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Deposit Cases

THIRD DIVISION
[G.R. No. 66826. August 19, 1988.]
BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. THE
INTERMEDIATE APPELLATE COURT and RIZALDY T.
ZSHORNACK respondents.
Pacis & Reyes Law Office for petitioner.
Ernesto T. Zshornack, Jr. for private respondent.
SYLLABUS
1. CIVIL LAW; DEPOSIT; NATURE; CASE AT BAR.
The Commercial Bank and Trust Co. (subsequently absorbed by
petitioner Bank of the Philippine Islands) through its assistant branch
manager for Quezon City acknowledged receipt from the private
respondent of US$3,000.00 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 thereturn of the money on
May 10, 1976, or over five months later. The above arrangement is
that contract defined under Article 1962, New Civil Code, which reads:
Art. 1962. A deposit is constituted from the moment a person receives
a thing belonging to another, with the obligation of safely keeping it
and of returning the same. If thesafekeeping of the thing delivered is
not the principal purpose of the contract, there is no deposit but some
other contract.
2. REMEDIAL LAW; ALLEGATIONS IN PLEADINGS; EFFECT OF FAILURE TO
SPECIFICALLY DENY THEREIN THE DUE EXECUTION OF DOCUMENTS.
The respondent's second cause of action was based on an
actionable document. It was therefore incumbent upon the bank to
specifically deny under oath the due execution of thedocument, as

prescribed under Rule 8, Section 8, if it desired: (1) to


question the authority of Garcia to bind the corporation; and (2) to
deny its capacity to enter into such contract. No sworn answer
denying the due execution of the document in question, or
questioning the authority of Garcia to bind the bank, or
denying the bank's capacity to enter into the contract, was ever filed.
Hence, the bank is deemed to have admitted not only Garcia's
authority, but also the bank's power, to enter into thecontract in
question.
3. ID.; VOID CONTRACTS; CONTRACTS EXECUTED AGAINST A
MANDATORY/PROHIBITORY LAW. 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 thegeneral 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.
4. ID.; ID.; ID.; EFFECT. 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 ofthe 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.
DECISION
CORTES, J p:
The original parties to this case were Rizaldy T. Zshornack
and the Commercial Bank and Trust Company of the Philippines
[hereafter referred to as "COMTRUST."] In
1980, the Bank of the Philippine Islands (hereafter referred to as "BPI")

absorbed COMTRUST through a corporate merger, and was substituted


as party to the case. prLL
Rizaldy Zshornack initiated proceedings on June 28, 1976 by filing
in the Court of First Instance of Rizal Caloocan City a complaint
against COMTRUST alleging four causes of action. Except for the third
cause of action, the CFI ruled in favor of Zshornack. The bank appealed
to the Intermediate Appellate Court which modified the CFI decision
absolving the bank from liability on the fourth
cause of action. The pertinent portions of the judgment, as modified,
read:
IN VIEW OF THE FOREGOING, the Court renders judgment as follows:
1. Ordering the defendant COMTRUST to restore
to the dollar savings account of plaintiff (No. 254109) the amount of U.S $1,000.00 as of October 27, 1975
to earn interest together with the remaining
balance of the said account at the rate fixed by the bank for
dollar deposits under Central Bank Circular 343;
2. Ordering defendant COMTRUST to return
to the plaintiff the amount of U.S. $3,000.00 immediately
upon the finality of this decision, without interest
for thereason that the said amount was merely held in
custody for safekeeping, but was not actually deposited
with the defendant COMTRUST because being cash
currency, it cannot by law be deposited with plaintiff's dollar
account and defendant's only obligation is to
return the same to plaintiff upon demand;
xxx xxx xxx
5. Ordering defendant COMTRUST to pay plaintiff
in the amount of P8,000.00 as damages
in the concept of litigation expenses and attorney's fees
suffered by plaintiff as a
result of the failure of the defendant bank to restore to his

