UNITED COCONUT PLANTERS G.R. No.

G.R. No. 159912 promissory notes, a real estate mortgage over parcels of land in Roxas City,
BANK, covered by Transfer Certificates of Title No. T-31539 and T-27828, as
Petitioner, Present: additional security for the obligation. The Credit Agreement was
subsequently amended to increase the amount of the Promissory Notes Line
to a maximum of P2.35 Million pesos and to extend the term thereof to 28
YNARES-SANTIAGO, J., February 1998.
Chairperson,
- versus - AUSTRIA-MARTINEZ, The spouses Beluso availed themselves of the credit line under the
CHICO-NAZARIO, following Promissory Notes:
NACHURA, and
REYES, JJ. PN # Date of PN Maturity Date Amount Secured
8314-96-00083-3 29 April 1996 27 August 1996 P 700,000
SPOUSES SAMUEL and ODETTE 8314-96-00085-0 2 May 1996 30 August 1996 P 500,000
BELUSO, Promulgated:
8314-96-000292-2 20 November 1996 20 March 1997 P 800,000
Respondents. August 17, 2007
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
The three promissory notes were renewed several times. On 30 April
1997, the payment of the principal and interest of the latter two promissory
notes were debited from the spouses Belusos account with UCPB; yet, a
consolidated loan for P1.3 Million was again released to the spouses Beluso
DECISION
under one promissory note with a due date of 28 February 1998.

To completely avail themselves of the P2.35 Million credit line

CHICO-NAZARIO, J.: extended to them by UCPB, the spouses Beluso executed two more
promissory notes for a total ofP350,000.00:

This is a Petition for Review on Certiorari under Rule 45 of the Rules PN # Date of PN Maturity Date Amount Secured
of Court, which seeks to annul the Court of Appeals Decision[1] dated 21
97-00363-1 11 December 1997 28 February 1998 P 200,000
January 2003 and its Resolution[2] dated 9 September 2003 in CA-G.R. CV
98-00002-4 2 January 1998 28 February 1998 P 150,000
No. 67318. The assailed Court of Appeals Decision and Resolution affirmed
[3] [4]
in turn the Decision dated 23 March 2000 and Order dated 8 May 2000 of
the Regional Trial Court (RTC), Branch 65 of Makati City, in Civil Case No.
99-314, declaring void the interest rate provided in the promissory notes However, the spouses Beluso alleged that the amounts covered by these last
executed by the respondents Spouses Samuel and Odette Beluso (spouses two promissory notes were never released or credited to their account and,
Beluso) in favor of petitioner United Coconut Planters Bank (UCPB). thus, claimed that the principal indebtedness was only P2 Million.

The procedural and factual antecedents of this case are as follows:
On 16 April 1996, UCPB granted the spouses Beluso a Promissory
Notes Line under a Credit Agreement whereby the latter could avail from the
former credit of up to a maximum amount of P1.2 Million pesos for a term
ending on 30 April 1997. The spouses Beluso constituted, other than their
In any case, UCPB applied interest rates on the different promissory
notes ranging from 18% to 34%. From 1996 to February 1998 the spouses
Beluso were able to pay the total sum of P763,692.03.
From 28 February 1998 to 10 June 1998, UCPB continued to charge
interest and penalty on the obligations of the spouses Beluso, as follows:
 WHEREFORE, premises considered, the decision
PN # Amount Secured Interest Penalty Total dated March 23, 2000 of the Regional Trial Court, Branch
97-00363-1 P 200,000 31% 36% P 225,313.24 65, Makati City in Civil Case No. 99-314 is hereby
97-00366-6 P 700,000 30.17% 32.786% P 795,294.72 AFFIRMED subject to the modification that defendant-
(7 days) (102 days) appellant UCPB is not liable for attorneys fees or the costs of
97-00368-2 P 1,300,000 28% 30.41% P 1,462,124.54 suit.[7]
(2 days) (102 days)
98-00002-4 P 150,000 33% 36% P 170,034.71 On 9 September 2003, the Court of Appeals denied UCPBs Motion
(102 days) for Reconsideration for lack of merit. UCPB thus filed the present petition,
submitting the following issues for our resolution:

I
The spouses Beluso, however, failed to make any payment of the
foregoing amounts.
WHETHER OR NOT THE HONORABLE COURT OF
APPEALS COMMITTED SERIOUS AND REVERSIBLE
On 2 September 1998, UCPB demanded that the spouses Beluso
ERROR WHEN IT AFFIRMED THE DECISION OF THE
pay their total obligation of P2,932,543.00 plus 25% attorneys fees, but the
TRIAL COURT WHICH DECLARED VOID THE PROVISION
spouses Beluso failed to comply therewith. On 28 December 1998, UCPB
ON INTEREST RATE AGREED UPON BETWEEN
foreclosed the properties mortgaged by the spouses Beluso to secure their
PETITIONER AND RESPONDENTS
credit line, which, by that time, already ballooned toP3,784,603.00.

On 9 February 1999, the spouses Beluso filed a Petition for

II
Annulment, Accounting and Damages against UCPB with the RTC of Makati
City.
WHETHER OR NOT THE HONORABLE COURT OF
APPEALS COMMITTED SERIOUS AND REVERSIBLE
On 23 March 2000, the RTC ruled in favor of the spouses Beluso,
ERROR WHEN IT AFFIRMED THE COMPUTATION BY THE
disposing of the case as follows:
TRIAL COURT OF RESPONDENTS INDEBTEDNESS AND
ORDERED RESPONDENTS TO PAY PETITIONER THE
PREMISES CONSIDERED, judgment is hereby
AMOUNT OF ONLY ONE MILLION FIVE HUNDRED SIXTY
rendered declaring the interest rate used by [UCPB] void
THOUSAND THREE HUNDRED EIGHT PESOS
and the foreclosure and Sheriffs Certificate
(P1,560,308.00)
of Sale void. [UCPB] is hereby ordered to return to [the
spouses Beluso] the properties subject of the foreclosure; to
III
pay [the spouses Beluso] the amount of P50,000.00 by way
of attorneys fees; and to pay the costs of suit.[The spouses
WHETHER OR NOT THE HONORABLE COURT OF
Beluso] are hereby ordered to pay [UCPB] the sum
APPEALS COMMITTED SERIOUS AND REVERSIBLE
of P1,560,308.00.[5]
ERROR WHEN IT AFFIRMED THE DECISION OF THE
TRIAL COURT WHICH ANNULLED THE FORECLOSURE
On 8 May 2000, the RTC denied UCPBs Motion for
BY PETITIONER OF THE SUBJECT PROPERTIES DUE TO
Reconsideration,[6] prompting UCPB to appeal the RTC Decision with the
AN ALLEGED INCORRECT COMPUTATION OF
Court of Appeals. The Court of Appeals affirmed the RTC Decision, to wit:
RESPONDENTS INDEBTEDNESS
 IV
WHETHER OR NOT THE HONORABLE COURT OF
APPEALS COMMITTED SERIOUS AND REVERSIBLE
ERROR WHEN IT AFFIRMED THE DECISION OF THE
TRIAL COURT WHICH FOUND PETITIONER LIABLE FOR
VIOLATION OF THE TRUTH IN LENDING ACT
V to a prevailing rate or prime rate allowed by this Court in Polotan v. Court of
WHETHER OR NOT THE HONORABLE COURT OF
APPEALS COMMITTED SERIOUS AND REVERSIBLE
ERROR WHEN IT FAILED TO ORDER THE DISMISSAL OF
THE CASE BECAUSE THE RESPONDENTS ARE GUILTY
OF FORUM SHOPPING[8]
Validity of the Interest Rates
The Court of Appeals held that the imposition of interest in the
following provision found in the promissory notes of the spouses Beluso is
void, as the interest rates and the bases therefor were determined solely by
petitioner UCPB:
FOR VALUE RECEIVED, I, and/or We, on or before
due date, SPS. SAMUEL AND ODETTE BELUSO
(BORROWER), jointly and severally promise to pay to
UNITED COCONUT PLANTERS BANK (LENDER) or order
at UCPB Bldg., Makati Avenue, Makati City, Philippines, the
sum of ______________ PESOS, (P_____), Philippine
Currency, with interest thereon at the rate indicative of DBD
retail rate or as determined by the Branch Head.[9]
UCPB asserts that this is a reversible error, and claims that while the
interest rate was not numerically quantified in the face of the promissory
notes, it was nonetheless categorically fixed, at the time of execution thereof,
at the rate indicative of the DBD retail rate. UCPB contends that said
provision must be read with another stipulation in the promissory notes
subjecting to review the interest rate as fixed:
The interest rate shall be subject to review and may
be increased or decreased by the LENDER considering
among others the prevailing financial and monetary
conditions; or the rate of interest and charges which other
banks or financial institutions charge or offer to charge for
similar accommodations; and/or the resulting profitability to
the LENDER after due consideration of all dealings with the
BORROWER.[10]
In this regard, UCPB avers that these are valid reference rates akin
Appeals.[11] Furthermore, UCPB argues that even if the proviso as
determined by the branch head is considered void, such a declaration would
not ipso facto render the connecting clause indicative of DBD retail rate void
in view of the separability clause of the Credit Agreement, which reads:
Section 9.08 Separability Clause. If any one or more
of the provisions contained in this AGREEMENT, or
documents executed in connection herewith shall be
declared invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining
provisions hereof shall not in any way be affected or
impaired.[12]
According to UCPB, the imposition of the questioned interest rates
did not infringe on the principle of mutuality of contracts, because the
spouses Beluso had the liberty to choose whether or not to renew their credit
line at the new interest rates pegged by petitioner. [13] UCPB also claims that
assuming there was any defect in the mutuality of the contract at the time of
its inception, such defect was cured by the subsequent conduct of the
spouses Beluso in availing themselves of the credit line from April 1996 to
February 1998 without airing any protest with respect to the interest rates
imposed by UCPB. According to UCPB, therefore, the spouses Beluso are in
estoppel.[14]
We agree with the Court of Appeals, and find no merit in the
contentions of UCPB.
Article 1308 of the Civil Code provides:
Art. 1308. The contract must bind both contracting
parties; its validity or compliance cannot be left to the will of
one of them.
 We applied this provision in Philippine National Bank v. Court of
Appeals,[15] where we held:
In order that obligations arising from contracts may
have the force of law between the parties, there must be
mutuality between the parties based on their essential
equality. A contract containing a condition which makes its
fulfillment dependent exclusively upon the uncontrolled will of
one of the contracting parties, is void (Garcia vs. Rita
Legarda, Inc., 21 SCRA 555). Hence, even assuming that the
P1.8 million loan agreement between the PNB and the private
respondent gave the PNB a license (although in fact there
was none) to increase the interest rate at will during the term
of the loan, that license would have been null and void for
being violative of the principle of mutuality essential in
contracts. It would have invested the loan agreement with the
character of a contract of adhesion, where the parties do not
bargain on equal footing, the weaker party's (the debtor)
participation being reduced to the alternative "to take it or
leave it" (Qua vs. Law Union & Rock Insurance Co., 95 Phil.
85). Such a contract is a veritable trap for the weaker party
whom the courts of justice must protect against abuse and
imposition.
The provision stating that the interest shall be at the rate indicative
of DBD retail rate or as determined by the Branch Head is indeed dependent
solely on the will of petitioner UCPB. Under such provision, petitioner UCPB
has two choices on what the interest rate shall be: (1) a rate indicative of the
DBD retail rate; or (2) a rate as determined by the Branch Head. As UCPB is
given this choice, the rate should be categorically determinable
in both choices. If either of these two choices presents an opportunity for
UCPB to fix the rate at will, the bank can easily choose such an option, thus
making the entire interest rate provision violative of the principle of mutuality
of contracts.
Not just one, but rather both, of these choices are dependent solely
on the will of UCPB. Clearly, a rate as determined by the Branch Head gives
the latter unfettered discretion on what the rate may be. The Branch Head
may choose any rate he or she desires. As regards the rate indicative of the
DBD retail rate, the same cannot be considered as valid for being akin to a
prevailing rate or prime rate allowed by this Court in Polotan. The interest
rate in Polotan reads:
The Cardholder agrees to pay interest per annum at 3% plus
the prime rate of Security Bank and Trust Company. x x x.[16]
In this provision in Polotan, there is a fixed margin over the reference rate:
3%. Thus, the parties can easily determine the interest rate by applying
simple arithmetic. On the other hand, the provision in the case at bar does
not specify any margin above or below the DBD retail rate. UCPB can peg
the interest at any percentage above or below the DBD retail rate, again
giving it unfettered discretion in determining the interest rate.
The stipulation in the promissory notes subjecting the interest rate to review
does not render the imposition by UCPB of interest rates on the obligations
of the spouses Beluso valid. According to said stipulation:
The interest rate shall be subject to review and may
be increased or decreased by the LENDER considering
among others the prevailing financial and monetary
conditions; or the rate of interest and charges which other
banks or financial institutions charge or offer to charge for
similar accommodations; and/or the resulting profitability to
the LENDER after due consideration of all dealings with the
BORROWER.[17]
It should be pointed out that the authority to review the interest rate was
given UCPB alone as the lender. Moreover, UCPB may apply the
considerations enumerated in this provision as it wishes. As worded in the
above provision, UCPB may give as much weight as it desires to each of the
following considerations: (1) the prevailing financial and monetary condition;
(2) the rate of interest and charges which other banks or financial institutions
charge or offer to charge for similar accommodations; and/or (3) the resulting
profitability to the LENDER (UCPB) after due consideration of all dealings
with the BORROWER (the spouses Beluso). Again, as in the case of the
interest rate provision, there is no fixed margin above or below these
considerations.
In view of the foregoing, the Separability Clause cannot save either
of the two options of UCPB as to the interest to be imposed, as both options
violate the principle of mutuality of contracts.

