ANGEL JAVELLANA, plaintiff-appellee,

vs.
JOSE LIM, ET AL., defendants-appellants.
FACTS:
-

ISSUE:

The attorney for the plaintiff, Angel Javellana, file a complaint

o
praying that the defendants, Jose Lim and Ceferino Domingo Lim, be
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
o
deducting from the amount of interest due the sum of P1,102.16, and
to pay the costs of the proceedings
the complaint was amended on the 10th of January, 1907;
it was then alleged,
o
the defendants executed and subscribed a document in favor of the
plaintiff reading as follow
o
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
o
That, when the obligation became due, the defendants begged the
plaintiff for an extension of time for the payment thereof,
o
building themselves to pay interest at the rate of 15 per cent on the
amount of their indebtedness
o
to which the plaintiff acceded
o
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
the defendants answered the original complaint before its amendment
o
they acknowledged the facts stated in Nos. 1 and 2 of the complaint
o
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,
o
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
o
denied all the other statements contained therein.
As a counterclaim, the defendants alleged
o
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
o
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
o
they asked that judgment be entered absolving them, and sentencing
the plaintiff to pay them the sum of P2,915.58 with the costs.
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.

Whether the agreement entered into by the parties is one of loan or of deposit?
RULING:
The document executed was a contract of loan. The court affirmed the trial courts decision
and favored Javellana, and directed the defendants to pay the debt and interest.
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 wereforthwith authorized to dispose
of the
amount deposited. This they have done, as has been clearly shown.
Where money, consisting of coins of legal tender, is deposited with a person and the latter is
authorized by the depositor to use and dispose of the same, the agreement is not a contract
of deposit, but a loan. A subsequent agreement between the parties as to interest on the
amount said to have been deposited, because the same could not be returned at the time
fixed therefor, does not constitute a renewal of an agreement of deposit, but it is the best
evidence that the original contract entered into between therein was for a loan under the
guise of a deposit. In this case, the appellants were lawfully authorized to make use of the
amount deposited, which they have done. Jose Lim came to the plaintiff to be able to ask for
an extension of payment since he have used the amount deposited to him, with the
condition that 15% interest shall we included in the contract.

The law provides:

Article 1767 of the Civil Code provides that
The depository cannot 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
.
SILVESTRA BARON, plaintiff-appellant,
vs.
PABLO DAVID, defendant-appellant.
And
GUILLERMO BARON, plaintiff-appellant,
vs.
PABLO DAVID, defendant-appellant.
FACTS:
-

Prior to January 17, 1921, the defendant Pablo David has been engaged in
running a rice mill
o
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

it was some time before the mill could be rebuilt and put in operation
again
Silvestra Baron
o
the plaintiff in the first of the actions before us, is an aunt of the
defendan
Guillermo Baron
o
he plaintiff in the other action; is his uncle
Silvestra Baron
o
placed a quantity of palay in the defendant's mill
o
In the months of March, April, and May, 1920
o
and this, in connection with some that she took over from Guillermo
Baron,
o
amounted to 1,012 cavans and 24 kilos
Guillermo Baron
o
placed other 1,865 cavans and 43 kilos of palay in the mill
o
During approximately the same period
No compensation has ever been received by Silvestra Baron
upon account of the palay delivered by Guillermo Baron,
o
he has received from the defendant advancements amounting to
P2,800
o
but apart from this he has not been compensated
Both the plaintiffs
o
claim that the palay which was delivered by them to the defendant
was sold to the defendant
the defendant
o
claims that the palay was deposited subject to future withdrawal by
the depositors or subject to some future sale which was never effected
o
He therefore supposes himself to be relieved from all responsibility by
virtue of the fire of January 17, 1921, already mentioned.
The plaintiff
o
further say that their palay was delivered to the defendant at his
special request
o
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
o
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
o
found that no such promise had been given
o

ISSUE:
RULING:
1.

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.
2.

3.

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 acommodatum; 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.

4.

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.
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.
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.

The appealed judgments must be modified by eliminating the deductions which

the trial court allowed from the plaintiffs' claims.
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 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. 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
5.

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
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
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.

BANK OF THE PHILIPPINE ISLANDS, petitioner,

vs.
THE INTERMEDIATE APPELLATE COURT and ZSHORNACK respondents.

