Credit Set 2 Cases-1

7/28/2019 Credit Set 2 Cases-1

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G.R. No. L-6913 November 21, 1913

THE ROMAN CATHOLIC BISHOP OF JARO, plaintiff-appellee, vs. GREGORIO DE LA PEA, administratorof the estate of Father Agustin de la Pea, defendant-

appellant.

J. Lopez Vito, for appellant.Arroyo and Horrilleno, forappellee.

MORELAND, J.:

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

It is established in this case that the plaintiff is thetrustee of a charitable bequest made for the constructionof a leper hospital and that father Agustin de la Pea wasthe duly authorized representative of the plaintiff to receivethe legacy. The defendant is the administrator of the estateof Father De la Pea.

In the year 1898 the books Father De la Pea, astrustee, showed that he had on hand as such trustee thesum of P6,641, collected by him for the charitablepurposes aforesaid. In the same year he deposited in hispersonal account P19,000 in the Hongkong and ShanghaiBank at Iloilo. Shortly thereafter and during the war of therevolution, Father De la Pea was arrested by the militaryauthorities as a political prisoner, and while thus detained

made an order on said bank in favor of the United StatesArmy officer under whose charge he then was for the sumthus deposited in said bank. The arrest of Father De laPea and the confiscation of the funds in the bank werethe result of the claim of the military authorities that he wasan insurgent and that the funds thus deposited had beencollected by him for revolutionary purposes. The money

was taken from the bank by the military authorities byvirtue of such order, was confiscated and turned over tothe Government.

While there is considerable dispute in the case over

the question whether the P6,641 of trust funds wasincluded in the P19,000 deposited as aforesaid,nevertheless, a careful examination of the case leads us tothe conclusion that said trust funds were a part of thefunds deposited and which were removed and confiscatedby the military authorities of the United States.

That branch of the law known in England andAmerica as the law of trusts had no exact counterpart inthe Roman law and has none under the Spanish law. Inthis jurisdiction, therefore, Father De la Pea's liability isdetermined by those portions of the Civil Code whichrelate to obligations. (Book 4, Title 1.)

Although the Civil Code states that "a person

obliged to give something is also bound to preserve it withthe diligence pertaining to a good father of a family" (art.1094), it also provides, following the principle of theRoman law, major casus est, cui humana infirmitasresistere non potest, that "no one shall be liable for eventswhich could not be foreseen, or which having beenforeseen were inevitable, with the exception of the casesexpressly mentioned in the law or those in which theobligation so declares." (Art. 1105.)

By placing the money in the bank and mixing it withhis personal funds De la Pea did not thereby assume anobligation different from that under which he would havelain if such deposit had not been made, nor did he therebymake himself liable to repay the money at all hazards. Ifthe had been forcibly taken from his pocket or from his

house by the military forces of one of the combatantsduring a state of war, it is clear that under the provisions ofthe Civil Code he would have been exempt fromresponsibility. The fact that he placed the trust fund in thebank in his personal account does not add to hisresponsibility. Such deposit did not make him a debtor whomust respond at all hazards.

We do not enter into a discussion for the purpose ofdetermining whether he acted more or less negligently bydepositing the money in the bank than he would if he hadleft it in his home; or whether he was more or lessnegligent by depositing the money in his personal accountthan he would have been if he had deposited it in a

separate account as trustee. We regard such discussionas substantially fruitless, inasmuch as the precise questionis not one of negligence. There was no law prohibiting himfrom depositing it as he did and there was no law whichchanged his responsibility be reason of the deposit. Whileit may be true that one who is under obligation to do orgive a thing is in duty bound, when he sees eventsapproaching the results of which will be dangerous to histrust, to take all reasonable means and measures toescape or, if unavoidable, to temper the effects of thoseevents, we do not feel constrained to hold that, in choosingbetween two means equally legal, he is culpably negligentin selecting one whereas he would not have been if he hadselected the other.

The court, therefore, finds and declares that themoney which is the subject matter of this action wasdeposited by Father De la Pea in the Hongkong andShanghai Banking Corporation of Iloilo; that said moneywas forcibly taken from the bank by the armed forces ofthe United States during the war of the insurrection; andthat said Father De la Pea was not responsible for itsloss.

The judgment is therefore reversed, and it isdecreed that the plaintiff shall take nothing by hiscomplaint.

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


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G.R. No. 90027 March 3, 1993

CA AGRO-INDUSTRIAL DEVELOPMENT CORP.,petitioner, vs. THE HONORABLE COURT OFAPPEALS 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 andanother party in a contract of rent of a safety deposit boxwith respect to its contents placed by the latter one ofbailor and bailee or one of lessor and lessee?

This is the crux of the present controversy.

On 3 July 1979, petitioner (through its President, SergioAguirre) and the spouses Ramon and Paula Pugaoentered into an agreement whereby the former purchasedfrom the latter two (2) parcels of land for a consideration ofP350,625.00. Of this amount, P75,725.00 was paid asdownpayment while the balance was covered by three (3)postdated checks. Among the terms and conditions of theagreement embodied in a Memorandum of True andActual Agreement of Sale of Land were that the titles t othe lots shall be transferred to the petitioner upon fullpayment of the purchase price and that the owner's copiesof the certificates of titles thereto, Transfer Certificates of

Title (TCT) Nos. 284655 and 292434, shall be deposited ina safety deposit box of any bank. The same could bewithdrawn only upon the joint signatures of arepresentative of the petitioner and the Pugaos upon fullpayment of the purchase price. Petitioner, through SergioAguirre, and the Pugaos then rented Safety Deposit Box

No. 1448 of private respondent Security Bank and TrustCompany, a domestic banking corporation hereinafterreferred to as the respondent Bank. For this purpose, bothsigned 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 safeand 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 assumesabsolutely no liability in connection therewith. 1

After the execution of the contract, two (2) renter's keyswere given to the renters one to Aguirre (for thepetitioner) and the other to the Pugaos. A guard keyremained in the possession of the respondent Bank. Thesafety deposit box has two (2) keyholes, one for the guardkey and the other for the renter's key, and can be openedonly 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 buyfrom the petitioner the two (2) lots at a price of P225.00per square meter which, as petitioner alleged in itscomplaint, translates to a profit of P100.00 per squaremeter or a total of P280,500.00 for the entire property.Mrs. Ramos demanded the execution of a deed of salewhich necessarily entailed the production of the certificatesof title. In view thereof, Aguirre, accompanied by thePugaos, then proceeded to the respondent Bank on 4October 1979 to open the safety deposit box and get thecertificates of title. However, when opened in the presenceof the Bank's representative, the box yielded no suchcertificates. Because of the delay in the reconstitution ofthe title, Mrs. Ramos withdrew her earlier offer to purchase

the lots; as a consequence thereof, the petitioner allegedlyfailed to realize the expected profit of P280,500.00. Hence,the latter filed on 1 September 1980 a complaint 2 fordamages against the respondent Bank with the Court ofFirst Instance (now Regional Trial Court) of Pasig, MetroManila which docketed the same as Civil Case No. 38382.

In its Answer with Counterclaim,3respondent Bank alleged

that the petitioner has no cause of action because ofparagraphs 13 and 14 of the contract of lease (Exhibit "2");corollarily, loss of any of the items or articles contained inthe box could not give rise to an action against it. It theninterposed a counterclaim for exemplary damages as well

as attorney's fees in the amount of P20,000.00. Petitionersubsequently filed an answer to the counterclaim. 4

In due course, the trial court, now designated as Branch161 of the Regional Trial Court (RTC) of Pasig, MetroManila, rendered a decision

5adverse to the petitioner on 8

December 1986, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is herebyrendered dismissing plaintiff's complaint.

On defendant's counterclaim, judgment is hereby renderedordering plaintiff to pay defendant the amount of FIVETHOUSAND (P5,000.00) PESOS as attorney's fees.

With costs against plaintiff. 6

The unfavorable verdict is based on the trial court'sconclusion that under paragraphs 13 and 14 of thecontract of lease, the Bank has no liability for the loss ofthe certificates of title. The court declared that the saidprovisions are binding on the parties.

Its motion for reconsideration 7 having been denied,petitioner appealed from the adverse decision to therespondent Court of Appeals which docketed the appealas CA-G.R. CV No. 15150. Petitioner urged therespondent Court to reverse the challenged decisionbecause the trial court erred in (a) absolving the

respondent Bank from liability from the loss, (b) notdeclaring as null and void, for being contrary to law, publicorder and public policy, the provisions in the contract forlease of the safety deposit box absolving the Bank fromany liability for loss, (c) not concluding that in thisjurisdiction, as well as under American jurisprudence, theliability of the Bank is settled and (d) awarding attorney's


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fees to the Bank and denying the petitioner's prayer fornominal and exemplary damages and attorney's fees. 8

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

theory that the contract (Exhibit "2") executed by thepetitioner and respondent Bank is in the nature of acontract of lease by virtue of which the petitioner and itsco-renter were given control over the safety deposit boxand its contents while the Bank retained no right to openthe said box because it had neither the possession norcontrol over it and its contents. As such, the contract isgoverned by Article 1643 of the Civil Code 10 whichprovides:

Art. 1643. In the lease of things, one of the parties bindshimself to give to another the enjoyment or use of a thingfor a price certain, and for a period which may be definiteor indefinite. However, no lease for more than ninety-nineyears shall be valid.

