BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. THE INTERMEDIATE APPELLATE COURT and RIZALDY T. ZSHORNACK respondents.G.R. No. L-66826 | 1988-08-19

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;

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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. 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. 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 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) 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 COMPANYof the PhilippinesQuezon 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 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 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.

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:

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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, 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.

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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.

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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.

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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.THE ROMAN CATHOLIC BISHOP OF JARO, plaintiff-appellee, vs. GREGORIO DE LA PENA, administrator of the estate of Father Agustin de la Pena, defendant-appellant.G.R. No. 6913 | 1913-11-21

D E C I S I O N

MORELAND, J.:

This is an appeal by the defendant from a judgment of the Court of First Instance of Iloilo, awarding to the plaintiff the sum of P6,641, with interest at the legal rate from the beginning of the action.

It is established in this case that the plaintiff is the trustee of a charitable bequest made for the construction of a leper hospital and that Father Agustin de la 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.CA AGRO-INDUSTRIAL DEVELOPMENT CORP., petitioner, vs. THE HONORABLE COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.G.R. No. 90027 | 1993-03-03

D E C I S I O N

DAVIDE, JR., J p:

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 bailor is created between the parties to the transaction as to such securities or other valuables; the fact that the safe-deposit company does not know, and that it is not expected that it shall know, the character or description of the property which is deposited in such safe-deposit box or safe does not change that relation. That access to the contents of the safe-deposit box can be had only by the use of a key retained by the lessee (whether it is the sole key or one to be used in connection with one retained by the lessor) does not operate to alter the foregoing rule. The argument that there is not, in such a case, a delivery of exclusive possession and control to the deposit company, and that therefore the situation is entirely different from that of ordinary bailment, has been generally rejected by the courts, usually on the ground that as possession must be either in the depositor or in the company, it should reasonably be considered as in the latter rather than in the former, since the company is, by the nature of the contract, given absolute control of access to the property, and the depositor cannot gain access thereto without the consent and active participation of the company. . . ." (citations omitted).

and a segment from Words and Phrases 18 which states that a contract for the rental of a bank safety deposit box in consideration of a fixed amount at stated periods is a bailment for hire.

Petitioner further argues that conditions 13 and 14 of the questioned contract are contrary to law and public policy and should be declared null and void. In support thereof, it cites Article 1306 of the Civil Code which provides that parties to a contract may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy.

After the respondent Bank filed its comment, this Court gave due course to the petition and required the parties to simultaneously submit their respective Memoranda.

The petition is partly meritorious.

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

Hence, the authorities cited by the respondent Court 20 on this point do not apply. Neither could Article 1975, also relied upon by the respondent Court, be invoked as an argument against the deposit theory. Obviously, the first paragraph of such provision cannot apply to a depositary of certificates, bonds, securities or instruments which earn interest if such documents are kept in a rented safety deposit box. It is clear that the depositary cannot open the box without the renter being present.

We observe, however, that the deposit theory itself does not altogether find unanimous support even in American jurisprudence. We agree with the petitioner that under the latter, the prevailing rule is that the relation between a bank renting out safe-deposit boxes and its customer with respect to the contents of the box is that of a bailor and bailee, the bailment being for hire and mutual benefit. 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 suggest that should be characterized as that of licensor and licensee. The relation between a bank, safe-deposit company, or storage company, and the renter of a safe-deposit box therein, is often described as contractual, express or implied, oral or written, in whole or in part. But there is apparently no jurisdiction in which any rule other than that applicable to bailments governs questions of the liability and rights of the parties in respect of loss of the contents of safe-deposit boxes." 22 (citations omitted).

In the context of our laws which authorize banking institutions to rent out safety deposit boxes, it is clear that in this jurisdiction, the prevailing rule in the United States has been adopted. Section 72 of the General Banking Act 23 pertinently provides:

"SEC. 72. In addition to the operations specifically authorized elsewhere in this Act, banking institutions other than building and loan associations may perform the following services:

(a) Receive in custody funds, documents, and valuable objects, and rent safety deposit boxes for the safeguarding of such effects.

xxx xxx xxx

The banks shall perform the services permitted under subsections (a), (b) and (c) of this section as depositories or as agents. . . . " 24 (emphasis supplied).

