Credit Transction - Cases 1

of the PhilippinesSUPREME COURT

Manila

EN BANC

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 Lahesa for appellant. Office of the Solicitor-General Harvey for appellee.

ARELLANO, C.J.:

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

We hold at the disposal of Eugenio Veraguth the sum of two 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 the defendant to two years of presidio correccional, to pay Juana Montilla P2,498 Philippine currency, and in case of insolvency to subsidiary imprisonment at P2.50 per day, not to exceed one-third of the principal penalty, and the costs.

The defendant appealed, alleging as errors: (1) Holding that the document executed by him was a certificate of deposit; (2) holding the existence of a deposit, without precedent transfer or delivery of the P2,498; and (3) classifying the facts in the case as the crime of estafa.

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

That the defendant received P2,498 is a fact proven. The defendant drew up a document declaring that they remained in his possession, which he could not have said had he not received them. They remained in his possession, surely in no other sense than to take care of them, for they remained has no other purpose. They remained in the defendant's possession at the disposal of Veraguth; but on August 23 of the same year Veraguth demanded for him

Elsa M. Cañete|1 | P a g eCREDIT TRANSACTION

through a notarial instrument restitution of them, and to date he has not restored them.

The appellant says: "Juana Montilla's agent voluntarily accepted the sum of P2,498 in an instrument payable on demand, and as no attempt was made to cash it until August 23, 1911, he could indorse and negotiate it like any other commercial instrument. There is no doubt that if Veraguth accepted the receipt for P2,498 it was because at that time he agreed with the defendant to consider the operation of sale on commission closed, leaving the collection of said sum until later, which sum remained as a loan payable upon presentation of the receipt." (Brief, 3 and 4.)

Then, after averring the true facts: (1) that a sales commission was precedent; (2) that this commission was settled with a balance of P2,498 in favor of the principal, Juana Montilla; and (3) that this balance remained in the possession of the defendant, who drew up an instrument payable on demand, he has drawn two conclusions, both erroneous: One, that the instrument drawn up in the form of a deposit certificate could be indorsed or negotiated like any other commercial instrument; and the other, that the sum of P2,498 remained in defendant's possession as a loan.

It is erroneous to assert that the certificate of deposit in question is negotiable like any other commercial instrument: First, because every commercial instrument is not negotiable; and second, because only instruments payable to order are negotiable. Hence, this instrument not being to order but to bearer, it is not negotiable.

It is also erroneous to assert that sum of money set forth in said certificate is, according to it, in the defendant's possession as a loan. In a loan the lender transmits to the borrower the use of the thing lent, while in a deposit the use of the thing is not transmitted, but merely possession for its custody or safe-keeping.

In order that the depositary may use or dispose oft he things deposited, the depositor's consent is required, and then:

The rights and obligations of the depositary and of the depositor shall cease, and the rules and provisions applicable to commercial loans, commission, or contract which took the place of the deposit shall be observed. (Art. 309, Code of Commerce.)

The defendant has shown no authorization whatsoever or the consent of the depositary for using or disposing of the P2,498, which the certificate acknowledges, or any contract entered into with the depositor to convert the deposit into a loan, commission, or other contract.


That demand was not made for restitution of the sum deposited, which could have been claimed on the same or the next day after the certificate was signed, does not operate against the depositor, or signify anything except the intention not to press it. Failure to claim at once or delay for sometime in demanding restitution of the things deposited, which was immediately due, does not imply such permission to use the thing deposited as would convert the deposit into a loan.

Article 408 of the Code of Commerce of 1829, previous to the 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 responsible for all damages that may accrue and shall respond to the depositor for the legal interest on the amount.

Whereupon the commentators say:

In this case the deposit becomes in fact a loan, as a just punishment imposed upon him who abuses the sacred nature of a deposit and as a means of preventing the desire of gain from leading him into speculations that may be disastrous to the depositor, who is much better secured while the deposit exists when he only has a personal action for recovery.

According to article 548, No. 5, of the Penal Code, those who to the prejudice of another appropriate or abstract for their own use money, goods, or other personal property which they may have received as a deposit, on commission, or for administration, or for any other purpose which produces the obligation of delivering it or returning it, and deny having received it, shall suffer the penalty of the preceding article," which punishes such act as the crime of estafa. The corresponding article of the Penal Code of the Philippines in 535, No. 5.

In a decision of an appeal, September 28, 1895, the principle was laid down that: "Since he commits the crime ofestafa under article 548 of the Penal Code of Spain who to another's detriment appropriates to himself or abstracts money or goods received on commission for delivery, the court rightly applied this article to the appellant, who, to the manifest detriment of the owner or owners of the securities, since he has not restored them, willfully and wrongfully disposed of them by appropriating them to himself or at least diverting them from the purpose to which he was charged to devote them."


It is unquestionable that in no sense did the P2,498 which he willfully and wrongfully disposed of to the detriments of his principal, Juana Montilla, and of the depositor, Eugenio Veraguth, belong to the defendant.

Likewise erroneous is the construction apparently at tempted to be given to two decisions of this Supreme Court (U. S. vs. Dominguez, 2 Phil. Rep., 580, and U. S. vs. Morales and Morco, 15 Phil. Rep., 236) as implying that what constitutes estafa is not the disposal of money deposited, but denial of having received same. In the first of 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 the departure of the defendant from Libmanan on September 20, 1898, two days after the uprising of the civil guard in Nueva Caceres, the rice was seized by the revolutionalists and appropriated to their own uses.

In this connection it was held that failure to return the thing deposited was not sufficient, but that it was necessary to prove that the depositary had appropriated it to himself or diverted the deposit to his own or another's benefit. He was accused or refusing to restore, and it was held that the code does not penalize refusal to restore but denial of having received. So much for the crime of omission; now with reference to the crime of commission, it was not held in that decision that appropriation or diversion of the thing deposited would not constitute the crime ofestafa.

In the second of said decisions, the accused "kept none of the proceeds of the sales. Those, such as they were, he turned over to the owner;" and there being no proof of the appropriation, the agent could not be found guilty of the crime of estafa.

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

Digest


Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

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;

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5. Ordering defendant COMTRUST to pay plaintiff in the amount of P8,000.00 as damages in the concept of litigation expenses and attorney's fees suffered by plaintiff as a result of the failure of the defendant bank to restore to his (plaintiffs) account the amount of U.S. $1,000.00 and to return to him (plaintiff) the U.S. $3,000.00 cash left for safekeeping.

Costs against defendant COMTRUST.

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

Undaunted, the bank comes to this Court praying that it be totally absolved from any liability to Zshornack. The latter not having appealed the Court of Appeals decision, the issues facing this Court are limited to the bank's liability with regard to the first and second causes of action and its liability for damages.

1. We first consider the first cause of action, On the dates material to this case, Rizaldy Zshornack and his wife, Shirley Gorospe, maintained in COMTRUST, Quezon City Branch, a dollar savings account and a peso current account.

On October 27, 1975, an application for a dollar draft was accomplished by Virgilio V. Garcia, Assistant Branch Manager of COMTRUST Quezon City, payable to a certain Leovigilda D. Dizon in the amount of $1,000.00. In the application, Garcia indicated that the amount was to be charged to Dollar Savings Acct. No. 25-4109, the savings account of the Zshornacks; the charges for commission, documentary stamp tax and others totalling P17.46 were to be charged to Current Acct. No. 210465-29, again, the current


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

On the same date, October 27,1975, COMTRUST, under the signature of Virgilio V. Garcia, issued a check payable to the order of Leovigilda D. Dizon in the sum of US $1,000 drawn on the Chase Manhattan Bank, New York, with an indication that it was to be charged to Dollar Savings Acct. No. 25-4109.

When Zshornack noticed the withdrawal of US$1,000.00 from his account, he demanded an explanation from the bank. In answer, COMTRUST claimed that the peso value of the withdrawal was given to Atty. Ernesto Zshornack, Jr., brother of Rizaldy, on October 27, 1975 when he (Ernesto) encashed with COMTRUST a cashier's check for P8,450.00 issued by the Manila Banking Corporation payable to Ernesto.

Upon consideration of the foregoing facts, this Court finds no reason to disturb the ruling of both the trial court and the Appellate Court on the first cause of action. Petitioner must be held liable for the unauthorized withdrawal of US$1,000.00 from private respondent's dollar account.

In its desperate attempt to justify its act of withdrawing from its depositor's savings account, the bank has adopted inconsistent theories. First, it still maintains that the peso value of the amount withdrawn was given to Atty. Ernesto Zshornack, Jr. when the latter encashed the Manilabank Cashier's Check. At the same time, the bank claims that the withdrawal was made pursuant to an agreement where Zshornack allegedly authorized the bank to withdraw from his dollar savings account such amount which, when converted to pesos, would be needed to fund his peso current account. If indeed the peso equivalent of the amount withdrawn from the dollar account was credited to the peso current account, why did the bank still have to pay Ernesto?

At any rate, both explanations are unavailing. With regard to the first explanation, petitioner bank has not shown how the transaction involving the cashier's check is related to the transaction involving the dollar draft in favor of Dizon financed by the withdrawal from Rizaldy's dollar account. The two transactions appear entirely independent of each other. Moreover, Ernesto Zshornack, Jr., possesses a personality distinct and separate from Rizaldy Zshornack. Payment made to Ernesto cannot be considered payment to Rizaldy.

As to the second explanation, even if we assume that there was such an agreement, the evidence do not show that the withdrawal was made pursuant to it. Instead, the record reveals that the amount withdrawn was used to finance a dollar draft in favor of Leovigilda D. Dizon, and not to fund


the current account of the Zshornacks. There is no proof whatsoever that peso Current Account No. 210-465-29 was ever credited with the peso equivalent of the US$1,000.00 withdrawn on October 27, 1975 from Dollar Savings Account No. 25-4109.

2. As for the second cause of action, the complaint filed with the trial court alleged that on December 8, 1975, Zshornack entrusted to COMTRUST, thru Garcia, US $3,000.00 cash (popularly known as greenbacks) forsafekeeping, and that the agreement was embodied in a document, a copy of which was attached to and made part of the complaint. The document reads:

Makati Cable Address:

Philippines "COMTRUST"

COMMERCIAL BANK AND TRUST COMPANY

of the Philippines

Quezon City Branch

December 8, 1975

MR. RIZALDY T. ZSHORNACK

&/OR MRS SHIRLEY E. ZSHORNACK

Sir/Madam:

We acknowledged (sic) having received from you today the sum of US DOLLARS: THREE THOUSAND ONLY (US$3,000.00) for safekeeping.

Received by:

(Sgd.) VIRGILIO V.


GARCIA

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

In its answer, COMTRUST averred that the US$3,000 was credited to Zshornack's peso current account at prevailing conversion rates.

It must be emphasized that COMTRUST did not deny specifically under oath the authenticity and due execution of the above instrument.

During trial, it was established that on December 8, 1975 Zshornack indeed delivered to the bank US $3,000 for safekeeping. When he requested the return of the money on May 10, 1976, COMTRUST explained that the sum was disposed of in this manner: US$2,000.00 was sold on December 29, 1975 and the peso proceeds amounting to P14,920.00 were deposited to Zshornack's current account per deposit slip accomplished by Garcia; the remaining US$1,000.00 was sold on February 3, 1976 and the peso proceeds amounting to P8,350.00 were deposited to his current account per deposit slip also accomplished by Garcia.

Aside from asserting that the US$3,000.00 was properly credited to Zshornack's current account at prevailing conversion rates, BPI now posits another ground to defeat private respondent's claim. It now argues that the contract embodied in the document is the contract of depositum (as defined in Article 1962, New Civil Code), which banks do not enter into. The bank alleges that Garcia exceeded his powers when he entered into the transaction. Hence, it is claimed, the bank cannot be liable under the contract, and the obligation is purely personal to Garcia.

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

The second cause of action is based on a document purporting to be signed by COMTRUST, a copy of which document was attached to the complaint. In short, the second cause of action was based on an actionable document. It was therefore incumbent upon the bank to specifically deny under oath the due execution of the document, as prescribed under Rule 8, Section 8, if it desired: (1) to question the authority of Garcia to bind the corporation; and (2) to deny its capacity to enter into such contract. [See, E.B. Merchant v. International Banking Corporation, 6 Phil. 314 (1906).] No sworn answer denying the due execution of the document in question, or questioning the authority of Garcia to bind the bank, or denying the bank's capacity to enter into the contract, was ever filed. Hence, the bank is deemed to have


admitted not only Garcia's authority, but also the bank's power, to enter into the contract in question.

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

The reason for the rule enunciated in the foregoing authorities will, we think, be readily appreciated. In dealing with corporations the public at large is bound to rely to a large extent upon outward appearances. If a man is found acting for a corporation with the external indicia of authority, any person, not having notice of want of authority, may usually rely upon those appearances; and if it be found that the directors had permitted the agent to exercise that authority and thereby held him out as a person competent to bind the corporation, or had acquiesced in a contract and retained the benefit supposed to have been conferred by it, the corporation will be bound, notwithstanding the actual authority may never have been granted

... Whether a particular officer actually possesses the authority which he assumes to exercise is frequently known to very few, and the proof of it usually is not readily accessible to the stranger who deals with the corporation on the faith of the ostensible authority exercised by some of the corporate officers. It is therefore reasonable, in a case where an officer of a corporation has made a contract in its name, that the corporation should be required, if it denies his authority, to state such defense in its answer. By this means the 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:

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2. Transactions in the assets described below and all dealings in them of whatever nature, including, where applicable their exportation and importation, shall NOT be effected, except with respect to deposit accounts included in sub-paragraphs (b) and (c) of this paragraph, when such deposit accounts are owned by and in the name of, banks.

(a) Any and all assets, provided they are held through, in, or with banks or banking institutions located in the Philippines, including money, checks, drafts, bullions bank drafts, deposit accounts (demand, time and savings), all debts, indebtedness or obligations, financial brokers and investment houses, notes, debentures, stocks, bonds, coupons, bank acceptances, mortgages, pledges, liens or other rights in the nature of security, expressed in foreign currencies, or if payable abroad, irrespective of the


currency in which they are expressed, and belonging to any person, firm, partnership, association, branch office, agency, company or other unincorporated body or corporation residing or located within the Philippines;

(b) Any and all assets of the kinds included and/or described in subparagraph (a) above, whether or not held through, in, or with banks or banking institutions, and existent within the Philippines, which belong to any person, 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.

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4. (a) All receipts of foreign exchange shall be sold daily to the Central Bank by those authorized to deal in foreign exchange. All receipts of foreign exchange by any person, firm, partnership, association, branch office, agency, company or other unincorporated body or corporation shall be sold to the authorized agents of the Central Bank by the recipients within one business day following the receipt of such foreign exchange. Any person, firm, partnership, association, branch office, agency, company or other unincorporated body or corporation, residing or located within the Philippines, who acquires on and after the date of this Circular foreign exchange shall not, unless licensed by the Central Bank, dispose of such foreign exchange in whole or in part, nor receive less than its full value, nor delay taking ownership thereof except as such delay is customary; Provided, further, That within one day upon taking ownership, or receiving


payment, of foreign exchange the aforementioned persons and entities shall sell such foreign exchange to designated agents of the Central Bank.

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

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Paragraph 4 (a) above was modified by Section 6 of Central Bank Circular No. 281, Regulations on Foreign Exchange, promulgated on November 26, 1969 by limiting its coverage to Philippine residents only. Section 6 provides:

SEC. 6. All receipts of foreign exchange by any resident person, firm, company or corporation shall be sold to authorized agents of the Central Bank by the recipients within one business day following the receipt of such foreign exchange. Any resident person, firm, company or corporation residing or located within the Philippines, who acquires foreign exchange shall not, unless authorized by the Central Bank, dispose of such foreign exchange in whole or in part, nor receive less than its full value, nor delay taking ownership thereof except as such delay is customary; Provided, That, within one business day upon taking ownership or receiving payment of foreign exchange the aforementioned persons and entities shall sell such foreign exchange to the authorized agents of the Central Bank.

As earlier stated, the document and the subsequent acts of the parties show that they intended the bank to safekeep the foreign exchange, and return it later to Zshornack, who alleged in his complaint that he is a Philippine resident. The parties did not intended to sell the US dollars to the Central Bank within one business day from receipt. Otherwise, the contract of depositum would never have been entered into at all.

Since the mere safekeeping of the greenbacks, without selling them to the Central Bank within one business day from receipt, is a transaction which is not authorized by CB Circular No. 20, it must be considered as one which falls under the general class of prohibited transactions. Hence, pursuant to Article 5 of the Civil Code, it is void, having been executed against the


provisions of a mandatory/prohibitory law. More importantly, it affords neither of the parties a cause of action against the other. "When the nullity proceeds from the illegality of the cause or object of the contract, and the act constitutes a criminal offense, both parties being in pari delicto, they shall have no cause of action against each other. . ." [Art. 1411, New Civil Code.] The only remedy is one on behalf of the State to prosecute the parties for violating the law.

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

3. Lastly, we find the P8,000.00 awarded by the courts a quo as damages in the concept of litigation expenses and attorney's fees to be reasonable. The award is sustained.

WHEREFORE, the decision appealed from is hereby MODIFIED. Petitioner is ordered to restore to the dollar savings account of private respondent the amount of US$1,000.00 as of October 27, 1975 to earn interest at the rate fixed by the bank for dollar savings deposits. Petitioner is further ordered to pay private respondent the amount of P8,000.00 as damages. The other causes of action of private respondent are ordered dismissed.

SO ORDERED.