It invoked Tolentino vs. Gonzales11 which held that the

owner of the property loses his control over the propertyleased during the period of the contract and Article1975 of the Civil Code which provides:

Art. 1975. The depositary holding certificates, bonds,securities or instruments which earn interest shall bebound to collect the latter when it becomes due, and totake such steps as may be necessary in order that thesecurities may preserve their value and the rightscorresponding to them according to law.

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

and then concluded that "[c]learly, the defendant-appelleeis not under any duty to maintain the contents of the box.The stipulation absolving the defendant-appellee fromliability is in accordance with the nature of the contract oflease and cannot be regarded as contrary to law, publicorder and public policy."

12The appellate court was quick

to add, however, that under the contract of lease of thesafety deposit box, respondent Bank is not completely freefrom liability as it may still be made answerable in caseunauthorized persons enter into the vault area or when therented box is forced open. Thus, as expressly provided forin stipulation number 8 of the contract in question:

8. The Bank shall use due diligence that no unauthorizedperson shall be admitted to any rented safe and beyondthis, the Bank will not be responsible for the contents ofany safe rented from it. 13

Its motion for reconsideration 14having been denied in therespondent Court's Resolution of 28 August 1989, 15petitioner took this recourse under Rule 45 of the Rules ofCourt and urges Us to review and set aside therespondent Court's ruling. Petitioner avers that both therespondent Court and the trial court (a) did not properlyand legally apply the correct law in this case, (b) acted withgrave abuse of discretion or in excess of jurisdictionamounting to lack thereof and (c) set a precedent that is

contrary to, or is a departure from precedents adhered toand affirmed by decisions of this Court and precepts inAmerican jurisprudence adopted in the Philippines. Itreiterates the arguments it had raised in its motion toreconsider the trial court's decision, the brief submitted tothe respondent Court and the motion to reconsider thelatter's decision. In a nutshell, petitioner maintains thatregardless of nomenclature, the contract for the rent of thesafety deposit box (Exhibit "2") is actually a contract ofdeposit governed by Title XII, Book IV of the Civil Code ofthe Philippines. 16 Accordingly, it is claimed that therespondent Bank is liable for the loss of the certificates oftitle pursuant to Article 1972 of the said Code whichprovides:

Art. 1972. The depositary is obliged to keep the thingsafely and to return it, when required, to the depositor, orto his heirs and successors, or to the person who mayhave 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 T itle I of this Book.

If the deposit is gratuitous, this fact shall be taken intoaccount in determining the degree of care that thedepositary must observe.

Petitioner then quotes a passage from American

Jurisprudence

17

which is supposed to expound on theprevailing 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 andthe lessee takes possession of the box or safe and placestherein his securities or other valuables, the relation ofbailee and bail or is created between the parties to thetransaction as to such securities or other valuables; thefact that the safe-deposit company does not know, andthat it is not expected that it shall know, the character ordescription of the property which is deposited in such safe-deposit box or safe does not change that relation. Thataccess to the contents of the safe-deposit box can be hadonly by the use of a key retained by the lessee ( whether itis the sole key or one to be used in connection with one

retained by the lessor) does not operate to alter theforegoing rule. The argument that there is not, in such acase, a delivery of exclusive possession and control to thedeposit company, and that therefore the situation isentirely different from that of ordinary bailment, has beengenerally rejected by the courts, usually on the ground thatas possession must be either in the depositor or in thecompany, it should reasonably be considered as in thelatter rather than in the former, since the company is, bythe nature of the contract, given absolute control of accessto the property, and the depositor cannot gain accessthereto without the consent and active participation of thecompany. . . . (citations omitted).

and a segment from Words and Phrases18 which states

that a contract for the rental of a bank safety deposit box inconsideration of a fixed amount at stated periods is abailment for hire.

Petitioner further argues that conditions 13 and 14 of thequestioned contract are contrary to law and public policyand should be declared null and void. In support thereof, it


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cites Article 1306 of the Civil Code which provides thatparties to a contract may establish such stipulations,clauses, terms and conditions as they may deemconvenient, provided they are not contrary to law, morals,good customs, public order or public policy.

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

The petition is partly meritorious.

We agree with the petitioner's contention that the contractfor the rent of the safety deposit box is not an ordinarycontract of lease as defined in Article 1643 of the CivilCode. However, We do not fully subscribe to its view thatthe same is a contract of deposit that is to be strictlygoverned 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 absolutepossession and control of the safety deposit box was notgiven to the joint renters the petitioner and the Pugaos.The guard key of the box remained with the respondentBank; without this key, neither of the renters could openthe box. On the other hand, the respondent Bank could notlikewise open the box without the renter's key. In this case,the said key had a duplicate which was made so that bothrenters could have access to the box.

Hence, the authorities cited by the respondent Court 20onthis point do not apply. Neither could Article 1975, alsorelied upon by the respondent Court, be invoked as anargument against the deposit theory. Obviously, the firstparagraph of such provision cannot apply to a depositaryof certificates, bonds, securities or instruments which earn

interest if such documents are kept in a rented safetydeposit box. It is clear that the depositary cannot open thebox without the renter being present.

We observe, however, that the deposit theory itself doesnot altogether find unanimous support even in American

jurisprudence. We agree with the petitioner that under thelatter, the prevailing rule is that the relation between abank renting out safe-deposit boxes and its customer withrespect to the contents of the box is that of a bail or andbailee, the bailment being for hire and mutual benefit. 21This is just the prevailing view because:

There is, however, some support for the view that therelationship in question might be more properlycharacterized as that of landlord and tenant, or lessor andlessee. It has also been suggested that it should becharacterized as that of licensor and licensee. The relationbetween a bank, safe-deposit company, or storagecompany, and the renter of a safe-deposit box therein, isoften described as contractual, express or implied, oral orwritten, in whole or in part. But there is apparently nojurisdiction in which any rule other than that applicable tobailments governs questions of the liability and rights ofthe parties in respect of loss of the contents of safe-deposit boxes.

22(citations omitted)

In the context of our laws which authorize bankinginstitutions to rent out safety deposit boxes, it is clear thatin this jurisdiction, the prevailing rule in the United Stateshas been adopted. Section 72 of the General Banking Act23pertinently provides:

Sec. 72. In addition to the operations specificallyauthorized elsewhere in this Act, banking institutions otherthan building and loan associations may perform thefollowing services:

(a) Receive in custody funds, documents, and valuableobjects, and rent safety deposit boxes for the safeguardingof such effects.

xxx xxx xxx

The banks shall perform the services permitted undersubsections (a), (b) and (c) of this section as depositoriesor as agents. . . . 24(emphasis supplied)

Note that the primary function is still found within theparameters of a contract of deposit, i.e., the receiving incustody of funds, documents and other valuable objectsfor safekeeping. The renting out of the safety depositboxes is not independent from, but related to or inconjunction 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 partiesthereto may establish such stipulations, clauses, termsand conditions as they may deem convenient, providedthey are not contrary to law, morals, good customs, publicorder or public policy. The depositary's responsibility forthe safekeeping of the objects deposited in the case at baris governed by Title I, Book IV of the Civil Code.Accordingly, the depositary would be liable if, in performingits obligation, it is found guilty of fraud, negligence, delayor contravention of the tenor of the agreement. 26 In theabsence of any stipulation prescribing the degree ofdiligence required, that of a good father of a family is to beobserved.

27 Hence, any stipulation exempting thedepositary from any liability arising from the loss of thething 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 13and 14 of the questioned contract of lease of the safetydeposit box, which read:

13. The bank is not a depositary of the contents of the safeand 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 assumesabsolutely no liability in connection therewith. 28

are void as they are contrary to law and public policy. Wefind Ourselves in agreement with this proposition for

indeed, said provisions are inconsistent with therespondent Bank's responsibility as a depositary underSection 72(a) of the General Banking Act. Both exempt thelatter from any liability except as contemplated in condition8 thereof which limits its duty to exercise reasonablediligence only with respect to who shall be admitted to anyrented safe, to wit:


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8. The Bank shall use due diligence that no unauthorizedperson shall be admitted to any rented safe and beyondthis, the Bank will not be responsible for the contents ofany safe rented from it.

29

Furthermore, condition 13 stands on a wrong premise andis contrary to the actual practice of the Bank. It is notcorrect to assert that the Bank has neither the possessionnor control of the contents of the box since in fact, thesafety deposit box itself is located in its premises and isunder its absolute control; moreover, the respondent Bankkeeps the guard key to the said box. As stated earlier,renters cannot open their respective boxes unless theBank cooperates by presenting and using this guard key.Clearly then, to the extent above stated, the foregoingconditions in the contract in question are void andineffective. It has been said:

With respect to property deposited in a safe-deposit box bya customer of a safe-deposit company, the parties, sincethe relation is a contractual one, may by special contract

define their respective duties or provide for increasing orlimiting the liability of the deposit company, provided suchcontract is not in violation of law or public policy. It mustclearly appear that there actually was such a specialcontract, however, in order to vary the ordinary obligationsimplied by law from the relationship of the parties; liabilityof the deposit company will not be enlarged or restrictedby words of doubtful meaning. The company, inrenting safe-deposit boxes, cannot exempt itself fromliability for loss of the contents by its own fraud ornegligence or that of its agents or servants, and if aprovision of the contract may be construed as an attemptto do so, it will be held ineffective for the purpose.Although it has been held that the lessor of a safe -depositbox cannot limit its liability for loss of the contents thereofthrough its own negligence, the view has been taken that

such a lessor may limits its liability to some extent byagreement or stipulation.

