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

BANK OF THE PHILIPPINE ISLANDS, petitioner,

vs.

THE INTERMEDIATE APPELLATE COURT and ZSHORNACK respondents.

Pacis & Reyes Law Office for petitioner.

Ernesto T. Zshornack, Jr. for private respondent.

CORTES, J.:

The original parties to this case were Rizaldy T. Zshornack and the Commercial Bank and Trust Company of

the Philippines [hereafter referred to as "COMTRUST."] In 1980, the Bank of the Philippine Islands (hereafter

referred to as BPI absorbed COMTRUST through a corporate merger, and was substituted as party to the case.

Rizaldy Zshornack initiated proceedings on June 28,1976 by filing in the Court of First Instance of Rizal Caloocan City a complaint against COMTRUST alleging four causes of action. Except for the third cause of

action, the CFI ruled in favor of Zshornack. The bank appealed to the Intermediate Appellate Court which

modified the CFI decision absolving the bank from liability on the fourth cause of action. The pertinent portions

of the judgment, as modified, read:

IN VIEW OF THE FOREGOING, the Court renders judgment as follows:

1. Ordering the defendant COMTRUST to restore to the dollar savings account of plaintiff (No.

25-4109) the amount of U.S $1,000.00 as of October 27, 1975 to earn interest together with the

remaining balance of the said account at the rate fixed by the bank for dollar deposits under

Central Bank Circular 343;

2. Ordering defendant COMTRUST to return to the plaintiff the amount of U.S. $3,000.00

immediately upon the finality of this decision, without interest for the reason that the said

amount was merely held in custody for safekeeping, but was not actually deposited with the

defendant COMTRUST because being cash currency, it cannot by law be deposited with

plaintiffs dollar account and defendant's only obligation is to return the same to plaintiff upon

demand;

xxx xxx xxx

5. Ordering defendant COMTRUST to pay plaintiff in the amount of P8,000.00 as damages in

the concept of litigation expenses and attorney's fees suffered by plaintiff as a result of the failure

of the defendant bank to restore to his (plaintiffs) account the amount of U.S. $1,000.00 and to

return to him (plaintiff) the U.S. $3,000.00 cash left for safekeeping.

Costs against defendant COMTRUST.

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

Undaunted, the bank comes to this Court praying that it be totally absolved from any liability to Zshornack. The

latter not having appealed the Court of Appeals decision, the issues facing this Court are limited to the bank's

liability with regard to the first and second causes of action and its liability for damages.

1. We first consider the first cause of action, On the dates material to this case, Rizaldy Zshornack and his wife,

Shirley Gorospe, maintained in COMTRUST, Quezon City Branch, a dollar savings account and a peso current

account.

On October 27, 1975, an application for a dollar draft was accomplished by Virgilio V. Garcia, Assistant

Branch Manager of COMTRUST Quezon City, payable to a certain Leovigilda D. Dizon in the amount of

$1,000.00. In the application, Garcia indicated that the amount was to be charged to Dollar Savings Acct. No.

25-4109, the savings account of the Zshornacks; the charges for commission, documentary stamp tax and others

totalling P17.46 were to be charged to Current Acct. No. 210465-29, again, the current account of the

Zshornacks. There was no indication of the name of the purchaser of the dollar draft.

On the same date, October 27,1975, COMTRUST, under the signature of Virgilio V. Garcia, issued a check

payable to the order of Leovigilda D. Dizon in the sum of US $1,000 drawn on the Chase Manhattan Bank,

New York, with an indication that it was to be charged to Dollar Savings Acct. No. 25-4109.

When Zshornack noticed the withdrawal of US$1,000.00 from his account, he demanded an explanation from

the bank. In answer, COMTRUST claimed that the peso value of the withdrawal was given to Atty. Ernesto

Zshornack, Jr., brother of Rizaldy, on October 27, 1975 when he (Ernesto) encashed with COMTRUST a

cashier's check for P8,450.00 issued by the Manila Banking Corporation payable to Ernesto.

Upon consideration of the foregoing facts, this Court finds no reason to disturb the ruling of both the trial court

and the Appellate Court on the first cause of action. Petitioner must be held liable for the unauthorized

withdrawal of US$1,000.00 from private respondent's dollar account.

In its desperate attempt to justify its act of withdrawing from its depositor's savings account, the bank has

adopted inconsistent theories. First, it still maintains that the peso value of the amount withdrawn was given to

Atty. Ernesto Zshornack, Jr. when the latter encashed the Manilabank Cashier's Check. At the same time, the

bank claims that the withdrawal was made pursuant to an agreement where Zshornack allegedly authorized the

bank to withdraw from his dollar savings account such amount which, when converted to pesos, would be

needed to fund his peso current account. If indeed the peso equivalent of the amount withdrawn from the dollar

account was credited to the peso current account, why did the bank still have to pay Ernesto?

At any rate, both explanations are unavailing. With regard to the first explanation, petitioner bank has not

shown how the transaction involving the cashier's check is related to the transaction involving the dollar draft in

favor of Dizon financed by the withdrawal from Rizaldy's dollar account. The two transactions appear entirely

independent of each other. Moreover, Ernesto Zshornack, Jr., possesses a personality distinct and separate from

Rizaldy Zshornack. Payment made to Ernesto cannot be considered payment to Rizaldy.

As to the second explanation, even if we assume that there was such an agreement, the evidence do not show

that the withdrawal was made pursuant to it. Instead, the record reveals that the amount withdrawn was used to

finance a dollar draft in favor of Leovigilda D. Dizon, and not to fund the current account of the Zshornacks.

There is no proof whatsoever that peso Current Account No. 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)

forsafekeeping, and that the agreement was embodied in a document, a copy of which was attached to and made

part of the complaint. The document reads:

Makati Cable Address:

Philippines "COMTRUST"

COMMERCIAL BANK AND TRUST COMPANY

of the Philippines

Quezon City Branch

Decem

ber 8,

1975

MR. RIZALDY T. ZSHORNACK

&/OR MRS SHIRLEY E. ZSHORNACK

Sir/Madam:

We acknowledged (sic) having received from you today the sum of US

DOLLARS: THREE THOUSAND ONLY (US$3,000.00) for safekeeping.

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 the money on May 10, 1976, COMTRUST explained that the sum

was disposed of in this manner: US$2,000.00 was sold on December 29, 1975 and the peso proceeds amounting

to P14,920.00 were deposited to Zshornack's current account per deposit slip accomplished by Garcia; the

remaining US$1,000.00 was sold on February 3, 1976 and the peso proceeds amounting to P8,350.00 were

deposited to his current account per deposit slip also accomplished by Garcia.