(plaintiff's) account the amount of U.S. $1,000.00 and to


return to him (plaintiff) the U.S. $3,000.00 cash left for
safekeeping.
Costs against defendant COMTRUST.
SO ORDERED. [Rollo, pp. 47-48.]
Undaunted, the bank comes to this Court praying that it be totally
absolved from any liability to Zshornack. The latter not having
appealed the Court of Appeals decision, the issues facing this Court are
limited to the bank's liability with regard to the first and second
causes of action and its liability for damages.
1. We first consider the first cause of action.
On the dates material to this case, Rizaldy Zshornack and his wife,
Shirley Gorospe, maintained in COMTRUST, Quezon City Branch, a
dollar savings account and a peso current account.
On October 27, 1975, an application for a dollar draft was
accomplished by Virgilio V. Garcia, Assistant Branch
Manager of COMTRUST Quezon City, payable to a certain Leovigilda D.
Dizon in the amount of $1,000.00. In the application, Garcia indicated
that the amount was to be charged to Dollar Savings Acct. No. 254109, the savings account of the Zshornacks; the charges for
commission, documentary stamp tax and others totalling P17.46 were
to be charged to Current Acct. No. 210-465-29, again, the current
account of the Zshornacks. There was no
indication of the name of the purchaser of the dollar draft.
On the same date, October 27, 1975, COMTRUST,
under the signature of Virgilio V. Garcia, issued a check payable
to the order of Leovigilda D. Dizon in the sum ofUS$1,000 drawn
on the Chase Manhattan Bank, New York, with an indication that it was
to be charged to Dollar Savings Acct. No. 25-4109. prcd

When Zshornack noticed the withdrawal of US$1,000.00 from his


account, he demanded an explanation from the bank. In answer,
COMTRUST claimed that the peso value of the withdrawal was given to
Atty. Ernesto Zshornack, Jr., brother of Rizaldy, on October 27, 1975
when he (Ernesto) encashed with COMTRUST a cashier's check for
P8,450.00 issued by the Manila Banking Corporation payable to
Ernesto.
Upon consideration of the foregoing facts, this Court finds no reason to
disturb the ruling of both the trial court and the Appellate Court on the
first cause of action. Petitioner must be held liable for the unauthorized
withdrawal of US$1,000.00 from private respondent's dollar account.
In its desperate attempt to justify its act of withdrawing from its
depositor's savings account, the bank has adopted inconsistent
theories. First, it still maintains that thepeso value of the amount
withdrawn was given to Atty. Ernesto Zshornack, Jr. when the latter
encashed the Manilabank Cashier's Check. At the same
time, the bankclaims that the withdrawal was made pursuant to an
agreement where Zshornack allegedly authorized the bank to withdraw
from his dollar savings account such amount which, when converted to
pesos, would be needed to fund his peso current account. If
indeed the peso equivalent of the amount withdrawn from the dollar
account was credited to the peso current account, why
did the bank still have to pay Ernesto?
At any rate, both explanations are unavailing. With regard to the first
explanation, petitioner bank has not shown how the transaction
involving the cashier's check is related to the transaction
involving the dollar draft in favor of Dizon financed by the withdrawal
from Rizaldy's dollar account. The two transactions appear entirely
independent of each other. Moreover, Ernesto Zshornack, Jr., possesses
a personality distinct and separate from Rizaldy Zshornack. Payment
made to Ernesto cannot be considered payment to Rizaldy. prcd
As to the second explanation, even if we assume that there was such
an agreement, the evidence do not show that the withdrawal was
made pursuant to it. Instead, therecord reveals that the amount

withdrawn was used to finance a dollar draft in favor of Leovigilda D.


Dizon, and not to fund the current account of the Zshornacks. There is
no proof whatsoever that peso Current Account No. 210-465-29 was
ever credited with the peso equivalent of the US$1,000.00 withdrawn
on October 27, 1975 from Dollar Savings Account No. 25-4109.
2. As for the second cause of action, the complaint filed
with the trial court alleged that on December 8, 1975, Zshornack
entrusted to COMTRUST, thru Garcia,US$3,000.00 cash (popularly
known as greenbacks) for safekeeping, and that the agreement was
embodied in a document, a copy of which was attached to and made
part of the complaint. The document reads:
Makati Cable Address:
Philippines "COMTRUST"
COMMERCIAL BANK AND TRUST COMPANY
of the Philippines
Quezon City Branch
December 8, 1975
MR. RIZALDY T. ZSHORNACK
&/OR MRS. SHIRLEY E. ZSHORNACK
Sir/Madam:
We acknowledged (sic) having received from you
today the sum of US DOLLARS: THREE THOUSAND ONLY
(US$3,000.00) for safekeeping.
Received by:(Sgd.)
VIRGILIO V. GARCIA
It was also alleged in the complaint that despite
demands, the bank refused to return the money.
In its answer, COMTRUST averred that the US$3,000 was credited to
Zshornack's peso current account at prevailing conversion rates.

