitioner and Delta.
The Court of appeals in effect held that petitioner acquired no rights vis-a-vis Delta in respect of the
Delta promissory note (DMC PN No. 2731) which Philfinance sold "without recourse" to petitioner, to
the extent of P304,533.33. The Court of Appeals said on this point:
Nor could plaintiff-appellant have acquired any right over DMC PN No. 2731 as the same is "non-
negotiable" as stamped on its face (Exhibit "6"), negotiation being defined as the transfer of an
instrument from one person to another so as to constitute the transferee the holder of the instrument
(Sec. 30, Negotiable Instruments Law). A person not a holder cannot sue on the instrument in his own
name and cannot demand or receive payment (Section 51, id.)9
Petitioner admits that DMC PN No. 2731 was non-negotiable but contends that the Note had been
validly transferred, in part to him by assignment and that as a result of such transfer, Delta as debtor-
maker of the Note, was obligated to pay petitioner the portion of that Note assigned to him by the
payee Philfinance.
Delta, however, disputes petitioner's contention and argues:
(1) that DMC PN No. 2731 was not intended to be negotiated or otherwise transferred by Philfinance as
manifested by the word "non-negotiable" stamp across the face of the Note 10 and because maker Delta
and payee Philfinance intended that this Note would be offset against the outstanding obligation of
Philfinance represented by Philfinance PN No. 143-A issued to Delta as payee;
(2) that the assignment of DMC PN No. 2731 by Philfinance was without Delta's consent, if not against
its instructions; and
(3) assuming (arguendo only) that the partial assignment in favor of petitioner was valid, petitioner took
the Note subject to the defenses available to Delta, in particular, the offsetting of DMC PN No. 2731
against Philfinance PN No. 143-A.11
We consider Delta's arguments seriatim.
Firstly, it is important to bear in mind that the negotiation of a negotiable instrument must be

distinguished from the assignment or transfer of an instrument whether that be negotiable or non-
negotiable. Only an instrument qualifying as a negotiable instrument under the relevant statute may
be negotiated either by indorsement thereof coupled with delivery, or by delivery alone where the
negotiable instrument is in bearer form. A negotiable instrument may, however, instead of being
negotiated, also be assigned or transferred. The legal consequences of negotiation as distinguished from
assignment of a negotiable instrument are, of course, different. A non-negotiable instrument may,
obviously, not be negotiated; but it may be assigned or transferred, absent an express prohibition
against assignment or transfer written in the face of the instrument:
The words "not negotiable," stamped on the face of the bill of lading, did not destroy its assignability,
but the sole effect was to exempt the bill from the statutory provisions relative thereto, and a bill,
though not negotiable, may be transferred by assignment; the assignee taking subject to the equities
between the original parties. 12 (Emphasis added)
DMC PN No. 2731, while marked "non-negotiable," was not at the same time stamped "non-
transferable" or "non-assignable." It contained no stipulation which prohibited Philfinance from
assigning or transferring, in whole or in part, that Note.
Delta adduced the "Letter of Agreement" which it had entered into with Philfinance and which should
be quoted in full:
April 10, 1980
Philippine Underwriters Finance Corp.

Benavidez St., Makati,
Metro Manila.
Attention: Mr. Alfredo O. Banaria

SVP-Treasurer
GENTLEMEN:
This refers to our outstanding placement of P4,601,666.67 as evidenced by your Promissory Note No.
143-A, dated April 10, 1980, to mature on April 6, 1981.
As agreed upon, we enclose our non-negotiable Promissory Note No. 2730 and 2731 for P2,000,000.00
each, dated April 10, 1980, to be offsetted [sic] against your PN No. 143-A upon co-terminal maturity.
Please deliver the proceeds of our PNs to our representative, Mr. Eric Castillo.
Very Truly Yours,
(Sgd.)
Florencio B. Biagan
Senior Vice President13
We find nothing in his "Letter of Agreement" which can be reasonably construed as a prohibition upon
Philfinance assigning or transferring all or part of DMC PN No. 2731, before the maturity thereof. It is
scarcely necessary to add that, even had this "Letter of Agreement" set forth an explicit prohibition of
transfer upon Philfinance, such a prohibition cannot be invoked against an assignee or transferee of the
Note who parted with valuable consideration in good faith and without notice of such prohibition. It is
not disputed that petitioner was such an assignee or transferee. Our conclusion on this point is
reinforced by the fact that what Philfinance and Delta were doing by their exchange of their promissory
notes was this: Delta invested, by making a money market placement with Philfinance, approximately
P4,600,000.00 on 10 April 1980; but promptly, on the same day, borrowed back the bulk of that
placement, i.e., P4,000,000.00, by issuing its two (2) promissory notes: DMC PN No. 2730 and DMC PN
No. 2731, both also dated 10 April 1980. Thus, Philfinance was left with not P4,600,000.00 but only
P600,000.00 in cash and the two (2) Delta promissory notes.
Apropos Delta's complaint that the partial assignment by Philfinance of DMC PN No. 2731 had been
effected without the consent of Delta, we note that such consent was not necessary for the validity and
enforceability of the assignment in favor of petitioner. 14 Delta's argument that Philfinance's sale or
assignment of part of its rights to DMC PN No. 2731 constituted conventional subrogation, which
required its (Delta's) consent, is quite mistaken. Conventional subrogation, which in the first place is
never lightly inferred,15 must be clearly established by the unequivocal terms of the substituting
obligation or by the evident incompatibility of the new and old obligations on every point. 16 Nothing of
the sort is present in the instant case.
It is in fact difficult to be impressed with Delta's complaint, since it released its DMC PN No. 2731 to
Philfinance, an entity engaged in the business of buying and selling debt instruments and other
securities, and more generally, in money market transactions. In Perez v. Court of Appeals,17 the Court,
speaking through Mme. Justice Herrera, made the following important statement:
There is another aspect to this case. What is involved here is a money market transaction. As defined by
Lawrence Smith "the money market is a market dealing in standardized short-term credit instruments
(involving large amounts) where lenders and borrowers do not deal directly with each other but through
a middle manor a dealer in the open market." It involves "commercial papers" which are instruments
"evidencing indebtness of any person or entity. . ., which are issued, endorsed, sold or transferred or in
any manner conveyed to another person or entity, with or without recourse". The fundamental function
of the money market device in its operation is to match and bring together in a most impersonal manner
both the "fund users" and the "fund suppliers." The money market is an "impersonal market", free from
personal considerations. "The market mechanism is intended to provide quick mobility of money and
securities."
The impersonal character of the money market device overlooks the individuals or entities
concerned. The issuer of a commercial paper in the money market necessarily knows in advance that it
would be expenditiously transacted and transferred to any investor/lender without need of notice to said
issuer. In practice, no notification is given to the borrower or issuer of commercial paper of the sale or
transfer to the investor.
xxx xxx xxx
There is need to individuate a money market transaction, a relatively novel institution in the Philippine
commercial scene. It has been intended to facilitate the flow and acquisition of capital on an impersonal
basis. And as specifically required by Presidential Decree No. 678, the investing public must be given
adequate and effective protection in availing of the credit of a borrower in the commercial paper
market.18 (Citations omitted; emphasis supplied)
We turn to Delta's arguments concerning alleged compensation or offsetting between DMC PN No. 2731
and Philfinance PN No. 143-A. It is important to note that at the time Philfinance sold part of its rights
under DMC PN No. 2731 to petitioner on 9 February 1981, no compensation had as yet taken place and
indeed none could have taken place. The essential requirements of compensation are listed in the Civil
Code as follows:
Art. 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same time a principal
creditor of the other;
(2) That both debts consists in a sum of money, or if the things due are consumable, they be of the same
kind, and also of the same quality if the latter has been stated;
(3) That the two debts are due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor. (Emphasis supplied)
On 9 February 1981, neither DMC PN No. 2731 nor Philfinance PN No. 143-A was due. This was explicitly
recognized by Delta in its 10 April 1980 "Letter of Agreement" with Philfinance, where Delta
acknowledged that the relevant promissory notes were "to be offsetted (sic) against [Philfinance] PN No.
143-A upon co-terminal maturity."
As noted, the assignment to petitioner was made on 9 February 1981 or from forty-nine (49) days
before the "co-terminal maturity" date, that is to say, before any compensation had taken place.
Further, the assignment to petitioner would have prevented compensation had taken place between
Philfinance and Delta, to the extent of P304,533.33, because upon execution of the assignment in favor
of petitioner, Philfinance and Delta would have ceased to be creditors and debtors of each other in their
own right to the extent of the amount assigned by Philfinance to petitioner. Thus, we conclude that the
assignment effected by Philfinance in favor of petitioner was a valid one and that petitioner accordingly
became owner of DMC PN No. 2731 to the extent of the portion thereof assigned to him.
The record shows, however, that petitioner notified Delta of the fact of the assignment to him only on
14 July 1981, 19 that is, after the maturity not only of the money market placement made by petitioner
but also of both DMC PN No. 2731 and Philfinance PN No. 143-A. In other words, petitioner notified
Delta of his rights as assignee after compensation had taken place by operation of law because the
offsetting instruments had both reached maturity. It is a firmly settled doctrine that the rights of an
assignee are not any greater that the rights of the assignor, since the assignee is merely substituted in
the place of the assignor 20 and that the assignee acquires his rights subject to the equities — i.e., the
defenses — which the debtor could have set up against the original assignor before notice of the
assignment was given to the debtor. Article 1285 of the Civil Code provides that:
Art. 1285. The debtor who has consented to the assignment of rights made by a creditor in favor of a
third person, cannot set up against the assignee the compensation which would pertain to him against
the assignor, unless the assignor was notified by the debtor at the time he gave his consent, that he
reserved his right to the compensation.
If the creditor communicated the cession to him but the debtor did not consent thereto, the latter may
set up the compensation of debts previous to the cession, but not of subsequent ones.
If the assignment is made without the knowledge of the debtor, he may set up the compensation of all
credits prior to the same and also later ones until he had knowledge of the assignment. (Emphasis
supplied)
Article 1626 of the same code states that: "the debtor who, before having knowledge of the assignment,
pays his creditor shall be released from the obligation." In Sison v. Yap-Tico,21 the Court explained that:
[n]o man is bound to remain a debtor; he may pay to him with whom he contacted to pay; and if he pay
before notice that his debt has been assigned, the law holds him exonerated, for the reason that it is the
duty of the person who has acquired a title by transfer to demand payment of the debt, to give his debt
or notice.22
At the time that Delta was first put to notice of the assignment in petitioner's favor on 14 July 1981,
DMC PN No. 2731 had already been discharged by compensation. Since the assignor Philfinance could
not have then compelled payment anew by Delta of DMC PN No. 2731, petitioner, as assignee of
Philfinance, is similarly disabled from collecting from Delta the portion of the Note assigned to him.
It bears some emphasis that petitioner could have notified Delta of the assignment or sale was effected
on 9 February 1981. He could have notified Delta as soon as his money market placement matured on
13 March 1981 without payment thereof being made by Philfinance; at that time, compensation had yet
to set in and discharge DMC PN No. 2731. Again petitioner could have notified Delta on 26 March 1981
when petitioner received from Philfinance the Denominated Custodianship Receipt ("DCR") No. 10805
issued by private respondent Pilipinas in favor of petitioner. Petitioner could, in fine, have notified Delta
at any time before the maturity date of DMC PN No. 2731. Because petitioner failed to do so, and
because the record is bare of any indication that Philfinance had itself notified Delta of the assignment
to petitioner, the Court is compelled to uphold the defense of compensation raised by private
respondent Delta. Of course, Philfinance remains liable to petitioner under the terms of the assignment
made by Philfinance to petitioner.
II.
We turn now to the relationship between petitioner and private respondent Pilipinas. Petitioner
contends that Pilipinas became solidarily liable with Philfinance and Delta when Pilipinas issued DCR No.
10805 with the following words:
Upon your written instruction, we [Pilipinas] shall undertake physical delivery of the above

securities fully assigned to you —.23
The Court is not persuaded. We find nothing in the DCR that establishes an obligation on the part of
Pilipinas to pay petitioner the amount of P307,933.33 nor any assumption of liability in solidum with
Philfinance and Delta under DMC PN No. 2731. We read the DCR as a confirmation on the part of
Pilipinas that:
(1) it has in its custody, as duly constituted custodian bank, DMC PN No. 2731 of a certain face value, to
mature on 6 April 1981 and payable to the order of Philfinance;
(2) Pilipinas was, from and after said date of the assignment by Philfinance to petitioner (9 February
1981), holding that Note on behalf and for the benefit of petitioner, at least to the extent it had been
assigned to petitioner by payee Philfinance;24
(3) petitioner may inspect the Note either "personally or by authorized representative", at any time
during regular bank hours; and
(4) upon written instructions of petitioner, Pilipinas would physically deliver the DMC PN No. 2731 (or a
participation therein to the extent of P307,933.33) "should this Denominated Custodianship receipt
remain outstanding in [petitioner's] favor thirty (30) days after its maturity."
Thus, we find nothing written in printers ink on the DCR which could reasonably be read as converting
Pilipinas into an obligor under the terms of DMC PN No. 2731 assigned to petitioner, either upon
maturity thereof or any other time. We note that both in his complaint and in his testimony before the
trial court, petitioner referred merely to the obligation of private respondent Pilipinas to effect the
physical delivery to him of DMC PN No. 2731. 25 Accordingly, petitioner's theory that Pilipinas had
assumed a solidary obligation to pay the amount represented by a portion of the Note assigned to him
by Philfinance, appears to be a new theory constructed only after the trial court had ruled against him.
The solidary liability that petitioner seeks to impute Pilipinas cannot, however, be lightly inferred. Under
article 1207 of the Civil Code, "there is a solidary liability only when the law or the nature of the
obligation requires solidarity," The record here exhibits no express assumption of solidary liability vis-a-
vis petitioner, on the part of Pilipinas. Petitioner has not pointed to us to any law which imposed such
liability upon Pilipinas nor has petitioner argued that the very nature of the custodianship assumed by
private respondent Pilipinas necessarily implies solidary liability under the securities, custody of which
was taken by Pilipinas. Accordingly, we are unable to hold Pilipinas solidarily liable with Philfinance and
private respondent Delta under DMC PN No. 2731.
We do not, however, mean to suggest that Pilipinas has no responsibility and liability in respect of
petitioner under the terms of the DCR. To the contrary, we find, after prolonged analysis and
deliberation, that private respondent Pilipinas had breached its undertaking under the DCR to petitioner
Sesbreño.
We believe and so hold that a contract of deposit was constituted by the act of Philfinance in
designating Pilipinas as custodian or depositary bank. The depositor was initially Philfinance; the
obligation of the depository was owed, however, to petitioner Sesbreño as beneficiary of the
custodianship or depository agreement. We do not consider that this is a simple case of a
stipulation pour autri. The custodianship or depositary agreement was established as an integral part of
the money market transaction entered into by petitioner with Philfinance. Petitioner bought a portion of
DMC PN No. 2731; Philfinance as assignor-vendor deposited that Note with Pilipinas in order that the
thing sold would be placed outside the control of the vendor. Indeed, the constituting of the depositary
or custodianship agreement was equivalent to constructive delivery of the Note (to the extent it had
been sold or assigned to petitioner) to petitioner. It will be seen that custodianship agreements are
designed to facilitate transactions in the money market by providing a basis for confidence on the part
of the investors or placers that the instruments bought by them are effectively taken out of the pocket,
as it were, of the vendors and placed safely beyond their reach, that those instruments will be there
available to the placers of funds should they have need of them. The depositary in a contract of deposit
is obliged to return the security or the thing deposited upon demand of the depositor (or, in the
presented case, of the beneficiary) of the contract, even though a term for such return may have been
established in the said contract.26 Accordingly, any stipulation in the contract of deposit or custodianship
that runs counter to the fundamental purpose of that agreement or which was not brought to the notice
of and accepted by the placer-beneficiary, cannot be enforced as against such beneficiary-placer.
We believe that the position taken above is supported by considerations of public policy. If there is any
party that needs the equalizing protection of the law in money market transactions, it is the members of
the general public whom place their savings in such market for the purpose of generating interest
revenues.27 The custodian bank, if it is not related either in terms of equity ownership or management
control to the borrower of the funds, or the commercial paper dealer, is normally a preferred or
traditional banker of such borrower or dealer (here, Philfinance). The custodian bank would have every
incentive to protect the interest of its client the borrower or dealer as against the placer of funds. The
providers of such funds must be safeguarded from the impact of stipulations privately made between
the borrowers or dealers and the custodian banks, and disclosed to fund-providers only after trouble has
erupted.
In the case at bar, the custodian-depositary bank Pilipinas refused to deliver the security deposited with
it when petitioner first demanded physical delivery thereof on 2 April 1981. We must again note, in this
connection, that on 2 April 1981, DMC PN No. 2731 had not yet matured and therefore, compensation
or offsetting against Philfinance PN No. 143-A had not yet taken place. Instead of complying with the
demand of the petitioner, Pilipinas purported to require and await the instructions of Philfinance, in
obvious contravention of its undertaking under the DCR to effect physical delivery of the Note upon
receipt of "written instructions" from petitioner Sesbreño. The ostensible term written into the DCR (i.e.,
"should this [DCR] remain outstanding in your favor thirty [30] days after its maturity") was not a
defense against petitioner's demand for physical surrender of the Note on at least three grounds: firstly,
such term was never brought to the attention of petitioner Sesbreño at the time the money market
placement with Philfinance was made; secondly, such term runs counter to the very purpose of the
custodianship or depositary agreement as an integral part of a money market transaction; and thirdly, it
is inconsistent with the provisions of Article 1988 of the Civil Code noted above. Indeed, in principle,
petitioner became entitled to demand physical delivery of the Note held by Pilipinas as soon as
petitioner's money market placement matured on 13 March 1981 without payment from Philfinance.
We conclude, therefore, that private respondent Pilipinas must respond to petitioner for damages
sustained by arising out of its breach of duty. By failing to deliver the Note to the petitioner as
depositor-beneficiary of the thing deposited, Pilipinas effectively and unlawfully deprived petitioner of
the Note deposited with it. Whether or not Pilipinas itself benefitted from such conversion or unlawful
deprivation inflicted upon petitioner, is of no moment for present purposes. Prima facie, the damages
suffered by petitioner consisted of P304,533.33, the portion of the DMC PN No. 2731 assigned to
petitioner but lost by him by reason of discharge of the Note by compensation, plus legal interest of six
percent (6%) per annum containing from 14 March 1981.
The conclusion we have reached is, of course, without prejudice to such right of reimbursement as
Pilipinas may have vis-a-vis Philfinance.
III.
The third principal contention of petitioner — that Philfinance and private respondents Delta and
Pilipinas should be treated as one corporate entity — need not detain us for long.
In the first place, as already noted, jurisdiction over the person of Philfinance was never acquired either
by the trial court nor by the respondent Court of Appeals. Petitioner similarly did not seek to implead
Philfinance in the Petition before us.
Secondly, it is not disputed that Philfinance and private respondents Delta and Pilipinas have been
organized as separate corporate entities. Petitioner asks us to pierce their separate corporate entities,
but has been able only to cite the presence of a common Director — Mr. Ricardo Silverio, Sr., sitting on
the Board of Directors of all three (3) companies. Petitioner has neither alleged nor proved that one or
another of the three (3) concededly related companies used the other two (2) as mere alter egos or that
the corporate affairs of the other two (2) were administered and managed for the benefit of one. There
is simply not enough evidence of record to justify disregarding the separate corporate personalities of
delta and Pilipinas and to hold them liable for any assumed or undetermined liability of Philfinance to
petitioner.28
WHEREFORE, for all the foregoing, the Decision and Resolution of the Court of Appeals in C.A.-G.R. CV
No. 15195 dated 21 march 1989 and 17 July 1989, respectively, are hereby MODIFIED and SET ASIDE, to
the extent that such Decision and Resolution had dismissed petitioner's complaint against Pilipinas Bank.
Private respondent Pilipinas bank is hereby ORDERED to indemnify petitioner for damages in the
amount of P304,533.33, plus legal interest thereon at the rate of six percent (6%) per annum counted
from 2 April 1981. As so modified, the Decision and Resolution of the Court of Appeals are hereby
AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Bidin, Davide, Jr., Romero and Melo, JJ., concur.