30(citations omitted)

Thus, we reach the same conclusion which the Court ofAppeals arrived at, that is, that the petition should bedismissed, but on grounds quite different from those relied

upon by the Court of Appeals. In the instant case, therespondent Bank's exoneration cannot, contrary to theholding of the Court of Appeals, be based on or proceedfrom a characterization of the impugned contract as acontract of lease, but rather on the fact that no competentproof was presented to show that respondent Bank was

aware of the agreement between the petitioner and thePugaos to the effect that the certificates of title werewithdrawable from the safety deposit box only upon bothparties' joint signatures, and that no evidence wassubmitted to reveal that the loss of the certificates of titlewas due to the fraud or negligence of the respondentBank. This in turn flows from this Court's determinationthat the contract involved was one of deposit. Since boththe petitioner and the Pugaos agreed that each shouldhave one (1) renter's key, it was obvious that either ofthem could ask the Bank for access to the safety depositbox and, with the use of such key and the Bank's ownguard key, could open the said box, without the otherrenter being present.

Since, however, the petitioner cannot be blamed for thefiling of the complaint and no bad faith on its part had beenestablished, the trial court erred in condemning thepetitioner to pay the respondent Bank attorney's fees. Tothis extent, the Decision (dispositive portion) of publicrespondent Court of Appeals must be modified.

WHEREFORE, the Petition for Review is partiallyGRANTED by deleting the award for attorney's fees fromthe 4 July 1989 Decision of the respondent Court ofAppeals in CA-G.R. CV No. 15150. As modified, andsubject to the pronouncement We made above on thenature of the relationship between the parties in a contractof lease of safety deposit boxes, the dispositive portion ofthe said Decision is hereby AFFIRMED and the instantPetition for Review is otherwise DENIED for lack of merit.

No pronouncement as to costs.

SO ORDERED.


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G.R. No. 4015 August 24, 1908

ANGEL JAVELLANA, plaintiff-appellee, vs. JOSE LIM,ET AL., defendants-appellants.

R. Zaldarriaga for appellants. B. Montinola for appellee.TORRES, J. :

The attorney for the plaintiff, Angel Javellana, file acomplaint on the 30th of October, 1906, with the Court ofFirst Instance of Iloilo, praying that the defendants, JoseLim and Ceferino Domingo Lim, he sentenced to jointlyand severally pay the sum of P2,686.58, with interestthereon at the rate of 15 per cent per annum from the 20thof January, 1898, until full payment should be made,deducting from the amount of interest due the sum ofP1,102.16, and to pay the costs of the proceedings.

Authority from the court having been previously obtained,the complaint was amended on the 10th of January, 1907;it was then alleged, on the 26th of May, 1897, thedefendants executed and subscribed a document in favorof the plaintiff reading as follows:

We have received from Angel Javellana, as a depositwithout interest, the sum of two thousand six hundred andeighty-six cents ofpesos fuertes, which we will return tothe said gentleman, jointly and severally, on the 20th ofJanuary, 1898. Jaro, 26th of May, 1897. Signed JoseLim. Signed: Ceferino Domingo Lim.

That, when the obligation became due, the defendantsbegged the plaintiff for an extension of time for the

payment thereof, building themselves to pay interest at therate of 15 per cent on the amount of their indebtedness, towhich the plaintiff acceded; that on the 15th of May, 1902,the debtors paid on account of interest due the sum ofP1,000 pesos, with the exception of either capital orinterest, had thereby been subjected to loss and damages.

A demurrer to the original complaint was overruled, and onthe 4th of January, 1907, the defendants answered theoriginal complaint before its amendment, setting forth thatthey acknowledged the facts stated in Nos. 1 and 2 of thecomplaint; that they admitted the statements of the plaintiffrelative to the payment of 1,102.16 pesos made on the

15th of November, 1902, not, however, as payment ofinterest on the amount stated in the foregoing document,but on account of the principal, and denied that there hadbeen any agreement as to an extension of the time forpayment and the payment of interest at the rate of 15 percent per annum as alleged in paragraph 3 of thecomplaint, and also denied all the other statementscontained therein.

As a counterclaim, the defendants alleged t hat they hadpaid to the plaintiff sums which, together with theP1,102.16 acknowledged in the complaint, aggregated thetotal sum of P5,602.16, and that, deducting therefrom thetotal sum of P2,686.58 stated in the document transcribedin the complaint, the plaintiff still owed the defendantsP2,915.58; therefore, they asked that judgment be enteredabsolving them, and sentencing the plaintiff to pay themthe sum of P2,915.58 with the costs.

Evidence was adduced by both parties and, upon theirexhibits, together with an account book having been madeof record, the court below rendered judgment on the 15thof January, 1907, in favor of the plaintiff for the recovery ofthe sum of P5,714.44 and costs.

The defendants excepted to the above decision andmoved for a new trial. This motion was overruled and wasalso excepted to by them; the bill of exceptions presentedby the appellants having been approved, the same was indue course submitted to this court.

The document of indebtedness inserted in the complaintstates that the plaintiff left on deposit with the defendants agiven sum of money which they were jointly and severallyobliged to return on a certain date fixed in the document;but that, nevertheless, when the document appearing asExhibits 2, written in the Visayan dialect and followed by a

translation into Spanish was executed, it wasacknowledged, at the date thereof, the 15th of November,1902, that the amount deposited had not yet been returnedto the creditor, whereby he was subjected to losses anddamages amounting to 830 pesos since the 20th ofJanuary, 1898, when the return was again stipulated with

the further agreement that the amount deposited shouldbear interest at the rate of 15 per cent per annum, from theaforesaid date of January 20, and that the 1,000 pesospaid to the depositor on the 15th of May, 1900, accordingto the receipt issued by him to the debtors, would beincluded, and that the said rate of interest would obtainuntil the debtors on the 20th of May, 1897, it is called adeposit consisted, and they could have accomplished thereturn agreed upon by the delivery of a sum equal to theone received by them. For this reason it must beunderstood that the debtors were lawfully authorized tomake use of the amount deposited, which they have done,as subsequent shown when asking for an extension of thetime for the return thereof, inasmuch as, acknowledgingthat they have subjected the letter, their creditor, to lossesand damages for not complying with what had been

stipulated, and being conscious that they had used, fortheir own profit and gain, the money that they receivedapparently as a deposit, they engaged to pay interest tothe creditor from the date named until the time when therefund should be made. Such conduct on the part of thedebtors is unquestionable evidence that the transactionentered into between the interested parties was not adeposit, but a real contract of loan.

Article 1767 of the Civil Code provides that

The depository can not make use of the thing depositedwithout the express permission of the depositor.

Otherwise he shall be liable for losses and damages.

Article 1768 also provides that

When the depository has permission to make use of thething deposited, the contract loses the character of a


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deposit and becomes a loan or bailment.

The permission shall not be presumed, and its existencemust be proven.

When on one of t he latter days of January, 1898, Jose Limwent to the office of the creditor asking for an extension ofone year, in view of the fact the money was scare, andbecause neither himself nor the other defendant were ableto return the amount deposited, for which reason heagreed to pay interest at the rate of 15 per cent perannum, it was because, as a matter of fact, he did nothave in his possession the amount deposited, he havingmade use of the same in his business and for his ownprofit; and the creditor, by granting them the extension,evidently confirmed the express permission previouslygiven to use and dispose of the amount stated as havingbee deposited, which, in accordance with the loan, to allintents and purposes gratuitously, until the 20th ofJanuary, 1898, and from that dated with interest at 15 percent per annum until its full payment, deducting from the

total amount of interest the sum of 1,000 pesos, inaccordance with the provisions of article 1173 of the CivilCode.

Notwithstanding that it does not appear that Jose Limsigned the document (Exhibit 2) executed in the presenceof three witnesses on the 15th of November, 1902, byCeferino Domingo Lim on behalf of himself and the former,nevertheless, the said document has not been contestedas false, either by a criminal or by a civil proceeding, norhas any doubt been cast upon the authenticity of thesignatures of the witnesses who attested the execution ofthe same; and from the evidence in the case one issufficiently convinced that the said Jose Lim was perfectlyaware of and authorized his joint codebtor to liquidate theinterest, to pay the sum of 1,000 pesos, on accountthereof, and to execute the aforesaid document No. 2. Atrue ratification of the original document of deposit wasthus made, and not the least proof is shown in the recordthat Jose Lim had ever paid the whole or any part of thecapital stated in the original document, Exhibit 1.