Digest

Facts:

A contract of depositum was entered into by Garcia, on behalf of COMTRUST (BPI), wherein he received US $3,000 (foreign exchange) from Zshornack for safekeeping. Later on or over five months later, Zshornack demanded the return of the money but the bank refused alleging that the amount was sold and transferred to her current account.

Arguments:

COMTRUST (BPI): The parties entered into a contract of depositum which banks do not enter into. Thus, Garcia exceeded his powers when he entered into the contract on behalf of the bank, hence, the bank cannot be liable under the contract.

Issue: WON the contract entered into is a contract of depositum.Elsa M. Cañete|14 | P a g e

CREDIT TRANSACTION

Held:

Yes. The situation is one contemplated in Art. 1962 of the NCC:

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: But because the subject of the contract here is a foreign exchange, it is covered by Central Bank Circular No. 20 which requires that, “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.”

Since 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 intend 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.

In other words, the transaction between Zshornack and the bank was void having been executed against the provisions of a mandatory law (CB Circ No. 20). Being in pari delicto, the law cannot afford either of them remedy.

2nd digest

Facts:

Rizaldy T. Zshornack and his wife maintained in COMTRUST a dollar savings account and a peso current account. An application for a dollar drat was accomplished by Virgillo Garcia branch manager of COMTRUST payable to a


certain Leovigilda Dizon. In the PPLICtion, Garcia indicated that the amount was to be charged to the dolar savings account of the Zshornacks. There wasa no indication of the name of the purchaser of the dollar draft. Comtrust issued a check payable to the order of Dizon. When Zshornack noticed the withdrawal from his account, he demanded an explainaiton from the bank. In its answer, Comtrust claimed that the peso value of the withdrawal was given to Atty. Ernesto Zshornack, brother of Rizaldy. When he encashed with COMTRUST a cashiers check for P8450 issued by the manila banking corporation payable to Ernesto.

Issue: Whether the contract between petitioner and respondent bank is a deposit?

Held: 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.


Manila

THIRD DIVISION

G.R. No. 90027 March 3, 1993

CA AGRO-INDUSTRIAL DEVELOPMENT CORP., petitioner, vs.THE HONORABLE COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.

Dolorfino & Dominguez Law Offices for petitioner.

Danilo B. Banares for private respondent.


DAVIDE, JR., J.:

Is the contractual relation between a commercial bank and another party in a contract of rent of a safety deposit box with respect to its contents placed by the latter one of bailor and bailee or one of lessor and lessee?

This is the crux of the present controversy.

On 3 July 1979, petitioner (through its President, Sergio Aguirre) and the spouses Ramon and Paula Pugao entered into an agreement whereby the former purchased from the latter two (2) parcels of land for a consideration of P350,625.00. Of this amount, P75,725.00 was paid as downpayment while the balance was covered by three (3) postdated checks. Among the terms and conditions of the agreement embodied in a Memorandum of True and Actual Agreement of Sale of Land were that the titles to the lots shall be transferred to the petitioner upon full payment of the purchase price and that the owner's copies of the certificates of titles thereto, Transfer Certificates of Title (TCT) Nos. 284655 and 292434, shall be deposited in a safety deposit box of any bank. The same could be withdrawn only upon the joint signatures of a representative of the petitioner and the Pugaos upon full payment of the purchase price. Petitioner, through Sergio Aguirre, and the Pugaos then rented Safety Deposit Box No. 1448 of private respondent Security Bank and Trust Company, a domestic banking corporation hereinafter referred to as the respondent Bank. For this purpose, both signed a contract of lease (Exhibit "2") which contains, inter alia, the following conditions:

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

14. The bank has no interest whatsoever in said contents, except herein expressly provided, and it assumes absolutely no liability in connection therewith. 1

After the execution of the contract, two (2) renter's keys were given to the renters — one to Aguirre (for the petitioner) and the other to the Pugaos. A guard key remained in the possession of the respondent Bank. The safety deposit box has two (2) keyholes, one for the guard key and the other for the renter's key, and can be opened only with the use of both keys. Petitioner claims that the certificates of title were placed inside the said box.

Thereafter, a certain Mrs. Margarita Ramos offered to buy from the petitioner the two (2) lots at a price of P225.00 per square meter which, as petitioner alleged in its complaint, translates to a profit of P100.00 per square meter or


a total of P280,500.00 for the entire property. Mrs. Ramos demanded the execution of a deed of sale which necessarily entailed the production of the certificates of title. In view thereof, Aguirre, accompanied by the Pugaos, then proceeded to the respondent Bank on 4 October 1979 to open the safety deposit box and get the certificates of title. However, when opened in the presence of the Bank's representative, the box yielded no such certificates. Because of the delay in the reconstitution of the title, Mrs. Ramos withdrew her earlier offer to purchase the lots; as a consequence thereof, the petitioner allegedly failed to realize the expected profit of P280,500.00. Hence, the latter filed on 1 September 1980 a complaint 2 for damages against the respondent Bank with the Court of First Instance (now Regional Trial Court) of Pasig, Metro Manila which docketed the same as Civil Case No. 38382.

In its Answer with Counterclaim, 3 respondent Bank alleged that the petitioner has no cause of action because of paragraphs 13 and 14 of the contract of lease (Exhibit "2"); corollarily, loss of any of the items or articles contained in the box could not give rise to an action against it. It then interposed a counterclaim for exemplary damages as well as attorney's fees in the amount of P20,000.00. Petitioner subsequently filed an answer to the counterclaim. 4

In due course, the trial court, now designated as Branch 161 of the Regional Trial Court (RTC) of Pasig, Metro Manila, rendered a decision 5 adverse to the petitioner on 8 December 1986, the dispositive portion of which reads:

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

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

With costs against plaintiff. 6

The unfavorable verdict is based on the trial court's conclusion that under paragraphs 13 and 14 of the contract of lease, the Bank has no liability for the loss of the certificates of title. The court declared that the said provisions are binding on the parties.

Its motion for reconsideration 7 having been denied, petitioner appealed from the adverse decision to the respondent Court of Appeals which docketed the appeal as CA-G.R. CV No. 15150. Petitioner urged the respondent Court to reverse the challenged decision because the trial court erred in (a) absolving the respondent Bank from liability from the loss, (b) not declaring as null and void, for being contrary to law, public order and public policy, the provisions


in the contract for lease of the safety deposit box absolving the Bank from any liability for loss, (c) not concluding that in this jurisdiction, as well as under American jurisprudence, the liability of the Bank is settled and (d) awarding attorney's fees to the Bank and denying the petitioner's prayer for nominal and exemplary damages and attorney's fees. 8

In its Decision promulgated on 4 July 1989, 9 respondent Court affirmed the appealed decision principally on the theory that the contract (Exhibit "2") executed by the petitioner and respondent Bank is in the nature of a contract of lease by virtue of which the petitioner and its co-renter were given control over the safety deposit box and its contents while the Bank retained no right to open the said box because it had neither the possession nor control over it and its contents. As such, the contract is governed by Article 1643 of the Civil Code 10 which provides:

Art. 1643. In the lease of things, one of the parties binds himself to give to another the enjoyment or use of a thing for a price certain, and for a period which may be definite or indefinite. However, no lease for more than ninety-nine years shall be valid.

It invoked Tolentino vs. Gonzales 11 — which held that the owner of the property loses his control over the property leased during the period of the contract — and Article 1975 of the Civil Code which provides:

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

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

and then concluded that "[c]learly, the defendant-appellee is not under any duty to maintain the contents of the box. The stipulation absolving the defendant-appellee from liability is in accordance with the nature of the contract of lease and cannot be regarded as contrary to law, public order and public policy." 12 The appellate court was quick to add, however, that under the contract of lease of the safety deposit box, respondent Bank is not completely free from liability as it may still be made answerable in case unauthorized persons enter into the vault area or when the rented box is forced open. Thus, as expressly provided for in stipulation number 8 of the contract in question:

8. The Bank shall use due diligence that no unauthorized person shall be admitted to any rented safe and beyond this, the Bank


will not be responsible for the contents of any safe rented from it. 13

Its motion for reconsideration 14 having been denied in the respondent Court's Resolution of 28 August 1989, 15 petitioner took this recourse under Rule 45 of the Rules of Court and urges Us to review and set aside the respondent Court's ruling. Petitioner avers that both the respondent Court and the trial court (a) did not properly and legally apply the correct law in this case, (b) acted with grave abuse of discretion or in excess of jurisdiction amounting to lack thereof and (c) set a precedent that is contrary to, or is a departure from precedents adhered to and affirmed by decisions of this Court and precepts in American jurisprudence adopted in the Philippines. It reiterates the arguments it had raised in its motion to reconsider the trial court's decision, the brief submitted to the respondent Court and the motion to reconsider the latter's decision. In a nutshell, petitioner maintains that regardless of nomenclature, the contract for the rent of the safety deposit box (Exhibit "2") is actually a contract of deposit governed by Title XII, Book IV of the Civil Code of thePhilippines. 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 thesafe-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 Act 23pertinently 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. 27Hence, 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 rentingsafe-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.

Digest

Facts:On July 3, 1979, petitioner (through its President- Sergio Aguirre) and the Spouses Ramon and Paula Pugao entered into an agreement whereby the former purchase two parcel of lands from the latter. It was paid of downpayment while the balance was covered by there postdated checks. Among the terms and conditions embodied in the agreement were the titles shall be transferred to the petitioner upon full payment of the price and the owner's copies of the certificate of titles shall be deposited in a safety deposit box of any bank. Petitioner and the Pugaos then rented Safety Deposit box of private respondent Security Bank and Trust Company.

Thereafter, a certain Margarita Ramos offered to buy from the petitioner. Mrs Ramos demand the execution of a deed of sale which necessarily entailed the production of the certificate of titles. In view thereof, Aguirre, accompanied by the Pugaos, then proceed to the respondent Bank to open the safety deposit box and get the certificate of titles. However, when opened in the presence of the Bank's representative, the box yielded no such certificate. Because of the delay in the reconstitution of the title, Mrs Ramos withdrew her earlier offer to purchase.

Hence this petition.

Issue:Whether or not the contract of rent between a commercial bank and another party for the use of safety deposit box can be considered alike to a lessor-lessee relationship.


Ruling:The petitioner is correct in making the contention that the contract for the rent of the deposit box is not a ordinary contract of lease as defined in Article 1643 of the Civil Code. However, the Court do not really subscribe to its view that the same is a contract of deposit that is to be strictly governed by the provisions in Civil Code on Deposit; the contract in the case at bar is a special kind of deposit. It cannot be characterized as an ordinary contract of lease under Article 1643 because the full and absolute possession and control of the safety deposit box was not given to the joint renters- the petitioner and the Pugaos. The guard key of the box remained with the respondent bank; without this key, neither of the renters could open the box. On the other hand, the respondent bank could not likewise open the box without the renter's key. The Court further assailed that the petitioner is correct in applying American Jurisprudence. Herein, the prevailing view is that the relation between the a bank renting out safe deposits 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 benefits. That prevailing rule has been adopted in Section 72 of the General Banking Act.

Section 72. In addition to the operations specifically authorized elsewhere in this Act, banking institutions other that building and loan associations may perform the following services:(a) Receive in custody funds, document and valuable objects and rents safety deposits taxes for the safeguard of such effects.

xxx xxx xxxThe bank shall perform the services permitted under subsections (a) (b) and (c) of this section as depositories or as agents.



Manila

THIRD DIVISION

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.

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 antecedent facts of the present controversy are summarized by the public respondent in its challenged decision as follows:

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 Española 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 negligenceaggravated 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.

Digest


Facts: Plaintiff Luzon Sia rented a safety deposit box of Security Bank and Trust Co. (Security Bank) at its Binondo Branch 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. 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 damage to his stamps collection. Security Bank rejected the plaintiff’s claim for compensation for his damaged stamps collection.

Sia, thereafter, instituted an action for damages against the defendant bank. Security Bank contended that its contract with the Sia over safety deposit box was one of lease and not of deposit and, therefore, governed by the lease agreement which should be the applicable law; 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 rendered in favor of plaintiff Sia and ordered Sia to pay damages.

Issue: Whether or not the Bank is liable for negligence.

Held: Contract of the use of a safety deposit box of a bank is not a deposit but a lease. Section 72 of the General Banking Act [R.A. 337, as amended] pertinently provides: 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.

As correctly held by the trial court, Security Bank was guilty of negligence. The bank’s negligenceaggravated 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 the safe deposit box 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” is applicable. Hence, the petition was granted.

The provisions contended by Security Bank in the lease agreement which 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 agents’ fraud, negligence or delay must be stricken down for being contrary to law and public policy.



Manila

EN BANC

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.

Avanceña, C.J., Johnson, Malcolm, Villamor, Romualdez and Villa-Real, JJ., concur.

Digest

FACTS:- The defendant owns a rice mill, which was well patronized by the rice

growers of the vicinity.- On January 17, 1921, 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 (P1) and Guillermo Baron (P2) each filed an action for the recovery of the value of palay from the defendant (D), alleged that:

o The palay have been sold by both plaintiffs to the D in the year 1920

o Palay was delivered to D at his special request, with a promise of compensation at the highest price per cavan

- D claims that the palay was deposited subject to future withdrawal by the depositors or to some future sale, which was never effected. D also contended 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.

ISSUE: WoN there was depositSC: NO- Art. 1978. When the depositary has permission to use the thing

deposited, the contract loses the concept of a deposit and becomes a loan or commodatum, except where safekeeping is still the principal purpose of the contract. The permission shall not be presumed, and its existence must be proved.

- 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.


- 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.


Manila

FIRST DIVISION

G.R. No. 93849 December 20, 1991

THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs.DICK ONG y CHAN, LINO MORFE y GUTIERREZ, RICARDO VILLARAN and LUCILA TALABIS, accused, DICK ONG y CHAN, accused-appellant.

The Solicitor General for plaintiff-appellee.

Leoncio T. Mercado for accused-appellant.

MEDIALDEA, J.:p

The accused, Dick Ong y Chan, Lino Morfe y Gutierrez, Ricardo Villaran and Lucila Talabis, were charged with the crime of estafa in Criminal Case No.


44080 before the Regional Trial Court of Manila, Branch 35. The information filed in said case reads, as follows (pp. 8-9, Rollo):

That in (sic) or about and during the period comprised between December 6, 1978 and January 31, 1979, both dates inclusive, in the City of Manila, Philippines, the said accused, conspiring and confederating together and helping one another, did then and there wilfully, unlawfully and feloniously defraud the Home Savings Bank in the following manner, to wit: the said accused Dick Ong y Chan, by means of false manifestations and fraudulent representations which he made to the management of the Home Savings Bank, Aurea Annex Branch, located at 640 Rizal Avenue, Sta. Cruz, in said City, to the effect that the following checks, to wit:

NAME OF CHECK

NUMBER

PAYBLE TO

DATE

AMOUNT

Metropolitan Bank & Trust Co

82508 Cash

1-30-79

P49,500.00

Equitable Bank

27624961

do. do.

14,569.00

Phil. Bank of Comm

T1907249

do. do.

59,600.00

-do- T1907249

do. do.

67,400.00

China Banking Corp.

QCO86174A

do. 1-31-79

69,850.00

Pacific Banking Corp.

PCB 238056 S

do. 1-31-

60,890.00


79

Producers Bank of the Phil.

C 987955

do. do.

49,090.00

Equitable Banking

27624963

do. do.

14,965.00

Phil. Bank of Comm.

1915852

do. do.

63,900.00

-do- 1915855

do. do.

59,800.00

-do- 1915856

do. do.

65,880.00

or all in the total amount of P575,504.00, are good and covered with sufficient funds in the banks, and by means of other similar deceits with the conspiracy of his co-accused Lino Morfe y Gutierrez, Ricardo Villaran and Lucila Talabis, in their capacities as officer-in-charge, branch accountant and bank branch cashier, respectively, of said bank (Home Savings Bank), induced and succeeded in inducing the management of the said bank to accept said checks as deposits, all the said accused well knowing that his (Dick Ong y Chan's) representations and manifestations are false and untrue and were made solely for the purpose of defrauding the said bank, and, in accordance with the conspiracy, his co-accused Lino Morfe y Gutierrez, Ricardo Villara and Lucila Talabis, facilitated the opening of a savings account in the name of accused Dick Ong y Chan and, thereafter, approved said deposits; that on the strength of such deposits made and the opening of an account, the said accused were able to withdraw the total amount of P575,504.00, which once in their possession, with intent defraud, they thereafter wilfully, unlawfully and feloniously misappropriated, misapplied and converted to their own personal use and benefit, to the damage


and prejudice of said Home Savings Bank in the said amount of P575,504.00, Philippine Currency.

Contrary to law.

On October 15, 1979, the prosecution moved for the dismissal of the case, insofar as accused Lino Morfe y Gutierrez is concerned, on the ground that after a reinvestigation, it was found that the evidence against him is not sufficient to sustain the allegations contained in the information (p. 54, Records). On October 31, 1979, the trial court granted the motion (p. 6 Records).

Upon being arraigned, the remaining three (3) accused entered the plea of not guilty to the crime charged. After trial on the merits, the trial court rendered its decision on January 11, 1990, the dispositive portion of which reads, as follows (p. 26,Rollo):

WHEREFORE, judgment is rendered: (1) pronouncing accused DICK ONG y CHAN guilty beyond reasonable doubt, as principal, of ESTAFA defined under No. 2 (d) of Article 315 of the Revised Penal Code, as amended by Republic Act 4885, and penalized under the lst paragraph of the same Code as amended by Presidential Decree No. 818, and sentencing said accused to RECLUSION PERPETUA; (2) ACQUITTING accused Lucila Talabis and Ricardo Villaran, their guilt of (sic) the felony charged against them not having been established beyond reasonable doubt; (3) ordering accused Dick Ong to pay the Home Saving Bank and Trust Company the sum of P559,381.34 as partial reparation of the damage caused to said Bank; (4) ordering forfeited in favor of the Home Savings Bank and Trust Company the sum of P16,122.66 the positive balance remaining outstanding in Savings Account No. 6-1981 of accused Dick Ong with, and in the possession of, said Bank to complete the reparation of the damage caused by Dick Ong to the Bank; (5) ordering accused Dick Ong to pay one-third (1/3) of the costs; and (6) ordering two-thirds (2/3) of the costs charged de oficio.