It must be emphasized that COMTRUST did not deny specifically under


oath the authenticity and due execution of the above instrument.
During trial, it was established that on December 8, 1975 Zshornack
indeed delivered to the bank US$3,000 for safekeeping. When he
requested the return of themoney on May 10, 1976, COMTRUST
explained that the sum was disposed of in this manner: US$2,000.00
was sold on December 29, 1975 and the peso proceeds amounting to
P14,920.00 were deposited to Zshornack's current account per deposit
slip accomplished by Garcia; the remaining US$1,000. 00 was sold on
February 3, 1976 and the peso proceeds amounting to P8,350.00 were
deposited to his current account per deposit slip also accomplished by
Garcia.
Aside from asserting that the US$3,000.00 was properly credited to
Zshornack's current account at prevailing conversion rates, BPI now
posits another ground to defeat private respondent's claim. It now
argues that the contract embodied in the document
is the contract of depositum (as defined in Article 1962, New Civil
Code), which banks do not enter into. The bank alleges that Garcia
exceeded his powers when he entered into the transaction. Hence, it is
claimed, the bank cannot be liable under the contract,
and the obligation is purely personal to Garcia. LexLib
Before we go into the nature of the contract entered into, an important
point which arises on the pleadings, must be considered.
The second cause of action is based on a document purporting to be
signed by COMTRUST, a copy of which document was attached
to the complaint. In short, thesecond cause of action was based on an
actionable document. It was therefore incumbent upon the bank to
specifically deny under oath the due execution of thedocument, as
prescribed under Rule 8, Section 8, if it desired: (1) to
question the authority of Garcia to bind the corporation; and (2) to
deny its capacity to enter into such contract. [See, E.B. Merchant v.
International Banking Corporation, 6 Phil. 314 (1906).] No sworn

answer denying the due execution of the document in question, or


questioning the authority of Garcia to bind the bank, or
denying the bank's capacity to enter into the contract, was ever filed.
Hence, the bank is deemed to have admitted not only Garcia's
authority, but also the bank's power, to enter into the contract in
question.
In the past, this Court had occasion to explain the reason behind this
procedural requirement.
The reason for the rule enunciated in the foregoing
authorities will, we think, be readily appreciated. In dealing
with corporations the public at large is bound to rely to a
large extent upon outward appearances. If a man is found
acting for a corporation with the external
indicia of authority, any person, not having
notice of want ofauthority, may usually rely upon those
appearances; and if it be found that the directors had
permitted the agent to exercise that authority and thereby
held him out as a person competent to bind the corporation,
or had acquiesced in a contract and retained the benefit
supposed to have been conferred by it, the corporation will
be bound notwithstanding the actual authority may never
have been granted . . . Whether a particular officer actually
possesses the authority which he assumes to exercise is
frequently known to very few, and the proof of it usually is
not readily accessible to the stranger who deals
with the corporation on the faith of the ostensible authority
exercised by some of the corporate officers. It is therefore
reasonable in a case where an officer of a corporation has
made a contract in its name, that thecorporation should be
required, if it denies his authority, to state such defense in
its answer. By this means the plaintiffs apprised of the fact
that the agent's authority is contested; and he is given an
opportunity to adduce evidence showing either
that the authority existed or that the contract was ratified
and approved [Ramirez v. Orientalist Co. and Fernandez, 38
Phil. 634, 645-646 (1918).]

Petitioner's argument must also be rejected for another


reason. The practical effect of absolving a corporation from liability
every time an officer enters into a contract which is beyond corporate
powers, even without the proper allegation or proof
that the corporation has not authorized nor ratified the officer's act, is
to cast corporations in so perfect a mold that transgressions and
wrongs by such artificial beings become impossible [Bissell v. Michigan
Southern and N.I.R Cos, 22 N.Y 258 (1860).] "To say that a corporation
has no right to do unauthorized acts is only to put forth a very plain
truism; but to say that such bodies have no power or capacity to err is
to impute to them an excellence which does not belong to any created
existence with which we are acquainted. The distinction between
power and right is no more to be lost sight of in respect to artificial
than in respect to natural persons." [Ibid.]
Having determined that Garcia's act of entering into the contract
binds the corporation, we now determine the correct
nature of the contract, and its legal consequences, including its
enforceability. LibLex
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 themoney on May 10, 1976, or over
five months later.
The above arrangement is that contract defined under Article 1962,
New Civil Code, which reads:
Art. 1962. A deposit is constituted from the moment a
person receives a thing belonging to another,
with the obligation of safely keeping it
and of returning thesame. If the safekeeping of the thing
delivered is not the principal purpose of the contract, there
is no deposit but some other contract.