Aside from asserting that the US$3,000.00 was properly credited to Zshornack's current account at prevailing

conversion rates, BPI now posits another ground to defeat private respondent's claim. It now argues that the

contract embodied in the document is the contract of depositum (as defined in Article 1962, New Civil Code),

which banks do not enter into. The bank alleges that Garcia exceeded his powers when he entered into the

transaction. Hence, it is claimed, the bank cannot be liable under the contract, and the obligation is purely

personal to Garcia.

Before we go into the nature of the contract entered into, an important point which arises on the pleadings, must

be considered.

The second cause of action is based on a document purporting to be signed by COMTRUST, a copy of which

document was attached to the complaint. In short, the second cause of action was based on an actionable

document. It was therefore incumbent upon the bank to specifically deny under oath the due execution of the

document, as prescribed under Rule 8, Section 8, if it desired: (1) to question the authority of Garcia to bind the

corporation; and (2) to deny its capacity to enter into such contract. [See, E.B. Merchant v. International

Banking Corporation, 6 Phil. 314 (1906).] No sworn answer denying the due execution of the document in

question, or questioning the authority of Garcia to bind the bank, or denying the bank's capacity to enter into the

contract, was ever filed. Hence, the bank is deemed to have admitted not only Garcia's authority, but also the

bank's power, to enter into the contract in question.

In the past, this Court had occasion to explain the reason behind this procedural requirement.

The reason for the rule enunciated in the foregoing authorities will, we think, be readily

appreciated. In dealing with corporations the public at large is bound to rely to a large extent

upon outward appearances. If a man is found acting for a corporation with the external indicia of

authority, any person, not having notice of want of authority, may usually rely upon those

appearances; and if it be found that the directors had permitted the agent to exercise that

authority and thereby held him out as a person competent to bind the corporation, or had

acquiesced in a contract and retained the benefit supposed to have been conferred by it, the

corporation will be bound, notwithstanding the actual authority may never have been granted

... Whether a particular officer actually possesses the authority which he assumes to exercise is

frequently known to very few, and the proof of it usually is not readily accessible to the stranger

who deals with the corporation on the faith of the ostensible authority exercised by some of the

corporate officers. It is therefore reasonable, in a case where an officer of a corporation has made

a contract in its name, that the corporation should be required, if it denies his authority, to state

such defense in its answer. By this means the plaintiff is apprised of the fact that the agent's

authority is contested; and he is given an opportunity to adduce evidence showing either that the

authority existed or that the contract was ratified and approved. [Ramirez v. Orientalist Co. and

Fernandez, 38 Phil. 634, 645- 646 (1918).]

Petitioner's argument must also be rejected for another reason. The practical effect of absolving a corporation

from liability every time an officer enters into a contract which is beyond corporate powers, even without the

proper allegation or proof that the corporation has not authorized nor ratified the officer's act, is to cast

corporations in so perfect a mold that transgressions and wrongs by such artificial beings become impossible

[Bissell v. Michigan Southern and N.I.R. Cos 22 N.Y 258 (1860).] "To say that a corporation has no right to do

unauthorized acts is only to put forth a very plain truism but to say that such bodies have no power or capacity

to err is to impute to them an excellence which does not belong to any created existence with which we are

acquainted. The distinction between power and right is no more to be lost sight of in respect to artificial than in

respect to natural persons." [Ibid.]

Having determined that Garcia's act of entering into the contract binds the corporation, we now determine the

correct nature of the contract, and its legal consequences, including its enforceability.

The document which embodies the contract states that the US$3,000.00 was received by the bank for

safekeeping. The subsequent acts of the parties also show that the intent of the parties was really for the bank to

safely keep the dollars and to return it to Zshornack at a later time, Thus, Zshornack demanded the return of the

money on May 10, 1976, or over five months later.

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

Art. 1962. A deposit is constituted from the moment a person receives a thing belonging to

another, with the obligation of safely keeping it and of returning the same. If the safekeeping of

the thing delivered is not the principal purpose of the contract, there is no deposit but some other

contract.

Note that the object of the contract between Zshornack and COMTRUST was foreign exchange. Hence, the

transaction was covered by Central Bank Circular No. 20, Restrictions on Gold and Foreign Exchange

Transactions, promulgated on December 9, 1949, which was in force at the time the parties entered into the

transaction involved in this case. The circular provides:

xxx xxx xxx

2. Transactions in the assets described below and all dealings in them of whatever nature,

including, where applicable their exportation and importation, shall NOT be effected, except with

respect to deposit accounts included in sub-paragraphs (b) and (c) of this paragraph, when such

deposit accounts are owned by and in the name of, banks.

(a) Any and all assets, provided they are held through, in, or with banks or

banking institutions located in the Philippines, including money, checks, drafts,

bullions bank drafts, deposit accounts (demand, time and savings), all debts,

indebtedness or obligations, financial brokers and investment houses, notes,

debentures, stocks, bonds, coupons, bank acceptances, mortgages, pledges, liens

or other rights in the nature of security, expressed in foreign currencies, or if

payable abroad, irrespective of the currency in which they are expressed, and

belonging to any person, firm, partnership, association, branch office, agency,

company or other unincorporated body or corporation residing or located within

the Philippines;

(b) Any and all assets of the kinds included and/or described in subparagraph (a)

above, whether or not held through, in, or with banks or banking institutions, and

existent within the Philippines, which belong to any person, firm, partnership,

association, branch office, agency, company or other unincorporated body or

corporation not residing or located within the Philippines;

(c) Any and all assets existent within the Philippines including money, checks,

drafts, bullions, bank drafts, all debts, indebtedness or obligations, financial

securities commonly dealt in by bankers, brokers and investment houses, notes,

debentures, stock, bonds, coupons, bank acceptances, mortgages, pledges, liens or

other rights in the nature of security expressed in foreign currencies, or if payable

abroad, irrespective of the currency in which they are expressed, and belonging to

any person, firm, partnership, association, branch office, agency, company or

other unincorporated body or corporation residing or located within the

Philippines.

xxx xxx xxx

4. (a) All receipts of foreign exchange shall be sold daily to the Central Bank by those authorized

to deal in foreign exchange. All receipts of foreign exchange by any person, firm, partnership,

association, branch office, agency, company or other unincorporated body or corporation shall be

sold to the authorized agents of the Central Bank by the recipients within one business day

following the receipt of such foreign exchange. Any person, firm, partnership, association,

branch office, agency, company or other unincorporated body or corporation, residing or located

within the Philippines, who acquires on and after the date of this Circular foreign exchange shall

not, unless licensed by the Central Bank, dispose of such foreign exchange in whole or in part,

nor receive less than its full value, nor delay taking ownership thereof except as such delay is

customary; Provided, further, That within one day upon taking ownership, or receiving payment,

of foreign exchange the aforementioned persons and entities shall sell such foreign exchange to

designated agents of the Central Bank.