FACTS:
-

The original parties to this case were

o
Rizaldy T. Zshornack
o
Commercial Bank and Trust Company of the Philippines [hereafter
referred to as "COMTRUST."]
The Bank of the Philippine Islands (hereafter referred to as BPI)
o
absorbed COMTRUST through a corporate merger
o
and was substituted as party to the case.
Rizaldy Zshornack
o
initiated proceedings by filing in the Court of First Instance of Rizal
Caloocan City a complaint against COMTRUST
o
alleging four causes of action
The CFI ruled in favor of Zshornack
o
Except for the third cause of action,
The bank appealed to the Intermediate Appellate Court
the Intermediate Appellate Court modified the CFI decision
o
absolving the bank from liability on the fourth cause of action.
Undaunted, the bank comes to this Court praying that it be totally absolved from
any liability to Zshornack

ANOTHER VERSION OF THE FACTS:

FACTS: (first cause of action)
-

Rizaldy Zshornack and his wife, Shirley Gorospe, maintained in COMTRUST a

dollar savings account and a peso current account.
an application for a dollar draft
o
was accomplished by Virgilio V. Garcia, Assistant Branch Manager of
COMTRUST Quezon City
o
payable to a certain Leovigilda D. Dizon in the amount of $1,000.00
In the application,
o
Garcia indicated that the amount was to be charged to Dollar Savings
Acct. No. 25-4109, the savings account of the Zshornacks
o
On October 27, 1975
The charges for commission, documentary stamp tax and others
totalling P17.46 were to be charged to Current Acct. No. 210465-29,
again, the current account of the Zshornacks
o
There was no indication of the name of the purchaser of the dollar
draft.
COMTRUST
o
On the same date, October 27,1975
o
issued a check payable to the order of Leovigilda D. Dizon
o
under the signature of Virgilio V. Garcia
o
in the sum of US $1,000 drawn on the Chase Manhattan Bank, New
York
o
with an indication that it was to be charged to Dollar Savings Acct. No.
25-4109
Zshornack
o

o
noticed the withdrawal of US$1,000.00 from his account
o
he demanded an explanation from the bank
COMTRUST
o
claimed that the peso value of the withdrawal was given to Atty.
Ernesto Zshornack, Jr., brother of Rizaldy, on October 27, 1975
o
when he (Ernesto) encashed with COMTRUST a cashier's check for
P8,450.00 issued by the Manila Banking Corporation payable to
Ernesto.

o
o
o
o

the contract embodied in the document is the contract of depositum

(as defined in Article 1962, New Civil Code)
which banks do not enter into
Garcia exceeded his powers when he entered into the transaction.
the bank cannot be liable under the contract, and the obligation is
purely personal to Garcia.

ISSUE:

RULING:
Whether the contract between petitioner and respondent bank is a deposit?
1.

Petitioner must be held liable for the unauthorized withdrawal of US$1,000.00

from private respondent's dollar account.
First, it still maintains that the peso value of the amount withdrawn was given to
Atty. Ernesto Zshornack, Jr. when the latter encashed the Manilabank Cashier's
Check

RULING:
1.

Art. 1962. A deposit is constituted from the moment a person receives a thing
belonging to another, with the obligation of safely keeping it and of returning the
same. If the safekeeping of the thing delivered is not the principal purpose of the
contract, there is no deposit but some other contract.

Petitioner bank has not shown how the transaction involving the cashier's check
is related to the transaction involving the dollar draft in favor of Dizon financed by
the withdrawal from Rizaldy's dollar account

The document and the subsequent acts of the parties show that they intended
the bank to safekeep the foreign exchange, and return it later to Zshornack, who
alleged in his complaint that he is a Philippine resident. The parties did not
intended to sell the US dollars to the Central Bank within one business day from
receipt. Otherwise, the contract of depositum would never have been entered
into at all.

At the same time, the bank claims that the withdrawal was made pursuant to an
agreement where Zshornack allegedly authorized the bank to withdraw from his
dollar savings account such amount which, when converted to pesos, would be
needed to fund his peso current account.
If indeed the peso equivalent of the amount withdrawn from the dollar account
was credited to the peso current account, why did the bank still have to pay
Ernesto?