Note that the object of the contract between Zshornack and


COMTRUST was foreign exchange. Hence, the transaction was covered
by Central Bank Circular No. 20, Restrictions on Gold and Foreign
Exchange Transactions, promulgated on December 9, 1949, which was
in force at the time the parties entered into the transaction involved in
this case. The circular provides:
xxx xxx xxx
2. Transactions in the assets described below and all
dealings in them of whatever nature, including, where
applicable their exportation and importation, shall NOT be
effected, except with respect to deposit accounts included in
sub-paragraphs (b) and (c) of this paragraph, when such
deposit accounts are owned by and in thename of banks.
(a) Any and all assets, provided they are held
through, in, or with banks or banking institutions
located in the Philippines, including money, checks,
drafts, bullions, bank drafts deposit accounts (demand,
time and savings), all debts, indebtedness or
obligations, financial brokers and investment houses
notes, debentures, stocks, bonds,
coupons, bank acceptances, mortgages, pledges, liens
or other rights in the nature of security, expressed in
foreign currencies, or if payable abroad,
irrespective of the currency in which they are
expressed, and belonging to any person, firm,
partnership, association, branch office, agency,
company or other unincorporated body or corporation
residing or located within the Philippines;
(b) Any and all assets of the kinds included and or
described in subparagraph (a) above, whether or not
held through, in, or with banks or banking institutions,
and existent within the Philippines, which belong to any
person, film, partnership, association, branch office,
agency, company or other unincorporated body or

corporation not residing or located


within the Philippines;
(c) Any and all assets existent
within the Philippines including money, checks, drafts,
bullions, bank drafts, all debts, indebtedness or
obligations, financial securities commonly dealt in by
bankers, brokers and investment houses, notes,
debentures, stock, bonds, coupons, bank acceptances,
mortgages, pledges, liens or other rights
in the nature of security expressed in foreign
currencies, or if payable abroad,
irrespective of the currency in which they are
expressed, and belonging to any person, firm,
partnership, association, branch office, agency,
company or other unincorporated body or corporation
residing or located within the Philippines.
xxx xxx xxx
4. (a) All receipts of foreign exchange shall be sold daily
to the Central Bank by those authorized to deal in foreign
exchange. All receipts of foreign exchange by any person,
firm, partnership, association, branch office, agency,
company or other unincorporated body or corporation shall
be sold to the authorized
agents of theCentral Bank by the recipients within one
business day following the receipt of such foreign exchange.
Any person, firm, partnership, association, branch office,
agency, company or other unincorporated body or
corporation, residing or located within the Philippines, who
acquires on and after the date of this Circular foreign
exchange shall not unless licensed by the Central Bank,
dispose of such foreign exchange in whole or in part, nor
receive less than its full value, nor delay taking ownership
thereof except as such delay is customary; Provided,
further, That within one day upon taking ownership, or
receiving payment, of foreign exchange theaforementioned

persons and entities shall sell such foreign exchange to


designated agents of the Central Bank.
xxx xxx xxx
8. Strict observance of the provisions of this Circular is
enjoined; and any person, firm or corporation, foreign or
domestic, who being bound to the observance thereof,
or of such other rules, regulations or directives as may
hereafter be issued in implementation of this Circular, shall
fail or refuse to comply with, or abide by, or shall
violate the same, shall be subject to the penal sanctions
provided in the Central Bank Act.

xxx xxx xxx


Paragraph 4 (a) above was modified by Section
6 of Central Bank Circular No. 281, Regulations on Foreign Exchange,
promulgated on November 26, 1969 by limiting its coverage
to Philippine residents only. Section 6 provides:
SEC. 6. All receipts of foreign exchange by
any resident person, firm, company or corporation shall be
sold to authorized
agents of the Central Bank by therecipients within one
business day following the receipt of such foreign exchange.
Any resident person, firm, company or corporation residing
or located within thePhilippines, who acquires foreign
exchange shall not, unless authorized by the Central Bank,
dispose of such foreign exchange in whole or in part, nor
receive less than its full value, nor delay taking ownership
thereof except as such delay is customary; Provided,
That, within one business day upon taking ownership or
receiving payment of foreign exchange the aforementioned
persons and entities shall sell such foreign exchange
to the authorized agents of the Central Bank.