xxx xxx xxx

8. Strict observance of the provisions of this Circular is enjoined; and any person, firm or

corporation, foreign or domestic, who being bound to the observance thereof, or of such other

rules, regulations or directives as may hereafter be issued in implementation of this Circular,

shall fail or refuse to comply with, or abide by, or shall violate the same, shall be subject to the

penal sanctions provided in the Central Bank Act.

xxx xxx xxx

Paragraph 4 (a) above was modified by Section 6 of Central Bank Circular No. 281, Regulations on Foreign

Exchange, promulgated on November 26, 1969 by limiting its coverage to Philippine residents only. Section 6

provides:

SEC. 6. All receipts of foreign exchange by any resident person, firm, company or corporation

shall be sold to authorized agents of the Central Bank by the recipients within one business day

following the receipt of such foreign exchange. Any resident person, firm, company or

corporation residing or located within the Philippines, who acquires foreign exchange shall not,

unless authorized by the Central Bank, dispose of such foreign exchange in whole or in part, nor

receive less than its full value, nor delay taking ownership thereof except as such delay is

customary; Provided, That, within one business day upon taking ownership or receiving payment

of foreign exchange the aforementioned persons and entities shall sell such foreign exchange to

the authorized agents of the Central Bank.

As earlier stated, the document and the subsequent acts of the parties show that they intended the bank to

safekeep the foreign exchange, and return it later to Zshornack, who alleged in his complaint that he is a

Philippine resident. The parties did not intended to sell the US dollars to the Central Bank within one business

day from receipt. Otherwise, the contract of depositum would never have been entered into at all.

Since the mere safekeeping of the greenbacks, without selling them to the Central Bank within one business day

from receipt, is a transaction which is not authorized by CB Circular No. 20, it must be considered as one which

falls under the general class of prohibited transactions. Hence, pursuant to Article 5 of the Civil Code, it is void,

having been executed against the provisions of a mandatory/prohibitory law. More importantly, it affords

neither of the parties a cause of action against the other. "When the nullity proceeds from the illegality of the

cause or object of the contract, and the act constitutes a criminal offense, both parties being in pari delicto, they

shall have no cause of action against each other. . ." [Art. 1411, New Civil Code.] The only remedy is one on

behalf of the State to prosecute the parties for violating the law.

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

3. Lastly, we find the P8,000.00 awarded by the courts a quo as damages in the concept of litigation expenses

and attorney's fees to be reasonable. The award is sustained.

WHEREFORE, the decision appealed from is hereby MODIFIED. Petitioner is ordered to restore to the dollar

savings account of private respondent the amount of US$1,000.00 as of October 27, 1975 to earn interest at the

rate fixed by the bank for dollar savings deposits. Petitioner is further ordered to pay private respondent the

amount of P8,000.00 as damages. The other causes of action of private respondent are ordered dismissed.

SO ORDERED

2.

G.R. No. 90027 March 3, 1993

CA AGRO-INDUSTRIAL DEVELOPMENT CORP., petitioner,

vs.

THE HONORABLE COURT OF APPEALS and SECURITY BANK AND TRUST

COMPANY, respondents.

Dolorfino & Dominguez Law Offices for petitioner.

Danilo B. Banares for private respondent.

DAVIDE, JR., J.:

Is the contractual relation between a commercial bank and another party in a contract of rent of a safety deposit

box with respect to its contents placed by the latter one of bailor and bailee or one of lessor and lessee?

This is the crux of the present controversy.

On 3 July 1979, petitioner (through its President, Sergio Aguirre) and the spouses Ramon and Paula Pugao

entered into an agreement whereby the former purchased from the latter two (2) parcels of land for a

consideration of P350,625.00. Of this amount, P75,725.00 was paid as downpayment while the balance was

covered by three (3) postdated checks. Among the terms and conditions of the agreement embodied in a

Memorandum of True and Actual Agreement of Sale of Land were that the titles to the lots shall be transferred

to the petitioner upon full payment of the purchase price and that the owner's copies of the certificates of titles

thereto, Transfer Certificates of Title (TCT) Nos. 284655 and 292434, shall be deposited in a safety deposit box

of any bank. The same could be withdrawn only upon the joint signatures of a representative of the petitioner

and the Pugaos upon full payment of the purchase price. Petitioner, through Sergio Aguirre, and the Pugaos then

rented Safety Deposit Box No. 1448 of private respondent Security Bank and Trust Company, a domestic

banking corporation hereinafter referred to as the respondent Bank. For this purpose, both signed a contract of

lease (Exhibit "2") which contains, inter alia, the following conditions:

13. The bank is not a depositary of the contents of the safe and it has neither the possession nor

control of the same.

14. The bank has no interest whatsoever in said contents, except herein expressly provided, and it

assumes absolutely no liability in connection therewith. 1

After the execution of the contract, two (2) renter's keys were given to the renters one to Aguirre (for the petitioner) and the other to the Pugaos. A guard key remained in the possession of the respondent Bank. The

safety deposit box has two (2) keyholes, one for the guard key and the other for the renter's key, and can be

opened only with the use of both keys. Petitioner claims that the certificates of title were placed inside the said

box.

Thereafter, a certain Mrs. Margarita Ramos offered to buy from the petitioner the two (2) lots at a price of

P225.00 per square meter which, as petitioner alleged in its complaint, translates to a profit of P100.00 per

square meter or a total of P280,500.00 for the entire property. Mrs. Ramos demanded the execution of a deed of

sale which necessarily entailed the production of the certificates of title. In view thereof, Aguirre, accompanied

by the Pugaos, then proceeded to the respondent Bank on 4 October 1979 to open the safety deposit box and get

the certificates of title. However, when opened in the presence of the Bank's representative, the box yielded no

such certificates. Because of the delay in the reconstitution of the title, Mrs. Ramos withdrew her earlier offer to

purchase the lots; as a consequence thereof, the petitioner allegedly failed to realize the expected profit of

P280,500.00. Hence, the latter filed on 1 September 1980 a complaint 2 for damages against the respondent

Bank with the Court of First Instance (now Regional Trial Court) of Pasig, Metro Manila which docketed the

same as Civil Case No. 38382.

In its Answer with Counterclaim, 3

respondent Bank alleged that the petitioner has no cause of action because of

paragraphs 13 and 14 of the contract of lease (Exhibit "2"); corollarily, loss of any of the items or articles

contained in the box could not give rise to an action against it. It then interposed a counterclaim for exemplary

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

counterclaim. 4

In due course, the trial court, now designated as Branch 161 of the Regional Trial Court (RTC) of Pasig, Metro

Manila, rendered a decision 5 adverse to the petitioner on 8 December 1986, the dispositive portion of which

reads:

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

complaint.