If the amount, together with interest claimed in thecomplaint, less 1,000 pesos appears as fully established,such is not the case with the defendant's counterclaim forP5,602.16, because the existence and certainty of saidindebtedness imputed to the plaintiff has not been proven,and the defendants, who call themselves creditors for the

said amount have not proven in a satisfactory manner thatthe plaintiff had received partial payments on account ofthe same; the latter alleges with good reason, that theyshould produce the receipts which he may have issued,and which he did issue whenever they paid him anymoney on account. The plaintiffs allegation that the twoamounts of 400 and 1,200 pesos, referred t o in documentsmarked "C" and "D" offered in evidence by the defendants,had been received from Ceferino Domingo Lim on accountof other debts of his, has not been contradicted, and thefact that in the original complaint the sum of 1,102.16pesos, was expressed in lieu of 1,000 pesos, the onlypayment made on account of interest on the amountdeposited according to documents No. 2 and letter "B"above referred to, was due to a mistake.

Moreover, for the reason above set forth it may, as amatter of course, be inferred that there was no renewal ofthe contract deposited converted into a loan, because, ashas already been stated, the defendants received saidamount by virtue of real loan contract under the name of adeposit, since the so-called bailees were forthwithauthorized to dispose of the amount deposited. This theyhave done, as has been clearly shown.

The original joint obligation contracted by the defendantdebtor still exists, and it has not been shown or proven inthe proceedings that the creditor had released Joe Limfrom complying with his obligation in order that he shouldnot be sued for or sentenced to pay the amount of capitaland interest together with his codebtor, Ceferino Domingo

Lim, because the record offers satisfactory evidenceagainst the pretension of Jose Lim, and it further appearsthat document No. 2 was executed by the other debtor,Ceferino Domingo Lim, for himself and on behalf of JoseLim; and it has also been proven that Jose Lim, being fullyaware that his debt had not yet been settled, took steps tosecure an extension of the time for payment, and

consented to pay interest in return for the concessionrequested from the creditor.

In view of the foregoing, and adopting the findings in thejudgment appealed from, it is our opinion that the sameshould be and is hereby affirmed with the costs of thisinstance against the appellant, provided that the interestagreed upon shall be paid until the complete liquidation ofthe debt. So ordered.


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G.R. No. L-7593 March 27, 1913

THE UNITED STATES, plaintiff-appellee, vs. JOSE M.IGPUARA, defendant-appellant.

W. A. Kincaid, Thos. L. Hartigan, and Jose Robles Lahesafor appellant. Office of the Solicitor-General Harvey forappellee.

ARELLANO, C.J.:

The defendant therein is charged with the crime of estafa,for having swindled Juana Montilla and Eugenio Veraguthout of P2,498 Philippine currency, which he had take ondeposit from the former to be at the latter's disposal. Thedocument setting forth the obligation reads:

We hold at the disposal of Eugenio Veraguth the sum oftwo thousand four hundred and ninety-eight pesos(P2,498), the balance from Juana Montilla's sugar. Iloilo, June 26, 1911, Jose Igpuara, for Ramirez and Co.

The Court of First Instance of Iloilo sentenced thedefendant to two years ofpresidio correccional, to payJuana Montilla P2,498 Philippine currency, and in case ofinsolvency to subsidiary imprisonment at P2.50 per day,not to exceed one-third of the principal penalty, and thecosts.

The defendant appealed, alleging as errors: (1) Holdingthat the document executed by him was a certificate ofdeposit; (2) holding the existence of a deposit, withoutprecedent transfer or delivery of the P2,498; and (3)classifying the facts in the case as the crime ofestafa.

A deposit is constituted from the time a person receives athing belonging to another with the obligation of keepingand returning it. (Art. 1758, Civil Code.)

That the defendant received P2,498 is a fact proven. The

defendant drew up a document declaring that theyremained in his possession, which he could not have saidhad he not received them. They remained in hispossession, surely in no other sense than to take care ofthem, for they remained has no other purpose. Theyremained in the defendant's possession at the disposal of

Veraguth; but on August 23 of the same year Veraguthdemanded for him through a notarial instrument restitutionof them, and to date he has not restored them.

The appellant says: "Juana Montilla's agent voluntarilyaccepted the sum of P2,498 in an instrument payable ondemand, and as no attempt was made to cash it untilAugust 23, 1911, he could indorse and negotiate it like anyother commercial instrument. There is no doubt that ifVeraguth accepted the receipt for P2,498 it was becauseat that time he agreed with the defendant to consider theoperation of sale on commission closed, leaving thecollection of said sum until later, which sum remained as aloan payable upon presentation of the receipt." (Brief, 3and 4.)

Then, after averring the true facts: (1) that a salescommission was precedent; (2) that this commission wassettled with a balance of P2,498 in favor of the principal,Juana Montilla; and (3) that this balance remained in thepossession of the defendant, who drew up an instrumentpayable on demand, he has drawn two conclusions, botherroneous: One, that the instrument drawn up in the formof a depositcertificate could be indorsed or negotiated likeany other commercial instrument; and the other, that thesum of P2,498 remained in defendant's possession as aloan.

It is erroneous to assert that the certificate of deposit inquestion is negotiable like any other commercialinstrument: First, because every commercial instrument isnot negotiable; and second, because only instrumentspayable to order are negotiable. Hence, this instrument notbeing to order but to bearer, it is not negotiable.

It is also erroneous to assert that sum of money set forth insaid certificate is, according to it, in the defendant's

possession as a loan. In a loan the lender transmits to theborrower the use of the thing lent, while in a deposit theuse of the thing is not transmitted, but merely possessionfor its custody or safe-keeping.

In order that the depositary may use or dispose oft hethings deposited, the depositor's consent is required, andthen:

The rights and obligations of the depositary and of thedepositor shall cease, and the rules and provisionsapplicable to commercial loans, commission, or contractwhich took the place of the deposit shall be observed. (Art.309, Code of Commerce.)

The defendant has shown no authorization whatsoever orthe consent of the depositary for using or disposing of theP2,498, which the certificate acknowledges, or anycontract entered into with the depositor to convert thedeposit into a loan, commission, or other contract.

That demand was not made for restitution of the sumdeposited, which could have been claimed on the same orthe next day after the certificate was signed, does notoperate against the depositor, or signify anything exceptthe intention not to press it. Failure to claim at once ordelay for sometime in demanding restitution of the thingsdeposited, which was immediately due, does not implysuch permission to use the thing deposited as wouldconvert the deposit into a loan.

Article 408 of the Code of Commerce of 1829, previous tothe one now in force, provided:

The depositary of an amount of money cannot use the

amount, and if he makes use of it, he shall be responsiblefor all damages that may accrue and shall respond to thedepositor for the legal interest on the amount.

Whereupon the commentators say:


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In this case the deposit becomes in fact a loan, as a justpunishment imposed upon him who abuses the sacrednature of a deposit and as a means of preventing thedesire of gain from leading him into speculations that maybe disastrous to the depositor, who is much better securedwhile the deposit exists when he only has a personal

action for recovery.

According to article 548, No. 5, of the Penal Code, thosewho to the prejudice of another appropriate or abstract fortheir own use money, goods, or other personal propertywhich they may have received as a deposit, oncommission, or for administration, or for any other purposewhich produces the obligation of delivering it or returning it,and deny having received it, shall suffer the penalty of thepreceding article," which punishes such act as the crime ofestafa. The corresponding article of the Penal Code of thePhilippines in 535, No. 5.

In a decision of an appeal, September 28, 1895, theprinciple was laid down that: "Since he commits the crime

ofestafa under article 548 of the Penal Code of Spain whoto another's detriment appropriates to himself or abstractsmoney or goods received on commission for delivery, thecourt rightly applied this article to the appellant, who, to themanifest detriment of the owner or owners of thesecurities, since he has not restored them, willfully andwrongfully disposed of them by appropriating them tohimself or at least diverting them from the purpose towhich he was charged to devote them."

It is unquestionable that in no sense did the P2,498 whichhe willfully and wrongfully disposed of to the detriments ofhis principal, Juana Montilla, and of the depositor, EugenioVeraguth, belong to the defendant.

Likewise erroneous is the construction apparently attempted to be given to two decisions of this SupremeCourt (U. S. vs. Dominguez, 2 Phil. Rep., 580, and U. S.vs. Morales and Morco, 15 Phil. Rep., 236) as implyingthat what constitutes estafa is not the disposal of moneydeposited, but denial of having received same. In the firstof said cases there was no evidence that the defendant

had appropriated the grain deposited in his possession.

On the contrary, it is entirely probable that, after thedeparture of the defendant from Libmanan on September20, 1898, two days after the uprising of the civil guard inNueva Caceres, the rice was seized by the revolutionalistsand appropriated to their own uses.

In this connection it was held that failure to return the thingdeposited was not sufficient, but that it was necessary toprove that the depositary had appropriated it to himself ordiverted the deposit to his own or another's benefit. Hewas accused or refusing to restore, and it was held thatthe code does not penalize refusal to restore but denial ofhaving received. So much for the crime of omission; nowwith reference to the crime of commission, it was not heldin that decision that appropriation or diversion of the thingdeposited would not constitute the crime ofestafa.

