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

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

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

MORELAND, J.:

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

It is established in this case that the plaintiff is the trustee of a charitable bequest made for theconstruction of a leper hospital and that father Agustin de la Pea was the duly authorizedrepresentative of the plaintiff to receive the legacy. The defendant is the administrator of the estateof Father De la Pea.

In the year 1898 the books Father De la Pea, as trustee, showed that he had on hand assuch trustee the sum of P6,641, collected by him for the charitable purposes aforesaid. In the sameyear he deposited in his personal account P19,000 in the Hongkong and Shanghai Bank at Iloilo.Shortly thereafter and during the war of the revolution, Father De la Pea was arrested by themilitary authorities as a political prisoner, and while thus detained made an order on said bank infavor of the United States Army officer under whose charge he then was for the sum thus depositedin 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 thusdeposited had been collected by him for revolutionary purposes. The money was taken from thebank by the military authorities by virtue of such order, was confiscated and turned over to theGovernment.

While there is considerable dispute in the case over the question whether the P6,641 of trustfunds was included in the P19,000 deposited as aforesaid, nevertheless, a careful examination ofthe case leads us to the conclusion that said trust funds were a part of the funds deposited andwhich were removed and confiscated by the military authorities of the United States.

That branch of the law known in England and America as the law of trusts had no exactcounterpart in the Roman law and has none under the Spanish law. In this jurisdiction, therefore,Father De la Pea's liability is determined by those portions of the Civil Code which relate to

obligations. (Book 4, Title 1.)

Although the Civil Code states that "a person obliged to give something is also bound topreserve 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 foreseenwere inevitable, with the exception of the cases expressly mentioned in the law or those in which theobligation so declares." (Art. 1105.)

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By placing the money in the bank and mixing it with his personal funds De la Pea did notthereby assume an obligation different from that under which he would have lain if such deposit hadnot been made, nor did he thereby make himself liable to repay the money at all hazards. If the hadbeen forcibly taken from his pocket or from his house by the military forces of one of the combatantsduring a state of war, it is clear that under the provisions of the Civil Code he would have beenexempt 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 allhazards.

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

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

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

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

Separate Opinions

TRENT, J., dissenting:

I dissent. Technically speaking, whether Father De la Pea was a trustee or an agent of theplaintiff his books showed that in 1898 he had in his possession as trustee or agent the sum ofP6,641 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 mixedthis trust fund with his own and deposited the whole in the bank to his personalaccount or credit, heby this act stamped on the said fund his own private marks and unclothed it of all the protection ithad. If this money had been deposited in the name of De la Pea as trustee or agent of the plaintiff, Ithink that it may be presumed that the military authorities would not have confiscated it for thereason that they were looking for insurgent funds only. Again, the plaintiff had no reason to supposethat De la Pea would attempt to strip the fund of its identity, nor had he said or done anything whichtended to relieve De la Pea from the legal reponsibility which pertains to the care and custody oftrust funds.

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The Supreme Court of the United States in the United State vs. Thomas (82 U. S., 337), atpage 343, said: "Trustees are only bound to exercise the same care and solicitude with regard to thetrust property which they would exercise 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 thetrust-money with their own, whereby it loses its identity, and they become mere debtors."

If this proposition is sound and is applicable to cases arising in this jurisdiction, and I entertainno doubt on this point, the liability of the estate of De la Pea cannot be doubted. But this court inthe majority opinion says: "The fact that he (Agustin de la Pea) placed the trust fund in the bank inhis personal account does not add to his responsibility. Such deposit did not make him a debtor whomust respond at all hazards. . . . There was no law prohibiting him from depositing it as he did, andthere was no law which changed his responsibility, by reason of the deposit."

I assume that the court in using the language which appears in the latter part of the abovequotation meant to say that there was no statutory law regulating the question. Questions of thischaracter are not usually governed by statutory law. The law is to be found in the very nature of thetrust itself, and, as a general rule, the courts say what facts are necessary to hold the trustee as adebtor.

If De la Pea, after depositing the trust fund in his personal account, had used this money forspeculative 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. Whetherhe used this money for that purpose the record is silent, but it will be noted that a considerablelength of time intervened from the time of the deposit until the funds were confiscated by the militaryauthorities. In fact the record shows that De la Pea deposited on June 27, 1898, P5,259, on June28 of that year P3,280, and on August 5 of the same year P6,000. The record also shows that thesefunds were withdrawn and again deposited all together on the 29th of May, 1900, this last depositamounting to P18,970. These facts strongly indicate that De la Pea had as a matter of fact beenusing the money in violation of the trust imposed in him. lawph!1.net

If the doctrine announced in the majority opinion be followed in cases hereafter arising in this

jurisdiction trust funds will be placed in precarious condition. The position of the trustee will cease tobe one of trust.

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G.R. No. 90027 March 3, 1993

CA AGRO-INDUSTRIAL DEVELOPMENT CORP., petitioner,vs.THE HONORABLE COURT OF APPEALS and SECURITY BANK AND TRUSTCOMPANY, 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 asafety deposit box with respect to its contents placed by the latter one of bailor and bailee or one oflessor 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 PaulaPugao entered into an agreement whereby the former purchased from the latter two (2) parcels ofland for a consideration of P350,625.00. Of this amount, P75,725.00 was paid as downpaymentwhile the balance was covered by three (3) postdated checks. Among the terms and conditions ofthe agreement embodied in a Memorandum of True and Actual Agreement of Sale of Land were thatthe titles to the lots shall be transferred to the petitioner upon full payment of the purchase price andthat 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 bewithdrawn 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 rentedSafety Deposit Box No. 1448 of private respondent Security Bank and Trust Company, a domesticbanking corporation hereinafter referred to as the respondent Bank. For this purpose, both signed acontract 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 thepossession nor control of the same.

14. The bank has no interest whatsoever in said contents, except herein expresslyprovided, 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 therespondent Bank. The safety deposit box has two (2) keyholes, one for the guard key and the otherfor the renter's key, and can be opened only with the use of both keys. Petitioner claims that thecertificates 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 aprice of P225.00 per square meter which, as petitioner alleged in its complaint, translates to a profitof P100.00 per square meter or a total of P280,500.00 for the entire property. Mrs. Ramosdemanded the execution of a deed of sale which necessarily entailed the production of the

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certificates of title. In view thereof, Aguirre, accompanied by the Pugaos, then proceeded to therespondent 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 suchcertificates. Because of the delay in the reconstitution of the title, Mrs. Ramos withdrew her earlieroffer to purchase the lots; as a consequence thereof, the petitioner allegedly failed to realize theexpected profit of P280,500.00. Hence, the latter filed on 1 September 1980 a complaint 2for

damages against the respondent Bank with the Court of First Instance (now Regional Trial Court) ofPasig, Metro Manila which docketed the same as Civil Case No. 38382.

