Angel Javellana vs. Jose Lim, et al., G.R. No. 4015, August 24, 1908 (11 Phil 141)Facts: The defendants received from the plaintiff the sum of P2,686.58 as a deposit without interest sometime in 1897 which was to be returned, jointly and severally, in 1898. When the obligation became due, the defendants begged the plaintiff for an extension of time for the payment thereof, binding themselves to pay interest at the rate of 15 per cent on the amount of their indebtedness, to which the plaintiff acceded. On May 15, 1902, the debtors paid interest of P1,000 and then made no other payments.

The plaintiff filed a case. CFI found the defendants liable jointly and severally.

Issue: Whether a contract denominated as a deposit but which did not require the return of exactly the same coins and which eventually provided for the payment of interest is actually a loan.

Held: Yes. Affirmed.

Ratio: They did not engage to return the same coins received and of which the amount deposited consisted, and they could have accomplished the return agreed upon by the delivery of a sum equal to the one received by them. For this reason it must be understood that the debtors were lawfully authorized to make use of the amount deposited, which they have done, as subsequently shown when asking for an extension of the time for the return thereof, inasmuch as, acknowledging that they have subjected the lender, their creditor, to losses and damages for not complying with what had been stipulated, and being conscious that they had used, for their own profit and gain, the money that they received apparently as a deposit, they engaged to pay interest to the creditor from the date named until the time when the refund should be made. Such conduct on the part of the debtors is unquestionable evidence that the transaction entered into between the interested parties was not a deposit, but a real contract of loan.

It may be inferred that there was no renewal of the contract of deposit converted into a loan, because, as has already been stated, the defendants received said amount by virtue of a real loan contract under the name of a deposit, since the so-called bails were forthwith authorized to dispose of the amount deposited. This they have done, as has been clearly shown. The original joint obligation contracted by the defendant debtors still exists, and it has not been shown or proven in the proceedings that the creditor had released Jose Lim from complying with his obligation in order that he should not be sued for or sentenced to pay the amount of capital and interest together with his co-debtor.

Silvestra Baron vs. Pablo David; Guillermo Baron vs. Pablo David, G.R. Nos. 26948 & 26949, October 8, 1927 (51 Phil 1)Facts: Prior to January 17,1921, the defendant Pablo David had 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 action, 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 thus placed with the defendant. As against 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 plaintiffs 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.

A case was filed against the defendant. The court ruled that the alleged promise to pay at the highest price was not made, but gave judgment in favor of the plaintiffs for the recovery of the sums of P5,238.51 and P5,734.60. Both parties appealed.

Issue: Whether the deposit of things with the object of allowing the depositary to use them is actually a loan.

Held: Yes. Affirmed with modifications.

Ratio: It should be stated that the palay in question was placed 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, had 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 results that he is bound to account for its value, and his liability was not extinguished by the occurrence of the fire.

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 depositary has permission to make use of the thing deposited, the contract loses the character of mere deposit and becomes a loan or a commodatum; 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. 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 entitled 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 defendant is, however, entitled to an award for his cross-complaint arising from the wrongful attachment of his mill by plaintiff Guillermo Baron. The ground used by the plaintiff was clearly unjustified, and it caused the defendant damages resulting from the closure of his mill for several months and the loss of good will of his customers.