UCPB likewise failed to convince us that the spouses Beluso were in
estoppel.
Estoppel cannot be predicated on an illegal act. As between the
parties to a contract, validity cannot be given to it by estoppel if it is
prohibited by law or is against public policy. [18]
The interest rate provisions in the case at bar are illegal not only
because of the provisions of the Civil Code on mutuality of contracts, but
also, as shall be discussed later, because they violate the Truth in Lending
Act. Not disclosing the true finance charges in connection with the extensions
of credit is, furthermore, a form of deception which we cannot countenance. It
is against the policy of the State as stated in the Truth in Lending Act:
Sec. 2. Declaration of Policy. It is hereby declared to
be the policy of the State to protect its citizens from a lack of
awareness of the true cost of credit to the user by assuring a
full disclosure of such cost with a view of preventing the
uninformed use of credit to the detriment of the national
economy.[19]
Moreover, while the spouses Beluso indeed agreed to renew the
credit line, the offending provisions are found in the promissory notes
themselves, not in the credit line. In fixing the interest rates in the promissory
notes to cover the renewed credit line, UCPB still reserved to itself the same
two options (1) a rate indicative of the DBD retail rate; or (2) a rate as
determined by the Branch Head.
Error in Computation
UCPB asserts that while both the RTC and the Court of Appeals
voided the interest rates imposed by UCPB, both failed to include in their
computation of the outstanding obligation of the spouses Beluso the legal
rate of interest of 12% per annum. Furthermore, the penalty charges were
also deleted in the decisions of the RTC and the Court of Appeals. Section
2.04, Article II on Interest and other Bank Charges of the subject Credit
Agreement, provides:
Section 2.04 Penalty Charges. In addition to the
interest provided for in Section 2.01 of this ARTICLE, any
principal obligation of the CLIENT hereunder which is not
paid when due shall be subject to a penalty charge of one
percent (1%) of the amount of such obligation per month
computed from due date until the obligation is paid in full. If
the bank accelerates teh (sic) payment of availments
hereunder pursuant to ARTICLE VIII hereof, the penalty
charge shall be used on the total principal amount
outstanding and unpaid computed from the date of
acceleration until the obligation is paid in full.[20]
Paragraph 4 of the promissory notes also states:
In case of non-payment of this Promissory Note
(Note) at maturity, I/We, jointly and severally, agree to pay
an additional sum equivalent to twenty-five percent (25%) of
the total due on the Note as attorneys fee, aside from the
expenses and costs of collection whether actually incurred or
not, and a penalty charge of one percent (1%) per month on
the total amount due and unpaid from date of default until
fully paid.[21]
Petitioner further claims that it is likewise entitled to attorneys fees,
pursuant to Section 9.06 of the Credit Agreement, thus:
If the BANK shall require the services of counsel for
the enforcement of its rights under this AGREEMENT, the
Note(s), the collaterals and other related documents, the
BANK shall be entitled to recover attorneys fees equivalent
to not less than twenty-five percent (25%) of the total
amounts due and outstanding exclusive of costs and other
expenses.[22]
Another alleged computational error pointed out by UCPB is the
negation of the Compounding Interest agreed upon by the parties under
Section 2.02 of the Credit Agreement:
Section 2.02 Compounding Interest. Interest not paid when
due shall form part of the principal and shall be subject to the
same interest rate as herein stipulated.[23]
and paragraph 3 of the subject promissory notes:
Interest not paid when due shall be added to, and become
part of the principal and shall likewise bear interest at the
same rate.[24]
UCPB lastly avers that the application of the spouses Belusos
payments in the disputed computation does not reflect the parties
agreement. The RTC deducted the payment made by the spouses Beluso
amounting to P763,693.00 from the principal of P2,350,000.00. This was
allegedly inconsistent with the Credit Agreement, as well as with the
agreement of the parties as to the facts of the case. In paragraph 7 of the
spouses Belusos Manifestation and Motion on Proposed Stipulation of Facts
and Issues vis--vis UCPBs Manifestation, the parties agreed that the amount
of P763,693.00 was applied to the interest and not to the principal, in accord
with Section 3.03, Article II of the Credit Agreement on Order of the
Application of Payments, which provides:
Section 3.03 Application of Payment. Payments
made by the CLIENT shall be applied in accordance with the
following order of preference:
1. Accounts receivable and other out-of-pocket
expenses
2. Front-end Fee, Origination Fee, Attorneys Fee
and other expenses of collection;
3. Penalty charges;
4. Past due interest;
5. Principal amortization/Payment in arrears;
6. Advance interest;
7. Outstanding balance; and
8. All other obligations of CLIENT to the BANK, if
any.[25]
Thus, according to UCPB, the interest charges, penalty charges,
and attorneys fees had been erroneously excluded by the RTC and the Court
of Appeals from the computation of the total amount due and demandable
from spouses Beluso.
The spouses Belusos defense as to all these issues is that the
demand made by UCPB is for a considerably bigger amount and, therefore,
the demand should be considered void. There being no valid demand,
according to the spouses Beluso, there would be no default, and therefore
the interests and penalties would not commence to run. As it was likewise
improper to foreclose the mortgaged properties or file a case against the
spouses Beluso, attorneys fees were not warranted.
We agree with UCPB on this score. Default commences upon
judicial or extrajudicial demand.[26] The excess amount in such a demand
does not nullify the demand itself, which is valid with respect to the proper
amount. A contrary ruling would put commercial transactions in disarray, as
validity of demands would be dependent on the exactness of the
computations thereof, which are too often contested.
There being a valid demand on the part of UCPB, albeit excessive,
the spouses Beluso are considered in default with respect to the proper
amount and, therefore, the interests and the penalties began to run at that
point.
As regards the award of 12% legal interest in favor of petitioner, the
RTC actually recognized that said legal interest should be imposed, thus:
There being no valid stipulation as to interest, the legal rate of interest shall
be charged.[27] It seems that the RTC inadvertently overlooked its non-
inclusion in its computation.
The spouses Beluso had even originally asked for the RTC to
impose this legal rate of interest in both the body and the prayer of its petition
with the RTC:
12. Since the provision on the fixing of the rate of
interest by the sole will of the respondent Bank is null and
void, only the legal rate of interest which is 12% per annum
can be legally charged and imposed by the bank, which
would amount to only about P599,000.00 since 1996 up
to August 31, 1998.
xxxx
WHEREFORE, in view of the foregoing, petiitoners
pray for judgment or order:
 xxxx
2. By way of example for the public good against the
Banks taking unfair advantage of the weaker party to their
contract, declaring the legal rate of 12% per annum, as the
imposable rate of interest up to February 28, 1999 on the
loan of 2.350 million.[28]
All these show that the spouses Beluso had acknowledged before the RTC
their obligation to pay a 12% legal interest on their loans. When the RTC
failed to include the 12% legal interest in its computation, however, the
spouses Beluso merely defended in the appellate courts this non-inclusion,
as the same was beneficial to them. We see, however, sufficient basis to
impose a 12% legal interest in favor of petitioner in the case at bar, as what
we have voided is merely the stipulated rate of interest and not the stipulation
that the loan shall earn interest.
We must likewise uphold the contract stipulation providing the
compounding of interest. The provisions in the Credit Agreement and in the
promissory notes providing for the compounding of interest were neither
nullified by the RTC or the Court of Appeals, nor assailed by the spouses
Beluso in their petition with the RTC. The compounding of interests has
furthermore been declared by this Court to be legal. We have held in Tan v.
Court of Appeals,[29] that:
Without prejudice to the provisions of Article 2212,
interest due and unpaid shall not earn interest. However,
the contracting parties may by stipulation capitalize the
interest due and unpaid, which as added principal, shall
earn new interest.
As regards the imposition of penalties, however, although we are
likewise upholding the imposition thereof in the contract, we find the rate
iniquitous. Like in the case of grossly excessive interests, the penalty
stipulated in the contract may also be reduced by the courts if it is iniquitous
or unconscionable.[30]
We find the penalty imposed by UCPB, ranging from 30.41% to
36%, to be iniquitous considering the fact that this penalty is already over
and above the compounded interest likewise imposed in the contract. If a
36% interest in itself has been declared unconscionable by this
Court,[31] what more a 30.41% to 36% penalty, over and above the payment
of compounded interest? UCPB itself must have realized this, as it gave us a
sample computation of the spouses Belusos obligation if both the interest
and the penalty charge are reduced to 12%.
As regards the attorneys fees, the spouses Beluso can actually be
liable therefor even if there had been no demand. Filing a case in court
is the judicial demand referred to in Article 1169[32] of the Civil Code, which
would put the obligor in delay.
The RTC, however, also held UCPB liable for attorneys fees in this
case, as the spouses Beluso were forced to litigate the issue on the illegality
of the interest rate provision of the promissory notes. The award of attorneys
fees, it must be recalled, falls under the sound discretion of the
court.[33] Since both parties were forced to litigate to protect their respective
rights, and both are entitled to the award of attorneys fees from the other,
practical reasons dictate that we set off or compensate both parties liabilities
for attorneys fees. Therefore, instead of awarding attorneys fees in favor of
petitioner, we shall merely affirm the deletion of the award of attorneys fees
to the spouses Beluso.
In sum, we hold that spouses Beluso should still be held liable for a
compounded legal interest of 12% per annum and a penalty charge of 12%
per annum. We also hold that, instead of awarding attorneys fees in favor of
petitioner, we shall merely affirm the deletion of the award of attorneys fees
to the spouses Beluso.
Annulment of the Foreclosure Sale
Properties of spouses Beluso had been foreclosed, titles to which
had already been consolidated on 19 February 2001 and 20 March 2001 in
the name of UCPB, as the spouses Beluso failed to exercise their right of
redemption which expired on 25 March 2000. The RTC, however, annulled
the foreclosure of mortgage based on an alleged incorrect computation of the
spouses Belusos indebtedness.
UCPB alleges that none of the grounds for the annulment of a
foreclosure sale are present in the case at bar. Furthermore, the annulment of
the foreclosure proceedings and the certificates of sale were mooted by the
subsequent issuance of new certificates of title in the name of said
bank. UCPB claims that the spouses Belusos action for annulment of
foreclosure constitutes a collateral attack on its certificates of title, an act
proscribed by Section 48 of Presidential Decree No. 1529, otherwise known
as the Property Registration Decree, which provides:
Section 48. Certificate not subject to collateral
attack. A certificate of title shall not be subject to collateral
attack. It cannot be altered, modified or cancelled except in a
direct proceeding in accordance with law.
The spouses Beluso retort that since they had the right to refuse
payment of an excessive demand on their account, they cannot be said to be
in default for refusing to pay the same. Consequently, according to the
spouses Beluso, the enforcement of such illegal and overcharged demand
through foreclosure of mortgage should be voided.
We agree with UCPB and affirm the validity of the foreclosure
proceedings. Since we already found that a valid demand was made by
UCPB upon the spouses Beluso, despite being excessive, the spouses
Beluso are considered in default with respect to the proper amount of their
obligation to UCPB and, thus, the property they mortgaged to secure such
amounts may be foreclosed. Consequently, proceeds of the foreclosure sale
should be applied to the extent of the amounts to which UCPB is rightfully
entitled.
As argued by UCPB, none of the grounds for the annulment of a
foreclosure sale are present in this case. The grounds for the proper
annulment of the foreclosure sale are the following: (1) that there was fraud,
collusion, accident, mutual mistake, breach of trust or misconduct by the
purchaser; (2) that the sale had not been fairly and regularly conducted; or
(3) that the price was inadequate and the inadequacy was so great as to
shock the conscience of the court.[34]
Liability for Violation of Truth in Lending Act
The RTC, affirmed by the Court of Appeals, imposed a fine
of P26,000.00 for UCPBs alleged violation of Republic Act No. 3765,
otherwise known as the Truth in Lending Act.
UCPB challenges this imposition, on the argument that Section 6(a)
of the Truth in Lending Act which mandates the filing of an action to recover
such penalty must be made under the following circumstances:
Section 6. (a) Any creditor who in connection with
any credit transaction fails to disclose to any person any
information in violation of this Act or any regulation issued
thereunder shall be liable to such person in the amount
of P100 or in an amount equal to twice the finance charge
required by such creditor in connection with such
transaction, whichever is greater, except that such liability
shall not exceed P2,000 on any credit transaction. Action to
recover such penalty may be brought by such person
within one year from the date of the occurrence of the
violation, in any court of competent jurisdiction. x x
x (Emphasis ours.)
According to UCPB, the Court of Appeals even stated that
[a]dmittedly the original complaint did not explicitly allege a violation of the
Truth in Lending Act and no action to formally admit the amended petition
[which expressly alleges violation of the Truth in Lending Act] was made
either by [respondents] spouses Beluso and the lower court. x x x.[35]
UCPB further claims that the action to recover the penalty for the
violation of the Truth in Lending Act had been barred by the one-year
prescriptive period provided for in the Act. UCPB asserts that per the records
of the case, the latest of the subject promissory notes had been executed
on 2 January 1998, but the original petition of the spouses Beluso was filed
before the RTC on 9 February 1999, which was after the expiration of the
period to file the same on 2 January 1999.
On the matter of allegation of the violation of the Truth in Lending
Act, the Court of Appeals ruled:
Admittedly the original complaint did not explicitly allege a
violation of the Truth in Lending Act and no action to formally
admit the amended petition was made either by
[respondents] spouses Beluso and the lower court. In such
transactions, the debtor and the lending institutions do not
deal on an equal footing and this law was intended to protect
the public from hidden or undisclosed charges on their loan
obligations, requiring a full disclosure thereof by the
 lender. We find that its infringement may be inferred or
implied from allegations that when [respondents] spouses
Beluso executed the promissory notes, the interest rate
chargeable thereon were left blank. Thus, [petitioner] UCPB
failed to discharge its duty to disclose in full to [respondents]
Spouses Beluso the charges applicable on their loans.[36]
We agree with the Court of Appeals. The allegations in the
complaint, much more than the title thereof, are controlling. Other than that
stated by the Court of Appeals, we find that the allegation of violation of the
Truth in Lending Act can also be inferred from the same allegation in the
complaint we discussed earlier:
b.) In unilaterally imposing an increased interest
rates (sic) respondent bank has relied on the provision of
their promissory note granting respondent bank the power to
unilaterally fix the interest rates, which rate was not
determined in the promissory note but was left solely to the
will of the Branch Head of the respondent Bank, x x x.[37]
The allegation that the promissory notes grant UCPB the power to
unilaterally fix the interest rates certainly also means that the promissory
notes do not contain a clear statement in writing of (6) the finance charge
expressed in terms of pesos and centavos; and (7) the percentage that the
finance charge bears to the amount to be financed expressed as a simple
annual rate on the outstanding unpaid balance of the
obligation.[38] Furthermore, the spouses Belusos prayer for such other reliefs
just and equitable in the premises should be deemed to include the civil
penalty provided for in Section 6(a) of the Truth in Lending Act.
UCPBs contention that this action to recover the penalty for the
violation of the Truth in Lending Act has already prescribed is likewise
without merit. The penalty for the violation of the act is P100 or an amount
equal to twice the finance charge required by such creditor in connection with
such transaction, whichever is greater, except that such liability shall not
exceed P2,000.00 on any credit transaction.[39] As this penalty depends on
the finance charge required of the borrower, the borrowers cause of action
would only accrue when such finance charge is required. In the case at bar,
the date of the demand for payment of the finance charge is 2 September
1998, while the foreclosure was made on 28 December 1998. The filing of
the case on 9 February 1999 is therefore within the one-year prescriptive
period.
UCPB argues that a violation of the Truth in Lending Act, being a
criminal offense, cannot be inferred nor implied from the allegations made in
the complaint.[40]Pertinent provisions of the Act read:
Sec. 6. (a) Any creditor who in connection with any
credit transaction fails to disclose to any person any
information in violation of this Act or any regulation issued
thereunder shall be liable to such person in the amount
of P100 or in an amount equal to twice the finance charge
required by such creditor in connection with such
transaction, whichever is the greater, except that such
liability shall not exceed P2,000 on any credit
transaction. Action to recover such penalty may be brought
by such person within one year from the date of the
occurrence of the violation, in any court of competent
jurisdiction. In any action under this subsection in which any
person is entitled to a recovery, the creditor shall be liable for
reasonable attorneys fees and court costs as determined by
the court.
xxxx
(c) Any person who willfully violates any
provision of this Act or any regulation issued thereunder shall
be fined by not less than P1,000 or more than P5,000 or
imprisonment for not less than 6 months, nor more than one
year or both.
As can be gleaned from Section 6(a) and (c) of the Truth in Lending Act, the
violation of the said Act gives rise to both criminal and civil liabilities. Section
6(c) considers a criminal offense the willful violation of the Act, imposing the
penalty therefor of fine, imprisonment or both. Section 6(a), on the other
hand, clearly provides for a civil cause of action for failure to disclose any
information of the required information to any person in violation of the
Act. The penalty therefor is an amount of P100 or in an amount equal to
twice the finance charge required by the creditor in connection with such
transaction, whichever is greater, except that the liability shall not
exceed P2,000.00 on any credit transaction. The action to recover such
penalty may be instituted by the aggrieved private person separately and
independently from the criminal case for the same offense.
In the case at bar, therefore, the civil action to recover the penalty
under Section 6(a) of the Truth in Lending Act had been jointly instituted with
(1) the action to declare the interests in the promissory notes void, and (2)
the action to declare the foreclosure void. This joinder is allowed under Rule
2, Section 5 of the Rules of Court, which provides:
SEC. 5. Joinder of causes of action. A party may in
one pleading assert, in the alternative or otherwise, as many
causes of action as he may have against an opposing party,
subject to the following conditions:
(a) The party joining the causes of action shall
comply with the rules on joinder of parties;
(b) The joinder shall not include special civil actions
or actions governed by special rules;
(c) Where the causes of action are between the
same parties but pertain to different venues or jurisdictions,
the joinder may be allowed in the Regional Trial Court
provided one of the causes of action falls within the
jurisdiction of said court and the venue lies therein; and
(d) Where the claims in all the causes of action are
principally for recovery of money, the aggregate amount
claimed shall be the test of jurisdiction.
In attacking the RTCs disposition on the violation of the Truth in
Lending Act since the same was not alleged in the complaint, UCPB is
actually asserting a violation of due process. Indeed, due process mandates
that a defendant should be sufficiently apprised of the matters he or she
would be defending himself or herself against. However, in the1 July
1999 pre-trial brief filed by the spouses Beluso before the RTC, the claim for
civil sanctions for violation of the Truth in Lending Act was expressly alleged,
thus:
Moreover, since from the start, respondent bank violated the
Truth in Lending Act in not informing the borrower in writing
before the execution of the Promissory Notes of the interest
rate expressed as a percentage of the total loan, the
respondent bank instead is liable to pay petitioners double
the amount the bank is charging petitioners by way of
sanction for its violation.[41]
In the same pre-trial brief, the spouses Beluso also expressly raised
the following issue:
b.) Does the expression indicative rate of DBD retail
(sic) comply with the Truth in Lending Act provision to
express the interest rate as a simple annual percentage of
the loan?[42]
These assertions are so clear and unequivocal that any attempt of
UCPB to feign ignorance of the assertion of this issue in this case as to
prevent it from putting up a defense thereto is plainly hogwash.
Petitioner further posits that it is the Metropolitan Trial Court which
has jurisdiction to try and adjudicate the alleged violation of the Truth in
Lending Act, considering that the present action allegedly involved a single
credit transaction as there was only one Promissory Note Line.
We disagree. We have already ruled that the action to recover the
penalty under Section 6(a) of the Truth in Lending Act had been jointly
instituted with (1) the action to declare the interests in the promissory notes
void, and (2) the action to declare the foreclosure void. There had been no
question that the above actions belong to the jurisdiction of the
RTC. Subsection (c) of the above-quoted Section 5 of the Rules of Court on
Joinder of Causes of Action provides:
(c) Where the causes of action are between the
same parties but pertain to different venues or jurisdictions,
the joinder may be allowed in the Regional Trial Court
provided one of the causes of action falls within the
jurisdiction of said court and the venue lies therein.
Furthermore, opening a credit line does not create a credit
transaction of loan or mutuum, since the former is merely a preparatory
contract to the contract of loan ormutuum. Under such credit line, the bank is
merely obliged, for the considerations specified therefor, to lend to the other
party amounts not exceeding the limit provided. The credit transaction thus
occurred not when the credit line was opened, but rather when the credit line
was availed of. In the case at bar, the violation of the Truth in Lending Act
allegedly occurred not when the parties executed the Credit Agreement,
where no interest rate was mentioned, but when the parties executed the
promissory notes, where the allegedly offending interest rate was stipulated.
UCPB further argues that since the spouses Beluso were duly given
copies of the subject promissory notes after their execution, then they were
duly notified of the terms thereof, in substantial compliance with the Truth in
Lending Act.
Once more, we disagree. Section 4 of the Truth in Lending Act
clearly provides that the disclosure statement must be furnished prior to the
consummation of the transaction:
SEC. 4. Any creditor shall furnish to each person to
whom credit is extended, prior to the consummation of
the transaction, a clear statement in writing setting forth, to
the extent applicable and in accordance with rules and
regulations prescribed by the Board, the following
information:
(1) the cash price or delivered price of the property
or service to be acquired;
(2) the amounts, if any, to be credited as down
payment and/or trade-in;
(3) the difference between the amounts set forth
under clauses (1) and (2)
(4) the charges, individually itemized, which are
paid or to be paid by such person in connection
with the transaction but which are not incident to
the extension of credit;
(5) the total amount to be financed;
(6) the finance charge expressed in terms of pesos
and centavos; and
(7) the percentage that the finance bears to the
total amount to be financed expressed as a
simple annual rate on the outstanding unpaid
balance of the obligation.
The rationale of this provision is to protect users of credit from a lack
of awareness of the true cost thereof, proceeding from the experience that
banks are able to conceal such true cost by hidden charges, uncertainty of
interest rates, deduction of interests from the loaned amount, and the
like. The law thereby seeks to protect debtors by permitting them to fully
appreciate the true cost of their loan, to enable them to give full consent to
the contract, and to properly evaluate their options in arriving at business
decisions.Upholding UCPBs claim of substantial compliance would defeat
these purposes of the Truth in Lending Act. The belated discovery of the true
cost of credit will too often not be able to reverse the ill effects of an already
consummated business decision.
In addition, the promissory notes, the copies of which were
presented to the spouses Beluso after execution, are not sufficient
notification from UCPB. As earlier discussed, the interest rate provision
therein does not sufficiently indicate with particularity the interest rate to be
applied to the loan covered by said promissory notes.
Forum Shopping
UCPB had earlier moved to dismiss the petition (originally Case No.
99-314 in RTC, Makati City) on the ground that the spouses Beluso instituted
another case (Civil Case No. V-7227) before the RTC of Roxas City,
involving the same parties and issues. UCPB claims that while Civil Case No.
V-7227 initially appears to be a different action, as it prayed for the issuance
of a temporary restraining order and/or injunction to stop foreclosure of
spouses Belusos properties, it poses issues which are similar to those of the
present case.[43] To prove its point, UCPB cited the spouses Belusos
Amended Petition in Civil Case No. V-7227, which contains similar
allegations as those in the present case.The RTC of Makati denied UCPBs
Motion to Dismiss Case No. 99-314 for lack of merit. Petitioner UCPB raised
the same issue with the Court of Appeals, and is raising the same issue with
us now.
The spouses Beluso claim that the issue in Civil Case No. V-7227
before the RTC of Roxas City, a Petition for Injunction Against Foreclosure,
is the propriety of the foreclosure before the true account of spouses Beluso
is determined. On the other hand, the issue in Case No. 99-314 before the
RTC of Makati City is the validity of the interest rate provision. The spouses
Beluso claim that Civil Case No. V-7227 has become moot because, before
the RTC of Roxas City could act on the restraining order, UCPB proceeded
with the foreclosure and auction sale. As the act sought to be restrained by
Civil Case No. V-7227 has already been accomplished, the spouses Beluso
had to file a different action, that of Annulment of the Foreclosure Sale, Case
No. 99-314 with the RTC, Makati City.
Even if we assume for the sake of argument, however, that only one
cause of action is involved in the two civil actions, namely, the violation of the
right of the spouses Beluso not to have their property foreclosed for an
amount they do not owe, the Rules of Court nevertheless allows the filing of
the second action. Civil Case No. V-7227 was dismissed by the RTC of
Roxas City before the filing of Case No. 99-314 with the RTC of Makati City,
since the venue of litigation as provided for in the Credit Agreement is
inMakati City.
Rule 16, Section 5 bars the refiling of an action previously dismissed
only in the following instances:
SEC. 5. Effect of dismissal.Subject to the right of
appeal, an order granting a motion to dismiss based on
paragraphs (f), (h) and (i) of section 1 hereof shall bar the
refiling of the same action or claim. (n)
Improper venue as a ground for the dismissal of an action is found in
paragraph (c) of Section 1, not in paragraphs (f), (h) and (i):
SECTION 1. Grounds.Within the time for but before
filing the answer to the complaint or pleading asserting a
claim, a motion to dismiss may be made on any of the
following grounds:
(a) That the court has no jurisdiction over the person
of the defending party;
(b) That the court has no jurisdiction over the
subject matter of the claim;
(c) That venue is improperly laid;
(d) That the plaintiff has no legal capacity to sue;
(e) That there is another action pending between the
same parties for the same cause;
(f) That the cause of action is barred by a prior
judgment or by the statute of limitations;
(g) That the pleading asserting the claim states no
cause of action;
(h) That the claim or demand set forth in the
plaintiffs pleading has been paid, waived, abandoned,
or otherwise extinguished;
(i) That the claim on which the action is founded
is unenforceable under the provisions of the statute of
frauds; and
(j) That a condition precedent for filing the claim has
not been complied with.[44] (Emphases supplied.)
When an action is dismissed on the motion of the other party, it is
only when the ground for the dismissal of an action is found in paragraphs (f),
(h) and (i) that the action cannot be refiled. As regards all the other grounds,
the complainant is allowed to file same action, but should take care that, this
time, it is filed with the proper court or after the accomplishment of the
erstwhile absent condition precedent, as the case may be.
UCPB, however, brings to the attention of this Court a Motion for
Reconsideration filed by the spouses Beluso on 15 January 1999 with the
RTC of Roxas City, which Motion had not yet been ruled upon when the
spouses Beluso filed Civil Case No. 99-314 with the RTC of Makati. Hence,
there were allegedly two pending actions between the same parties on the
same issue at the time of the filing of Civil Case No. 99-314 on 9 February
1999 with the RTC of Makati. This will still not change our findings. It is
indeed the general rule that in cases where there are two pending actions
between the same parties on the same issue, it should be the later case that
should be dismissed. However, this rule is not absolute. According to this
Court in Allied Banking Corporation v. Court of Appeals[45]:
In these cases, it is evident that the first action was
filed in anticipation of the filing of the later action and the
 purpose is to preempt the later suit or provide a basis for
seeking the dismissal of the second action. WHEREFORE, the Decision of the Court of Appeals is
hereby AFFIRMED with the following MODIFICATIONS:
Even if this is not the purpose for the filing of the
first action, it may nevertheless be dismissed if the later 1. In addition to the sum of P2,350,000.00 as determined
action is the more appropriate vehicle for the ventilation by the courts a quo, respondent spouses Samuel and Odette
of the issues between the parties. Thus, in Ramos v. Beluso are also liable for the following amounts:
Peralta, it was held: a. Penalty of 12% per annum on the amount due[46] from the
date of demand; and
[T]he rule on litis pendentia does not b. Compounded legal interest of 12% per annum on the
require that the later case should yield to the amount due[47] from date of demand;
earlier case. What is required merely is that 2. The following amounts shall be deducted from the
there be another pending action, not a prior liability of the spouses Samuel and Odette Beluso:
pending action. Considering the broader a. Payments made by the spouses in the amount
scope of inquiry involved in Civil Case No. of P763,692.00. These payments shall be applied to the
4102 and the location of the property date of actual payment of the following in the order
involved, no error was committed by the that they are listed, to wit:
lower court in deferring to the Bataan court's i. penalty charges due and
jurisdiction. demandable as of the time of payment;
ii. interest due and
Given, therefore, the pendency of two actions, the demandable as of the time of payment;
following are the relevant considerations in determining iii. principal
which action should be dismissed: (1) the date of filing, with amortization/payment in arrears as of the time
preference generally given to the first action filed to be of payment;
retained; (2) whether the action sought to be dismissed was iv. outstanding balance.
filed merely to preempt the later action or to anticipate its b. Penalty under Republic Act No. 3765 in the amount
filing and lay the basis for its dismissal; and (3) whether the of P26,000.00. This amount shall be deducted from the
action is the appropriate vehicle for litigating the issues liability of the spouses Samuel and Odette Beluso on9
between the parties. February 1999 to the following in the order that they are
listed, to wit:
i. penalty charges due and
In the case at bar, Civil Case No. V-7227 before the RTC of Roxas demandable as of time of payment;
City was an action for injunction against a foreclosure sale that has already ii. interest due and
been held, while Civil Case No. 99-314 before the RTC of Makati City demandable as of the time of payment;
includes an action for the annulment of said foreclosure, an action certainly iii. principal
more proper in view of the execution of the foreclosure sale. The former case amortization/payment in arrears as of the time
was improperly filed in Roxas City, while the latter was filed in Makati City, of payment;
the proper venue of the action as mandated by the Credit Agreement. It is iv. outstanding balance.
evident, therefore, that Civil Case No. 99-314 is the more appropriate vehicle 3. The foreclosure of mortgage is hereby declared
for litigating the issues between the parties, as compared to Civil Case No. VALID. Consequently, the amounts which the Regional Trial
V-7227. Thus, we rule that the RTC of Makati City was not in error in not Court and the Court of Appeals ordered respondents to pay,
dismissing Civil Case No. 99-314.
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.
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.