Since the mere safekeeping of the greenbacks, without selling them to the
Central Bank within one business day from receipt, is a transaction which is not
authorized by CB Circular No. 20, it must be considered as one which falls under
the general class of prohibited transactions. Hence, pursuant to Article 5 of the
Civil Code, it is void, having been executed against the provisions of a
mandatory/prohibitory law.

Even if we assume that there was such an agreement, the evidence do not show
that the withdrawal was made pursuant to it. Instead, the record reveals that the
amount withdrawn was used to finance a dollar draft in favor of Leovigilda D.
Dizon, and not to fund the current account of the Zshornacks.

More importantly, it affords neither of the parties a cause of action against the
other. "When the nullity proceeds from the illegality of the cause or object of the
contract, and the act constitutes a criminal offense, both parties being in pari
delicto, they shall have no cause of action against each other. . ." [Art. 1411, New
Civil Code.] The only remedy is one on behalf of the State to prosecute the
parties for violating the law.

FACTS: (second cause of action)

-

Zshornack
o
Entrusted to COMTRUST
o
thru Garcia
o
US $3,000.00 cash (popularly known as greenbacks) forsafekeeping
the agreement was embodied in a documen
The document reads:
Makati Cable Address:
Philippines "COMTRUST"
COMMERCIAL BANK AND TRUST COMPANY
of the Philippines
Quezon City Branch
BPI posits
o
the US$3,000.00 was properly credited to Zshornack's current
account at prevailing conversion rates

The above arrangement is that contract defined under Article 1962, New Civil
Code, which reads:

We thus rule that Zshornack cannot recover under the second cause of action.
2.

WHEREFORE, the decision appealed from is hereby MODIFIED. Petitioner is

ordered to restore to the dollar savings account of private respondent the amount
of US$1,000.00 as of October 27, 1975 to earn interest at the rate fixed by the
bank for dollar savings deposits. Petitioner is further ordered to pay private
respondent the amount of P8,000.00 as damages. The other causes of action of
private respondent are ordered dismissed.
SO ORDERED.

ANOTHER VERSION OF THE FACTS:

Rizaldy T. Zshornack and his wife maintained in COMTRUST a dollar savings account and a
peso current account. An application for a dollar drat was accomplished by Virgillo Garcia
branch manager of COMTRUST payable to a certain Leovigilda Dizon. In the PPLICtion,
Garcia indicated that the amount was to be charged to the dolar savings account of the
Zshornacks. There wasa no indication of the name of the purchaser of the dollar draft.
Comtrust issued a check payable to the order of Dizon. When Zshornack noticed the
withdrawal from his account, he demanded an explainaiton from the bank. In its answer,
Comtrust claimed that the peso value of the withdrawal was given to Atty. Ernesto
Zshornack, brother of Rizaldy. When he encashed with COMTRUST a cashiers check for
P8450 issued by the manila banking corporation payable to Ernesto.

ISSUE:
Whether the contract between petitioner and respondent bank is a deposit?

RULING:

The document which embodies the contract states that the US$3,000.00 was received by
the bank for safekeeping. The subsequent acts of the parties also show that the intent of the

parties was really for the bank to safely keep the dollars and to return it to Zshornack at a
later time. Thus, Zshornack demanded the return of the money on May 10, 1976, or over
five months later.

defendant
o
administrator of the estate of Father De la Pea.
In the year 1898
o
the books Father De la Pea, as trustee
o
showed that he had on hand
o
as such trustee
o
the sum of P6,641
o
collected by him for the charitable purposes aforesaid
In the same year
o
he deposited in his personal account
o
P19,000 in the Hongkong and Shanghai Bank at Iloilo.
the military authorities claimed
o
he was an insurgent
o
the funds thus deposited had been collected by him for revolutionary
purposes
Thus, Father De la Pea was arrested by the military authorities as a political
prisoner
While thus detained, He made an order on said bank
o
in favor of the United States Army officer
o
under whose charge he then was for the sum thus deposited in said
bank
by virtue of such order
o
The money was taken from the bank by the military authorities
o
confiscated and turned over to the Government.

I SS UE :
W hethe r or not Fat her de la Pe a is liabl e f or the loss of the money under his
trust?