On defendant's counterclaim, judgment is hereby rendered ordering plaintiff to pay defendant the

amount of FIVE THOUSAND (P5,000.00) PESOS as attorney's fees.

With costs against plaintiff. 6

The unfavorable verdict is based on the trial court's conclusion that under paragraphs 13 and 14 of the contract

of lease, the Bank has no liability for the loss of the certificates of title. The court declared that the said

provisions are binding on the parties.

Its motion for reconsideration 7 having been denied, petitioner appealed from the adverse decision to the

respondent Court of Appeals which docketed the appeal as CA-G.R. CV No. 15150. Petitioner urged the

respondent Court to reverse the challenged decision because the trial court erred in (a) absolving the respondent

Bank from liability from the loss, (b) not declaring as null and void, for being contrary to law, public order and

public policy, the provisions in the contract for lease of the safety deposit box absolving the Bank from any

liability for loss, (c) not concluding that in this jurisdiction, as well as under American jurisprudence, the

liability of the Bank is settled and (d) awarding attorney's fees to the Bank and denying the petitioner's prayer

for nominal and exemplary damages and attorney's fees. 8

In its Decision promulgated on 4 July 1989, 9 respondent Court affirmed the appealed decision principally on

the theory that the contract (Exhibit "2") executed by the petitioner and respondent Bank is in the nature of a

contract of lease by virtue of which the petitioner and its co-renter were given control over the safety deposit

box and its contents while the Bank retained no right to open the said box because it had neither the possession

nor control over it and its contents. As such, the contract is governed by Article 1643 of the Civil Code 10

which

provides:

Art. 1643. In the lease of things, one of the parties binds himself to give to another the enjoyment

or use of a thing for a price certain, and for a period which may be definite or indefinite.

However, no lease for more than ninety-nine years shall be valid.

It invoked Tolentino vs. Gonzales 11

which held that the owner of the property loses his control over the property leased during the period of the contract and Article 1975 of the Civil Code which provides:

Art. 1975. The depositary holding certificates, bonds, securities or instruments which earn

interest shall be bound to collect the latter when it becomes due, and to take such steps as may be

necessary in order that the securities may preserve their value and the rights corresponding to

them according to law.

The above provision shall not apply to contracts for the rent of safety deposit boxes.

and then concluded that "[c]learly, the defendant-appellee is not under any duty to maintain the contents

of the box. The stipulation absolving the defendant-appellee from liability is in accordance with the

nature of the contract of lease and cannot be regarded as contrary to law, public order and public

policy." 12

The appellate court was quick to add, however, that under the contract of lease of the safety

deposit box, respondent Bank is not completely free from liability as it may still be made answerable in

case unauthorized persons enter into the vault area or when the rented box is forced open. Thus, as

expressly provided for in stipulation number 8 of the contract in question:

8. The Bank shall use due diligence that no unauthorized person shall be admitted to any rented

safe and beyond this, the Bank will not be responsible for the contents of any safe rented from

it. 13

Its motion for reconsideration 14

having been denied in the respondent Court's Resolution of 28 August

1989, 15

petitioner took this recourse under Rule 45 of the Rules of Court and urges Us to review and set aside

the respondent Court's ruling. Petitioner avers that both the respondent Court and the trial court (a) did not

properly and legally apply the correct law in this case, (b) acted with grave abuse of discretion or in excess of

jurisdiction amounting to lack thereof and (c) set a precedent that is contrary to, or is a departure from

precedents adhered to and affirmed by decisions of this Court and precepts in American jurisprudence adopted

in the Philippines. It reiterates the arguments it had raised in its motion to reconsider the trial court's decision,

the brief submitted to the respondent Court and the motion to reconsider the latter's decision. In a nutshell,

petitioner maintains that regardless of nomenclature, the contract for the rent of the safety deposit box (Exhibit

"2") is actually a contract of deposit governed by Title XII, Book IV of the Civil Code of the

Philippines. 16

Accordingly, it is claimed that the respondent Bank is liable for the loss of the certificates of title

pursuant to Article 1972 of the said Code which provides:

Art. 1972. The depositary is obliged to keep the thing safely and to return it, when required, to

the depositor, or to his heirs and successors, or to the person who may have been designated in

the contract. His responsibility, with regard to the safekeeping and the loss of the thing, shall be

governed by the provisions of Title I of this Book.

If the deposit is gratuitous, this fact shall be taken into account in determining the degree of care

that the depositary must observe.

Petitioner then quotes a passage from American Jurisprudence 17

which is supposed to expound on the

prevailing rule in the United States, to wit:

The prevailing rule appears to be that where a safe-deposit company leases a safe-deposit box or

safe and the lessee takes possession of the box or safe and places therein his securities or other

valuables, the relation of bailee and bail or is created between the parties to the transaction as to

such securities or other valuables; the fact that the

safe-deposit company does not know, and that it is not expected that it shall know, the character

or description of the property which is deposited in such safe-deposit box or safe does not change

that relation. That access to the contents of the safe-deposit box can be had only by the use of a

key retained by the lessee ( whether it is the sole key or one to be used in connection with one

retained by the lessor) does not operate to alter the foregoing rule. The argument that there is not,

in such a case, a delivery of exclusive possession and control to the deposit company, and that

therefore the situation is entirely different from that of ordinary bailment, has been generally

rejected by the courts, usually on the ground that as possession must be either in the depositor or

in the company, it should reasonably be considered as in the latter rather than in the former, since

the company is, by the nature of the contract, given absolute control of access to the property,

and the depositor cannot gain access thereto without the consent and active participation of the

company. . . . (citations omitted).

and a segment from Words and Phrases 18

which states that a contract for the rental of a bank safety

deposit box in consideration of a fixed amount at stated periods is a bailment for hire.

Petitioner further argues that conditions 13 and 14 of the questioned contract are contrary to law and public

policy and should be declared null and void. In support thereof, it cites Article 1306 of the Civil Code which

provides that parties to a contract may establish such stipulations, clauses, terms and conditions as they may

deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy.

After the respondent Bank filed its comment, this Court gave due course to the petition and required the parties

to simultaneously submit their respective Memoranda.

The petition is partly meritorious.

We agree with the petitioner's contention that the contract for the rent of the safety deposit box is not an

ordinary contract of lease as defined in Article 1643 of the Civil Code. However, We do not fully subscribe to

its view that the same is a contract of deposit that is to be strictly governed by the provisions in the Civil Code

on deposit; 19

the contract in the case at bar is a special kind of deposit. It cannot be characterized as an ordinary

contract of lease under Article 1643 because the full and absolute possession and control of the safety deposit

box was not given to the joint renters the petitioner and the Pugaos. The guard key of the box remained with the respondent Bank; without this key, neither of the renters could open the box. On the other hand, the

respondent Bank could not likewise open the box without the renter's key. In this case, the said key had a

duplicate which was made so that both renters could have access to the box.