EN BANC
[G.R. No. L-4818. February 28, 1955.]
APOLINARIO G. DE LOS SANTOS and ISABELO ASTRAQUILLO, Plaintiffs-Appellees, v. J. HOWARD

MCGRATH ATTORNEY GENERAL OF THE UNITED STATES, SUCCESSOR TO THE PHILIPPINE ALIEN
PROPERTY ADMINISTRATION OF THE UNITED STATES, defendant and appellant. REPUBLIC OF THE
PHILIPPINES, Intervenor-Appellant.
Jose P. Laurel, M. Almario, Adolfo A. Scheerer, Antonio Quirino, and J. C. Orendain, for Appellees.
Harold I. Baynton, Stanley Gilbert, Juan T. Santos, and Lino M. Patajo, and Perkins, Ponce Enrile &
Associates, for Appellant.
Solicitor General Pompeyo Diaz and Solicitor Pacifico P. de Castro for intervenor and appellant.
SYLLABUS
1. CORPORATION LAW; SHARES OF STOCK, NATURE AND TRANSFER OF; EFFECT OF UNREGISTERED
TRANSFER. — Shares of stock are personal property and may be transferred by endorsement of the
corresponding stock certificate, coupled with its delivery. However, the transfer shall not be valid,
except as between the parties, until it is entered and noted upon the books of the corporation. (Section
35, Corporation Law).
2. ID.; ID.; QUASI-NEGOTIABILITY AND NON-NEGOTIABILITY OF SHARES OF STOCK. — Although shares of

stock are sometimes regarded as quasi-negotiable, in the sense that they may be transferred
endorsement, coupled with delivery, they are non-negotiable, because the holder thereof takes them
without prejudice to such rights or defenses as the registered owner or creditor may have under the
law, except insofar as such rights or defenses are subject to the limitations imposed by the principles
governing estoppel.
3. ID.; ID.; STOCKHOLDERS; RIGHTS OF REGISTERED STOCKHOLDERS SUPERIOR TO THAT OF PURCHASER