Note that the primary function is still found within the parameters of a contract of deposit, i.e., the receiving in custody of funds, documents and other valuable objects for safekeeping. The renting out of the safety deposit boxes is not independent from, but related to or in conjunction with, this principal function. A contract of deposit may be entered into orally or in writing 25 and, pursuant to Article 1306 of the Civil Code, the parties thereto may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy. The depositary's responsibility for the safekeeping of the objects deposited in the case at bar is governed by Title I, Book IV of the Civil Code. Accordingly, the depositary would be liable if, in 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 limit its liability to some extent by agreement or stipulation." 30 (citations omitted).

Thus, we reach the same conclusion which the Court of Appeals arrived at, that is, that the petition should be dismissed, but on grounds quite different from those relied upon by the Court of Appeals. In the instant case, the respondent Bank's exoneration cannot, contrary to the holding of the Court of Appeals, be based on or proceed from a characterization of the impugned contract as a contract of lease, but rather on the fact that no competent proof was presented to show that respondent Bank was aware of the agreement between the petitioner and the Pugaos to the effect that the certificates of title were withdrawable from the safety deposit box only upon both parties' joint signatures, and that no evidence was submitted to reveal that the loss of the certificates of title was due to the fraud or negligence of the respondent Bank. This in turn flows from this Court's determination that the contract involved was one of deposit. Since both the petitioner and the Pugaos agreed that each should have one (1) renter's key, it was obvious that either of them could ask the Bank for access to the safety deposit box and, with the use of such key and the Bank's own guard key, could open the said box, without the other renter being present.

Since, however, the petitioner cannot be blamed for the filing of the complaint and no bad faith on its part had been established, the trial court erred in condemning the petitioner to pay the respondent Bank attorney's fees. To this extent, the Decision (dispositive portion) of public respondent Court of Appeals must be modified.

WHEREFORE, the Petition for Review is partially GRANTED by deleting the award for attorney's fees from the 4 July 1989 Decision of the respondent Court of Appeals in CA-G.R. CV No. 15150. As modified, and subject to the pronouncement We made above on the nature of the relationship between the parties in a contract of lease of safety deposit boxes, the dispositive portion of the said Decision is hereby AFFIRMED and the instant Petition for Review is otherwise DENIED for lack of merit.

No pronouncement as to costs.

SO ORDERED.ANGEL JAVELLANA, plaintiff-appellee, vs. JOSE LIM, ET. AL., defendants-appellants.G.R. No. 4015 | 1908-08-24

D E C I S I O N

TORRES, J.:

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 l5th' 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 appealedfrom, 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.JOSEPH CHAN, WILSON CHAN and LILY CHAN, petitioners, vs. BONIFACIO S. MACEDA, JR., respondent.G.R. No. 142591 | 2003-04-30

D E C I S I O N

SANDOVAL-GUTIERREZ, J.:

A judgment of default does not automatically imply admission by the defendant of the facts and causes of action of the plaintiff. The Rules of Court require the latter to adduce evidence in support of his allegations as an indispensable condition before final judgment could be given in his favor.[1] The trial judge has to evaluate the allegations with the highest degree of objectivity and certainty. He may sustain an allegation for which the plaintiff has adduced sufficient evidence, otherwise, he has to reject it. In the case at bar, judicial review is imperative to avert the award of damages that is unreasonable and without evidentiary support.

Assailed in this petition for review under Rule 45 of the 1997 Rules of Civil Procedure, as amended, is the Decision[2] dated June 17, 1999 of the Court of Appeals in CA-G.R. CV No. 57323, entitled "Bonifacio S. Maceda, Jr. versus Joseph Chan, et. al.," affirming in toto the Decision[3] dated December 26, 1996 of the Regional Trial Court, Branch 160, Pasig City, in Civil Case No. 53044.