John, dissenting and concurring: The amount of palay is not in dispute, and the defendant admits that it was delivered to his mill, but he claims that he kept it on deposit and as bailee without hire for the plaintiffs and at their own risk, and that the mill was burned down, and that at the time of the fire, plaintiffs' palay was in the mill. The lower court found as a fact that there was no merit in that defense, and that there was but little, if any, palay in the mill at the time of the fire and that in truth and in fact that defense was based upon perjured testimony. Both plaintiffs testified to the making of the respective contracts as alleged in their complaint; to wit, that they delivered the palay to the defendant with the express understanding and agreement that he would pay them for the palay the highest market price for the season, and to the making of the second contract about the first of August, in which they had a settlement, and that the defendant then agreed to pay them P8.40 per cavan, such payment to be made on December first. The defendant denied the making of either one of those contracts, and offered no other evidence on that question. That is to say, we have the evidence of both Silvestra Baron and Guillermo Baron to the making of those contracts, which is denied by the defendant only. Plaintiffs' evidence is also corroborated by the usual and customary manner in which the growers sell their palay. That is to say, it is their custom to sell the palay at or about the time it is delivered at the mill and as soon as it is made ready for market in the form of rice. Yet, strange as it may seem, both the lower court and this court have found as a fact that upon the question of the alleged contracts, the evidence for the defendant is true and entitled to more weight than the evidence of both plaintiffs which is false. In the very nature of things, if defendant's evidence upon that point is true, it stands to reason that, following the custom of growers, the plaintiffs would have sold their palay during the period of high prices, and would not have waited until it dropped from P8.50 per cavan to P6.15 per cavan about the first of August. Upon that question, both the weight and the credibility of the evidence is with the plaintiffs, and they should have judgment for the full amount of their palay on the basis of P8.40 per cavan. For such reason, I vigorously dissent from the majority opinion.

I frankly concede that the attachment was wrongful, and that it should never have been levied. The majority opinion also allowed the defendant P1,400 "for injury to the goodwill of his business." The very fact that after a delay of about four years, both of the plaintiffs were compelled to bring their respective actions against the defendant to recover from him on a just and meritorious claim, as found by this court and the lower court, and the further fact that after such long delay, the defendant has sought to defeat the actions by a sham and manufactured defense, as found by this and the lower court, would arouse the suspicion of any customers the defendant ever had, and shake their confidence in his business honor and integrity, and destroy any goodwill which he ever did have. Under such conditions, it would be strange that the defendant would have any customers left. He is not entitled to any compensation for the loss of goodwill, and P5,000 should be the very limit of the amount of his damages for the wrongful attachment, and upon that point I vigorously dissent. In all other respects, I agree with the majority opinion.

Bank of the Philippine Islands vs. IAC & Rizaldy T. Zshornack, G.R. No. L-66826, August 19, 1988 (164 SCRA 630)Facts: Rizaldy Zshornack and his wife, Shirley Gorospe, maintained in COMTRUST, Quezon City Branch, a dollar savings account and a peso current account.

On October 27, 1975, an application for a dollar draft was accomplished by Virgilio V. Garcia, Assistant Branch Manager of COMTRUST Quezon City, payable to a certain Leovigilda D. Dizon in the amount of $1,000.00. In the application, Garcia indicated that the amount was to be charged to Dollar Savings Acct. No. 25-4109, the savings account of the Zshornacks; the charges for commission, documentary stamp tax and others totalling P17.46 were to be charged to Current Acct. No. 210-465-29, again, the current account of the Zshornacks. There was no indication of the name of the purchaser of the dollar draft.

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

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

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.

Zshornack also entrusted to COMTRUST, thru Garcia, US$3,000.00 cash (popularly known as greenbacks) for safekeeping. Despite demand, the bank refused to return the money. COMTRUST averred that the US$3,000 was credited to Zshornack's peso current account at prevailing conversion rates.

BPI later absorbed COMTRUST. Zshornack filed a case against BPI. The trial court ruled for Zshornack.

Issue: Whether money that is given to the bank for safekeeping is a deposit.

Ratio: Yes. Modified.

Ratio: The explanations of the bank 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.

The arrangement between the bank and Zshoranck is that contract defined under Article 1962, New Civil Code -- 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 requires all persons to sell to the Central Bank all foreign exchange received within one business day following such receipt. This was modified by CB Circular No. 281 which limited the restriction to Philippine residents.

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. 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.