ON NOTICE OF FACTS INDICATING NEED OF INQUIRING INTO REGULARLY OF SALES. — Where the
plaintiffs were, at the time of the alleged sales in their favor of the shares stock in question, aware of
sufficient facts to put them on notice of the need of inquiring into the regularity of the transactions and
the title of the opposed vendors, they can not validly claim, against the registered stockholder, the
statue of purchasers in good faith.
4. ID.; ID.; ID.; PRINCIPAL OF REGISTERED OWNER ENJOYS SAME RIGHTS OF REGISTERED STOCKHOLDER.
— The principal or beneficiary of the registered owner of shares of stock is entitled to invoke such rights
as the registered stockholders may have under the law.
DECISION
CONCEPCION, J.:
This action involves the title to 1,600,000 shares of stock of the Lepanto Consolidated Mining Co., Inc., a
corporation duly organized and existing under the laws of the Philippines, hereinafter referred to, for
the sake of brevity, as the Lepanto. Originally, one-half of said shares of stock were claimed by plaintiff,
Apolinario de los Santos, and the other half, by his co-plaintiff Isabelo Astraquillo. During the pendency
of this case, the latter has allegedly conveyed and assigned his interest in and to said half claimed by him
to the former. The shares of stock in question are covered by several stock certificates issued in favor of
Vicente Madrigal, who is registered in the books of the Lepanto as owner of said stocks and whose
indorsement in blank appears on the back of said certificates, all of which, except certificates No. 2279
— marked Exhibit 2 — covering 55,000 shares, are in plaintiffs’ possession. So was said Exhibit 2, up to
sometime in 1945 or 1946 when said possession was lost under the conditions set forth in subsequent
pages.
Briefly stated, plaintiffs contend that De los Santos bought 500,000 shares from Juan Campos, in Manila,
early in December 1942; that he bought 300,000 shares from Carl Hess, in the same city, several days
later; and that, before Christmas of 1942, be bought 800,000 shares from Carl Hess, this time for the
account and benefit of Astraquillo. By virtue of vesting order P-12, dated February 18, 1945, title to the
1,600,000 shares of stock in dispute was, however, vested in the Alien Property Custodian of the U. S.
(hereinafter referred to as the Property Custodian) as Japanese property. Hence, plaintiffs filed their
respective claims with the Property Custodian. In due course, the Vested Property Claims Committee of
the Philippine Alien Property Administration made a "determination," dated March 9, 1948, allowing
said claims, which were considered and heard jointly as Claim No. 535, but, upon personal review, the
Philippine Alien Property Administrator (hereinafter referred to as "Administrator"), in an opinion dated
November 26, 1948, reversed the determination made by said Committee and decreed that "title to the
shares in question shall remain in the name of the Philippine Alien Property Administrator."
Consequently, plaintiffs instituted the present action to establish title to the aforementioned shares of
stock. In their complaint, they pray that judgment be rendered declaring them lawful owners of said
shares of stock, with such dividends, profits and rights as may have accrued thereto; requiring the
defendant to render accounts and to transfer said shares of stock to plaintiffs’ names; and sentencing
the former to pay the costs.
The defendant herein is the Attorney General of the U. S., successor to the "Administrator." He
contends, substantially, that, prior to the outbreak of war in the Pacific, said shares of stock were
bought by Vicente Madrigal, in trust for, and for the benefit of, the Mitsui Bussan Kaisha (hereinafter
referred to as the "Mitsuis"), a corporation organized in accordance with the laws of Japan, the true
owner thereof, with branch office in the Philippines; that on or before March, 1942, Madrigal delivered
the corresponding stock certificates, with his blank indorsement thereon, to the Mitsuis, which kept said
certificates, in the files of its office in Manila, until the liberation of the latter by the American forces
early in 1945; that the Mitsuis had never sold, or otherwise disposed of, said shares of stock; and that
the stock certificates aforementioned must have been stolen or looted, therefore, during the emergency
resulting from said liberation.
Inasmuch as, pursuant to the Philippine Property Act, all property vested in the United States, or any of
its officials, under the Trading with the Enemy Act, as amended, located in the Philippines at the time of
such vesting, or the proceeds thereof, shall be transferred to the Republic of the Philippines, the latter
sought permission, and was allowed, to intervene in this case and filed an answer adopting in substance
the theory of the defendant.
After due hearing, the Court of First Instance of Manila, presided over by Honorable Higinio B.
Macadaeg, Judge, rendered a decision the dispositive part of which reads, as
follows:jgc:chanrobles.com.ph
"In view of the foregoing consideration, judgment is hereby rendered in favor of the plaintiffs and
against the defendant, declaring the former the absolute owners of the shares of stock of the Lepanto
Consolidated Mining Company covered by the certificates of stock, respectively, in their (plaintiffs’)
possession. The transfer of said shares of stock in favor of the Alien Property Custodian of the U. S. of
America, now Philippine Alien Property Administration, is hereby declared null and void and of no effect.
Consequently, the Lepanto Consolidated Mining Company is ordered to cancel the certificates of stock
issued in the name of the Philippine Alien Property Custodian or Philippine Alien Property Administrator,
as the case may be. Defendant shall pay the costs of the proceeding." (p. 67, R.A.)
The defendant and the intervenor have appealed from this decision. The main question for
determination in this appeal is whether or not plaintiffs had purchased the shares of stock in question.
In support of the negative answer, appellants have introduced the testimony of Vicente Madrigal,
Matsune Kitajima, Kingy Miwa, Miguel Simon, E. A. Perkins and Victor E. Lednicky, as well as several
pieces of documentary evidence.
Mr. Madrigal, whose testimony before the claims Committee of the Philippine Alien Property
Administration was admitted with plaintiffs’ consent, stated that he purchased the shares of stock in
question, among others, for the Mitsuis and at their request; that he paid with his own funds the
corresponding price, which was later reimbursed to him by the Mitsuis; that he held the corresponding
stock certificates, which were issued in his name, with the understanding that he would effect the
necessary transfer, to the Mitsuis, upon demand; and that, shortly before the outbreak of war, he
delivered said stock certificates, with his blank endorsement thereon, to the Mitsuis, to whom said
stocks belonged.
Matsune Kitajima declared that in June 1941 he relieved one Kobayashi, as manager of the branch office
of the Mitsuis in Manila; that he then received from Kobayashi the stock certificates for about 1,900,000
shares of the Lepanto, belonging to the Mitsuis, but issued in favor of Vicente Madrigal, except the
certificates for 200,000 shares, which were in the name of the Mitsuis; that all these certificates were
kept in a steel safe in said office of the Mitsuis; that, in July 1941, he returned the stock certificates to
Madrigal, with the request that he buy for the Mitsuis, from time to time, some more shares of stock, in
small lots; that Madrigal bought 200,000 additional shares of the Lepanto for the Mitsuis; that, late in
November or early in December, 1941, the stock certificates of the aforementioned 2,100,000 shares
were returned to the Mitsuis, which had decided to stop buying, in view of the strained international
situation then prevailing; that, as branch manager of the Mitsuis, he was the only official authorized to
dispose of the shares in question, none of which was alienated by him; and that he had the
aforementioned stock certificates in his possession continuously until early in April 1943, when he
delivered the same to his successor in office, Kingy Miwa.
Apart from corroborating Kitajima’s testimony relative to said delivery of stock certificates in April 1943,
Kingy Miwa testified that he kept the latter in his possession, as branch manager of the Mitsuis; that said
shares of stock were never sold or otherwise disposed of by the Mitsuis; that, late in September 1944,
he bade his assistant, one Miyazima, to transfer all important documents to their residence and
headquarters, at Taft Avenue, Manila, although he did not know personally whether or not the transfer
was actually carried out; and that in January 1945, when the Japanese were about to evacuate Manila,
he told his Assistant Manager, one Shinoda, to burn all important papers before leaving the city.
Miguel Simon, brother of Carl Hess, from whom plaintiffs claim to have purchased 1,100,000 shares of
stock, affirmed that Hess lived in front of his (Simon’s) house; that they were close to each other and
had long been associated in business; that he was the office manager of "Hess and Zeitling" before the
war; that Hess used to tell him his daily transactions during the occupation; that at that time, Hess did
not have in his possession any certificate of stock of the Lepanto in the name of Vicente Madrigal; that
neither did Hess, during that period, operate as a broker, for, being American, he was under Japanese
surveillance; and that Hess had made, during the occupation, no transaction involving mining shares,
except when he sold 12,000 shares of the Benguet Consolidated, inherited from his mother, sometime
in 1943.
E. A. Perkins, a member of the law firm DeWitt, Perkins & Ponce Enrile testified substantially as follows:
On October 27, 1945, Leonardo Recio brought stock certificate No. 2279 (Exhibit 2) and offered the
same for sale to Clyde DeWitt, who, in turn, asked Perkins, whose room adjoined that of DeWitt, to join
them. Recio showed Exhibit 2 to DeWitt stating that he (Recio) wanted P0.13 per share. DeWitt handed
Exhibit 2 over to Perkins, who, after examining the instrument, returned it to DeWitt. The latter,
thereafter, checked it with a communication of the Property Custodian and then advised Recio that said
Exhibit 2 was one of the stock certificates looted from the Mitsuis and that he (DeWitt) would have to
report the matter to said official. As DeWitt, thereupon, telephoned one Mr. Erickson, of the Property
Custodian’s office, Recio stepped out of the room without Exhibit 2, which neither he or plaintiffs had
ever tried to recover.
Victor E. Lednicky, one of the organizers and pre-war directors of the Lepanto, and present vice-
president and member of its board of director, asserted that, having learned from a soldier of the
existence of mining papers and securities of the Lepanto in the offices of the Mitsuis at the Ayala
Building, formerly known as the National City Bank Building, in Manila, he went thereto in February 1945
and saw many documents scattered on the desks and floor of said premises. Among said papers, he
noticed two stock certificates of the Lepanto, one, in the name of either a Japanese or Chinese, and the
other, in the name of Vicente Madrigal, indorsed in blank. Soon, however, he heard voices coming from
the stairs, whereupon he departed hurriedly, for fear of being mistaken for a looter.
After analyzing the foregoing evidence for the defense, the lower court found the same "inherently
improbable" and seemingly concluded that, as a consequence, it should accept plaintiffs’ version, for
which reason judgment was rendered as above stated. It is well settled, in this jurisdiction, that the
findings of fact — particularly those relating to the credibility of the opposing witnesses — made by the
Judge a quo, should not be disturbed on appeal, in the absence of strong and cogent reasons therefor.
This policy is predicated upon the circumstance that the trial court has had an opportunity, denied to
the appellate court, to observe the behaviour of the witnesses during the hearing, a potent factor in
gauging their bias and veracity. In the case at bar, however, we notice that, rejecting the theory of the
defense, the court of origin was guided, not by the conduct of the witnesses in the course of their
testimony, but by what His Honor, the trial Judge, regarded as the inherent weakness thereof, in the
evaluation of which said court does not enjoy the advantage already adverted to.
Moreover, the decision appealed from appears to have assumed that plaintiffs’ pretense must
necessarily be relied upon, owing to the infirmities said to have been found in the theory of the defense.
This view suffers from a fatal defect. It overlooks the fact that the burden of proof is upon the plaintiffs,
and that, accordingly, a decision in their favor is not in order unless a preponderance of the evidence
supports their claim. To put it differently, the alleged improbabilities in the testimony of the witnesses
for the defense will not justify a judgment against the latter, if the evidence for the plaintiffs is more
improbable than, or, at least, as improbable as, that of the defense. Such is the situation obtaining in the
case at bar. Indeed, upon careful examination of the record before us, we find it impossible to share the
conclusions, made in the decision appealed from, relative to the alleged flaws in the version of the
defense.
Let us, first, examine the evidence for the plaintiffs, consisting, mainly, of their own testimony and that
of Primitivo Javier and Leonardo Recio.
According to De los Santos, on or about December 8, 1942, he purchased from Juan Campos, in Manila,
500,000 shares of stock of the Lepanto, for the aggregate sum of P30,000.00, or at P0.06 each share,
paid in cash, in exchange for the corresponding stock certificates, which were delivered to him. Several
days later, he bought from Carl Hess, in Manila, 300,000 shares of the Lepanto, at the same rate. Soon
after, he visited his daughter in Baguio, where he, likewise, saw his co-plaintiff, and former secretary,
Isabelo Astraquillo. Before leaving Astraquillo’s house, De los Santos happened to mention his aforesaid
purchases of Lepanto shares, at P0.06 each, whereupon, Astraquillo expressed the wish to buy 800,000
shares at the same price, the amount of which he delivered to De los Santos the next day. Upon his
return to Manila, De los Santos purchased from Hess said 800,000 shares, the certificates of which were
turned over by the former to Astraquillo, in Baguio, at about Christmas time. Over 3 years later, or in
January 1946, De los Santos repaired to the offices of the Lepanto in Manila to ascertain whether it
accepted certificates of stock for registration. He then received a negative answer. Upon further inquiry,
he learned, in February 1946, that the shares in the name of Madrigal were blocked. So he engaged the
services of Atty. A. Scheerer, who secured an order of release from the Freezing Control Office of the
United States Treasury Department. As he brought a copy of this order to the offices of the Lepanto, on
or about May 1, 1946, he was advised that no transfer could be effected without the authority of Clyde
DeWitt, the company president. Thereupon, De los Santos caused to be filed, with the office of the
Property Custodian, the corresponding claim for the shares of stock in question, with the result already
adverted to.
Astraquillo tried to corroborate the testimony of De los Santos, concerning the purchase of 800,000
shares of stock on behalf of the former. Moreover, Astraquillo declared that, being in need of money, he
came to Manila in November or December 1945, and delivered to stock broker Leonardo Recio stock
certificate No. 2279 (Exhibit 2) for 55,000 shares, with a view to disposing of the same at a price ranging
from P0.13 to P0.15 each. He advised Recio that, in the absence of any buyer, he could see Mr. DeWitt,
who, probably, would be interested in purchasing the shares. Sometime later, Astraquillo learned that,
according to Recio, upon seeing Exhibit 2, DeWitt retained it — upon the ground that the shares
represented therein had been blocked by the United States — and that he (Recio) got therefor a receipt,
which was subsequently lost in a fire that destroyed his (Recio’s) dwelling. As Astraquillo hurried to
Manila, he was told that representatives of the CIC would go to Baguio to investigate. So, he returned to
Baguio, but he did not wait for the investigation in that city. Late in February or early in March, 1946, he
came back to Manila and asked the assistance of De los Santos, whereupon both contacted Atty.
Scheerer for the purpose already stated.
Primitivo Javier narrated that, late in 1945, he received Exhibit 2 from his uncle, Astraquillo, who wanted
to sell the 55,000 shares represented by said stock certificate (No. 2279) at a price ranging from P0.12 to
P0.15 each share. He, in turn, delivered the certificate to Recio, a licensed broker. Subsequently, Recio
reported to him that he (Recio) had brought Exhibit 2 to the office of Mr. DeWitt, whom he did not see
on his first visit; that he then left Exhibit 2 in the hands of a person who worked in said office, one Atty.
Orlina, who issued a receipt therefor; that, when Recio came back, later on, DeWitt told him that Exhibit
2 was defective; and that, accordingly, Exhibit 2 was left in the possession of Mr. DeWitt. Javier relayed
this information to Astraquillo, who, thereupon, came to Manila. Both went to the temporary residence
of Recio in Sampaloc, his house in San Juan del Monte, Rizal, having been destroyed by fire late in
December 1945. Recio then advised them that said receipt had been burned with his house.
Leonardo Recio said that sometime in 1945, Javier gave him Exhibit 2, stating that it belonged to his
uncle, who wanted to alienate the corresponding shares of stock at P0.15, more or less, each, and
suggesting that he offer the same to Mr. DeWitt: In the latter’s office, Atty. Orlina told Recio that DeWitt
was busy and bade him (Recio) to return later. Recio delivered Exhibit 2 to Orlina, who gave him a
receipt, which, subsequently, he showed to Javier. When, soon after, he went back to Orlina, the latter
introduced him to Mr. DeWitt, who stated that the shares of stock covered by Exhibit 2 were included in
the list of questioned shares. DeWitt, also, asked him whether he would leave the certificate, to which
Recio replied affirmatively. While he was away, several months later, or shortly before Christmas, his
house at Blumentritt Street, San Juan del Monte, Rizal, and everything contained therein, including the
aforementioned receipt, which which was in his wallet, were destroyed by fire.
It thus appears that the only evidence on the alleged sale of the shares of stock in question to the
plaintiffs — the main issue in the case at bar — is the testimony of Apolinario de los Santos, who now
claims to be the sole owner thereof. Juan Campos and Carl Hess, the alleged vendors, could not take the
witness stand, for Hess was executed by the Japanese, and Campos died during the liberation of Manila.
Thus, death has sealed the lips of the only persons who could have positively corroborated or
contradicted the aforementioned testimony of De los Santos. Was this a mere accident of fate, as
plaintiffs would have us believe? Or were Campos and Hess named by the plaintiffs as their immediate
predecessors in interest precisely because, as contended by appellants, said deceased persons could no
longer impeach said testimony?
For obvious reasons, the Court can not answer these questions with absolute certainty. It can only
explore the possibilities and probabilities of the case, in the light of human experience. And, viewed
from this angle, it can not be denied that the demise of Campos and Hess before the filing of plaintiffs
claim seriously impairs the weight thereof. That the Grim Reaper had chosen to strike at one of the
alleged predecessors of the plaintiffs is a matter that may be attributed to sheer fortuitiousness. When,
as in the case at bar, not one, but both have thus been eliminated, it is clear, however, that this
circumstances is most unusual, and must place the Court on guard.
The need for caution becomes more imperative when we bear in mind that an important piece of
documentary evidence, which allegedly existed after liberation, and could have effectively corroborated
one phase of the plaintiffs’ contention, had, according to their evidence, disappeared through still
another unfortunate turn of the wheel of fate. It will be recalled that late in 1945, Leonardo Recio,
allegedly acting on behalf of Astraquillo, offered to sell to Atty. DeWitt the 55,000 shares represented by
stock certificate No. 2279 (Exhibit 2). Recio testified that, having been unable to see DeWitt, when he
(Recio) went to the latter’s office, for the first time, said Exhibit 2 was left by him (Recio) in the hands of
Atty. Orlina, who worked therein and gave him a receipt therefor. This receipt, if produced, would have
surely afforded us tangible proof of the veracity of, at least this part of plaintiffs’ story. Yet, we are now
told that, one day in December, 1945, Recio’s house accidentally caught fire, and that the latter
consumed, also, said receipt, kept in a wallet, which, by accident, he had failed to bring with him. Aren’t
there too many accidents in plaintiffs’ version? At any rate, we have thus been deprived of all means to
check with reasonable certainty the truth of any of the controverted portions of their pretense. In other
words, the same is based, and must stand or fall, therefore, upon the uncorroborated testimony of
plaintiff Apolinario de los Santos, and the credence and weight that may be given thereto. Upon a
review of the record, we find, however, that said testimony is highly improbable and inherently weak,
for, among other things:chanrob1es virtual 1aw library
(1) De los Santos declared that, in December, 1942, he purchased 300,000 shares from Juan Campos and
1,300,000 shares from Carl Hess, at P0.06 each share. As an enterprise controlled by Americans, the
Lepanto had been seized by the Japanese who, accordingly, were operating it. At that time, there were
no clear, or, even, substantial, indications that changes would take place, either in the local or in the
international situation, in the near or foreseeable future. In deed, the morale of the population in
democratic countries, particularly in the Philippines, was then at its lowest ebb. Both in Europe and in
the Pacific, the Axis powers had reached in enemy territories the highest degree of penetration attained
during the last war. Before the world had recovered from the shock produced by the German blitzkrieg
operations in the low countries and in France, the Nazis were already knocking at the gates of Stalingrad
and the Caucasus, whereas the Japanese seemed firmly entrenched in New Guinea and the Solomon
Islands. The people had a hazy notion about the facts pertinent to the Battle of Midway (June 3-6, 1942)
and the implications thereof were by and large unknown. In other words, the conditions were such as to
warrant the general belief that the Lepanto would remain under the authority and management of the
Japanese Imperial forces for an indefinite period of time. As a consequence, the Lepanto stock had not
merely a doubtful value, but - as admitted by Santos — even, no market value at all (p. 132, t. s. n.) .
Indeed, the stockholders could neither collect dividends nor exercise their voting power, or otherwise
participate in the operation of the enterprise. Moreover, there was a possibility of its assets being fully
confiscated, for all practical purposes, should Japan emerge victorious in the war in the Pacific, which it
appeared to be winning easily up to that time (December, 1942).
(2) Inasmuch as citizens of the ’United States held a majority of the shares of stock of the Lepanto, the
same had, from the view point of the Japanese, an enemy character, and the purchase of said stocks
was, therefore, a hostile act. As a matter of fact, in the proceedings before the Vested Property Claims
Committee, the parties - including plaintiffs herein - had stipulated "that such transfers and dealings in
said stock were prohibited by the Japanese during the occupation and hence were dangerous." (Record
on Appeal, p. 110). Said transactions could jeopardize the life of the parties thereto and De los Santos
was aware of the "highly dangerous" or "very risky" nature even of the "mere possession" of the stock
certificates in question. (pp. 141, 143, t. s. n.)
(3) Astraquillo is merely a former employee of De los Santos, who had, therefore, no reason to risk his
neck, not only by allegedly buying 800,000 shares of stock for Astraquillo, but, also, by avowedly
bringing with him (De los Santos) the corresponding stock certificates from Manila to Baguio, to make
delivery thereof to Astraquillo, as the defense would have us believe, notwithstanding the many
Japanese check points in the 250 kilometers highway connecting both cities and the absence of any
monetary or other gain he could have derived from the acts he professes to have performed.
(4) According to the Ballantyne schedule — the accuracy of which has not been impugned by plaintiffs
herein — the Japanese war notes in the Philippines had the same exchange of purchase value as the
currency of our legitimate government, in December, 1942 — and this was conceded by De los Santos
(p. 136, t. s. n.) — when they claim to have purchased the Lepanto stocks. The P48,000 supposedly paid
by De los Santos, and the identical sum allegedly disbursed by Astraquillo, for their respective stocks,
represented, therefore, the same amount in legal tender of the Commonwealth of the Philippines. In
fact, according to the evidence for the plaintiffs, part of the price allegedly paid by Astraquillo, or
P6,000, were in genuine Philippine money, representing his savings for 25 years. Said sum of P6,000
being insufficient to cover the cost of 800,000 shares of stock, Astraquillo, it is urged, alienated other
properties to raise the amount necessary therefor. It is very difficult to believe that the plaintiffs would
have parted with P48,000 each - precisely when, owing to the abnormal conditions brought about by the
occupation, said funds might be needed, at any time, to meet unforeseen emergencies of the gravest
and most vital nature — for shares of stock of dubious value then and in the foreseeable future.
(5) We are not satisfied that either De los Santos or Astraquillo possessed enough resources to have
P48,000, in cash, each, in December 1942. Their evidence on this point is too general — apart from
being based exclusively upon their respective oral testimonies, which are absolutely uncorroborated —
to support their contention. At any rate, De los Santos admitted that he is "not yet" rich (p. 134, t. s. n.) ,
and his testimony suggests that he did not even own the house in which he lived.
(6) Campos offered to sell his stocks, according to De los Santos, at P0.06 each (although its par value
was P0.10), stating that "he (Campos) needed money" (p. 43, t. s. n.) , and advised him that Hess was,
also, willing to dispose of his own stocks at the same price. Being, accordingly, aware that Campos and
Hess were in need of money and considering the risks attending the transaction, it is but logical to
expect De los Santos, an experienced trader in stocks, to bargain for a lower price. Yet, the evidence for
the plaintiffs shows that neither he nor Astraquillo tried to do so, contrary to the normal course of
events.
(7) De los Santos could not have purchased 1,300,000 shares of stock, from Hess, and received from him
the corresponding stock certificates, indorsed in blank by Vicente Madrigal, for Hess had never had such
stock certificates in his possession during the occupation. There is no plausible reason to doubt the
veracity of the testimony of Miguel Simon to this effect, for the latter had no possible motive to commit
perjury, and was in a position to know what he was talking about. Apart from being a brother-in-law of
Hess, Simon was manager of the firm Hess & Zeitling, of which Hess was the senior partner, who used to
inform him (Simon) of his (Hess) business transactions.
(8) Campos and Hess could not have delivered the stock certificates for the 1,600,000 shares of stock in
question, and, consequently, said shares of stock could not have been sold by them, to De los Santos in
December 1942, inasmuch as from December 1941 to April 1943, said stock certificates were
continuously in the custody of Matsume Kitajima, manager of the Mitsuis in Manila, whose testimony
was corroborated by his successor in office, Kingy Miwa, to whom Kitajima turned over the stock
certificates in April 1943. The sincerity of Matsume Kitajima and Kingy Miwa can not be doubted, for
neither appears to have any possible reason to trifle with the facts. Indeed, their testimony, if accepted
as true, would ultimately result in the confiscation, by the Republic of the Philippines, of the shares of
stock in question and, thus, place the same beyond the reach of the Mitsuis.
It has been intimated that Kitajima and Kingy may have testified as they did, either to protect
themselves, because they might have disposed of the shares of stock in question for their personal
benefit, or because there had been undue influence or pressure from the authorities — presumably
officers of the government of the United States. But these are mere speculations, without sufficient
actual basis. Besides, judicial notice may be taken of the circumstance that, during the occupation, even
minor Japanese officials could easily make money, in the Philippines, if they wanted to, without
misappropriating Japanese properties. Again, in December, 1942, the Japanese in the Philippines
appeared to have no doubts that, in effect, Japan had already won the war. In short, Kitajima and Kingy
must have thought that, sooner or later, Japan would own the Lepanto and that, therefore, they would
have to account for the shares of stock under consideration. Consequently, it is most unlikely that either
would have misappropriated said shares of stock as suggested by the plaintiffs.
The benefits which the Mitsuis and Japan may derive from a decision against the plaintiffs — inasmuch
as the value of the shares of stock in question would then be credited in payment of the reparations
which may be demanded by the Philippines and/or the United States — has been pointed out, in the
dissenting opinion, as a possible motive for the commission of perjury by Kitajima and Kingy. Besides
being purely conjectural in nature, this line of thought — which not even the plaintiffs have taken would
have no leg to stand on, unless we assume that the Mitsuis had sold or otherwise disposed of said stocks
during the year 1942, but before the alleged transactions between Campos and Hess, on the one hand,
and the plaintiffs on the other, in December of that year. It is inconceivable, however, that the Mitsuis
would part with the stocks in question, precisely when Japan was at the crest of its military and political
victories. Indeed, even if its officers had already foreseen, at that time, the eventual defeat of the axis
powers — and everything then appeared to indicate the contrary — the Mitsuis could not have disposed
of said stocks without thereby revealing their own lack of faith in the ability of Japan to achieve final
victory. Thus, the Mitsuis would have caused a grave injury upon the Japanese propaganda and thereby
earned severe punishment from the Imperial Government. Nothing, absolutely nothing, in the record, or
in contemporary history, warrants the belief that the Mitsuis, who were closely associated with the
Japanese Government, could be guilty of such folly.
Let us now turn our attention to the evidence for the defense, beginning with the testimony of Victor E.
Lednicky. It will be recalled that this witness claimed to have gone to the premises of the Mitsuis,
sometime in February 1945, and to have seen many documents scattered about the place, including two
(2) Lepanto certificates of stock, one of which was in the name of Vicente Madrigal, whose blank
indorsement appeared thereon. Thus, the defense sought to prove that the certificates of the shares of
stock involved in this case have probably been looted. The lower court found Lednicky’s story inherently
improbable and then concluded that the theory of the looting must, consequently, be "ruled out." To
our mind, however, the testimony of Lednicky is not inherently improbable. Besides, it is a matter of
common knowledge, of which judicial notice may be taken, that many offices and dwellings were looted
during the liberation of Manila. The possibility that possession of the stock certificates in question may
have been secured by looting should not be "ruled out," therefore, irrespective of the credence and
weight given to the testimony of Lednicky. Actually, said certificates are included in the list of stocks
certificates of the Lepanto which, soon after liberation, were reported and considered looted from the
Mitsuis, and, accordingly, "blocked" or "frozen" by the authorities. Irrespective of the foregoing, De los
Santos could not have obtained those certificates from Campos and Hess in December 1942, inasmuch
as, from December 1941 to April 1943, Kitajima had been continuously in possession of said documents,
none of which had been held by Hess during the occupation.
The lower court considered against the defense the circumstance that Lednicky, Simon and Perkins had
not testified before the Vested Property Claims Committee. There is no evidence, however, that any of
them knew of the proceedings before said committee. Furthermore, none of them has any personal
interest in the outcome of this action. Consequently, they have no possible motive to distort the truth,
unlike De los Santos, who, as the present claimant of all the shares of stock in dispute, will be directly
affected by the outcome of the case at bar. His testimony, therefore, cannot be more weighty than that
of the aforementioned witnesses for the defense.
The decision appealed from criticizes the testimony of Perkins upon the following grounds:chanrob1es
virtual 1aw library
(1) Having taken no part in the alleged looting of Exhibit 2, Recio had nothing to fear in connection
therewith and, so, he could not have left the office of Mr. DeWitt, while the latter was talking over the
telephone with a representative of the Alien Property Custodian;
(2) Inasmuch as DeWitt had stated that Exhibit 2 was included in the list of looted stock certificates,
Perkins should have known that, as holder of the certificate, Recio is presumed to be the one who stole
the same. Why then — plaintiffs inquire — did Perkins fail to prevent Recio from leaving said office?
As regards the first observation, suffice it to say that, as bearer of the Exhibit 2, Recio — who, according
to the lower court, is an intelligent man — must have realized the danger, probably unforeseen by him,
of being considered a privy to the looting of said stock certificate, of which he might have been unaware
before the conference with Mr. DeWitt. Hence, Recio’s fright and virtual flight. Verily, the testimony of
Perkins on this point is borne out by the undisputed fact that Exhibit 2 was left by Recio in the hands of
DeWitt, and that neither Astraquillo, nor his alleged successor in interest, De los Santos, has ever
demanded from DeWitt the return of said certificate, or even recriminated Recio for having voluntarily
parted with its possession, as he would have us believe, without authority therefor, as a broker or agent
who was supposed merely to find a buyer.
As to the second observation, Perkins knew that Recio was acting solely as a broker or agent. As such, he
was not the real holder of Exhibit 2, and, consequently, the presumption adverted to did not apply to
him. Even if it did, however, what could Perkins have done? Use force or violence upon the person of
Recio, or ask a policeman to detain him? Neither step, however, could have been taken without some
risks. To begin with, Perkins could not have properly taken the law in his own hands. Had he done so,
Recio could have legally used force against force. Moreover, said presumption is rebuttable and would
have easily been offset by the undeniable fact that Recio had acted merely in a representative capacity.
Again, why should Perkins take the initiative in the matter? Was it not being handled by his associate in
the law firm, Mr. DeWitt, one of the most able members of the Philippine Bar? It may not be amiss to
add that the record before us discloses absolutely nothing that may cast even a shadow of doubt upon
the honesty of Mr. Perkins.
The language of the lower court in commenting on the testimony of Miwa was:chanrob1es virtual 1aw
library
. . . In general, the testimony of Miwa is unreliable. His behaviour in Court in denying first and then in
accepting later his own signature throws him to a position where the Court must look upon him with
suspicion and distrust. His prevarication before the Court as to the genuineness of his own signature was
probably due to the conscience of a man who came to Court with a mental reservation, but who may
have been compelled under the circumstances to play the role of a willing tool." (p. 54, R. A.)
The following portion of Miwa’s testimony illustrates the point referred to in the decision appealed
from:jgc:chanrobles.com.ph
"ATTY. QUIRINO:chanrob1es virtual 1aw library
Q. Will you please go over this paper which for purposes of identification we request that it be marked
as Exhibit M for the plaintiffs and which was marked as Exhibit 6-b before the Vested Property Claims
Committee, and tell us if you know that document? — A. No. I do not remember this paper.
Q. Mr. Miwa, at the bottom of this certificate or Exhibit M, which was Exhibit 6-b in the Committee and
submitted by the Alien Property Administration, there is a typewritten name, Kingy Miwa, and above it is
a signature. Will you kindly tell the Court if that is your signature or not? Please look over it again. — A.
No. It is not mine.
Q. Please examine it carefully and tell the Court afterwards if you recognize that signature. Examine it
carefully. — A. It looks very similar to my signature.
Q. But would you want or are you willing to go on record and say that it is not your signature? — A. I can
not say. I don’t exactly remember that I signed this, but it looks very similar to my signature.
Q. You will not testify under oath that this is your signature? — A. Yes, sir.
Q. What do you mean to say by ’yes, sir? Do you swear that this is your signature or not your signature?
— A. I think this is my signature.
Q. So you are willing to go on record now that that signature appearing in Exhibit ’M’ is your signature?
— A. Yes, I think so." (pp. 125-126, t. s. n.)
We do not agree with its appraisal by the lower court. It is clear that, as he did not remember the
execution of Exhibit M several years before the hearing of this case, Miwa had doubts about the
genuineness of the signature thereon, but the appearance thereof, similar or identical to that of his own