As earlier stated, the document and the subsequent acts of the parties
show that they intended the bank to safekeep the foreign exchange,
and return it later to Zshornack, who alleged in his complaint that he is
a Philippine resident. The parties did not intended to sell the US dollars
to the Central Bank within one business day from receipt.
Otherwise, the contract of depositum would never have been entered
into at all.
Since the mere safekeeping of the greenbacks, without selling them
to the Central Bank within one business day from receipt, is a
transaction which is not authorized by CB Circular No. 20, it must be
considered as one which falls under the general class of prohibited
transactions. Hence, pursuant to Article 5 of the Civil Code, it is void,
having been executed against the provisions of a
mandatory/prohibitory law. More importantly, it affords
neither of the parties a cause of action against the other.
"When the nullity proceeds from the illegality of the cause or
object of the contract, and the act constitutes a criminal offense, both
parties being in pari delicto, they shall have no cause of action against
each other . . . " [Art. 1411, New Civil Code.] The only remedy is one on
behalf of the State to prosecute the parties for violating thelaw.
We thus rule that Zshornack cannot recover under the second
cause of action.
3. Lastly, we find the P8,000.00 awarded by the courts a quo as
damages in the concept of litigation expenses and attorney's fees to be
reasonable. The award is sustained. LLpr
WHEREFORE, the decision appealed from is hereby MODIFIED.
Petitioner is ordered to restore to the dollar savings account of private
respondent the amount ofUS$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 theamount of P8,000.00 as damages. The other
causes of action of private respondent are ordered dismissed.
SO ORDERED.

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


Fernan, C.J., took no part was counsel for Bank of P.I. (Cebu).
Feliciano, J., concurs in the result.
||| (Bank of the Philippine Islands v. Intermediate Appellate Court, G.R.
No. 66826, [August 19, 1988], 247 PHIL 599-611)

FIRST DIVISION
[G.R. No. 6913. November 21, 1913.]
THE ROMAN CATHOLIC BISHOP OF JARO, plaintiffappellee, vs. GREGORIO DE LA PEA, administrator of
the estate of Father Agustin de la Pea,defendantappellant.
J. Lopez Vito for appellant.
Arroyo & Horrilleno for appellee.
SYLLABUS
1. TRUST FUNDS; LIABILITY OF TRUSTEE. One who, having in
his possession trust funds, deposits them in his personal account in

a bank and mixes them with his own funds, does not thereby
assume an obligation different from that under which he would have
lain in such deposit had not been made; not does he thereby
become liable to repay the money at all hazards; and where such
funds are taken from the bank by fuerza mayor, he is relieved from
responsibility in relation thereto.
2. ID.; ID.; ENGLISH AND AMERICAN LAW OF TRUSTS NOT
APPLICABLE. That branch of the law, known in England and
America as the law of trusts, has no counterpart in the Roman law
and none under the Spanish law.
DECISION
MORELAND, J p:
This is an appeal by the defendant from a judgment of the Court
of First Instance of Iloilo, awarding to the plaintiff the sum of P6,641,
with interest at the legal rate from the beginning of the action.
It is established in this case that the plaintiff is the trustee of a
charitable bequest made for the construction of a leper hospital and
that Father Agustin de la Pea was the duly authorized
representative of the plaintiff to receive the legacy. The defendant is
the administrator of the estate of Father De la Pea.
In the year 1898 the books of Father de la Pea, as trustee,
shoed 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 dela Pea was arrested by the military
authorities as a political prisoner, and while thus detained made an
order on said bank in favor of the United States Army officer under
whose charge he then was so for the sum thus deposited in said
bank. The arrest of Father de la Pea and the confiscation of the
funds in the bank were the result of the claim of the military
authorities that he was an insurgent and that the funds thus
deposited had been collected by him for revolutionary purposes. The

money was taken from the bank by the military authorities by virtue
of such order, was confiscated and turned over to the Government.
While there is considerable dispute in the case over the
question whether the P6,641 of trust funds was included in the
P19,000 deposited as aforesaid, nevertheless, a careful examination
of the case leads us to the conclusion that said trust funds were a
part of the funds deposited and which were removed and
confiscated by the military authorities of the United States.
Branch of the law know in England and America as the law of
the trusts had no exact counterpart in the Roman law and is more
has none under the Spanish law, In this jurisdiction, therefore, Father
dela 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 exceptions of the cases expressly mentioned in
the law of 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 money had been forcibly take 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 is
his personal account does not add to his responsibility. Such deposit
did not make him a debtor who must respond at all the 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 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 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
the negligence. 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, While it may be true that one who is under
obligation to do or give a things 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 been
constrained to hold that, in choosing between two means equally
legal, he is culpably negligent in selecting negligent in selecting one
whereas he would not have been if he had selected the other.
The court, therefore, finds and declares that the money which is
the subject matter of this action was deposited by Father De la Pea
in the Hongkong and Shanghai Banking Corporation of Iloilo; that
said money was forcibly taken from the bank by the armed forces of
the United States during the war of the insurrection; and that said
Father De la Pea was not responsible for its loss.
The judgment is therefore reversed, and it is decreed that the
plaintiff shall take nothing by his complaint.
Arellano, C.J. Torres and Carson, JJ., concur.
||| (Roman Catholic Bishop of Jaro v. de la Pea, G.R. No. 6913,
[November 21, 1913], 26 PHIL 144-149)