In the second of said decisions, the accused "kept none ofthe proceeds of the sales. Those, such as they were, heturned over to the owner;" and there being no proof of theappropriation, the agent could not be found guilty of thecrime ofestafa.

Being in accord and the merits of the case, the judgmentappealed from is affirmed, with costs.


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G.R. No. L-60033 April 4, 1984

TEOFISTO GUINGONA, JR., ANTONIO I. MARTIN, andTERESITA SANTOS, petitioners, vs. THE CITYFISCAL OF MANILA, HON. JOSE B. FLAMINIANO,ASST. CITY FISCAL FELIZARDO N. LOTA andCLEMENT DAVID, respondents.

MAKASIAR, Act g. C.J. :+. wph !1

This is a petition for prohibition and injunction with a prayerfor the immediate issuance of restraining order and/or writof preliminary injunction filed by petitioners on March 26,1982.

On March 31, 1982, by virtue of a court resolution issuedby this Court on the same date, a temporary restrainingorder was duly issued ordering the respondents, theirofficers, agents, representatives and/or person or personsacting upon their (respondents') orders or in their place orstead to refrain from proceeding with the preliminaryinvestigation in Case No. 8131938 of the Office of the CityFiscal of Manila (pp. 47-48, rec.). On January 24, 1983,private respondent Clement David filed a motion to liftrestraining order which was denied in the resolution of thisCourt dated May 18, 1983.

As can be gleaned from the above, the instant petitionseeks to prohibit public respondents from proceeding withthe preliminary investigation of I.S. No. 81-31938, in whichpetitioners were charged by private respondent ClementDavid, with estafa and violation of Central Bank CircularNo. 364 and related regulations regarding foreign

exchange transactions principally, on the ground of lack ofjurisdiction in that the allegations of the charged, as well asthe testimony of private respondent's principal witness andthe evidence through said witness, showed that petitioners'obligation is civil in nature.

For purposes of brevity, We hereby adopt the antecedentfacts narrated by the Solicitor General in its Commentdated June 28,1982, as follows:t.hqw

On December 23,1981, private respondent David filed I.S.No. 81-31938 in the Office of the City Fiscal of Manila,which case was assigned to respondent Lota forpreliminary investigation (Petition, p. 8).

In I.S. No. 81-31938, David charged petitioners (togetherwith one Robert Marshall and the following directors of theNation Savings and Loan Association, Inc., namelyHomero Gonzales, Juan Merino, Flavio Macasaet, VictorGomez, Jr., Perfecto Manalac, Jaime V. Paz, Paulino B.Dionisio, and one John Doe) with estafa and violation ofCentral Bank Circular No. 364 and related Central Bankregulations on foreign exchange transactions, allegedlycommitted as follows (Petition, Annex "A"):t.hqw

"From March 20, 1979 to March, 1981, David invested withthe Nation Savings and Loan Association, (hereinaftercalled NSLA) the sum of P1,145,546.20 on nine deposits,P13,531.94 on savings account deposits (jointly with hissister, Denise Kuhne), US$10,000.00 on time deposit,US$15,000.00 under a receipt and guarantee of paymentand US$50,000.00 under a receipt dated June 8, 1980 (aujointly with Denise Kuhne), that David was induced intomaking the aforestated investments by Robert Marshall anAustralian national who was allegedly a close associate ofpetitioner Guingona Jr., then NSLA President, petitionerMartin, then NSLA Executive Vice-President of NSLA andpetitioner Santos, then NSLA General Manager; that onMarch 21, 1981 N LA was placed under receivership bythe Central Bank, so that David filed claims therewith forhis investments and those of his sister; that on July 22,1981 David received a report from the Central Bank thatonly P305,821.92 of those investments were entered in therecords of NSLA; that, therefore, the respondents in I.S.No. 81-31938 misappropriated the balance of theinvestments, at the same time violating Central BankCircular No. 364 and related Central Bank regulations onforeign exchange transactions; that after demands,petitioner Guingona Jr. paid only P200,000.00, thereby

reducing the amounts misappropriated to P959,078.14 andUS$75,000.00."

Petitioners, Martin and Santos, filed a joint counter-affidavit (Petition, Annex' B') in which they stated thefollowing.t.hqw

"That Martin became President of NSLA in March 1978(after the resignation of Guingona, Jr.) and served as suchuntil October 30, 1980, while Santos was GeneralManager up to November 1980; that because NSLA wasurgently in need of funds and at David's insistence, hisinvestments were treated as special- accounts withinterest above the legal rate, an recorded in separateconfidential documents only a portion of which were to bereported because he did not want the Australiangovernment to tax his total earnings (nor) to know his totalinvestments; that all transactions with David were recordedexcept the sum of US$15,000.00 which was a personalloan of Santos; that David's check for US$50,000.00 wascleared through Guingona, Jr.'s dollar account because

NSLA did not have one, that a draft of US$30,000.00 wasplaced in the name of one Paz Roces because of apending transaction with her; that the Philippine DepositInsurance Corporation had already reimbursed Davidwithin the legal limits; that majority of the stockholders ofNSLA had filed Special Proceedings No. 82-1695 in theCourt of First Instance to contest its (NSLA's) closure; thatafter NSLA was placed under receivership, Martinexecuted a promissory note in David's favor and causedthe transfer to him of a nine and on behalf (9 1/2) caratdiamond ring with a net value of P510,000.00; and, thatthe liabilities of NSLA to David were civil in nature."

Petitioner, Guingona, Jr., in his counter-affidavit (Petition,Annex' C') stated the following:t.hqw

"That he had no hand whatsoever in the transactionsbetween David and NSLA since he (Guingona Jr.) hadresigned as NSLA president in March 1978, or prior tothose transactions; that he assumed a portion o; theliabilities of NSLA to David because of the latter'sinsistence that he placed his investments with NSLA


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because of his faith in Guingona, Jr.; that in a PromissoryNote dated June 17, 1981 (Petition, Annex "D") he(Guingona, Jr.) bound himself to pay David the sums ofP668.307.01 and US$37,500.00 in stated installments;that he (Guingona, Jr.) secured payment of those amountswith second mortgages over two (2) parcels of land under

a deed of Second Real Estate Mortgage (Petition, Annex"E") in which it was provided that the mortgage over one(1) parcel shall be cancelled upon payment of one-half ofthe obligation to David; that he (Guingona, Jr.) paidP200,000.00 and tendered another P300,000.00 whichDavid refused to accept, hence, he (Guingona, Jr.) filedCivil Case No. Q-33865 in the Court of First Instance ofRizal at Quezon City, to effect the release of the mortgageover one (1) of the two parcels of land conveyed to Davidunder second mortgages."

At the inception of the preliminary investigation beforerespondent Lota, petitioners moved to dismiss the chargesagainst them for lack of jurisdiction because David's claimsallegedly comprised a purely civil obligation which wasitself novated. Fiscal Lota denied the motion to dismiss(Petition, p. 8).

But, after the presentation of David's principal witness,petitioners filed the instant petition because: (a) theproduction of the Promisory Notes, Banker's Acceptance,Certificates of Time Deposits and Savings Accountallegedly showed that the transactions between David andNSLA were simple loans, i.e., civil obligations on the partof NSLA which were novated when Guingona, Jr. andMartin assumed them; and (b) David's principal witnessallegedly testified that the duplicate originals of theaforesaid instruments of indebtedness were all on file withNSLA, contrary to David's claim that some of hisinvestments were not record (Petition, pp. 8-9).

Petitioners alleged that they did not exhaust availableadministrative remedies because to do so would be futile(Petition, p. 9) [pp. 153-157, rec.].

As correctly pointed out by the Solicitor General, t he soleissue for resolution is whether public respondents acted

without jurisdiction when they investigated the charges(estafa and violation of CB Circular No. 364 and relatedregulations regarding foreign exchange transactions)subject matter of I.S. No. 81-31938.

There is merit in the contention of the petitioners that theirliability is civil in nature and therefore, public respondentshave no jurisdiction over the charge of estafa.

A casual perusal of the December 23, 1981 affidavit.complaint filed in the Office of the City Fiscal of Manila byprivate respondent David against petitioners TeopistoGuingona, Jr., Antonio I. Martin and Teresita G. Santos,together with one Robert Marshall and the other directorsof the Nation Savings and Loan Association, will show thatfrom March 20, 1979 to March, 1981, private respondentDavid, together with his sister, Denise Kuhne, investedwith the Nation Savings and Loan Association the sum ofP1,145,546.20 on time deposits covered by BankersAcceptances and Certificates of Time Deposits and thesum of P13,531.94 on savings account deposits covered

by passbook nos. 6-632 and 29-742, or a total ofP1,159,078.14 (pp. 15-16, roc.). It appears further thatprivate respondent David, together with his sister, madeinvestments in the aforesaid bank in the amount ofUS$75,000.00 (p. 17, rec.).