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

The Roman Catholic Bishop of Jaro vs. Gregorio de la Pea, administrator of the estate of Fr. Agustin de la Pea, G.R. No. 6913, November 21, 1913 (26 Phil 144)Facts: The plaintiff is the trustee of a charitable bequest made for the construction of a leper hospital, and Father Agustin de la Pea was the duly authorized representative of the plaintiff to receive the legacy. The defendant is the administrator of the estate of Father De la Pea. In the year 1898, the books of Father de la Pea, as trustee, showed that he had on hand as such trustee the sum of P6,641, collected by him for the charitable purposes aforesaid. In the same year, he deposited in his personal account P19,000 in the Hongkong and Shanghai Bank at Iloilo. Shortly thereafter and during the war of the revolution, Father dela Pea was arrested by the military authorities as a political prisoner, and while thus detained made an order on said bank in favor of the United States Army officer under whose charge he then was so for the sum thus deposited in said bank. The arrest of Father de la Pea and the confiscation of the funds in the bank were the result of the claim of the military authorities that he was an insurgent and that the funds thus deposited had been collected by him for revolutionary purposes. The money was taken from the bank by the military authorities by virtue of such order, was confiscated and turned over to the Government.

The plaintiff filed this case to recover the confiscated money from the estate of Fr. de la Pea. The lower court ruled for the plaintiff.

Issue: Whether the depositary is liable for unforeseeable and inevitable events that lead to the loss of the thing deposited.

Held: No. Reversed.

Ratio: The branch of the law know in England and America as the law of the trusts had no exact counterpart in the Roman law and is more has none under the Spanish law, In this jurisdiction, therefore, Father dela Pea's liability is determined by those portions of the Civil Code which relate to obligations (Book 4, Title 1.)

Although the Civil Code states that a "person obliged to give something is also bound to preserve it with the diligence pertaining to a good father of a family" (art. 1094), it also provides, following the principle of the Roman law, major casus est, cui humana infirmitas resistere non potest, that "no one shall be liable for events which could not be foreseen, or which having been foreseen were inevitable, with the exceptions of the cases expressly mentioned in the law of those in which the obligation so declares." (Art. 1105).

By placing the money in the bank and mixing it with his personal funds, De la Pea did not thereby assume an obligation different from that under which he would have lain if such deposit had not been made, nor did he thereby make himself liable to repay the money at all hazards. If the money had been forcibly taken from his pocket or from his house by the military forces of one of the combatants during a state of war, it is clear that under the provisions of the Civil Code he would have been exempt from responsibility. The fact that he placed the trust fund in the bank in his personal account does not add to his responsibility. Such deposit did not make him a debtor who must respond at all the hazards.

We do not enter into a discussion for the purpose of determining whether he acted more or less negligently by depositing the money in the bank than he would if had left it in his home: or whether he was more or less negligent by depositing the money in his personal account than he would have been if had deposited it in a separate account as trustee. We regard such discussion as substantially fruitless, inasmuch as the precise question is not one of the negligence. There was no law prohibiting him from depositing it as he did and there was no law which changed his responsibility by reason of the deposit. While it may be true that one who is under obligation to do or give a things is duty-bound, when he sees events approaching the results of which will be dangerous to his trust, to take all reasonable means and measures to escape or, if unavoidable, to temper the effects of those events, we do not feel constrained to hold that, in choosing between two means equally legal, he is culpably negligent in selecting one whereas he would not have been if he had selected the other.

Trent, dissenting: Technically speaking, whether Father De la Pea was a trustee or an agent of the plaintiff his books showed that in 1898 he had in his possessions as trustee or agent or a trustee or an agent of the plaintiff his books showed that in 1898 he had in his possession as trustee or agent the sum of P6,641 belonging to the plaintiff as the head of the church. This money was then clothed with all the immunities and protection with which the law seeks to invest trust funds. But when De la Pea mixed this trust fund with his own and deposited the whole in the bank to his personal account or credit, he, by this act, stamped on the said funds his own private marks and unclothed it of all the protection it had. If this money had been deposited in the name of De la Pea as trustee of agent of the plaintiff, I think that it may be presumed that the military authorities would not have confiscated it for the reason that they were looking for insurgent funds only. Again, the plaintiff had no reason to suppose that De la Pea would attempt to strip the fund of its identity, not had he said or done anything which tended to relieve De la Pea from the legal responsibility which pertains to the care and custody of trust funds.