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.
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:

Upon consideration of the foregoing facts, this Court finds no reason to Makati Cable Address:
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 Philippines "COMTRUST"
withdrawal of US$1,000.00 from private respondent's dollar account.
COMMERCIAL BANK AND TRUST COMPANY
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 of the Philippines
maintains that the peso value of the amount withdrawn was given to Atty.
Ernesto Zshornack, Jr. when the latter encashed the Manilabank Cashier's
Quezon City Branch
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.
 7
5

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) It was also alleged in the complaint that despite demands, the bank refused
for safekeeping. to return the money.

In its answer,R COMTRUST averred that the US$3,000 was credited to

Zshornack's epeso current account at prevailing conversion rates.
c
e
It must be emphasized that COMTRUST did not deny specifically under oath
i
the authenticity and due execution of the above instrument.
v
e
During trial, itd was established that on December 8, 1975 Zshornack indeed
delivered to the bank US $3,000 for safekeeping. When he requested the
return of thebmoney on May 10, 1976, COMTRUST explained that the sum
was disposed y 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
S
deposit slip also accomplished by Garcia.
g
d
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
V in the document is the contract of depositum (as defined
in Article 1962,
I New Civil Code), which banks do not enter into. The bank
alleges that Garcia
R exceeded his powers when he entered into the
transaction. GHence, it is claimed, the bank cannot be liable under the
contract, andI the obligation is purely personal to Garcia.
L
I
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.
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.

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.
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.

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
G.R. No. L-6913 November 21, 1913
THE ROMAN CATHOLIC BISHOP OF JARO, plaintiff-appellee,
vs.
GREGORIO DE LA PEA, administrator of the estate of Father
Agustin de la Pea, defendant-appellant.
J. Lopez Vito, for appellant.
Arroyo and Horrilleno, for appellee.
MORELAND, J.:
This is an appeal by the defendant from a judgment of the Court of First
Instance of Iloilo, awarding to the plaintiff the sum of P6,641, with interest
at the legal rate from the beginning of the action.
It is established in this case that the plaintiff is the trustee of a charitable
bequest made for the construction of a leper hospital and that father
Agustin de la 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 Father De la Pea, as trustee, showed that he
had on hand as such trustee the sum of P6,641, collected by him for the
charitable purposes aforesaid. In the same year he deposited in his
personal account P19,000 in the Hongkong and Shanghai Bank at Iloilo.
Shortly thereafter and during the war of the revolution, Father De la 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 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.
That branch of the law known in England and America as the law of
trusts had no exact counterpart in the Roman law and has none under
the Spanish law. In this jurisdiction, therefore, Father De la Pea's liability
is determined by those portions of the Civil Code which relate to
obligations. (Book 4, Title 1.)
Although the Civil Code states that "a person obliged to give something is
also bound to preserve it with the diligence pertaining to a good father of
a family" (art. 1094), it also provides, following the principle of the Roman
law, major casus est, cui humana infirmitas resistere non potest, that "no
one shall be liable for events which could not be foreseen, or which
having been foreseen were inevitable, with the exception of the cases
expressly mentioned in the law or those in which the obligation so
declares." (Art. 1105.)
By placing the money in the bank and mixing it with his personal funds
De la Pea did not thereby assume an obligation different from that under
which he would have lain if such deposit had not been made, nor did he
thereby make himself liable to repay the money at all hazards. If the had
been forcibly taken from his pocket or from his house by the military
forces of one of the combatants during a state of war, it is clear that
under the provisions of the Civil Code he would have been exempt from
responsibility. The fact that he placed the trust fund in the bank in his
personal account does not add to his responsibility. Such deposit did not
make him a debtor who must respond at all hazards.
We do not enter into a discussion for the purpose of determining whether
he acted more or less negligently by depositing the money in the bank
than he would if he had left it in his home; or whether he was more or
less negligent by depositing the money in his personal account than he
would have been if he had deposited it in a separate account as trustee.
We regard such discussion as substantially fruitless, inasmuch as the
precise question is not one of negligence. There was no law prohibiting
him from depositing it as he did and there was no law which changed his
responsibility be reason of the deposit. While it may be true that one who
is under obligation to do or give a thing is in duty bound, when he sees
events approaching the results of which will be dangerous to his trust, to
take all reasonable means and measures to escape or, if unavoidable, to
temper the effects of those events, we do not feel constrained to hold
that, in choosing between two means equally legal, he is culpably
negligent in selecting one whereas he would not have been if he had
selected the other.

The court, therefore, finds and declares that the money which is the
subject matter of this action was deposited by Father De la Pea in the
Hongkong and Shanghai Banking Corporation of Iloilo; that said money
was forcibly taken from the bank by the armed forces of the United States
during the war of the insurrection; and that said Father De la Pea was
not responsible for its loss.

The judgment is therefore reversed, and it is decreed that the plaintiff

shall take nothing by his complaint.

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

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, 15petitioner 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; 19the contract in the case at bar is a
special kind of deposit. It cannot be characterized as an ordinary contract of
lease under Article 1643 because the full and absolute possession and
control of the safety deposit box was not given to the joint renters the
petitioner and the Pugaos. The guard key of the box remained with the
respondent Bank; without this key, neither of the renters could open the box.
On the other hand, the respondent Bank could not likewise open the box
without the renter's key. In this case, the said key had a duplicate which was
made so that both renters could have access to the box.
Hence, the authorities cited by the respondent Court 20 on this point do not
apply. Neither could Article 1975, also relied upon by the respondent Court,
be invoked as an argument against the deposit theory. Obviously, the first
paragraph of such provision cannot apply to a depositary of certificates,
bonds, securities or instruments which earn interest if such documents are
kept in a rented safety deposit box. It is clear that the depositary cannot open
the box without the renter being present.
We observe, however, that the deposit theory itself does not altogether find
unanimous support even in American jurisprudence. We agree with the
petitioner that under the latter, the prevailing rule is that the relation between
a bank renting out safe-deposit boxes and its customer with respect to the
contents of the box is that of a bail or and bailee, the bailment being for hire
and mutual benefit. 21 This is just the prevailing view because:
There is, however, some support for the view that the
relationship in question might be more properly
characterized as that of landlord and tenant, or lessor and
lessee. It has also been suggested that it should be
characterized as that of licensor and licensee. The relation
between a bank, safe-deposit company, or storage
company, and the renter of a safe-deposit box therein, is
often described as contractual, express or implied, oral or
written, in whole or in part. But there is apparently no
jurisdiction in which any rule other than that applicable to
bailments governs questions of the liability and rights of the
parties in respect of loss of the contents of safe-deposit
boxes. 22 (citations omitted)
In the context of our laws which authorize banking institutions to rent out
safety deposit boxes, it is clear that in this jurisdiction, the prevailing rule in
the United States has been adopted. Section 72 of the General Banking
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.
 [G.R. No. 126780. February 17, 2005]
YHT REALTY CORPORATION, ERLINDA LAINEZ and ANICIA
PAYAM, petitioners, vs. THE COURT OF APPEALS and
MAURICE McLOUGHLIN,respondents.
DECISION
TINGA, J.:
The primary question of interest before this Court is the only legal issue
in the case: It is whether a hotel may evade liability for the loss of items left
with it for safekeeping by its guests, by having these guests execute written
waivers holding the establishment or its employees free from blame for such
loss in light of Article 2003 of the Civil Code which voids such waivers.
Before this Court is a Rule 45 petition for review of the 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 Malacaang to follow up on his letter but he was
instructed to go to the DOJ. The DOJ directed him to proceed to the WPD for
documentation. But McLoughlin went back to Australia as he had an urgent
business matter to attend to.
For several times, McLoughlin left for Australia to attend to his business
and came back to the Philippines to follow up on his letter to the President
but he failed to obtain any concrete assistance.[19]
McLoughlin left again for Australia and upon his return to the Philippines
on 25 August 1989 to pursue his claims against petitioners, the WPD
conducted an investigation which resulted in the preparation of an affidavit
which was forwarded to the Manila City Fiscals Office. Said affidavit became
the basis of preliminary investigation. However, McLoughlin left again for
Australia without receiving the notice of the hearing on 24 November 1989.
Thus, the case at the Fiscals Office was dismissed for failure to prosecute.
Mcloughlin requested the reinstatement of the criminal charge for theft. In the
meantime, McLoughlin and his lawyers wrote letters of demand to those
having responsibility to pay the damage. Then he left again for Australia.
Upon his return on 22 October 1990, he registered at the Echelon
Towers at Malate, Manila. Meetings were held between McLoughlin and his
lawyer which resulted to the filing of a complaint for damages on 3 December
1990 against YHT Realty Corporation, Lopez, Lainez, Payam and Tan
(defendants) for the loss of McLoughlins money which was discovered on 16
April 1988. After filing the complaint, McLoughlin left again for Australia to
attend to an urgent business matter. Tan and Lopez, however, were not
served with summons, and trial proceeded with only Lainez, Payam and YHT
Realty Corporation as defendants.
After defendants had filed their Pre-Trial Brief admitting that they had
previously allowed and assisted Tan to open the safety deposit box,
McLoughlin filed an Amended/Supplemental Complaint[20] dated 10 June
1991 which included another incident of loss of money and jewelry in the
safety deposit box rented by McLoughlin in the same hotel which took place
prior to 16 April 1988.[21] The trial court admitted the Amended/Supplemental
Complaint.
During the trial of the case, McLoughlin had been in and out of the
country to attend to urgent business in Australia, and while staying in the
Philippines to attend the hearing, he incurred expenses for hotel bills, airfare
and other transportation expenses, long distance calls to Australia, Meralco
power expenses, and expenses for food and maintenance, among others.[22]
After trial, the RTC of Manila rendered judgment in favor of McLoughlin,
the dispositive portion of which reads:
WHEREFORE, above premises considered, judgment is hereby rendered by
this Court in favor of plaintiff and against the defendants, to wit:
1. Ordering defendants, jointly and severally, to pay plaintiff the
sum of US$11,400.00 or its equivalent in Philippine Currency
of P342,000.00, more or less, and the sum of AUS$4,500.00
or its equivalent in Philippine Currency of P99,000.00, or a
total of P441,000.00, more or less, with 12% interest from April
16 1988 until said amount has been paid to plaintiff (Item 1,
Exhibit CC);
2. Ordering defendants, jointly and severally to pay plaintiff the sum
of P3,674,238.00 as actual and consequential damages
arising from the loss of his Australian and American dollars
and jewelries complained against and in prosecuting his claim
and rights administratively and judicially (Items II, III, IV, V, VI,
VII, VIII, and IX, Exh. CC);
3. Ordering defendants, jointly and severally, to pay plaintiff the
sum of P500,000.00 as moral damages (Item X, Exh. CC);
4. Ordering defendants, jointly and severally, to pay plaintiff the
sum of P350,000.00 as exemplary damages (Item XI, Exh.
CC);
5. And ordering defendants, jointly and severally, to pay litigation
expenses in the sum of P200,000.00 (Item XII, Exh. CC);
6. Ordering defendants, jointly and severally, to pay plaintiff the
sum of P200,000.00 as attorneys fees, and a fee of P3,000.00
for every appearance; and
7. Plus costs of suit.
SO ORDERED.[23]
The trial court found that McLoughlins allegations as to the fact of loss
and as to the amount of money he lost were sufficiently shown by his direct
and straightforward manner of testifying in court and found him to be credible
and worthy of belief as it was established that McLoughlins money, kept in
Tropicanas safety deposit box, was taken by Tan without McLoughlins
consent. The taking was effected through the use of the master key which
was in the possession of the management. Payam and Lainez allowed Tan
to use the master key without authority from McLoughlin. The trial court
added that if McLoughlin had not lost his dollars, he would not have gone
through the trouble and personal inconvenience of seeking aid and
assistance from the Office of the President, DOJ, police authorities and the
City Fiscals Office in his desire to recover his losses from the hotel
management and Tan.[24]
As regards the loss of Seven Thousand US Dollars (US$7,000.00) and
jewelry worth approximately One Thousand Two Hundred US Dollars
(US$1,200.00) which allegedly occurred during his stay at Tropicana
previous to 4 April 1988, no claim was made by McLoughlin for such losses
in his complaint dated 21 November 1990 because he was not sure how they
were lost and who the responsible persons were. But considering the
admission of the defendants in their pre-trial brief that on three previous
occasions they allowed Tan to open the box, the trial court opined that it was
logical and reasonable to presume that his personal assets consisting of
Seven Thousand US Dollars (US$7,000.00) and jewelry were taken by Tan
from the safety deposit box without McLoughlins consent through the
cooperation of Payam and Lainez.[25]
The trial court also found that defendants acted with gross negligence in
the performance and exercise of their duties and obligations as innkeepers
and were therefore liable to answer for the losses incurred by McLoughlin.[26]
Moreover, the trial court ruled that paragraphs (2) and (4) of
the Undertaking For The Use Of Safety Deposit Box are not valid for being
contrary to the express mandate of Article 2003 of the New Civil Code and
against public policy.[27] Thus, there being fraud or wanton conduct on the
part of defendants, they should be responsible for all damages which may be
attributed to the non-performance of their contractual obligations.[28]
The Court of Appeals affirmed the disquisitions made by the lower court
except as to the amount of damages awarded. The decretal text of the
appellate courts decision reads:
THE FOREGOING CONSIDERED, the appealed Decision is hereby
AFFIRMED but modified as follows:
The appellants are directed jointly and severally to pay the plaintiff/appellee
the following amounts:
1) P153,200.00 representing the peso equivalent of US$2,000.00
and AUS$4,500.00;
2) P308,880.80, representing the peso value for the air fares from
Sidney [sic] to Manila and back for a total of eleven (11)
trips;
3) One-half of P336,207.05 or P168,103.52 representing payment
to Tropicana Apartment Hotel;
4) One-half of P152,683.57 or P76,341.785 representing payment
to Echelon Tower;
5) One-half of P179,863.20 or P89,931.60 for the taxi xxx
transportation from the residence to Sidney [sic] Airport and
from MIA to the hotel here in Manila, for the eleven (11) trips;
6) One-half of P7,801.94 or P3,900.97 representing Meralco power
expenses;
7) One-half of P356,400.00 or P178,000.00 representing expenses
for food and maintenance;
8) P50,000.00 for moral damages;
9) P10,000.00 as exemplary damages; and
10) P200,000 representing attorneys fees.
With costs.
SO ORDERED.[29]
Unperturbed, YHT Realty Corporation, Lainez and Payam went to this
Court in this appeal by certiorari.
Petitioners submit for resolution by this Court the following issues: (a)
whether the appellate courts conclusion on the alleged prior existence and
subsequent loss of the subject money and jewelry is supported by the
evidence on record; (b) whether the finding of gross negligence on the part of
petitioners in the performance of their duties as innkeepers is supported by
the evidence on record; (c) whether the Undertaking For The Use of Safety
Deposit Box admittedly executed by private respondent is null and void; and
(d) whether the damages awarded to private respondent, as well as the
amounts thereof, are proper under the circumstances.[30]
The petition is devoid of merit.
It is worthy of note that the thrust of Rule 45 is the resolution only of
questions of law and any peripheral factual question addressed to this Court
is beyond the bounds of this mode of review.
Petitioners point out that the evidence on record is insufficient to prove
the fact of prior existence of the dollars and the jewelry which had been lost
while deposited in the safety deposit boxes of Tropicana, the basis of the trial
court and the appellate court being the sole testimony of McLoughlin as to
the contents thereof. Likewise, petitioners dispute the finding of gross
negligence on their part as not supported by the evidence on record.
 We are not persuaded. We adhere to the findings of the trial court as
affirmed by the appellate court that the fact of loss was established by the
credible testimony in open court by McLoughlin. Such findings are factual
and therefore beyond the ambit of the present petition.
The trial court had the occasion to observe the demeanor of McLoughlin
while testifying which reflected the veracity of the facts testified to by him. On
this score, we give full credence to the appreciation of testimonial evidence
by the trial court especially if what is at issue is the credibility of the witness.
The oft-repeated principle is that where the credibility of a witness is an
issue, the established rule is that great respect is accorded to the evaluation
of the credibility of witnesses by the trial court.[31] The trial court is in the best
position to assess the credibility of witnesses and their testimonies because
of its unique opportunity to observe the witnesses firsthand and note their
demeanor, conduct and attitude under grilling examination.[32]
We are also not impressed by petitioners argument that the finding of
gross negligence by the lower court as affirmed by the appellate court is not
supported by evidence. The evidence reveals that two keys are required to
open the safety deposit boxes of Tropicana. One key is assigned to the guest
while the other remains in the possession of the management. If the guest
desires to open his safety deposit box, he must request the management for
the other key to open the same. In other words, the guest alone cannot open
the safety deposit box without the assistance of the management or its
employees. With more reason that access to the safety deposit box should
be denied if the one requesting for the opening of the safety deposit box is a
stranger. Thus, in case of loss of any item deposited in the safety deposit
box, it is inevitable to conclude that the management had at least a hand in
the consummation of the taking, unless the reason for the loss is force
majeure.
Noteworthy is the fact that Payam and Lainez, who were employees of
Tropicana, had custody of the master key of the management when the loss
took place. In fact, they even admitted that they assisted Tan on three
separate occasions in opening McLoughlins safety deposit box.[33] This only
proves that Tropicana had prior knowledge that a person aside from the
registered guest had access to the safety deposit box. Yet the management
failed to notify McLoughlin of the incident and waited for him to discover the
taking before it disclosed the matter to him. Therefore, Tropicana should be
held responsible for the damage suffered by McLoughlin by reason of the
negligence of its employees.
The management should have guarded against the occurrence of this
incident considering that Payam admitted in open court that she assisted Tan
three times in opening the safety deposit box of McLoughlin at around 6:30
A.M. to 7:30 A.M. while the latter was still asleep.[34] In light of the
circumstances surrounding this case, it is undeniable that without the
acquiescence of the employees of Tropicana to the opening of the safety
deposit box, the loss of McLoughlins money could and should have been
avoided.
The management contends, however, that McLoughlin, by his act, made
its employees believe that Tan was his spouse for she was always with him
most of the time. The evidence on record, however, is bereft of any showing
that McLoughlin introduced Tan to the management as his wife. Such an
inference from the act of McLoughlin will not exculpate the petitioners from
liability in the absence of any showing that he made the management believe
that Tan was his wife or was duly authorized to have access to the safety
deposit box. Mere close companionship and intimacy are not enough to
warrant such conclusion considering that what is involved in the instant case
is the very safety of McLoughlins deposit. If only petitioners exercised due
diligence in taking care of McLoughlins safety deposit box, they should have
confronted him as to his relationship with Tan considering that the latter had
been observed opening McLoughlins safety deposit box a number of times at
the early hours of the morning. Tans acts should have prompted the
management to investigate her relationship with McLoughlin. Then,
petitioners would have exercised due diligence required of them. Failure to
do so warrants the conclusion that the management had been remiss in
complying with the obligations imposed upon hotel-keepers under the law.
Under Article 1170 of the New Civil Code, those who, in the
performance of their obligations, are guilty of negligence, are liable for
damages. As to who shall bear the burden of paying damages, Article 2180,
paragraph (4) of the same Code provides that the owners and managers of
an establishment or enterprise are likewise responsible for damages caused
by their employees in the service of the branches in which the latter are
employed or on the occasion of their functions. Also, this Court has ruled that
if an employee is found negligent, it is presumed that the employer was
negligent in selecting and/or supervising him for it is hard for the victim to
prove the negligence of such employer.[35] Thus, given the fact that the loss
of McLoughlins money was consummated through the negligence of
Tropicanas employees in allowing Tan to open the safety deposit box without
the guests consent, both the assisting employees and YHT Realty
Corporation itself, as owner and operator of Tropicana, should be held
solidarily liable pursuant to Article 2193.[36]
 The issue of whether the Undertaking For The Use of Safety Deposit
Box executed by McLoughlin is tainted with nullity presents a legal question
appropriate for resolution in this petition. Notably, both the trial court and the
appellate court found the same to be null and void. We find no reason to
reverse their common conclusion. Article 2003 is controlling, thus:
Art. 2003. The hotel-keeper cannot free himself from responsibility by posting
notices to the effect that he is not liable for the articles brought by the guest.
Any stipulation between the hotel-keeper and the guest whereby the
responsibility of the former as set forth in Articles 1998 to 2001[37] is
suppressed or diminished shall be void.
Article 2003 was incorporated in the New Civil Code as an expression of
public policy precisely to apply to situations such as that presented in this
case. The hotel business like the common carriers business is imbued with
public interest. Catering to the public, hotelkeepers are bound to provide not
only lodging for hotel guests and security to their persons and belongings.
The twin duty constitutes the essence of the business. The law in turn does
not allow such duty to the public to be negated or diluted by any contrary
stipulation in so-called undertakings that ordinarily appear in prepared forms
imposed by hotel keepers on guests for their signature.
In an early case,[38] the Court of Appeals through its then Presiding
Justice (later Associate Justice of the Court) Jose P. Bengzon, ruled that to
hold hotelkeepers or innkeeper liable for the effects of their guests, it is not
necessary that they be actually delivered to the innkeepers or their
employees. It is enough that such effects are within the hotel or inn. [39] With
greater reason should the liability of the hotelkeeper be enforced when the
missing items are taken without the guests knowledge and consent from a
safety deposit box provided by the hotel itself, as in this case.
Paragraphs (2) and (4) of the undertaking manifestly contravene Article
2003 of the New Civil Code for they allow Tropicana to be released from
liability arising from any loss in the contents and/or use of the safety deposit
box for any cause whatsoever.[40] Evidently, the undertaking was intended to
bar any claim against Tropicana for any loss of the contents of the safety
deposit box whether or not negligence was incurred by Tropicana or its
employees. The New Civil Code is explicit that the responsibility of the hotel-
keeper shall extend to loss of, or injury to, the personal property of the guests
even if caused by servants or employees of the keepers of hotels or inns as
well as by strangers, except as it may proceed from any force majeure.[41] It
is the loss through force majeure that may spare the hotel-keeper from
liability. In the case at bar, there is no showing that the act of the thief or
robber was done with the use of arms or through an irresistible force to
qualify the same as force majeure.[42]
Petitioners likewise anchor their defense on Article 2002[43] which
exempts the hotel-keeper from liability if the loss is due to the acts of his
guest, his family, or visitors. Even a cursory reading of the provision would
lead us to reject petitioners contention. The justification they raise would
render nugatory the public interest sought to be protected by the provision.
What if the negligence of the employer or its employees facilitated the
consummation of a crime committed by the registered guests relatives or
visitor? Should the law exculpate the hotel from liability since the loss was
due to the act of the visitor of the registered guest of the hotel? Hence, this
provision presupposes that the hotel-keeper is not guilty of concurrent
negligence or has not contributed in any degree to the occurrence of the
loss. A depositary is not responsible for the loss of goods by theft, unless his
actionable negligence contributes to the loss.[44]
In the case at bar, the responsibility of securing the safety deposit box
was shared not only by the guest himself but also by the management since
two keys are necessary to open the safety deposit box. Without the
assistance of hotel employees, the loss would not have occurred. Thus,
Tropicana was guilty of concurrent negligence in allowing Tan, who was not
the registered guest, to open the safety deposit box of McLoughlin, even
assuming that the latter was also guilty of negligence in allowing another
person to use his key. To rule otherwise would result in undermining the
safety of the safety deposit boxes in hotels for the management will be given
imprimatur to allow any person, under the pretense of being a family member
or a visitor of the guest, to have access to the safety deposit box without fear
of any liability that will attach thereafter in case such person turns out to be a
complete stranger. This will allow the hotel to evade responsibility for any
liability incurred by its employees in conspiracy with the guests relatives and
visitors.
Petitioners contend that McLoughlins case was mounted on the theory
of contract, but the trial court and the appellate court upheld the grant of the
claims of the latter on the basis of tort.[45] There is nothing anomalous in how
the lower courts decided the controversy for this Court has pronounced a
jurisprudential rule that tort liability can exist even if there are already
contractual relations. The act that breaks the contract may also be tort. [46]
As to damages awarded to McLoughlin, we see no reason to modify the
amounts awarded by the appellate court for the same were based on facts
and law. It is within the province of lower courts to settle factual issues such
as the proper amount of damages awarded and such finding is binding upon (3) One-half of P336,207.05 or P168,103.52 representing payment to
this Court especially if sufficiently proven by evidence and not Tropicana Copacabana Apartment Hotel;
unconscionable or excessive. Thus, the appellate court correctly awarded
McLoughlin Two Thousand US Dollars (US$2,000.00) and Four Thousand (4) One-half of P152,683.57 or P76,341.785 representing payment to
Five Hundred Australian dollars (AUS$4,500.00) or their peso equivalent at Echelon Tower;
the time of payment,[47] being the amounts duly proven by evidence.[48] The
alleged loss that took place prior to 16 April 1988 was not considered since
(5) One-half of P179,863.20 or P89,931.60 for the taxi or
the amounts alleged to have been taken were not sufficiently established by transportation expense from McLoughlins residence to Sydney
evidence. The appellate court also correctly awarded the sum Airport and from MIA to the hotel here in Manila, for the eleven
of P308,880.80, representing the peso value for the air fares from Sydney to
(11) trips;
Manila and back for a total of eleven (11) trips; [49] one-half of P336,207.05
or P168,103.52 representing payment to Tropicana;[50] one-half
ofP152,683.57 or P76,341.785 representing payment to Echelon (6) One-half of P7,801.94 or P3,900.97 representing Meralco power
Tower;[51] one-half of P179,863.20 or P89,931.60 for the taxi or transportation expenses;
expenses from McLoughlins residence to Sydney Airport and from MIA to the
hotel here in Manila, for the eleven (11) trips;[52] one-half of P7,801.94 (7) One-half of P356,400.00 or P178,200.00 representing expenses
or P3,900.97 representing Meralco power expenses;[53] one-half for food and maintenance;
of P356,400.00 or P178,000.00 representing expenses for food and
maintenance.[54] (8) P50,000.00 for moral damages;
The amount of P50,000.00 for moral damages is reasonable. Although
trial courts are given discretion to determine the amount of moral damages, (9) P10,000.00 as exemplary damages; and
the appellate court may modify or change the amount awarded when it is
palpably and scandalously excessive. Moral damages are not intended to (10) P200,000 representing attorneys fees.
enrich a complainant at the expense of a defendant. They are awarded only
to enable the injured party to obtain means, diversion or amusements that With costs.
will serve to alleviate the moral suffering he has undergone, by reason of
defendants culpable action.[55] SO ORDERED.
The awards of P10,000.00 as exemplary damages and P200,000.00
representing attorneys fees are likewise sustained.
WHEREFORE, foregoing premises considered, the Decision of the
Court of Appeals dated 19 October 1995 is hereby AFFIRMED. Petitioners
are directed, jointly and severally, to pay private respondent the following
amounts:

(1) US$2,000.00 and AUS$4,500.00 or their peso equivalent at the

time of payment;

(2) P308,880.80, representing the peso value for the air fares from
Sydney to Manila and back for a total of eleven (11) trips;
G.R. No. 102970 May 13, 1993
LUZAN SIA, petitioner,
vs.
COURT OF APPEALS and SECURITY BANK and TRUST
COMPANY, respondents.
Asuncion Law Offices for petitioner.
Cauton, Banares, Carpio & Associates for private respondent.
The antecedent facts of the present controversy are summarized by the
public respondent in its challenged decision as follows:
DAVIDE, JR., J.:
The Decision of public respondent Court of Appeals in CA-G.R. CV No.
26737, promulgated on 21 August 1991, 1reversing and setting aside the
Decision, dated 19 February 1990, 2 of Branch 47 of the Regional Trial Court
(RTC) of Manila in Civil Case No. 87-42601, entitled "LUZAN
SIA vs. SECURITY BANK and TRUST CO.," is challenged in this petition for
review on certiorari under Rule 45 of the Rules Court.
Civil Case No. 87-42601 is an action for damages arising out of the
destruction or loss of the stamp collection of the plaintiff (petitioner herein)
contained in Safety Deposit Box No. 54 which had been rented from the
defendant pursuant to a contract denominated as a Lease
Agreement. 3 Judgment therein was rendered in favor of the dispositive
portion of which reads:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of the plaintiff and against the defendant,
Security Bank & Trust Company, ordering the defendant
bank to pay the plaintiff the sum of
a) Twenty Thousand Pesos (P20,000.00), Philippine
Currency, as actual damages;
b) One Hundred Thousand Pesos (P100,000.00), Philippine
Currency, as moral damages; and
c) Five Thousand Pesos (P5,000.00), Philippine Currency,
as attorney's fees and legal expenses.
The counterclaim set up by the defendant are hereby
dismissed for lack of merit.
No costs.
SO ORDERED. 4
The plaintiff rented on March 22, 1985 the Safety Deposit
Box No. 54 of the defendant bank at its Binondo Branch
located at the Fookien Times Building, Soler St., Binondo,
Manila wherein he placed his collection of stamps. The said
safety deposit box leased by the plaintiff was at the bottom
or at the lowest level of the safety deposit boxes of the
defendant bank at its aforesaid Binondo Branch.
During the floods that took place in 1985 and 1986,
floodwater entered into the defendant bank's premises,
seeped into the safety deposit box leased by the plaintiff and
caused, according to the plaintiff, damage to his stamps
collection. The defendant bank rejected the plaintiff's claim
for compensation for his damaged stamps collection, so, the
plaintiff instituted an action for damages against the
defendant bank.
The defendant bank denied liability for the damaged stamps
collection of the plaintiff on the basis of the "Rules and
Regulations Governing the Lease of Safe Deposit Boxes"
(Exhs. "A-1", "1-A"), particularly paragraphs 9 and 13, which
reads (sic):
"9. The liability of the Bank by reason of the lease, is limited
to the exercise of the diligence to prevent the opening of the
safe by any person other than the Renter, his authorized
agent or legal representative;
 xxx xxx xxx
"13. The Bank is not a depository of the contents of the safe
and it has neither the possession nor the control of the
same. The Bank has no interest whatsoever in said
contents, except as herein provided, and it assumes
absolutely no liability in connection therewith."
The defendant bank also contended that its contract with the
plaintiff over safety deposit box No. 54 was one of lease and
not of deposit and, therefore, governed by the lease
agreement (Exhs. "A", "L") which should be the applicable
law; that the destruction of the plaintiff's stamps collection
was due to a calamity beyond obligation on its part to notify
the plaintiff about the floodwaters that inundated its premises
at Binondo branch which allegedly seeped into the safety
deposit box leased to the plaintiff.
The trial court then directed that an ocular inspection on (sic)
the contents of the safety deposit box be conducted, which
was done on December 8, 1988 by its clerk of court in the
presence of the parties and their counsels. A report thereon
was then submitted on December 12, 1988 (Records, p. 98-
A) and confirmed in open court by both parties thru counsel
during the hearing on the same date (Ibid., p. 102) stating:
"That the Safety Box Deposit No. 54 was
opened by both plaintiff Luzan Sia and the
Acting Branch Manager Jimmy B. Ynion in
the presence of the undersigned, plaintiff's
and defendant's counsel. Said Safety Box
when opened contains two albums of
different sizes and thickness, length and
width and a tin box with printed word 'Tai
Ping Shiang Roast Pork in pieces with
Chinese designs and character."
Condition of the above-stated Items
"Both albums are wet, moldy and badly damaged.
1. The first album measures 10 1/8 inches in length, 8 inches
in width and 3/4 in thick. The leaves of the album are
attached to every page and cannot be lifted without
destroying it, hence the stamps contained therein are no
longer visible.
2. The second album measure 12 1/2 inches in length, 9 3/4
in width 1 inch thick. Some of its pages can still be lifted. The
stamps therein can still be distinguished but beyond
restoration. Others have lost its original form.
3. The tin box is rusty inside. It contains an album with
several pieces of papers stuck up to the cover of the box.
The condition of the album is the second abovementioned
album." 5
The SECURITY BANK AND TRUST COMPANY, hereinafter referred to as
SBTC, appealed the trial court's decision to the public respondent Court of
Appeals. The appeal was docketed as CA-G.R. CV No. 26737.
In urging the public respondent to reverse the decision of the trial court,
SBTC contended that the latter erred in (a) holding that the lease agreement
is a contract of adhesion; (b) finding that the defendant had failed to exercise
the required diligence expected of a bank in maintaining the safety deposit
box; (c) awarding to the plaintiff actual damages in the amount of
P20,000.00, moral damages in the amount of P100,000.00 and attorney's
fees and legal expenses in the amount of P5,000.00; and (d) dismissing the
counterclaim.
On 21 August 1991, the respondent promulgated its decision the dispositive
portion of which reads:
WHEREFORE, the decision appealed from is hereby
REVERSED and instead the appellee's complaint is hereby
DISMISSED. The appellant bank's counterclaim is likewise
DISMISSED. No costs. 6
In reversing the trial court's decision and absolving SBTC from liability, the
public respondent found and ruled that:
a) the fine print in the "Lease Agreement " (Exhibits "A" and "1" ) constitutes
the terms and conditions of the contract of lease which the appellee (now
petitioner) had voluntarily and knowingly executed with SBTC;
b) the contract entered into by the parties regarding Safe Deposit Box No. 54
was not a contract of deposit wherein the bank became a depositary of the
subject stamp collection; hence, as contended by SBTC, the provisions of
Book IV, Title XII of the Civil Code on deposits do not apply;
c) The following provisions of the questioned lease agreement of the safety
deposit box limiting SBTC's liability:
9. The liability of the bank by reason of the lease, is limited
to the exercise of the diligence to prevent the opening of the
Safe by any person other than the Renter, his authorized
agent or legal representative.
xxx xxx xxx
13. The bank is not a depository of the contents of the Safe
and it has neither the possession nor the control of the
same. The Bank has no interest whatsoever in said
contents, except as herein provided, and it assumes
absolutely no liability in connection therewith.
are valid since said stipulations are not contrary to law, morals, good
customs, public order or public policy; and
d) there is no concrete evidence to show that SBTC failed to exercise the
required diligence in maintaining the safety deposit box; what was proven
was that the floods of 1985 and 1986, which were beyond the control of
SBTC, caused the damage to the stamp collection; said floods were
fortuitous events which SBTC should not be held liable for since it was not
shown to have participated in the aggravation of the damage to the stamp
collection; on the contrary, it offered its services to secure the assistance of
an expert in order to save most of the stamps, but the appellee refused;
appellee must then bear the lose under the principle of "res perit domino."
Unsuccessful in his bid to have the above decision reconsidered by the
public respondent, 7 petitioner filed the instant petition wherein he contends
that:
I
IT WAS A GRAVE ERROR OR AN ABUSE OF
DISCRETION ON THE PART OF THE RESPONDENT
COURT WHEN IT RULED THAT RESPONDENT SBTC DID
NOT FAIL TO EXERCISE THE REQUIRED DILIGENCE IN
MAINTAINING THE SAFETY DEPOSIT BOX OF THE
PETITIONER CONSIDERING THAT SUBSTANTIAL
EVIDENCE EXIST (sic) PROVING THE CONTRARY.
II
THE RESPONDENT COURT SERIOUSLY ERRED IN
EXCULPATING PRIVATE RESPONDENT FROM ANY
LIABILITY WHATSOEVER BY REASON OF THE
PROVISIONS OF PARAGRAPHS 9 AND 13 OF THE
AGREEMENT (EXHS. "A" AND "A-1").
III
THE RESPONDENT COURT SERIOUSLY ERRED IN NOT
UPHOLDING THE AWARDS OF THE TRIAL COURT FOR
ACTUAL AND MORAL DAMAGES, INCLUDING
ATTORNEY'S FEES AND LEGAL EXPENSES, IN FAVOR
OF THE PETITIONER. 8
We subsequently gave due course the petition and required both parties to
submit their respective memoranda, which they complied with. 9
Petitioner insists that the trial court correctly ruled that SBTC had failed "to
exercise the required diligence expected of a bank maintaining such safety
deposit box . . . in the light of the environmental circumstance of said safety
deposit box after the floods of 1985 and 1986." He argues that such a
conclusion is supported by the evidence on record, to wit: SBTC was fully
cognizant of the exact location of the safety deposit box in question; it knew
that the premises were inundated by floodwaters in 1985 and 1986 and
considering that the bank is guarded twenty-four (24) hours a day , it is safe
to conclude that it was also aware of the inundation of the premises where
the safety deposit box was located; despite such knowledge, however, it
never bothered to inform the petitioner of the flooding or take any appropriate
measures to insure the safety and good maintenance of the safety deposit
box in question.
SBTC does not squarely dispute these facts; rather, it relies on the rule that
findings of facts of the Court of Appeals, when supported by substantial
exidence, are not reviewable on appeal by certiorari. 10
The foregoing rule is, of course, subject to certain exceptions such as when
there exists a disparity between the factual findings and conclusions of the
Court of Appeals and the trial court. 11 Such a disparity obtains in the present
case.
As We see it, SBTC's theory, which was upheld by the public respondent, is
that the "Lease Agreement " covering Safe Deposit Box No. 54 (Exhibit "A
and "1") is just that a contract of lease and not a contract of deposit,
and that paragraphs 9 and 13 thereof, which expressly limit the bank's
liability as follows:
9. The liability of the bank by reason of the lease, is limited
to the exercise of the diligence to prevent the opening of the
Safe by any person other than the Renter, his autliorized
agent or legal representative;
xxx xxx xxx
13. The bank is not a depository of the contents of the Safe
and it has neither the possession nor the control of the
same. The Bank has no interest whatsoever said contents,
except as herein provided, and it assumes absolutely no
liability in connection therewith. 12
are valid and binding upon the parties. In the challenged decision, the public
respondent further avers that even without such a limitation of liability, SBTC
should still be absolved from any responsibility for the damage sustained by
the petitioner as it appears that such damage was occasioned by a fortuitous
event and that the respondent bank was free from any participation in the
aggravation of the injury.
We cannot accept this theory and ratiocination. Consequently, this Court
finds the petition to be impressed with merit.
In the recent case CA Agro-Industrial Development Corp. vs. Court of
Appeals, 13 this Court explicitly rejected the contention that a contract for the
use of a safety deposit box is a contract of lease governed by Title VII, Book
IV of the Civil Code. Nor did We fully subscribe to the view that it is a contract
of deposit to be strictly governed by the Civil Code provision on deposit; 14 it
is, as We declared, a special kind of deposit. The prevailing rule in American
jurisprudence 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 for hire and mutual benefit 15 has been
adopted in this jurisdiction, thus:
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 [R.A.
337, as amended] 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 safequarding 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. . . ."(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 (Art. 1969, Civil Code] 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 [Art. 1170, id.]. In the absence of any stipulation
prescribing the degree of diligence required, that of a good
father of a family is to be observed [Art. 1173, id.]. 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 l4 of the questioned
contract of lease of the safety deposit box, which read:
"13. The bank is 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 as herein expressly provided, and it assumes
absolutely no liability in connection therewith."
are void as they are contrary to law and public policy. We
find Ourselves in agreement with this proposition for indeed,
said provisions are inconsistent with the respondent Bank's
responsibility as a depositary under Section 72 (a) of the
General Banking Act. Both exempt the latter from any liability
except as contemplated in condition 8 thereof which limits its
duty to exercise reasonable diligence only with respect to
who shall be admitted to any rented safe, to wit:
"8. The Bank shall use due diligence that no
unauthorized person shall be admitted to
any rented safe and beyond this, the Bank
will not be responsible for the contents of
any safe rented from it."
Furthermore condition 13 stands on a wrong premise and is
contrary to the actual practice of the Bank. It is not correct to
assert that the Bank has neither the possession nor control
of the contents of the box since in fact, the safety deposit
box itself is located in its premises and is under its absolute
control; moreover, the respondent Bank keeps the guard key
to the said box. As stated earlier, renters cannot open their
respective boxes unless the Bank cooperates by presenting
and using this guard key. Clearly then, to the extent above
stated, the foregoing conditions in the contract in question
are void and ineffective. 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 ."[10 AM JUR 2d.,
466]. (citations omitted) 16
It must be noted that conditions No. 13 and No. 14 in the Contract of Lease
of Safety Deposit Box in CA Agro-Industrial Development Corp. are strikingly
similar to condition No. 13 in the instant case. On the other hand, both
condition No. 8 in CA Agro-Industrial Development Corp. and condition No. 9
in the present case limit the scope of the exercise of due diligence by the
banks involved to merely seeing to it that only the renter, his authorized
agent or his legal representative should open or have access to the safety
deposit box. In short, in all other situations, it would seem that SBTC is not
bound to exercise diligence of any kind at all. Assayed in the light of Our
aforementioned pronouncements in CA Agro-lndustrial Development Corp., it
is not at all difficult to conclude that both conditions No. 9 and No. 13 of the
"Lease Agreement" covering the safety deposit box in question (Exhibits "A"
and "1") must be stricken down for being contrary to law and public policy as
they are meant to exempt SBTC from any liability for damage, loss or
destruction of the contents of the safety deposit box which may arise from its
own or its agents' fraud, negligence or delay. Accordingly, SBTC cannot take
refuge under the said conditions.
Public respondent further postulates that SBTC cannot be held responsible
for the destruction or loss of the stamp collection because the flooding was a
fortuitous event and there was no showing of SBTC's participation in the
aggravation of the loss or injury. It states:
Article 1174 of the Civil Code provides:
"Except in cases expressly specified by the
law, or when it is otherwise declared by
stipulation, or when the nature of the
obligation requires the assumption of risk,
no person shall be responsible for those
events which could not be foreseen, or
which, though foreseen, were inevitable.'
In its dissertation of the phrase "caso
fortuito" the Enciclopedia Jurisdicada Espaola 17 says: "In a
legal sense and, consequently, also in relation to contracts,
a "caso fortuito" prevents (sic) 18 the following essential
characteristics: (1) the cause of the unforeseen ands
unexpected occurrence, or of the failure of the debtor to
comply with his obligation, must be independent of the
human will; (2) it must be impossible to foresee the event
which constitutes the "caso fortuito," or if it can be foreseen,
it must be impossible to avoid; (3) the occurrence must be
such as to render it impossible for one debtor to fulfill his
obligation in a normal manner; and (4) the obligor must be
free from any participation in the aggravation of the injury
resulting to the creditor." (cited in Servando vs. Phil., Steam
Navigation Co., supra). 19
Here, the unforeseen or unexpected inundating floods were
independent of the will of the appellant bank and the latter
was not shown to have participated in aggravating damage
(sic) to the stamps collection of the appellee. In fact, the
appellant bank offered its services to secure the assistance
of an expert to save most of the then good stamps but the
appelle refused and let (sic) these recoverable stamps inside
the safety deposit box until they were ruined. 20
Both the law and authority cited are clear enough and require no further
elucidation. Unfortunately, however, the public respondent failed to consider
that in the instant case, as correctly held by the trial court, SBTC was guilty
of negligence. The facts constituting negligence are enumerated in the
petition and have been summarized in this ponencia. SBTC's
negligence aggravated the injury or damage to the stamp collection. SBTC
was aware of the floods of 1985 and 1986; it also knew that the floodwaters
inundated the room where Safe Deposit Box No. 54 was located. In view
thereof, it should have lost no time in notifying the petitioner in order that the
box could have been opened to retrieve the stamps, thus saving the same
from further deterioration and loss. In this respect, it failed to exercise the
reasonable care and prudence expected of a good father of a family, thereby
becoming a party to the aggravation of the injury or loss. Accordingly, the
aforementioned fourth characteristic of a fortuitous event is absent Article
1170 of the Civil Code, which reads:
Those who in the performance of their obligation are guilty of
fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages,
thus comes to the succor of the petitioner. The destruction or loss of the
stamp collection which was, in the language of the trial court, the "product of
27 years of patience and diligence" 21 caused the petitioner pecuniary loss;
hence, he must be compensated therefor.
We cannot, however, place Our imprimatur on the trial court's award of moral
damages. Since the relationship between the petitioner and SBTC is based
on a contract, either of them may be held liable for moral damages for breach
thereof only if said party had acted fraudulently or in bad faith. 22 There is
here no proof of fraud or bad faith on the part of SBTC.