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.
SYLLABUS
1. CONTRACT; BAILMENT OR DEPOSIT; LOAN. 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 thus entered into between the depositor and the
depositary is not a contract of deposit but a loan.
2. ID.; ID.; ID.; SUBSEQUENT AGREEMENT AS TO INTEREST;
NOVATION. 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 renew of an agreement of deposit, but is the best
evidence that the original contract entered into between the parties
therein was for a loan under the guise of a deposit.
DECISION
TORRES, J p:
The attorney for the plaintiff, Angel Javellana, filed 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, 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, 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, that 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 pesos and fifty-eight cents of pesos fuentes,
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, binding
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 1,000 pesos, with the exception of which they had not paid
any other sum on account of either capital or interest,
notwithstanding the requests made by the plaintiff, who 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 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 Exhibit 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, paid the creditor the said
amount in full. In this second document the contract between the
parties, which is a real loan of money with interest, appears perfectly
defined, notwithstanding the fact that in the original document
executed by the debtors, on the 26th of May, 1897, it is called a
deposit; so that when they bound themselves jointly and severally to
refund the sum of 2,686.58 pesos to the depositor, Javellana, they
did not engage to return the same coins received and of which the
amount deposited 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 subsequently shown when
asking for an extension of the time for the return thereof, inasmuch

as, acknowledging that they have subjected the lender, 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 depositary 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 depositary 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 that money was scarce, 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 them to use and dispose of the amount
slated as having been deposited, which, in accordance with the
terms of the law, must be considered as given them on loan, to all
intents and purposes gratuitously, until the 20th of January, 1898,
and from that date 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 the fact 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 had 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 defendants' 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 plaintiff's
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 reasons above set forth it may, as a matter of
course, be inferred that there was no renewal of the contract of
deposit converted into a loan, because, as has already been stated,
the defendants received said amount by virtue of a real loan

contract under the name of a deposit, since the so-called bails 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
debtors still exists, and it has not been shown or proven in the
proceedings that the creditor had released Jose 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.
||| (Javellana v. Lim, G.R. No. 4015, [August 24, 1908], 11 PHIL 141146)

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 CAG.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

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 p:
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 Decision 1 dated 19 October 1995 of the Court of Appeals which
affirmed the Decision 2 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. IHcSCA
Private respondent McLoughlin, an Australian businessmanphilanthropist, 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;
xxx xxx xxx
4. To return the key and execute the RELEASE in favor of
TROPICANA APARTMENT HOTEL upon giving up the use of
the box. 16
On 17 May 1988, McLoughlin went back to Australia and he consulted
his lawyers as to the validity of the abovementioned stipulations. They
opined that the stipulations are void for being violative of universal
hotel practices and customs. His lawyers prepared a letter dated 30
May 1988 which was signed by McLoughlin and sent to President
Corazon Aquino. 17 The Office of the President referred the letter to
the Department of Justice (DOJ) which forwarded the same to the
Western Police District (WPD). 18
After receiving a copy of the indorsement in Australia, McLoughlin
came to the Philippines and registered again as a hotel guest of
Tropicana. McLoughlin went to Malacaang to follow up on his letter
but he was instructed to go to the DOJ. The DOJ directed him to
proceed to the WPD for documentation. But McLoughlin went back to
Australia as he had an urgent business matter to attend to.

For several times, McLoughlin left for Australia to attend to his business
and came back to the Philippines to follow up on his letter to the
President but he failed to obtain any concrete assistance. 19
McLoughlin left again for Australia and upon his return to the
Philippines on 25 August 1989 to pursue his claims against petitioners,
the WPD conducted an investigation which resulted in the preparation
of an affidavit which was forwarded to the Manila City Fiscal's Office.
Said affidavit became the basis of preliminary investigation. However,
McLoughlin left again for Australia without receiving the notice of the
hearing on 24 November 1989. Thus, the case at the Fiscal's Office was
dismissed for failure to prosecute. McLoughlin requested the
reinstatement of the criminal charge for theft. In the meantime,
McLoughlin and his lawyers wrote letters of demand to those having
responsibility to pay the damage. Then he left again for Australia.
Upon his return on 22 October 1990, he registered at the Echelon
Towers at Malate, Manila. Meetings were held between McLoughlin and
his lawyer which resulted to the filing of a complaint for damages on 3
December 1990 against YHT Realty Corporation, Lopez, Lainez, Payam
and Tan (defendants) for the loss of McLoughlin's money which was
discovered on 16 April 1988. After filing the complaint, McLoughlin left
again for Australia to attend to an urgent business matter. Tan and
Lopez, however, were not served with summons, and trial proceeded
with only Lainez, Payam and YHT Realty Corporation as
defendants. jur2005cd