SO ORDERED.

On February 15, 1990, the accused-appellant filed a motion for reconsideration. On March 22, 1990, he filed a supplemental memorandum in support of the motion for reconsideration. On April 3, 1990, said motion was denied for lack of merit (pp. 575-576, Records). Hence, the present appeal by Dick Ong y Chan.


The facts of this case were summarized by the trial court, as follows (pp. 18-20, Rollo):

Accused Dick Ong was one of the depositors of the Home Savings Bank and Trust Company in its Aurea Annex Branch at Rizal Avenue, Sta. Cruz, Manila, hereafter, to be referred to as the Bank. He opened his savings account on December 6, 1978, under the Bank's Saving Account No. 6-1981, with an initial deposit of P22.14 in cash and P10,000.00 in (a) check.

On the same date, December 6, 1978, without his check undergoing the usual and reglamentary (sic) clearance, which normally takes about five working days, Dick Ong was allowed to withdraw from his savings account with the Bank the sum of P5,000.00. The corresponding withdrawal slip was signed and approved by Lino Morfe, then the Branch Manager, and accused Lucila Talabis, the Branch Cashier.

That initial transaction was followed by other similar transactions where Dick Ong, upon depositing checks in his savings account with the Bank, was allowed to withdraw against those uncleared checks and uncollected deposits. The withdrawals were authorized and approved by accused Ricardo Villaran and Lucila Talabis, sometimes jointly, sometimes by aither (aic) of them alone, and at other times by one of them together with another official of the Bank. But all of those uncleared checks deposited by Dick Ong prior to January 3, 1979 and against which he was allowed to withdraw were subsequently honored and paid by the drawee banks. (TSN, Mar. 9, 1981, pp. 101-104; TSN, Mar. 18, 1981, pp. 144 -146.)

On January 30, 1979, Dick Ong issued and deposited in his savings account with the Bank the following checks:

Drawee Bank

Check No.

Payee

Amount

1. Metropolitan Bank & Trust Co.

82508 Cash

P49,500.00

2. Equitabl

27624961

Cash

14,569.00


e Bank3. Phil. Bank of Comm.

T-1907265

Cash

59,600.00

4. Phil. Bank of Comm.

T-1907249

Cash

67,400.00

TOTAL P191,069-00

Afterwards but before these checks could be cleared and the Bank could collect their amounts from the drawee banks, Lucila Talabis allowed and approved the withdrawal of Dick Ong against the amounts of said checks. (TSN, Mar. 18, 1981, pp. 47-48.)

On the following day, January 31, 1979, Dick Ong also issued and deposited in his savings account with the Bank the following check;

Drawee Bank

Check No.

Payee

Amount

1. China Banking Corporation

QC08617A

Cash

P69,850.00

2. Pacific Banking Corporation

PCB238056

S

Cash

60,890.00

3. Producers Bank of the Phil.

C987955

Cash

49,090.00

4. Equitable Banking

27624963

Cash

14,965.00

5. Phil. 19158 Ca 63,900


Bank of Communications

52 sh 0.009

6. Phil. Bank of Communications

1915855

Cash

59,860.00

7. Phil. Bank of Communications

1915856

Cash

65,880.00

TOTAL

P384,435.00

Subsequently, but before said seven checks were cleared and the Bank had collected their amounts, Lucila Talabis and then officer in charge of the Bank Grace Silao allowed and approved the withdrawals of Dick Ong against the amounts of these seven checks. (TSN, lbid., pp. 47-48.)

However, when the Bank presented those eleven checks issued and deposited by Dick Ong on January 30, 1979 and January 3l, 1979 and against which he made withdrawals against (sic) their amounts, to their respective drawee banks for payment, they were all dishonored for lack or insufficiency of funds. (TSN, Jan. 7, 1981, pp. 90-101; TSN, May 8, 1981, pp. 74-75.)

The accused-appellant neither took the witness stand to testify in his behalf, nor presented any witness to testify in his favor. Instead, he offered the following documents (p. 20, Rollo):

1. Exhibit 1 — Ong. — The letter dated June 27, 1980 of the Central Bank Governor to all banks authorized to accept demand deposits, enjoining strict compliance with Monetary Board Resolution No. 2202 dated December 21, 1979, prohibiting, as a matter of policy, drawing against uncollected deposits effective July 1, 1980.

2. Exhibit 2 — Ong. — The Memorandum of the Central Bank Governor dated July 9, 1980, to all banks for their guidance, that Monetary Board Resolution No. 2202 dated December 21, 1979, prohibiting, as a matter of policy, drawing against uncollected


deposits effective July 1, 1980, covers drawing against demand deposits as well as withdrawals from savings deposits.

3. Exhibits 3 — Ong. — and 3-a. — Clippings from the Bulletin Today issue on July 25, 1980 regarding on (sic) ban on DAUD (drawn against uncollected deposits) effective July 1, 1980, and the one-day loan which replaced the DAUD arrangement.

4. Exhibit 4 — Ong. — The sworn statement of Lino Morfe before the METROCOM taken on February 11, 1979.

5. Exhibit 5 — Ong. — The letter dated July 6, 1979, of Lino Morfe to the Assistant Fiscal of Manila, transmitting his (Morfe's) affidavit.

6. Exhibits 5-a — Ong to 5-a-3-Ong. — Affidavit of Lino Morfe sworn on June 28, 1979.

7. Exhibit 5-b — Ong. — The Bank's Memorandum dated January 31, 1979, to all Branch Manager/Extension Office O.I.C. (sic) requiring them to furnish the Head Office of the Bank every Monday and Thursday with a list of all "drawn against" and "encashment" acommodations (sic) of P1,000.00 and above granted by the Branch during the week.

8. Exhibit 6 — Ong. — The sworn statement of accused Dick Ong.

On the other hand, accused Lucila Talabis admitted that she approved the withdrawals of the accused-appellant against uncleared checks. However, she explained that her approval thereof was in accordance with the instruction of then bank manager Lino Morfe; that this accommodation given or extended to the accused-appellant had been going on even before she started giving the same accommodation; that this was common practice in the bank; that she approved those withdrawals together with one other bank official, namely, either the bank manager, the bank accountant, the other bank cashier, or the bank assistant cashier; and that they reported those withdrawals against, and the dishonor of, the subject checks always sending copies of their reports to the head office.

Accused Ricardo Villaran testified on his behalf that the accused-appellant was able to withdraw against his uncleared checks because of the accommodations extended to him by bank officials Lino Morfe, co-accused Lucila Talabis, Grace Silao, Precy Salamat, and Cora Gascon; that this practice of drawing against uncollected deposits was a common practice in branches of the Bank; that on December 14, 1978, the accused-appellant withdrew the sum of P75,000.00 against his uncleared checks; that on


December 21, 1978, the accused-appellant deposited several checks in the total amount of P197,000.00 and withdrew on the same date the sum of P120,000.00; that on January 23, 1979, the accused-appellant again deposited several checks in the aggregate sum of P260,000.00 and withdrew also on the same date, the amount of P28,000.00; and that he (Villaran) approved these three withdrawals of the accused-appellant against his uncollected deposits.

In this appeal, the accused-appellant assigns the following errors committed by the trial court:

1) it concluded that the withdrawals against the amounts of the subject checks before clearance and collection of the corresponding amounts thereof by the depository bank from the drawee banks is deceit or fraud constituting estafa under Article 315, paragraph 2(d) of the Revised Penal Code, in the total absence of evidence showing criminal intent to defraud the depository bank; and not a case which is civil in nature governed solely by the Negotiable Instruments Law;

2) it stated that he issued and deposited the subject checks when he is not the issuer, maker, nor drawer thereof but merely an indorser; hence, his liability, if any, is that of a general indorser under the Negotiable Instruments Law;

3) it convicted him on mere presumption, without any evidence that he had prior knowledge of the lack or insufficiency of funds in the drawee banks to cover the amounts of the subject checks; and

4) it failed to consider that a general indorser under the Negotiable Instruments Law warrants payment of the value of the checks indorsed by him; no damage could have been suffered by the depository bank because he had offered payment thereof.

To support the aforementioned assignment of errors, the accused-appellant alleges that based on the testimonies of co-accused Lucila Talabis and Ricardo Villaran, he did not employ any deceit or fraud on the Bank because the practice of deposit and withdrawal against uncleared checks and uncollected deposits was tolerated by it. As soon as he learned of the dishonor of the subject checks, he offered to pay the amounts thereof (see pp. 48-49, tsn of Felix Hocson, May 8, 1981) and put up as security his property. The subject checks were not in payment of an obligation but were deposited in his savings account. He was merely a general indorser of the subject checks and this being the case, his obligations as such, if any, should be governed by Section 66 of the Negotiable Instruments Law. * The subject checks were issued or drawn by his customers and paid to him. He could not


have had any knowledge as to the sufficiency of their funds in the drawee banks.

The Office of the Solicitor General disputes the allegations of the accused-appellant. According to it, by reason of the accused-appellant's antecedent acts of issuing and depositing check and withdrawing the amounts thereof before clearing by the drawee banks, which checks were later honored and paid by drawee banks, he was able to gain the trust and confidence the Bank, such that the practice, albeit contrary to sound banking policy, was tolerated by the Bank. After thus having gained the trust and confidence of the Bank, the accused-appellant issued and deposited the subject checks, the amounts of which he later withdrew, fully aware that he had no sufficient funds to cover the amounts of said checks in the drawee banks. Contrary to the accused-appellant's allegation, the trial court found that he issued and deposited the subject checks in his savings account. As drawer of the subject checks, the accused-appellant had the obligation to maintain funds in his current account in the drawee banks sufficient to cover the amounts thereof or, in case of dishonor, to deposit within three (3) days from receipt notice of dishonor, the amounts necessary to cover the check. The testimony of Felix Hocson, Senior Vice President and Treasurer of the Bank, apart from being hearsay, does not prove that the accused-appellant made an offer to pay the amounts covered by the subject checks. Even assuming arguendo that accused-appellant made an offer to pay the amounts covered by the subject checks, said offer is not sufficient to rebut the prima facie evidence of deceit. There is no showing that the accused-appellant deposited the amounts necessary to cover the subject checks within three (3) days from receipt of notice from Bank and/or the payee or holder that said checks have been dishonored. The damage suffered by the Bank consists in its inability to make use of the P575,504.00 it had delivered to the accused-appellant.

We are convinced that the accused-appellant is innocent of the crime charged against him.

Article 315, paragraph 2(d) of the Revised Penal Code, as amended by Republic Act No. 4885, provides:

Art. 315. Swindling (estafa) — Any person who shall defraud another by any of the means mentioned hereinbelow shall be punished by:

..., provided that in the four cases mentioned, the fraud be committed by any of the following means:

xxx xxx xxx


2. By means of any of the following false pretenses or fraudulent acts executed prior to or simultaneously with the commission of the fraud:

xxx xxx xxx

(d) By post-dating a check, or issuing a check in payment of an obligation when the offender had no funds in the bank, or his funds deposited therein were not sufficient to cover the amount of the check. The failure of the drawer of the check to deposit the amount necessary to cover his check within three (3) days from receipt of notice from the bank and/or the payee or holder that said check has been dishonored for lack or insufficiency of funds shall be prima facie evidence of deceit constituting false pretense or fraudulent act.

The following are the elements of this kind of estafa: (1) postdating or issuance of a check in payment of an obligation contracted at the time the check was issued; (2) lack or insufficiency of funds to cover the check; and (3) damage to the payee thereof (People v. Tugbang, et al;, G.R. No. 76212, April 26, 1991; Sales v. Court of Appeals, et al., G.R. No. L-47817, August 29, 1988, 164 SCRA 717; People v. Sabio, Sr., etc., et al., G.R. No. L-45490, November 20, 1978, 86 SCRA 568). Based thereon, the trial court concluded that the guilt of the accused-appellant has "been duly established by the required quantum of evidence adduced by the People against (him)" (p. 22, Rollo). We shall confine Our discussion only on the first element because there is no argument that the second and third elements are present in this case. For an orderly discussion of this element, We will divide it into two (2) parts: first, "postdating or issuance of a check," and second, "in payment of an obligation contracted at the time the check was issued."

Inasmuch as the first part of the first element of Article 315 paragraph 2(d) of the Revised Penal Code is concerned with the act of "postdating or issuance of a check," the accused-appellant raises the defense that he was neither the issuer nor drawer of the subject checks, but only an indorser thereof. Thus, his liability, if any, should be governed by the provision of the Negotiable Instruments Law, particularly Section 66 thereof, supra. Also, he could not have had any knowledge as to the sufficiency of the drawers' funds in their respective banks. The Office of the Solicitor General contend's that the trial court found as a fact that the accused-appellant issued the subject checks.


The contention of the Office of the Solicitor General is accurate only in part. In the trial court's disquisition on the liability of the accused-appellant, it said (p. 22, Rollo):

There is no question that on January 30, 1979, accused Dick Ong issued or used and indorsed, and deposited in his Savings Account No. 6-1981 with the Bank the four checks ... .

There is likewise no dispute that on the following date, January 31, 1979, Dick Ong issued or used and indorsed,and deposited in his savings account with the Bank seven checks ... . (emphasis supplied)

On this subject matter, Fernando Esguerra, Intemal Auditor of the Bank and a witness for the prosecution, testified that (pp. 101-103, tsn, January 7, 1981):

Court —

Q: You mentioned these checks, Mr. Witness. Did you or anybody for that matter ever verify the actual depositors of these checks whether it is Mr. Dick Ong himself.?

A: Yes, Your Honor. Our Vice-President for Bank Operations verified said checks and found out that one of or rather, two of those checks are in the account of Mr. Dick Ong but the other checks are not in his account.

Court —

Q: In other words, there are checks where the depositor himself was also Mr. Dick Ong?

A: Could I go over the checks, Your Honor.

Q: Is it indicated there?

A: Yes, Your Honor, it.is.

Q: All right, go over the checks.

A: There is one check, Your Honor. It is a China Banking Corporation check in the amount of P69,850.00 (Witness referring to Exhibit "Z").


Q: Now, why do you say that the current checking account or current account was opened by Mr. Dick Ong himself.

A: Because he is the drawer of the check, Your Honor.(emphasis supplied)

Thus, the fact established by the prosecution and adopted by the trial court is that the subject checks were either issued or indorsed by the accused-appellant.

In the case of People v. Isleta, et al., 61 Phil. 332, which was recently reiterated in the case of Zagado v. Court of Appeals, G.R. No. 76612, September 29, 1989, 178 SCRA 146, We declared the accused-appellant, who only negotiated the check drawn by another, guilty of estafa. This case of People v. Isleta, et al. was relied upon by the trial court in its order dated April 3, 1990, which denied the accused-appellant's motion for reconsideration based on the same defense. The trial court erred in doing so. It must have overlooked the ratio decidendi of the aforementioned case. We held the accused-appellant therein guilty of estafa because he "had guilty knowledge of the fact that (the drawer) had no funds in the bank when he negotiated the (subject) check" (at p. 334). In the present case, the prosecution failed to prove that the accused-appellant had such knowledge with respect to the subject checks that he indorsed. In applying Our decisions, it is not enough that courts take into account only the facts and the dispositive portions thereof. It is imperative that the rationale of these decisions be read and comprehended thoroughly.

It goes without saying that with respect to the subject checks wherein the accused-appellant was the issuer/drawer, the first part of the first element of Article 315, paragraph 2(d) of the Revised Penal Code is applicable. However, this statement will lose its significance in Our next discussion.

Regarding the second part of the first element of Article 315, paragraph 2(d) of the Revised Penal Code, the accused-appellant alleges that when he deposited the subject checks in his savings account, it was clearly not in payment of an obligation to the Bank. The Office of the Solicitor General misses this point of the accused-appenant.

This single argument of the accused-appellant spells tilting the scale to his advantage. In several cases, We were categorical that bank deposits are in the nature of irregular deposits. They are really loans because they earn interest. All kinds of bank deposits, whether fixed, savings, or current are to be treated loans and are to be covered by the law on loans. Current and savings deposits are loans to a bank because it can use the same (Serrano v. Central Bank of the Philippines, et al., G.R. No. 30511, February 14, 1980, 96


SCRA 96; Gullas v. Philippine National Bank, 62 Phil. 519; Central Bank of the Philippines v Morfe, etc., et al., G.R. No. L-38427, March 12, 1975, 63 SC 114; Guingona, Jr., et al. v. The City Fiscal of Manila, et al. G.R. No. 60033, April 4, 1984, 128 SCRA 577).

The elements of estafa in general are: (1) that the accused defrauded another (a) by abuse of confidence, or (b) by means of deceit; and (2) that damage or prejudice capable of pecuniary estimation is caused to the offended party or third person. Aside from the elements that We have discussed earlier, in the crime of estafa by postdating or issuing a bad check, deceit and damage are essential elements of the offense and have to be established with satisfactory proof to warrant conviction (U.S v. Rivera, 23 Phil. 383; People, et al. v. Grospe, etc., et al., G.R No. 74053-54, January 20, 1988,157 SCRA 154; Buaya v. Polo etc., et al., G.R. No. 75079, January 26, 1989, 169 SCRA 471).