WHEREFORE, the instant petition is hereby GRANTED. The challenged

Decision and Resolution of the public respondent Court of Appeals of 21
August 1991 and 21 November 1991, respectively, in CA-G.R. CV No.
26737, are hereby SET ASIDE and the Decision of 19 February 1990 of
Branch 47 of the Regional Trial Court of Manila in Civil Case No. 87-42601 is
hereby REINSTATED in full, except as to the award of moral damages which
is hereby set aside.

Costs against the private respondent.

SO ORDERED.
G.R. Nos. L-26948 and L-26949 October 8, 1927
SILVESTRA BARON, plaintiff-appellant,
vs.
PABLO DAVID, defendant-appellant.
And
GUILLERMO BARON, plaintiff-appellant,
vs.
PABLO DAVID, defendant-appellant.
Jose Gutierrez David for plaintiff-appellant in case of No. 26948.
Gregorio Perfecto for defendant-appellant in both cases.
Francisco, Lualhati & Lopez and Jose Gutierrez David for plaintiff-appellant
in case No. 26949.
STREET, J.:
These two actions were instituted in the Court of First Instance of the
Province of Pampanga by the respective plaintiffs, Silvestra Baron and
Guillermo Baron, for the purpose of recovering from the defendant, Pablo
David, the value of palay alleged to have been sold by the plaintiffs to the
defendant in the year 1920. Owing to the fact that the defendant is the same
in both cases and that the two cases depend in part upon the same facts, the
cases were heard together in the trial court and determined in a single
opinion. The same course will accordingly be followed here.
In the first case, i. e., that which Silvestra Baron is plaintiff, the court gave
judgment for her to recover of the defendant the sum of P5,238.51, with
costs. From this judgment both the plaintiff and the defendant appealed.
In the second case, i. e., that in which Guillermo Baron, is plaintiff, the court
gave judgment for him to recover of the defendant the sum of P5,734.60,
with costs, from which judgment both the plaintiff and the defendant also
appealed. In the same case the defendant interposed a counterclaim in
which he asked credit for the sum of P2,800 which he had advanced to the
plaintiff Guillermo Baron on various occasions. This credit was admitted by
the plaintiff and allowed by the trial court. But the defendant also interposed a
cross-action against Guillermo Baron in which the defendant claimed
compensation for damages alleged to have Ben suffered by him by reason of
the alleged malicious and false statements made by the plaintiff against the
defendant in suing out an attachment against the defendant's property soon
after the institution of the action. In the same cross-action the defendant also
sought compensation for damages incident to the shutting down of the
defendant's rice mill for the period of one hundred seventy days during which
the above-mentioned attachment was in force. The trial judge disallowed
these claims for damages, and from this feature of the decision the
defendant appealed. We are therefore confronted with five distinct appeals in
this record.
Prior to January 17, 1921, the defendant Pablo David has been engaged in
running a rice mill in the municipality of Magalang, in the Province of
Pampanga, a mill which was well patronized by the rice growers of the
vicinity and almost constantly running. On the date stated a fire occurred that
destroyed the mill and its contents, and it was some time before the mill
could be rebuilt and put in operation again. Silvestra Baron, the plaintiff in the
first of the actions before us, is an aunt of the defendant; while Guillermo
Baron, the plaintiff in the other action; is his uncle. In the months of March,
April, and May, 1920, Silvestra Baron placed a quantity of palay in the
defendant's mill; and this, in connection with some that she took over from
Guillermo Baron, amounted to 1,012 cavans and 24 kilos. During
approximately the same period Guillermo Baron placed other 1,865 cavans
and 43 kilos of palay in the mill. No compensation has ever been received by
Silvestra Baron upon account of the palay delivered by Guillermo Baron, he
has received from the defendant advancements amounting to P2,800; but
apart from this he has not been compensated. Both the plaintiffs claim that
the palay which was delivered by them to the defendant was sold to the
defendant; while the defendant, on the other hand, claims that the palay was
deposited subject to future withdrawal by the depositors or subject to some
future sale which was never effected. He therefore supposes himself to be
relieved from all responsibility by virtue of the fire of January 17, 1921,
already mentioned.
The plaintiff further say that their palay was delivered to the defendant at his
special request, coupled with a promise on his part to pay for the same at the
highest price per cavan at which palay would sell during the year 1920; and
they say that in August of that year the defendant promised to pay them
severally the price of P8.40 per cavan, which was about the top of the market
for the season, provided they would wait for payment until December. The
trial judge found that no such promise had been given; and the incredulity of
the court upon this point seems to us to be justified. A careful examination of
the proof, however, leads us to the conclusion that the plaintiffs did, some
time in the early part of August, 1920, make demand upon the defendant for
a settlement, which he evaded or postponed leaving the exact amount due to
the plaintiffs undetermined.
It should be stated that the palay in question was place by the plaintiffs in the
defendant's mill with the understanding that the defendant was at liberty to
convert it into rice and dispose of it at his pleasure. The mill was actively
running during the entire season, and as palay was daily coming in from
many customers and as rice was being constantly shipped by the defendant
to Manila, or other rice markets, it was impossible to keep the plaintiffs' palay
segregated. In fact the defendant admits that the plaintiffs' palay was mixed
with that of others. In view of the nature of the defendant's activities and the
way in which the palay was handled in the defendant's mill, it is quite certain
that all of the plaintiffs' palay, which was put in before June 1, 1920, been
milled and disposed of long prior to the fire of January 17, 1921.
Furthermore, the proof shows that when the fire occurred there could not
have been more than about 360 cavans of palay in the mill, none of which by
any reasonable probability could have been any part of the palay delivered
by the plaintiffs. Considering the fact that the defendant had thus milled and
doubtless sold the plaintiffs' palay prior to the date of the fire, it result that he
is bound to account for its value, and his liability was not extinguished by the
occurence of the fire. In the briefs before us it seems to have been assumed
by the opposing attorneys that in order for the plaintiffs to recover, it is
necessary that they should be able to establish that the plaintiffs' palay was
delivered in the character of a sale, and that if, on the contrary, the defendant
should prove that the delivery was made in the character of deposit, the
defendant should be absolved. But the case does not depend precisely upon
this explicit alternative; for even supposing that the palay may have been
delivered in the character of deposit, subject to future sale or withdrawal at
plaintiffs' election, nevertheless if it was understood that the defendant might
mill the palay and he has in fact appropriated it to his own use, he is of
course bound to account for its value. Under article 1768 of the Civil Code,
when the depository has permission to make use of the thing deposited, the
contract loses the character of mere deposit and becomes a loan or
acommodatum; and of course by appropriating the thing, the bailee becomes
responsible for its value. In this connection we wholly reject the defendant's
pretense that the palay delivered by the plaintiffs or any part of it was actually
consumed in the fire of January, 1921. Nor is the liability of the defendant in
any wise affected by the circumstance that, by a custom prevailing among
rice millers in this country, persons placing palay with them without special
agreement as to price are at liberty to withdraw it later, proper allowance
being made for storage and shrinkage, a thing that is sometimes done,
though rarely.
In view of what has been said it becomes necessary to discover the price
which the defendant should be required to pay for the plaintiffs' palay. Upon
this point the trial judge fixed upon P6.15 per cavan; and although we are not
exactly in agreement with him as to the propriety of the method by which he
arrived at this figure, we are nevertheless of the opinion that, all things
considered, the result is approximately correct. It appears that the price of
palay during the months of April, May, and June, 1920, had been excessively
high in the Philippine Islands and even prior to that period the Government of
the Philippine Islands had been attempting to hold the price in check by
executive regulation. The highest point was touched in this season was
apparently about P8.50 per cavan, but the market began to sag in May or
June and presently entered upon a precipitate decline. As we have already
stated, the plaintiffs made demand upon the defendant for settlement in the
early part of August; and, so far as we are able to judge from the proof, the
price of P6.15 per cavan, fixed by the trial court, is about the price at which
the defendant should be required to settle as of that date. It was the date of
the demand of the plaintiffs for settlement that determined the price to be
paid by the defendant, and this is true whether the palay was delivered in the
character of sale with price undetermined or in the character of deposit
subject to use by the defendant. It results that the plaintiffs are respectively
entitle to recover the value of the palay which they had placed with the
defendant during the period referred to, with interest from the date of the
filing of their several complaints.
As already stated, the trial court found that at the time of the fire there were
about 360 cavans of palay in the mill and that this palay was destroyed. His
Honor assumed that this was part of the palay delivered by the plaintiffs, and
he held that the defendant should be credited with said amount. His Honor
therefore deducted from the claims of the plaintiffs their respective
proportionate shares of this amount of palay. We are unable to see the
propriety of this feature of the decision. There were many customers of the
defendant's rice mill who had placed their palay with the defendant under the
same conditions as the plaintiffs, and nothing can be more certain than that
the palay which was burned did not belong to the plaintiffs. That palay
without a doubt had long been sold and marketed. The assignments of error
of each of the plaintiffs-appellants in which this feature of the decision is
attacked are therefore well taken; and the appealed judgments must be
modified by eliminating the deductions which the trial court allowed from the
plaintiffs' claims.
The trial judge also allowed a deduction from the claim of the plaintiff
Guillermo Baron of 167 cavans of palay, as indicated in Exhibit 12, 13, 14,
and 16. This was also erroneous. These exhibits relate to transactions that
occurred nearly two years after the transactions with which we are here
concerned, and they were offered in evidence merely to show the character
of subsequent transactions between the parties, it appearing that at the time
said exhibits came into existence the defendant had reconstructed his mill
and that business relations with Guillermo Baron had been resumed. The
transactions shown by these exhibits (which relate to palay withdrawn by the
plaintiff from the defendant's mill) were not made the subject of controversy
in either the complaint or the cross-complaint of the defendant in the second
case. They therefore should not have been taken into account as a credit in
favor of the defendant. Said credit must therefore be likewise of course be
without prejudice to any proper adjustment of the rights of the parties with
respect to these subsequent transactions that they have heretofore or may
hereafter effect.
The preceding discussion disposes of all vital contentions relative to the
liability of the defendant upon the causes of action stated in the complaints.
We proceed therefore now to consider the question of the liability of the
plaintiff Guillermo Baron upon the cross-complaint of Pablo David in case R.
G. No. 26949. In this cross-action the defendant seek, as the stated in the
third paragraph of this opinion, to recover damages for the wrongful suing out
of an attachment by the plaintiff and the levy of the same upon the
defendant's rice mill. It appears that about two and one-half months after said
action was begun, the plaintiff, Guillermo Baron, asked for an attachment to
be issued against the property of the defendant; and to procure the issuance
of said writ the plaintiff made affidavit to the effect that the defendant was
disposing, or attempting the plaintiff. Upon this affidavit an attachment was
issued as prayed, and on March 27, 1924, it was levied upon the defendant's
rice mill, and other property, real and personal. 1awph!l.net
Upon attaching the property the sheriff closed the mill and placed it in the
care of a deputy. Operations were not resumed until September 13, 1924,
when the attachment was dissolved by an order of the court and the
defendant was permitted to resume control. At the time the attachment was
levied there were, in the bodega, more than 20,000 cavans of palay
belonging to persons who held receipts therefor; and in order to get this grain
away from the sheriff, twenty-four of the depositors found it necessary to
submit third-party claims to the sheriff. When these claims were put in the
sheriff notified the plaintiff that a bond in the amount of P50,000 must be
given, otherwise the grain would be released. The plaintiff, being unable or
unwilling to give this bond, the sheriff surrendered the palay to the claimants;
but the attachment on the rice mill was maintained until September 13, as
above stated, covering a period of one hundred seventy days during which
the mill was idle. The ground upon which the attachment was based, as set
forth in the plaintiff's affidavit was that the defendant was disposing or
attempting to dispose of his property for the purpose of defrauding the
plaintiff. That this allegation was false is clearly apparent, and not a word of
proof has been submitted in support of the assertion. On the contrary, the
defendant testified that at the time this attachment was secured he was
solvent and could have paid his indebtedness to the plaintiff if judgment had
been rendered against him in ordinary course. His financial conditions was of
course well known to the plaintiff, who is his uncle. The defendant also states
that he had not conveyed away any of his property, nor had intended to do
so, for the purpose of defrauding the plaintiff. We have before us therefore a
case of a baseless attachment, recklessly sued out upon a false affidavit and
levied upon the defendant's property to his great and needless damage. That
the act of the plaintiff in suing out the writ was wholly unjustifiable is perhaps
also indicated in the circumstance that the attachment was finally dissolved
upon the motion of the plaintiff himself.
The defendant testified that his mill was accustomed to clean from 400 to
450 cavans of palay per day, producing 225 cavans of rice of 57 kilos each.
The price charged for cleaning each cavan rice was 30 centavos. The
defendant also stated that the expense of running the mill per day was from
P18 to P25, and that the net profit per day on the mill was more than P40. As
the mill was not accustomed to run on Sundays and holiday, we estimate that
the defendant lost the profit that would have been earned on not less than
one hundred forty work days. Figuring his profits at P40 per day, which would
appear to be a conservative estimate, the actual net loss resulting from his
failure to operate the mill during the time stated could not have been less
than P5,600. The reasonableness of these figures is also indicated in the fact
that the twenty-four customers who intervened with third-party claims took
out of the camarin 20,000 cavans of palay, practically all of which, in the
ordinary course of events, would have been milled in this plant by the
defendant. And of course other grain would have found its way to this mill if it
had remained open during the one hundred forty days when it was closed.
But this is not all. When the attachment was dissolved and the mill again
opened, the defendant found that his customers had become scattered and
could not be easily gotten back. So slow, indeed, was his patronage in
returning that during the remainder of the year 1924 the defendant was able
to mill scarcely more than the grain belonging to himself and his brothers;
and even after the next season opened many of his old customers did not
return. Several of these individuals, testifying as witnesses in this case,
stated that, owing to the unpleasant experience which they had in getting
back their grain from the sheriff to the mill of the defendant, though they had
previously had much confidence in him.
As against the defendant's proof showing the facts above stated the plaintiff
submitted no evidence whatever. We are therefore constrained to hold that
the defendant was damaged by the attachment to the extent of P5,600, in
profits lost by the closure of the mill, and to the extent of P1,400 for injury to
the good-will of his business, making a total of P7,000. For this amount the
defendant must recover judgment on his cross-complaint.
The trial court, in dismissing the defendant's cross-complaint for damages
resulting from the wrongful suing out of the attachment, suggested that the
closure of the rice mill was a mere act of the sheriff for which the plaintiff was
not responsible and that the defendant might have been permitted by the
sheriff to continue running the mill if he had applied to the sheriff for
permission to operate it. This singular suggestion will not bear a moment's
criticism. It was of course the duty of the sheriff, in levying the attachment, to
take the attached property into his possession, and the closure of the mill
was a natural, and even necessary, consequence of the attachment. For the
damage thus inflicted upon the defendant the plaintiff is undoubtedly
responsible.
One feature of the cross-complaint consist in the claim of the defendant
(cross-complaint) for the sum of P20,000 as damages caused to the
defendant by the false and alleged malicious statements contained in the
affidavit upon which the attachment was procured. The additional sum of
P5,000 is also claimed as exemplary damages. It is clear that with respect to
these damages the cross-action cannot be maintained, for the reason that
the affidavit in question was used in course of a legal proceeding for the
purpose of obtaining a legal remedy, and it is therefore privileged. But though
the affidavit is not actionable as a libelous publication, this fact in no obstacle
to the maintenance of an action to recover the damage resulting from the
levy of the attachment.
Before closing this opinion a word should be said upon the point raised in the
first assignment of error of Pablo David as defendant in case R. G. No.
26949. In this connection it appears that the deposition of Guillermo Baron
was presented in court as evidence and was admitted as an exhibit, without
being actually read to the court. It is supposed in the assignment of error now
under consideration that the deposition is not available as evidence to the
plaintiff because it was not actually read out in court. This connection is not
well founded. It is true that in section 364 of the Code of Civil Procedure it is
said that a deposition, once taken, may be read by either party and will then
be deemed the evidence of the party reading it. The use of the word "read" in
this section finds its explanation of course in the American practice of trying
cases for the most part before juries. When a case is thus tried the actual
reading of the deposition is necessary in order that the jurymen may become
acquainted with its contents. But in courts of equity, and in all courts where
judges have the evidence before them for perusal at their pleasure, it is not
necessary that the deposition should be actually read when presented as
evidence.
From what has been said it result that judgment of the court below must be
modified with respect to the amounts recoverable by the respective plaintiffs
in the two actions R. G. Nos. 26948 and 26949 and must be reversed in
respect to the disposition of the cross-complaint interposed by the defendant
in case R. G. No. 26949, with the following result: In case R. G. No. 26948
the plaintiff Silvestra Baron will recover of the Pablo David the sum of
P6,227.24, with interest from November 21, 1923, the date of the filing of her
complaint, and with costs. In case R. G. No. 26949 the plaintiff Guillermo
Baron will recover of the defendant Pablo David the sum of P8,669.75, with
interest from January 9, 1924. In the same case the defendant Pablo David,
as plaintiff in the cross-complaint, will recover of Guillermo Baron the sum of
P7,000, without costs. So ordered.
Avancea, C.J., Johnson, Malcolm, Villamor, Romualdez and Villa-Real, JJ.,
concur.
[G.R. No. 160544. February 21, 2005]
TRIPLE-V vs. FILIPINO MERCHANTS
THIRD DIVISION
Gentlemen:
Quoted hereunder, for your information, is a resolution of this Court
dated FEB 21 2005.
G.R. No. 160544 (Triple-V Food Services, Inc. vs. Filipino Merchants
Insurance Company, Inc.)
Assailed in this petition for review on certiorari is the decision [1]cralaw dated
October 21, 2003 of the Court of Appeals in CA-G.R. CV No. 71223,
affirming an earlier decision of the Regional Trial Court at Makati City,
Branch 148, in its Civil Case No. 98-838, an action for damages thereat filed
by respondent Filipino Merchants Insurance, Company, Inc., against the
herein petitioner, Triple-V Food Services, Inc.
On March 2, 1997, at around 2:15 o'clock in the afternoon, a certain Mary Jo-
Anne De Asis (De Asis) dined at petitioner's Kamayan Restaurant at 15 West
Avenue, Quezon City. De Asis was using a Mitsubishi Galant Super Saloon
Model 1995 with plate number UBU 955, assigned to her by her employer
Crispa Textile Inc. (Crispa). On said date, De Asis availed of the valet
parking service of petitioner and entrusted her car key to petitioner's valet
counter. A corresponding parking ticket was issued as receipt for the car.
The car was then parked by petitioner's valet attendant, a certain Madridano,
at the designated parking area. Few minutes later, Madridano noticed that
the car was not in its parking slot and its key no longer in the box where valet
attendants usually keep the keys of cars entrusted to them. The car was
never recovered. Thereafter, Crispa filed a claim against its insurer, herein
respondent Filipino Merchants Insurance Company, Inc. (FMICI). Having
indemnified Crispa in the amount of P669.500 for the loss of the subject
vehicle, FMICI, as subrogee to Crispa's rights, filed with the RTC at Makati
City an action for damages against petitioner Triple-V Food Services, Inc.,
thereat docketed as Civil Case No. 98-838 which was raffled to Branch 148.
In its answer, petitioner argued that the complaint failed to aver facts to
support the allegations of recklessness and negligence committed in the
safekeeping and custody of the subject vehicle, claiming that it and its
employees wasted no time in ascertaining the loss of the car and in informing
De Asis of the discovery of the loss. Petitioner further argued that in
accepting the complimentary valet parking service, De Asis received a
parking ticket whereunder it is so provided that "[Management and staff will
not be responsible for any loss of or damage incurred on the vehicle nor of
valuables contained therein", a provision which, to petitioner's mind, is an
explicit waiver of any right to claim indemnity for the loss of the car; and that
De Asis knowingly assumed the risk of loss when she allowed petitioner to
park her vehicle, adding that its valet parking service did not include
extending a contract of insurance or warranty for the loss of the vehicle.
During trial, petitioner challenged FMICI's subrogation to Crispa's right to file
a claim for the loss of the car, arguing that theft is not a risk insured against
under FMICI's Insurance Policy No. PC-5975 for the subject vehicle.
In a decision dated June 22, 2001, the trial court rendered judgment for
respondent FMICI, thus:
WHEREFORE, premises considered, judgment is hereby rendered in favor
of the plaintiff (FMICI) and against the defendant Triple V (herein petitioner)
and the latter is hereby ordered to pay plaintiff the following:
1. The amount of P669,500.00, representing actual damages plus
compounded (sic);
2. The amount of P30,000.00 as acceptance fee plus the amount equal to
25% of the total amount due as attorney's fees;
3. The amount of P50,000.00 as exemplary damages;
4. Plus, cost of suit.
Defendant Triple V is not therefore precluded from taking appropriate action
against defendant Armando Madridano.
SO ORDERED.
Obviously displeased, petitioner appealed to the Court of Appeals reiterating
its argument that it was not a depositary of the subject car and that it
exercised due diligence and prudence in the safe keeping of the vehicle, in
handling the car-napping incident and in the supervision of its employees. It
further argued that there was no valid subrogation of rights between Crispa
and respondent FMICI.
In a decision dated October 21, 2003,[2]cralaw the Court of Appeals
dismissed petitioner's appeal and affirmed the appealed decision of the trial
court, thus:
WHEREFORE, based on the foregoing premises, the instant appeal is
hereby DISMISSED. Accordingly, the assailed June 22, 2001 Decision of the
RTC of Makati City - Branch 148 in Civil Case No. 98-838 is AFFIRMED.
SO ORDERED.
In so dismissing the appeal and affirming the appealed decision, the
appellate court agreed with the findings and conclusions of the trial court
that: (a) petitioner was a depositary of the subject vehicle; (b) petitioner was
negligent in its duties as a depositary thereof and as an employer of the valet
attendant; and (c) there was a valid subrogation of rights between Crispa and
respondent FMICI.
Hence, petitioner's present recourse.
We agree with the two (2) courts below.
When De Asis entrusted the car in question to petitioners valet attendant
while eating at petitioner'sKamayan Restaurant, the former expected the
car's safe return at the end of her meal. Thus, petitioner was constituted as a
depositary of the same car. Petitioner cannot evade liability by arguing that
neither a contract of deposit nor that of insurance, guaranty or surety for the
loss of the car was constituted when De Asis availed of its free valet parking
service.
In a contract of deposit, a person receives an object belonging to another
with the obligation of safely keeping it and returning the same. [3]cralaw A
deposit may be constituted even without any consideration. It is not
necessary that the depositary receives a fee before it becomes obligated to
keep the item entrusted for safekeeping and to return it later to the depositor.
Specious is petitioner's insistence that the valet parking claim stub it issued
to De Asis contains a clear exclusion of its liability and operates as an explicit
waiver by the customer of any right to claim indemnity for any loss of or
damage to the vehicle.
The parking claim stub embodying the terms and conditions of the parking,
including that of relieving petitioner from any loss or damage to the car, is
essentially a contract of adhesion, drafted and prepared as it is by the
petitioner alone with no participation whatsoever on the part of the
customers, like De Asis, who merely adheres to the printed stipulations
therein appearing. While contracts of adhesion are not void in themselves,
yet this Court will not hesitate to rule out blind adherence thereto if they
prove to be one-sided under the attendant facts and circumstances.[4]cralaw
Hence, and as aptly pointed out by the Court of Appeals, petitioner must not
be allowed to use its parking claim stub's exclusionary stipulation as a shield
from any responsibility for any loss or damage to vehicles or to the valuables
contained therein. Here, it is evident that De Asis deposited the car in
question with the petitioner as part of the latter's enticement for customers by
providing them a safe parking space within the vicinity of its restaurant. In a
very real sense, a safe parking space is an added attraction to petitioner's
restaurant business because customers are thereby somehow assured that
their vehicle are safely kept, rather than parking them elsewhere at their own
risk. Having entrusted the subject car to petitioner's valet attendant, customer
De Asis, like all of petitioner's customers, fully expects the security of her car
while at petitioner's premises/designated parking areas and its safe return at
the end of her visit at petitioner's restaurant.
Petitioner's argument that there was no valid subrogation of rights between
Crispa and FMICI because theft was not a risk insured against under FMICI's
Insurance Policy No. PC-5975 holds no water.
Insurance Policy No. PC-5975 which respondent FMICI issued to Crispa
contains, among others things, the following item: "Insured's Estimate of
Value of Scheduled Vehicle- P800.000".[5]cralaw On the basis of such item,
the trial court concluded that the coverage includes a full comprehensive
insurance of the vehicle in case of damage or loss. Besides, Crispa paid a
premium of P10,304 to cover theft. This is clearly shown in the breakdown of
premiums in the same policy.[6]cralaw Thus, having indemnified CRISPA for
the stolen car, FMICI, as correctly ruled by the trial court and the Court of
Appeals, was properly subrogated to Crispa's rights against petitioner,
pursuant to Article 2207 of the New Civil Code[7].