The Supreme Court of the United States in United States vs. Thomas (82 U.S., 337), at page 343, said: "Trustees are only bound to exercise the same care and solicitude with regard to their own. Equity will not exact more of them. They are not liable for a loss by theft without their fault. But this exemption ceases when they mix the trust money with their own, whereby it loses its identity, and they become mere debtors."

If De la Pea, after depositing the trust fund in his personal account, had used this money for speculative purposes, such as the buying and selling of sugar or other products of the country, thereby becoming a debtor, there would have been no doubt as to the liability of his estate. Whether he used this money for that purpose the record is silent, but it will be noted that a considerable length of time intervened from the time of the deposit until the funds were confiscated by the military authorities. In fact, the record shows that De la Pea deposited on June 27, 1898, P5,259, on June 28 of that year P3,280, and on August 5 of the same year P6,000. The record also shows that these funds were withdrawn and again deposited all together on the 29th of May, 1900, this last deposit amounting to P18,970. These facts strongly indicate that De la Pea had as a matter of fact been using the money in violation of the trust imposed in him.

CA Agro-Industrial Development Corporation vs. CA & Security Bank and Trust Company, G.R. No. 90027, March 3, 1993 (219 SCRA 426)Facts: 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. For this purpose, both signed a contract of lease which contains the condition that the bank is not a depositary of the contents of the safe and it has neither the possession nor control of the same and that the bank has no interest whatsoever in said contents, except herein expressly provided, and it assumes absolutely no liability in connection therewith.

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.

A complaint for damages was filed. It was dismissed by the trial court. CA affirmed.

Issue: Whether the rental of a safety deposit box is a contract of deposit.

Held: Yes. Affirmed.

Ratio: 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. The contract in the case at bar is a special kind of deposit. It cannot be characterized as an ordinary contract of lease under Article 1643 because the full and absolute possession and control of the safety deposit box was not given to the renters the petitioner and the Pugaos. The guard key of the box remained with the respondent Bank; without this key, neither of the renters could open the box. On the other hand, the respondent Bank could not likewise open the box without the renter's key. In this case, the said key had a duplicate which was made so that both renters could have access to the box.

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

We observe, however, that the deposit theory itself does not altogether find unanimous support even in American jurisprudence. We agree with the petitioner that under the latter, the prevailing rule is that the relation between a bank renting out safe-deposit boxes and its customer with respect to the contents of the box is that of a bailor and bailee, the bailment being for hire and mutual benefit.

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.

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 pertinently provides that banks may receive in custody funds, documents, and valuable objects, and rent safety deposit boxes for the safeguarding of such effects. The banks shall perform the services permitted under subsections (a), (b) and (c) of this section as depositories or as agents.

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 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. In the absence of any stipulation prescribing the degree of diligence required, that of a good father of a family is to be observed. Hence, any stipulation exempting the depositary from any liability arising from the loss of the thing deposited on account of fraud, negligence or delay would be void for being contrary to law and public policy.

In the instant case, petitioner maintains that conditions 13 and 14 of the questioned contract of lease of the safety deposit box 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. 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.

The petition is, nonetheless, dismissed 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.

National Power Corporation vs. Judge Jesus de Veyra, CFI Baguio City & City of Baguio, G.R. No. L-15763, December 22, 1961 (3 SCRA 646)Facts: On March 31, 1959, the Court of First Instance of Manila, in its Civil Case No. 36525, rendered a decision ordering the City of Baguio to pay the National Power Corporation various sums of money totalling P240,000.00 representing the unpaid electric charges, and rentals for the lease of two electric generators, etc. The aforesaid decision having become final, the court of Manila granted on June 4, 1959, the National Power Corporation's motion for execution. A writ was issued, addressed to the Sheriff of Baguio City to levy execution on the property of above respondent Baguio City to satisfy the judgment. Such Sheriff, in compliance with the writ, garnished on June 8, 1959, the amount of P239,589.80 out of the cash deposits of Baguio City in the possession of the Baguio Branch of the Philippine National Bank.