In this connection, the Office of the Solicitor General advances the view that by reason of the accused-appellant's antecedent acts of issuing and depositing checks, and withdrawing the amounts thereof before clearing by the drawee banks, which checks were later honored and paid by the drawee banks, he was able to gain the trust and confidence of the Bank, such that the practice, albeit contrary to sound banking policy, was tolerated by the Bank. After thus having gained the trust and confidence of the Bank, he issued and deposited the subject checks, the amounts of which he later withdrew, fully aware that he had no sufficient funds to cover the amounts of said checks in the drawee banks.

This view is not supported by the facts of this case. Rather, the evidence for the prosecution proved that the Bank on its own accorded him a drawn against uncollected deposit (DAUD) privilege without need of any pretensions on his part (pp. 7-8,supra). Moreover, this privilege was not only for the subject checks, but for other past transactions. Fernando Esguerra and Felix Hocson even testified that in some instances prior to July 1, 1980, especially where the depositor is an important client, the Bank relaxed its rule and internal policy against uncleared checks and uncollected deposits, and allowed such depositor to withdraw against his uncleared checks and uncollected deposits. Admittedly, the accused-appellant was one of the important depositors of the Bank (pp. 24-25, Rollo). Granting, in gratia argumenti, that he had in fact acted fraudulently, he could not have done so without the active cooperation of the Banks employees. Therefore, since Lucila Talabis and Ricardo Villaran were declared innocent of the crimes charged against them, the same should be said for the accused-appellant (see People v. Jalandoni, G.R. No. 57555, May 30, 1983, 122 SCRA 588). True it is that the Bank suffered damage in the amount of P575,504.00 but the accused-appellant's liability thereon is only civil.


One additional statement made by the trial court in its decision requires correction. It said that "[t]he circumstances that the drawer of a check had insufficient or no funds in the drawee bank to cover the amount of his check at the time of its issuance and he did not inform the payee or holder of such fact, are sufficient to make him liable for estafa" (p. 23, Rollo). This statement is no longer controlling. We have clarified in the case of People v. Sabio, Sr., etc., et al., supra, that Republic Act No. 4885 has eliminated the requirement under the old provision for the drawer to inform the payee that he had no funds in the bank or the funds deposited by him were not sufficient to cover the amount of the check.

We, therefore, find that the guilt of the accused-appellant for the crime of estafa under Article 315, paragraph 2(d) of the Revised Penal Code has not been proven beyond reasonable doubt. However, We find him civilly liable to the bank in the amount of P575,504.00, less the balance remaining in his savings account with it (p. 26, Rollo), with legal interest from the date of the filing of this case until full payment.

ACCORDINGLY, the decision and order appealed from are hereby SET ASIDE. The accused-appellant is ACQUITTED of the crime charged against him but ordered to pay the aforementioned amount. No costs.

SO ORDERED.

Digest

Facts:

Accused Dick Ong, one of the depositors of the Home Savings Bank and Trust Company (HSBTC) opened a savings account with HSBTC with an initial deposit of P22.14 in cash and P10,000.00 in check.

Ong was allowed to withdraw from his savings account with the Bank the sum of P5,000.00, without his check undergoing the usual and reglementary clearance. The withdrawal slip was signed and approved by Lino Morfe, then the Branch Manager, and accused Lucila Talabis, the Branch Cashier.

Subsequently, Ong deposited eleven checks in his savings account with the Bank and against which he made withdrawals against its amount. Again, the withdrawal of the amount by Ong was made before said checks were cleared and the Bank had collected their amounts and with the approval of Talabis.

However, when the Bank presented the eleven checks issued, deposited and against which Ong made withdrawals against its amounts, to their respective drawee banks for payment, they were all dishonored for lack or insufficiency


of funds. Because of this, the Bank filed a criminal action for Estafa against Ong, and the Bank’s officer in charge Villaran and Talabis.

Talabis testified that the approval of the withdrawals of Ong against his uncleared checks was in accordance with the instruction of their then bank manager and that it is a kind of accommodation given to Ong and also a common practice of the Bank.

RTC ruled Ong as guilty for the crime of estafa but acquitted Villarin and Talabis as their guilt were not proven beyond reasonable doubt. CA affirmed RTCs decisions.

Issue: 1. What is the nature of bank deposits?2. WON Ong is guilty of Estafa. No.

Ruling:

1. The Supreme Court held that bank deposits are in the nature of irregular deposits.Bank deposits are really loans because they earn interest. Whether fixed, savings, or current, all bank Adeposits are to be treated as loans and are to be covered by the law on loans.

2. The elements of this kind of estafa are the following: (1) postdating or issuance of a check in payment of an obligation contracted at the time the check was issued; (2) lack or insufficiency of funds to cover the check; and (3) damage to the payee thereof.

In this case, the fact was established that Ong either issued or indorsed the subject checks. However, it must be remembered that the reason for the conviction of an accused of the crime of estafa is his guilty knowledge of the fact that he had no funds in the bank when he negotiated the spurious check.In the present case, however, the prosecution failed to prove that Ong had knowledge with respect to the checks he indorsed. Moreover, it has also been proven that it was the Bank which granted him a drawn against uncollected deposit (DAUD) privilege without need of any pretensions on his part. The privilege this privilege was not only for the subject checks, but for other past transactions. If ever, he, indeed acted fraudulently, he could not have done so without the active cooperation of the Banks employees. Since Talabis and Villaran were declared innocent of the crimes charged against them, the same should be said for the Ong.


Thus, Ong cannot be held criminally liable against the Bank. He can only be held civilly liable as the Bank incurred damages.


Manila

SECOND DIVISION

G.R. No. L-30511 February 14, 1980

MANUEL M. SERRANO, petitioner, vs.CENTRAL BANK OF THE PHILIPPINES; OVERSEAS BANK OF MANILA; EMERITO M. RAMOS, SUSANA B. RAMOS, EMERITO B. RAMOS, JR., JOSEFA RAMOS DELA RAMA, HORACIO DELA RAMA, ANTONIO B. RAMOS, FILOMENA RAMOS LEDESMA, RODOLFO LEDESMA, VICTORIA RAMOS TANJUATCO, and TEOFILO TANJUATCO, respondents.

Rene Diokno for petitioner.

F.E. Evangelista & Glecerio T. Orsolino for respondent Central Bank of the Philippines.

Feliciano C. Tumale, Pacifico T. Torres and Antonio B. Periquet for respondent Overseas Bank of Manila.

Josefina G. Salonga for all other respondents.

CONCEPCION, JR., J.:

Petition for mandamus and prohibition, with preliminary injunction, that seeks the establishment of joint and solidary liability to the amount of Three


Hundred Fifty Thousand Pesos, with interest, against respondent Central Bank of the Philippines and Overseas Bank of Manila and its stockholders, on the alleged failure of the Overseas Bank of Manila to return the time deposits made by petitioner and assigned to him, on the ground that respondent Central Bank failed in its duty to exercise strict supervision over respondent Overseas Bank of Manila to protect depositors and the general public. 1 Petitioner also prays that both respondent banks be ordered to execute the proper and necessary documents to constitute all properties fisted in Annex "7" of the Answer of respondent Central Bank of the Philippines in G.R. No. L-29352, entitled "Emerita M. Ramos, et al vs. Central Bank of the Philippines," into a trust fund in favor of petitioner and all other depositors of respondent Overseas Bank of Manila. It is also prayed that the respondents be prohibited permanently from honoring, implementing, or doing any act predicated upon the validity or efficacy of the deeds of mortgage, assignment. and/or conveyance or transfer of whatever nature of the properties listed in Annex "7" of the Answer of respondent Central Bank in G.R. No. 29352. 2

A sought for ex-parte preliminary injunction against both respondent banks was not given by this Court.

Undisputed pertinent facts are:

On October 13, 1966 and December 12, 1966, petitioner made a time deposit, for one year with 6% interest, of One Hundred Fifty Thousand Pesos (P150,000.00) with the respondent Overseas Bank of Manila. 3 Concepcion Maneja also made a time deposit, for one year with 6-½% interest, on March 6, 1967, of Two Hundred Thousand Pesos (P200,000.00) with the same respondent Overseas Bank of Manila. 4

On August 31, 1968, Concepcion Maneja, married to Felixberto M. Serrano, assigned and conveyed to petitioner Manuel M. Serrano, her time deposit of P200,000.00 with respondent Overseas Bank of Manila. 5

Notwithstanding series of demands for encashment of the aforementioned time deposits from the respondent Overseas Bank of Manila, dating from December 6, 1967 up to March 4, 1968, not a single one of the time deposit certificates was honored by respondent Overseas Bank of Manila. 6

Respondent Central Bank admits that it is charged with the duty of administering the banking system of the Republic and it exercises supervision over all doing business in the Philippines, but denies the petitioner's allegation that the Central Bank has the duty to exercise a most rigid and stringent supervision of banks, implying that respondent Central Bank has to watch every move or activity of all banks, including respondent Overseas Bank of Manila. Respondent Central Bank claims that as of March


12, 1965, the Overseas Bank of Manila, while operating, was only on a limited degree of banking operations since the Monetary Board decided in its Resolution No. 322, dated March 12, 1965, to prohibit the Overseas Bank of Manila from making new loans and investments in view of its chronic reserve deficiencies against its deposit liabilities. This limited operation of respondent Overseas Bank of Manila continued up to 1968. 7

Respondent Central Bank also denied that it is guarantor of the permanent solvency of any banking institution as claimed by petitioner. It claims that neither the law nor sound banking supervision requires respondent Central Bank to advertise or represent to the public any remedial measures it may impose upon chronic delinquent banks as such action may inevitably result to panic or bank "runs". In the years 1966-1967, there were no findings to declare the respondent Overseas Bank of Manila as insolvent. 8

Respondent Central Bank likewise denied that a constructive trust was created in favor of petitioner and his predecessor in interest Concepcion Maneja when their time deposits were made in 1966 and 1967 with the respondent Overseas Bank of Manila as during that time the latter was not an insolvent bank and its operation as a banking institution was being salvaged by the respondent Central Bank. 9

Respondent Central Bank avers no knowledge of petitioner's claim that the properties given by respondent Overseas Bank of Manila as additional collaterals to respondent Central Bank of the Philippines for the former's overdrafts and emergency loans were acquired through the use of depositors' money, including that of the petitioner and Concepcion Maneja. 10

In G.R. No. L-29362, entitled "Emerita M. Ramos, et al. vs. Central Bank of the Philippines," a case was filed by the petitioner Ramos, wherein respondent Overseas Bank of Manila sought to prevent respondent Central Bank from closing, declaring the former insolvent, and liquidating its assets. Petitioner Manuel Serrano in this case, filed on September 6, 1968, a motion to intervene in G.R. No. L-29352, on the ground that Serrano had a real and legal interest as depositor of the Overseas Bank of Manila in the matter in litigation in that case. Respondent Central Bank in G.R. No. L-29352 opposed petitioner Manuel Serrano's motion to intervene in that case, on the ground that his claim as depositor of the Overseas Bank of Manila should properly be ventilated in the Court of First Instance, and if this Court were to allow Serrano to intervene as depositor in G.R. No. L-29352, thousands of other depositors would follow and thus cause an avalanche of cases in this Court. In the resolution dated October 4, 1968, this Court denied Serrano's, motion to intervene. The contents of said motion to intervene are substantially the same as those of the present petition. 11


This Court rendered decision in G.R. No. L-29352 on October 4, 1971, which became final and executory on March 3, 1972, favorable to the respondent Overseas Bank of Manila, with the dispositive portion to wit:

WHEREFORE, the writs prayed for in the petition are hereby granted and respondent Central Bank's resolution Nos. 1263, 1290 and 1333 (that prohibit the Overseas Bank of Manila to participate in clearing, direct the suspension of its operation, and ordering the liquidation of said bank) are hereby annulled and set aside; and said respondent Central Bank of the Philippines is directed to comply with its obligations under the Voting Trust Agreement, and to desist from taking action in violation therefor. Costs against respondent Central Bank of the Philippines. 12

Because of the above decision, petitioner in this case filed a motion for judgment in this case, praying for a decision on the merits, adjudging respondent Central Bank jointly and severally liable with respondent Overseas Bank of Manila to the petitioner for the P350,000 time deposit made with the latter bank, with all interests due therein; and declaring all assets assigned or mortgaged by the respondents Overseas Bank of Manila and the Ramos groups in favor of the Central Bank as trust funds for the benefit of petitioner and other depositors. 13

By the very nature of the claims and causes of action against respondents, they in reality are recovery of time deposits plus interest from respondent Overseas Bank of Manila, and recovery of damages against respondent Central Bank for its alleged failure to strictly supervise the acts of the other respondent Bank and protect the interests of its depositors by virtue of the constructive trust created when respondent Central Bank required the other respondent to increase its collaterals for its overdrafts said emergency loans, said collaterals allegedly acquired through the use of depositors money. These claims shoud be ventilated in the Court of First Instance of proper jurisdiction as We already pointed out when this Court denied petitioner's motion to intervene in G.R. No. L-29352. Claims of these nature are not proper in actions for mandamus and prohibition as there is no shown clear abuse of discretion by the Central Bank in its exercise of supervision over the other respondent Overseas Bank of Manila, and if there was, petitioner here is not the proper party to raise that question, but rather the Overseas Bank of Manila, as it did in G.R. No. L-29352. Neither is there anything to prohibit in this case, since the questioned acts of the respondent Central Bank (the acts of dissolving and liquidating the Overseas Bank of Manila), which petitioner here intends to use as his basis for claims of damages against respondent Central Bank, had been accomplished a long time ago.

Furthermore, both parties overlooked one fundamental principle in the nature of bank deposits when the petitioner claimed that there should be


created a constructive trust in his favor when the respondent Overseas Bank of Manila increased its collaterals in favor of respondent Central Bank for the former's overdrafts and emergency loans, since these collaterals were acquired by the use of depositors' money.

Bank deposits are in the nature of irregular deposits. They are really loans because they earn interest. All kinds of bank deposits, whether fixed, savings, or current are to be treated as loans and are to be covered by the law on loans. 14 Current and savings deposit are loans to a bank because it can use the same. The petitioner here in making time deposits that earn interests with respondent Overseas Bank of Manila was in reality a creditor of the respondent Bank and not a depositor. The respondent Bank was in turn a debtor of petitioner. Failure of he respondent Bank to honor the time deposit is failure to pay s obligation as a debtor and not a breach of trust arising from depositary's failure to return the subject matter of the deposit

WHEREFORE, the petition is dismissed for lack of merit, with costs against petitioner.

SO ORDERED.


Manila

THIRD DIVISION

G.R. No. 113420 March 7, 1997

REPUBLIC OF THE PHILIPPINES, represented by the PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, petitioner, vs.SANDIGANBAYAN (Third Division), PROVIDENT INTERNATIONAL RESOURCES CORP., and PHILIPPINE CASINO OPERATORS CORPORATION, respondents.


PANGANIBAN, J.:

Two principal questions are presented for resolution in this petition: one, whether a proper judicial action was filed against respondent corporations in compliance with, and within the period contemplated in, Section 26, Article XVIII of the Constitution; and two, the validity of the sequestration order signed and issued "For The Commission" by only one PCGG Commissioner.

These questions are resolved by the Court in this special civil action for certiorari and mandamus with prayer for a writ of preliminary injunction and/or temporary restraining order, seeking to set aside the Resolutions dated December 4, 1991, 1 and October 27, 1993, 2 of the Sandiganbayan (Third Division) in Civil Case No. 0132 entitled "Provident International Resources Corporation and Philippine Casino Operators Corporation vs. Presidential Commission on Good Government."

The earlier Resolution granted the motion for judgment on the pleadings filed by petitioners below, declaring as automatically lifted the writ of sequestration issued against petitioner-corporations and ordering the Presidential Commission on Good Government ("PCGG") to restore to them their assets, properties, records and documents subject of the writ. The second Resolution denied PCGG's motion for reconsideration.

The Facts

On March 19, 1986, pursuant to powers vested upon it by the President of the Philippines under Executive Order No. 1, promulgated on February 28, 1986, the PCGG issued a writ 3 of sequestration against all assets, movable and immovable, of Provident International Resources Corporation 4 and Philippine Casino Operators Corporation ("respondent corporations").

On July 29, 1987, Petitioner Republic of the Philippines, through the Solicitor General, filed before the Sandiganbayan a complaint, 5 docketed as Civil Case No. 0021, against Edward T. Marcelo, Fabian C. Ver, Ferdinand E. Marcos and Imelda R. Marcos for reconveyance, reversion, accounting, restitution and damages. Said complaint sought to recover from named defendants alleged ill-gotten wealth. Among the corporations listed 6 in the complaint as being held and/or controlled by Defendant Marcelo, and among the assets apparently acquired illegally by defendants, were respondent corporations. Later, on October 30, 1991, the complaint was amended 7 to include both corporations as parties-defendants.

Prior to such amendment, specifically on September 11, 1991, respondent corporations filed before the Sandiganbayan a petition 8 for mandamus praying for the lifting of the writ of sequestration issued by PCGG against them and for the restoration of their sequestered


assets, properties, records and documents, on the ground that PCGG failed to file the appropriate judicial action against them within the period prescribed, under Section 26, 9 Article XVIII of the 1987 Constitution.