Anent the trial court's findings of negligence on the part of the petitioner,
which findings were affirmed by the appellate court, we have consistently
ruled that findings of facts of trial courts, more so when affirmed, as here, by
the Court of Appeals, are conclusive on this Court unless the trial court itself
ignored, overlooked or misconstrued facts and circumstances which, if
considered, warrant a reversal of the outcome of the case.[8]cralaw This is
not so in the case at bar. For, we have ourselves reviewed the records and
find no justification to deviate from the trial court's findings.

WHEREFORE, petition is hereby DENIED DUE COURSE.

SO ORDERED.
[G.R. No. 119231. April 18, 1996]
PHILIPPINE NATIONAL BANK, petitioner, vs. HON. PRES. JUDGE
BENITO C. SE, JR., RTC, BR. 45, MANILA; NOAHS ARK SUGAR
REFINERY; ALBERTO T. LOOYUKO, JIMMY T. GO and WILSON
T. GO, respondents.
SYLLABUS
1. COMMERCIAL LAW; WAREHOUSE RECEIPTS LAW; THE
UNCONDITIONAL PRESENTMENT OF THE RECEIPTS FOR
PAYMENT CARRIED WITH IT THE ADMISSIONS OF THE
EXISTENCE AND VALIDITY OF THE TERMS, CONDITIONS AND
STIPULATIONS WRITTEN ON THE FACE OF THE WAREHOUSE
RECEIPTS, INCLUDING THE UNQUALIFIED RECOGNITION OF THE
PAYMENT OF WAREHOUSEMANS LIEN FOR STORAGE FEES AND
PRESERVATION EXPENSES; CASE AT BAR. - Petitioner is in
estoppel in disclaiming liability for the payment of storage fees due the
private respondents as warehouseman while claiming to be entitled to
the sugar stocks covered by the subject Warehouse Receipts on the
basis of which it anchors its claim for payment or delivery of the sugar
stocks. The unconditional presentment of the receipts by the petitioner
for payment against private respondents on the strength of the
provisions of the Warehouse Receipts Law (R.A. 2137) carried with it
the admission of the existence and validity of the terms, conditions and
stipulations written on the face of the Warehouse Receipts, including the
unqualified recognition of the payment of warehousemans lien for
storage fees and preservation expenses. Petitioner may not now
retrieve the sugar stocks without paying the lien due private
respondents as warehouseman.
2. ID.; ID.; ID.; WAREHOUSEMANS LIEN; POSSESSORY IN NATURE. -
While the PNB is entitled to the stocks of sugar as the endorsee of the
quedans, delivery to it shall be effected only upon payment of the
storage fees. Imperative is the right of the warehouseman to demand
payment of his lien at this juncture, because, in accordance with Section
29 of the Warehouse Receipts Law, the warehouseman loses his lien
upon goods by surrendering possession thereof. In other words, the lien
may be lost where the warehouseman surrenders the possession of the
goods without requiring payment of his lien, because a warehousemans
lien is possessory in nature.
APPEARANCES OF COUNSEL
Rolan A. Nieto for petitioner.
Madella & Cruz Law Offices for private respondents.
DECISION
HERMOSISIMA, JR., J.:
The source of conflict herein is the question as to whether the Philippine
National Bank should pay storage fees for sugar stocks covered by five (5)
Warehouse Receipts stored in the warehouse of private respondents in the
face of the Court of Appeals decision (affirmed by the Supreme Court)
declaring the Philippine National Bank as the owner of the said sugar stocks
and ordering their delivery to the said bank. From the same facts but on a
different perspective, it can be said that the issue is: Can the warehouseman
enforce his warehousemans lien before delivering the sugar stocks as
ordered by the Court of Appeals or need he file a separate action to enforce
payment of storage fees?
The herein petition seeks to annul: (1) the Resolution of respondent
Judge Benito C. Se, Jr. of the Regional Trial Court of Manila, Branch 45,
dated December 20, 1994, in Civil Case No. 90-53023, authorizing reception
of evidence to establish the claim of respondents Noahs Ark Sugar Refinery,
et al., for storage fees and preservation expenses over sugar stocks covered
by five (5) Warehouse Receipts which is in the nature of a warehousemans
lien; and (2) the Resolution of the said respondent Judge, dated March 1,
1995, declaring the validity of private respondents warehousemans lien
under Section 27 of Republic Act No 2137 and ordering that execution of the
Court of Appeals decision, dated December 13, 1991, be in effect held in
abeyance until the full amount of the warehousemans lien on the sugar
stocks covered by five (5) quedans subject of the action shall have been
satisfied conformably with the provisions of Section 31 of Republic Act 2137.
Also prayed for by the petition is a Writ of Prohibition to require
respondent RTC Judge to desist from further proceeding with Civil Case No.
90-53023, except order the execution of the Supreme Court judgment; and a
Writ of Mandamus to compel respondent RTC Judge to issue a Writ of
Execution in accordance with the said executory Supreme Court decision.
THE FACTS
 In accordance with Act No. 2137, the Warehouse Receipts Law, Noahs
Ark Sugar Refinery issued on several dates, the following Warehouse
Receipts (Quedans): (a) March 1, 1989, Receipt No. 18062, covering sugar
deposited by Rosa Sy; (b) March 7, 1989, Receipt No. 18080, covering sugar
deposited by RNS Merchandising (Rosa Ng Sy); (c) March 21, 1989, Receipt
No. 18081, covering sugar deposited by St. Therese Merchandising;
(d)March 31, 1989, Receipt No. 18086, covering sugar deposited by St.
Therese Merchandising; and (e) April 1, 1989, Receipt No. 18087, covering
sugar deposited by RNS Merchandising. The receipts are substantially in the
form, and contains the terms, prescribed for negotiable warehouse receipts
by Section 2 of the law.
Subsequently, Warehouse Receipts Nos. 18080 and 18081 were
negotiated and endorsed to Luis T. Ramos; and Receipts Nos. 18086, 18087
and 18062 were negotiated and endorsed to Cresencia K. Zoleta. Ramos
and Zoleta then used the quedans as security for two loan agreements - one
for P15.6 million and the other for P23.5 million - obtained by them from the
Philippine National Bank. The aforementioned quedans were endorsed by
them to the Philippine National Bank.
Luis T. Ramos and Cresencia K. Zoleta failed to pay their loans upon
maturity on January 9, 1990. Consequently, on March 16, 1990, the
Philippine National Bank wrote to Noahs Ark Sugar Refinery demanding
delivery of the sugar stocks covered by the quedans endorsed to it by Zoleta
and Ramos. Noahs Ark Sugar Refinery refused to comply with the demand
alleging ownership thereof, for which reason the Philippine National Bank
filed with the Regional Trial Court of Manila a verified complaint for Specific
Performance with Damages and Application for Writ of Attachment against
Noahs Ark Sugar Refinery, Alberto T. Looyuko, Jimmy T. Go and Wilson T.
Go, the last three being identified as the sole proprietor, managing partner,
and Executive Vice President of Noahs Ark, respectively.
Respondent Judge Benito C. Se, Jr., in whose sala the case was raffled,
denied the Application for Preliminary Attachment. Reconsideration therefor
was likewise denied.
Noahs Ark and its co-defendants filed an Answer with Counterclaim and
Third-Party Complaint in which they claimed that they are the owners of the
subject quedans and the sugar represented therein, averring as they did that:
9.*** In an agreement dated April 1, 1989, defendants agreed to sell
to Rosa Ng Sy of RNS Merchandising and Teresita Ng of St. Therese
Merchandising the total volume of sugar indicated in the quedans stored at
Noahs Ark Sugar Refinery for a total consideration of P63,000,000.00,
*** The corresponding payments in the form of checks issued by the vendees
in favor of defendants were subsequently dishonored by the drawee banks
by reason of payment stopped and drawn against insufficient funds,
*** Upon proper notification to said vendees and plaintiff in due course,
defendants refused to deliver to vendees therein the quantity of sugar
covered by the subject quedans.
10. *** Considering that the vendees and first endorsers of subject quedans
did not acquire ownership thereof, the subsequent endorsers and plaintiff
itself did not acquire a better right of ownership than the original vendees/first
endorsers. 1
The Answer incorporated a Third-Party Complaint by Alberto T.
Looyuko, Jimmy T. Go and Wilson T. Go, doing business under the trade
name and style Noahs Ark Sugar Refinery against Rosa Ng Sy and Teresita
Ng, praying that the latter be ordered to deliver or return to them the quedans
(previously endorsed to PNB and the subject of the suit) and pay damages
and litigation expenses.
The Answer of Rosa Ng Sy and Teresita Ng, dated September 6, 1990,
one of avoidance, is essentially to the effect that the transaction between
them, on the one hand, and Jimmy T. Go, on the other, concerning the
quedans and the sugar stocks covered by them was merely a simulated one
being part of the latters complex banking schemes and financial maneuvers,
and thus, they are not answerable in damages to him.
On January 31, 1991, the Philippine National Bank filed a Motion for
Summary Judgment in favor of the plaintiff as against the defendants for the
reliefs prayed for in the complaint.
On May 2, 1991, the Regional Trial Court issued an order denying the
Motion for Summary Judgment. Thereupon, the Philippine National Bank
filed a Petition for Certiorari with the Court of Appeals, docketed as CA-G.R.
SP. No. 25938 on December 13, 1991.
Pertinent portions of the decision of the Court of Appeals read:
In issuing the questioned Orders, the respondent Court ruled that questions
of law should be resolved after and not before, the questions of fact are
properly litigated. A scrutiny of defendants affirmative defenses does not
show material questions of fact as to the alleged nonpayment of purchase
price by the vendees/first endorsers, and which nonpayment is not disputed
by PNB as it does not materially affect PNBs title to the sugar stocks as
holder of the negotiable quedans.
What is determinative of the propriety of summary judgment is not the
existence of conflicting claims from prior parties but whether from an
examination of the pleadings, depositions, admissions and documents on
file, the defenses as to the main issue do not tender material questions of
fact (see Garcia vs. Court of Appeals, 167 SCRA 815) or the issues thus
tendered are in fact sham, fictitious, contrived, set up in bad faith or so
unsubstantial as not to constitute genuine issues for trial. (See Vergara vs.
Suelto, et al., 156 SCRA 753; Mercado, et al. vs. Court of Appeals, 162
SCRA 75). The questioned Orders themselves do not specify what material
facts are in issue. (See Sec. 4, Rule 34, Rules of Court).
To require a trial notwithstanding pertinent allegations of the pleadings and
other facts appearing on the record, would constitute a waste of time and an
injustice to the PNB whose rights to relief to which it is plainly entitled would
be further delayed to its prejudice.
In issuing the questioned Orders, We find the respondent Court to have
acted in grave abuse of discretion which justify holding null and void and
setting aside the Orders dated May 2 and July 4, 1990 of respondent Court,
and that a summary judgment be rendered forthwith in favor of the PNB
against Noahs Ark Sugar Refinery, et al., as prayed for in petitioners Motion
for Summary Judgment.2
On December 13, 1991, the Court of Appeals nullified and set aside the
orders of May 2 and July 4, 1990 of the Regional Trial Court and ordered the
trial court to render summary judgment in favor of the PNB. On June 18,
1992, the trial court rendered judgment dismissing plaintiffs complaint against
private respondents for lack of cause of action and likewise dismissed private
respondents counterclaim against PNB and of the Third-Party Complaint and
the Third-Party Defendants Counterclaim. On September 4, 1992, the trial
court denied PNBs Motion for Reconsideration.
On June 9, 1992, the PNB filed an appeal from the RTC decision with
the Supreme Court, G.R. No. 107243, by way of a Petition for Review on
Certiorari under Rule 45 of the Rules of Court. This Court rendered judgment
on September 1, 1993, the dispositive portion of which reads:
WHEREFORE, the trial judges decision in Civil Case No. 90-53023, dated
June 18, 1992, is reversed and set aside and a new one rendered
conformably with the final and executory decision of the Court of Appeals in
CA-G.R SP. No. 25938, ordering the private respondents Noahs Ark Sugar
Refinery, Alberto T. Looyuko, Jimmy T. Go and Wilson T. Go, jointly and
severally:
(a) to deliver to the petitioner Philippine National Bank, the sugar
stocks covered by the Warehouse Receipts/ Quedans which are
now in the latters possession as holder for value and in due
course; or alternatively, to pay (said) plaintiff actual damages in
the amount of P39.1 million, with legal interest thereon from the
filing of the complaint until full payment; and
(b) to pay plaintiff Philippine National Bank attorneys fees, litigation
expenses and judicial costs hereby fixed at the amount of One
Hundred Fifty Thousand Pesos (P150,000.00) as well as the
costs.
SO ORDERED.3
On September 29, 1993, private respondents moved for reconsideration
of this decision. A Supplemental/Second Motion for Reconsideration with
leave of court was filed by private respondents on November 8, 1993. We
denied private respondents motion on January 10, 1994. .
Private respondents filed a Motion Seeking Clarification of the Decision,
dated September 1, 1993. We denied this motion in this manner:
It bears stressing that the relief granted in this Courts decision of September
1, 1993 is precisely that set out in the final and executory decision of the
Court of Appeals in CA-G.R. SP No. 25938, dated December 13, 1991,
which was affirmed in toto by this Court and which became unalterable upon
becoming final and executory. 4
Private respondents thereupon filed before the trial court an Omnibus
Motion seeking among others the deferment of the proceedings until private
respondents are heard on their claim for warehousemans lien. On the other
hand, on August 22, 1994, the Philippine National Bank filed a Motion for the
Issuance of a Writ of Execution and an Opposition to the Omnibus Motion
filed by private respondents.
The trial court granted private respondents Omnibus Motion
on December 20, 1994 and set reception of evidence on their claim for
warehousemans lien. The resolution of the PNBs Motion for Execution was
ordered deferred until the determination of private respondents claim.
On February 21, 1995, private respondents claim for lien was heard and
evidence was received in support thereof. The trial court thereafter gave both
parties five (5) days to file respective memoranda.
On February 28, 1995, the Philippine National Bank filed a Manifestation
with Urgent Motion to Nullify Court Proceedings. In adjudication thereof, the
trial court issued the following order on March 1, 1995:
WHEREFORE, this court hereby finds that there exists in favor of the
defendants a valid warehousemans lien under Section 27 of Republic Act
2137 and accordingly, execution of the judgment is hereby ordered stayed
and/ or precluded until the full amount of defendants lien on the sugar stocks
covered by the five (5) quedans subject of this action shall have been
satisfied conformably with the provisions of Section 31 of Republic Act
2137. 5
Consequently, the Philippine National Bank filed the herein petition to
seek the nullification of the above-assailed orders of respondent judge.
The PNB submits that:
I sugar.
PNBs RIGHT TO A WRIT OF EXECUTION IS SUPPORTED BY TWO
FINAL AND EXECUTORY DECISIONS: THE DECEMBER 13, 1991 COURT
OF APPEALS DECISION IN CA-G.R. SP. NO. 25938; AND,
THE NOVEMBER 9, 1992 SUPREME COURT DECISION IN G.R NO.
107243. RESPONDENT RTCS MINISTERIAL AND MANDATORY DUTY IS
TO ISSUE THE WRIT OF EXECUTION TO IMPLEMENT THE DECRETAL
PORTION OF SAID SUPREME COURT DECISION
II
RESPONDENT RTC IS WITHOUT JURISDICTION TO HEAR PRIVATE
RESPONDENTS OMNIBUS MOTION. THE CLAIMS SET FORTH IN SAID
MOTION: (1) WERE ALREADY REJECTED BY THE SUPREME COURT IN
ITS MARCH 9, 1994 RESOLUTION DENYING PRIVATE RESPONDENTS
MOTION FOR CLARIFICATION OF DECISION IN .G.R. NO. 107243; AND
(2) ARE BARRED FOREVER BY PRIVATE RESPONDENTS FAILURE TO
INTERPOSE THEM IN THEIR ANSWER, AND FAILURE TO APPEAL
FROM THE JUNE 18, 1992 RTC DECISION IN CIVIL CASE NO. 90-52023
III
RESPONDENT RTCS ONLY JURISDICTION IS TO ISSUE THE WRIT TO
EXECUTE THE SUPREME COURT DECISION. THUS, PNB IS ENTITLED
TO: (1) A WRIT OF CERTIORARI TO ANNUL THE RTC RESOLUTION
DATED DECEMBER 20, 1994 AND THE ORDER DATED FEBRUARY 7,
1995 AND ALL PROCEEDINGS TAKEN BY THE RTC THEREAFTER; (2) A
WRIT OF PROHIBITION TO PREVENT RESPONDENT RTC FROM
FURTHER PROCEEDING WITH CIVIL CASE NO. 90-53023 AND
COMMITTING OTHER ACTS VIOLATIVE OF THE SUPREME COURT
DECISION IN G.R. NO. 107243; AND (3) A WRIT OF MANDAMUS TO
COMPEL RESPONDENT RTC TO ISSUE THE WRIT TO EXECUTE THE
SUPREME COURT JUDGMENT IN FAVOR OF PNB
The issues presented before us in this petition revolve around the
legality of the questioned orders of respondent judge, issued as they were
after we had denied with finality private respondents contention that the PNB
could not compel them to deliver the stocks of sugar in their warehouse
covered by the endorsed quedans or pay the value of the said stocks of
Petitioners submission is on a technicality, that is, that private
respondents have lost their right to recover warehousemans lien on the
sugar stocks covered by the five (5) Warehouse Receipts for the reason that
they failed to set up said claim in their Answer before the trial court and that
private respondents did not appeal from the decision in this regard, dated
June 18, 1992. Petitioner asseverates that the denial by this Court on March
9, 1994 of the motion seeking clarification of our decision, dated September
1, 1993, has foreclosed private respondents right to enforce their
warehousemans lien for storage fees and preservation expenses under the
Warehouse Receipts Act.
 On the other hand, private respondents maintain that they could not
have claimed the right to a warehouseman s lien in their Answer to the
complaint before the trial court as it would have been inconsistent with their
stand that they claim ownership of the stocks covered by the quedans since
the checks issued for payment thereof were dishonored. If they were still the
owners, it would have been absurd for them to ask payment for storage fees
and preservation expenses. They further contend that our resolution, dated