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 anAmended/Supplemental Complaint 20 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. IcDESA

During the trial of the case, McLoughlin had been in and out of the
country to attend to urgent business in Australia, and while staying in
the Philippines to attend the hearing, he incurred expenses for hotel
bills, airfare and other transportation expenses, long distance calls to
Australia, Meralco power expenses, and expenses for food and
maintenance, among others. 22
After trial, the RTC of Manila rendered judgment in favor of McLoughlin,
the dispositive portion of which reads:
WHEREFORE, above premises considered, judgment is
hereby rendered by this Court in favor of plaintiff and
against the defendants, to wit:
1. Ordering defendants, jointly and severally, to pay
plaintiff the sum of US$11,400.00 or its
equivalent in Philippine Currency of
P342,000.00, more or less, and the sum of
AUS$4,500.00 or its equivalent in Philippine
Currency of P99,000.00, or a total of
P441,000.00, more or less, with 12% interest
from April 16, 1988 until said amount has been
paid to plaintiff (Item 1, Exhibit CC);
2. Ordering defendants, jointly and severally to pay
plaintiff the sum of P3,674,238.00 as actual
and consequential damages arising from the
loss of his Australian and American dollars and
jewelries complained against and in
prosecuting his claim and rights
administratively and judicially (Items II, III, IV,
V, VI, VII, VIII, and IX, Exh. "CC");
3. Ordering defendants, jointly and severally, to pay
plaintiff the sum of P500,000.00 as moral
damages (Item X, Exh. "CC");

4. Ordering defendants, jointly and severally, to pay


plaintiff the sum of P350,000.00 as exemplary
damages (Item XI, Exh. "CC");
5. And ordering defendants, jointly and severally, to
pay litigation expenses in the sum of
P200,000.00 (Item XII, Exh. "CC");
6. Ordering defendants, jointly and severally, to pay
plaintiff the sum of P200,000.00 as attorney's
fees, and a fee of P3,000.00 for every
appearance; and
7. Plus costs of suit.
SO ORDERED. 23
The trial court found that McLoughlin's allegations as to the fact of loss
and as to the amount of money he lost were sufficiently shown by his
direct and straightforward manner of testifying in court and found him
to be credible and worthy of belief as it was established that
McLoughlin's money, kept in Tropicana's safety deposit box, was taken
by Tan without McLoughlin's consent. The taking was effected through
the use of the master key which was in the possession of the
management. Payam and Lainez allowed Tan to use the master key
without authority from McLoughlin. The trial court added that if
McLoughlin had not lost his dollars, he would not have gone through
the trouble and personal inconvenience of seeking aid and assistance
from the Office of the President, DOJ, police authorities and the City
Fiscal's Office in his desire to recover his losses from the hotel
management and Tan. 24
As regards the loss of Seven Thousand US Dollars (US$7,000.00) and
jewelry worth approximately One Thousand Two Hundred US Dollars
(US$1,200.00) which allegedly occurred during his stay at Tropicana
previous to 4 April 1988, no claim was made by McLoughlin for such
losses in his complaint dated 21 November 1990 because he was not
sure how they were lost and who the responsible persons were. But

considering the admission of the defendants in their pre-trial brief that


on three previous occasions they allowed Tan to open the box, the trial
court opined that it was logical and reasonable to presume that his
personal assets consisting of Seven Thousand US Dollars
(US$7,000.00) and jewelry were taken by Tan from the safety deposit
box without McLoughlin's consent through the cooperation of Payam
and Lainez. 25
The trial court also found that defendants acted with gross negligence
in the performance and exercise of their duties and obligations as
innkeepers and were therefore liable to answer for the losses incurred
by McLoughlin. 26
Moreover, the trial court ruled that paragraphs (2) and (4) of the
"Undertaking For The Use Of Safety Deposit Box" are not valid for
being contrary to the express mandate of Article 2003 of the New Civil
Code and against public policy. 27 Thus, there being fraud or wanton
conduct on the part of defendants, they should be responsible for all
damages which may be attributed to the 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) P153,200.00 representing the peso equivalent of
US$2,000.00 and AUS$4,500.00;
2) P308,880.80, representing the peso value for the air fares
from Sidney [sic] to Manila and back for a total of
eleven (11) trips;