In its Answer with Counterclaim, 3respondent Bank alleged that the petitioner has no cause of actionbecause of paragraphs 13 and 14 of the contract of lease (Exhibit "2"); corollarily, loss of any of theitems or articles contained in the box could not give rise to an action against it. It then interposed acounterclaim 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) ofPasig, Metro Manila, rendered a decision 5 adverse to the petitioner on 8 December 1986, thedispositive portion of which reads:

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

On defendant's counterclaim, judgment is hereby rendered ordering plaintiff to paydefendant 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 ofthe contract of lease, the Bank has no liability for the loss of the certificates of title. The courtdeclared that the said provisions are binding on the parties.

Its motion for reconsideration 7having been denied, petitioner appealed from the adverse decision tothe respondent Court of Appeals which docketed the appeal as CA-G.R. CV No. 15150. Petitionerurged 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, forbeing contrary to law, public order and public policy, the provisions in the contract for lease of thesafety 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 exemplarydamages and attorney's fees. 8

In its Decision promulgated on 4 July 1989, 9respondent Court affirmed the appealed decisionprincipally 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 weregiven control over the safety deposit box and its contents while the Bank retained no right to openthe said box because it had neither the possession nor control over it and its contents. As such, thecontract is governed by Article 1643 of the Civil Code 10which provides:

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

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It invoked Tolentino vs. Gonzales11 which held that the owner of the property loses hiscontrol over the property leased during the period of the contract and Article 1975 of theCivil Code which provides:

Art. 1975. The depositary holding certificates, bonds, securities or instruments whichearn 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 valueand 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 maintainthe contents of the box. The stipulation absolving the defendant-appellee from liability is inaccordance with the nature of the contract of lease and cannot be regarded as contrary tolaw, public order and public policy." 12The appellate court was quick to add, however, thatunder the contract of lease of the safety deposit box, respondent Bank is not completely freefrom liability as it may still be made answerable in case unauthorized persons enter into thevault 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 anyrented safe and beyond this, the Bank will not be responsible for the contents of any saferented from it. 13

Its motion for reconsideration 14having been denied in the respondent Court's Resolution of 28August 1989, 15petitioner took this recourse under Rule 45 of the Rules of Court and urges Us toreview and set aside the respondent Court's ruling. Petitioner avers that both the respondent Courtand the trial court (a) did not properly and legally apply the correct law in this case, (b) acted withgrave abuse of discretion or in excess of jurisdiction amounting to lack thereof and (c) set aprecedent that is contrary to, or is a departure from precedents adhered to and affirmed by decisionsof 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 therespondent Court and the motion to reconsider the latter's decision. In a nutshell, petitionermaintains 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. 16Accordingly, it is claimed that the respondent Bank is liable for the loss of thecertificates 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, whenrequired, to the depositor, or to his heirs and successors, or to the person who mayhave been designated in the contract. His responsibility, with regard to thesafekeeping and the loss of the thing, shall be governed by the provisions of Title I ofthis Book.

If the deposit is gratuitous, this fact shall be taken into account in determining thedegree of care that the depositary must observe.

Petitioner then quotes a passage from American Jurisprudence 17which is supposed toexpound 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

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therein his securities or other valuables, the relation of bailee and bail or is createdbetween the parties to the transaction as to such securities or other valuables; thefact 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-depositbox 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 isthe sole key or one to be used in connection with one retained by the lessor) doesnot 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 thattherefore the situation is entirely different from that of ordinary bailment, has beengenerally rejected by the courts, usually on the ground that as possession must beeither in the depositor or in the company, it should reasonably be considered as inthe latter rather than in the former, since the company is, by the nature of thecontract, given absolute control of access to the property, and the depositor cannotgain access thereto without the consent and active participation of the company. . . .(citations omitted).

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

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

After the respondent Bank filed its comment, this Court gave due course to the petition and requiredthe 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 notan ordinary contract of lease as defined in Article 1643 of the Civil Code. However, We do not fullysubscribe to its view that the same is a contract of deposit that is to be strictly governed by theprovisions in the Civil Code on deposit; 19the contract in the case at bar is a special kind of deposit. Itcannot be characterized as an ordinary contract of lease under Article 1643 because the full andabsolute possession and control of the safety deposit box was not given to the joint renters thepetitioner and the Pugaos. The guard key of the box remained with the respondent Bank; withoutthis key, neither of the renters could open the box. On the other hand, the respondent Bank couldnot likewise open the box without the renter's key. In this case, the said key had a duplicate whichwas made so that both renters could have access to the box.

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

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We observe, however, that the deposit theory itself does not altogether find unanimous support evenin American jurisprudence. We agree with the petitioner that under the latter, the prevailing rule isthat the relation between a bank renting out safe-deposit boxes and its customer with respect to thecontents of the box is that of a bail or and bailee, the bailment being for hire and mutualbenefit. 21This is just the prevailing view because:

There is, however, some support for the view that the relationship in question might bemore properly characterized as that of landlord and tenant, or lessor and lessee. It hasalso been suggested that it should be characterized as that of licensor and licensee. Therelation between a bank, safe-deposit company, or storage company, and the renter of asafe-deposit box therein, is often described as contractual, express or implied, oral orwritten, in whole or in part. But there is apparently no jurisdiction in which any rule otherthan that applicable to bailments governs questions of the liability and rights of the partiesin 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 isclear that in this jurisdiction, the prevailing rule in the United States has been adopted. Section 72 ofthe 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 thefollowing services:

(a) Receive in custody funds, documents, and valuable objects, andrent 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 thissection asdepositoriesor as agents. . . . 24(emphasis supplied)

Note that the primary function is still found within the parameters of a contract of deposit, i.e., thereceiving in custody of funds, documents and other valuable objects for safekeeping. The renting outof the safety deposit boxes is not independent from, but related to or in conjunction with, thisprincipal function. A contract of deposit may be entered into orally or in writing 25and, pursuant toArticle 1306 of the Civil Code, the parties thereto may establish such stipulations, clauses, terms andconditions as they may deem convenient, provided they are not contrary to law, morals, goodcustoms, public order or public policy. The depositary's responsibility for the safekeeping of theobjects 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. 26In the absence of any stipulation prescribingthe degree of diligence required, that of a good father of a family is to be observed. 27Hence, anystipulation exempting the depositary from any liability arising from the loss of the thing deposited onaccount of fraud, negligence or delay would be void for being contrary to law and public policy. In theinstant case, petitioner maintains that conditions 13 and 14 of the questioned contract of lease of thesafety deposit box, which read:

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

14. The bank has no interest whatsoever in said contents, except herein expresslyprovided, and it assumes absolutely no liability in connection therewith. 28

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are void as they are contrary to law and public policy. We find Ourselves in agreement withthis proposition for indeed, said provisions are inconsistent with the respondent Bank'sresponsibility as a depositary under Section 72(a) of the General Banking Act. Both exemptthe latter from any liability except as contemplated in condition 8 thereof which limits its dutyto exercise reasonable diligence only with respect to who shall be admitted to any rentedsafe, to wit:

8. The Bank shall use due diligence that no unauthorized person shall be admitted to anyrented safe and beyond this, the Bank will not be responsible for the contents of any saferented from it. 29

Furthermore, condition 13 stands on a wrong premise and is contrary to the actual practiceof the Bank. It is not correct to assert that the Bank has neither the possession nor control ofthe contents of the box since in fact, the safety deposit box itself is located in its premisesand is under its absolute control; moreover, the respondent Bank keeps the guard key to thesaid box. As stated earlier, renters cannot open their respective boxes unless the Bankcooperates 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-depositcompany, the parties, since the relation is a contractual one, may by special contractdefine their respective duties or provide for increasing or limiting the liability of the depositcompany, provided such contract is not in violation of law or public policy. It must clearlyappear that there actually was such a special contract, however, in order to vary theordinary obligations implied by law from the relationship of the parties; liability of thedeposit company will not be enlarged or restricted by words of doubtful meaning. Thecompany, in rentingsafe-deposit boxes, cannot exempt itself from liability for loss of the contents by its ownfraud or negligence or that of its agents or servants, and if a provision of the contract maybe construed as an attempt to do so, it will be held ineffective for the purpose. Although ithas been held that the lessor of a safe-deposit box cannot limit its liability for loss of thecontents 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 petitionshould 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 ofAppeals, be based on or proceed from a characterization of the impugned contract as a contract oflease, but rather on the fact that no competent proof was presented to show that respondent Bankwas aware of the agreement between the petitioner and the Pugaos to the effect that the certificatesof title were withdrawable from the safety deposit box only upon both parties' joint signatures, andthat no evidence was submitted to reveal that the loss of the certificates of title was due to the fraudor negligence of the respondent Bank. This in turn flows from this Court's determination that thecontract 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 tothe safety deposit box and, with the use of such key and the Bank's own guard key, could open thesaid 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 itspart had been established, the trial court erred in condemning the petitioner to pay the respondentBank attorney's fees. To this extent, the Decision (dispositive portion) of public respondent Court ofAppeals must be modified.

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

No pronouncement as to costs.

SO ORDERED.

Feliciano, Bidin, Romero and Melo, JJ., concur.

Gutierrez, Jr., J., is on leave.

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G.R. No. 4015 August 24, 1908

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

R. Zaldarriaga for appellants.B. Montinola for appellee.

TORRES, J.:

The attorney for the plaintiff, Angel Javellana, file a complaint on the 30th of October, 1906, with theCourt of First Instance of Iloilo, praying that the defendants, Jose Lim and Ceferino Domingo Lim, hesentenced to jointly and severally pay the sum of P2,686.58, with interest thereon at the rate of 15per cent per annum from the 20th of January, 1898, until full payment should be made, deductingfrom the amount of interest due the sum of P1,102.16, and to pay the costs of the proceedings.

Authority from the court having been previously obtained, the complaint was amended on the 10th of

January, 1907; it was then alleged, on the 26th of May, 1897, the defendants executed andsubscribed a document in favor of the plaintiff reading as follows:

We have received from Angel Javellana, as a deposit without interest, the sum of two thousand sixhundred and eighty-six cents of pesos fuertes, which we will return to the said gentleman, jointly andseverally, on the 20th of January, 1898. Jaro, 26th of May, 1897. Signed Jose Lim. Signed:Ceferino Domingo Lim.

That, when the obligation became due, the defendants begged the plaintiff for an extension of timefor the payment thereof, building themselves to pay interest at the rate of 15 per cent on the amountof their indebtedness, to which the plaintiff acceded; that on the 15th of May, 1902, the debtors paidon account of interest due the sum of P1,000 pesos, with the exception of either capital or interest,

had thereby been subjected to loss and damages.

A demurrer to the original complaint was overruled, and on the 4th of January, 1907, the defendantsanswered the original complaint before its amendment, setting forth that they acknowledged thefacts stated in Nos. 1 and 2 of the complaint; that they admitted the statements of the plaintiff relativeto the payment of 1,102.16 pesos made on the 15th of November, 1902, not, however, as paymentof interest on the amount stated in the foregoing document, but on account of the principal, anddenied that there had been any agreement as to an extension of the time for payment and thepayment of interest at the rate of 15 per cent per annum as alleged in paragraph 3 of the complaint,and also denied all the other statements contained therein.

As a counterclaim, the defendants alleged that they had paid to the plaintiff sums which, togetherwith the P1,102.16 acknowledged in the complaint, aggregated the total sum of P5,602.16, and that,

deducting therefrom the total sum of P2,686.58 stated in the document transcribed in the complaint,the plaintiff still owed the defendants P2,915.58; therefore, they asked that judgment be enteredabsolving them, and sentencing the plaintiff to pay them the sum of P2,915.58 with the costs.

Evidence was adduced by both parties and, upon their exhibits, together with an account bookhaving been made of record, the court below rendered judgment on the 15th of January, 1907, infavor of the plaintiff for the recovery of the sum of P5,714.44 and costs.

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The defendants excepted to the above decision and moved for a new trial. This motion wasoverruled and was also excepted to by them; the bill of exceptions presented by the appellantshaving been approved, the same was in due course submitted to this court.

The document of indebtedness inserted in the complaint states that the plaintiff left on deposit withthe defendants a given sum of money which they were jointly and severally obliged to return on a

certain date fixed in the document; but that, nevertheless, when the document appearing as Exhibits2, written in the Visayan dialect and followed by a translation into Spanish was executed, it wasacknowledged, at the date thereof, the 15th of November, 1902, that the amount deposited had notyet been returned to the creditor, whereby he was subjected to losses and damages amounting to830 pesos since the 20th of January, 1898, when the return was again stipulated with the furtheragreement that the amount deposited should bear interest at the rate of 15 per cent per annum, fromthe aforesaid date of January 20, and that the 1,000 pesos paid to the depositor on the 15th of May,1900, according to the receipt issued by him to the debtors, would be included, and that the said rateof interest would obtain until the debtors on the 20th of May, 1897, it is called a deposit consisted,and they could have accomplished the return agreed upon by the delivery of a sum equal to the onereceived by them. For this reason it must be understood that the debtors were lawfully authorized tomake use of the amount deposited, which they have done, as subsequent shown when asking for anextension of the time for the return thereof, inasmuch as, acknowledging that they have subjectedthe letter, their creditor, to losses and damages for not complying with what had been stipulated, andbeing conscious that they had used, for their own profit and gain, the money that they receivedapparently as a deposit, they engaged to pay interest to the creditor from the date named until thetime when the refund should be made. Such conduct on the part of the debtors is unquestionableevidence that the transaction entered into between the interested parties was not a deposit, but areal contract of loan.