March 9, 1994, denying their motion for clarification did not preclude their
right to claim their warehousemans lien under Sections 27 and 31 of
Republic Act 2137, as our resolution merely affirmed and adopted the earlier
decision, dated December 13, 1991, of the Court of Appeals (6th Division) in
CA-G.R. SP. No. 25938 and did not make any finding on the matter of the
warehouseman s lien.
We find for private respondents on the foregoing issue and so the
petition necessarily must fail.
We have carefully examined our resolution, dated March 9, 1994, which
denied Noahs Arks motion for clarification of our decision, dated September
1, 1993, wherein we affirmed in full and adopted the Court of Appeals earlier
decision, dated December 13, 1991, in CA-G.R. SP. No. 25938. We are not
persuaded by the petitioners argument that our said resolution carried with it
the denial of the warehousemans lien over the sugar stocks covered by the
subject Warehouse Receipts. We have simply resolved and upheld in our
decision, dated September 1, 1993, the propriety of summary judgment
which was then assailed by private respondents. In effect, we ruled therein
that, considering the circumstances obtaining before the trial court, the
issuance of the Warehouse Receipts not being disputed by the private
respondents, a summary judgment in favor of PNB was proper. We in effect
further affirmed the finding that NoahsArk is a warehouseman which was
obliged to deliver the sugar stocks covered by the Warehouse Receipts
pledged by Cresencia K. Zoleta and Luis T. Ramos to the petitioner pursuant
to the pertinent provisions of Republic Act 2137.
In disposing of the private respondents motion for clarification, we could
not contemplate the matter of warehousemans lien because the issue to be
finally resolved then was the claim of private respondents for retaining
ownership of the stocks of sugar covered by the endorsed quedans. Stated
otherwise, there was no point in taking up the issue of warehousemans lien
since the matter of ownership was as yet being determined. Neither could
storage fees be due then while no one has been declared the owner of the
sugar stocks in question.
Of considerable relevance is the pertinent stipulation in the subject
Warehouse Receipts which provides for respondent Noahs Arks right to
impose and collect warehousemans lien:
Storage of the refined sugar quantities mentioned herein shall be free up to
one (1) week from the date of the quedans covering said sugar and
thereafter, storage fees shall be charged in accordance with the Refining
Contract under which the refined sugar covered by this Quedan was
produced. 6
It is not disputed, therefore, that, under the subject Warehouse Receipts
provision, storage fees are chargeable.
Petitioner anchors its claim against private respondents on the five (5)
Warehouse Receipts issued by the latter to third-party defendants Rosa Ng
Sy of RNS Merchandising and Teresita Ng of St. Therese Merchandising,
which found their way to petitioner after they were negotiated to them by Luis
T. Ramos and Cresencia K. Zoleta for a loan of P39.1 Million. Accordingly,
petitioner PNB is legally bound to stand by the express terms and conditions
on the face of the Warehouse Receipts as to the payment of storage fees.
Even in the absence of such a provision, law and equity dictate the payment
of the warehouseman s lien pursuant to Sections 27 and 31 of the
Warehouse Receipts Law (R.A. 2137), to wit:
SECTION 27. What claims are included in the warehousemans lien. -
Subject to the provisions of section thirty, a warehouseman shall have lien on
goods deposited or on the proceeds thereof in his hands, for all lawful
charges for storage and preservation of the goods; also for all lawful claims
for money advanced, interest, insurance, transportation, labor, weighing
coopering and other charges and expenses in relation to such goods; also for
all reasonable charges and expenses for notice, and advertisement of sale,
and for sale of the goods where default has been made in satisfying the
warehousemans lien.
xxx xxx xxx
SECTION 31. Warehouseman need not deliver until lien is satisfied. - A
warehouseman having a lien valid against the person demanding the goods
may refuse to deliver the goods to him until the lien is satisfied.
 After being declared not the owner, but the warehouseman, by the Court the warehouseman surrenders the possession of the goods without requiring
of Appeals on December 13, 1991 in CA-G.R. SP. No. 25938, the decision payment of his lien, because a warehousemans lien is possessory in nature.
having been affirmed by us onDecember 1, 1993, private respondents
cannot legally be deprived of their right to enforce their claim for We, therefore, uphold and sustain the validity of the assailed orders of
warehousemans lien, for reasonable storage fees and preservation public respondent, dated December 20, 1994 and March 1, 1995.
expenses. Pursuant to Section 31 which we quote hereunder, the goods In fine, we fail to see any taint of abuse of discretion on the part of the
under storage may not be delivered until said lien is satisfied. public respondent in issuing the questioned orders which recognized the
legitimate right of Noahs Ark, after being declared as warehouseman, to
SECTION 31. Warehouseman need not deliver until lien is satisfied. - A recover storage fees before it would release to the PNB sugar stocks
warehouseman having a lien valid against the person demanding the goods covered by the five (5) Warehouse Receipts. Our resolution, dated March 9,
may refuse to deliver the goods to him until the lien is satisfied. 1994, did not preclude private respondents unqualified right to establish its
claim to recover storage fees which is recognized under Republic Act No.
Considering that petitioner does not deny the existence, validity and 2137. Neither did the Court of Appeals decision, dated December 13, 1991,
genuineness of the Warehouse Receipts on which it anchors its claim for restrict such right.
payment against private respondents, it cannot disclaim liability for the
Our Resolutions reference to the decision by the Court of Appeals,
payment of the storage fees stipulated therein. As contracts, the receipts
dated December 13, 1991, in CA-G.R. SP. No. 25938, was intended to guide
must be respected by authority of Article 1159 of the Civil Code, to wit:
the parties in the subsequent disposition of the case to its final end. We
certainly did not foreclose private respondents inherent right as
ART. 1159. Obligations arising from contracts have the force of law between warehouseman to collect storage fees and preservation expenses as
the contracting parties and should be complied with in good faith. stipulated n the face of each of the Warehouse Receipts and as provided for
in the Warehouse Receipts Law (R.A. 2137).
Petitioner is in estoppel in disclaiming liability for the payment of storage
fees due the private respondents as warehouseman while claiming to be WHEREFORE, the petition should be, as it is, hereby dismissed for lack
entitled to the sugar stocks covered by the subject Warehouse Receipts on of merit. The questioned orders issued by public respondent judge are
the basis of which it anchors its claim for payment or delivery of the sugar affirmed.
stocks. The unconditional presentment of the receipts by the petitioner for Costs against the petitioner.
payment against private respondents on the strength of the provisions of the
Warehouse Receipts Law (R.A. 2137) carried with it the admission of the SO ORDERED.
existence and validity of the terms, conditions and stipulations written on the
face of the Warehouse Receipts, including the unqualified recognition of the
payment of warehousemans lien for storage fees and preservation expenses.
Petitioner may not now retrieve the sugar stocks without paying the lien due
private respondents as warehouseman.
In view of the foregoing, the rule may be simplified thus: While the PNB
is entitled to the stocks of sugar as the endorsee of the quedans, delivery to
it shall be effected only upon payment of the storage fees.
Imperative is the right of the warehouseman to demand payment of his
lien at this juncture, because, in accordance with Section 29 of the
Warehouse Receipts Law, the warehouseman loses his lien upon goods by
surrendering possession thereof. In other words, the lien may be lost where
 [G.R. No. 113926. October 23, 1996]
SECURITY BANK AND TRUST COMPANY, petitioner, vs. REGIONAL
TRIAL COURT OF MAKATI, BRANCH 61, MAGTANGGOL
EUSEBIO and LEILA VENTURA, respondents.
DECISION
HERMOSISIMA, JR., J.:
Questions of law which are the first impression are sought to be
resolved in this case: Should the rate of interest on a loan or forbearance of
money, goods or credits, as stipulated in a contract, far in excess of the
ceiling prescribed under or pursuant to the Usury Law, prevail over Section 2
of Central Bank Circular No. 905 which prescribes that the rate of interest
thereof shall continue to be 12% per annum? Do the Courts have the
discretion to arbitrarily override stipulated interest rates of promissory notes
and stipulated interest rates of promissory notes and thereby impose a 12%
interest on the loans, in the absence of evidence justifying the impositions of
a higher rate?
This is a petition for review on certiorari for the purpose of assailing the
decision of Honorable Judge Fernando V. Gorospe of the Regional Trial
Court of Makati, Branch 61, datedMarch 30, 1993, which found private
respondent Eusebio liable to petitioner for a sum of money. Interest was
lowered by the court a quo from 23% per annum as agreed upon by the
parties to 12% per annum.
The undisputed facts are as follows:
On April 27, 1983, private respondent Magtanggol Eusebio executed
Promissory Note No. TL/74/178/83 in favor of petitioner Security Bank and
Trust Co. (SBTC) in the total amount of One Hundred Thousand Pesos
(P100,000.00) payable in six monthly installments with a stipulated interest of
23% per annum up to the fifth installments.[1]
On July 28, 1983, respondent Eusebio again executed Promissory note
No TL/74/1296/83 in favor of petitioner SBTC. Respondent bound himself to
pay the sum of One Hundred Thousand Pesos (P100.000.00) in six (6)
monthly installments plus 23% interest per annum.[2]
Finally, another Promissory Note No. TL74/1491/83 was executed
on August 31, 1983 in the amount of Sixty Five Thousand Pesos
(P65,000.00). Respondent agreed to pay this note in six (6) monthly
installments plus interest at the rate of 23% per annum.[3]
On all the abovementioned notes, private respondents Leila Ventura
had signed as co-maker.[4]
Upon maturity which fell on the different dates below, the principal
balance remaining on the notes stood at:
1) PN No. TL/74/748/83 P16,665.00 as of September 1983.
2) PN No. TL/74/1296/83 P83,333.00 as of August 1983
3) PN No. TL/74/1991/83 P65,000.00 as of August 1983.
Upon the failure and refusal of respondent Eusebio to pay the
aforestated balance payable, a collectible case was filed in court by petitioner
SBTC.[5] On March 30, 1993, the court a quo rendered a judgment in favor of
petitioner SBTC, the dispositive portion which reads:
WHEREFORE, premises above-considered, and plaintiffs claim having been duly
proven, judgment is hereby rendered in favor of plaintiff and as against defendant
Eusebio who is hereby ordered to:
1. Pay the sum of P16,665.00, plus interest of 12% per annum starting 27 September
1983, until fully paid;
2. Pay the sum of P83,333.00, plus interest of 12% per annum starting 28 August
1983, until fully paid;
3. Pay the sum of P65,000.00, plus interest of 12% per annum starting 31 August
1983, until fully paid;
4. Pay the sum equivalent to 20% of the total amount due and payable to plaintiff as
and by way of attorneys fees; and to
5. Pay the cost of this suit.
SO ORDERED.[6]
On August 6, 1993, a motion for partial reconsideration was filed by
petitioner SBTC contending that:
(1) the interest rate agreed upon by the parties during the signing
of the promissory notes was 23% per annum;
(2) the interests awarded should be compounded quarterly from
due date as provided in three (3) promissory notes;
(3) defendant Leila Ventura should likewise be held liable to pay
the balance on the promissory notes since she has signed as co-maker
and as such, is liable jointly and severally with defendant Eusebio
without a need for demand upon her.[7]
Consequently, an Order was issued by the court a quo denying the
motion to grant the rates of interest beyond 12% per annum; and holding
defendant Leila Ventura jointly and severally liable with co-defendant
Eusebio.
Hence, this petition.
The sole issue to be settled in this petition is whether or not the 23%
rate of interest per annum agreed upon by petitioner bank and respondents
is allowable and not against the Usury Law.
We find merit in this petition.
From the examination of the records, it appears that indeed the agreed
rate of interest as stipulated on the three (3) promissory notes is 23% per
annum.[8] The applicable provision of law is the Central Bank Circular No.
905 which took effect on December 22, 1982, particularly Sections 1 and 2
which state:[9]
Sec. 1. The rate of interest, including commissions, premiums, fees and other
charges, on a loan or forbearance of any money, goods or credits, regardless of
maturity and whether secured or unsecured, that may be charged or collected by any
person, whether natural or judicial, shall not be subject to any ceiling prescribed
under or pursuant to the Usury Law, as amended.
Sec. 2. The rate of interest for the loan or forbearance of any money, goods or credits
and the rate allowed in judgments, in the absence of express contract as to such rate
of interest, shall continue to be twelve per cent (12%) per annum.
CB Circular 905 was issued by the Central Banks Monetary Board
pursuant to P.D. 1684 empowering them to prescribe the maximum rates of
interest for loans and certain forbearances, to wit:
SECTION 1. Section 1-a of Act No. 2655, as amended, is hereby amended to read as
follows:
SEC. 1-a The Monetary Board is hereby authorized to prescribed the maximum rate
or rates of interest for the loan or renewal thereof or the forbearance of any money,
goods or credits, and to change such rate or rates whenever warranted by prevailing
economic and social conditions: Provided, That changes in such rates or rates may be
effected gradually on scheduled dates announced in advance.
In the exercise of the authority herein granted, the Monetary Board may prescribed
higher maximum rates for loans of low priority, such as consumer loans or renewals
thereof as well as such loans made by pawnshops, finance companies and other
similar credit institutions although the rates prescribed for these institutions need not
necessarily be uniform. The Monetary Board is also authorized to prescribed
different maximum rate or rates for different types of borrowings, including deposits
and deposit substitutes, or loans of financial intermediaries.[10]
This court has ruled in the case of Philippine National Bank v. Court of
Appeals[11] that:
P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting parties to
stipulate freely regarding any subsequent adjustment in the interest rate that shall
accrue on a loan or forbearance of money, goods or credits. In fine, they can agree to
adjust, upward or downward, the interest previously stipulated.
All the promissory notes were signed in 1983 and, therefore, were
already covered by CB Circular No. 905. Contrary to the claim of respondent
court, this circular did not repeal nor in anyway amend the Usury Law but
simply suspended the latters effectivity.
Basic is the rule of statutory construction that when the law is clear and
unambiguous, the court is left with no alternative but to apply the same
according to its clear language. As we have held in the case of Quijano v.
Development Bank of the Philippines:[12]
xxx We cannot see any room for interpretation or construction in the clear and
unambiguous language of the above-quoted provision of law. This Court had
steadfastly adhered to the doctrine that its first and fundamental duty is the
application of the law according to its express terms, interpretation being called for
only when such literal application is impossible. No process of interpretation or
construction need be resorted to where a provision of law peremptorily calls for
application. Where a requirement or condition is made in explicit and unambiguous
terms, no discretion is left to the judiciary. It must see to it that its mandate is
obeyed.

The rate of interest was agreed upon by the parties freely. Significantly,
respondent did not question that rate. It is not for respondent court a quo to
change the stipulations in the contract where it is not illegal. Furthermore,
Article 1306 of the New Civil code provides that contracting parties 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. We find no valid reason for the respondent
court a quo to impose a 12% rate of interest on the principal balance owing
to petitioner by respondent in the presence of a valid stipulation. In a loan or
forbearance of money, the interest due should be that stipulated in writing,
and in the absence thereof, the rate shall be 12% per annum.[13] Hence, only
in the absence of a stipulation can the court impose the 12% rate of interest.
The promissory notes were signed by both parties
voluntarily. Therefore, stipulations therein are binding between
them. Respondent Eusebio, likewise, did not question any of the stipulations
therein. In fact, in the Comment file by respondent Eusebio to this court, he
chose not to question the decision and instead expressed his desire to
negotiate with the petitioner bank for terms within which to settle his
obligation.[14]
IN VIEW OF THE FOREGOING, the decision of the respondent court a
quo, is hereby AFFIRMED with the MODIFICATION that the rate of interest
that should be imposed be 23% per annum.
SO ORDERED.
 x-------------------------------------------------------------------x

DECISION

TINGA, J.:

Before this Court are two consolidated petitions for review. The first,
docketed as G.R. No. 150773, assails the Decision[1] of the Regional Trial
Court (RTC), Branch 26 of Naga City dated 26 October 2001 in Civil Case
No. 99-4376. RTC Judge Filemon B. Montenegro dismissed the
complaint[2] for annulment of real estate mortgage and consequent
foreclosure proceedings filed by the spouses David B. Carpo and Rechilda S.
Carpo (petitioners).