The above arrangement is that contract defined under Article 1962, New Civil Code, which
RULING:

reads:
Art. 1962. A deposit is constituted from the moment a person receives a thing belonging to
another, with the obligation of safely keeping it and of returning the same. If the safekeeping

1.

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.

of the thing delivered is not the principal purpose of the contract, there is no deposit but
some other contract.
THE ROMAN CATHOLIC BISHOP OF JARO, plaintiff-appellee,
vs.
GREGORIO DE LA PEA, administrator of the estate of Father Agustin de la Pea,
defendant-appellant.
FACTS:
-

the plaintiff
o
is the trustee of a charitable bequest
o
made for the construction of a leper hospital
father Agustin de la Pea
o
duly authorized representative of the plaintiff to receive the legacy

In this jurisdiction, therefore, Father De la Pea's liability is determined by those

portions of the Civil Code which relate to obligations. (Book 4, Title 1.)
Although the Civil Code states that "a person obliged to give something is also
bound to preserve it with the diligence pertaining to a good father of a family"
(art. 1094), it also provides, following the principle of the Roman law, major
casus est, cui humana infirmitas resistere non potest, that "no one shall be liable
for events which could not be foreseen, or which having been foreseen were
inevitable, with the exception of the cases expressly mentioned in the law or
those in which the obligation so declares." (Art. 1105.)
By placing the money in the bank and mixing it with his personal funds De la
Pea did not thereby assume an obligation different from that under which he
would have lain if such deposit had not been made, nor did he thereby make
himself liable to repay the money at all hazards. If the had been forcibly taken

from his pocket or from his house by the military forces of one of the combatants
during a state of war, it is clear that under the provisions of the Civil Code he
would have been exempt from responsibility. The fact that he placed the trust
fund in the bank in his personal account does not add to his responsibility. Such
deposit did not make him a debtor who must respond at all hazards.
CA AGRO-INDUSTRIAL DEVELOPMENT CORP., petitioner,
vs.
THE HONORABLE COURT OF APPEALS and SECURITY BANK AND TRUST
COMPANY, respondents.
FACTS:
-

petitioner (through its President, Sergio Aguirre) and the spouses Ramon and
Paula Pugao
o
entered into an agreement
o
whereby petitioner purchased from the spouses
o
two (2) parcels of land for a consideration of P350,625.00.
Of this amount,
o
P75,725.00 was paid as downpayment
o
while the balance was covered by three (3) postdated checks.
Among the terms and conditions of the agreement
o
embodied in a Memorandum of True and Actual Agreement of Sale of
Land
o
were that the titles to the lots shall be transferred to the petitioner
o
upon full payment of the purchase price
o
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
o
The same could be withdrawn only upon the joint signatures of a
representative of the petitioner and the Pugaos
o
upon full payment of the purchase price.
Petitioner through Sergio Aguirre, and the Pugaos
o
Then rented Safety Deposit Box No. 1448 of private respondent
Security Bank and Trust Company,
For this purpose, both signed a contract of lease
o
which contains, inter alia, the following conditions:
13. The bank is not a depositary of the contents of the safe and it has
neither the possession nor control of the same.

14. The bank has no interest whatsoever in said contents, except herein
expressly provided, and it assumes absolutely no liability in connection
therewith. 1
two (2) renter's keys were given to the renters
o
one to Aguirre (for the petitioner)
o
and the other to the Pugaos.
A guard key remained in the possession of the respondent Bank
a certain Mrs. Margarita Ramos
o
offered to buy
o
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.
o
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 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.
Mrs. Ramos withdrew her earlier offer to purchase the lots
the petitioner allegedly failed to realize the expected profit of P280,500.00.
Hence, the petitioner filed on 1 September 1980 a complaint for damages
against the respondent Bank
the trial court rendered a decision 5 adverse to the petitioner
petitioner appealed from the adverse decision to the respondent Court of Appeals
respondent Court affirmed the appealed decision
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
o
regardless of nomenclature, the contract for the rent of the safety
deposit box
o
is actually a contract of deposit governed by Title XII, Book IV of the
Civil Code of the
Philippines.
o
the respondent Bank is liable for the loss of the certificates of title
pursuant to Article 1972 of the said Code which provides:
o
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.
o
If the deposit is gratuitous, this fact shall be taken into account in
determining the degree of care that the depositary must observe.
o

RULING:
1.