Article 1767 of the Civil Code provides that

The depository can not make use of the thing deposited without the express permission ofthe depositor.

Otherwise he shall be liable for losses and damages.

Article 1768 also provides that

When the depository has permission to make use of the thing deposited, the contract losesthe character of a deposit and becomes a loan or bailment.

The permission shall not be presumed, and its existence must be proven.

When on one of the latter days of January, 1898, Jose Lim went to the office of the creditor askingfor an extension of one year, in view of the fact the money was scare, and because neither himselfnor the other defendant were able to return the amount deposited, for which reason he agreed to

pay interest at the rate of 15 per cent per annum, it was because, as a matter of fact, he did not havein his possession the amount deposited, he having made use of the same in his business and for hisown profit; and the creditor, by granting them the extension, evidently confirmed the expresspermission previously given to use and dispose of the amount stated as having bee deposited,which, in accordance with the loan, to all intents and purposes gratuitously, until the 20th of January,1898, and from that dated with interest at 15 per cent per annum until its full payment, deductingfrom the total amount of interest the sum of 1,000 pesos, in accordance with the provisions of article1173 of the Civil Code.

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Notwithstanding that it does not appear that Jose Lim signed the document (Exhibit 2) executed inthe presence of three witnesses on the 15th of November, 1902, by Ceferino Domingo Lim on behalfof himself and the former, nevertheless, the said document has not been contested as false, eitherby a criminal or by a civil proceeding, nor has any doubt been cast upon the authenticity of thesignatures of the witnesses who attested the execution of the same; and from the evidence in thecase one is sufficiently convinced that the said Jose Lim was perfectly aware of and authorized his

joint codebtor to liquidate the interest, to pay the sum of 1,000 pesos, on account thereof, and toexecute the aforesaid document No. 2. A true ratification of the original document of deposit wasthus made, and not the least proof is shown in the record that Jose Lim had ever paid the whole orany part of the capital stated in the original document, Exhibit 1.

If the amount, together with interest claimed in the complaint, less 1,000 pesos appears as fullyestablished, such is not the case with the defendant's counterclaim for P5,602.16, because theexistence and certainty of said indebtedness imputed to the plaintiff has not been proven, and thedefendants, who call themselves creditors for the said amount have not proven in a satisfactorymanner that the plaintiff had received partial payments on account of the same; the latter allegeswith good reason, that they should produce the receipts which he may have issued, and which hedid issue whenever they paid him any money on account. The plaintiffs allegation that the twoamounts of 400 and 1,200 pesos, referred to in documents marked "C" and "D" offered in evidenceby the defendants, had been received from Ceferino Domingo Lim on account of other debts of his,has not been contradicted, and the fact that in the original complaint the sum of 1,102.16 pesos, wasexpressed in lieu of 1,000 pesos, the only payment made on account of interest on the amountdeposited according to documents No. 2 and letter "B" above referred to, was due to a mistake.

Moreover, for the reason above set forth it may, as a matter of course, be inferred that there was norenewal of the contract deposited converted into a loan, because, as has already been stated, thedefendants received said amount by virtue of real loan contract under the name of a deposit, sincethe so-called bailees were forthwith authorized to dispose of the amount deposited. This they havedone, as has been clearly shown.

The original joint obligation contracted by the defendant debtor still exists, and it has not been shown

or proven in the proceedings that the creditor had released Joe Lim from complying with hisobligation in order that he should not be sued for or sentenced to pay the amount of capital andinterest together with his codebtor, Ceferino Domingo Lim, because the record offers satisfactoryevidence against the pretension of Jose Lim, and it further appears that document No. 2 wasexecuted by the other debtor, Ceferino Domingo Lim, for himself and on behalf of Jose Lim; and ithas also been proven that Jose Lim, being fully aware that his debt had not yet been settled, tooksteps to secure an extension of the time for payment, and consented to pay interest in return for theconcession requested from the creditor.

In view of the foregoing, and adopting the findings in the judgment appealed from, it is our opinionthat the same should be and is hereby affirmed with the costs of this instance against the appellant,provided that the interest agreed upon shall be paid until the complete liquidation of the debt. Soordered.

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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 Pampangaby the respective plaintiffs, Silvestra Baron and Guillermo Baron, for the purpose of recovering fromthe defendant, Pablo David, the value of palay alleged to have been sold by the plaintiffs to thedefendant in the year 1920. Owing to the fact that the defendant is the same in both cases and thatthe two cases depend in part upon the same facts, the cases were heard together in the trial courtand 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 torecover of the defendant the sum of P5,238.51, with costs. From this judgment both the plaintiff andthe defendant appealed.

In the second case, i. e., that in which Guillermo Baron, is plaintiff, the court gave judgment forhim to recover of the defendant the sum of P5,734.60, with costs, from which judgment both theplaintiff and the defendant also appealed. In the same case the defendant interposed a counterclaimin which he asked credit for the sum of P2,800 which he had advanced to the plaintiff GuillermoBaron 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 defendantclaimed compensation for damages alleged to have Ben suffered by him by reason of the allegedmalicious and false statements made by the plaintiff against the defendant in suing out anattachment against the defendant's property soon after the institution of the action. In the samecross-action the defendant also sought compensation for damages incident to the shutting down ofthe 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 distinctappeals in this record.