Moreover, the records reveal that when the aforesaid bankwas placed under receivership on March 21, 1981,petitioners Guingona and Martin, upon the request ofprivate respondent David, assumed the obligation of thebank to private respondent David by executing on June 17,1981 a joint promissory note in favor of private respondentacknowledging an indebtedness of Pl,336,614.02 andUS$75,000.00 (p. 80, rec.). This promissory note wasbased on the statement of account as of June 30, 1981prepared by the private respondent (p. 81, rec.). The

amount of indebtedness assumed appears to be biggerthan the original claim because of the added interest andthe inclusion of other deposits of private respondent'ssister in the amount of P116,613.20.

Thereafter, or on July 17, 1981, petitioners Guingona and

Martin agreed to divide the said indebtedness, andpetitioner Guingona executed another promissory noteantedated to June 17, 1981 whereby he personallyacknowledged an indebtedness of P668,307.01 (1/2 ofP1,336,614.02) and US$37,500.00 (1/2 of US$75,000.00)in favor of private respondent (p. 25, rec.). The aforesaid

promissory notes were executed as a result of depositsmade by Clement David and Denise Kuhne with the NationSavings and Loan Association.

Furthermore, the various pleadings and documents filed byprivate respondent David, before this Court indisputablyshow that he has indeed invested his money on time andsavings deposits with the Nation Savings and LoanAssociation.

It must be pointed out that when private respondent Davidinvested his money on nine. and savings deposits with theaforesaid bank, the contract that was perfected was acontract of simple loan or mutuum and not a contract ofdeposit. Thus, Article 1980 of the New Civil Code provides

that:t.hqw

Article 1980. Fixed, savings, and current deposits of-money in banks and similar institutions shall be governedby the provisions concerning simple loan.

In the case ofCentral Bank of the Philippines vs. Morfe (63SCRA 114,119 [1975], We said:t.hqw

It should be noted that fixed, savings, and current depositsof money in banks and similar institutions are hat truedeposits. are considered simple loans and, as such, arenot preferred credits (Art. 1980 Civil Code; In reLiquidation of Mercantile Batik of China Tan Tiong Tick vs.American Apothecaries Co., 66 Phil 414; Pacific CoastBiscuit Co. vs. Chinese Grocers Association 65 Phil. 375;Fletcher American National Bank vs. Ang Chong UM 66PWL 385; Pacific Commercial Co. vs. AmericanApothecaries Co., 65 PhiL 429; Gopoco Grocery vs.Pacific Coast Biscuit CO.,65 Phil. 443)."


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This Court also declared in the recent case of Serrano vs.Central Bank of the Philippines (96 SCRA 102 [1980])that:t.hqw

Bank deposits are in the nature of irregular deposits. Theyare really 'loans because they earn interest. All kinds ofbank deposits, whether fixed, savings, or current are to betreated as loans and are to be covered by the law on loans(Art. 1980 Civil Code Gullas vs. Phil. National Bank, 62Phil. 519). Current and saving deposits, are loans to abank because it can use the same. The petitioner here inmaking time deposits that earn interests will respondentOverseas Bank of Manila was in reality a creditor of therespondent Bank and not a depositor. The respondentBank was in turn a debtor of petitioner. Failure of therespondent Bank to honor the time deposit is failure to payits obligation as a debtor and not a breach of trustarisingfrom a depositary's failure to return the subject matter ofthe deposit(Emphasis supplied).

Hence, the relationship between the private respondent

and the Nation Savings and Loan Association is that ofcreditor and debtor; consequently, the ownership of theamount deposited was transmitted to the Bank upon theperfection of the contract and it can make use of theamount deposited for its banking operations, such as topay interests on deposits and to pay withdrawals. Whilethe Bank has the obligation to return the amountdeposited, it has, however, no obligation to return ordeliver the same money that was deposited. And, thefailure of the Bank to return the amount deposited will notconstitute estafa through misappropriation punishableunder Article 315, par. l(b) of the Revised Penal Code, butit will only give rise to civil liability over which the publicrespondents have nojurisdiction.

WE have already laid down the rule that:t.hqw

In order that a person can be convicted under the above-quoted provision, it must be proven that he has theobligation to deliver or return the some money, goods orpersonal property that he receivedPetitioners had no suchobligation to return the same money, i.e., the bills or coins,

which they received from private respondents. This is sobecause as clearly as stated in criminal complaints, therelated civil complaints and the supporting swornstatements, the sums of money that petitioners receivedwere loans.

The nature of simple loan is defined in Articles 1933 and1953 of the Civil Code.t.hqw

"Art. 1933. By the contract of loan, one of the partiesdelivers to another, either something not consumable sothat the latter may use the same for a certain time- andreturn it, in which case the contract is called acommodatum; or money or other consumable thing, uponthe condition that the same amount of the same kind andquality shall he paid in which case the contract is simplycalled a loan or mutuum.

"Commodatum is essentially gratuitous.

"Simple loan may be gratuitous or with a stipulation to payinterest.

"In commodatum the bailor retains the ownership of thething loaned while in simple loan, ownership passes to theborrower.

"Art. 1953. A person who receives a loan of money orany other fungible thing acquires the ownership thereof,and is bound to pay to the creditor an equal amount of thesame kind and quality."

It can be readily noted from the above-quoted provisionsthat in simple loan (mutuum), as contrasted tocommodatum the borrower acquires ownership of themoney, goods or personal property borrowed Being theowner, the borrower can dispose of the thing borrowed(Article 248, Civil Code) and his act will not be consideredmisappropriation thereof'(Yam vs. Malik, 94 SCRA 30, 34[1979]; Emphasis supplied).

But even granting that the failure of the bank to pay thetime and savings deposits of private respondent Davidwould constitute a violation of paragraph 1(b) of Article 315of the Revised Penal Code, nevertheless any incipientcriminal liability was deemed avoided, because when theaforesaid bank was placed under receivership by the

Central Bank, petitioners Guingona and Martin assumedthe obligation of the bank to private respondent David,thereby resulting in the novation of the original contractualobligation arising from deposit into a contract of loan andconverting the original trust relation between the bank andprivate respondent David into an ordinary debtor-creditorrelation between the petitioners and private respondent.Consequently, the failure of the bank or petitionersGuingona and Martin to pay the deposits of privaterespondent would not constitute a breach of trust butwould merely be a failure to pay the obligation as a debtor.

Moreover, while it is true that novation does not extinguishcriminal liability, it may however, prevent the rise ofcriminal liability as long as it occurs prior to the filing of thecriminal information in court. Thus, in Gonzales vs.Serrano ( 25 SCRA 64, 69 [1968]) We heldthat:t.hqw

As pointed out in People vs. Nery, novation prior to thefiling of the criminal information as in the case at barmay convert the relation between the parties into anordinary creditor-debtor relation, and place thecomplainant in estoppel to insist on the original transactionor "cast doubt on the true nature" thereof.

Again, in the latest case of Ong vs. Court of Appeals (L-58476, 124 SCRA 578, 580-581 [1983] ), this Courtreiterated the ruling in People vs. Nery ( 10 SCRA 244[1964] ), declaring that:t.hqw

The novation theory may perhaps apply prior to the fillingof the criminal information in court by the state prosecutorsbecause up to that time the original trust relation may beconverted by the parties into an ordinary creditor-debtorsituation, thereby placing the complainant in estoppel toinsist on the original trust. But after the justice authorities


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The writs of certiorari and prohibition, as extraordinarylegal remedies, are in the ultimate analysis, intended toannul void proceedings; to prevent the unlawful andoppressive exercise of legal authority and to provide for afair and orderly administration of justice. Thus, in Yu KongEng vs. Trinidad, 47 Phil. 385, We took cognizance of a

petition for certiorari and prohibition although the accusedin the case could have appealed in due time from the ordercomplained of, our action in the premises being based onthe public welfare policy the advancement of public policy.In Dimayuga vs. Fajardo, 43 Phil. 304, We also admitted apetition to restrain the prosecution of certain chiropractorsalthough, if convicted, they could have appealed. W e gavedue course to their petition for the orderly administration ofjustice and to avoid possible oppression by the strong armof the law. And in Arevalo vs. Nepomuceno, 63 Phil. 627,the petition for certiorari challenging the trial court's actionadmitting an amended information was sustained despitethe availability of appeal at the proper time.

WHEREFORE, THE PETITION IS HEREBY GRANTED;THE TEMPORARY RESTRAINING ORDER

PREVIOUSLY ISSUED IS MADE PERMANENT. COSTSAGAINST THE PRIVATE RESPONDENT.

SO ORDERED.1wph1.t


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G.R. No. 84281 May 27, 1994

CITYTRUST BANKING CORPORATION, petitioner, vs. THE INTERMEDIATE APPELLATE COURT andEMME HERRERO, respondents.

Agcaoili and Associates for petitioner.

David B. Agoncillo for private respondent.

Humberto B. Basco, collaborating counsel for privaterespondent.