signature, prevented him from denying its authenticity. This does not indicate lack of veracity on his
part. At any rate, plaintiffs claim to have bought the shares of stock in question in December, 1942, or
during the management of Kitajima, who held the corresponding stock certificates continuously from
December, 1941, to April, 1943, when Miwa substituted him, so that neither Campos nor Hess could
have delivered those certificates to De los Santos in December 1942. Apart from this, if there are flaws
in the proof for the defense, those of the evidence for the plaintiffs are much bigger and more
substantial and vital. Consequently, we hold that plaintiffs have not established their pretense by a
preponderance of the evidence.
Even, however, if Juan Campos and Carl Hess had sold the shares of stock in question, as testified to by
De los Santos, the result, insofar as plaintiffs are concerned, would be the same. It is not disputed that
said shares of stock were registered, in the records of the Lepanto, in the name of Vicente Madrigal.
Neither is it denied that the latter was, as regards said shares of stock, a mere trustee for the benefit of
the Mitsuis. The record shows - and there is no evidence to the contrary — that Madrigal had never
disposed of said shares of stock in any manner whatsoever, except by turning over the corresponding
stock certificates, late in 1941, to the Mitsuis, the beneficial and true owners thereof. It has, moreover,
been established, by the uncontradicted testimony of Kitajima and Miwa, the managers of the Mitsuis in
the Philippines, from 1941 to 1945, that the Mitsuis had neither sold, conveyed, or alienated said shares
of stock, nor delivered the aforementioned stock certificates, to anybody during said period. Section 35
of the Corporation Law reads:jgc:chanrobles.com.ph
"The capital stock of stock corporations shall be divided into shares for which certificates signed by the
president or the vice- president, countersigned by the secretary or clerk and sealed with the seal of the
corporation, shall be issued in accordance with the by- laws. Shares of stock so issued are personal
property and may be transferred by delivery of the certificate indorsed by the owner or his attorney in
fact or other person legally authorized to make the transfer. No transfer, however, shall be valid, except
as between the parties, until the transfer is entered and noted upon the books of the corporation so as
to show the names of the parties to the transaction, the date of the transfer, the number of the
certificate, and the number of shares transferred.
"No shares of stock against which the corporation holds any unpaid claim shall be transferable on the
books of the corporation." (Italics supplied.)
Pursuant to this provision, a share of stock may be transferred by endorsement of the corresponding
stock certificate, coupled with its delivery. However, the transfer shall "not be valid, except as between
the parties," until it is "entered and noted upon the books of the corporation." No such entry in the
name of the plaintiffs herein having been made, it follows that the transfer allegedly effected by Juan
Campos and Carl Hess in their favor is "not valid, except as between" themselves. It does not bind either
Madrigal or the Mitsuis, who are not parties to said alleged transaction. What is more, the same is "not
valid," or, in the words of the Supreme Court of Wisconsin (Re Murphy, 51 Wisc. 519, 8 N. W. 419) —
which were quoted approval in Uson v. Diosomito (61 Phil., 535) — "absolutely void" and, hence, as
good as non-existent, insofar as Madrigal and the Mitsuis are concerned. For this reason, although a
stock certificate is sometimes regarded as quasi-negotiable, in the sense that it may be transferred by
endorsement, coupled with delivery, it is well settled that the instrument is non-negotiable, because the
holder thereof takes it without prejudice to such rights or defenses as the registered owner or creditor
may have under the law, except insofar as such rights or defenses are subject to the limitations imposed
by the principles governing estoppel.
"Certificates of stock are not negotiable instruments (post, Par. 102), consequently, a transferee under a
forged assignment acquires no title which can be asserted against the true owner, unless his own
negligence has been such as to create an estoppel against him (Clarke on Corporations, Sec. Ed. p. 415).
If the owner of the certificate has endorsed it in blank, and it is stolen from him, no title is acquired by
on innocent purchaser for value (East Birmingham Land Co. v. Dennis, 85 Ala. 565, 2 L.R.A. 836;
Sherwood v. Mining Co., 50 Calif. 412). As was said by the Supreme Court of the United States in a
leading case (Western Union Telegraph Co. v. Davenfort, 97 U. S. 369; 24 L. Ed. 1047) —
‘Neither the absence of blame on the part of the officers of the company in allowing an unauthorized
transfer of stock, nor the good faith of the purchaser of stolen property, will avail as an answer to the
demand of the true owner. The great principle that no one can be deprived of his property without his
assent, except by processes of the law, requires, in the case mentioned, that the property wrongfully
transferred or stolen should be restored to its rightful owner.’" (The Philippine Law of Stock
Corporations by Fisher, p. 132.) (Italics ours.) .
In the language of Fletcher’s Cyclopedia Corporations (Vol. 12, pp. 521-534):jgc:chanrobles.com.ph
"The doctrine that a bona fide purchaser of shares under a forged or unauthorized transfer acquires no
title as against the true owner does not apply where the circumstances are such as to estop the latter
from asserting his title. . . .
x x x
"A reason often given for the rule is that it is a case for the application of the maxim that where one of
two innocent parties must suffer by reason of a wrongful or unauthorized act, the loss must fell on the
one who first trusted the wrongdoer and put in his hands the means of inflicting such loss. But
’negligence which will work an estoppel of this kind must be a proximate cause of the purchase or
advancement of money by the holder of the property, and must enter into the transaction itself’; the
negligence must be in or immediately connected with the transfer itself. Furthermore, ’to establish this
estoppel it must appear that the true owner had conferred upon the person who has diverted the
security the indicia of ownership, or an apparent title or authority to transfer the title.’ So the owner is
not guilty of negligence in merely intrusting another with the possession of his certificate of stock, if he
does not, by assignment or otherwise, clothe him with the apparent title. Nor is he deprived of his title
or his remedy against the corporation because he intrusts a third person with the key of a box in which
the certificate are kept, where the latter takes them from the box and by forging the owner’s name to a
power of attorney procures their transfer on the corporate books. Nor is the mere indorsement of an
assignment and power of attorney in blank on a certificate of stock, which is afterwards lost or stolen,
such negligence as will estop the owner from asserting his title as against a bona fide purchaser from the
finder or thief, or from holding the corporation liable for allowing a transfer on its books, where the loss
or theft of the certificate was not due to any negligence on the part of the owner, although there is
some dangerous and wholly unjustifiable dictum to the contrary. So it has been held that the fact that
stock pledged to a bank is indorsed in blank by the owner does not estop him from asserting title
thereto as against a bona fide purchaser for value who derives his title from one who stole the
certificate from the pledges. And this has also been held to be true though the thief was on officer of the
pledges, since his act in wrongfully appropriating the certificate cannot be regarded as a
misappropriation by the bank to whose custody the certificate was intrusted by the owner, even though
the bank may be liable to the pledgor. . . . A person is not guilty of negligence in leaving a certificate of
stock indorsed in blank in a safe deposit box used by himself and another jointly, so as to be estopped
from asserting his title after the certificate has been stolen by the other, and sold or pledged to a bona
fide purchaser or pledgee. Nor is he negligent in putting a certificate so indorsed in a place to which an
employee had access, where he has no reason to doubt the latter’s honesty, . . ." (Italics ours.)
In the leading case of Knox v. Eden Muscee American Co. (42 N. E. 988, 992-993), the rule has been
forcefully stated as follows:jgc:chanrobles.com.ph
"The courts have been frequently importuned to extend the qualities of negotiability of stock certificates
beyond the limits mentioned, and clothe them with the same character of complete negotiability as
attaches to commercial paper, so as to make a transfer to a purchaser in good faith for value equivalent
to actual title, although there was no agency in the transferror, and the certificate had been lost without
the fault of the true owner, or had been obtained by theft or robbery. But the courts have refused to
accede to this view, and we have found no case entitled to be regarded as authority which denies to the
owner of a stock certificate which has been lost without his negligence, or stolen, the right to reclaim it
from the hands of any person in whose possession it subsequently comes, although the holder may have
taken it in good faith and for value. The precise question has not often been presented to the courts, for
the reason, probably, that they have with greet uniformity held that stock certificates were not
negotiable instruments in the broad meaning of that phrase; but whenever the question has arisen it
has been held that the title of the the owner of a lost or stolen certificate may be asserted against any
one subsequently obtaining its possession although the holder may be a bona fide purchaser. Anderson
v. Nicholas, 28 N. Y. 600; Power Co. v. Robinson, 52 Fed. 520; Biddle v. Bayard, 13 Pa. St. 150; Barstow v.
Mining Co., 64 Cal. 388, 1 Pac. 349. See Shaw v. Railroad Co., 101 U. S. 557. . . It is plain, we think, that
the argument in support of the judgment in this case, based on the complete negotiability of stock
certificates, is not supported by, but is contrary to, the decisions. If public policy requires that a further
advance should be made in more completely assimilating them to commercial paper in the qualities of
negotiability, the legislature, and not the courts, should so declare. Under the law as it has hitherto
prevailed there does not seem to have been any serious hindrance in dealing with property of this
character. It may, perhaps, be doubted, taking into consideration the interests of investors as well as
dealers, whether it would be wise to remove the protection which the true owner of a stock certificate
now has against accident, theft, or robbery. The system of registry of negotiable bonds, which prevails
to a considerable extent, authorized by statutes of some of the states and of the United States, seems to
indicate a tendency to restrict, rather than to extend, the range of negotiable instruments." (Italics
ours.)
The status of quasi-negotiability generally accorded to, and at present enjoyed by, certificates of stock,
under the Philippine law, is in itself a recognition of the fact that the certificates are non-negotiable.
Instead of sustaining appellees’ claim, section 5 of the Uniform Stock Transfer Act, which "gives full
negotiability to certificates of stock," refutes said claim and confirms the non-negotiable character of
stock certificates in the absence of said Uniform Act, for, obviously, the same could not have given,
negotiability to an instrument already possessing this attribute prior thereto. Again, apart from being
distinct from the general Corporation Law, the aforementioned Uniform Act is not in force in the
Philippines. In this connection, it should be noted that this special piece of legislation was adopted in
some states of the union as early as the year 1910. The failure of the Philippine government to
incorporate its provisions in our statute books, for a period of almost 45 years, is, to our mind, clear
proof of the unwillingness of our legislative department to change the policy set forth in section 35 of
Act No. 1459. Needless to say, this fact negates our authority — which is limited to the interpretation of
the law, and its application, with all its imperfections — to abandon what the dissenting opinion
characterizes as the "civil law standpoint," and substitute, in lieu thereof, the commercial viewpoint, by
applying said section 6 of the Uniform Stock Transfer Act, although not a part of the law of the land.
Indeed, even in matters generally considered as falling within "commercial territory", the Roman Law
concept has not given way in the Philippines to the Common Law approach, except when there is
explicit statutory provision to the contrary.
In the case at bar, neither Madrigal nor the Mitsuis had alienated the shares of stock in question. It is
not even claimed that either had, through negligence, given — occasion for an improper or irregular
disposition of the corresponding stock certificates. Plaintiffs merely argue without any evidence
whatsoever thereon — that Kitajima might have, or must have, assigned the certificates on or before
December 1942, although, as above stated, this is, not only, improbable, under the conditions, then
obtaining, but, also, impossible, considering that, in April 1943, Kitajima delivered the instruments to
Miwa, who kept them in its possession until 1945. At any rate, such assignment by Miwa — granting for
the sake of argument the accuracy of the surmise of plaintiffs herein — was unauthorized by the
Mitsuis, who, in the light of the precedents cited above, are not chargeable with negligence. In other
words, assuming that Kitajima had been guilty of embezzlement, by negotiating the stock certificates in
question for his personal benefit, as claimed by the plaintiffs, the title of his assignees and successors in
interest would still be subject to the rights of the registered owner, namely, Madrigal, and,
consequently, of the party for whose benefit and account the latter held the corresponding shares of
stock, that is to say, the Mitsuis.
At any rate, at the time of the alleged sales in their favor, plaintiffs were aware of sufficient facts to put
them on notice of the need of inquiring into the regularity of the transactions and the title of the
supposed vendors. Indeed, the certificates of stock in question were in the name of Madrigal. Obviously,
therefore, the alleged sellers (Campos and Hess) were not registered owners of the corresponding
shares of stock. Being presumed to know the law — particularly the provisions of section 35 of Act No.
1459 — and, also, as experienced traders in shares of stock, plaintiffs must have, accordingly, been
conscious of the consequent infirmities in the title of the supposed vendors, or of the handicaps thereof.
Moreover, the aforementioned sales were admittedly hostile to the Japanese, who had prohibited it and
plaintiffs had actual knowledge of these facts and of the risks attendant to the alleged transaction. In
other words, plaintiffs advisely assumed those risks and, hence, they can not validly claim, against the
registered stockholder, the status of purchasers in good faith.
The lower court held, and plaintiffs maintain that, not being the registered owners of the shares of stock
in question, the Mitsuis can not assert a better right than said plaintiffs. This pretense is untenable.
Inasmuch as Madrigal, the registered owner of said shares of stock, has always acknowledged that he
held the same merely as an agent of, or trustee for, the Mitsuis — and this is not denied — it follows
that the latter are entitled to invoke such rights as Madrigal had as registered stockholder. Upon the
other hand, even the alleged sale by Juan Campos and Carl Hess to plaintiffs herein is contested by the
defense and, to our mind, has not been established by a preponderance of the evidence. Hence, as the
undisputed principal or beneficiary of the registered owner (Madrigal), the Mitsuis may claim his rights,
which cannot be exercised by the plaintiffs, not only because their alleged title is not derived either from
Madrigal or from the Mitsuis, but, also, because it is in derogation, of said rights. Madrigal and the
Mitsuis are not privies to the alleged sales by Campos and Hess to the plaintiffs, contrary to the latter’s
pretense.
In conclusion, when the Property Custodian issued the Vesting Order complained of, the shares of stock
in question belonged to the Mitsuis, admittedly an enemy corporation, so that said Vesting Order is in
conformity with law and should be upheld. Wherefore, the decision appealed from is hereby reversed,
and the complaint, accordingly, dismissed, with costs against the plaintiffs-appellees. It is so ordered.
Paras, C.J., Pablo, Padilla, Montemayor, Reyes, A., Jugo and Labrador, JJ., concur.
Separate Opinions
BENGZON, J., dissenting:chanrob1es virtual 1aw library
Unable to agree with my distinguished colleagues, I find it necessary to write a rather extended dissent,
due principally to the far-reaching effect of their ruling upon future operations of the local stock market
and corporate business. A dissent may at least indicate what is not the law.
During the Japanese occupation two Filipinos — the plaintiffs — secretly purchased shares of an
American corporation, whose assets had been seized by the enemy invader. Risking Japanese wrath,
they staked their funds (perhaps their freedom or lives) on the eventual return of the American forces.
After two years, these came back in victorious liberation; but oddly enough plaintiffs lose their money
and the shares.
Such anti-climax is brought about by this decision of the Philippine Supreme Court, upon the initiative or
opposition of Americans and Filipinos, resulting ultimately to the benefit of the Japanese. 1 Not that I
believe property rights should be apportioned on the basis of nationality; but the impact of plaintiffs’
misadventure may not be fully realized unless these details are described.
Just the luck of plaintiffs: They won before the U. S. Treasury, and later before the Vested Property
Aliens Committee but they lost before the Administrator because this officer applied an erroneous legal
principle. 2 Thereafter they resort to the courts, winning the first round. Now again they lose.
Perspective, imperfect I believe, accounts for this their second defeat. We take the viewpoint of a trial
judge passing on conflicting testimony, and thusly adjudicate: "evidence for the plaintiff is ’as
improbable as that of the defense’; yet the burden of proof is upon plaintiffs’, therefore judgment for
defendants." On appeal our coign of vantage lies on higher ground; and, following established practice,
the issue involving credibility of witnesses, we should uphold the judgment for plaintiffs — unless the
trial judge unduly discarded significant evidentiary pieces for the defendants. Reading the testimony in
black and white, we might disagree with his estimate of the factual probabilities; nevertheless we
should, as usual, make allowance for his peculiar advantage of having seen the witnesses testifying on
the chair; and then affirm, realizing that this distance we cannot perceive minor movements of the
pointer in the judicial balance.
The majority attempt to justify their deviation from accepted practice with the statement that "in
rejecting the theory of the defense" His Honor "was guided not by the conduct of the witnesses in the
course of their testimony", but by the inherent "weakness" of such theory. For the application of the
principle recognizing the advantage of the trial judge, it is not necessary in my opinion for the said
officer to declare explicitly, that in appraising the witnesses’ versions he was guided by their conduct on
the witness-stand; normally, in matters of credibility he weighs their testimony against the background
of the sense-images they produced, their demeanor, expression of their faces etc.
Nevertheless, admitting arguendo, that this appeal must be decided upon the finding that plaintiffs’
theory of purchase "is as improbable as defendant’s theory" (of looting), I submit that, inasmuch as the
plaintiffs have possession of the certificates which were indorsed in blank, and inasmuch as the burden
of proof shifted to the defendants to prove the alleged looting, plaintiffs should receive the award. In
addition to plaintiffs’ testimony, — it must be emphasized — they have the certificates in proper order,
indorsed in blank. Such documentary proof, speaking for itself, should tip the scales, whenever, - as this
court declares now — the testimonial evidence "is even."cralaw virtua1aw library
The presumption is that . . . stock which was endorsed in blank was delivered to the parties who had
possession of stock (Hess and Campos) and transferred it to bona fide purchasers (plaintiffs). (See Lilley
v. First Federal Savings & Loan Association, La. App. 1940, 194 So. 901.)
Furthermore, there are these presumptions: (1) Hess and Campos, and Plaintiffs are innocent of crime or
wrong, and (2) things which a person possesses are owned by him. (Rule 123 sec. 69).
Listed in the majority decision are eight grounds to disbelieve Santos’ declarations. Let me comment
briefly on them: Anent the first, Santos was positive the American forces would eventually return, and
he bought the shares. As to the second; and the third, he braved the dangers, for the sake of sure
financial gain. As to the fourth and the fifth, it must be remembered that Santos had a monthly income
of P6,000, and was co-owner of ten hectares of land in Tondo. His living in a rented apartment does not
imply financial inability; many landed provincial folk were ordinary tenants in Manila during the war. As
to the price, Santos who had been dabbling in other stock knew that at P0.06 the Lepanto shares were a
bargain; so he did not hesitate and grabbed the chance. As to the 7th, Miguel Simon could not affirm
under oath that Carl Hess "had imparted all his activities to me" (p. 29 s. n.); and because the handling of
these shares was "dangerous" at that time, most probably Hess did’nt inform him about it. And what
about the shares Santos bought from Campos?
Concerning the 8th, remember that although Kitajima and Miwa said the Lepanto certificates were in
their possession, they did’nt mean physical personal possession, but official possession, in the vaults or
cabinets of the Mitsui office. Yet they admitted that other officials had access to the same certificates (p.
115 testimony of Miwa). Inference: such other officials could have — and probably — disposed of the
certificates.
As to Kitajima’s testimony that in April 1943 he delivered these certificates to his successor Kenji Miwa,
no satisfactory explanation exists for defendants’ failure to present the inventory admittedly prepared
at that time. The document was the best evidence, since Kitajima might not have been sincere, for he
would be personally responsible to the Mitsui higher-ups for the certificates; and the temptation to
palm off responsibility is great where opportunity offers.
And Miwa could not have received and kept these shares, because he swore to having seen to it —
when ordered to leave Manila in 1945 — that the important documents including the Lepanto shares
were burned. How come these shares are now in the possession of Santos? Obviously, because they
were not among those shares burned, nor shares delivered to Miwa or kept by him in the Manila offices.
The Mitsui Company it must be underscored - stands to benefit from a declaration that these shares still
belong to it. True, they will be confiscated now, for defendants. They are nevertheless Japanese assets
which may ultimately have to be credited to the said corporation.
Supposing Kitajima told the whole truth that he did not dispose of the shares, then the probabilities are
that such shares had been disposed of by other Mitsui officials without his knowledge.
Now then, the question arises, if the shares had been disposed of by unauthorized officials of Mitsui
Bussan Kaisha do the plaintiffs have a valid title? They have acquired the shares for value and in good
faith, without notice that Campos and Hess had defective titles.
Parenthetically, the defendants — and this decision — doubt the plaintiffs’ purchase partly because
Campos died during the liberation of Manila and Hess was executed by the Japanese. That both of them
died is quite a suspicious circumstance, says the majority. I might agree, if both occurred during normal
times. Yet during the Japanese occupation and the battle of liberation, death was no unusual occurrence
in the city. And then, who knows but that Hess was executed by the Japanese for having engaged in
dangerous activities, such as the handling of this stock?
By the way, the Foreign Funds Control of the U. S. Treasury Department; the Vested Property Aliens
Committee, the Alien Property Administrator and the court of first instance never doubted such sale by
Campos and Hess. And this controversy would not have reached the courts had not the Alien Property
Administrator held that admitting the sale, the plaintiffs failed to trace their chain of title to these
shares, beginning from Madrigal, (the registered owner) and Mitsui all the way down to Hess and
Campos. Which is error, because as aptly pointed out in appellees’ brief:jgc:chanrobles.com.ph
"A purchaser for value is not bound to show affirmatively that the certificates were delivered by a
former owner to his own grantor." Helbrook v. New Jersey Linc., 57 N. Y. 616) (Fletchers, Cyclopedia of
the Law of Private Corporation, Vol. 12, Sec. 5474.) (Italics ours).
"Such a contention is quite fallacious because neither the law nor the established custom of the trade
requires a purchaser in good faith to trace back all its predecessors in interest. That would be requiring
the purchaser to prove an utter impossibility, because as shown by the cases cited and also in the actual
practice of trade, a certificate endorsed in blank may travel through different hands which may number
10, 20, 50 or 100." (p. 169 brief.) (cf. Hager v. Bryan, infra.)
"The holder of corporate stock containing blank assignment and power of attorney to transfer stock on
books of company, signed and indorsed on back thereof, has prima facie good title to the shares." (Jones
v. Courts (1940) Ga. App. 239, 12 S. E. 2d 446.)
That the shares were disposed of by officers of the Mitsui in 1942, is not improbable, considering: (a) the
shares were purposely kept indorsed in blank before and during the war; (b) the Mitsui did not report
the shares to the American High Commissioner, violating the latter’s order of July 1941 (c) the shares
were valueless during the war because the Japanese government had seized the corporate property; (d)
the officers of Mitsui possibly foresaw the final result of the Pacific war, and made the most of their
belongings before the oncoming disaster; and (e) the only other alternative that may explain how the
shares reached the hands of Hess and Campos in 1942 — theft or loss before 1945 — is not asserted nor
proven.
Against this probability — which must be accepted, 3 because the shares were subsequently found in
the possession of Hess and Campos, who cannot be declared to have stolen them — the defendants
countered with a possibility that those shares had been looted after the arrival of the Americans in
Manila in 1945.
Interesting to note that no evidence supporting such possibility was given during the hearings before the
American Claims Committee, that decided for herein plaintiffs. Moreover, the American Aliens Property
Administrator, dismissed it too, although he decided against plaintiffs, on a mistaken view of the
controlling legal principle, as hereinbefore indicated.
However, when the matter was brought to the court, the defendants, perceiving the weakness of their
stand, presented Victor Lednicky, Vice President of the Lepanto Consolidated, the Corporation that,
without waiting for a court determination of plaintiffs’ right to the shares issued new certificates
cancelling (prematurely and illegally) the certificates in plaintiffs’ custody, with actual knowledge of the
latters’ claims.
Lednicky testified that on or about February 12 or 13, 1945 he went to the office of Mitsui Bussan Kaisha
on the Ayala Building, across the Pasig River and saw Lepanto papers and other documents scattered
over the floor; that he picked up two certificates of the Lepanto, one in the name of Madrigal and the
other in the name of a Japanese or Chinese; that upon hearing some noises, he threw the certificates
away and left. The trial judge considered his testimony inherently improbable, giving among other
reasons:jgc:chanrobles.com.ph
"Here is an old man who had been imprisoned in the concentration camp during the occupation,
suffering brutalities at the hands of the Japanese, and whose escape from death may perhaps be even
termed providential, yet when finally saved and liberated, he ventured into the areas where bombing,
shelling, and fighting were still going on, thus risking his dear life only to salvage the papers, document,
and securities belonging to the Lepanto Consolidated Mining Company, which, according to the
information of an American soldier, were all scattered on the floor of the offices of the Mitsui Bussan
Kaisha in the Ayala Building. . . .
. . . In explaining his failure to pick up the documents which was contrary to his avowed desire to save
the records of the Lepanto Consolidated Mining Company, he said that he and the American soldier with
him heard noises around, and fearing lest they be shot as looters, they took to their heels.
. . . The fear of being taken for looters, likewise does not appear logical, because he was with an
American soldier in uniform" (pp. 41- 43 Record on Appeal.)
His Honor was right. Those who were in Manila remember that on February 12 or 13, 1945 and
subsequent days, the battle of liberation was raging in Ermita and Malate; Intramuros was besieged; and
unless compelled by absolute necessity nobody — except looters — dared to circulate around the places
surrounding Intramuros or other points near the scene of fighting. 4 It is hard to believe that Lednicky, a
substantial resident of advanced age, would care to go sight-seeing, to satisfy his curiosity about some
Lepanto shares. Unless we yield to the uncharitable suspicion that he too wanted to lay hands on those
Lepanto shares of the Japanese. Which would not, of course, exactly bolster his personal credibility.
Anyway as plaintiffs reasoned out,
"Conceding, however, that Mr. Lednicky did find some certificates of the Lepanto Consolidated on the
Third Floor of the Ayala Building — it does not prove that the shares adjudicated to the plaintiffs were
precisely the ones looted there, for the simple reason that the 1,600,000 shares in the possession of the
plaintiffs were not the only certificates of the Lepanto Consolidated. And Lednicky saw only one 4 — if
he saw anything at all. It will be remembered that Mitsui purchased a total of 1,900,000 shares in the
name of Madrigal, all of them endorsed in blank. So conceding, arguendo, that Mr. Lednicky found some
shares of the Lepanto on the Third Floor of the Ayala Building — it is nonetheless possible that the
certificates he had seen were part of what might have been left of the 1,900,000 shares after the
certificates of the plaintiffs had left the safe of the company." (pp. 56-57 brief.)
On this issue, another line of thought suggests itself. Because of the Japanese war, Hess and Campos
cannot now confirm the sale to plaintiffs nor help them trace their chain of title; because of war
conditions, plaintiffs could not and did not ask from Hess and Campos who their predecessors were;
because of war, looting occurred in the city and planted the seed of suspicion against plaintiffs’ title;
because of war, plaintiffs find themselves litigating with their own government. Should the Japanese
profit from such mix-up?
In fine, the probability of looting of these particular shares in 1945 (to make it stronger for defendants)
should yield to the uncontradicted evidence of sale to plaintiffs in 1942 by Hess and Campos.
Again, in support of their thesis of looting, the defendants presented Atty. Eugene E. Perkins who
testified about the alleged unceremonious departure of Leonardo Recio when Atty. DeWitt (to whom he
offered one of the certificates for sale) happened to mention looted certificates. Recio denied, and gave
a plausible explanation of the incident. The matter is controversial. Yet supposing the facts were as Atty.
Perkins had described, Recio’s "flight" could at most demonstrate that he (Recio) had some doubts
about the origin of said particular certificate — one only 5 . Looting was an ugly word and may be he
wanted to avoid all discussion with big lawyers. Nevertheless, his private notions cannot legally reflect
plaintiffs’ state of mind. Recio’s opinions were his own. And mark well, the shares were not placed in his
hands by plaintiffs directly, but by Primitivo Javier.
Once the theory of looting is discarded, defendants’ remaining line of defense would fall on the
proposition that the shares must have been disposed of by officers of the Mitsui Company, who had no
authority to sell. And plaintiffs would counter with the assertion that they bought the shares from Hess
and Campos in good faith without knowledge of such breach of trust or excess of authority. What is then
the governing principle? This is the last and decisive issue.
At the outset it should be clear that the situation is the same as if Mitsui litigated with the plaintiffs,
considering that, having paid nothing for the shares, defendants may not assert better rights than the
Mitsui Company had.
It should also be observed that the blank indorsements of these shares signed by V. Madrigal are
worded as follows:chanrob1es virtual 1aw library
For value received, ___________ hereby sell, assign, and transfer unto _______________ shares of the
Capital Stock represented by the within Certificate, and to hereby irrevocably constitute and appoint
_____________ to transfer the said Stock on the books of the within named Corporation with full power
of substitution in the premises.
Dated _____ 19 ______
_____________ _____________
V. Madrigal
Stock-traders in this jurisdiction know (Hagar v. Bryan, 19 Phil., 138) that through the above
indorsement "by the usages of business of which the courts take judicial notice, the certificate may be
passed from hand to hand;" and when "it reaches the hands of someone who desires to assume the
legal rights of a shareholder . . . he fills up the blanks by inserting his own name as transferee", and
"inserts in the second blank the name of the attorney in fact whom he wishes to make the transfer for
him" on the corporate books. (And then such attorney-in-fact may compel the transfer.) According to
Commissioner Cosio of the Securities and Exchange Commission, such indorsement increases the
marketability of the certificate enhances the mobility of this form of wealth so that by mere delivery of
the certificates endorsed in blank the ownership thereof is transferred.
The certificates of stock when so indorsed, we said once, acquire quasi-negotiable character, (Bachrach
Motor Co. v. Ledesma, 38 Off. Gaz., 796); and parties who deal with them innocently have long been
protected by the law upon principles analogous to those applicable to commercial paper. (Tolentino,
Commercial Laws of the Philippines Vol. II (5th Ed.) p. 796 citing cases).
Under the Negotiable Instruments Law a bona fide purchaser for value (holder in due course) of an
instrument would be protected, even if his seller had obtained the "bearer" instrument by theft.
"A holder in due course, it has been broadly held, both at common law and under the Negotiable
Instruments Act takes good title even from a thief; more strictly, if the instrument is made payable to
bearer, or is indorsed in blank, or is otherwise negotiable by delivery, an innocent purchaser for value
and before maturity who acquires it from a thief or finder acquires a good title and may recover
thereon, and he may retain it even as against the true owner." (10 C.J.S, pp. 1117, 1118, citing lots of
cases.)
As a less serious defect in the seller’s title would exist when he conveys the instrument in breach of faith
or breach of trust, a fortiori, a bona fide purchaser of such instrument, without notice and for value,
should likewise be protected.
In this part of this dissent — I will admit that the situation before us is a sale by Mitsui employees in
excess of, or without, authority. Then I say, it is akin to sale or pledge in breach of trust. It should be
validated, especially because the Mitsui Corporation purposely kept the shares indorsed in blank for a
long time, notwithstanding its managers’ actual knowledge that in such form the shares were easily
negotiable (73, 74 s. n.) and even when the times were so topsy-turvy war that loss, theft, or
misplacement of the papers were likely to occur.
This Court has already began applying principles of negotiability to corporate certificates in a recent case
where the owner of the certificate pledged the same to a broker and the broker misused the certificate
by pledging the same to guaranty his own account with a bank. We held, the owner of the certificate can
not recover the same from the bank. 6
Ours is now the opportunity, and duty, to carry this principle forward in line with the general tendency
to regard shares indorsed in blank as in the nature of negotiable credits. After all, Commercial law is
essentially "progressive." 7
Thus we would be following the last word in the law governing transfers of stock, as embodied in the
Uniform Stock Transfer Act in force in all the States of the American Union, from Alabama, Arizona etc.
all the way down to Wisconsin and Wyoming, some states having adopted it as recently as the year
1947.
"SECTION 1. How title to certificates and shares may be transferred. — Title to a certificate and to the
shares represented thereby can be transferred only,
(a) By delivery of the certificate indorsed either in blank or to a specified person by the person appearing
by the certificate to be the owner of the shares represented thereby, or
(b) By delivery of the certificate and a separate document containing a written assignment of the
certificate or a power of attorney to sell, assign, or transfer the same or the shares represented thereby,
signed by the person appearing by the certificate to be the owner of the shares represented thereby. . . .
SEC. 5. Who may deliver a certificate. — The delivery of a certificate to transfer title in accordance with
the provisions of section 1, is effectual, except as provided in section 7, though made by one having no
right of possession and having no authority from the owner of the certificate or from the person
purporting to transfer the title. (Italics mine.)
SEC. 7. Rescission of transfer. — If the indorsement or delivery of a certificate,
(a) was procured by fraud or duress, or