Prior to January 17, 1921, the defendant Pablo David has been engaged in running a rice millin the municipality of Magalang, in the Province of Pampanga, a mill which was well patronized bythe rice growers of the vicinity and almost constantly running. On the date stated a fire occurred thatdestroyed the mill and its contents, and it was some time before the mill could be rebuilt and put inoperation again. Silvestra Baron, the plaintiff in the first of the actions before us, is an aunt of thedefendant; while Guillermo Baron, the plaintiff in the other action; is his uncle. In the months of

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March, April, and May, 1920, Silvestra Baron placed a quantity of palay in the defendant's mill; andthis, in connection with some that she took over from Guillermo Baron, amounted to 1,012 cavansand 24 kilos. During approximately the same period Guillermo Baron placed other 1,865 cavans and43 kilos of palay in the mill. No compensation has ever been received by Silvestra Baron uponaccount of the palay delivered by Guillermo Baron, he has received from the defendantadvancements 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 thedefendant; while the defendant, on the other hand, claims that the palay was deposited subject tofuture withdrawal by the depositors or subject to some future sale which was never effected. Hetherefore 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 palaywould sell during the year 1920; and they say that in August of that year the defendant promised topay them severally the price of P8.40 per cavan, which was about the top of the market for theseason, provided they would wait for payment until December. The trial judge found that no suchpromise had been given; and the incredulity of the court upon this point seems to us to be justified. Acareful examination of the proof, however, leads us to the conclusion that the plaintiffs did, sometime in the early part of August, 1920, make demand upon the defendant for a settlement, which heevaded 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 millwith the understanding that the defendant was at liberty to convert it into rice and dispose of it at hispleasure. The mill was actively running during the entire season, and as palay was daily coming infrom many customers and as rice was being constantly shipped by the defendant to Manila, or otherrice markets, it was impossible to keep the plaintiffs' palay segregated. In fact the defendant admitsthat the plaintiffs' palay was mixed with that of others. In view of the nature of the defendant'sactivities and the way in which the palay was handled in the defendant's mill, it is quite certain that allof the plaintiffs' palay, which was put in before June 1, 1920, been milled and disposed of long priorto 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 reasonableprobability could have been any part of the palay delivered by the plaintiffs. Considering the fact thatthe defendant had thus milled and doubtless sold the plaintiffs' palay prior to the date of the fire, itresult that he is bound to account for its value, and his liability was not extinguished by theoccurence of the fire. In the briefs before us it seems to have been assumed by the opposingattorneys that in order for the plaintiffs to recover, it is necessary that they should be able toestablish 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 defendantshould be absolved. But the case does not depend precisely upon this explicit alternative; for evensupposing that the palay may have been delivered in the character of deposit, subject to future saleor withdrawal at plaintiffs' election, nevertheless if it was understood that the defendant might mill thepalay and he has in fact appropriated it to his own use, he is of course bound to account for itsvalue. 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 oracommodatum; and of course by appropriating the thing, the bailee becomes responsible for itsvalue. In this connection we wholly reject the defendant's pretense that the palay delivered by theplaintiffs or any part of it was actually consumed in the fire of January, 1921. Nor is the liability of thedefendant in any wise affected by the circumstance that, by a custom prevailing among rice millersin this country, persons placing palay with them without special agreement as to price are at libertyto withdraw it later, proper allowance being made for storage and shrinkage, a thing that issometimes done, though rarely.

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In view of what has been said it becomes necessary to discover the price which the defendantshould be required to pay for the plaintiffs' palay. Upon this point the trial judge fixed upon P6.15 percavan; and although we are not exactly in agreement with him as to the propriety of the method bywhich he arrived at this figure, we are nevertheless of the opinion that, all things considered, theresult is approximately correct. It appears that the price of palay during the months of April, May, andJune, 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 executiveregulation. The highest point was touched in this season was apparently about P8.50 per cavan, butthe market began to sag in May or June and presently entered upon a precipitate decline. As wehave already stated, the plaintiffs made demand upon the defendant for settlement in the early partof August; and, so far as we are able to judge from the proof, the price of P6.15 per cavan, fixed bythe trial court, is about the price at which the defendant should be required to settle as of that date. Itwas the date of the demand of the plaintiffs for settlement that determined the price to be paid by thedefendant, and this is true whether the palay was delivered in the character of sale with priceundetermined or in the character of deposit subject to use by the defendant. It results that theplaintiffs are respectively entitle to recover the value of the palay which they had placed with thedefendant during the period referred to, with interest from the date of the filing of their severalcomplaints.

As already stated, the trial court found that at the time of the fire there were about 360 cavansof palay in the mill and that this palay was destroyed. His Honor assumed that this was part of thepalay 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 ofthis amount of palay. We are unable to see the propriety of this feature of the decision. There weremany customers of the defendant's rice mill who had placed their palay with the defendant under thesame conditions as the plaintiffs, and nothing can be more certain than that the palay which wasburned 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 isattacked are therefore well taken; and the appealed judgments must be modified by eliminating thedeductions 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 167cavans of palay, as indicated in Exhibit 12, 13, 14, and 16. This was also erroneous. These exhibitsrelate to transactions that occurred nearly two years after the transactions with which we are hereconcerned, and they were offered in evidence merely to show the character of subsequenttransactions between the parties, it appearing that at the time said exhibits came into existence thedefendant had reconstructed his mill and that business relations with Guillermo Baron had beenresumed. The transactions shown by these exhibits (which relate to palay withdrawn by the plaintifffrom the defendant's mill) were not made the subject of controversy in either the complaint or thecross-complaint of the defendant in the second case. They therefore should not have been takeninto account as a credit in favor of the defendant. Said credit must therefore be likewise of course bewithout prejudice to any proper adjustment of the rights of the parties with respect to thesesubsequent transactions that they have heretofore or may hereafter effect.

The preceding discussion disposes of all vital contentions relative to the liability of thedefendant upon the causes of action stated in the complaints. We proceed therefore now to considerthe question of the liability of the plaintiff Guillermo Baron upon the cross-complaint of Pablo David incase R. G. No. 26949. In this cross-action the defendant seek, as the stated in the third paragraph ofthis opinion, to recover damages for the wrongful suing out of an attachment by the plaintiff and thelevy of the same upon the defendant's rice mill. It appears that about two and one-half months aftersaid action was begun, the plaintiff, Guillermo Baron, asked for an attachment to be issued againstthe property of the defendant; and to procure the issuance of said writ the plaintiff made affidavit tothe effect that the defendant was disposing, or attempting the plaintiff. Upon this affidavit an