VITUG, J.:

This case emanated from a complaint filed by privaterespondent Emme Herrero for damages against petitioner

Citytrust Banking Corporation. In her complaint, privaterespondent averred that she, a businesswoman, maderegular deposits, starting September of 1979, withpetitioner Citytrust Banking Corporation at its Burgosbranch in Calamba, Laguna. On 15 May 1980, shedeposited with petitioner the amount of Thirty OneThousand Five Hundred Pesos (P31,500.00), in cash, inorder to amply cover six (6) postdated checks she issued,viz:

Check No. Amount

007383 P1,507.00 007384 1,262.00 007387 4,299.00 007387 2,204.00 007492 6,281.00 007400 4,716.00When presented for encashment upon maturity, all thechecks were dishonored due to "insufficient funds." Thelast check No. 007400, however, was personallyredeemed by private respondent in cash before it could be

redeposited.

Petitioner, in its answer, asserted that it was due to privaterespondent's fault that her checks were dishonored. Itaverred that instead of stating her correct account number,i.e., 29000823, in her deposit slip, she inaccurately wrote

2900823.

The Regional Trial Court (Branch XXXIV) of Calamba,Laguna, on 27 February 1984, dismissed the complaintfor lack of merit; thus:

WHEREFORE, judgment is hereby rendered in favor ofthe defendant and against the plaintiff, DISMISSING thecomplaint for lack of merit, plaintiff is hereby adjudged topay the defendant reasonable attorney's fee in the amountof FIVE THOUSAND PESOS (P5,000.00) plus cost of suit.

Private respondent went to the Court of Appeals, whichfound the appeal meritorious. Hence, it rendered

judgment, on 15 July 1988, reversing the trial court'sdecision. The appellate court ruled:

WHEREFORE, the judgment appealed from isREVERSED and a new one entered thereby orderingdefendant to pay plaintiff nominal damages of P2,000.00,temperate and moderate damages of P5,000.00, andattorney's fees of P4,000.00.

The counterclaim of defendant is dismissed for lack ofmerit, with costs against him.

Petitioner Citytrust Banking Corporation is now before usin this petition for review on certiorari.

Petitioner bank concedes that it is its obligation to honorchecks issued by private respondent which are sufficientlyfunded, but, it contends, private respondent has also theduty to use her account in accordance with the rules ofpetitioner bank to which she has contractually acceded.

Among such rules, contained in its "brochures" governingcurrent account deposits, is the following printed provision:

In making a deposit . . . kindly insure accuracy in filing saiddeposit slip forms as we hold ourselves free of any liabilityfor loss due to an incorrect account number indicated in

the deposit slip although the name of the depositor iscorrectly written.

Exactly the same issue was addressed by the appellatecourt, which, after its deliberations, made the followingfindings and conclusions: 1

We cannot uphold the position of defendant. For, even if itbe true that there was error on the part of the plaintiff inomitting a "zero" in her account number, yet, it is a fact thather name, "Emme E. Herrero", is clearly written on saiddeposit slip (Exh. "B"). This is controlling in determining inwhose account the deposit is made or should be posted.This is so because it is not likely to commit an error inone's name than merely relying on numbers which are

difficult to remember, especially a number with eight (8)digits as the account numbers of defendant's depositors.We view the use of numbers as simply for the convenienceof the bank but was never intended to disregard the realname of its depositors. The bank is engaged in businessimpressed with public interest, and it is its duty to protect inreturn its many clients and depositors who transactbusiness with it. It should not be a matter of the bank alonereceiving deposits, lending out money and collectinginterests. It is also its obligation to see to it that all fundsinvested with it are properly accounted for and duly postedin its ledgers.

In the case before Us, We are not persuaded thatdefendant bank was not free from blame for the fiasco. In

the first place, the teller should not have acceptedplaintiff's deposit without correcting the account number onthe deposit slip which, obviously, was erroneous because,as pointed out by defendant, it contained only seven (7)digits instead of eight (8). Second, the complete name ofplaintiff depositor appears in bold letters on the deposit slip(Exh. "B"). There could be no mistaking in her name, and


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that the deposit was made in her name, "Emma E.Herrero." In fact, defendant's teller should not have fed herdeposit slip to the computer knowing that her accountnumber written thereon was wrong as it contained onlyseven (7) digits. As it happened, according to defendant,plaintiff's deposit had to be consigned to the suspense

accounts pending verification. This, indeed, could havebeen avoided at the first instance had the teller ofdefendant bank performed her duties efficiently and well.For then she could have readily detected that the accountnumber in the name of "Emma E. Herrero" was erroneousand would be rejected by the computer. That is, or shouldbe, part of the training and standard operating procedureof the bank's employees. On the other hand, thedepositors are not concerned with banking procedure.That is the responsibility of the bank and its employees.Depositors are only concerned with the facility ofdepositing their money, earning interest thereon, if any,and withdrawing therefrom, particularly businessmen, likeplaintiff, who are supposed to be always "on-the-go".Plaintiff's account is a "current account" which shouldimmediately be posted. After all, it does not earn interest.

At least, the forbearance should be commensurated withprompt, efficient and satisfactory service.

Bank clients are supposed to rely on the servicesextended by the bank, including the assurance that theirdeposits will be duly credited them as soon as they aremade. For, any delay in crediting their account can beembarrassing to them as in the case of plaintiff.

We agree with plaintiff that

. . . even in computerized systems of accounts, ways andmeans are available whereby deposits with erroneousaccount numbers are properly credited depositor's correctaccount numbers. They add that failure on the part of the

defendant to do so is negligence for which they are liable.As proof thereof plaintiff alludes to five particular incidentswhere plaintiff admittedly wrongly indicated her accountnumber in her deposit slips (Exhs. "J", "L", "N", "O" and"P"), but were nevertheless properly credited her deposit(pp. 4-5, Decision).

We have already ruled in Mundin v. Far East Bank & TrustCo., AC-G.R. CV No. 03639, prom. Nov. 2, 1985, quotingthe court a quo in an almost identical set of facts, that

Having accepted a deposit in the course of its businesstransactions, it behooved upon defendant bank to see to it

and without recklessness that the depositor wasaccurately credited therefor. To post a deposit insomebody else's name despite the name of the depositorclearly written on the deposit slip is indeed sheernegligence which could have easily been avoided ifdefendant bank exercised due diligence andcircumspection in the acceptance and posting of plaintiff'sdeposit.

We subscribe to the above disquisitions of the appellatecourt. In Simex International (Manila), Inc. vs. Court ofAppeals, 183 SCRA 360, reiterated in Bank of PhilippineIslands vs. Intermediate Appellate Court, 206 SCRA 408,we similarly said, in cautioning depository banks on theirfiduciary responsibility, that

In every case, the depositor expects the bank to treat hisaccount with utmost fidelity, whether such accountconsists only of a few hundred pesos or of millions. Thebank must record every single transaction accurately,down to the last centavo, and as promptly as possible.This has to be done if the account is to reflect at any giventime the amount of money the depositor can dispose of ashe sees fit, confident that the bank will deliver it as and towhomever he directs. A blunder on the part of the bank,such as the dishonor of a check without good reason, cancause the depositor not a little embarrassment if not alsofinancial loss and perhaps even civil and criminal litigation.

The point is that as a business affected with public interest

and because of the nature of its functions, the bank isunder obligation to treat the accounts of its depositors withmeticulous care, always having in mind the fiduciarynature of their relationship.

We agree with petitioner, however, that it is wrong to

award, along with nominal damages, temperate ormoderate damages. The two awards are incompatible andcannot be granted concurrently. Nominal damages aregiven in order that a right of the plaintiff, which has beenviolated or invaded by the defendant, may be vindicated orrecognized, and not for the purpose of indemnifying the

plaintiff for any loss suffered by him (Art. 2221, New CivilCode; Manila Banking Corp. vs. Intermediate AppellateCourt, 131 SCRA 271). Temperate or moderate damages,which are more than nominal but less than compensatorydamages, on the other hand, may be recovered when thecourt finds that some pecuniary loss has been suffered butits amount cannot, from the nature of the case, be provedwith reasonable certainty (Art. 2224, New Civil Code).

In the instant case, we also find need for vindicating thewrong done on private respondent, and we accordinglyagree with the Court of Appeals in granting to her nominaldamages but not in similarly awarding temperate ormoderate damages.

WHEREFORE, the appealed decision is MODIFIED bydeleting the award of temperate or moderate damages. Inall other respects, the appellate court's decision isAFFIRMED. No costs in this instance.

SO ORDERED.


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G.R. No. 126490 March 31, 1998

ESTRELLA PALMARES, petitioner, vs. COURT OFAPPEALS and M.B. LENDING CORPORATION,respondents.

REGALADO, J.:

Where a party signs a promissory note as a co-maker andbinds herself to be jointly and severally liable with theprincipal debtor in case the latter defaults in the paymentof the loan, is such undertaking of the former deemed tobe that of a surety as an insurer of the debt, or of aguarantor who warrants the solvency of the debtor?

Pursuant to a promissory note dated March 13, 1990,private respondent M.B. Lending Corporation extended aloan to the spouses Osmea and Merlyn Azarraga,

together with petitioner Estrella Palmares, in the amount ofP30,000.00 payable on or before May 12, 1990, withcompounded interest at the rate of 6% per annum to becomputed every 30 days from the date thereof. 1On fouroccasions after the execution of the promissory note andeven after the loan matured, petitioner and the Azarragaspouses were able to pay a total of P16,300.00, therebyleaving a balance of P13,700.00. No payments were madeafter the last payment on September 26, 1991. 2

Consequently, on the basis of petitioner's solidary liabilityunder the promissory note, respondent corporation filed acomplaint

3against petitioner Palmares as the lone party-

defendant, to the exclusion of the principal debtors,allegedly by reason of the insolvency of the latter.