The essential antecedents are as follows:

On July 28, 1976, Bonifacio S. Maceda, Jr., herein respondent, obtained a P7.3 million loan from the Development Bank of the Philippines for the construction of his New Gran Hotel Project in Tacloban City.

Thereafter, on September 29, 1976, respondent entered into a building construction contract with Moreman Builders Co., Inc., (Moreman). They agreed that the construction would be finished not later than December 22, 1977.

Respondent purchased various construction materials and equipment in Manila. Moreman, in turn, deposited them in the warehouse of Wilson and Lily Chan, herein petitioners. The deposit was free of charge.

Unfortunately, Moreman failed to finish the construction of the hotel at the stipulated time. Hence, on February 1, 1978, respondent filed with the then Court of First Instance (CFI, now Regional Trial Court), Branch 39, Manila, an action for rescission and damages against Moreman, docketed as Civil Case No. 113498.

On November 28, 1978, the CFI rendered its Decision[4] rescinding the contract between Moreman and respondent and awarding to the latter P 445,000.00 as actual, moral and liquidated damages; P20,000.00 representing the increase in the construction materials; and P35,000.00 as attorney's fees. Moreman interposed an appeal to the Court of Appeals but the same was dismissed on March 7, 1989 for being dilatory. He elevated the case to this Court via a petition for review on certiorari. In a Decision[5] dated February 21, 1990, we denied the petition. On April 23, 1990,[6] an Entry of Judgment was issued.

Meanwhile, during the pendency of the case, respondent ordered petitioners to return to him the construction materials and equipment which Moreman deposited in their warehouse. Petitioners, however, told them that Moreman withdrew those construction materials in 1977.

Hence, on December 11, 1985, respondent filed with the Regional Trial Court, Branch 160, Pasig City, an action for damages with an application for a writ of preliminary attachment against petitioners,[7] docketed as Civil Case No. 53044.

In the meantime, on October 30, 1986, respondent was appointed Judge of the Regional Trial Court, Branch 12, San Jose Antique.[8]

On August 25, 1989, or after almost four (4) years, the trial court dismissed respondent's complaint for his failure to prosecute and for lack of interest."[9] On September 6, 1994, or five years thereafter, respondent filed a motion for reconsideration, but the same was denied in the Order dated September 9, 1994 because of the failure of respondent and his counsel to appear on the scheduled hearing.[10]

On October 14, 1994, respondent filed a second motion for reconsideration. This time, the motion was granted and the case was ordered reinstated on January 10, 1995, or ten (10) years from the time the action was originally filed.[11] Thereafter, summons, together with the copies of the complaint and its annexes, were served on petitioners.

On March 2, 1995, counsel for petitioners filed a motion to dismiss on several grounds.[12] Respondent, on the other hand, moved to declare petitioners in default on the ground that their motion to dismiss was filed out of time and that it did not contain any notice of hearing.[13]

On April 27, 1995, the trial court issued an order declaring petitioners in default.[14]

Petitioners filed with the Court of Appeals a petition for certiorari[15] to annul the trial court's order of default, but the same was dismissed in its Order[16] dated August 31, 1995. The case reached this Court, and in a Resolution dated October 25, 1995,[17] we affirmed the assailed order of the Court of Appeals. On November 29, 1995,[18] the corresponding Entry of Judgment was issued.

Thus, upon the return of the records to the RTC, Branch 160, Pasig City, respondent was allowed to present his evidence ex-parte.