(b) was made under such mistake as to make the indorsement or delivery inequitable; or
If the delivery of a certificate was made.
(c) without authority from the owner, or
(d) after the owner’s death or legal incapacity, the possession of the certificate may be reclaimed and
the transfer thereof rescinded, unless:chanrob1es virtual 1aw library
(l) The certificate has been transferred to a purchaser for value in good faith without notice of any facts
making the transfer wrongful, or . . . ." (Italics mine.)
The Uniform Act is a mere codification of common law principles. (Patterson v. Fitzpatrick — McElroy Co.
(1927) 247 Ill. App. 1.) It necessarily reflects the prevailing opinion in all the States. And section 5 "gives
full negotiability to certificates of stock," according to the Commissioners that drafted the Act (Uniform
Laws Annotated Vol. 6 p. 10.)
(Cases and authorities are to be found in the enclosed addenda.)
Vis-a-vis the Uniform Stock Transfer Act, the authorities cited by the majority decision turn out to be
dated, apart from the circumstance that at the time they were enunciated or published there were court
decisions in the other direction. 8 Now the Transfer Act — unanimously adopted by all the states —
settled the conflicts, and declared the predominant doctrine to be, that a bona fide buyer for value of
stock indorsed in blank acquires title even if his seller had no authority to sell from the owner. (Please
read again the provisions of the Act above quoted, and the cases in addenda.)
Such prevailing doctrine in the U. S. may properly be engrafted in our corporation law, of American
origin, specially because our statute contains nothing contrary to it (cf. sec. 35 Corporation Law).
Besides, it must be taken to represent the true sentiment of the commercial world, which the local
business community could not but echo. For as Commissioner Cosio explained, referring to local
practice, mere delivery of the certificate endorsed in blank transferred ownership. And usages of
commerce, or commercial practices, the Code says, are part of the Commercial Law. (Art. 2 Code of
Commerce.)
Therefore, on legal principles plaintiffs should prevail. Even if the certificate had been stolen 9 and then
sold to Hess and Campos (which is not the case).
At this juncture I may advert to the majority propositions allegedly supported by section 35 of the
Corporation Law:jgc:chanrobles.com.ph
"Pursuant to this provision, a share of stock may be transferred by endorsement of the corresponding
stock certificate, coupled with its delivery. However, the transfer shall "not be valid, except as between
the parties," until it is "entered and noted upon the books of the corporation." No such entry in the
name of the plaintiffs herein having been made, it follows that the transfer allegedly effected by Juan
Campos and Carl Hess in their favor is "not valid, except as between" themselves. It does not bind either
Madrigal or the Mitsuis, who are not parties to said alleged transaction."cralaw virtua1aw library
This argument, with due respect to the majority, is their weakest.
The phrase "except as between the parties" means parties and their privies, their predecessors or
successors in interest. The exception was meant to protect creditors of the parties, or the corporation
itself, that may be paying dividends to the recorded stockholder even after said stockholder had sold his
stock without recording the sale. Adoption of the majority view would have the effect of requiring every
transfer of the stock to be entered on the books (contrary to what we said in Hager v. Bryan, 19 Phil. 138
and the accepted practice). For if a certificate endorsed in blank has passed from A to B, then to C, then
to D and then to E, but the transfers to B to C and to D have not been recorded, therefore E gets no title
and may not have it recorded in the books of the corporation, because his contract with D does not
affect A, B and C. It is not the purpose, I hope, presently to overrule Hager v. Bryan now. Peculiar thing
about this Hager v. Bryan case: there is another decision between the same parties reported in Vol. 21 p.
523; the unwary reader is apt to conclude that the decision in Vol. 21 overrules the decision in the
previous volume, but it is just reverse; look at the dates.
Even on grounds of equity 10 , plaintiffs should win. Who caused these shares to be indorsed in blank?
Who kept them thus even knowing the dangers of loss or confusion? Who allowed its officers to have
access to those shares? Who appointed those officers?
Incidentally, these shares, I understand, are now worth much more than the amount invested by
plaintiffs. I find no reluctance to validate their good fortune. For I have always maintained that in
contracts involving speculation, the resultant profit to the purchaser, however sizable, can never of itself
serve to becloud the genuineness of the transaction. (Gomez v. Roño, 46 Off. Gaz., Supp. (11) 339.)
One final paragraph:chanrob1es virtual 1aw library
Overshadowing the deliberative process of the majority opinion, I perceive the guiding principle in
civilian affairs that, the purchaser of goods acquires no better title than his seller had. It examined the
problem from a civil law standpoint. Again, perspective, less than perfect, inasmuch as the issue arises
on Commercial territory, wherein the need of promoting exchange of goods in business have often
allowed purchasers for value in good faith to obtain a better title than their seller had, for instance, (1)
purchasers of goods from stores open to the public (Art. 85 Code of Commerce, Art. 1505 New Civil
Code) (2) purchasers for value in good faith of negotiable bearer instruments, see supra, and (3)
purchasers in good faith for value of shares endorsed in blank, under the Uniform Stock Transfer Act.
ADDENDA
(RIGHTS OF PURCHASER IN GOOD FAITH OF STOCK CERTIFICATE ENDORSED IN BLANK).
1. "The purpose of rules making certificates of corporate stock negotiable when indorsed in blank is to
enable all persons to treat possession of certificates as equivalent of ownership. Mason v. Public Nat.
Bank & Trust Co. of New York, 1941, 262 App. Div. 249, 28 N. Y. S. 2d 416, affirmed 287 N. Y. 809, 41 N.
E. 2d 91.
"2. "The Uniform Stock Transfer Act was adopted to give stocks the security of negotiability and so that
purchasers of stock might have reasonable assurance as to their title. Untermyer v. State Tax
Commission, 1942, 102 Utah 214, 129 P. 2d 881, reversed on other grounds 62 S. Ct. 1104, 316 U. S. 645,
86 L. Ed. 1729.
"3. "As a general rule indorsement in blank and delivery passes absolute and unconditional title.
Desmond v. Pierce. (1925) 185 Wis. 479, 201 N. W. 742 (holding that a person who had thus indorsed
and delivered certificates could not sue on a contract of the corporation to repurchase them).
"4. "Where a stock certificate was delivered to a pledgee accompanied by a stock power signed by the
pledgor, but blank as to the transferree and grantee of the power, such delivery was held sufficient to
transfer title under this section. Ironside v. Levi, (1932) 278 Mass. 18, 179 N. E. 226.
"5. "Where owner indorsed stock in blank and transferred it to brokerage company as security for loan,
under agreement that company would not transfer the stock, but the company transferred the stock to
its corporate creditor to secure payment, by creditor at request of the company, of certain drafts the
creditor, which had no notice of the transaction between owner and company, stood in position of a
’bona fide purchaser without notice’ and as against the owner acquired title to these stock as security
for amount which the creditor advanced to the company. Jones v. Courts, 1940, 64 GA. App. 239, 12 S. E.
2d 446.
"6. "Under this title, which makes valid transfers of stock certificates indorsed in blank even though
transfers are without owner’s authority unless there is bad faith on part of transferee, the test of good
faith is common honesty and not the degree of care exercised. . . ." Mason v. Public Nat. Bank & Trust
Co. of New York, 1941, 262 App. Div. 249, 28 N. Y. S. 2d 416, affirmed 287 N. Y. 809, 41 N. E. 2d 91.
"Transfers of stock certificates indorsed in blank are valid, even though the transfers are without
authority of actual owner, unless there is bad faith on the party of the transferee of such certificates or
failure by him to take cognizance of circumstances giving notice that the transfer was wrongful. Id.
7. "Under this section, stock certificates which are assigned by their owner in blank have the qualities of
negotiable instruments. U. S. Gypsum Co. v. Faroll 1938, 296 Ill. App. 47 N. E. 2d 888. "Stock certificates
are assignable and pass by indorsement or delivery as do bills of exchange and promissory notes. Cliffs
Corporation v. U. S. C. C. A. Ohio 1939, 103 F. 2d 77, certiorari denied 60 S. Ct. 91, 308 U. S. 575, 84 L. Ed.
482.
8. "Where the owner of stock certificates indorses them in blank and delivers them to a stranger, being
induced by a forged telegram and letter purporting to be from the corporation’s secretary directing the
stranger to take up the stock for redemption, such owner cannot recover from a bona fide purchaser of
the certificates. Jackson v. Peerless Portland Cement Co., (1927) 238 Mich. 476, 213 N. W. 863. This case
follows the holding in Peckinpaugh v. Noble, (1927) 238 Mich. 464, 213 N. W. 859, 52 A. L. R. 941.
9. "In Chappuis v. Spencer, (1928) 167 La. 527, 119 So. 697 (citing Act generally), it was held that a
purchaser in good faith of a stock certificate from the holder under a proper indorsement obtained valid
title thereto, even though the person transferring the stock was a pledgee."cralaw virtua1aw library
"10. "A purchaser in good faith and for value of a stock certificate assigned by the owner in blank
acquires good title as against the true owner, even if the transfer was without authority, and even if the
certificate was obtained from the true owner’s possession by illegal means, U. S. Gypsum Co. v. Faroll,
1938, 296 Ill. App. 47, 15 N. E. 2d. 888.
11. The corporation remains under the legal duty of recognizing any bona fide purchaser of the lost or
stolen certificate who did not have notice." (of the theft or defect). Transfer of Stock, Christy and
McLean (2d Ed.) sec. 278 citing cases.
12. A purchaser who in good faith for value and without notice of any adverse interests, purchases a
stock certificate bearing endorsement of registered owner endorsed in blank, acquires good title to the
shares of stock represented by the certificate. Chatos v. Midco Oil Corp. Fed. (2d) 153 certiorari denied
329 U. S. 717.
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 93849 December 20, 1991
THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee,