Whereupon on June 12, 1959, Baguio City filed against herein petitioner National Power Corporation, the Philippine National Bank and the said Sheriff, in the Court of First Instance of Baguio City, a complaint (Civil Case No. 866) praying that all the acts of said defendants relative to the garnishment of the cash deposits with the defendant Philippine National Bank, be declared illegal, that said defendants be permanently restrained from performing acts in furtherance of the said garnishment, and that they be ordered to pay damages. On the same date, June 12, 1959, above respondent court of Baguio City issued a preliminary mandatory injunction ordering above petitioner corporation, the Philippine National Bank, the Sheriff and others acting in their behalf to restore and maintain the status quo of respondent corporation's bank deposits.

Petition for certiorari was filed.

Issue: Whether property which has been levied upon in a garnishment proceedings by one court, may be subject to the jurisdiction of another court in an independent suit impugning the legality of said garnishment.

Held: No. Petition Granted.

Ratio: The garnishment of property to satisfy a writ of execution "operates as an attachment and fastens upon the property a lien by which the property is brought under the jurisdiction of the court issuing the writ." It is brought into custodia legis, under the sole control of such court. Property is in the custody of the court when it has been seized by an officer either under a writ of attachment on mesne process or under a writ of execution. A court which has control of such property, exercises exclusive jurisdiction over same. No court, except one having a supervisory control or superior jurisdiction in the premises, has a right to interfere with and change that possession.

We have followed and applied this principle of procedure. Thereby conflict of power is avoided between different courts of coordinate jurisdiction. We have invariably held that no court has authority to interfere by injunction with the judgments or decrees of a court of concurrent or coordinate jurisdiction having equal power to grant the relief sought by injunction.

The property involved in Civil Case No. 866, is property in custodia legis of the Court of First Instance of Manila, it having been garnished to satisfy a writ of execution duly issued by the said court. Respondent Baguio court should not have interfered with the Manila court's jurisdiction by issuing the writ of preliminary injunction and assuming cognizance of the complaint presented before it.

The reason advanced by the respondent court of Baguio City that it should grant relief when "there is apparently an illegal service of the writ" (the property garnished being allegedly exempt from execution) may not be upheld, there being a better procedure to follow, i.e., a resort to the Manila court, wherein the remedy may be obtained, it being the court under whose authority the illegal levy had been made. Needless to say, an effective ordering of legal relationships in civil society is possible only when each court is granted exclusive jurisdiction over the property brought to it. To allow coordinate courts to interfere with each other's judgments or decrees by injunctions, would obviously lead to confusion and might seriously hinder the proper administration of justice.

YHT Realty vs. CA

Facts:

Maurice Peaches McLoughlin is an Australian businessman-philanthropist who used to stay at the Sheraton Hotel during his trips to the Philippines prior to 1984. He met Brunhilda Mata-Tan who befriended him and showed him around. Tan convinced Mcloughlin to transfer to the Tropicana from the Sheraton where afterwards he stayed during his trips from Dec 1984 to Sept 1987.

On 30 Oct 1987, McLoughlin arrived from Australia and registered with Tropicana. He rented a safety deposit box as his usual practice. The box required two keys, the guest had one and one from the management. He placed US $10,000 in one envelope and US$5,000 in another , AU$10,000 in another envelope and other envelopes with his passport and credit cards. On 12 Dec 1987, he took from the box the envelope with US$5,000 and the one with AU$10,000 to go to Hong Kong for a short visit, because he was not checking out. When he arrived in HK, the envelope with US$5,000 only contained US$3,000, but because he had no idea if the safety deposit box has been tampered, he thought it was just bad accounting.