Hence, the authorities cited by the respondent Court 20

on this point do not apply. Neither could Article 1975,

also relied upon by the respondent Court, be invoked as an argument against the deposit theory. Obviously, the

first paragraph of such provision cannot apply to a depositary of certificates, bonds, securities or instruments

which earn interest if such documents are kept in a rented safety deposit box. It is clear that the depositary

cannot open the box without the renter being present.

We observe, however, that the deposit theory itself does not altogether find unanimous support even in

American jurisprudence. We agree with the petitioner that under the latter, the prevailing rule is that the relation

between a bank renting out safe-deposit boxes and its customer with respect to the contents of the box is that of

a bail or and bailee, the bailment being for hire and mutual benefit. 21

This is just the prevailing view because:

There is, however, some support for the view that the relationship in question might be more

properly characterized as that of landlord and tenant, or lessor and lessee. It has also been

suggested that it should be characterized as that of licensor and licensee. The relation between a

bank, safe-deposit company, or storage company, and the renter of a safe-deposit box therein, is

often described as contractual, express or implied, oral or written, in whole or in part. But there

is apparently no jurisdiction in which any rule other than that applicable to bailments governs

questions of the liability and rights of the parties in respect of loss of the contents of safe-deposit

boxes. 22

(citations omitted)

In the context of our laws which authorize banking institutions to rent out safety deposit boxes, it is clear that in

this jurisdiction, the prevailing rule in the United States has been adopted. Section 72 of the General Banking

Act23

pertinently provides:

Sec. 72. In addition to the operations specifically authorized elsewhere in this Act, banking

institutions other than building and loan associations may perform the following services:

(a) Receive in custody funds, documents, and valuable objects, and rent safety

deposit boxes for the safeguarding of such effects.

xxx xxx xxx

The banks shall perform the services permitted under subsections (a), (b) and (c) of this section

asdepositories or as agents. . . . 24

(emphasis supplied)

Note that the primary function is still found within the parameters of a contract of deposit, i.e., the receiving in

custody of funds, documents and other valuable objects for safekeeping. The renting out of the safety deposit

boxes is not independent from, but related to or in conjunction with, this principal function. A contract of

deposit may be entered into orally or in writing 25

and, pursuant to Article 1306 of the Civil Code, the parties

thereto may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided

they are not contrary to law, morals, good customs, public order or public policy. The depositary's responsibility

for the safekeeping of the objects deposited in the case at bar is governed by Title I, Book IV of the Civil Code.

Accordingly, the depositary would be liable if, in performing its obligation, it is found guilty of fraud,

negligence, delay or contravention of the tenor of the agreement. 26

In the absence of any stipulation prescribing

the degree of diligence required, that of a good father of a family is to be observed. 27

Hence, any stipulation

exempting the depositary from any liability arising from the loss of the thing deposited on account of fraud,

negligence or delay would be void for being contrary to law and public policy. In the instant case, petitioner

maintains that conditions 13 and 14 of the questioned contract of lease of the safety deposit box, which read:

13. The bank is not a depositary of the contents of the safe and it has neither the possession nor

control of the same.

14. The bank has no interest whatsoever in said contents, except herein expressly provided, and it

assumes absolutely no liability in connection therewith. 28

are void as they are contrary to law and public policy. We find Ourselves in agreement with this

proposition for indeed, said provisions are inconsistent with the respondent Bank's responsibility as a

depositary under Section 72(a) of the General Banking Act. Both exempt the latter from any liability

except as contemplated in condition 8 thereof which limits its duty to exercise reasonable diligence only

with respect to who shall be admitted to any rented safe, to wit:

8. The Bank shall use due diligence that no unauthorized person shall be admitted to any rented

safe and beyond this, the Bank will not be responsible for the contents of any safe rented from

it. 29

Furthermore, condition 13 stands on a wrong premise and is contrary to the actual practice of the Bank.

It is not correct to assert that the Bank has neither the possession nor control of the contents of the box

since in fact, the safety deposit box itself is located in its premises and is under its absolute control;

moreover, the respondent Bank keeps the guard key to the said box. As stated earlier, renters cannot

open their respective boxes unless the Bank cooperates by presenting and using this guard key. Clearly

then, to the extent above stated, the foregoing conditions in the contract in question are void and

ineffective. It has been said:

With respect to property deposited in a safe-deposit box by a customer of a safe-deposit

company, the parties, since the relation is a contractual one, may by special contract define their

respective duties or provide for increasing or limiting the liability of the deposit company,

provided such contract is not in violation of law or public policy. It must clearly appear that there

actually was such a special contract, however, in order to vary the ordinary obligations implied

by law from the relationship of the parties; liability of the deposit company will not be enlarged

or restricted by words of doubtful meaning. The company, in renting

safe-deposit boxes, cannot exempt itself from liability for loss of the contents by its own fraud or

negligence or that of its agents or servants, and if a provision of the contract may be construed as

an attempt to do so, it will be held ineffective for the purpose. Although it has been held that the

lessor of a safe-deposit box cannot limit its liability for loss of the contents thereof through its

own negligence, the view has been taken that such a lessor may limits its liability to some extent

by agreement or stipulation. 30

(citations omitted)

Thus, we reach the same conclusion which the Court of Appeals arrived at, that is, that the petition should be

dismissed, but on grounds quite different from those relied upon by the Court of Appeals. In the instant case, the

respondent Bank's exoneration cannot, contrary to the holding of the Court of Appeals, be based on or proceed

from a characterization of the impugned contract as a contract of lease, but rather on the fact that no competent

proof was presented to show that respondent Bank was aware of the agreement between the petitioner and the

Pugaos to the effect that the certificates of title were withdrawable from the safety deposit box only upon both

parties' joint signatures, and that no evidence was submitted to reveal that the loss of the certificates of title was

due to the fraud or negligence of the respondent Bank. This in turn flows from this Court's determination that

the contract involved was one of deposit. Since both the petitioner and the Pugaos agreed that each should have

one (1) renter's key, it was obvious that either of them could ask the Bank for access to the safety deposit box

and, with the use of such key and the Bank's own guard key, could open the said box, without the other renter

being present.

Since, however, the petitioner cannot be blamed for the filing of the complaint and no bad faith on its part had

been established, the trial court erred in condemning the petitioner to pay the respondent Bank attorney's fees.