vs.
DICK ONG y CHAN, LINO MORFE y GUTIERREZ, RICARDO VILLARAN and LUCILA TALABIS, accused, DICK
ONG y CHAN, accused-appellant.
The Solicitor General for plaintiff-appellee.

Leoncio T. Mercado for accused-appellant.
MEDIALDEA, J.:
The accused, Dick Ong y Chan, Lino Morfe y Gutierrez, Ricardo Villaran and Lucila Talabis, were charged
with the crime of estafa in Criminal Case No. 44080 before the Regional Trial Court of Manila, Branch 35.
The information filed in said case reads, as follows (pp. 8-9, Rollo):
That in (sic) or about and during the period comprised between December 6, 1978 and January 31,
1979, both dates inclusive, in the City of Manila, Philippines, the said accused, conspiring and
confederating together and helping one another, did then and there wilfully, unlawfully and feloniously
defraud the Home Savings Bank in the following manner, to wit: the said accused Dick Ong y Chan, by
means of false manifestations and fraudulent representations which he made to the management of the
Home Savings Bank, Aurea Annex Branch, located at 640 Rizal Avenue, Sta. Cruz, in said City, to the
effect that the following checks, to wit:
NAME OF CHECK NUMBER PAYBLE TO DATE AMOUNT
Metropolitan Bank & 82508 Cash 1-30-79 P49,500.00

Trust Co
Equitable Bank 27624961 do. do. 14,569.00
Phil. Bank of Comm T1907249 do. do. 59,600.00
-do- T1907249 do. do. 67,400.00
China Banking Corp. QCO86174A do. 1-31-79 69,850.00
Pacific Banking Corp. PCB 238056 S do. 1-31-79 60,890.00

Producers Bank of the C 987955 do. do. 49,090.00
Phil.
Equitable Banking 27624963 do. do. 14,965.00
Phil. Bank of Comm. 1915852 do. do. 63,900.00
-do- 1915855 do. do. 59,800.00
-do- 1915856 do. do. 65,880.00
or all in the total amount of P575,504.00, are good and covered with sufficient funds in the banks, and
by means of other similar deceits with the conspiracy of his co-accused Lino Morfe y Gutierrez, Ricardo
Villaran and Lucila Talabis, in their capacities as officer-in-charge, branch accountant and bank branch
cashier, respectively, of said bank (Home Savings Bank), induced and succeeded in inducing the
management of the said bank to accept said checks as deposits, all the said accused well knowing that
his (Dick Ong y Chan's) representations and manifestations are false and untrue and were made solely
for the purpose of defrauding the said bank, and, in accordance with the conspiracy, his co-accused Lino
Morfe y Gutierrez, Ricardo Villara and Lucila Talabis, facilitated the opening of a savings account in the
name of accused Dick Ong y Chan and, thereafter, approved said deposits; that on the strength of such
deposits made and the opening of an account, the said accused were able to withdraw the total amount
of P575,504.00, which once in their possession, with intent defraud, they thereafter wilfully, unlawfully
and feloniously misappropriated, misapplied and converted to their own personal use and benefit, to
the damage and prejudice of said Home Savings Bank in the said amount of P575,504.00, Philippine
Currency.
Contrary to law.
On October 15, 1979, the prosecution moved for the dismissal of the case, insofar as accused Lino Morfe
y Gutierrez is concerned, on the ground that after a reinvestigation, it was found that the evidence
against him is not sufficient to sustain the allegations contained in the information (p. 54, Records). On
October 31, 1979, the trial court granted the motion (p. 6 Records).
Upon being arraigned, the remaining three (3) accused entered the plea of not guilty to the crime
charged. After trial on the merits, the trial court rendered its decision on January 11, 1990, the
dispositive portion of which reads, as follows (p. 26, Rollo):
WHEREFORE, judgment is rendered: (1) pronouncing accused DICK ONG y CHAN guilty beyond
reasonable doubt, as principal, of ESTAFA defined under No. 2 (d) of Article 315 of the Revised Penal
Code, as amended by Republic Act 4885, and penalized under the lst paragraph of the same Code as
amended by Presidential Decree No. 818, and sentencing said accused to RECLUSION PERPETUA; (2)
ACQUITTING accused Lucila Talabis and Ricardo Villaran, their guilt of (sic) the felony charged against
them not having been established beyond reasonable doubt; (3) ordering accused Dick Ong to pay the
Home Saving Bank and Trust Company the sum of P559,381.34 as partial reparation of the damage
caused to said Bank; (4) ordering forfeited in favor of the Home Savings Bank and Trust Company the
sum of P16,122.66 the positive balance remaining outstanding in Savings Account No. 6-1981 of accused
Dick Ong with, and in the possession of, said Bank to complete the reparation of the damage caused by
Dick Ong to the Bank; (5) ordering accused Dick Ong to pay one-third (1/3) of the costs; and (6) ordering
two-thirds (2/3) of the costs charged de oficio.
SO ORDERED.
On February 15, 1990, the accused-appellant filed a motion for reconsideration. On March 22, 1990, he
filed a supplemental memorandum in support of the motion for reconsideration. On April 3, 1990, said
motion was denied for lack of merit (pp. 575-576, Records). Hence, the present appeal by Dick Ong y
Chan.
The facts of this case were summarized by the trial court, as follows (pp. 18-20, Rollo):
Accused Dick Ong was one of the depositors of the Home Savings Bank and Trust Company in its Aurea
Annex Branch at Rizal Avenue, Sta. Cruz, Manila, hereafter, to be referred to as the Bank. He opened his
savings account on December 6, 1978, under the Bank's Saving Account No. 6-1981, with an initial
deposit of P22.14 in cash and P10,000.00 in (a) check.
On the same date, December 6, 1978, without his check undergoing the usual and reglamentary (sic)
clearance, which normally takes about five working days, Dick Ong was allowed to withdraw from his
savings account with the Bank the sum of P5,000.00. The corresponding withdrawal slip was signed and
approved by Lino Morfe, then the Branch Manager, and accused Lucila Talabis, the Branch Cashier.
That initial transaction was followed by other similar transactions where Dick Ong, upon depositing
checks in his savings account with the Bank, was allowed to withdraw against those uncleared checks
and uncollected deposits. The withdrawals were authorized and approved by accused Ricardo Villaran
and Lucila Talabis, sometimes jointly, sometimes by aither (aic) of them alone, and at other times by one
of them together with another official of the Bank. But all of those uncleared checks deposited by Dick
Ong prior to January 3, 1979 and against which he was allowed to withdraw were subsequently honored
and paid by the drawee banks. (TSN, Mar. 9, 1981, pp. 101-104; TSN, Mar. 18, 1981, pp. 144 -146.)
On January 30, 1979, Dick Ong issued and deposited in his savings account with the Bank the following
checks:
Drawee Bank Check No. Payee Amount
1. Metropolitan Bank & Trust 82508 Cash P49,500.00