On December 4, 1991, public respondent issued the assailed Resolution, the dispositive portion of which states:

WHEREFORE, the Motion for Judgment on the Pleadings is hereby granted. As prayed for, judgment is hereby rendered, as follows:

1) The writs of sequestration issued against herein petitioner-corporations are hereby declared automatically lifted, as of August 2, 1987, for failure of the respondent to file the proper judicial action against them within the period fixed in Section 26 of Article XVIII of the 1987 Constitution.

2) The respondent PCGG is hereby ordered to restore to the petitioners' all their assets, properties, records and documents, subject of the sequestration.

Without pronouncement as to costs. 10

Respondent Sandiganbayan based its ruling on PCGG vs. International Copra Export Corporation 11 ("PCGG vs. Interco") and Republic vs. Sandiganbayan and Olivares 12 ("Republic vs. Olivares") which similarly held that the mere listing or inclusion of corporations among certain properties allegedly amassed, beneficially owned or controlled by individual party-defendants in a complaint filed for recovery of ill-gotten wealth, does not justify the failure of PCGG to implead said corporations in a proper judicial action within the period fixed in Section 26, Article XVIII of the Constitution.

PCGG filed a motion for reconsideration. In denying said motion on the ground that the allegations therein were "essentially a mere rehash of respondent's Answer to the Petition as well as Opposition to the Motion for Judgment on the Pleading," public respondent further noted that the sequestration order dated March 19, 1986, was issued and signed by only one PCGG commissioner in violation of Section 3 of the PCGG Rules and Regulations. 13

Issues

In imputing against Respondent Sandiganbayan grave abuse of discretion amounting to lack or excess of jurisdiction in granting respondent corporations' petition for mandamus, petitioner assigns the following errors 14 in the assailed Resolutions:


1. declaring the writ of sequestration to have been automatically lifted for alleged failure of petitioner to file the proper judicial action against respondent corporations within the period fixed in Section 26, Article XVIII of the 1987 Constitution;

2. applying the rulings in PCGG vs. Interco and Republic vs. Olivares that the filing by petitioner of the judicial action against a stockholder of the sequestered company is not the judicial action contemplated by the Constitution; and

3. ruling that the sequestration order dated March 19, 1986, signed by only one PCGG commissioner, violated Section 3 of the PCGG Rules and Regulations requiring the authority of two (2) PCGG commissioners for the issuance of such order.

The errors assigned may be condensed into two principal issues, to wit :

1. Whether a proper judicial action was filed against respondent corporations in compliance with, and within the period contemplated in, Section 26, Article XVIII of the Constitution; and

2. Whether the sequestration order issued on March 19, 1986 against respondent-corporations was valid and effective despite having been signed by only one commissioner, contrary to the PCGG Rules and Regulations requiring the authority of at least two commissioners therefor.

Petitioner contends that the complaint docketed as Civil Case No. 0021 filed on July 29, 1987, against Edward Marcelo, et al. and amended on September 11, 1991, to implead respondent corporations as defendants, is the proper judicial action contemplated under the subject provision of the Constitution that would warrant the continuance of the sequestration. The Solicitor General further claims that Civil Case No. 0021 justifies the application of the doctrine of "piercing the veil of corporate fiction" since the records bear prima facie evidence that respondent corporations, which are wholly owned and controlled by defendants therein, were used to hide their ill-gotten wealth. Anyhow, he says, this issue has even been rendered moot and academic with the amendment of the complaint impleading respondent corporations as parties-defendants in the aforementioned case. In addition, petitioner postulates that Civil Case No. 0021 which sought to recover ill-gotten wealth was an action in rem or quasi in rem, the alleged ill-gotten


wealth (respondent corporations, among others) of individual defendants, being the res or subject matter of the case.

As regards the second issue, petitioner avers that one signatory to the sequestration order complies with the requirement under the PCGG Rules since said order was signed "FOR THE COMMISSION." Petitioner explains that during the organizational stage of the PCGG, the rule of the Commission in the issuance of sequestration orders was that "any Commissioner can file or issue a sequestral order provided the order has the conformity, verbal or written, of another Commissioner." 15 It cites the minutes of the meeting of the Commission on October 15, 1987, in support of this contention:

The authority of at least two commissioners which is required under Sec. 3 of the PCGG Rules and Regulations may be written or verbal authority. Such authority may be reflected in the Minutes or the Commission meeting held en banc covering the pertinent recommendation/approval on the issuance of the order; or the Commissioner-in-charge intending to issue the Order may simply obtain the concurrence of anotehr (sic) Commissioner after explaining the evidence supporting such order.

It is sufficient for only one Commissioner to sign the Order "FOR THE COMMISSION". After April 11, 1986, the Commission has encouraged the practice of two Commissioners signing the Order. (Excerpt from Minutes of PCGG Meeting on 15 October 1987, Annex "L") 16

Respondent corporations, on the other hand, pray for the denial of the instant petition because petitioner allegedly failed to take the appropriate remedy which should have been an appeal under Rule 45 of the Rules of Court, and not a certiorari proceeding under Rule 65, since the petition does not proffer a question of jurisdiction.

With respect to the issues raised by petitioner, respondent corporations aver that Republic vs. Sandiganbayan, Lobregat, et a1. 17 ("Republic vs. Lobregat"), modifying PCGG vs. Interco and Republic vs. Olivares, cannot be made to apply to the case at bench since the assailed Resolutions had already become final and executory prior to the promulgation of the decision in the first case mentioned. They also contend that the sequestration order signed by only one PCGG Commissioner is null and void.

The Court's Ruling

Preliminary Issue: Propriety of Rule 65as Mode of Appeal


Before proceeding to the resolution of the principal issues raised in the petition, we first dispose of the procedural question on the propriety of certiorari under Rule 65 of the Rules of Court as the remedy in assailing the subject Sandiganbayan Resolutions.

We answer in the affirmative, and treat this case as an exception to the general rule governing petitions forcertiorari. Normally, decisions of the Sandiganbayan are brought before this Court under Rule 45, not Rule 65. 18However, where the issue raised is one purely of law, where public interest is involved, and in case of urgency, certiorari is allowed notwithstanding the existence and availability of the remedy of appeal. 19 Certiorari may also be availed of where an appeal would be slow, inadequate and insufficient. 20

The nature of this case is undeniably endowed with public interest and involves a matter of public policy. 21 One of the foremost concerns of the Aquino Government in February 1986 (after the Marcoses fled the country) was the recovery of unexplained or ill-gotten wealth reputedly amassed by former President and Mrs. Ferdinand Marcos, their relatives, friends and business associates. Thus, the Provisional Constitution (Proclamation No. 3) mandated the President to "give priority to measures to achieve the mandate of the people to: . . . (d) recover ill-gotten properties amassed by the leaders and supporters of the previous regime and protect the interest of the people through orders of sequestration or freezing of assets or accounts . . . ." 22 Not too long ago, in Republic vs. Lobregat, the Court described this undertaking as "surely . . . an enterprise 'of great pith and moment'; it was attended by 'great expectations'; it was initiated not only out of considerations of simple justice but also out of sheer necessity — the national coffers were empty, or nearly so." Hence, the Presidential Commission on Good Government was created by Executive Order No. 1 to assist the President in the recovery of unexplained wealth whether located in the Philippines or abroad. Executive Order No. 14 further conferred on the Sandiganbayan exclusive and original jurisdiction over all cases of ill-gotten wealth, and provided that "technical rules of procedure and evidence shall not be strictly applied to . . . (said) civil cases." 23

We further opined in the same case that:

Political normalization of the country — which fortunately came not too long after the EDSA Revolution of 1986 — did not abrogate, or diminish the strength of the lofty state policy for recovery of ill-gotten wealth, no matter that its prosecution has thus far yielded what not a few are disposed to regard as at best only mixed results, or was attended by much abuse on the part of some of its officers or "fiscal agents"; indeed, that


circumstance should vigorously argue for its more sustained and effective pursuit and implementation.

And equally, if not more, important, strong paramount public policy is not to be set at naught by technical rules of procedure or by narrow constructions of constitutional provisions that frustrate their clear intent or unreasonably restrict their scope. . . . 24

First Issue: Requisite Judicial ActionFiled Within Period Prescribed

This issue is not novel. We have sufficiently and extensively discussed and resolved this in Republic vs. Lobregatwhich was a consolidation of twenty petitions before this court presenting a common issue summed this wise:

Does inclusion in the complaints filed by the PCGG before the Sandiganbayan of specific allegations of corporations being "dummies" or under the control of one or another of the defendants named therein and used as instruments for acquisition, or as being depositaries or products, of ill-gotten wealth; or the annexing to said complaints of a list of said firms, but without actually impleading them as defendants, satisfy the constitutional requirement that in order to maintain a seizure effected in accordance with Executive Order No. 1, s. 1986, the corresponding "judicial action or proceeding" should be filed within the six-month period prescribed in Section 26, Article XVIII, of the (1987) Constitution? 25

As in this case, the corporations, in which defendants in the original complaints allegedly owned and controlled substantial interest, were not impleaded as parties-defendants but merely mentioned or listed, and specifically described in the complaints as instruments in the illegal acquisition of wealth, or as depositaries of illegal wealth, or as constituting the fruits thereof. In fact, one of the respondent-corporations (Marcelo Fiberglass Corporation, the assets of which were also sequestered) in that case was of exactly the same status as herein respondent-corporations, having been likewise listed in Civil Case No. 0021 as one of the companies controlled by therein defendant Edward Marcelo. 26

We ruled then that impleading the corporations in which the complaints sought to recover defendants' shares of stock — allegedly purchased with misappropriated public funds, in breach of fiduciary duty, or otherwise under illicit or anomalous conditions — "clearly appear(ed) to be unnecessary. If warranted by the evidence, judgments may be handed down against the corresponding defendants divesting them of ownership of their (shares of)


stock, the acquisition thereof being illegal and consequently burdened with a constructive trust, and imposing on them the obligation of surrendering them to the Government." 27

We explained thus:

And as to corporations organized with ill-gotten wealth, but are not themselves guilty of misappropriation, fraud or other illicit conduct — in other words, the companies themselves are the object or thing involved in the action, the res thereof — there is no need to implead them either. Indeed, their impleading is not proper on the strength alone of their being formed with ill-gotten funds, absent any other particular wrongdoing on their part. The judgment may simply be directed against the shares of stock shown to have been issued in consideration of ill-gotten wealth.

. . . Distinguished, in terms of juridical personality and legal culpability from their erring members or stockholders, said corporations are not themselves guilty of the sins of the latter, of the embezzlement, asportation, etc., that gave rise to the Government's cause of action for recovery; their creation or organization was merely the result of their members' (or stockholders') manipulations and maneuvers to conceal the illegal origins of the assets or monies invested therein. In this light,they are simply the res in the actions for the recovery of illegally acquired wealth, and there is, in principle, no cause of action against them and no ground to implead them as defendants in said actions.

xxx xxx xxx

Even in those cases where it might reasonably be argued that the failure of the Government to implead the sequestered corporations as defendants is indeed a procedural aberration, as where said firms were allegedly used, and actively cooperated with the defendants, as instruments of conduits for conversion of public funds or property or illicit or fraudulent obtention of favored Government contracts, etc., slight reflection would nevertheless lead to the conclusion that the defect is not fatal, but one correctible under applicable adjective rules — e.g., Section 10, Rule 5 of the Rules of Court [specifying the remedy of amendment during trial to authorize or to conform to the evidence]; Section 1, Rule 20 [governing amendments before trial], in relation to the rule respecting the omission of so-called necessary or indispensable parties, set out in Section 11, Rule 3 of the Rules of Court. It is relevant in this context to advert to the


old, familiar doctrines that the omission to implead such parties "is a mere technical defect which can be cured at any stage of the proceedings even after judgment"; and that, particularly in the case of indispensable parties, since their presence and participation is essential to the very life of the action, for without them no judgment may be rendered, amendments of the complaint in order to implead them should be freely allowed, even on appeal, in fact even after rendition of judgment by this Court, where it appears that the complaint otherwise indicates their identity and character as such indispensable parties.

Again, even conceding the adjective imperfection of the omission to implead the sequestered corporations as indispensable or necessary parties, it bears repeating that their sequestrations would not thereby be rendered functus officio, since, as already pointed out, judicial actions or proceedings have in truth been filed concerning or regarding said sequestration in literal and faithful compliance with Section 26, Article XVIII of the Constitution. 28

The instant petition falls squarely within the case cited. Respondent corporations were among the properties listed in the original complaint (Civil Case No. 0021) as having been illegally accumulated by the defendants "in flagrant breach of public trust and of their fiduciary obligations as public officers, with gross abuse of power and authority and in brazen violation of the Constitution and laws of the Philippines." They were subsequently impleaded as parties-defendants in the same case by way of an amended complaint duly granted by public respondent. 29Hence, we reiterate our rule cited above that, with these premises, there was faithful compliance with Section 26, Article XVIII of the Constitution.

The seeming contradictions of the Court's rulings in Republic vs. Lobregat and in the Republic vs. Interco andRepublic vs. Olivares cases have already been clarified in the recent case of Republic vs. Sandiganbayan, Sipalay Trading Corporation and Allied Banking Corporation 30 in this manner:

These fresh pronouncements, 31 however, did not reverse, abandon or supplant "INTERCO". What the Court did was to explain the two apparently colliding dispositions by making this "hairline", but critical, distinction:

XVI. The "Interco" and "PJI" Rulings

This Court is not unmindful of the fact that its Resolution of July 26, 1991 on the petitioner's motion


for reconsideration in G.R. No. 92755 (PCGG vs. Interco) appears to sustain the proposition that actual impleading in the recovery action of a corporation under sequestration for being a repository of illegally-acquired wealth, is necessary and requisite for such proposed or pending seizure to come under the protective umbrella of the Constitution. But Interco is to be differentiated from the cases now under review in that in the former, as already elsewhere herein made clear, there was a lack of proof, even of the prima facie kind, that Eduardo Cojuangco, Jr. owned any stock in Interco, the evidence on record being in fact that said corporation had been organized as a family corporation of the Luys.

So, too, this Court's judgment in the so-called "PJI Case" (Republic of the Philippines [PCGG] v. Sandiganbayan and Rosario Olivares) may not be regarded as on all fours with the cases under consideration. The PJI Case involved the shares of stock in the name of eight (8) natural persons which had never been sequestered at all. What happened was that the PCGG simply arrogated unto itself the right to vote those unsequestered shares on the bare claim that the eight (8) registered owners thereof were "dummies" of Benjamin Romualdez, the real owners of the shares; and all that the PCGG had done as predicate for that act of appropriation of the stock, was to include all the shares of PJI in a list (Annex A) appended to its complaint in Sandiganbayan Case No. 0035, describing them as among the properties illegally acquired by Romualdez. Unfortunately, as in Interco, the PCGG failed to substantiate by competent evidence its theory of clandestine ownership of Romualdez; and since moreover, there had been no sequestration of the alleged dummies' shares of stock, it was undoubtedly correct for the Sandiganbayan to grant the latter's motion for them to be recognized and declared as the true owners of the stock in question, which judgment this Court subsequently pronounced to be free from grave abuse of discretion.

We need only to recall at this juncture that, as in "INTERCO", evidence of the PCGG is nil to even come up with a prima


facie case against SIPALAY (and ALLIED). This similitude is the one decisive factor that draws the instant case away from the "Final Dispositions" made by the Court in the 1995 "Republic vs. Sandiganbayan" case — thus making "INTERCO", as supported by the "Aetna" and "Seno" cases, the controlling precedent. The principle of Stare Decisis, indeed, is most compelling, for "when the court has once laid down a principle of law as applicable to a certain state of facts, it will adhere to that principle and apply it to all future cases where the facts are substantially the same." 32

Second Issue: Validity of Sequestration OrderSigned by Only One Commissioner

Section 3 of the PCGG Rules and Regulations promulgated on April 11, 1986, provides:

Sec. 3. Who may issue. A writ of sequestration or a freeze or hold order may be issued by the Commission upon the authority of at least two Commissioners, based on the affirmation or complaint of an interested party or motu proprio when the Commission has reasonable grounds to believe that the issuance thereof is warranted.

The questioned sequestration order was, however, issued on March 19, 1986, prior to the promulgation of the PCGG Rules and Regulations. As a consequence, we cannot reasonably expect the Commission to abide by said rules which were nonexistent at the time the subject writ was issued by then Commissioner Mary Concepcion Bautista. Basic is the rule that no statute, decree, ordinance, rule or regulation (and even policies) shall be given retrospective effect unless explicitly stated so. 33 We find no provision in said Rules which expressly gives them retroactive effect, or implies the abrogation of previous writs issued nor in accordance with the same Rules. Rather, what said Rules provide is that they "shall be effective immediately," which, in legal parlance, is understood as "upon promulgation." Only penal laws are given retroactive effect insofar as they favor the accused. 34

We distinguish this case from Republic vs. Sandiganbayan, Romualdez and Dio Island Resort 35 where the sequestration order against Dio Island Resort, dated April 14, 1986, was prepared, issued and signed not by two commissioners of the PCGG, but by the head of its task force in Region VIII. In holding that said order was not valid since it was not issued in accordance with PCGG Rules and Regulations, we explained:

(Sec. 3 of the PCGG Rules and Regulations), couched in clear and simple language, leaves no room for interpretation. On the basis thereof, it is indubitable that under no circumstances can a


sequestration or freeze order be validly issued by one not a Commissioner of the PCGG.

xxx xxx xxx

Even assuming arguendo that Atty. Ramirez had been given prior authority by the PCGG to place Dio Island Resort under sequestration, nevertheless, the sequestration order he issued is still void since PCGG may not delegate its authority to sequester to its representatives and subordinates, and any such delegation is invalid and ineffective.