To this extent, the Decision (dispositive portion) of public respondent Court of Appeals must be modified.

WHEREFORE, the Petition for Review is partially GRANTED by deleting the award for attorney's fees from

the 4 July 1989 Decision of the respondent Court of Appeals in CA-G.R. CV No. 15150. As modified, and

subject to the pronouncement We made above on the nature of the relationship between the parties in a contract

of lease of safety deposit boxes, the dispositive portion of the said Decision is hereby AFFIRMED and the

instant Petition for Review is otherwise DENIED for lack of merit.

No pronouncement as to costs.

SO ORDERED.

3.

DURBAN APARTMENTS CORPORATION,

doing business under the name and style of City

Garden Hotel, Petitioner,

- versus -

PIONEER INSURANCE AND SURETY

CORPORATION, Respondent.

G.R. No. 179419

Present:

CARPIO, J.,

Chairperson,

NACHURA,

PERALTA,

ABAD, and

MENDOZA, JJ.

Promulgated:

January 12, 2011

x------------------------------------------------------------------------------------x

DECISION

NACHURA, J.:

For review is the Decision

[1] of the Court of Appeals (CA) in CA-G.R. CV No. 86869, which affirmed the

decision[2]

of the Regional Trial Court (RTC), Branch 66, Makati City, in Civil Case No. 03-857, holding

petitioner Durban Apartments Corporation solely liable to respondent Pioneer Insurance and Surety Corporation

for the loss of Jeffrey Sees (Sees) vehicle.

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

On July 22, 2003, [respondent] Pioneer Insurance and Surety Corporation x x x, by right of

subrogation, filed [with the RTC of Makati City] a Complaint for Recovery of Damages against

[petitioner] Durban Apartments Corporation, doing business under the name and style of City

Garden Hotel, and [defendant before the RTC] Vicente Justimbaste x x x. [Respondent averred]

that: it is the insurer for loss and damage of Jeffrey S. Sees [the insureds] 2001 Suzuki Grand Vitara x x x with Plate No. XBH-510 under Policy No. MC-CV-HO-01-0003846-00-D in the

amount of P1,175,000.00; on April 30, 2002, See arrived and checked in at the City Garden

Hotel in Makati corner Kalayaan Avenues, Makati City before midnight, and its parking

attendant, defendant x x x Justimbaste got the key to said Vitara from See to park it[. O]n May

1, 2002, at about 1:00 oclock in the morning, See was awakened in his room by [a] telephone call from the Hotel Chief Security Officer who informed him that his Vitara was carnapped

while it was parked unattended at the parking area of Equitable PCI Bank along Makati Avenue

between the hours of 12:00 [a.m.] and 1:00 [a.m.]; See went to see the Hotel Chief Security

Officer, thereafter reported the incident to the Operations Division of the Makati City Police

Anti-Carnapping Unit, and a flash alarm was issued; the Makati City Police Anti-Carnapping

Unit investigated Hotel Security Officer, Ernesto T. Horlador, Jr. x x x and defendant x x x

Justimbaste; See gave his Sinumpaang Salaysay to the police investigator, and filed a Complaint

Sheet with the PNP Traffic Management Group in Camp Crame, Quezon City; the Vitara has not

yet been recovered since July 23, 2002 as evidenced by a Certification of Non- Recovery issued

by the PNP TMG; it paid the P1,163,250.00 money claim of See and mortgagee ABN AMRO

Savings Bank, Inc. as indemnity for the loss of the Vitara; the Vitara was lost due to the

negligence of [petitioner] Durban Apartments and [defendant] Justimbaste because it was

discovered during the investigation that this was the second time that a similar incident of

carnapping happened in the valet parking service of [petitioner] Durban Apartments and no

necessary precautions were taken to prevent its repetition; [petitioner] Durban Apartments was

wanting in due diligence in the selection and supervision of its employees particularly

defendant x x x Justimbaste; and defendant x x x Justimbaste and [petitioner] Durban

Apartments failed and refused to pay its valid, just, and lawful claim despite written demands.

Upon service of Summons, [petitioner] Durban Apartments and [defendant] Justimbaste

filed their Answer with Compulsory Counterclaim alleging that: See did not check in at its hotel,

on the contrary, he was a guest of a certain Ching Montero x x x; defendant x x x Justimbaste did

not get the ignition key of Sees Vitara, on the contrary, it was See who requested a parking attendant to park the Vitara at any available parking space, and it was parked at the Equitable

Bank parking area, which was within Sees view, while he and Montero were waiting in front of the hotel; they made a written denial of the demand of [respondent] Pioneer Insurance for want

of legal basis; valet parking services are provided by the hotel for the convenience of its

customers looking for a parking space near the hotel premises; it is a special privilege that it gave

to Montero and See; it does not include responsibility for any losses or damages to motor

vehicles and its accessories in the parking area; and the same holds true even if it was See

himself who parked his Vitara within the premises of the hotel as evidenced by the valet parking

customers claim stub issued to him; the carnapper was able to open the Vitara without using the key given earlier to the parking attendant and subsequently turned over to See after the Vitara

was stolen; defendant x x x Justimbaste saw the Vitara speeding away from the place where it

was parked; he tried to run after it, and blocked its possible path but to no avail; and See was

duly and immediately informed of the carnapping of his Vitara; the matter was reported to the

nearest police precinct; and defendant x x x Justimbaste, and Horlador submitted themselves to

police investigation.

During the pre-trial conference on November 28, 2003, counsel for [respondent] Pioneer

Insurance was present. Atty. Monina Lee x x x, counsel of record of [petitioner] Durban

Apartments and Justimbaste was absent, instead, a certain Atty. Nestor Mejia appeared for

[petitioner] Durban Apartments and Justimbaste, but did not file their pre-trial brief.

On November 5, 2004, the lower court granted the motion of [respondent] Pioneer

Insurance, despite the opposition of [petitioner] Durban Apartments and Justimbaste, and

allowed [respondent] Pioneer Insurance to present its evidence ex parte before the Branch Clerk

of Court.

See testified that: on April 30, 2002, at about 11:30 in the evening, he drove his Vitara

and stopped in front of City Garden Hotel in Makati Avenue, Makati City; a parking attendant,

whom he had later known to be defendant x x x Justimbaste, approached and asked for his

ignition key, told him that the latter would park the Vitara for him in front of the hotel, and

issued him a valet parking customers claim stub; he and Montero, thereafter, checked in at the said hotel; on May 1, 2002, at around 1:00 in the morning, the Hotel Security Officer whom he

later knew to be Horlador called his attention to the fact that his Vitara was carnapped while it

was parked at the parking lot of Equitable PCI Bank which is in front of the hotel; his Vitara was

insured with [respondent] Pioneer Insurance; he together with Horlador and defendant x x x

Justimbaste went to Precinct 19 of the Makati City Police to report the carnapping incident, and a

police officer came accompanied them to the Anti-Carnapping Unit of the said station for

investigation, taking of their sworn statements, and flashing of a voice alarm; he likewise

reported the said incident in PNP TMG in Camp Crame where another alarm was issued; he filed

his claim with [respondent] Pioneer Insurance, and a representative of the latter, who is also an

adjuster of Vesper Insurance Adjusters-Appraisers [Vesper], investigated the incident; and

[respondent] Pioneer Insurance required him to sign a Release of Claim and Subrogation

Receipt, and finally paid him the sum of P1,163,250.00 for his claim.