Co.
2. Equitable Bank 27624961 Cash 14,569.00
3. Phil. Bank of Comm. T-1907265 Cash 59,600.00
4. Phil. Bank of Comm. T-1907249 Cash 67,400.00
TOTAL P191,069-00
Afterwards but before these checks could be cleared and the Bank could collect their amounts from the
drawee banks, Lucila Talabis allowed and approved the withdrawal of Dick Ong against the amounts of
said checks. (TSN, Mar. 18, 1981, pp. 47-48.)
On the following day, January 31, 1979, Dick Ong also issued and deposited in his savings account with
the Bank the following check;
Drawee Bank Check No. Payee Amount
1. China Banking QC08617A Cash P69,850.00

Corporation
2. Pacific Banking PCB238056 S Cash 60,890.00

Corporation
3. Producers Bank of the C987955 Cash 49,090.00

Phil.
4. Equitable Banking 27624963 Cash 14,965.00
5. Phil. Bank of 1915852 Cash 63,9000.009

Communications
6. Phil. Bank of 1915855 Cash 59,860.00

Communications
7. Phil. Bank of 1915856 Cash 65,880.00

Communications
TOTAL P384,435.00
Subsequently, but before said seven checks were cleared and the Bank had collected their amounts,
Lucila Talabis and then officer in charge of the Bank Grace Silao allowed and approved the withdrawals
of Dick Ong against the amounts of these seven checks. (TSN, lbid., pp. 47-48.)
However, when the Bank presented those eleven checks issued and deposited by Dick Ong on January
30, 1979 and January 3l, 1979 and against which he made withdrawals against (sic) their amounts, to
their respective drawee banks for payment, they were all dishonored for lack or insufficiency of funds.
(TSN, Jan. 7, 1981, pp. 90-101; TSN, May 8, 1981, pp. 74-75.)
The accused-appellant neither took the witness stand to testify in his behalf, nor presented any witness
to testify in his favor. Instead, he offered the following documents (p. 20, Rollo):
1. Exhibit 1 — Ong. — The letter dated June 27, 1980 of the Central Bank Governor to all banks
authorized to accept demand deposits, enjoining strict compliance with Monetary Board Resolution No.
2202 dated December 21, 1979, prohibiting, as a matter of policy, drawing against uncollected deposits
effective July 1, 1980.
2. Exhibit 2 — Ong. — The Memorandum of the Central Bank Governor dated July 9, 1980, to all banks
for their guidance, that Monetary Board Resolution No. 2202 dated December 21, 1979, prohibiting, as a
matter of policy, drawing against uncollected deposits effective July 1, 1980, covers drawing against
demand deposits as well as withdrawals from savings deposits.
3. Exhibits 3 — Ong. — and 3-a. — Clippings from the Bulletin Today issue on July 25, 1980 regarding on
(sic) ban on DAUD (drawn against uncollected deposits) effective July 1, 1980, and the one-day loan
which replaced the DAUD arrangement.
4. Exhibit 4 — Ong. — The sworn statement of Lino Morfe before the METROCOM taken on February 11,
1979.
5. Exhibit 5 — Ong. — The letter dated July 6, 1979, of Lino Morfe to the Assistant Fiscal of Manila,
transmitting his (Morfe's) affidavit.
6. Exhibits 5-a — Ong to 5-a-3-Ong. — Affidavit of Lino Morfe sworn on June 28, 1979.
7. Exhibit 5-b — Ong. — The Bank's Memorandum dated January 31, 1979, to all Branch
Manager/Extension Office O.I.C. (sic) requiring them to furnish the Head Office of the Bank every
Monday and Thursday with a list of all "drawn against" and "encashment" acommodations (sic) of
P1,000.00 and above granted by the Branch during the week.
8. Exhibit 6 — Ong. — The sworn statement of accused Dick Ong.
On the other hand, accused Lucila Talabis admitted that she approved the withdrawals of the accused-
appellant against uncleared checks. However, she explained that her approval thereof was in
accordance with the instruction of then bank manager Lino Morfe; that this accommodation given or
extended to the accused-appellant had been going on even before she started giving the same
accommodation; that this was common practice in the bank; that she approved those withdrawals
together with one other bank official, namely, either the bank manager, the bank accountant, the other
bank cashier, or the bank assistant cashier; and that they reported those withdrawals against, and the
dishonor of, the subject checks always sending copies of their reports to the head office.
Accused Ricardo Villaran testified on his behalf that the accused-appellant was able to withdraw against
his uncleared checks because of the accommodations extended to him by bank officials Lino Morfe, co-
accused Lucila Talabis, Grace Silao, Precy Salamat, and Cora Gascon; that this practice of drawing against
uncollected deposits was a common practice in branches of the Bank; that on December 14, 1978, the
accused-appellant withdrew the sum of P75,000.00 against his uncleared checks; that on December 21,
1978, the accused-appellant deposited several checks in the total amount of P197,000.00 and withdrew
on the same date the sum of P120,000.00; that on January 23, 1979, the accused-appellant again
deposited several checks in the aggregate sum of P260,000.00 and withdrew also on the same date, the
amount of P28,000.00; and that he (Villaran) approved these three withdrawals of the accused-
appellant against his uncollected deposits.
In this appeal, the accused-appellant assigns the following errors committed by the trial court:
1) it concluded that the withdrawals against the amounts of the subject checks before clearance and
collection of the corresponding amounts thereof by the depository bank from the drawee banks is
deceit or fraud constituting estafa under Article 315, paragraph 2(d) of the Revised Penal Code, in the
total absence of evidence showing criminal intent to defraud the depository bank; and not a case which
is civil in nature governed solely by the Negotiable Instruments Law;
2) it stated that he issued and deposited the subject checks when he is not the issuer, maker, nor drawer
thereof but merely an indorser; hence, his liability, if any, is that of a general indorser under the
Negotiable Instruments Law;
3) it convicted him on mere presumption, without any evidence that he had prior knowledge of the lack
or insufficiency of funds in the drawee banks to cover the amounts of the subject checks; and
4) it failed to consider that a general indorser under the Negotiable Instruments Law warrants payment
of the value of the checks indorsed by him; no damage could have been suffered by the depository bank
because he had offered payment thereof.
To support the aforementioned assignment of errors, the accused-appellant alleges that based on the
testimonies of co-accused Lucila Talabis and Ricardo Villaran, he did not employ any deceit or fraud on
the Bank because the practice of deposit and withdrawal against uncleared checks and uncollected
deposits was tolerated by it. As soon as he learned of the dishonor of the subject checks, he offered to
pay the amounts thereof (see pp. 48-49, tsn of Felix Hocson, May 8, 1981) and put up as security his
property. The subject checks were not in payment of an obligation but were deposited in his savings
account. He was merely a general indorser of the subject checks and this being the case, his obligations
as such, if any, should be governed by Section 66 of the Negotiable Instruments Law. * The subject
checks were issued or drawn by his customers and paid to him. He could not have had any knowledge as
to the sufficiency of their funds in the drawee banks.
The Office of the Solicitor General disputes the allegations of the accused-appellant. According to it, by
reason of the accused-appellant's antecedent acts of issuing and depositing check and withdrawing the
amounts thereof before clearing by the drawee banks, which checks were later honored and paid by
drawee banks, he was able to gain the trust and confidence the Bank, such that the practice, albeit
contrary to sound banking policy, was tolerated by the Bank. After thus having gained the trust and
confidence of the Bank, the accused-appellant issued and deposited the subject checks, the amounts of
which he later withdrew, fully aware that he had no sufficient funds to cover the amounts of said checks
in the drawee banks. Contrary to the accused-appellant's allegation, the trial court found that he issued
and deposited the subject checks in his savings account. As drawer of the subject checks, the accused-
appellant had the obligation to maintain funds in his current account in the drawee banks sufficient to
cover the amounts thereof or, in case of dishonor, to deposit within three (3) days from receipt notice of
dishonor, the amounts necessary to cover the check. The testimony of Felix Hocson, Senior Vice
President and Treasurer of the Bank, apart from being hearsay, does not prove that the accused-
appellant made an offer to pay the amounts covered by the subject checks. Even
assuming arguendo that accused-appellant made an offer to pay the amounts covered by the subject
checks, said offer is not sufficient to rebut the prima facie evidence of deceit. There is no showing that
the accused-appellant deposited the amounts necessary to cover the subject checks within three (3)
days from receipt of notice from Bank and/or the payee or holder that said checks have been
dishonored. The damage suffered by the Bank consists in its inability to make use of the P575,504.00 it
had delivered to the accused-appellant.
We are convinced that the accused-appellant is innocent of the crime charged against him.
Article 315, paragraph 2(d) of the Revised Penal Code, as amended by Republic Act No. 4885, provides:
Art. 315. Swindling (estafa) — Any person who shall defraud another by any of the means mentioned
hereinbelow shall be punished by:
..., provided that in the four cases mentioned, the fraud be committed by any of the following means:
x x x x x x x x x
2. By means of any of the following false pretenses or fraudulent acts executed prior to or
simultaneously with the commission of the fraud:
x x x x x x x x x
(d) By post-dating a check, or issuing a check in payment of an obligation when the offender had no
funds in the bank, or his funds deposited therein were not sufficient to cover the amount of the check.
The failure of the drawer of the check to deposit the amount necessary to cover his check within three
(3) days from receipt of notice from the bank and/or the payee or holder that said check has been
dishonored for lack or insufficiency of funds shall be prima facie evidence of deceit constituting false
pretense or fraudulent act.
The following are the elements of this kind of estafa: (1) postdating or issuance of a check in payment of
an obligation contracted at the time the check was issued; (2) lack or insufficiency of funds to cover the
check; and (3) damage to the payee thereof (People v. Tugbang, et al;, G.R. No. 76212, April 26, 1991;
Sales v. Court of Appeals, et al., G.R. No. L-47817, August 29, 1988, 164 SCRA 717; People v. Sabio, Sr.,
etc., et al., G.R. No. L-45490, November 20, 1978, 86 SCRA 568). Based thereon, the trial court
concluded that the guilt of the accused-appellant has "been duly established by the required quantum
of evidence adduced by the People against (him)" (p. 22, Rollo). We shall confine Our discussion only on
the first element because there is no argument that the second and third elements are present in this
case. For an orderly discussion of this element, We will divide it into two (2) parts: first, "postdating or
issuance of a check," and second, "in payment of an obligation contracted at the time the check was
issued."
Inasmuch as the first part of the first element of Article 315 paragraph 2(d) of the Revised Penal Code is
concerned with the act of "postdating or issuance of a check," the accused-appellant raises the defense
that he was neither the issuer nor drawer of the subject checks, but only an indorser thereof. Thus, his
liability, if any, should be governed by the provision of the Negotiable Instruments Law, particularly
Section 66 thereof, supra. Also, he could not have had any knowledge as to the sufficiency of the
drawers' funds in their respective banks. The Office of the Solicitor General contend's that the trial court
found as a fact that the accused-appellant issued the subject checks.
The contention of the Office of the Solicitor General is accurate only in part. In the trial court's
disquisition on the liability of the accused-appellant, it said (p. 22, Rollo):
There is no question that on January 30, 1979, accused Dick Ong issued or used and indorsed, and
deposited in his Savings Account No. 6-1981 with the Bank the four checks ... .
There is likewise no dispute that on the following date, January 31, 1979, Dick Ong issued or used and
indorsed, and deposited in his savings account with the Bank seven checks ... . (emphasis supplied)
On this subject matter, Fernando Esguerra, Intemal Auditor of the Bank and a witness for the
prosecution, testified that (pp. 101-103, tsn, January 7, 1981):
Court —
Q: You mentioned these checks, Mr. Witness. Did you or anybody for that matter ever verify the actual
depositors of these checks whether it is Mr. Dick Ong himself.?
A: Yes, Your Honor. Our Vice-President for Bank Operations verified said checks and found out that one
of or rather, two of those checks are in the account of Mr. Dick Ong but the other checks are not in his
account.
Court —
Q: In other words, there are checks where the depositor himself was also Mr. Dick Ong?
A: Could I go over the checks, Your Honor.
Q: Is it indicated there?
A: Yes, Your Honor, it.is.
Q: All right, go over the checks.
A: There is one check, Your Honor. It is a China Banking Corporation check in the amount of P69,850.00
(Witness referring to Exhibit "Z").
Q: Now, why do you say that the current checking account or current account was opened by Mr. Dick
Ong himself.
A: Because he is the drawer of the check, Your Honor.(emphasis supplied)
Thus, the fact established by the prosecution and adopted by the trial court is that the subject checks
were either issued or indorsed by the accused-appellant.
In the case of People v. Isleta, et al., 61 Phil. 332, which was recently reiterated in the case of Zagado v.
Court of Appeals, G.R. No. 76612, September 29, 1989, 178 SCRA 146, We declared the accused-
appellant, who only negotiated the check drawn by another, guilty of estafa. This case of People v.
Isleta, et al. was relied upon by the trial court in its order dated April 3, 1990, which denied the accused-
appellant's motion for reconsideration based on the same defense. The trial court erred in doing so. It
must have overlooked the ratio decidendi of the aforementioned case. We held the accused-appellant
therein guilty of estafa because he "had guilty knowledge of the fact that (the drawer) had no funds in
the bank when he negotiated the (subject) check" (at p. 334). In the present case, the prosecution failed
to prove that the accused-appellant had such knowledge with respect to the subject checks that he
indorsed. In applying Our decisions, it is not enough that courts take into account only the facts and the
dispositive portions thereof. It is imperative that the rationale of these decisions be read and
comprehended thoroughly.
It goes without saying that with respect to the subject checks wherein the accused-appellant was the
issuer/drawer, the first part of the first element of Article 315, paragraph 2(d) of the Revised Penal Code
is applicable. However, this statement will lose its significance in Our next discussion.
Regarding the second part of the first element of Article 315, paragraph 2(d) of the Revised Penal Code,
the accused-appellant alleges that when he deposited the subject checks in his savings account, it was
clearly not in payment of an obligation to the Bank. The Office of the Solicitor General misses this point
of the accused-appenant.
This single argument of the accused-appellant spells tilting the scale to his advantage. In several cases,
We were categorical that 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 loans and are to be covered by the law on loans. Current and savings deposits are loans to a
bank because it can use the same (Serrano v. Central Bank of the Philippines, et al., G.R. No. 30511,
February 14, 1980, 96 SCRA 96; Gullas v. Philippine National Bank, 62 Phil. 519; Central Bank of the
Philippines v Morfe, etc., et al., G.R. No. L-38427, March 12, 1975, 63 SC 114; Guingona, Jr., et al. v. The
City Fiscal of Manila, et al. G.R. No. 60033, April 4, 1984, 128 SCRA 577).
The elements of estafa in general are: (1) that the accused defrauded another (a) by abuse of
confidence, or (b) by means of deceit; and (2) that damage or prejudice capable of pecuniary estimation
is caused to the offended party or third person. Aside from the elements that We have discussed earlier,
in the crime of estafa by postdating or issuing a bad check, deceit and damage are essential elements of
the offense and have to be established with satisfactory proof to warrant conviction (U.S v. Rivera, 23
Phil. 383; People, et al. v. Grospe, etc., et al., G.R No. 74053-54, January 20, 1988,157 SCRA 154; Buaya
v. Polo etc., et al., G.R. No. 75079, January 26, 1989, 169 SCRA 471).
In this connection, the Office of the Solicitor General advances the view that by reason of the accused-
appellant's antecedent acts of issuing and depositing checks, and withdrawing the amounts thereof
before clearing by the drawee banks, which checks were later honored and paid by the drawee banks,
he was able to gain the trust and confidence of the Bank, such that the practice, albeit contrary to sound
banking policy, was tolerated by the Bank. After thus having gained the trust and confidence of the
Bank, he issued and deposited the subject checks, the amounts of which he later withdrew, fully aware
that he had no sufficient funds to cover the amounts of said checks in the drawee banks.
This view is not supported by the facts of this case. Rather, the evidence for the prosecution proved that
the Bank on its own accorded him a drawn against uncollected deposit (DAUD) privilege without need of
any pretensions on his part (pp. 7-8, supra). Moreover, this privilege was not only for the subject checks,
but for other past transactions. Fernando Esguerra and Felix Hocson even testified that in some
instances prior to July 1, 1980, especially where the depositor is an important client, the Bank relaxed its
rule and internal policy against uncleared checks and uncollected deposits, and allowed such depositor
to withdraw against his uncleared checks and uncollected deposits. Admittedly, the accused-appellant
was one of the important depositors of the Bank (pp. 24-25, Rollo). Granting, in gratia argumenti, that
he had in fact acted fraudulently, he could not have done so without the active cooperation of the Banks
employees. Therefore, since Lucila Talabis and Ricardo Villaran were declared innocent of the crimes
charged against them, the same should be said for the accused-appellant (see People v. Jalandoni, G.R.
No. 57555, May 30, 1983, 122 SCRA 588). True it is that the Bank suffered damage in the amount of
P575,504.00 but the accused-appellant's liability thereon is only civil.
One additional statement made by the trial court in its decision requires correction. It said that "[t]he
circumstances that the drawer of a check had insufficient or no funds in the drawee bank to cover the
amount of his check at the time of its issuance and he did not inform the payee or holder of such fact,
are sufficient to make him liable for estafa" (p. 23, Rollo). This statement is no longer controlling. We
have clarified in the case of People v. Sabio, Sr., etc., et al., supra, that Republic Act No. 4885 has
eliminated the requirement under the old provision for the drawer to inform the payee that he had no
funds in the bank or the funds deposited by him were not sufficient to cover the amount of the check.
We, therefore, find that the guilt of the accused-appellant for the crime of estafa under Article 315,
paragraph 2(d) of the Revised Penal Code has not been proven beyond reasonable doubt. However, We
find him civilly liable to the bank in the amount of P575,504.00, less the balance remaining in his savings
account with it (p. 26, Rollo), with legal interest from the date of the filing of this case until full payment.
ACCORDINGLY, the decision and order appealed from are hereby SET ASIDE. The accused-appellant is
ACQUITTED of the crime charged against him but ordered to pay the aforementioned amount. No costs.
SO ORDERED.
Narvasa, C.J. (Chairman), Cruz, Feliciano and Griño-Aquino, JJ., concur.