We further said:

In the instant case, there was clearly no prior determination made by the PCGG of a prima facie basis for the sequestration of Dio Island Resort, Inc. . . .

xxx xxx xxx

The absence of a prior determination by the PCGG of a prima facie basis for the sequestration order is, unavoidably, a fatal defect which rendered the sequestration of respondent corporation and its properties void ab initio. Being void ab initio, it is deemed non-existent, as though it had never been issued, and therefore is not subject to ratification by the PCGG.

What were obviously lacking in the above case were the basic requisites for the validity of a sequestration order which we laid down in BASECO vs. PCGG, 36 thus:

Section (3) of the Commission's Rules and Regulations provides that sequestration or freeze (and takeover) orders issue upon the authority of at least two commissioners, based on the affirmation or complaint of an interested party, or motu proprio when the Commission has reasonable grounds to believe that the issuance thereof is warranted. 37

In the case at bar, there is no question as to the presence of prima facie evidence justifying the issuance of the sequestration order against respondent corporations. But the said order cannot be nullified for lack of the other requisite (authority of at least two commissioners) since, as explained earlier, such requisite was nonexistent at the time the order was issued.

In all cases involving alleged ill-gotten wealth brought by or against the Presidential Commission on Good Government, it is the policy of this Court to


set aside technicalities and formalities that serve merely to delay or impede their judicious resolution. This Court prefers to have such cases resolved on the merits before the Sandiganbayan. Substantial justice to all parties, not mere legalisms or perfection of form, should now be relentlessly pursued. Eleven years have passed since the government started its search for and reversion of such alleged ill-gotten wealth. The definitive resolution of such cases on the merits is thus long overdue. If there is adequate proof of illegal acquisition, accumulation, misappropriation, fraud or illicit conduct, let it be brought out now. Let the titles over these properties be finally determined and quieted down with all reasonable speed, free of delaying technicalities and annoying procedural sidetracks.

WHEREFORE, premises considered, the petition is hereby GRANTED. The assailed Resolutions of the Sandiganbayan (Third Division) are SET ASIDE. The temporary restraining order is hereby made PERMANENT. The Court further DIRECTS the Sandiganbayan to resolve, with all deliberate dispatch, pursuant to the mandate of the Constitution for a speedy disposition of cases, the instant and all similar cases pending before it involving recovery of ill-gotten wealth through the conduct of continuous trial.

SO ORDERED.



Manila

EN BANC

G.R. No. L-21005 December 20, 1924

In the matter of the involuntary insolvency of Umberto de Poli. THE AMERICAN FOREIGN BANKING CORPORATION, claimant-appellee, vs.J. R. HERRIDGE, assignee of the insolvent estate of U. de Poli, BOWRING and CO., C. T. BOWRING and CO., LTD., and T. R. YANGCO, creditors-appellants.

Crossfield and O'Brien for the appellant assignee. J. A. Wolfson for the appellants Bowring and Co. and C. T. Bowring and Co., Ltd. Camus and Delgado for the appellant Yangco. Ross, Lawrence and Selph for appellee.

OSTRAND, J.:

This is an appeal from the following decision of the Court of First Instance of Manila, the Honorable George R. Harvey presiding:


On or about April 28, 1920, the debtor, U. de Poli, a licensed public warehouseman in the City of Manila, issued warehouse receipt No. A-48, commonly known as a "quedan," for 560 bales of tobacco, which tobacco was particularly described therein as "Cagayan tabacco en rama" with specified marks thereon. Said U. de Poli certified over his signature on the face of said quedan as follows: I certify that I am the sole owner of the merchandise herein described." (Exhibit A of American Foreign Banking Corporation.) This quedan was endorsed in bank by U. de Poli, who delivered it to the American Foreign Banking Corporation as security upon his overdraft, then amounting to about P40,000.

The claimant bank, by its motion of April 23, 1921, asked that the assignee be ordered to deliver to said bank the 560 bales of leaf tobacco called for in said quedan upon surrender of the original of the warehouse receipt.

In answer to said motion the assignee denied that the 560 bales of Cagayan tobacco listed in said Exhibit A are now in his possession as assignee of said insolvent estate, and denied that said Exhibit A constitutes a negotiable warehouse receipt under the law, for the reason that it does not comply with the provisions of sections 2, 4 or 5 of the Warehouse Receipt Act; and that, even assuming that said 560 bales of leaf tobacco were now in his possession, he denies that the claimant bank is the owner thereof, or has any lien thereon, or any rights therein, by virtue of said receipt, Exhibit A; and by his amended answer alleges that said Exhibit A was not delivered by the insolvent, U. de Poli, to the claimant for the purpose of transferring the ownership of the property described therein to it, but only as collateral security for a preexisting indebtedness by way of overdraft, for which purpose it is under the law invalid and wholly ineffective as against the general creditors of the said insolvent estate. Substantially the same answer was made by Wise & Co. as general creditors."

There has been no question raised about the authenticity of the quedan. U. de Poli testified that he issued it to said bank as security for his said overdraft; that the tobacco was in the bodega on Calle Acarraga when he gave the quedan to the bank; that the tobacco had to be stripped and booked, and, for this reason there might have been a slight difference between the quantity given in the quedan and the quantity at present in existence in the warehouse; that he knows that the tobacco was in the warehouse at the time he became insolvent, because he had given an order to fill an order for stripped tobacco, and that the tobacco was taken from the pile which he had given in guaranty to the American Foreign Banking Corporation; that Vicente


Molina was in charge of the warehouse, and that he (De Poli) acted upon the data furnished to him by Mr. Molina.

The evidence shows that there were only 530 bales of this tobacco. The quedan (Exhibit A) calls for "Cagayan tobacco," but it was stipulated in this case that the 530 bales of tobacco claimed by the American Foreign Banking Corporation are Isabela tobacco. Mr. De Poli explained this discrepancy in discrepancy in description by saying that he "had the description of grade only and made the quedan without giving importance if it was Cagayan or Isabela tobacco; that he asked only for grade, and did not ask whether it was Cagayan or Isabela tobacco, because he had to deliver the security no matter whether it was Isabela or Cagayan tobacco. The objection and motion of the opposition counsel that this explanation be stricken out are hereby overruled.

The quedan in question was issued by J. Magpantay, who was "encargado" of all the U. de Poli warehouse, but he did not have control of the warehouses, but he did not have control of the warehouses, according to Mr. de Poli. Molina did not see the quedan when it was issued, but said that he knew of the tobacco which Mr. De Poli transferred to the claimant bank, because Mr. De Poli told him about it; that it was tobacco from Isabela for the year 1919, was stored in the warehouse on Calle Azcarraga, and that there was no other tobacco in the warehouse except the 1919 Isabela tobacco.

The evidence further shows that in December, 1920, Mr. Kaintzler, a sub accountant of the claimant bank, went to the U. de Poli warehouse on Calle Azcarraga to have the tobacco covered by this quedan, Exhibit A, pointed out to him; that the then assignee (Mr. Bayne) and one of his accountants showed him (Kaintzler) the 530 bales of tobacco with the tag A. F. B. C. on them, and these bales were pointed out to him by Mr. Bayne as the tobacco which belonged to the American Foreign Banking Corporation.

The quedan (Exhibit A) is in the same form as quedan No. A-155, which, in the case of Felisa Roman vs. Asia Banking Corporation, was declared by the Supreme Court of the Philippine Islands to be a negotiable warehouse receipt conveying title to the said bank superior to that of the vendor's lien of Felisa Roman (R. G. No. 17825). 1

The evidence shows that said quedan (Exhibit A) was taken by the American Foreign Banking Corporation for value, believing it to be a negotiable warehouse receipt, and without reasonable cause to believe that the debtor U. de Poli (who was operating a public warehouse at the time) was insolvent.


In view of the decision of the Supreme Court in the Felisa Roman case, above-mentioned, the only question raised by the attorneys for the consignee and for the common creditors which will be considered by the court is that as to the sufficiency of the description of the tobacco in said warehouse receipt. This lot of tobacco was the only tobacco in the warehouse. The debtor said that it was the tobacco which he transferred to the claimant bank. The tobacco was pointed out by the then assignee to the claimants representative as the tobacco covered by said quedan, Exhibit A. Hence, there does not appear to be any doubt about the identity of the tobacco.

The only question left for consideration is whether the use of the word "Cagayan" instead of "Isabela" in describing the tobacco in the quedan rendered the quedan null and void as a negotiable warehouse receipt for the tobacco intended to be covered by it. The insolvent, U. de Poli, testified positively that this quedan referred to the tobacco in the Azcarraga warehouse, and he explained the discrepancy in the description. The then assignee (Mr. Bayne) was evidently convinced that this lot of tobacco belonged to the claimant bank, because he pointed it out to one of the bank's employees, who noted the tags thereon bearing the initials of the claimant bank.lawphi1.net

The court is of the opinion that the intention of the parties to the transaction must prevail against such a technical objection as to the sufficiency of the description of the tobacco. It might be different if there had been Cagayan tobacco in the warehouse at the time of the issuance of the quedan, Exhibit A, or if there were any doubt whatever as to the identity of the tobacco intended to be covered by the quedan. The assignee stands in the shoes of the insolvent, and while it is his duty to protect the general creditors, he is not in the position of a judgment creditor with an unsatisfied execution.

In view of the foregoing considerations, the court is of the opinion that the quedan, Exhibit A, is a negotiable warehouse receipt which was duly issued and delivered by the debtor U. de Poli to the American Foreign Banking Corporation, and that it divested U. de Poli of his title to said tobacco and transferred the position and the title thereof to the American Foreign Banking Corporation.

It is therefore ordered and adjudged that the consignee deliver the said five hundred and thirty (530) bales of tobacco to the American Foreign banking Corporation, upon payment by said bank of any liens or charges thereon, or, in the event of said tobacco having been sold, the proceeds thereof, less the storage and insurance charges paid after the declaration of insolvency; and thereafter due report will be made to this court of such delivery to the claimant bank in order that


the proceeds be deducted from the balance to said claimant bank from the insolvent debtor.

We find no reversible error in the decision quoted and do not think it necessary to add anything to the discussion therein contained.

The judgment appealed from is therefore affirmed, with the costs against the appellants. So ordered.

Digest

FACTS:

The insolvent Umberto de Poli was for several years engaged on an extensive scale in the exportation of Manila hemp, maguey and other products of the country. He was also a licensed public warehouseman, though most of the goods stored in his warehouses appear to have been merchandise purchased by him for exportation and deposited thereby he himself. In order to finance his commercial operations De Poli established credits with some of the leading banking institutions doing business in Manila at that time, among them the Hongkong & Shanghai Banking Corporation, the Bank of the Philippine Islands, the Asia Banking Corporation, the Chartered Bank of India, Australia and China, and the American Foreign Banking Corporation. De Poli opened a current account credit with the bank against which he drew his checks in payment of the products bought by him for exportation. Upon the purchase, the products were stored in one of his warehouses and warehouse receipts issued therefor which were endorsed by him to the bank as security for the payment of his credit in the account current. When the goods stored by the warehouse receipts were sold and shipped, the warehouse receipt was exchanged for shipping papers, a draft was drawn in favor of the bank and against the foreign purchaser, with bill of landing attached, and the entire proceeds of the export sale were received by the bank and credited to the current account of De Poli. De Poli was declared insolvent by the Court of First Instance of Manila with liabilities to the amount of several million pesos over and above his assets. An assignee was elected by the creditors and the election was confirmed by thecourt Among the property taken over the assignee was the merchandise stored in the various warehouses of the insolvent. This merchandise consisted principally of hemp, maguey and tobacco. The various banks holding warehouse receipts issued by De Poli claim ownership of this merchandise under their respective receipts, whereas the other creditors of the insolvent maintain that the warehouse receipts are


notnegotiable, that their endorsement to the present holders conveyed no title to the property, that they cannot be regarded as pledges of the merchandise inasmuch as they are not public documents and the possession of the merchandise was not delivered to the claimants and that the claims of the holders of the receipts have no preference over those of the ordinary unsecured creditors

ISSSUE:

Whether or not the warehouse receipts issued are negotiable?

HELD:

Yes, a warehouseman who deposited merchandise in his own warehouse, issued a warehouse receipts therefore and thereafter negotiated the receipts by endorsement. The receipt re

cites that the goods were deposited “por orden”of the depositor, the warehouseman, but contained no statement that the goods were to be delivered to the bearer of the receipts or to a specified person. It is in the form of a warehouse receipts and was not mark “nonnegotiable”. Therefore the receipts was negotiable warehouse receipts and the words “por orden” must be construed to mean “to the order”.


Manila

EN BANC

G.R. No. L-11776 August 30, 1958

RAMON GONZALES, plaintiff-appellee, vs.GO TIONG and LUZON SURETY CO., INC., defendants-appellants.


Rustico V. Nazareno for appellee.David, Abel and Ysip for appellant Go Tiong.Tolentino, Garcia and D. R. Cruz for appellant Luzon Surety Co., Inc.

MONTEMAYOR, J.:

Defendants Go Tiong and Luzon Surety Co. are appealing from the decision of the Court of First Instance of Manila, Judge Magno S. Gatmaitan presiding, the dispositive part of which reads as follows:

In view whereof, judgment is rendered condemning defendant Go Tiong and Luzon Surety Co., jointly and severally, to pay plaintiff the sum of P4,920 with legal interest from the date of the filing of the complaint until fully paid; judgment is also rendered against Go Tiong to pay the sum of P3,680 unto plaintiff, also with legal interest from the date of the filing of the complaint until fully paid. Go Tiong is also condemned to pay the sum of P1,000 as attorney's fees, plus costs.

The appeal was first taken to the Court of Appeals, the latter indorsing the case to us later under the provisions of Section 17 (6) of Republic Act No. 296, on the ground that the issues raised were purely questions of law.

Go Tiong owned a rice mill and warehouse, located at Mabini, Urdaneta, Pangasinan. On February 4, 1953, he obtained a license to engage in the business of a bonded warehouseman (Exhibit N). To secure the performance of his obligations as such bonded warehouseman, the Luzon Surety Co. executed Guaranty Bond No. 294 in the sum of P18,334 (Exhibit O), conditioned particularly on the fulfillment by Go Tiong of his duty or obligation to deliver to the depositors in his storage warehouse, the palay received by him for storage, at any time demand is made, or to pay the market value thereof, in case he was unable to return the same. The bond was executed on January 26, 1953. Go Tiong insured the warehouse and the palay deposited therein with the Alliance Surety and Insurance Company.

But prior to the issuance of the license to Go Tiong to operate as bonded warehouseman, he had on several occasions received palay for deposit from plaintiff Gonzales, totaling 368 sacks, for which he issued receipts, Exhibits A, B, C, and D. After he was licensed as bonded warehouseman, Go Tiong again received various deliveries of palay from plaintiff, totaling 492 sacks, for which he issued the corresponding receipts, all the grand total of 860 sacks, valued at P8,600 at the rate of P10 per sack.

On or about March 15, 1953, plaintiff demanded from Go Tiong the value of his deposits in the amount of P8,600, but he was told to return after two days, which he did, but Go Tiong again told him to come back. A few days later, the warehouse burned to the ground. Before the fire, Go Tiong had


been accepting deliveries of palay from other depositors and at the time of the fire, there were 5,847 sacks of palay in the warehouse, in excess of the 5,000 sacks authorized under his license. The receipts issued by Go Tiong to the plaintiff were ordinary receipts, not the "warehouse receipts" defined by the Warehouse Receipts Act (Act No. 2137).

After the burning of the warehouse, the depositors of palay, including plaintiff, filed their claims with the Bureau of Commerce, and it would appear that with the proceeds of the insurance policy, the Bureau of Commerce paid off some of the claim. Plaintiff's counsel later withdrew his claim with the Bureau of Commerce, according to Go Tiong, because his claim was denied by the Bureau, but according to the decision of the trial court, because nothing came from plaintiff's efforts to have his claim paid. Thereafter, Gonzales filed the present action against Go Tiong and the Luzon Surety for the sum of P8,600, the value of his palay, with legal interest, damages in the sum of P5,000 and P1,500 as attorney's fees. Gonzales later renewed his claim with the Bureau of Commerce (Exhibit S).

While the case was pending in court, Gonzales and Go Tiong entered into a contract of amicable settlement to the effect that upon the settlement of all accounts due to him by Go Tiong, he, Gonzales, would have all actions pending against Go Tiong dismissed. Inasmuch as Go Tiong failed to settle the accounts, Gonzales prosecuted his court action..

For purposes of reference, we reproduce the assignment of errors of Go Tiong, as well as the assignment of errors of the Luzon Surety, all reading thus:

I. The trial court erred in finding that plaintiff-appellee's claim is covered by the Bonded Warehouse Law, Act 3893, as amended, and not by the Civil Code.

II. The trial court erred in not exempting defendant-appellant Go Tiong for the loss of the palay deposited, pursuant to the provisions of the New Civil Code.".

x x x x x x x x x

I. The trial court erred in not declaring that the amicable settlement by and between plaintiff-appellee and defendant Go Tiong constituted a material alteration of the surety bond of appellant Luzon Surety which extinguished and discharged its liability.

II. The trial court erred in bolding that the receipts for the palay received by Go Tiong, though not in the form of "quedans" or warehouse receipts are chargeable against the surety bond filed under


the provisions of the General Bonded Warehouse Act (Act No. 3893 as amended by Republic Act No. 247) as a result of a loss.

III. The trial court erred in not holding that the plaintiff had renounced and abandoned his rights under the Bonded Warehouse Act by the withdrawal of his claim from the Bureau of Commerce and the execution of the "amicable settlement".