Ricardo F. Red testified that: he is a claims evaluator of [petitioner] Pioneer Insurance

tasked, among others, with the receipt of claims and documents from the insured, investigation

of the said claim, inspection of damages, taking of pictures of insured unit, and monitoring of the

processing of the claim until its payment; he monitored the processing of Sees claim when the latter reported the incident to [respondent] Pioneer Insurance; [respondent] Pioneer Insurance

assigned the case to Vesper who verified Sees report, conducted an investigation, obtained the necessary documents for the processing of the claim, and tendered a settlement check to See;

they evaluated the case upon receipt of the subrogation documents and the adjusters report, and eventually recommended for its settlement for the sum of P1,163,250.00 which was accepted by

See; the matter was referred and forwarded to their counsel, R.B. Sarajan & Associates, who

prepared and sent demand letters to [petitioner] Durban Apartments and [defendant] Justimbaste,

who did not pay [respondent] Pioneer Insurance notwithstanding their receipt of the demand

letters; and the services of R.B. Sarajan & Associates were engaged, for P100,000.00 as

attorneys fees plus P3,000.00 per court appearance, to prosecute the claims of [respondent] Pioneer Insurance against [petitioner] Durban Apartments and Justimbaste before the lower

court.

Ferdinand Cacnio testified that: he is an adjuster of Vesper; [respondent] Pioneer

Insurance assigned to Vesper the investigation of Sees case, and he was the one actually assigned to investigate it; he conducted his investigation of the matter by interviewing See, going

to the City Garden Hotel, required subrogation documents from See, and verified the authenticity

of the same; he learned that it is the standard procedure of the said hotel as regards its valet

parking service to assist their guests as soon as they get to the lobby entrance, park the cars for

their guests, and place the ignition keys in their safety key box; considering that the hotel has

only twelve (12) available parking slots, it has an agreement with Equitable PCI Bank permitting

the hotel to use the parking space of the bank at night; he also learned that a Hyundai Starex van

was carnapped at the said place barely a month before the occurrence of this incident because

Liberty Insurance assigned the said incident to Vespers, and Horlador and defendant x x x

Justimbaste admitted the occurrence of the same in their sworn statements before the Anti-

Carnapping Unit of the Makati City Police; upon verification with the PNP TMG [Unit] in Camp

Crame, he learned that Sees Vitara has not yet been recovered; upon evaluation, Vesper recommended to [respondent] Pioneer Insurance to settle Sees claim for P1,045,750.00; See contested the recommendation of Vesper by reasoning out that the 10% depreciation should not

be applied in this case considering the fact that the Vitara was used for barely eight (8) months

prior to its loss; and [respondent] Pioneer Insurance acceded to Sees contention, tendered the sum of P1,163,250.00 as settlement, the former accepted it, and signed a release of claim and

subrogation receipt.

The lower court denied the Motion to Admit Pre-Trial Brief and Motion for

Reconsideration field by [petitioner] Durban Apartments and Justimbaste in its Orders dated

May 4, 2005 and October 20, 2005, respectively, for being devoid of merit.[3]

Thereafter, on January 27, 2006, the RTC rendered a decision, disposing, as follows:

WHEREFORE, judgment is hereby rendered ordering [petitioner Durban Apartments

Corporation] to pay [respondent Pioneer Insurance and Surety Corporation] the sum

of P1,163,250.00 with legal interest thereon from July 22, 2003 until the obligation is fully paid

and attorneys fees and litigation expenses amounting to P120,000.00.

SO ORDERED.[4]

On appeal, the appellate court affirmed the decision of the trial court, viz.:

WHEREFORE, premises considered, the Decision dated January 27, 2006 of the RTC,

Branch 66, Makati City in Civil Case No. 03-857 is hereby AFFIRMED insofar as it holds

[petitioner] Durban Apartments Corporation solely liable to [respondent] Pioneer Insurance and

Surety Corporation for the loss of Jeffrey Sees Suzuki Grand Vitara.

SO ORDERED.[5]

Hence, this recourse by petitioner.

The issues for our resolution are:

1. Whether the lower courts erred in declaring petitioner as in default for failure to appear at the pre-

trial conference and to file a pre-trial brief;

2. Corollary thereto, whether the trial court correctly allowed respondent to present evidence ex-parte;

3. Whether petitioner is liable to respondent for attorneys fees in the amount of P120,000.00; and

4. Ultimately, whether petitioner is liable to respondent for the loss of Sees vehicle.

The petition must fail.

We are in complete accord with the common ruling of the lower courts that petitioner was in default for

failure to appear at the pre-trial conference and to file a pre-trial brief, and thus, correctly allowed respondent to

present evidence ex-parte. Likewise, the lower courts did not err in holding petitioner liable for the loss of Sees vehicle.

Well-entrenched in jurisprudence is the rule that factual findings of the trial court, especially when

affirmed by the appellate court, are accorded the highest degree of respect and are considered conclusive

between the parties.[6]

A review of such findings by this Court is not warranted except upon a showing of highly

meritorious circumstances, such as: (1) when the findings of a trial court are grounded entirely on speculation,

surmises, or conjectures; (2) when a lower courts inference from its factual findings is manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of discretion in the appreciation of facts; (4) when the

findings of the appellate court go beyond the issues of the case, or fail to notice certain relevant facts which, if

properly considered, will justify a different conclusion; (5) when there is a misappreciation of facts; (6) when

the findings of fact are conclusions without mention of the specific evidence on which they are based, are

premised on the absence of evidence, or are contradicted by evidence on record.[7]

None of the foregoing

exceptions permitting a reversal of the assailed decision exists in this instance.

Petitioner urges us, however, that strong [and] compelling reason[s] such as the prevention of miscarriage of justice warrant a suspension of the rules and excuse its and its counsels non-appearance during the pre-trial conference and their failure to file a pre-trial brief.

We are not persuaded.

Rule 18 of the Rules of Court leaves no room for equivocation; appearance of parties and their counsel at

the pre-trial conference, along with the filing of a corresponding pre-trial brief, is mandatory, nay, their duty.