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

said key had a duplicate which was made so that both renters could have access
to the box.
Hence, the authorities cited by the respondent Court 20 on this point do not apply.
Neither could Article 1975, also relied upon by the respondent Court, be invoked
as an argument against the deposit theory. Obviously, the first paragraph of such
provision cannot apply to a depositary of certificates, bonds, securities or
instruments which earn interest if such documents are kept in a rented safety
deposit box. It is clear that the depositary cannot open the box without the renter
being present.
We observe, however, that the deposit theory itself does not altogether find
unanimous support even in American jurisprudence. We agree with the petitioner
that under the latter, the prevailing rule is that the relation between a bank renting
out safe-deposit boxes and its customer with respect to the contents of the box is
that of a bail or and bailee, the bailment being for hire and mutual benefit. 21 This
is just the prevailing view because:
There is, however, some support for the view that the relationship in
question might be more properly characterized as that of landlord and
tenant, or lessor and lessee. It has also been suggested that it should
be characterized as that of licensor and licensee. The relation
between a bank, safe-deposit company, or storage company, and the
renter of a safe-deposit box therein, is often described as contractual,
express or implied, oral or written, in whole or in part. But there is
apparently no jurisdiction in which any rule other than that applicable
to bailments governs questions of the liability and rights of the parties
in respect of loss of the contents of safe-deposit boxes. 22 (citations
omitted)
In the context of our laws which authorize banking institutions to rent out safety deposit
boxes, it is clear that in this jurisdiction, the prevailing rule in the United States has been
adopted. Section 72 of the General Banking 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 asdepositories or as agents. . . . 24
(emphasis supplied)
Note that the primary function is still found within the parameters of a contract of deposit,
i.e., the receiving in custody of funds, documents and other valuable objects for
safekeeping. The renting out of the safety deposit boxes is not independent from, but
related to or in conjunction with, this principal function. A contract of deposit may be entered
into orally or in writing 25 and, pursuant to Article 1306 of the Civil Code, the parties thereto
may establish such stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good customs, public order or
public policy. The depositary's responsibility for the safekeeping of the objects deposited in
the case at bar is governed by Title I, Book IV of the Civil Code. Accordingly, the depositary
would be liable if, in performing its obligation, it is found guilty of fraud, negligence, delay or
contravention of the tenor of the agreement. 26 In the absence of any stipulation prescribing
the degree of diligence required, that of a good father of a family is to be observed. 27

Hence, any stipulation exempting the depositary from any liability arising from the loss of the
thing deposited on account of fraud, negligence or delay would be void for being contrary to
law and public policy. In the instant case, petitioner maintains that conditions 13 and 14 of
the questioned contract of lease of the safety deposit box, which read:
13. The bank is not a depositary of the contents of the safe and it has
neither the possession nor control of the same.
14. The bank has no interest whatsoever in said contents, except
herein expressly provided, and it assumes absolutely no liability in
connection therewith. 28
are void as they are contrary to law and public policy. We find Ourselves in
agreement with this proposition for indeed, said provisions are inconsistent with
the respondent Bank's responsibility as a depositary under Section 72(a) of the
General Banking Act. Both exempt the latter from any liability except as
contemplated in condition 8 thereof which limits its duty to exercise reasonable
diligence only with respect to who shall be admitted to any rented safe, to wit:
8. The Bank shall use due diligence that no unauthorized person shall
be admitted to any rented safe and beyond this, the Bank will not be
responsible for the contents of any safe rented from it. 29
Furthermore, condition 13 stands on a wrong premise and is contrary to the
actual practice of the Bank. It is not correct to assert that the Bank has neither
the possession nor control of the contents of the box since in fact, the safety
deposit box itself is located in its premises and is under its absolute control;
moreover, the respondent Bank keeps the guard key to the said box. As stated
earlier, renters cannot open their respective boxes unless the Bank cooperates
by presenting and using this guard key. Clearly then, to the extent above stated,
the foregoing conditions in the contract in question are void and ineffective. It has
been said:
With respect to property deposited in a safe-deposit box by a
customer of a 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.