Upon motion of respondent, which was granted by the trial court in its Order dated April 29, 1996,[19] the depositions of his witnesses, namely, Leonardo Conge, Alfredo Maceda and Engr. Damiano Nadera were taken in the Metropolitan Trial Court in Cities, Branch 2, Tacloban City.[20] Deponent Leonardo Conge, a labor contractor, testified that on December 14 up to December 24, 1977, he was contracted by petitioner Lily Chan to get bags of cement from the New Gran Hotel construction site and to store the same into the latter's warehouse in Tacloban City. Aside from those bags of cement, deponent also hauled about 400 bundles of steel bars from the same construction site, upon order of petitioners. Corresponding delivery receipts were presented and marked as Exhibits "A", "A-1","A-2","A-3" and "A-4".[21]

Deponent Alfredo Maceda testified that he was respondent's Disbursement and Payroll Officer who supervised the construction and kept inventory of the properties of the New Gran Hotel. While conducting the inventory on November 23, 1977, he found that the approximate total value of the materials stored in petitioners' warehouse was P214,310.00. This amount was accordingly reflected in the certification signed by Mario Ramos, store clerk and representative of Moreman who was present during the inventory.[22]

Deponent Damiano Nadera testified on the current cost of the architectural and structural requirements needed to complete the construction of the New Gran Hotel.[23]

On December 26, 1996, the trial court rendered a decision in favor of respondent, thus:

"WHEREFORE, foregoing considered, judgment is hereby rendered ordering defendants to jointly and severally pay plaintiff:

1) P1,930,000.00 as actual damages;

2) P2,549,000.00 as actual damages;

3) Moral damages of P150,000.00; exemplary damages of P50,000.00 and attorney's fees of P50,000.00 and to pay the costs.

"SO ORDERED."

The trial court ratiocinated as follows:

"The inventory of other materials, aside from the steel bars and cement is found highly reliable based on first, the affidavit of Arthur Edralin dated September 15, 1979, personnel officer of Moreman Builders that he was assigned with others to guard the warehouse; (Exhs. "M" & "O"); secondly, the inventory (Exh. "C") dated November 23, 1977 shows (sic) deposit of assorted materials; thirdly, that there were items in the warehouse as of February 3, 1978 as shown in the balance sheet of Moreman's stock clerk Jose Cedilla.

"Plaintiff is entitled to payment of damages for the overhauling of materials from the construction site by Lily Chan without the knowledge and consent of its owner. Article 20 of the Civil Code provides:

'Art. 20. Every person who contrary to law, willfully or negligently caused damage to another, shall indemnify the latter for the same.'

"As to the materials stored inside the bodega of defendant Wilson Chan, the inventory (Exh. "C") show (sic), that the same were owned by the New Gran Hotel. Said materials were stored by Moreman Builders Co., Inc. since it was attested to by the warehouseman as without any lien or encumbrances, the defendants are duty bound to release it. Article 21 of the Civil Code provides:

'Art. 21. Any person who willfully caused loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage.'

"Plaintiff is entitled to payment of actual damages based on the inventory as of November 23, 1977 amounting to P1,930,080.00 (Exhs. "Q" & "Q-1"). The inventory was signed by the agent Moreman Builders Corporation and defendants.

"Plaintiff is likewise entitled to payment of 12,500 bags of cement and 400 bundles of steel bars totaling P2,549,000.00 (Exhs. "S" & "S-1"; Exhs. "B" & "B-3").

"Defendants should pay plaintiff moral damages of P150,000.00; exemplary damages of P50,000.00 and attorney's fees of P50,000.00 and to pay the costs.

"The claim of defendant for payment of damages with respect to the materials appearing in the balance sheets as of February 3, 1978 in the amount of P3,286,690.00, not having been established with enough preponderance of evidence cannot be given weight."[24]

Petitioners then elevated the case to the Court of Appeals, docketed as CA-G.R. CV No. 57323. On June 17, 1999, the Appellate Court rendered the assailed Decision[25] affirming in toto the trial court's judgment, ratiocinating as follows:

"Moreover, although the prayer in the complaint did not specify the amount of damages sought, the same was satisfactorily proved during the trial. For damages to be awarded, it is essential that the claimant satisfactorily prove during the trial the existence of the factual basis thereof and its causal connection with the adverse party's act (PAL, Inc. vs. NLRC, 259 SCRA 459. In sustaining appellee's claim for damages, the court a quo held as follows:

'The Court finds the contention of plaintiff that materials and equipment of plaintiff were stored in the warehouse of defendants and admitted by defendants in the certification issued to Sheriff Borja. x x x

'Evidence further revealed that assorted materials owned by the New Gran Hotel (Exh. "C") were deposited in the bodega of defendant Wilson Chan with a total market value of P1,930,000.00, current price.