3) One-half of P336,207.05 or P168,103.52 representing


payment to Tropicana Apartment Hotel;
4) One-half of P152,683.57 or P76,341.785 representing
payment to Echelon Tower;
5) One-half of P179,863.20 or P89,931.60 for the taxi . . .
transportation from the residence to Sidney [sic] Airport
and from MIA to the hotel here in Manila, for the eleven
(11) trips;
6) One-half of P7,801.94 or P3,900.97 representing Meralco
power expenses;
7) One-half of P356,400.00 or P178,000.00 representing
expenses for food and maintenance;
8) P50,000.00 for moral damages;
9) P10,000.00 as exemplary damages; and
10) P200,000 representing attorney's fees.
With costs.
SO ORDERED. 29
Unperturbed, YHT Realty Corporation, Lainez and Payam went to this
Court in this appeal by certiorari. cACEHI
Petitioners submit for resolution by this Court the following issues: (a)
whether the appellate court's conclusion on the alleged prior existence
and subsequent loss of the subject money and jewelry is supported by
the evidence on record; (b) whether the finding of gross negligence on
the part of petitioners in the performance of their duties as innkeepers
is supported by the evidence on record; (c) whether the "Undertaking
For The Use of Safety Deposit Box" admittedly executed by private

respondent is null and void; and (d) whether the damages awarded to
private respondent, as well as the amounts thereof, are proper under
the circumstances. 30
The petition is devoid of merit.
It is worthy of note that the thrust of Rule 45 is the resolution only of
questions of law and any peripheral factual question addressed to this
Court is beyond the bounds of this mode of review.
Petitioners point out that the evidence on record is insufficient to prove
the fact of prior existence of the dollars and the jewelry which had
been lost while deposited in the safety deposit boxes of Tropicana, the
basis of the trial court and the appellate court being the sole testimony
of McLoughlin as to the contents thereof. Likewise, petitioners dispute
the finding of gross negligence on their part as not supported by the
evidence on record.
We are not persuaded. We adhere to the findings of the trial court as
affirmed by the appellate court that the fact of loss was established by
the credible testimony in open court by McLoughlin. Such findings are
factual and therefore beyond the ambit of the present petition.
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. TEDHaA
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 asforce 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. DaECST
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 P308,880.80, representing the peso value for the air fares
from Sydney to Manila and back for a total of eleven (11) trips; 49 onehalf of P336,207.05 or P168,103.52 representing payment to
Tropicana; 50 one-half of P152,683.57 or P76,341.785 representing
payment to Echelon Tower; 51 one-half of P179,863.20 or P89,931.60
for the taxi or transportation expenses from McLoughlin's residence to
Sydney Airport and from MIA to the hotel here in Manila, for the eleven
(11) trips; 52 one-half of P7,801.94 or P3,900.97 representing Meralco
power expenses; 53 one-half of P356,400.00 or P178,000.00
representing expenses for food and maintenance. 54

The amount of P50,000.00 for moral damages is reasonable. Although


trial courts are given discretion to determine the amount of moral
damages, the appellate court may modify or change the amount
awarded when it is palpably and scandalously excessive. Moral
damages are not intended to enrich a complainant at the expense of a
defendant. They are awarded only to enable the injured party to obtain
means, diversion or amusements that will serve to alleviate the moral
suffering he has undergone, by reason of defendants' culpable
action. 55

The awards of P10,000.00 as exemplary damages and P200,000.00


representing attorney's fees are likewise sustained.
WHEREFORE, foregoing premises considered, the Decision of the Court
of Appeals dated 19 October 1995 is hereby AFFIRMED. Petitioners are
directed, jointly and severally, to pay private respondent the following
amounts:
(1) US$2,000.00 and AUS$4,500.00 or their peso equivalent
at the time of payment;
(2) P308,880.80, representing the peso value for the air
fares from Sydney to Manila and back for a total of
eleven (11) trips;
(3) One-half of P336,207.05 or P168,103.52 representing
payment to Tropicana Copacabana Apartment Hotel;
(4) One-half of P152,683.57 or P76,341.785 representing
payment to Echelon Tower;
(5) One-half of P179,863.20 or P89,931.60 for the taxi or
transportation expense from McLoughlin's residence to
Sydney Airport and from MIA to the hotel here in
Manila, for the eleven (11) trips;

(6) One-half of P7,801.94 or P3,900.97 representing Meralco


power expenses;
(7) One-half of P356,400.00 or P178,200.00 representing
expenses for food and maintenance;
(8) P50,000.00 for moral damages;
(9) P10,000.00 as exemplary damages; and
(10) P200,000 representing attorney's fees.
With costs.
SO ORDERED.
Puno, Callejo, Sr. and Chico-Nazario, JJ., concur.
Austria-Martinez, J., took no part.
||| (YHT Realty Corp. v. Court of Appeals, G.R. No. 126780, [February
17, 2005], 492 PHIL 29-51)