After returning to Manila, he checked out of the Tropicana on 18 Dec 1987 and left for Australia. When he arrived he discovered that the envelope with US$10,000 was short of US$5,000. He also noticed that the jewelry he bought in Hong Kong which he stored in the safety deposit box upon his return to Tropicana was likewise missing, except for a diamond bracelet.

He went back to the PH on 4 Apr 1988 and asked Lainez (who had custody of the management key) if some money was missing or returned to her, to which the latter answered there was not. He again registered at the Tropicana and rented a safety deposit box. He placed an envelope containing US$15,000, another of AU$10,000. On 16 Apr, he opened his safety deposit box and noticed that US$2,000 and AU$4,500 was missing from the envelopes.

He immediately confronted Lainez and Payam who admitted that Tan opened the safety deposit box with the key assigned to McLoughlin. McLoughlin went up to his room where Tan was staying and confronted her. Tan admitted that she had stolen McLoughlins key and was able to open the safety deposit box with the assistance of Lopez, Payam and Lainez. Lopez also told McLoughlin that Tan stole the key assigned to McLoughlin while the latter was asleep.

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

He made Lopez and Tan sign a promissory note for him for the loss. However, Lopez refused liability on behalf of the hotel, reasoning that McLoughlin signed an "Undertaking for the Use of Safety Deposit Box" which disclaims any liability of the hotel for things put inside the box.

On 17 May 1988 McLoughlin went back to AU and consulted his lawyers. They wrote a letter addressed to Pres. Cory Aquino which was pushed back to the DOJ and the Western Police District. He went back from the PH to AU several times more to attend business and follow up but the matter was only filed on 3 Dec 1990 since he was not there to personally follow up.

McLoughlin filed an action against YHT Realty Corporation, Lopez, Lainez, Payam and Tan.

The RTC rendered judgment in favor of McLoughlin. The CA modified only the amount of damages awarded.

Tan and Lopez, however, were not served with summons, and trial proceeded with only Lainez, Payam and YHT Realty Corporation as defendants.

ISSUE: WON the "Undertaking for the Use of Safety Deposit Box" admittedly executed by privaterespondent is null and void.

HELD:

YESArticle 2003 was incorporated in the New Civil Code as an expression of public policyprecisely to apply to situations such as that presented in this case. The hotel business like thecommon carriers business is imbued with public interest. Catering to the public, hotelkeepers arebound to provide not only lodging for hotel guests and security to their persons and belongings. The twin duty constitutes the essence of the business. The law in turn does not allow such duty tothe public to be negated or diluted by any contrary stipulation in so-called undertakings thatordinarily appear in prepared forms imposed by hotel keepers on guests for their signature.In an early case (De Los Santos v. Tan Khey), CA ruled that to hold hotelkeepers orinnkeeper liable for the effects of their guests, it is not necessary that they be actually delivered tothe innkeepers or their employees. It is enough that such effects are within the hotel or inn. Withgreater reason should the liability of the hotelkeeper be enforced when the missing items aretaken without the guests knowledge and consent from a safety deposit box provided by the hotelitself, as in this case.Paragraphs (2) and (4) of the undertaking manifestly contravene Article 2003, CC for theyallow Tropicana to be released from liability arising from any loss in the contents and/or use of thesafety deposit box for any cause whatsoever. Evidently, the undertaking was intended to bar anyclaim against Tropicana for any loss of the contents of the safety deposit box whether or notnegligence was incurred by Tropicana or its employees. The New Civil Code is explicit that theresponsibility of the hotel-keeper shall extend to loss of, or injury to, the personal property of theguests even if caused by servants or employees of the keepers of hotels or inns as well as bystrangers, except as it may proceed from any force majeure. It is the loss through force majeure that may spare the hotel-keeper from liability. In the case at bar, there is no showing that the act of the thief or robber was done with the use of arms or through an irresistible force to qualify the same as force majeure.

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