'The inventory of other materials, aside from the steel bars and cement, is highly reliable based on first, the affidavit of Arthur Edralin dated September 15, 1979, personnel officer of Moreman Builders; that he was assigned, with others to guard the warehouse (Exhs. M & O); secondly, the inventory (Exh. C) November 23, 1977 shows deposit of assorted materials; thirdly, that there were items in the warehouse as of February 3, 1978, as shown in the balance sheet of Moreman's stock clerk, Jose Cedilla (pp. 60-61, Rollo).'

"The Court affirms the above findings.

"Well settled is the rule that 'absent any proper reason to depart from the rule, factual conclusions reached by the trial court are not to be disturbed (People vs. Dupali, 230 SCRA 62).' Hence, in the absence of any showing that serious and substantial errors were committed by the lower court in the appraisal of the evidence, the trial judge's assessment of the credibility of the witnesses is accorded great weight and respect (People vs. Jain, 254 SCRA 686). And, there being absolutely nothing on record to show that the court a quo overlooked, disregarded, or misinterpreted facts of weight and significance, its factual findings and conclusions must be given great weight and should not be disturbed on appeal.

"WHEREFORE, being in accord with law and evidence, the appealed decision is hereby AFFIRMED in toto."

Hence, this petition for review on certiorari anchored on the following grounds:

"I

The Court of Appeals acted with grave abuse of discretion and under a misapprehension of the law and the facts when it affirmed in toto the award of actual damages made by the trial court in favor of respondent in this case.

II

The awards of moral and exemplary damages of the trial court to respondent in this case and affirmed in toto by the Court of Appeals are unwarranted by the evidence presented by respondent at the ex parte hearing of this case and should, therefore, be eliminated or at least reduced.

III

The award of attorney's fees by the trial court to respondent in this case and affirmed by the Court of Appeals should be deleted because of the failure of the trial court to state the legal and factual basis of such award."

Petitioners contend inter alia that the actual damages claimed by respondent in the present case were already awarded to him in Civil Case No. 113498[26] and hence, cannot be recovered by him again. Even assuming that respondent is entitled to damages, he can not recover P4,479,000.00 which is eleven (11) times more than the total actual damages of P365,000.00 awarded to him in Civil Case No. 113498.[27]

In his comment on the petition, respondent maintains that petitioners, as depositaries under the law, have both the fiduciary and extraordinary obligations not only to safely keep the construction material deposited, but also to return them with all their products, accessories and accessions, pursuant to Articles 1972,[28] 1979,[29] 1983,[30] and 1988[31] of the Civil Code. Considering that petitioners' duty to return the construction materials in question has already become impossible, it is only proper that the prices of those construction materials in 1996 should be the basis of the award of actual damages. This is the only way to fulfill the "duty to return" contemplated in the applicable laws.[32] Respondent further claims that petitioners must bear the increase in market prices from 1977 to 1996 because liability for fraud includes "all damages which may be reasonably attributed to the non-performance of the obligation." Lastly, respondent insists that there can be no double recovery because in Civil Case No. 113498,[33] the parties were respondent himself and Moreman and the cause of action was the rescission of their building contract. In the present case, however, the parties are respondent and petitioners and the cause of action between them is for recovery of damages arising from petitioners' failure to return the construction materials and equipment.

Obviously, petitioners' assigned errors call for a review of the lower court's findings of fact.