IV. The trial court erred in not holding that the palay delivered to Go Tiong constitutes gratuitous deposit which was extinguished upon the loss and destruction of the subject matter.

V. The trial court erred in not declaring that the transaction between defendant Go Tiong and plaintiff was more of a sale rather than a deposit.

VI. The trial court erred in declaring that the Luzon Surety Co., Inc., had not complied with its undertaking despite the liquidation of all the claims by the Bureau of Commerce.

VII. The lower court erred in adjudging the herein surety liable under the terms of the Bond.

We shall discuss the assigned errors at the same time, considering the close relation between them, although we do not propose to discuss and rule upon all of them. Both appellants urge that plaintiff's claim is governed by the Civil Code and not by the Bonded Warehouse Act (Act No. 3893, as amended by Republic Act No. 247), for the reason that, as already stated, what Go Tiong issued to plaintiff were ordinary receipts, not the warehouse receipts contemplated by the Warehouse Receipts Law, and because the deposits of palay of plaintiff were gratuitous.

Act No. 3893 as amended is a special law regulating the business of receiving commodities for storage and defining the rights and obligations of a bonded warehouseman and those transacting business with him. Consequently, any deposit made with him as a bonded warehouseman must necessarily be governed by the provisions of Act No. 3893. The kind or nature of the receipts issued by him for the deposits is not very material much less decisive. Though it is desirable that receipts issued by a bonded warehouseman should conform to the provisions of the Warehouse Receipts Law, said provisions in our opinion are not mandatory and indispensable in the sense that if they fell short of the requirements of the Warehouse Receipts Act, then the commodities delivered for storage become ordinary deposits and will not be governed by the provisions of the Bonded Warehouse Act. Under Section 1 of the Warehouse Receipts Act, one would


gather the impression that the issuance of a warehouse receipt in the form provided by it is merely permissive and directory and not obligatory:

SECTION 1. Persons who may issue receipts. — Warehouse receipts may be issued by any warehouseman.,

and the Bonded Warebouse Act as amended permits the warehouseman to issue any receipt, thus:

. . . . "receipt" as any receipt issued by a warehouseman for commodity delivered to him.

As the trial court well observed, as far as Go Tiong was concerned, the fact that the receipts issued by him were not "quedans" is no valid ground for defense because he was the principal obligor. Furthermore, as found by the trial court, Go Tiong had repeatedly promised plaintiff to issue to him "quedans" and had assured him that he should not worry; and that Go Tiong was in the habit of issuing ordinary receipts (not "quedans") to his depositors.

As to the contention that the deposits made by the plaintiff were free because he paid no fees therefor, it would appear that Go Tiong induced plaintiff to deposit his palay in the warehouse free of charge in order to promote his business and to attract other depositors, it being understood that because of this accommodation, plaintiff would convince other palay owners to deposit with Go Tiong.

Appellants contend that the burning of the warehouse was a fortuitous event and not due to any fault of Go Tiong and that consequently, he should not be held liable, appellants supporting the contention with the ruling in the case of La Sociedad Dalisay vs. De los Reyes, 55 Phil. 452, reading as follows:

Inasmuch as the fire, according to the judgment appealed from, was neither intentional nor due to the negligence of the appellant company or its officials; and it appearing from the evidence that the then manager attempted to save the palay, the appellant company should not be held responsible for damages resulting from said fire. . . . .

The trial court correctly disposed of this same contention, thus:

The defense that the palay was destroyed by fire neither does the Court consider to be good for while the contract was in the nature of a deposit and the loss of the thing would exempt the obligor in a contract of deposit to return the goods, this exemption from the responsibility for the damages must be conditioned in his proof that the loss was by force majeure, and without his fault. The Court does


not see from the evidence that the proof is clear on the legal exemption. On the contrary, the fact that he exceeded the limit of the authorized deposit must have increased the risk and would militate against his defense of non-liability. For this reason, the Court does not follow La Sociedad vs. De Los Santos, 55 Phil. 42 quoted by Go Tiong. (p. 3, Decision).

Considering the fact, as already stated, that prior to the burning of the warehouse, plaintiff demanded the payment of the value of his palay from Go Tiong on two occasions but was put off without any valid reason, under the circumstances, the better rule which we accept is the following:

. . . . This rule proceeds upon the theory that the facts surrounding the care of the property by a bailee are peculiarly within his knowledge and power to prove, and that the enforcement of any other rule would impose great difficulties upon the bailors. ... It is illogical and unreasonable to hold that the presumption of negligence in case of this kind is rebutted by the bailee by simply proving that the property bailed was destroyed by an ordinary fire which broke out on the bailee's own premises, without regard to the care exercised by the latter to prevent the fire, or to save the property after the commencement of the fire. All the authorities seem to agree that the rule that there shall be a presumption of negligence in bailment cases like the present one, where there is default in delivery or accounting, for the goods is just a necessary one. . . . (9 A.L.R. 566; see also Hanes vs. Shapiro, 84 S.E. 33; J. Russel Mfg. Co. vs. New Haven, S.B. Co., 50 N.Y. 211; Beck vs. Wilkins-Ricks Co., 102 S.E. 313, Fleishman vs. Southern R. Co., 56 S.E. 974).

Besides, as observed by the trial court, the defendant violated the terms of his license by accepting for deposit palay in excess of the limit authorized by his license, which fact must have increased the risk.

The Luzon Surety claims that the amicable settlement by and between Gonzales and Go Tiong constituted a material alteration of its bond, thereby extinguishing and discharging its liability. It is evident, however, that while there was an attempt to settle the case amicably, the settlement was never consummated because Go Tiong failed to settle the accounts of Gonzales to the latter's satisfaction. Consequently, said non-consummated compromise settlement does not discharge the surety:

A compromise or settlement between the creditor or obligee and the principal, by which the latter is discharged from liability, discharges the surety, . . . . But an unconsummated . . . agreement to compromise, falling short of an effective settlement, will not discharge the surety. (50 C. J. 185)


In relation to the failure of Go Tiong to issue the warehouse receipts contemplated by the Warehouse Receipts Act, which failure, according to appellants, precluded plaintiff from suing on the bond, reference may be made to Section 2 of Act No. 3893, defining receipt as any receipt issued by a warehouseman for commodity delivered to him, showing that the law does not require as indispensable that a warehouse receipt be issued. Furthermore, Section 7 of said law provides that as long as the depositor is injured by a breach of any obligation of the warehouseman, which obligation is secured by a bond, said depositor may sue on said bond. In other words, the surety cannot avoid liability from the mere failure of the warehouseman to issue the prescribed receipt. In the case of Andreson vs. Krueger, 212 N.W. 198, 199, it was held:

The surety company concedes that the bond which it gave contains the statutory conditions. The statute . . . requires that the bond — shall be conditioned upon the faithful performance of the public local grain warehouseman of all the provisions of law relating to the storage of grain by such warehouseman.

The surety company thereby made itself responsible for the performance by the warehouseman of all the duties and obligations imposed upon him by the statute; and, if he failed to perform any such duty to the loss or detriment of those who delivered grain for storage, the surety company became liable therefor. Where the warehouseman receives grain for storage and refuses to return or pay it, the fact that he failed to issue the receipt, when the statute required him to issue on receiving it, is not available to the surety as a defense against an action on the bond. The obligation of the surety covers the duty of the warehouseman to issue the prescribed receipt, as well as the other duties imposed upon him by the statute.

We deem it unnecessary to discuss and rule upon the other questions raised in the appeal.

In view of the foregoing, the appealed decision is hereby affirmed, with costs.

Digest

GT operated a bonded warehouse and accepted deliveries of palay among which were several sacks belonging to RG. The issues which GT issued were ordinary receipts, not the warehouse receipts defined by the Warehouse Receipts Act.One day, the warehouse burned, together with its contents of palay, which included RG’s sacks. RG sued on GT’s bond with Luzon Surety to recover his loss. GT and Luzon Surety opposed this, saying among others that: (1) RG’s


claim was covered by the Civil Code and not the Bonded Warehouse Law since the receipts were ordinary receipts and not the warehouse receipts prescribed by the Warehouse Receipts Act; (2) The deposits of palay by RG were gratuitous, and therefore the destruction of the goods by fire extinguished GT’s obligation. During the trial, it was found that GT had been accepting deposits in excess of the limit permitted under his license.Ruling:GT and Luzon Surety are liable to RG for the destruction of the goods under the Warehouse Receipts Act. Any deposit made with a bonded warehouseman is necessarily governed by the General Bonded Warehouse Act. The kind or nature of the receipts issued for the deposits is not very material, much less decisive. The issuance of warehouse receipts in the provided by Sec. 1 of the Warehouse Receipts Act is merely permissive and directory, and not obligatory. [Note: Under the General Bonded Warehouse Act, the term “receipt” meansany receipt issued by a warehouseman for commodity delivered to him. (Sec. 2)]The defense that the palay was destroyed by fire and thus loss of the thing exempts the obligor in a contract of deposit from depositing the goods is not availing here. The fact that GT exceeded the limit of his authorized deposit militates against his defense of non-liability.The surety cannot avoid liability from the mere failure of GT to issue the prescribed warehouse receipt. Such defense is not available in an action on the bond.



Manila

EN BANC

G.R. No. L-17825 June 26, 1922

In the matter of the Involuntary insolvency of U. DE POLI. FELISA ROMAN, claimant-appellee, vs.ASIA BANKING CORPORATION, claimant-appellant.

Wolfson, Wolfson and Schwarzkopf and Gibbs, McDonough & Johnson for appellant.Antonio V. Herrero for appellee.

OSTRAND, J.:

This is an appeal from an order entered by the Court of First Instance of Manila in civil No. 19240, the insolvency of Umberto de Poli, and declaring the lien claimed by the appellee Felisa Roman upon a lot of leaf tobacco, consisting of 576 bales, and found in the possession of said insolvent, superior to that claimed by the appellant, the Asia Banking Corporation.

The order appealed from is based upon the following stipulation of facts:

It is hereby stipulated and agreed by and between Felisa Roman and Asia Banking Corporation, and on their behalf by their undersigned attorneys, that their respective rights, in relation to the 576 bultos of tobacco mentioned in the order of this court dated April 25, 1921, be, and hereby are, submitted to the court for decision upon the following:

I. Felisa Roman claims the 576 bultos of tobacco under and by virtue of the instrument, a copy of which is hereto attached and made a part hereof and marked Exhibit A.

II. That on November 25, 1920, said Felisa Roman notified the said Asia Banking Corporation of her contention, a copy of which notification is hereto attached and made a part hereof and marked Exhibit B.


III. That on November 29, 1920, said Asia Banking Corporation replied as per copy hereto attached and marked Exhibit C.

IV. That at the time the above entitled insolvency proceedings were filed the 576 bultos of tobacco were in possession of U. de Poli and now are in possession of the assignee.

V. That on November 18, 1920, U. de Poli, for value received, issued a quedan, covering aforesaid 576bultos of tobacco, to the Asia Banking Corporation as per copy of quedan attached and marked Exhibit D.

VI. That aforesaid 576 bultos of tobacco are part and parcel of the 2,777 bultos purchased by U. de Poli from Felisa Roman.

VII. The parties further stipulate and agree that any further evidence that either of the parties desire to submit shall be taken into consideration together with this stipulation.

Manila, P. I., April 28, 1921.

(Sgd.) ANTONIO V. HERREROAttorney for Felisa Roman

(Sgd.) WOLFSON, WOLFSON & SCHWARZKOPFAttorney for Asia Banking Corp.

Exhibit A referred to in the foregoing stipulation reads:

1.º Que la primera parte es dueña de unos dos mil quinientos a tres mil quintales de tacabo de distintas clases, producidos en los municipios de San Isidro, Kabiaw y Gapan adquiridos por compra con dinero perteneciente a sus bienes parafernales, de los cuales es ella administradora.

2.º Que ha convenido la venta de dichos dos mil quinientos a tres mil quintales de tabaco mencionada con la Segunda Parte, cuya compraventa se regira por las condiciones siguientes:

(a) La Primera Parte remitira a la Segunda debidamente enfardado el tabaco de que ella es propietaria enbultos no menores de cincuenta kilos, siendo de cuenta de dicha Primera Parte todos los gastos que origine dicha mercancja hasta la estacion de ferrocarril de Tutuban, en cuyo lugar se hara cargo la Segunda y desde cuyo instante seran de cuenta de esta los riesgos de la mercancia.


(b) El precio en que la Primera Parte vende a la Segunda el tabaco mencionada es el de veintiseis pesos (P26), moneda filipina, por quintal, pagaderos en la forma que despues se establece.

(c) La Segunda Parte sera la consignataria del tabaco en esta Ciudad de Manila quien se hara cargo de el cuando reciba la factura de embarque y la guia de Rentas Internas, trasladandolo a su bodega quedando en la misma en calidad de deposito hasta la fecha en que dicha Segunda Parte pague el precio del mismo, siendo de cuenta de dicha Segunda Parte el pago de almacenaje y seguro.

(d) LLegada la ultima expedicion del tabaco, se procedera a pesar el mismo con intervencion de la Primera Parte o de un agente de ella, y conocido el numero total de quintales remitidos, se hara liquidacion del precio a cuenta del cual se pagaran quince mil pesos (P15,000), y el resto se dividira en cuatro pagares vencederos cada uno de ellos treinta dias despues del anterior pago; esto es, el primer pagare vencera a los treinta dias de la fecha en que se hayan pagado los quince mil pesos, el segundo a igual tiempo del anterior pago, y asi sucesivamente; conviniendose que el capital debido como precio del tabaco devengara un interes del diez por ciento anual.

Los plazos concedidos al comprador para el pago del precio quedan sujetos a la condicion resolutoria de que si antes del vencimiento de cualquier plazo, el comprador vendiese parte del tabaco en proporcion al importe de cualquiera de los pagares que restasen por vencer, o caso de que vendiese, pues se conviene para este caso que desde el momento en que la Segunda Parte venda el tabaco, el deposito del mismo, como garantia del pago del precio, queda cancelado y simultaneamente es exigible el importe de la parte por pagar.

Leido este documento por los otorgantes y encontrandolo conforme con lo por ellos convenido, lo firman la Primera Parte en el lugar de su residencia, San Isidro de Nueva Ecija, y la Segunda en esta Ciudad de Manila, en las fechas que respectivamente al pie de este documento aparecen.

(Fdos.) FELISA ROMAN VDA. DE MORENOU. DE POLI

Firmado en presencia de:

(Fdos.) ANTONIO V. HERREROT. BARRETTO

("Acknowledged before Notary")


Exhibit D is a warehouse receipt issued by the warehouse of U. de Poli for 576 bales of tobacco. The first paragraph of the receipt reads as follows:

Quedan depositados en estos almacenes por orden del Sr. U. de Poli la cantidad de quinientos setenta y seis fardos de tabaco en rama segun marcas detalladas al margen, y con arreglo a las condiciones siguientes:

In the left margin of the face of the receipts, U. de Poli certifies that he is the sole owner of the merchandise therein described. The receipt is endorced in blank "Umberto de Poli;" it is not marked "non-negotiable" or "not negotiable."

Exhibit B and C referred to in the stipulation are not material to the issues and do not appear in the printed record.

Though Exhibit A in its paragraph (c) states that the tobacco should remain in the warehouse of U. de Poli as a deposit until the price was paid, it appears clearly from the language of the exhibit as a whole that it evidences a contract of sale and the recitals in order of the Court of First Instance, dated January 18, 1921, which form part of the printed record, show that De Poli received from Felisa Roman, under this contract, 2,777 bales of tobacco of the total value of P78,815.69, of which he paid P15,000 in cash and executed four notes of P15,953.92 each for the balance. The sale having been thus consummated, the only lien upon the tobacco which Felisa Roman can claim is a vendor's lien.

The order appealed from is based upon the theory that the tobacco was transferred to the Asia Banking Corporation as security for a loan and that as the transfer neither fulfilled the requirements of the Civil Code for a pledge nor constituted a chattel mortgage under Act No. 1508, the vendor's lien of Felisa Roman should be accorded preference over it.

It is quite evident that the court below failed to take into consideration the provisions of section 49 of Act No. 2137 which reads:

Where a negotiable receipts has been issued for goods, no seller's lien or right of stoppage in transitu shall defeat the rights of any purchaser for value in good faith to whom such receipt has been negotiated, whether such negotiation be prior or subsequent to the notification to the warehouseman who issued such receipt of the seller's claim to a lien or right of stoppage in transitu. Nor shall the warehouseman be obliged to deliver or justified in delivering the goods to an unpaid seller unless the receipt is first surrendered for cancellation.


The term "purchaser" as used in the section quoted, includes mortgagee and pledgee. (See section 58 (a) of the same Act.)

In view of the foregoing provisions, there can be no doubt whatever that if the warehouse receipt in question is negotiable, the vendor's lien of Felisa Roman cannot prevail against the rights of the Asia Banking Corporation as the indorse of the receipt. The only question of importance to be determined in this case is, therefore, whether the receipt before us is negotiable.

The matter is not entirely free from doubt. The receipt is not perfect: It recites that the merchandise is deposited in the warehouse "por orden" instead of "a la orden" or "sujeto a la orden" of the depositor and it contain no other direct statement showing whether the goods received are to be delivered to the bearer, to a specified person, or to a specified person or his order.