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.:ñé+.£ªwph!1
This is a petition for prohibition and injunction with a prayer for the immediate issuance of restraining
order and/or writ of preliminary injunction filed by petitioners on March 26, 1982.
On March 31, 1982, by virtue of a court resolution issued by this Court on the same date, a temporary
restraining order was duly issued ordering the respondents, their officers, agents, representatives
and/or person or persons acting upon their (respondents') orders or in their place or stead to refrain
from proceeding with the preliminary investigation in Case No. 8131938 of the Office of the City Fiscal of
Manila (pp. 47-48, rec.). On January 24, 1983, private respondent Clement David filed a motion to lift
restraining order which was denied in the resolution of this Court dated May 18, 1983.
As can be gleaned from the above, the instant petition seeks to prohibit public respondents from
proceeding with the preliminary investigation of I.S. No. 81-31938, in which petitioners were charged by
private respondent Clement David, with estafa and violation of Central Bank Circular No. 364 and
related regulations regarding foreign exchange transactions principally, on the ground of lack of
jurisdiction in that the allegations of the charged, as well as the testimony of private respondent's
principal witness and the evidence through said witness, showed that petitioners' obligation is civil in
nature.
For purposes of brevity, We hereby adopt the antecedent facts narrated by the Solicitor General in its
Comment dated June 28,1982, as follows:têñ.£îhqwâ£
On December 23,1981, private respondent David filed I.S. No. 81-31938 in the Office of the City Fiscal of
Manila, which case was assigned to respondent Lota for preliminary investigation (Petition, p. 8).
In I.S. No. 81-31938, David charged petitioners (together with one Robert Marshall and the following
directors of the Nation Savings and Loan Association, Inc., namely Homero Gonzales, Juan Merino, Flavio
Macasaet, Victor Gomez, Jr., Perfecto Manalac, Jaime V. Paz, Paulino B. Dionisio, and one John Doe) with
estafa and violation of Central Bank Circular No. 364 and related Central Bank regulations on foreign
exchange transactions, allegedly committed as follows (Petition, Annex "A"):têñ.£îhqwâ£
"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.têñ.£îhqwâ£
"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. 82-1695 in the Court
of First Instance to contest its (NSLA's) closure; that after NSLA was placed under receivership, Martin
executed a promissory note in David's favor and caused the transfer to him of a nine and on behalf (9
1/2) carat diamond ring with a net value of P510,000.00; and, that the liabilities of NSLA to David were
civil in nature."
Petitioner, Guingona, Jr., in his counter-affidavit (Petition, Annex' C') stated the following:têñ.£îhqwâ£
"That he had no hand whatsoever in the transactions between David and NSLA since he (Guingona Jr.)
had resigned as NSLA president in March 1978, or prior to those transactions; that he assumed a portion
o; the liabilities of NSLA to David because of the latter's insistence that he placed his investments with
NSLA because of his faith in Guingona, Jr.; that in a Promissory Note dated June 17, 1981 (Petition,
Annex "D") he (Guingona, Jr.) bound himself to pay David the sums of P668.307.01 and US$37,500.00 in
stated installments; that he (Guingona, Jr.) secured payment of those amounts with second mortgages
over two (2) parcels of land under a deed of Second Real Estate Mortgage (Petition, Annex "E") in which
it was provided that the mortgage over one (1) parcel shall be cancelled upon payment of one-half of
the obligation to David; that he (Guingona, Jr.) paid P200,000.00 and tendered another P300,000.00
which David refused to accept, hence, he (Guingona, Jr.) filed Civil Case No. Q-33865 in the Court of First
Instance of Rizal at Quezon City, to effect the release of the mortgage over one (1) of the two parcels of
land conveyed to David under second mortgages."
At the inception of the preliminary investigation before respondent Lota, petitioners moved to dismiss
the charges against them for lack of jurisdiction because David's claims allegedly comprised a purely civil
obligation which was itself novated. Fiscal Lota denied the motion to dismiss (Petition, p. 8).
But, after the presentation of David's principal witness, petitioners filed the instant petition because: (a)
the production of the Promisory Notes, Banker's Acceptance, Certificates of Time Deposits and Savings
Account allegedly showed that the transactions between David and NSLA were simple loans, i.e., civil
obligations on the part of NSLA which were novated when Guingona, Jr. and Martin assumed them; and
(b) David's principal witness allegedly testified that the duplicate originals of the aforesaid instruments
of indebtedness were all on file with NSLA, contrary to David's claim that some of his investments were
not record (Petition, pp. 8-9).
Petitioners alleged that they did not exhaust available administrative remedies because to do so would
be futile (Petition, p. 9) [pp. 153-157, rec.].
As correctly pointed out by the Solicitor General, the sole issue for resolution is whether public
respondents acted without jurisdiction when they investigated the charges (estafa and violation of CB
Circular No. 364 and related regulations regarding foreign exchange transactions) subject matter of I.S.
No. 81-31938.
There is merit in the contention of the petitioners that their liability is civil in nature and therefore,
public respondents have no jurisdiction over the charge of estafa.
A casual perusal of the December 23, 1981 affidavit. complaint filed in the Office of the City Fiscal of
Manila by private respondent David against petitioners Teopisto Guingona, Jr., Antonio I. Martin and
Teresita G. Santos, together with one Robert Marshall and the other directors of the Nation Savings and
Loan Association, will show that from March 20, 1979 to March, 1981, private respondent David,
together with his sister, Denise Kuhne, invested with the Nation Savings and Loan Association the sum of
P1,145,546.20 on time deposits covered by Bankers Acceptances and Certificates of Time Deposits and
the sum of P13,531.94 on savings account deposits covered by passbook nos. 6-632 and 29-742, or a
total of P1,159,078.14 (pp. 15-16, roc.). It appears further that private respondent David, together with
his sister, made investments in the aforesaid bank in the amount of US$75,000.00 (p. 17, rec.).
Moreover, the records reveal that when the aforesaid bank was placed under receivership on March 21,
1981, petitioners Guingona and Martin, upon the request of private respondent David, assumed the
obligation of the bank to private respondent David by executing on June 17, 1981 a joint promissory
note in favor of private respondent acknowledging an indebtedness of Pl,336,614.02 and US$75,000.00
(p. 80, rec.). This promissory note was based on the statement of account as of June 30, 1981 prepared
by the private respondent (p. 81, rec.). The amount of indebtedness assumed appears to be bigger than
the original claim because of the added interest and the inclusion of other deposits of private
respondent's sister in the amount of P116,613.20.
Thereafter, or on July 17, 1981, petitioners Guingona and Martin agreed to divide the said indebtedness,
and petitioner Guingona executed another promissory note antedated to June 17, 1981 whereby he
personally acknowledged an indebtedness of P668,307.01 (1/2 of P1,336,614.02) and US$37,500.00 (1/2
of US$75,000.00) in favor of private respondent (p. 25, rec.). The aforesaid promissory notes were
executed as a result of deposits made by Clement David and Denise Kuhne with the Nation Savings and
Loan Association.
Furthermore, the various pleadings and documents filed by private respondent David, before this Court
indisputably show that he has indeed invested his money on time and savings deposits with the Nation
Savings and Loan Association.
It must be pointed out that when private respondent David invested his money on nine. and savings
deposits with the aforesaid bank, the contract that was perfected was a contract of simple loan
or mutuum and not a contract of deposit. Thus, Article 1980 of the New Civil Code provides that:têñ.
£îhqwâ£
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:têñ.£îhqwâ£
It should be noted that fixed, savings, and current deposits of money in banks and similar institutions are
hat true deposits. are considered simple loans and, as such, are not preferred credits (Art. 1980 Civil
Code; In re Liquidation of Mercantile Batik of China Tan Tiong Tick vs. American Apothecaries Co., 66 Phil
414; Pacific Coast Biscuit Co. vs. Chinese Grocers Association 65 Phil. 375; Fletcher American National
Bank vs. Ang Chong UM 66 PWL 385; Pacific Commercial Co. vs. American Apothecaries Co., 65 PhiL 429;
Gopoco Grocery vs. Pacific Coast Biscuit CO.,65 Phil. 443)."
This Court also declared in the recent case of Serrano vs. Central Bank of the Philippines (96 SCRA 102
[1980]) that:têñ.£îhqwâ£
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:têñ.£îhqwâ£
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.têñ.£îhqwâ£
"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:têñ.£îhqwâ£
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:têñ.£îhqwâ£
The novation theory may perhaps apply prior to the filling of the criminal information in court by the
state prosecutors because up to that time the original trust relation may be converted by the parties
into an ordinary creditor-debtor situation, thereby placing the complainant in estoppel to insist on the
original trust. But after the justice authorities have taken cognizance of the crime and instituted action in
court, the offended party may no longer divest the prosecution of its power to exact the criminal
liability, as distinguished from the civil. The crime being an offense against the state, only the latter can
renounce it (People vs. Gervacio, 54 Off. Gaz. 2898; People vs. Velasco, 42 Phil. 76; U.S. vs. Montanes, 8
Phil. 620).
It may be observed in this regard that novation is not one of the means recognized by the Penal Code
whereby criminal liability can be extinguished; hence, the role of novation may only be to either prevent
the rise of criminal habihty or to cast doubt on the true nature of the original basic transaction, whether
or not it was such that its breach would not give rise to penal responsibility, as when money loaned is
made to appear as a deposit, or other similar disguise is resorted to (cf. Abeto vs. People, 90 Phil. 581;
U.S. vs. Villareal, 27 Phil. 481).
In the case at bar, there is no dispute that petitioners Guingona and Martin executed a promissory note
on June 17, 1981 assuming the obligation of the bank to private respondent David; while the criminal
complaint for estafa was filed on December 23, 1981 with the Office of the City Fiscal. Hence, it is clear
that novation occurred long before the filing of the criminal complaint with the Office of the City Fiscal.
Consequently, as aforestated, any incipient criminal liability would be avoided but there will still be a
civil liability on the part of petitioners Guingona and Martin to pay the assumed obligation.
Petitioners herein were likewise charged with violation of Section 3 of Central Bank Circular No. 364 and
other related regulations regarding foreign exchange transactions by accepting foreign currency deposit
in the amount of US$75,000.00 without authority from the Central Bank. They contend however, that
the US dollars intended by respondent David for deposit were all converted into Philippine currency
before acceptance and deposit into Nation Savings and Loan Association.
Petitioners' contention is worthy of behelf for the following reasons:
1. It appears from the records that when respondent David was about to make a deposit of bank draft
issued in his name in the amount of US$50,000.00 with the Nation Savings and Loan Association, the
same had to be cleared first and converted into Philippine currency. Accordingly, the bank draft was
endorsed by respondent David to petitioner Guingona, who in turn deposited it to his dollar account
with the Security Bank and Trust Company. Petitioner Guingona merely accommodated the request of
the Nation Savings and loan Association in order to clear the bank draft through his dollar account
because the bank did not have a dollar account. Immediately after the bank draft was cleared, petitioner
Guingona authorized Nation Savings and Loan Association to withdraw the same in order to be utilized
by the bank for its operations.
2. It is safe to assume that the U.S. dollars were converted first into Philippine pesos before they were
accepted and deposited in Nation Savings and Loan Association, because the bank is presumed to have
followed the ordinary course of the business which is to accept deposits in Philippine currency only, and
that the transaction was regular and fair, in the absence of a clear and convincing evidence to the
contrary (see paragraphs p and q, Sec. 5, Rule 131, Rules of Court).
3. Respondent David has not denied the aforesaid contention of herein petitioners despite the fact that
it was raised. in petitioners' reply filed on May 7, 1982 to private respondent's comment and in the July
27, 1982 reply to public respondents' comment and reiterated in petitioners' memorandum filed on
October 30, 1982, thereby adding more support to the conclusion that the US$75,000.00 were really
converted into Philippine currency before they were accepted and deposited into Nation Savings and
Loan Association. Considering that this might adversely affect his case, respondent David should have
promptly denied petitioners' allegation.
In conclusion, considering that the liability of the petitioners is purely civil in nature and that there is no
clear showing that they engaged in foreign exchange transactions, We hold that the public respondents
acted without jurisdiction when they investigated the charges against the petitioners. Consequently,
public respondents should be restrained from further proceeding with the criminal case for to allow the
case to continue, even if the petitioners could have appealed to the Ministry of Justice, would work
great injustice to petitioners and would render meaningless the proper administration of justice.
While as a rule, the prosecution in a criminal offense cannot be the subject of prohibition and injunction,
this court has recognized the resort to the extraordinary writs of prohibition and injunction in extreme
cases, thus:têñ.£îhqwâ£
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:têñ.£îhqwâ£
"1. for the orderly administration of justice;
"2. to prevent the use of the strong arm of the law in an oppressive and vindictive manner;
"3. to avoid multiplicity of actions;
"4. to afford adequate protection to constitutional rights;
"5. in proper cases, because the statute relied upon is unconstitutional or was held invalid" ( Primicias
vs. Municipality of Urdaneta, Pangasinan, 93 SCRA 462, 469-470 [1979]; citing Ramos vs. Torres, 25 SCRA
557 [1968]; and Hernandez vs. Albano, 19 SCRA 95, 96 [1967]).
Likewise, in Lopez vs. The City Judge, et al. ( 18 SCRA 616, 621-622 [1966]), We held that:têñ.£îhqwâ£
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.1äwphï1.ñët
Concepcion, Jr., Guerrero, De Castro and Escolin, JJ., concur.

Abad Santos, J., concur in the result.
Aquino, J., took no part.

IV. Deposits

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IV. Deposits

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IV.

[G.R. No. 90027. March 3, 1993.]

CA AGRO-INDUSTRIAL DEVELOPMENT CORP., Petitioner, v. THE HONORABLE COURT OF APPEALS and

Dolorfino & Dominguez Law Offices for Petitioner.

Danilo B. Banares for Private Respondent.

This is the crux of the present controversy.chanrobles virtualawlibrary

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

With costs against plaintiff." 6

The petition is partly meritorious.

Feliciano, Bidin, Romero and Melo, JJ., concur.

Gutierrez, Jr., J., is on terminal leave.

G.R. No. 90027 March 3, 1993

CA AGRO-INDUSTRIAL DEVELOPMENT CORP., petitioner,

Dolorfino & Dominguez Law Offices for petitioner.

Danilo B. Banares for private respondent.

This is the crux of the present controversy.

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

With costs against plaintiff.6

The petition is partly meritorious.

xxx xxx xxx

Feliciano, Bidin, Romero and Melo, JJ., concur.

Gutierrez, Jr., J., is on leave.

Republic of the Philippines

G.R. No. L-6913 November 21, 1913

THE ROMAN CATHOLIC BISHOP OF JARO, plaintiff-appellee,

Arellano, C.J., Torres and Carson, JJ., concur.

G.R. No. 179419 January 12, 2011

The facts, as found by the CA, are simple.

Hence, this recourse by petitioner.

The issues for our resolution are:

The petition must fail.

We are not persuaded.

Former Chief Justice Andres R. Narvasa’s words continue to resonate, thus:

ANTONIO EDUARDO B. NACHURA

DIOSDADO M. PERALTA ROBERTO A. ABAD

JOSE CATRAL MENDOZA

G.R. No. 126780 February 17, 2005

The factual backdrop of the case follow.

Private respondent McLoughlin, an Australian businessman-philanthropist, used to stay at Sheraton

7. Plus costs of suit.

1) ₱153,200.00 representing the peso equivalent of US$2,000.00 and AUS$4,500.00;

3) One-half of ₱336,207.05 or ₱168,103.52 representing payment to Tropicana Apartment Hotel;

4) One-half of ₱152,683.57 or ₱76,341.785 representing payment to Echelon Tower;

6) One-half of ₱7,801.94 or ₱3,900.97 representing Meralco power expenses;

7) One-half of ₱356,400.00 or ₱178,000.00 representing expenses for food and maintenance;

8) ₱50,000.00 for moral damages;

9) ₱10,000.00 as exemplary damages; and

10) ₱200,000 representing attorney's fees.

The petition is devoid of merit.

(4) One-half of ₱152,683.57 or ₱76,341.785 representing payment to Echelon Tower;

(6) One-half of ₱7,801.94 or ₱3,900.97 representing Meralco power expenses;

(8) ₱50,000.00 for moral damages;

(9) ₱10,000.00 as exemplary damages; and

(10) ₱200,000 representing attorney's fees.

Puno, (Chairman), Callejo, Sr., and Chico-Nazario, JJ., concur.

G.R. No. 120528 January 29, 2001

ATTY. DIONISIO CALIBO, JR., petitioner,

The facts of the case, as summarized by respondent court, are undisputed.

Hence, this petition.

Bellosillo, Mendoza, Buena, and De Leon, Jr., JJ., concur.

3. The amount of P50,000.00 as exemplary damages;

4. Plus, cost of suit.

Hence, petitioner's present recourse.

We agree with the two (2) courts below.