Thus, Section 4 and Section 6 thereof provide:

SEC. 4. Appearance of parties.It shall be the duty of the parties and their counsel to appear at the pre-trial. The non-appearance of a party may be excused only if a valid cause is

shown therefor or if a representative shall appear in his behalf fully authorized in writing to enter

into an amicable settlement, to submit to alternative modes of dispute resolution, and to enter

into stipulations or admissions of facts and documents.

SEC. 6. Pre-trial brief.The parties shall file with the court and serve on the adverse party, in such manner as shall ensure their receipt thereof at least three (3) days before the date of

the pre-trial, their respective pre-trial briefs which shall contain, among others:

x x x x

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

trial.

Contrary to the foregoing rules, petitioner and its counsel of record were not present at the scheduled pre-

trial conference. Worse, they did not file a pre-trial brief. Their non-appearance cannot be excused as Section 4,

in relation to Section 6, allows only two exceptions: (1) a valid excuse; and (2) appearance of a representative

on behalf of a party who is fully authorized in writing to enter into an amicable settlement, to submit to

alternative modes of dispute resolution, and to enter into stipulations or admissions of facts and documents.

Petitioner is adamant and harps on the fact that November 28, 2003 was merely the first scheduled date

for the pre-trial conference, and a certain Atty. Mejia appeared on its behalf. However, its assertion is belied by

its own admission that, on said date, this Atty. Mejia did not have in his possession the Special Power of Attorney issued by petitioners Board of Directors.

As pointed out by the CA, petitioner, through Atty. Lee, received the notice of pre-trial on October 27,

2003, thirty-two (32) days prior to the scheduled conference. In that span of time, Atty. Lee, who was charged

with the duty of notifying petitioner of the scheduled pre-trial conference,[8]

petitioner, and Atty. Mejia should

have discussed which lawyer would appear at the pre-trial conference with petitioner, armed with the

appropriate authority therefor. Sadly, petitioner failed to comply with not just one rule; it also did not proffer a

reason why it likewise failed to file a pre-trial brief. In all, petitioner has not shown any persuasive reason why

it should be exempt from abiding by the rules.

The appearance of Atty. Mejia at the pre-trial conference, without a pre-trial brief and with only his bare

allegation that he is counsel for petitioner, was correctly rejected by the trial court. Accordingly, the trial court,

as affirmed by the appellate court, did not err in allowing respondent to present evidence ex-parte.

Former Chief Justice Andres R. Narvasas words continue to resonate, thus:

Everyone knows that a pre-trial in civil actions is mandatory, and has been so since

January 1, 1964. Yet to this day its place in the scheme of things is not fully appreciated, and it

receives but perfunctory treatment in many courts. Some courts consider it a mere technicality,

serving no useful purpose save perhaps, occasionally to furnish ground for non-suiting the

plaintiff, or declaring a defendant in default, or, wistfully, to bring about a compromise. The pre-

trial device is not thus put to full use. Hence, it has failed in the main to accomplish the chief

objective for it: the simplification, abbreviation and expedition of the trial, if not indeed its

dispensation. This is a great pity, because the objective is attainable, and with not much

difficulty, if the device were more intelligently and extensively handled.

x x x x

Consistently with the mandatory character of the pre-trial, the Rules oblige not only the

lawyers but the parties as well to appear for this purpose before the Court, and when a party

fails to appear at a pre-trial conference (he) may be non-suited or considered as in default. The obligation to appear denotes not simply the personal appearance, or the mere physical presentation by a party of ones self, but connotes as importantly, preparedness to go into the different subject assigned by law to a pre-trial. And in those instances where a party may not

himself be present at the pre-trial, and another person substitutes for him, or his lawyer

undertakes to appear not only as an attorney but in substitution of the clients person, it is imperative for that representative of the lawyer to have special authority to make such substantive agreements as only the client otherwise has capacity to make. That special authority should ordinarily be in writing or at the very least be duly established by evidence other than the self-serving assertion of counsel (or the proclaimed representative) himself. Without that special authority, the lawyer or representative cannot be deemed capacitated to

appear in place of the party; hence, it will be considered that the latter has failed to put in an

appearance at all, and he [must] therefore be non-suited or considered as in default, notwithstanding his lawyers or delegates presence.[9]

We are not unmindful that defendants (petitioners) preclusion from presenting evidence during trial does not automatically result in a judgment in favor of plaintiff (respondent). The plaintiff must still substantiate

the allegations in its complaint.[10]

Otherwise, it would be inutile to continue with the plaintiffs presentation of evidence each time the defendant is declared in default.

In this case, respondent substantiated the allegations in its complaint, i.e., a contract of necessary deposit

existed between the insured See and petitioner. On this score, we find no error in the following disquisition of

the appellate court:

[The] records also reveal that upon arrival at the City Garden Hotel, See gave notice to the

doorman and parking attendant of the said hotel, x x x Justimbaste, about his Vitara when he

entrusted its ignition key to the latter. x x x Justimbaste issued a valet parking customer claim

stub to See, parked the Vitara at the Equitable PCI Bank parking area, and placed the ignition

key inside a safety key box while See proceeded to the hotel lobby to check in. The Equitable

PCI Bank parking area became an annex of City Garden Hotel when the management of the said

bank allowed the parking of the vehicles of hotel guests thereat in the evening after banking

hours.[11]

Article 1962, in relation to Article 1998, of the Civil Code defines a contract of deposit and a necessary

deposit made by persons in hotels or inns:

Art. 1962. A deposit is constituted from the moment a person receives a thing belonging

to another, with the obligation of safely keeping it and returning the same. If the safekeeping of

the thing delivered is not the principal purpose of the contract, there is no deposit but some other

contract.

Art. 1998. The deposit of effects made by travelers in hotels or inns shall also be regarded

as necessary. The keepers of hotels or inns shall be responsible for them as depositaries,

provided that notice was given to them, or to their employees, of the effects brought by the

guests and that, on the part of the latter, they take the precautions which said hotel-keepers or

their substitutes advised relative to the care and vigilance of their effects.

Plainly, from the facts found by the lower courts, the insured See deposited his vehicle for safekeeping

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

is liable for the loss of Sees vehicle.

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

We disagree.

While it is a sound policy not to set a premium on the right to litigate,[12]

we find that respondent is

entitled to reasonable attorneys fees. Attorneys fees may be awarded when a party is compelled to litigate or incur expenses to protect its interest,

[13] or when the court deems it just and equitable.

[14] In this case, petitioner

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

this case.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No.

86869 is AFFIRMED with the MODIFICATION that the award of attorneys fees is reduced toP60,000.00. Costs against petitioner.

SO ORDERED.