We think, however, that it must be considered a negotiable receipt. A warehouse receipt, like any other document, must be interpreted according to its evident intent (Civil Code, arts. 1281 et seq.) and it is quite obvious that the deposit evidenced by the receipt in this case was intended to be made subject to the order of the depositor and therefore negotiable. That the words "por orden" are used instead of "a la orden" is very evidently merely a clerical or grammatical error. If any intelligent meaning is to be attacked to the phrase "Quedan depositados en estos almacenes por orden del Sr. U. de Poli" it must be held to mean "Quedan depositados en estos almacenes a la orden del Sr. U. de Poli." The phrase must be construed to mean that U. de Poli was the person authorized to endorse and deliver the receipts; any other interpretation would mean that no one had such power and the clause, as well as the entire receipts, would be rendered nugatory.

Moreover, the endorsement in blank of the receipt in controversy together with its delivery by U. de Poli to the appellant bank took place on the very of the issuance of the warehouse receipt, thereby immediately demonstrating the intention of U. de Poli and of the appellant bank, by the employment of the phrase "por orden del Sr. U. de Poli" to make the receipt negotiable and subject to the very transfer which he then and there made by such endorsement in blank and delivery of the receipt to the blank.

As hereinbefore stated, the receipt was not marked "non-negotiable." Under modern statutes the negotiability of warehouse receipts has been enlarged, the statutes having the effect of making such receipts negotiable unless marked "non-negotiable." (27 R. C. L., 967 and cases cited.)

Section 7 of the Uniform Warehouse Receipts Act, says:


A non-negotiable receipt shall have plainly placed upon its face by the warehouseman issuing it 'non-negotiable,' or 'not negotiable.' In case of the warehouseman's failure so to do, a holder of the receipt who purchased it for value supposing it to be negotiable may, at his option, treat such receipt as imposing upon the warehouseman the same liabilities he would have incurred had the receipt been negotiable.

This section shall not apply, however, to letters, memoranda, or written acknowledgments of an informal character.

This section appears to give any warehouse receipt not marked "non-negotiable" or "not negotiable" practically the same effect as a receipt which, by its terms, is negotiable provided the holder of such unmarked receipt acquired it for value supposing it to be negotiable, circumstances which admittedly exist in the present case.

We therefore hold that the warehouse receipts in controversy was negotiable and that the rights of the endorsee thereof, the appellant, are superior to the vendor's lien of the appellee and should be given preference over the latter.

The order appealed from is therefore reversed without costs. So ordered.



Manila

SECOND DIVISION

G.R. No. L-25748 March 10, 1975

CONSOLIDATED TERMINALS, INC., plaintiff-appellant, vs.ARTEX DEVELOPMENT CO., INC., defendant-appellee.

Pelaez, Jalandoni and Jamir for plaintiff-appellant.

Norberto J. Quisumbing and Humberto V. Quisumbing for defendant-appellee.

AQUINO, J.:ñé+.£ªwph!1

Consolidated Terminals, Inc. (CTI) appealed from the order of Judge Jesus Y. Perez of the Court of First Instance of Manila, dismissing its amended complaint for damages against Artex Development Co., Inc. (Artex for short). The dismissal was predicated on lack of cause of action.

The following ultimate facts, which were hypothetically admitted in the motion to dismiss, were alleged in the amended complaint:

CTI was the operator of a customs bonded warehouse located at Port Area, Manila. It received on deposit one hundred ninety-three (193) bales of high density compressed raw cotton valued at P99,609.76. It was understood that CTI would keep the cotton in behalf of Luzon Brokerage Corporation until the


consignee thereof, Paramount Textile Mills, Inc., had opened the corresponding letter of credit in favor of shipper, Adolph Hanslik Cotton of Corpus Christi, Texas.

Allegedly by virtue of a forged permit to deliver imported goods, purportedly issued by the Bureau of Customs, Artex was able to obtain delivery of the bales of cotton on November 5 and 6, 1964 after paying CTI P15,000 as storage and handling charges. At the time the merchandise was released to Artex, the letter of credit had not yet been opened and the customs duties and taxes due on the shipment had not been paid. (That delivery permit, Annex A of the complaint, was not included by CTI in its record on appeal).

CTI, in its original complaint, sought to recover possession of the cotton by means of a writ of replevin. The writ could not be executed. CTI then filed an amended complaint by transforming its original complaint into an action for the recovery from Artex of P99,609.76 as compensatory damages, P10,000 as nominal and exemplary damages and P20,000 as attorney's fees.

It should be clarified that CTI in its affidavit for manual delivery of personal property (Annex B of its complaint not included in its record on appeal) and in paragraph 7 of its original complaint alleged that Artex acquired the cotton from Paramount Textile Mills, Inc., the consignee. Artex alleged in its motion to dismiss that it was not shown in the delivery permit that Artex was the entity that presented that document to the CTI. Artex further averred that it returned the cotton to Paramount Textile Mills, Inc. when the contract of sale between them was rescinded because the cotton did not conform to the stipulated specifications as to quality (14-15, Record on Appeal). No copy of the rescissory agreement was attached to Artex's motion to dismiss.

In sustaining Artex's motion to dismiss, which CTI did not oppose in writing, Judge Perez said:têñ.£îhqwâ£

Since the plaintiff (CTI) is only a warehouseman and according to the amended complaint, plaintiff was already paid the warehousing and handling charges of the 193 bales of high density compressed raw cotton mentioned in the complaint, the plaintiff can no longer recover for its services as warehouseman.

The fact that the delivery of the goods was obtained by the defendant without opening the corresponding letter of credit cannot be the basis of a cause of action of the plaintiff because such failure of the defendant to open the letter of credit gives rise to a cause of action in favor of the shipper of the goods and not in favor of the plaintiff.


With respect to the allegation of the amended complaint that the goods were taken by the defendant without paying the customs duties and other revenues (sic) assessed thereon, this does not give rise to a cause of action in favor of the plaintiff for the party aggrieved is the government.

Likewise, the alleged presentation of a forged permit to deliver imported goods by the defendant did not give rise to a cause of action in favor of the plaintiff but in favor of the Bureau of Customs and of the consignee. (18-19, Record on Appeal).

Judge Perez was guided more by logic and common sense than by any specific rule of law or jurisprudence.

CTI in this appeal contends that, as warehouseman, it was entitled to the possession (should be repossession) of the bales of cotton; that Artex acted wrongfully in depriving CTI of the possession of the merchandise because Artex presented a falsified delivery permit, and that Artex should pay damages to CTI.

The only statutory rule cited by CTI is section 10 of the Warehouse Receipts Law which provides that "where a warehouseman delivers the goods to one who is not in fact lawfully entitled to the possession of them, the warehouseman shall be liable as for conversion to all having a right of property or possession in the goods ...".

We hold that CTI's appeal has not merit. Its amended complaint does not clearly show that, as warehouseman, it has a cause of action for damages against Artex. The real parties interested in the bales of cotton were Luzon Brokerage Corporation as depositor, Paramount Textile Mills, Inc. as consignee, Adolph Hanslik Cotton as shipper and the Commissioners of Customs and Internal Revenue with respect to the duties and taxes. These parties have not sued CTI for damages or for recovery of the bales of cotton or the corresponding taxes and duties.

The case might have been different if it was alleged in the amended complaint that the depositor, consignee and shipper had required CTI to pay damages, or that the Commissioners of Customs and Internal Revenue had held CTI liable for the duties and taxes. In such a case, CTI might logically and sensibly go after Artex for having wrongfully obtained custody of the merchandise.

But that eventuality has not arisen in this case. So, CTI's basic action to recover the value of the merchandise seems to be untenable. It was not the owner of the cotton. How could it be entitled to claim the value of the shipment?


In other words, on the basis of the allegations of the amended complaint, the lower court could not render a valid judgment in accordance with the prayer thereof. It could not render such valid judgment because the amended complaint did not unequivocally allege what right of CTI was violated by Artex, or, to use the familiar language of adjective law, what delict or wrong was committed by Artex against CTI which would justify the latter in recovering the value of bales of cotton even if it was not the owner thereof. (See Ma-ao Sugar Central Co., Inc. vs. Barrios, 79 Phil. 666; 1 Moran's Comments on the Rules of Court, 1970 Ed., pp. 259, 495).

WHEREFORE, the order of dismissal is affirmed with costs against the plaintiff-appellant.

SO ORDERED.


Manila

EN BANC

G.R. No. L-23033 January 5, 1967

LUA KIAN, plaintiff and appellee, vs.MANILA RAILROAD COMPANY and MANILA PORT SERVICE, defendants and appellants.

D. F. Macaranas and S. V. Pampolina Jr. for defendants and appellants.San Juan, Laig and Associates for plaintiff and appellee.

BENGZON, J. P., J.:

The present suit was filed by Lua Kian against the Manila Railroad Co. and Manila Port Service for the recovery of the invoice value of imported evaporated "Carnation" milk alleged to have been undelivered. The following stipulation of facts was made:

1. They admit each other's legal personality, and that during the time material to this action, defendant Manila Port Service as a subsidiary of defendant Manila Railroad Company operated the arrastre service at the Port of Manila under and pursuant to the Management Contract


entered into by and between the Bureau of Customs and defendant Manila Port Service on February 29, 1956;

2. On December 31, 1959, plaintiff Lua Kian imported 2,000 cases of Carnation Milk from the Carnation Company of San Francisco, California, and shipped on Board SS "GOLDEN BEAR" per Bill of Lading No. 17;

3. Out of the aforesaid shipment of 2,000 cases of Carnation Milk per Bill of Lading No. 17, only 1,829 cases marked `LUA KIAN 1458' were discharged from the vessel SS `GOLDEN BEAR' and received by defendant Manila Port Service per pertinent tally sheets issued by the said carrying vessel, on January 24, 1960;

4. Discharged from the same vessel on the same date unto the custody of defendant Manila Port Service were 3,171 cases of Carnation Milk marked "CEBU UNITED 4860-PH-MANILA" consigned to Cebu United Enterprises, per Bill of Lading No. 18, and on this shipment, Cebu United Enterprises has a pending claim for short-delivery against defendant Manila Port Service;

5. Defendant Manila Port Service delivered to the plaintiff thru its broker, Ildefonso Tionloc, Inc. 1,913 cases of Carnation Milk marked "LUA KIAN 1458" per pertinent gate passes and broker's delivery receipts;

6. A provisional claim was filed by the consignee's broker for and in behalf of the plaintiff on January 19, 1960, with defendant Manila Port Service;

7. The invoice value of the 87 cases of Carnation Milk claimed by the plaintiff to have been short-delivered by defendant Manila Port Service is P1,183.11 while the invoice value of the 87 cases of Carnation Milk claimed by the defendant Manila Port Service to have been over-delivered by it to plaintiff is P1,130.65;

8. The 1,913 cases of Carnation mentioned in paragraph 5 hereof were taken by the broker at Pier 13, Shed 3, sometime in February, 1960, where at the time, there were stored therein, aside from the shipment involved herein, 1000 cases of Carnation Milk bearing the same marks and also consigned to plaintiff Lua Kian but had been discharged from SS `STEEL ADVOCATE' and covered by Bill of Lading No. 11;

9. Of the shipment of 1000 cases of Carnation Milk which also came from the Carnation Company, San Francisco, California, U.S.A. and bearing the same marks as the shipment herein but had been


discharged from S/S "STEEL ADVOCATE" and covered by Bill of Lading No. 11, Lua Kian as consignee thereof filed a claim for short-delivery against defendant Manila Port Service, and said defendant Manila Port Service paid Lua Kian plaintiff herein, P750.00 in settlement of its claim;

10. They reserve the right to submit documentary evidence;

11. They submit the matter of attorney's fees and costs to the sound discretion of the Court.

On these facts and documentary evidence subsequently presented, the Court of First Instance of Manila ruled that 1,829 cases marked Lua Kian (171 cases less than the 2,000 cases indicated in the bill of lading and 3,171 cases marked "Cebu United" (171 cases over the 3,000 cases in the bill of lading were discharged to the Manila Port Service. Considering that Lua Kian and Cebu United Enterprises were the only consignees of the shipment of 5,000 cases of "Carnation" milk, it found that of the 3,171 cases marked "Cebu United", 171 should have been delivered to Lua Kian. Inasmuch as the defendant Manila Port Service actually delivered 1,913 cases to plaintiff,1which is only 87 cases short of 2,000 cases as per bill of lading the former was ordered to pay Lua Kian the sum of P1,183.11 representing such shortage of 87 cases, with legal interest from the date of the suit, plus P500 as attorney's fees.

Defendants appealed to Us and contend that they should not be made to answer for the undelivered cases of milk, insisting that Manila Port Service was bound to deliver only 1,829 cases to Lua Kian and that it had there before in fact over-delivered to the latter.

The bill of lading in favor of Cebu United Enterprises indicated that only 3,000 cases were due to said consignee, although 3,171 cases were marked in its favor. Accordingly, the excess 171 cases marked "Cebu United" placed the defendant arrastre operator in a dilemma, for should it deliver them to Lua Kian the goods could be claimed by the consignee Cebu United Enterprises whose markings they bore, and should it deliver according to markings, to Cebu United Enterprises, it might be sued by the consignee, Lua Kian whose bill of lading indicated that it should receive 171 cases more. The dilemma itself, however, offered the solution. The legal relationship between an arrastre operator and the consignee is akin to that of a depositor and warehouseman.2 As custodian of the goods discharged from the vessel, it was defendant arrastre operator's duty, like that of any ordinary depositary, to take good care of the goods and to turn them over to the party entitled to their possession.3 Under this particular set of circumstances, said defendant should have withheld delivery because of the discrepancy between the bill of lading and the markings and conducted its own investigation, not unlike that


under Section 18 of the Warehouse Receipts Law, or called upon the parties, to interplead, such as in a case under Section 17 of the same law, in order to determine the rightful owner of the goods.

It is true that Section 12 of the Management Contract exempts the arrastre operator from responsibility for misdelivery or non-delivery due to improper or insufficient marking. We cannot however excuse the aforestated defendant from liability in this case before Us now because the bill of lading showed that only 3,000 cases were consigned to Cebu United Enterprises. The fact that the excess of 171 cases were marked for Cebu United Enterprises and that the consignment to Lua Kian was 171 cases less than the 2,000 in the bill of lading, should have been sufficient reason for the defendant Manila Port Service to withhold the goods pending determination of their rightful ownership.

We therefore find the defendants liable, without prejudice to their taking whatever proper legal steps they may consider worthwhile to recover the excess delivered to Cebu United Enterprises.

With respect to the attorney's fees awarded below, this Court notices that the same is about 50 per cent of the litigated amount of P1,183.11. We therefore deem it reasonable to decrease the attorney's fees to P300.00.

Wherefore, with the aforesaid reservation, and with the modification that the attorney's fee is reduced to P300.00, the judgment appealed from is affirmed, with costs against appellants. So ordered.


TABLE OF CONTENTS

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G.R. No. L-66826 August 19, 1988BANK OF THE PHILIPPINE ISLANDS, , vs.THE INTERMEDIATE APPELLATE COURT and ZSHORNACK . -----------------------5

G.R. No. 90027 March 3, 1993CA AGRO-INDUSTRIAL DEVELOPMENT CORP., , vs.THE HONORABLE COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, . --------------------------------------------------------------------------------------16


G.R. No. 102970 May 13, 1993LUZAN SIA, , vs.COURT OF APPEALS and SECURITY BANK and TRUST COMPANY, . ------------25

G.R. Nos. L-26948 and L-26949 October 8, 1927SILVESTRA BARON, , vs.PABLO DAVID, .AndGUILLERMO BARON, , vs.PABLO DAVID, . --------------------------------------------------------------------------------37

G.R. No. 93849 December 20, 1991THE PEOPLE OF THE PHILIPPINES, , vs.DICK ONG y CHAN, LINO MORFE y GUTIERREZ, RICARDO VILLARAN and LUCILA TALABIS, accused, DICK ONG y CHAN, . -------------------------------------46

G.R. No. L-30511 February 14, 1980MANUEL M. SERRANO, , vs.CENTRAL BANK OF THE PHILIPPINES; OVERSEAS BANK OF MANILA; EMERITO M. RAMOS, SUSANA B. RAMOS, EMERITO B. RAMOS, JR., JOSEFA RAMOS DELA RAMA, HORACIO DELA RAMA, ANTONIO B. RAMOS, FILOMENA RAMOS LEDESMA, RODOLFO LEDESMA, VICTORIA RAMOS TANJUATCO, and TEOFILO TANJUATCO, .-----------------------------------------------------------------------60

G.R. No. 113420 March 7, 1997REPUBLIC OF THE PHILIPPINES, represented by the PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, , vs.SANDIGANBAYAN (Third Division), PROVIDENT INTERNATIONAL RESOURCES CORP., and PHILIPPINE CASINO OPERATORS


CORPORATION, . --------------------------------------------------------------------------------------------------------64

G.R. No. L-21005 December 20, 1924In the matter of the involuntary insolvency of Umberto de Poli. THE AMERICAN FOREIGN BANKING CORPORATION, , vs.J. R. HERRIDGE, assignee of the insolvent estate of U. de Poli, BOWRING and CO., C. T. BOWRING and CO., LTD., and T. R. YANGCO, -----------------------------76

G.R. No. L-11776 August 30, 1958RAMON GONZALES, , vs.GO TIONG and LUZON SURETY CO., INC., . --------------------------------------------81

G.R. No. L-17825 June 26, 1922In the matter of the Involuntary insolvency of U. DE POLI. FELISA ROMAN, , vs.ASIA BANKING CORPORATION, . ---------------------------------------------------------88

G.R. No. L-25748 March 10, 1975CONSOLIDATED TERMINALS, INC., , vs.ARTEX DEVELOPMENT CO., INC., . -------------------------------------------------------94

G.R. No. L-23033 January 5, 1967LUA KIAN, plaintiff and appellee, vs.MANILA RAILROAD COMPANY and MANILA PORT SERVICE, --------------------97




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