In her Amended Answer with Counterclaim, 4 petitioneralleged that sometime in August 1990, immediately afterthe loan matured, she offered to settle the obligation withrespondent corporation but the latter informed her thatthey would try to collect from the spouses Azarraga and

that she need not worry about it; that there has alreadybeen a partial payment in the amount of P17,010.00; thatthe interest of 6% per month compounded at the samerate per month, as well as the penalty charges of 3% permonth, are usurious and unconscionable; and that whileshe agrees to be liable on the note but only upon default of

the principal debtor, respondent corporation acted in badfaith in suing her alone without including the Azarragaswhen they were the only ones who benefited from theproceeds of the loan.

During the pre-trial conference, the parties submitted thefollowing issues for the resolution of the trial court: (1) whatthe rate of interest, penalty and damages should be; (2)whether the liability of the defendant (herein petitioner) isprimary or subsidiary; and (3) whether the defendantEstrella Palmares is only a guarantor with a subsidiaryliability and not a co-maker with primary liability. 5

Thereafter, the parties agreed to submit the case fordecision based on the pleadings filed and the memoranda

to be submitted by them. On November 26, 1992, theRegional Trial Court of Iloilo City, Branch 23, renderedjudgment dismissing the complaint without prejudice to thefiling of a separate action for a sum of money against thespouses Osmea and Merlyn Azarraga who are primarilyliable on the instrument. 6 This was based on the findingsof the court a quo that the filing of the complaint againstherein petitioner Estrella Palmares, to the exclusion of theAzarraga spouses, amounted to a discharge of a priorparty; that the offer made by petitioner to pay theobligation is considered a valid tender of paymentsufficient to discharge a person's secondary liability on theinstrument; as co-maker, is only secondarily liable on theinstrument; and that the promissory note is a contract ofadhesion.

Respondent Court of Appeals, however, reversed thedecision of the trial court, and rendered judgment declaringherein petitioner Palmares liable to pay respondentcorporation:

1. The sum of P13,700.00 representing the outstanding

balance still due and owing with interest at six percent(6%) per month computed from the date the loan wascontracted until fully paid;

2. The sum equivalent to the stipulated penalty of threepercent (3%) per month, of the outstanding balance;

3. Attorney's fees at 25% of the total amount due perstipulations;

4. Plus costs of suit. 7

Contrary to the findings of the trial court, respondentappellate court declared that petitioner Palmares is asurety since she bound herself to be jointly and severallyor solidarily liable with the principal debtors, the Azarragaspouses, when she signed as a co-maker. As such,petitioner is primarily liable on the note and hence may besued by the creditor corporation for the entire obligation. Italso adverted to the fact that petitioner admitted her

liability in her Answer although she claims that theAzarraga spouses should have been impleaded.Respondent court ordered the imposition of the stipulated6% interest and 3% penalty charges on the ground that theUsury Law is no longer enforceable pursuant to CentralBank Circular No. 905. Finally, it rationalized that even ifthe promissory note were to be considered as a contract ofadhesion, the same is not entirely prohibited because theone who adheres to the contract is free to reject it entirely;if he adheres, he gives his consent.

Hence this petition for review on certiorari wherein it isasserted that:

A. The Court of Appeals erred in ruling that Palmares

acted as surety and is therefore solidarily liable to pay thepromissory note.

1. The terms of the promissory note are vague. Itsconflicting provisions do not establish Palmares' solidaryliability.


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2. The promissory note contains provisions which establishthe co-maker's liability as that of a guarantor.

3. There is no sufficient basis for concluding that Palmares'liability is solidary.

4. The promissory note is a contract of adhesion andshould be construed against M. B. Lending Corporation.

5. Palmares cannot be compelled to pay the loan at thispoint.

B. Assuming that Palmares' liability is solidary, the Court ofAppeals erred in strictly imposing the interests and penaltycharges on the outstanding balance of the promissorynote.

The foregoing contentions of petitioner are denied andcontradicted in their material points by respondentcorporation. They are further refuted by accepted doctrines

in the American jurisdiction after which we patterned ourstatutory law on surety and guaranty. This case thenaffords us the opportunity to make an extended expositionon the ramifications of these two specialized contracts, forsuch guidance as may be taken therefrom in similar localcontroversies in the future.

The basis of petitioner Palmares' liability under thepromissory note is expressed in this wise:

ATTENTION TO CO-MAKERS: PLEASE READ WELL

I, Mrs. Estrella Palmares, as the Co-maker of the above-quoted loan, have fully understood the contents of this

Promissory Note for Short-Term Loan:

That as Co-maker, I am fully aware that I shall be jointlyand severally or solidarily liable with the above principalmaker of this note;

That in fact, I hereby agree that M.B. LENDINGCORPORATION may demand payment of the above loanfrom me in case the principal maker, Mrs. Merlyn Azarragadefaults in the payment of the note subject to the sameconditions above-contained. 8

Petitioner contends that the provisions of the second andthird paragraph are conflicting in that while the secondparagraph seems to define her liability as that of a suretywhich is joint and solidary with the principal maker, on theother hand, under the third paragraph her liability isactually that of a mere guarantor because she boundherself to fulfill the obligation only in case the principaldebtor should fail to do so, which is the essence of acontract of guaranty. More simply stated, although thesecond paragraph says that she is liable as a surety, thethird paragraph defines the nature of her liability as that ofa guarantor. According to petitioner, these are twoconflicting provisions in the promissory note and the rule isthat clauses in the contract should be interpreted inrelation to one another and not by parts. In other words,the second paragraph should not be taken in isolation, but

should be read in relation to the third paragraph.

In an attempt to reconcile the supposed conflict betweenthe two provisions, petitioner avers that she could be heldliable only as a guarantor for several reasons. First, thewords "jointly and severally or solidarily liable" used in thesecond paragraph are technical and legal terms which arenot fully appreciated by an ordinary layman like hereinpetitioner, a 65-year old housewife who is likely to enterinto such transactions without fully realizing the nature andextent of her liability. On the contrary, the wordings used inthe third paragraph are easier to comprehend. Second, thelaw looks upon the contract of suretyship with a jealouseye and the rule is that the obligation of the surety cannotbe extended by implication beyond specified limits, takinginto consideration the peculiar nature of a suretyagreement which holds the surety liable despite theabsence of any direct consideration received from eitherthe principal obligor or the creditor. Third, the promissorynote is a contract of adhesion since it was prepared byrespondent M.B. Lending Corporation. The note wasbrought to petitioner partially filled up, the contents thereof

were never explained to her, and her only participationwas to sign thereon. Thus, any apparent ambiguity in thecontract should be strictly construed against privaterespondent pursuant to Art. 1377 of the Civil Code.

9

Petitioner accordingly concludes that her liability should be

deemed restricted by the clause in the third paragraph ofthe promissory note to be that of a guarantor.

Moreover, petitioner submits that she cannot as yet becompelled to pay the loan because the principal debtorscannot be considered in default in the absence of a judicialor extrajudicial demand. It is true that the complaint allegesthe fact of demand, but the purported demand letters werenever attached to the pleadings filed by private respondentbefore the trial court. And, while petitioner may haveadmitted in her Amended Answer that she received ademand letter from respondent corporation sometime in1990, the same did not effectively put her or the principaldebtors in default for the simple reason that the lattersubsequently made a partial payment on the loan in

September, 1991, a fact which was never controverted byherein private respondent.

Finally, it is argued that the Court of Appeals gravely erredin awarding the amount of P2,745,483.39 in favor ofprivate respondent when, in truth and in fact, theoutstanding balance of the loan is only P13,700.00. Wherethe interest charged on the loan is exorbitant, iniquitous orunconscionable, and the obligation has been partiallycomplied with, the court may equitably reduce the penalty10 on grounds of substantial justice. More importantly,respondent corporation never refuted petitioner's allegationthat immediately after the loan matured, she informed saidrespondent of her desire to settle the obligation. The courtshould, therefore, mitigate the damages to be paid sincepetitioner has shown a sincere desire for a compromise. 11

After a judicious evaluation of the arguments of the parties,we are constrained to dismiss the petition for lack of merit,but to except therefrom the issue anent the propriety of themonetary award adjudged to herein respondentcorporation.


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At the outset, let it here be stressed that even assumingarguendo that the promissory note executed between theparties is a contract of adhesion, it has been the consistentholding of the Court that contracts of adhesion are notinvalidper se and that on numerous occasions the bindingeffects thereof have been upheld. The peculiar nature ofsuch contracts necessitate a close scrutiny of the factualmilieu to which the provisions are intended to apply.Hence, just as consistently and unhesitatingly, but withoutcategorically invalidating such contracts, the Court hasconstrued obscurities and ambiguities in the restrictiveprovisions of contracts of adhesion strictly albeit notunre

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