The second, docketed as G.R. No. 153599, seeks to annul the Court of
Appeals Decision[3] dated 30 April 2002 in CA-G.R. SP No. 57297. The Court
of Appeals Third Division annulled and set aside the orders of Judge
Corazon A. Tordilla to suspend the sheriffs enforcement of the writ of
SECOND DIVISION
SPOUSES DAVID B. CARPO G.R. Nos. 150773 & possession.
and RECHILDA S. CARPO, 153599
Petitioners,
Present: The cases stemmed from a loan contracted by petitioners. On 18 July 1995,
they borrowed from Eleanor Chua and Elma Dy Ng (respondents) the
- versus - PUNO, J.,
Chairman, amount of One Hundred Seventy-Five Thousand Pesos (P175,000.00),
AUSTRIA-MARTINEZ,
CALLEJO, SR., payable within six (6) months with an interest rate of six percent (6%) per
ELEANOR CHUA and TINGA, and month. To secure the payment of the loan, petitioners mortgaged their
ELMA DY NG, CHICO-NAZARIO, JJ.
Respondents. residential house and lot situated at San Francisco, Magarao, Camarines
Promulgated: Sur, which lot is covered by Transfer Certificate of Title (TCT) No. 23180.
September 30, 2005
Petitioners failed to pay the loan upon demand. Consequently, the real estate
mortgage was extrajudicially foreclosed and the mortgaged property sold at a Case No. 99-4376. Against this Order, respondents filed a petition for
public auction on 8 July 1996. The house and lot was awarded to certiorari and mandamus before the Court of Appeals, docketed as CA-G.R.
respondents, who were the only bidders, for the amount of Three Hundred SP No. 57297.
Sixty-Seven Thousand Four Hundred Fifty-Seven Pesos and Eighty
Centavos (P367,457.80). During the pendency of the case before the Court of Appeals, RTC
Judge Filemon B. Montenegro dismissed the complaint in Civil Case No. 99-
Upon failure of petitioners to exercise their right of redemption, a
4376 on the ground that it was filed out of time and barred by laches. The
certificate of sale was issued on 5 September 1997 by Sheriff Rolando A.
RTC proceeded from the premise that the complaint was one for annulment
Borja. TCT No. 23180 was cancelled and in its stead, TCT No. 29338 was
of a voidable contract and thus barred by the four-year prescriptive period.
issued in the name of respondents.
Hence, the first petition for review now under consideration was filed with this
Court, assailing the dismissal of the complaint.
Despite the issuance of the TCT, petitioners continued to occupy the
said house and lot, prompting respondents to file a petition for writ of
The second petition for review was filed with the Court after the
possession with the RTC docketed as Special Proceedings (SP) No. 98-
Court of Appeals on 30 April 2002 annulled and set aside the RTC orders in
1665. On 23 March 1999, RTC Judge Ernesto A. Miguel issued an Order[4]for
SP No. 98-1665 on the ground that it was the ministerial duty of the lower
the issuance of a writ of possession.
court to issue the writ of possession when title over the mortgaged property
had been consolidated in the mortgagee.
On 23 July 1999, petitioners filed a complaint for annulment of real
estate mortgage and the consequent foreclosure proceedings, docketed as
This Court ordered the consolidation of the two cases, on motion of
Civil Case No. 99-4376 of the RTC. Petitioners consigned the amount of Two
petitioners.
Hundred Fifty-Seven Thousand One Hundred Ninety-Seven Pesos and
Twenty-Six Centavos (P257,197.26) with the RTC.
In G.R. No. 150773, petitioners claim that following the Courts ruling in Medel
v. Court of Appeals[6] the rate of interest stipulated in the principal loan
Meanwhile, in SP No. 98-1665, a temporary restraining order was
agreement is clearly null and void. Consequently, they also argue that the
issued upon motion on 3 August 1999, enjoining the enforcement of the writ
nullity of the agreed interest rate affects the validity of the real estate
of possession. In an Order[5] dated 6 January 2000, the RTC suspended the
mortgage. Notably, while petitioners were silent in their petition on the issues
enforcement of the writ of possession pending the final disposition of Civil
of prescription and laches on which the RTC grounded the dismissal of the

complaint, they belatedly raised the matters in their Memorandum.
Nonetheless, these points warrant brief comment.
On the other hand, petitioners argue in G.R. No. 153599 that the RTC did not
commit any grave abuse of discretion when it issued the orders dated 3
August 1999 and 6 January 2000, and that these orders could not have been
the proper subjects of a petition for certiorari and mandamus. More
accurately, the justiciable issues before us are whether the Court of Appeals
could properly entertain the petition for certiorari from the timeliness aspect,
and whether the appellate court correctly concluded that the writ of
possession could no longer be stayed.
We first resolve the petition in G.R. No. 150773.
Petitioners contend that the agreed rate of interest of 6% per month
or 72% per annum is so excessive, iniquitous, unconscionable and exorbitant
that it should have been declared null and void. Instead of dismissing their
complaint, they aver that the lower court should have declared them liable to
respondents for the original amount of the loan plus 12% interest per annum
and 1% monthly penalty charge as liquidated damages,[7] in view of the ruling
in Medel v. Court of Appeals.[8]
In Medel, the Court found that the interest stipulated at 5.5% per
month or 66% per annum was so iniquitous or unconscionable as to render
the stipulation void.
Nevertheless, we find the interest at 5.5% per
month, or 66% per annum, stipulated upon by the parties in
the promissory note iniquitous or unconscionable, and,
hence, contrary to morals (contra bonos mores), if not
against the law. The stipulation is void. The Court shall
reduce equitably liquidated damages, whether intended as
an indemnity or a penalty if they are iniquitous or
unconscionable.[9]
In a long line of cases, this Court has invalidated similar stipulations
on interest rates for being excessive, iniquitous, unconscionable and
exorbitant. In Solangon v. Salazar,[10] we annulled the stipulation of 6% per
month or 72% per annum interest on a P60,000.00 loan. In Imperial v.
Jaucian,[11] we reduced the interest rate from 16% to 1.167% per month or
14% per annum. In Ruiz v. Court of Appeals,[12] we equitably reduced the
agreed 3% per month or 36% per annum interest to 1% per month or 12%
per annum interest. The 10% and 8% interest rates per month on
a P1,000,000.00 loan were reduced to 12% per annum in Cuaton v.
Salud.[13] Recently, this Court, in Arrofo v. Quino,[14] reduced the 7% interest
per month on a P15,000.00 loan amounting to 84% interest per annum to
18% per annum.
There is no need to unsettle the principle affirmed in Medel and like cases.
From that perspective, it is apparent that the stipulated interest in the subject
loan is excessive, iniquitous, unconscionable and exorbitant. Pursuant to the
freedom of contract principle embodied in Article 1306 of the Civil Code,
contracting parties 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. In the ordinary
course, the codal provision may be invoked to annul the excessive stipulated
interest.
In the case at bar, the stipulated interest rate is 6% per month, or
72% per annum. By the standards set in the above-cited cases, this
stipulation is similarly invalid. However, the RTC refused to apply the
principle cited and employed in Medel on the ground that Medel did not
pertain to the annulment of a real estate mortgage,[15] as it was a case for
annulment of the loan contract itself. The question thus sensibly arises
whether the invalidity of the stipulation on interest carries with it the invalidity
of the principal obligation.
The question is crucial to the present petition even if the subject
thereof is not the annulment of the loan contract but that of the mortgage
contract. The consideration of the mortgage contract is the same as that of
the principal contract from which it receives life, and without which it cannot
exist as an independent contract. Being a mere accessory contract, the
validity of the mortgage contract would depend on the validity of the loan
secured by it.[16]
Notably in Medel, the Court did not invalidate the entire loan obligation
despite the inequitability of the stipulated interest, but instead reduced the
rate of interest to the more reasonable rate of 12% per annum. The same
remedial approach to the wrongful interest rates involved was employed or
affirmed by the Court in Solangon, Imperial, Ruiz, Cuaton, and Arrofo.
The Courts ultimate affirmation in the cases cited of the validity of the
principal loan obligation side by side with the invalidation of the interest rates
thereupon is congruent with the rule that a usurious loan transaction is not a
complete nullity but defective only with respect to the agreed interest.
We are aware that the Court of Appeals, on certain occasions, had ruled that
a usurious loan is wholly null and void both as to the loan and as to the
usurious interest.[17] However, this Court adopted the contrary rule,
as comprehensively discussed in Briones v. Cammayo:[18]
In Gui Jong & Co. vs. Rivera, et al., 45 Phil. 778, this
Court likewise declared that, in any event, the debtor in a
usurious contract of loan should pay the creditor the amount
which he justly owes him, citing in support of this ruling its
previous decisions in Go Chioco, Supra, Aguilar vs. Rubiato, et
al., 40 Phil. 570, and Delgado vs. Duque Valgona, 44 Phil. 739.
....
Then in Lopez and Javelona vs. El Hogar Filipino, 47
Phil. 249, We also held that the standing jurisprudence of this
Court on the question under consideration was clearly to the
effect that the Usury Law, by its letter and spirit, did not deprive
the lender of his right to recover from the borrower the money
actually loaned to and enjoyed by the latter. This Court went
further to say that the Usury Law did not provide for the forfeiture
of the capital in favor of the debtor in usurious contracts, and that
while the forfeiture might appear to be convenient as a drastic
measure to eradicate the evil of usury, the legal question
involved should not be resolved on the basis of convenience.
 Other cases upholding the same principle are Palileo vs.
Cosio, 97 Phil. 919 and Pascua vs. Perez, L-19554, January 31,
1964, 10 SCRA 199, 200-202. In the latter We expressly held
that when a contract is found to be tainted with usury "the only
right of the respondent (creditor) . . . was merely to collect the
amount of the loan, plus interest due thereon."
The view has been expressed, however, that the ruling
thus consistently adhered to should now be abandoned because
Article 1957 of the new Civil Code a subsequent law provides
that contracts and stipulations, under any cloak or device
whatever, intended to circumvent the laws against usury, shall
be void, and that in such cases "the borrower may recover in
accordance with the laws on usury." From this the conclusion is
drawn that the whole contract is void and that, therefore, the
creditor has no right to recover not even his capital.
The meaning and scope of our ruling in the cases
mentioned heretofore is clearly stated, and the view referred to in
the preceding paragraph is adequately answered, in Angel Jose,
etc. vs. Chelda Enterprises, et al. (L-25704, April 24, 1968). On
the question of whether a creditor in a usurious contract may or
may not recover the principal of the loan, and, in the affirmative,
whether or not he may also recover interest thereon at the legal
rate, We said the following:
....
Appealing directly to Us, defendants
raise two questions of law: (1) In a loan with
usurious interest, may the creditor recover the
principal of the loan? (2) Should attorney's fees
be awarded in plaintiff's favor?"
Great reliance is made by appellants on
Art. 1411 of the New Civil Code . . . .
Since, according to the appellants, a usurious
loan is void due to illegality of cause or object,
the rule of pari delicto expressed in Article
1411, supra, applies, so that neither party can
bring action against each other. Said rule,
however, appellants add, is modified as to the
borrower, by express provision of the law (Art.
1413, New Civil Code), allowing the borrower to
recover interest paid in excess of the interest
allowed by the Usury Law. As to the lender, no
exception is made to the rule; hence, he cannot
recover on the contract. So they continue the
New Civil Code provisions must be upheld as
against the Usury Law, under which a loan with
usurious interest is not totally void, because of
Article 1961 of the New Civil Code, that:
"Usurious contracts shall be governed by the
Usury Law and other special laws, so far as they
are not inconsistent with this Code."
We do not agree with such reasoning.
Article 1411 of the New Civil Code is not new; it
is the same as Article 1305 of the Old Civil Code.
Therefore, said provision is no warrant for
departing from previous interpretation that, as
provided in the Usury Law (Act No. 2655, as
amended), a loan with usurious interest is not
totally void only as to the interest.
. . . [a]ppellants fail to consider that a
contract of loan with usurious interest
consists of principal and accessory
stipulations; the principal one is to pay the
debt; the accessory stipulation is to pay
interest thereon.
And said two stipulations are divisible
in the sense that the former can still stand
without the latter. Article 1273, Civil Code,
attests to this: "The renunciation of the
principal debt shall extinguish the accessory
obligations; but the waiver of the latter shall
leave the former in force."
The question therefore to resolve is
whether the illegal terms as to payment of
interest likewise renders a nullity the legal
 terms as to payments of the principal debt.
Article 1420 of the New Civil Code provides in
this regard: "In case of a divisible contract, if
the illegal terms can be separated from the
legal ones, the latter may be enforced."
In simple loan with stipulation of
usurious interest, the prestation of the debtor
to pay the principal debt, which is the cause
of the contract (Article 1350, Civil Code), is
not illegal. The illegality lies only as to the
prestation to pay the stipulated interest;
hence, being separable, the latter only should
be deemed void, since it is the only one that
is illegal.
....
The principal debt remaining without
stipulation for payment of interest can thus be
recovered by judicial action. And in case of such
demand, and the debtor incurs in delay, the debt
earns interest from the date of the demand (in
this case from the filing of the complaint). Such
interest is not due to stipulation, for there was
none, the same being void. Rather, it is due to
the general provision of law that in obligations to
pay money, where the debtor incurs in delay, he
has to pay interest by way of damages (Art.
2209, Civil Code). The court a quo therefore, did
not err in ordering defendants to pay the principal
debt with interest thereon at the legal rate, from
the date of filing of the complaint."[19]
The Courts wholehearted affirmation of the rule that the principal obligation
subsists despite the nullity of the stipulated interest is evinced by its
subsequent rulings, cited above, in all of which the main obligation was
upheld and the offending interest rate merely corrected. Hence, it is clear and
settled that the principal loan obligation still stands and remains valid. By the
same token, since the mortgage contract derives its vitality from the validity
of the principal obligation, the invalid stipulation on interest rate is similarly
insufficient to render void the ancillary mortgage contract.
It should be noted that had the Court declared the loan and mortgage
agreements void for being contrary to public policy, no prescriptive period
could have run.[20] Such benefit is obviously not available to petitioners.
Yet the RTC pronounced that the complaint was barred by the four-
year prescriptive period provided in Article 1391 of the Civil Code, which
governs voidable contracts. This conclusion was derived from the allegation
in the complaint that the consent of petitioners was vitiated through undue
influence. While the RTC correctly acknowledged the rule of prescription for
voidable contracts, it erred in applying the rule in this case. We are hard put
to conclude in this case that there was any undue influence in the first place.
There is ultimately no showing that petitioners consent to the loan
and mortgage agreements was vitiated by undue influence. The financial
condition of petitioners may have motivated them to contract with
respondents, but undue influence cannot be attributed to respondents
simply because they had lent money. Article 1391, in relation to Article 1390
of the Civil Code, grants the aggrieved party the right to obtain the
annulment of contract on account of factors which vitiate consent. Article
1337 defines the concept of undue influence, as follows:
There is undue influence when a person takes
improper advantage of his power over the will of another,
depriving the latter of a reasonable freedom of choice. The
 following circumstances shall be considered: the confidential,
family, spiritual and other relations between the parties or the
fact that the person alleged to have been unduly influenced
was suffering from mental weakness, or was ignorant or in
financial distress.
While petitioners were allegedly financially distressed, it must be proven that
there is deprivation of their free agency. In other words, for undue influence
to be present, the influence exerted must have so overpowered or
subjugated the mind of a contracting party as to destroy his free agency,
making him express the will of another rather than his own.[21] The alleged
lingering financial woes of petitioners per se cannot be equated with the
presence of undue influence.
The RTC had likewise concluded that petitioners were barred by
laches from assailing the validity of the real estate mortgage. We
wholeheartedly agree. If indeed petitioners unwillingly gave their consent to
the agreement, they should have raised this issue as early as in the
foreclosure proceedings. It was only when the writ of possession was issued
did petitioners challenge the stipulations in the loan contract in their action for
annulment of mortgage. Evidently, petitioners slept on their rights. The Court
of Appeals succinctly made the following observations:
In all these proceedings starting from the foreclosure,
followed by the issuance of a provisional certificate of sale;
then the definite certificate of sale; then the issuance of TCT
No. 29338 in favor of the defendants and finally the petition
for the issuance of the writ of possession in favor of the
defendants, there is no showing that plaintiffs questioned the
validity of these proceedings. It was only after the issuance of
the writ of possession in favor of the defendants, that plaintiffs
allegedly tendered to the defendants the amount
of P260,000.00 which the defendants refused. In all these
proceedings, why did plaintiffs sleep on their rights?[22]
Clearly then, with the absence of undue influence, petitioners have no cause
of action. Even assuming undue influence vitiated their consent to the loan
contract, their action would already be barred by prescription when they filed
it. Moreover, petitioners had clearly slept on their rights as they failed to
timely assail the validity of the mortgage agreement. The denial of the
petition in G.R. No. 150773 is warranted.
We now resolve the petition in G.R. No. 153599.
Petitioners claim that the assailed RTC orders dated 3 August 1999 and 6
January 2000 could no longer be questioned in a special civil action for
certiorari and mandamus as the reglementary period for such action had
already elapsed.
It must be noted that the Order dated 3 August 1999 suspending the
enforcement of the writ of possession had a period of effectivity of only
twenty (20) days from 3 August 1999, or until 23 August 1999. Thus, upon
the expiration of the twenty (20)-day period, the said Order becamefunctus
officio. Thus, there is really no sense in assailing the validity of this Order,
mooted as it was. For the same reason, the validity of the order need not
have been assailed by respondents in their special civil action before the
Court of Appeals.
On the other hand, the Order dated 6 January 2000 is in the nature of a writ
of injunction whose period of efficacy is indefinite. It may be properly assailed
by way of the special civil action for certiorari, as it is interlocutory in nature.
As a rule, the special civil action for certiorari under Rule 65 must be filed not
later than sixty (60) days from notice of the judgment or order. [23]Petitioners but is susceptible to review only through the special civil action of
argue that the 3 August 1999 Order could no longer be assailed by certiorari.[25] The sixty (60)-day reglementary period for special civil actions
respondents in a special civil action for certiorari before the Court of Appeals, under Rule 65 applies, and respondents petition was filed with the Court of
as the petition was filed beyond sixty (60) days following respondents receipt Appeals well within the period.
of the Order. Considering that the 3 August 1999 Orderhad become functus Accordingly, no error can be attributed to the Court of Appeals in granting the
officio in the first place, this argument deserves scant consideration. petition for certiorari and mandamus. As pointed out by respondents, the
remedy of mandamus lies to compel the performance of a ministerial duty.
Petitioners further claim that the 6 January 2000 Order could not have
The issuance of a writ of possession to a purchaser in an extrajudicial
likewise been the subject of a special civil action for certiorari, as it is
foreclosure is merely a ministerial function.[26]
according to them a final order, as opposed to an interlocutory order. That
the 6 January 2000 Order is interlocutory in nature should be beyond doubt.
Thus, we also affirm the Court of Appeals ruling to set aside the RTC
An order is interlocutory if its effects would only be provisional in character
orders enjoining the enforcement of the writ of possession.[27] The purchaser
and would still leave substantial proceedings to be further had by the issuing
in a foreclosure sale is entitled as a matter of right to a writ of possession,
court in order to put the controversy to rest.[24] The injunctive relief granted by
regardless of whether or not there is a pending suit for annulment of the
the order is definitely final, but merely provisional, its effectivity hinging on the
mortgage or the foreclosure proceedings. An injunction to prohibit the
ultimate outcome of the then pending action for annulment of real estate
issuance or enforcement of the writ is entirely out of place.[28]
mortgage. Indeed, an interlocutory order hardly puts to a close, or disposes
of, a case or a disputed issue leaving nothing else to be done by the court in
One final note. The issue on the validity of the stipulated interest
respect thereto, as is characteristic of a final order.
rates, regrettably for petitioners, was not raised at the earliest possible
opportunity. It should be pointed out though that since an excessive
Since the 6 January 2000 Order is not a final order, but rather interlocutory in
stipulated interest rate may be void for being contrary to public policy, an
nature, we cannot agree with petitioners who insist that it may be assailed
action to annul said interest rate does not prescribe. Such indeed is the
only through an appeal perfected within fifteen (15) days from receipt thereof
remedy; it is not the action for annulment of the ancillary real estate
by respondents. It is axiomatic that an interlocutory order cannot be
mortgage. Despite the nullity of the stipulated interest rate, the principal loan
challenged by an appeal,
obligation subsists, and along with it the mortgage that serves as collateral
security for it.
WHEREFORE, in view of all the foregoing, the petitions are DENIED. Costs
against petitioners.

SO ORDERED.