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attachment was issued as prayed, and on March 27, 1924, it was levied upon the defendant's ricemill, 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 anorder 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 whoheld receipts therefor; and in order to get this grain away from the sheriff, twenty-four of thedepositors found it necessary to submit third-party claims to the sheriff. When these claims were putin the sheriff notified the plaintiff that a bond in the amount of P50,000 must be given, otherwise thegrain would be released. The plaintiff, being unable or unwilling to give this bond, the sheriffsurrendered the palay to the claimants; but the attachment on the rice mill was maintained untilSeptember 13, as above stated, covering a period of one hundred seventy days during which themill was idle. The ground upon which the attachment was based, as set forth in the plaintiff's affidavitwas that the defendant was disposing or attempting to dispose of his property for the purpose ofdefrauding the plaintiff. That this allegation was false is clearly apparent, and not a word of proof hasbeen submitted in support of the assertion. On the contrary, the defendant testified that at the timethis 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 coursewell known to the plaintiff, who is his uncle. The defendant also states that he had not conveyedaway any of his property, nor had intended to do so, for the purpose of defrauding the plaintiff. Wehave before us therefore a case of a baseless attachment, recklessly sued out upon a false affidavitand levied upon the defendant's property to his great and needless damage. That the act of theplaintiff in suing out the writ was wholly unjustifiable is perhaps also indicated in the circumstancethat 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 palayper day, producing 225 cavans of rice of 57 kilos each. The price charged for cleaning each cavanrice was 30 centavos. The defendant also stated that the expense of running the mill per day wasfrom P18 to P25, and that the net profit per day on the mill was more than P40. As the mill was notaccustomed 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 tooperate the mill during the time stated could not have been less than P5,600. The reasonableness ofthese figures is also indicated in the fact that the twenty-four customers who intervened with third-party claims took out of the camarin20,000 cavans of palay, practically all of which, in the ordinarycourse of events, would have been milled in this plant by the defendant. And of course other grainwould have found its way to this mill if it had remained open during the one hundred forty days whenit was closed.

But this is not all. When the attachment was dissolved and the mill again opened, thedefendant found that his customers had become scattered and could not be easily gotten back. Soslow, indeed, was his patronage in returning that during the remainder of the year 1924 thedefendant was able to mill scarcely more than the grain belonging to himself and his brothers; andeven after the next season opened many of his old customers did not return. Several of theseindividuals, testifying as witnesses in this case, stated that, owing to the unpleasant experiencewhich they had in getting back their grain from the sheriff to the mill of the defendant, though theyhad previously had much confidence in him.

As against the defendant's proof showing the facts above stated the plaintiff submitted noevidence whatever. We are therefore constrained to hold that the defendant was damaged by theattachment to the extent of P5,600, in profits lost by the closure of the mill, and to the extent of

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P1,400 for injury to the good-will of his business, making a total of P7,000. For this amount thedefendant must recover judgment on his cross-complaint.

The trial court, in dismissing the defendant's cross-complaint for damages resulting from thewrongful suing out of the attachment, suggested that the closure of the rice mill was a mere act ofthe 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 tooperate it. This singular suggestion will not bear a moment's criticism. It was of course the duty ofthe sheriff, in levying the attachment, to take the attached property into his possession, and theclosure of the mill was a natural, and even necessary, consequence of the attachment. For thedamage 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) forthe sum of P20,000 as damages caused to the defendant by the false and alleged maliciousstatements contained in the affidavit upon which the attachment was procured. The additional sumof P5,000 is also claimed as exemplary damages. It is clear that with respect to these damages thecross-action cannot be maintained, for the reason that the affidavit in question was used in course ofa legal proceeding for the purpose of obtaining a legal remedy, and it is therefore privileged. Butthough the affidavit is not actionable as a libelous publication, this fact in no obstacle to themaintenance 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 assignmentof error of Pablo David as defendant in case R. G. No. 26949. In this connection it appears that thedeposition 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 underconsideration that the deposition is not available as evidence to the plaintiff because it was notactually read out in court. This connection is not well founded. It is true that in section 364 of theCode of Civil Procedure it is said that a deposition, once taken, may be read by either party and willthen be deemed the evidence of the party reading it. The use of the word "read" in this section findsits 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 judgeshave the evidence before them for perusal at their pleasure, it is not necessary that the depositionshould be actually read when presented as evidence.

From what has been said it result that judgment of the court below must be modified withrespect to the amounts recoverable by the respective plaintiffs in the two actions R. G. Nos. 26948and 26949 and must be reversed in respect to the disposition of the cross-complaint interposed bythe defendant in case R. G. No. 26949, with the following result: In case R. G. No. 26948 the plaintiffSilvestra Baron will recover of the Pablo David the sum of P6,227.24, with interest from November21, 1923, the date of the filing of her complaint, and with costs. In case R. G. No. 26949 the plaintiffGuillermo Baron will recover of the defendant Pablo David the sum of P8,669.75, with interest fromJanuary 9, 1924. In the same case the defendant Pablo David, as plaintiff in the cross-complaint, willrecover of Guillermo Baron the sum of P7,000, without costs. So ordered.

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

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Separate Opinions

JOHNS, J., dissenting and concurring:

The plaintiff Silvestra Baron is the aunt of the defendant, and Guillermo Baron, the plaintiff inthe other action, is his uncle. There is no dispute as to the amount of palay which each delivered tothe mill of the defendant. Owing to the fact that they were relatives and that the plaintiffs reposedspecial reposed special trust and confidence in the defendant, who was their nephew, they were notas careful and prudent in their business dealings with him as they should have been. Plaintiffs allegethat their respective palay was delivered to the defendant at his mill with the understanding andagreement between them that they should receive the highest market price for the palay for thatseason, which was P8.50 per cavan. They further allege that about August first they made anothercontract in and by which he promised and agreed to pay them P8.40 per cavan for their palay, inconsideration of which they agreed to extend the time for payment to the first of December of thatyear. 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 themill. The lower court found as a fact that there was no merit in that defense, and that there was butlittle, if any, palay in the mill at the time of the fire and that in truth and in fact that defense was basedupon perjured testimony.

The two cases were tried separately in the court below, but all of the evidence in the case wassubstituted and used in the other. Both plaintiffs testified to the making of the respective contracts asalleged in their complaint; to wit, that they delivered the palay to the defendant with the expressunderstanding and agreement that he would pay them for the palay the highest market price for theseason, and to the making of the second contract about the first of August, in which they had asettlement, and that the defendant then agreed to pay them P8.40 per cavan, such payment to bemade on December first. It appears that the highest market price for palay for that season was P8.50per cavan. 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 andGuillermo 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 theirpalay. That is to say, it is their custom to sell the palay at or about the time it is delivered at the milland as soon as it is made ready for market in the form of rice. As stated the lower court found as afact that the evidence of the defendants as to plaintiffs' palay being in the mill at the time of the firewas not worthy of belief, and that in legal effect it was a manufactured defense. Yet, strange as itmay seem, both the lower court and this court have found as a fact that upon the question of thealleged contracts, the evidence for the defendant is true and entitled to more weight than theevidence of both plaintiffs which is false.

It appears that the plaintiff Silvestra Baron is an old lady about 80 years of age and the aunt of

the defendant, and Guillermo Baron is the uncle. Under the theory of the lower court and of thiscourt, both of them at all the time during the high prices held their palay in defendant's mill at theirown risk, and that upon that point the evidence of the defendant, standing alone is entitled to moreweight and is more convincing than the combined evidence of the two plaintiffs. In the very nature ofthings, if defendant's evidence upon that point is true, it stands to reason that, following the customof growers, the plaintiffs would have sold their palay during the period of high prices, and would nothave waited until it dropped from P8.50 per cavan to P6.15 per cavan about the first of August. Uponthat question, both the weight and the credibility of the evidence is with the plaintiffs, and they should

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have judgment for the full amount of their palay on the basis of P8.40 per cavan. For such reason, Ivigorously dissent from the majority opinion.