Succinct is the rule that this Court is not a trier of facts and does not normally undertake the re-examination of the evidence submitted by the contending parties during the trial of the case considering that findings of fact of the Court of Appeals are generally binding and conclusive on this Court.[34] The jurisdiction of this Court in a petition for review on certiorari is limited to reviewing only errors of law,[35] not of fact, unless it is shown, inter alia, that: (1) the conclusion is a finding grounded on speculations, surmises or conjectures; (2) the inference is manifestly mistaken, absurd and impossible; (3) there is grave abuse of discretion; (4) the judgment is based on misapprehension of facts; (5) the findings of fact are conflicting; and (6) the Court of Appeals, in making its findings went beyond the issues of the case and the same is contrary to the admission of both parties.[36]

Petitioners submit that this case is an exception to the general rule since both the trial court and the Court of Appeals based their judgments on misapprehension of facts.

We agree.

At the outset, the case should have been dismissed outright by the trial court because of patent procedural infirmities. It bears stressing that the case was originally filed on December 11, 1985. Four (4) years thereafter, or on August 25, 1989, the case was dismissed for respondent's failure to prosecute. Five (5) years after, or on September 6, 1994, respondent filed his motion for reconsideration. From here, the trial court already erred in its ruling because it should have dismissed the motion for reconsideration outright as it was filed far beyond the fifteen-day reglementary period.[37] Worse, when respondent filed his second motion for reconsideration on October 14, 1994, a prohibited pleading,[38] the trial court still granted the same and reinstated the case on January 10, 1995. This is a glaring gross procedural error committed by both the trial court and the Court of Appeals.

Even without such serious procedural flaw, the case should also be dismissed for utter lack of merit.

It must be stressed that respondent's claim for damages is based on petitioners' failure to return or to release to him the construction materials and equipment deposited by Moreman to their warehouse. Hence, the essential issues to be resolved are: (1) Has respondent presented proof that the construction materials and equipment were actually in petitioners' warehouse when he asked that the same be turned over to him? (2) If so, does respondent have the right to demand the release of the said materials and equipment or claim for damages?

Under Article 1311 of the Civil Code, contracts are binding upon the parties (and their assigns and heirs) who execute them. When there is no privity of contract, there is likewise no obligation or liability to speak about and thus no cause of action arises. Specifically, in an action against the depositary, the burden is on the plaintiff to prove the bailment or deposit and the performance of conditions precedent to the right of action.[39] A depositary is obliged to return the thing to the depositor, or to his heirs or successors, or to the person who may have been designated in the contract. [40]

In the present case, the record is bereft of any contract of deposit, oral or written, between petitioners and respondent. If at all, it was only between petitioners and Moreman. And granting arguendo that there was indeed a contract of deposit between petitioners and Moreman, it is still incumbent upon respondent to prove its existence and that it was executed in his favor. However, respondent miserably failed to do so. The only pieces of evidence respondent presented to prove the contract of deposit were the delivery receipts.[41] Significantly, they are unsigned and not duly received or authenticated by either Moreman, petitioners or respondent or any of their authorized representatives. Hence, those delivery receipts have no probative value at all. While our laws grant a person the remedial right to prosecute or institute a civil action against another for the enforcement or protection of a right, or the prevention or redress of a wrong,[42] every cause of action ex-contractu must be founded upon a contract, oral or written, express or implied.

Moreover, respondent also failed to prove that there were construction materials and equipment in petitioners' warehouse at the time he made a demand for their return.

Considering that respondent failed to prove (1) the existence of any contract of deposit between him and petitioners, nor between the latter and Moreman in his favor, and (2) that there were construction materials in petitioners' warehouse at the time of respondent's demand to return the same, we hold that petitioners have no corresponding obligation or liability to respondent with respect to those construction materials.

Anent the issue of damages, petitioners are still not liable because, as expressly provided for in Article 2199 of the Civil Code,[43] actual or compensatory damages cannot be presumed, but must be proved with reasonable degree of certainty. A court cannot rely on speculations, conjectures, or guesswork as to the fact and amount of damages, but must depend upon competent proof that they have been suffered by the injured party and on the best obtainable evidence of the actual amount thereof. It must point out specific facts which could afford a basis for measuring whatever compensatory or actual damages are borne.[44]

Considering our findings that there was no contract of deposit between petitioners and respondent or Moreman and that actually there were no more construction materials or equipment in petitioners' warehouse when respondent made a demand for their return, we hold that he has no right whatsoever to claim for damages.