I frankly concede that the attachment was wrongful, and that it should never have been levied.It remained in force for a period of one hundred and seventy days at which time it was released onmotion of the plaintiffs. The defendant now claims, and the majority opinion has allowed him,

damages for that full period, exclusive of Sundays, at the rate, of P40 per day, found to be the netprofit for the operation of the rice mill. It further appears, and this court finds, that the defendant wasa responsible man, and that he had ample property out which to satisfy plaintiffs' claim. Assumingthat to be true, there was no valid reason why he could not had given a counter bond and releasedthe attachment. Upon the theory of the majority opinion, if the plaintiffs had not released theattachment, they would still be liable to the defendant at the rate of P40 per day up to the presenttime. When the mill was attached, if he was in a position to do so, it was the duty of the defendant togive a counter bond and release the attachment and resume its operation. The majority opinion alsoallowed the defendant P1,400 "for injury to the goodwill of his business." The very fact that after adelay of about four years, both of the plaintiffs were compelled to bring to their respective actionsagainst the defendant to recover from him on a just and meritorious claim, as found by this court andthe lower court, and the further fact that after such long delay, the defendant has sought to defeatthe actions by a sham and manufactured defense, as found by this and the lower court, wouldarouse the suspicion of any customers the defendant ever had, and shake their confidence in hisbusiness honor and integrity, and destroy any goodwill which he ever did have. Under suchconditions, it would be strange that the defendant would have any customers left. He is not entitledto any compensation for the loss of goodwill, and P5,000 should be the very limit of the amount ofhis damages for the wrongful attachment, and upon that point I vigorously dissent. In all otherrespects, I agree with the majority opinion.

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March 27, 1913

G.R. No. L-7593THE 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 andEugenio Veraguth out of P2,498 Philippine currency, which he had take on deposit from the former tobe 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 ofpresidio correccional, topay Juana Montilla P2,498 Philippine currency, and in case of insolvency to subsidiary imprisonment atP2.50 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 acertificate of deposit; (2) holding the existence of a deposit, without precedent transfer or delivery ofthe P2,498; and (3) classifying the facts in the case as the crime ofestafa.

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 declaringthat 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 hasno other purpose. They remained in the defendant's possession at the disposal of Veraguth; but onAugust 23 of the same year Veraguth demanded for him through a notarial instrument restitution ofthem, and to date he has not restored them.

The appellant says: "Juana Montilla's agent voluntarily accepted the sum of P2,498 in an instrumentpayable on demand, and as no attempt was made to cash it until August 23, 1911, he could indorseand negotiate it like any other commercial instrument. There is no doubt that if Veraguth accepted thereceipt for P2,498 it was because at that time he agreed with the defendant to consider the operationof sale on commission closed, leaving the collection of said sum until later, which sum remained as aloan 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 thiscommission 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 ondemand, he has drawn two conclusions, both erroneous: One, that the instrument drawn up in theform 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 othercommercial 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 orderbut to bearer, it is not negotiable.

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It is also erroneous to assert that sum of money set forth in said certificate is, according to it, in thedefendant's possession as a loan. In a loan the lender transmits to the borrower the use of the thinglent, while in a deposit the use of the thing is not transmitted, but merely possession for its custody orsafe-keeping Oqa0l.

In order that the depositary may use or dispose oft he things deposited, the depositor's consent isrequired, 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 ordisposing of the P2,498, which the certificate acknowledges, or any contract entered into with thedepositor 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 onthe same or the next day after the certificate was signed, does not operate against the depositor, orsignify anything except the intention not to press it. Failure to claim at once or delay for sometime indemanding 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 depositexists 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 ofestafa. 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 detrimentappropriates to himself or abstracts money or goods received on commission for delivery, the courtrightly applied this article to the appellant, who, to the manifest detriment of the owner or owners ofthe securities, since he has not restored them, willfully and wrongfully disposed of them byappropriating them to himself or at least diverting them from the purpose to which he was charged todevote them."

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

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Likewise erroneous is the construction apparently at tempted to be given to two decisions of thisSupreme 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 hadappropriated the grain deposited in his possession.

On the contrary, it is entirely probable that, after the departure of the defendant from Libmanan onSeptember 20, 1898, two days after the uprising of the civil guard in Nueva Caceres, the rice wasseized 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 itwas necessary to prove that the depositary had appropriated it to himself or diverted the deposit tohis own or another's benefit. He was accused or refusing to restore, and it was held that the code doesnot penalize refusal to restore but denial of having received. So much for the crime of omission; nowwith reference to the crime of commission, it was not held in that decision that appropriation ordiversion 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 asthey were, he turned over to the owner;" and there being no proof of the appropriation, the agentcould not be found guilty of the crime ofestafa.

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

Torres, Johnson and Trent, JJ., concur. .

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

TEOFISTO GUINGONA, JR., ANTONIO I. MARTIN, and TERESITA SANTOS, petitioners,vs.THE CITY FISCAL OF MANILA, HON. JOSE B. FLAMINIANO, ASST. CITY FISCAL FELIZARDON. LOTA and CLEMENT DAVID, respondents.

MAKASIAR, Actg. C.J.:+.wph!1

This is a petition for prohibition and injunction with a prayer for the immediate issuance of restrainingorder and/or writ of preliminary injunction filed by petitioners on March 26, 1982.

On March 31, 1982, by virtue of a court resolution issued by this Court on the same date, atemporary restraining order was duly issued ordering the respondents, their officers, agents,representatives and/or person or persons acting upon their (respondents') orders or in their place orstead to refrain from proceeding with the preliminary investigation in Case No. 8131938 of the Office

of the City Fiscal of Manila (pp. 47-48, rec.). On January 24, 1983, private respondent ClementDavid filed a motion to lift restraining order which was denied in the resolution of this Court datedMay 18, 1983.

As can be gleaned from the above, the instant petition seeks to prohibit public respondents fromproceeding with the preliminary investigation of I.S. No. 81-31938, in which petitioners were chargedby private respondent Clement David, with estafa and violation of Central Bank Circular No. 364 andrelated regulations regarding foreign exchange transactions principally, on the ground of lack of

jurisdiction in that the allegations of the charged, as well as the testimony of private respondent'sprincipal witness and the evidence through said witness, showed that petitioners' obligation is civil innature.

For purposes of brevity, We hereby adopt the antecedent facts narrated by the Solicitor General inits Comment dated June 28,1982, as follows:t.hqw

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

In I.S. No. 81-31938, David charged petitioners (together with one Robert Marshalland the following directors of the Nation Savings and Loan Association, Inc., namelyHomero Gonzales, Juan Merino, Flavio Macasaet, Victor Gomez, Jr., PerfectoManalac, Jaime V. Paz, Paulino B. Dionisio, and one John Doe) with estafa andviolation of Central Bank Circular No. 364 and related Central Bank regulations onforeign exchange transactions, allegedly committed as follows (Petition, Annex "A"): t.hqw

"From March 20, 1979 to March, 1981, David invested with theNation Savings and Loan Association, (hereinafter called NSLA) thesum of P1,145,546.20 on nine deposits, P13,531.94 on savingsaccount deposits (jointly with his sister, Denise Kuhne),US$10,000.00 on time deposit, US$15,000.00 under a receipt andguarantee of payment and US$50,000.00 under a receipt dated June8, 1980 (au jointly with Denise Kuhne), that David was induced intomaking the aforestated investments by Robert Marshall an Australian

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national who was allegedly a close associate of petitioner GuingonaJr., then NSLA President, petitioner Martin, then NSLA ExecutiveVice-President of NSLA and petitioner Santos, then NSLA GeneralManager; that on March 21, 1981 N LA was placed underreceivership by the Central Bank, so that David filed claims therewithfor his investments and those of his sister; that on July 22, 1981

David received a report from the Central Bank that only P305,821.92of those investments were entered in the records of NSLA; that,therefore, the respondents in I.S. No. 81-31938 misappropriated thebalance of the investments, at the same time violating Central BankCircular No. 364 and related Central Bank regulations on foreignexchange transactions; that after demands, petitioner Guingona Jr.paid only P200,000.00, thereby reducing the amountsmisappropriated to P959,078.14 and US$75,000.00."

Petitioners, Martin and Santos, filed a joint counter-affidavit (Petition, Annex' B') inwhich they stated the following.t.hqw

"That Martin became President of NSLA in March 1978 (after theresignation of Guingona, Jr.) and served as such until October 30,1980, while Santos was General Manager up to November 1980; thatbecause NSLA was urgently in need of funds and at David'sinsistence, his investments were treated as special- accounts withinterest above the legal rate, an recorded in separate confidentialdocuments only a portion of which were to be reported because hedid not want the Australian government to tax his total earnings (nor)to know his total investments; that all transactions with David wererecorded except the sum of US$15,000.00 which was a personal loanof Santos; that David's check for US$50,000.00 was cleared throughGuingona, Jr.'s dollar account because NSLA did not have one, thata draft of US$30,000.00 was placed in the name of one Paz Roces

because of a pending transaction with her; that the Philippine DepositInsurance Corporation had already reimbursed David within the legallimits; that majority of the stockholders of NSLA had filed SpecialProceedings No. 82-1695 in the Court of First Instance to contest its(NSLA's) closure; that after NSLA was placed under receivership,Martin executed a promissory note in David's favor and caused thetransfer to him of a nine and on behalf (9 1/2) carat diamond ring witha net value of P510,000.00; and, that the liabilities of NSLA to Davidwere civil in nature."

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

"That he had no hand whatsoever in the transactions between Davidand NSLA since he (Guingona Jr.) had resigned as NSLA presidentin March 1978, or prior to those transactions; that he assumed aportion o; the liabilities of NSLA to David because of the latter'sinsistence that he placed his investments with NSLA because of hisfaith in Guingona, Jr.; that in a Promissory Note dated June 17, 1981(Petition, Annex "D") he (Guingona, Jr.) bound himself to pay Davidthe sums of P668.307.01 and US$37,500.00 in stated installments;that he (Guingona, Jr.) secured payment of those amounts with

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second mortgages over two (2) parcels of land under a deed ofSecond Real Estate Mortgage (Petition, Annex "E") in which it wasprovided that the mortgage over one (1) parcel shall be cancelledupon payment of one-half of the obligation to David; that he(Guingona, Jr.) paid P200,000.00 and tendered another P300,000.00which David refused to accept, hence, he (Guingona, Jr.) filed Civil

Case No. Q-33865 in the Court of First Instance of Rizal at QuezonCity, to effect the release of the mortgage over one (1) of the twoparcels of land conveyed to David under second mortgages."

At the inception of the preliminary investigation before respondent Lota, petitionersmoved to dismiss the charges against them for lack of jurisdiction because David'sclaims allegedly comprised a purely civil obligation which was itself novated. FiscalLota denied the motion to dismiss (Petition, p. 8).

But, after the presentation of David's principal witness, petitioners filed the instantpetition because: (a) the production of the Promisory Notes, Banker's Acceptance,Certificates of Time Deposits and Savings Account allegedly showed that thetransactions between David and NSLA were simple loans, i.e., civil obligations on thepart of NSLA which were novated when Guingona, Jr. and Martin assumed them;and (b) David's principal witness allegedly testified that the duplicate originals of theaforesaid instruments of indebtedness were all on file with NSLA, contrary to David'sclaim that some of his investments were not record (Petition, pp. 8-9).

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

As correctly pointed out by the Solicitor General, the sole issue for resolution is whether publicrespondents acted without jurisdiction when they investigated the charges (estafa and violation ofCB Circular No. 364 and related regulations regarding foreign exchange transactions) subject matterof I.S. No. 81-31938.

There is merit in the contention of the petitioners that their liability is civil in nature and therefore,public respondents have no jurisdiction over the charge of estafa.

A casual perusal of the December 23, 1981 affidavit. complaint filed in the Office of the City Fiscal ofManila by private respondent David against petitioners Teopisto Guingona, Jr., Antonio I. Martin andTeresita G. Santos, together with one Robert Marshall and the other directors of the Nation Savingsand Loan Association, will show that from March 20, 1979 to March, 1981, private respondent David,together with his sister, Denise Kuhne, invested with the Nation Savings and Loan Association thesum of P1,145,546.20 on time deposits covered by Bankers Acceptances and Certificates of TimeDeposits and the sum of P13,531.94 on savings account deposits covered by passbook nos. 6-632and 29-742, or a total of P1,159,078.14 (pp. 15-16, roc.). It appears further that private respondent

David, together with his sister, made investments in the aforesaid bank in the amount ofUS$75,000.00 (p. 17, rec.).

Moreover, the records reveal that when the aforesaid bank was placed under receivership on March21, 1981, petitioners Guingona and Martin, upon the request of private respondent David, assumedthe obligation of the bank to private respondent David by executing on June 17, 1981 a jointpromissory note in favor of private respondent acknowledging an indebtedness of Pl,336,6