As we stressed in the beginning, a judgment of default does not automatically imply admission by the defendant of plaintiff's causes of action. Here, the trial court merely adopted respondent's allegations in his complaint and evidence without evaluating them with the highest degree of objectivity and certainty.

WHEREFORE, the petition is GRANTED. The challenged Decision of the Court of Appeals dated June 17, 1999 is REVERSED and SET ASIDE. Costs against respondent.

SO ORDERED.YHT REALTY CORPORATION, ERLINDA LAINEZ and ANICIA PAYAM, Petitioners, versus THE COURT OF APPEALS and MAURICE McLOUGHLIN, Respondents.G.R. No. 126780 | 2005-02-17

SECOND DIVISIONDECISION

TINGA, J.:

The primary question of interest before this Court is the only legal issue in the case: It is whether a hotel may evade liability for the loss of items left with it for safekeeping by its guests, by having these guests execute written waivers holding the establishment or its employees free from blame for such loss in light of Article 2003 of the Civil Code which voids such waivers.

Before this Court is a Rule 45 petition for review of the 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.

Private respondent McLoughlin, an Australian businessman-philanthropist, used to stay at Sheraton Hotel during his trips to the Philippines prior to 1984 when he met Tan. Tan befriended McLoughlin by showing him around, introducing him to important people, accompanying him in visiting impoverished street children and assisting him in buying gifts for the children and in distributing the same to charitable institutions for poor children. Tan convinced McLoughlin to transfer from Sheraton Hotel to Tropicana where Lainez, Payam and Danilo Lopez were employed. Lopez served as manager of the hotel while Lainez and Payam had custody of the keys for the safety deposit boxes of Tropicana. Tan took care of McLoughlins 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 McLoughlins key and was able to open the safety deposit box with the assistance of Lopez, Payam and Lainez.[12] Lopez also told McLoughlin that Tan stole the key assigned to McLoughlin while the latter was asleep.[13]

McLoughlin requested the management for an investigation of the incident. Lopez got in touch with Tan and arranged for a meeting with the police and McLoughlin. When the police did not arrive, Lopez and Tan went to the room of McLoughlin at Tropicana and thereat, Lopez wrote on a piece of paper a promissory note dated 21 April 1988. The promissory note reads as follows:

I promise to pay Mr. Maurice McLoughlin the amount of AUS$4,000.00 and US$2,000.00 or its equivalent in Philippine currency on or before May 5, 1988.[14]

Lopez requested Tan to sign the promissory note which the latter did and Lopez also signed as a witness. Despite the execution of promissory note by Tan, McLoughlin insisted that it must be the hotel who must assume responsibility for the loss he suffered. However, Lopez refused to accept the responsibility relying on the conditions for renting the safety deposit box entitled Undertaking For the Use Of Safety Deposit Box,[15] specifically paragraphs (2) and (4) thereof, to wit:

2. To release and hold free and blameless TROPICANA APARTMENT HOTEL from any liability arising from any loss in the contents and/or use of the said deposit box for any cause whatsoever, including but not limited to the presentation or use thereof by any other person should the key be lost;

. . .

4. To return the key and execute the RELEASE in favor of TROPICANA APARTMENT HOTEL upon giving up the use of the box.[16]

On 17 May 1988, McLoughlin went back to Australia and he consulted his lawyers as to the validity of the abovementioned stipulations. They opined that the stipulations are void for being violative of universal hotel practices and customs. His lawyers prepared a letter dated 30 May 1988 which was signed by McLoughlin and sent to President Corazon Aquino.[17] The Office of the President referred the letter to the Department of Justice (DOJ) which forwarded the same to the Western Police District (WPD).[18]

After receiving a copy of the indorsement in Australia, McLoughlin came to the Philippines and registered again as a hotel guest of Tropicana. McLoughlin went to Malaca?ang 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 Fiscals Office. Said affidavit became the basis of preliminary investigation. However, McLoughlin left again for Australia without receiving the