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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, awardingto the plaintiff the sum of P6,641, with interest at the legal rate from the beginning of the action.

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

In the year 1898 the books Father De la Pea, as trustee, showed that he had on hand as suchtrustee the sum of P6,641, collected by him for the charitable purposes aforesaid. In the same year hedeposited in his personal account P19,000 in the Hongkong and Shanghai Bank at Iloilo. Shortlythereafter and during the war of the revolution, Father De la Pea was arrested by the military authoritiesas a political prisoner, and while thus detained made an order on said bank in favor of the United States

Army officer under whose charge he then was for the sum thus deposited in said bank. The arrest ofFather De la Pea and the confiscation of the funds in the bank were the result of the claim of the militaryauthorities that he was an insurgent and that the funds thus deposited had been collected by him forrevolutionary purposes. The money was taken from the bank by the military authorities by virtue of suchorder, was confiscated and turned over to the Government.

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

That branch of the law known in England and America as the law of trusts had no exact counterpartin the Roman law and has none under the Spanish law. In this jurisdiction, therefore, Father De la Pea'sliability 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 itwith the diligence pertaining to a good father of a family" (art. 1094), it also provides, following theprinciple 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 theexception of the cases expressly mentioned in the law or those in which the obligation so declares." (Art.1105.)

By placing the money in the bank and mixing it with his personal funds De la Pea did not therebyassume an obligation different from that under which he would have lain if such deposit had not beenmade, nor did he thereby make himself liable to repay the money at all hazards. If the had been forciblytaken from his pocket or from his house by the military forces of one of the combatants during a state ofwar, it is clear that under the provisions of the Civil Code he would have been exempt from responsibility.


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The fact that he placed the trust fund in the bank in his personal account does not add to hisresponsibility. Such deposit did not make him a debtor who must respond at all hazards.

We do not enter into a discussion for the purpose of determining whether he acted more or lessnegligently by depositing the money in the bank than he would if he had left it in his home; or whether hewas more or less negligent by depositing the money in his personal account than he would have been if

he had deposited it in a separate account as trustee. We regard such discussion as substantially fruitless,inasmuch as the precise question is not one of negligence. There was no law prohibiting him fromdepositing it as he did and there was no law which changed his responsibility be reason of the deposit.While it may be true that one who is under obligation to do or give a thing is in duty bound, when he seesevents approaching the results of which will be dangerous to his trust, to take all reasonable means andmeasures to escape or, if unavoidable, to temper the effects of those events, we do not feel constrainedto hold that, in choosing between two means equally legal, he is culpably negligent in selecting onewhereas he would not have been if he had selected the other.

The court, therefore, finds and declares that the money which is the subject matter of this actionwas deposited by Father De la Pea in the Hongkong and Shanghai Banking Corporation of Iloilo; thatsaid money was forcibly taken from the bank by the armed forces of the United States during the war ofthe 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.


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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 TRUST COMPANY,respondents.

Dolorfino & Dominguez Law Offices for petitioner.

Danilo B. Banares for private respondent.

DAVIDE, JR., J .:

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

This is the crux of the present controversy.

On 3 July 1979, petitioner (through its President, Sergio Aguirre) and the spouses Ramon and Paula Pugaoentered into an agreement whereby the former purchased from the latter two (2) parcels of land for aconsideration of P350,625.00. Of this amount, P75,725.00 was paid as downpayment while the balance wascovered by three (3) postdated checks. Among the terms and conditions of the agreement embodied in aMemorandum of True and Actual Agreement of Sale of Land were that the titles to the lots shall be transferredto the petitioner upon full payment of the purchase price and that the owner's copies of the certificates of titlesthereto, Transfer Certificates of Title (TCT) Nos. 284655 and 292434, shall be deposited in a safety deposit boxof any bank. The same could be withdrawn only upon the joint signatures of a representative of the petitionerand the Pugaos upon full payment of the purchase price. Petitioner, through Sergio Aguirre, and the Pugaosthen rented Safety 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 a contract oflease (Exhibit "2") which contains, inter alia , the following conditions:

13. The bank is not a depositary of the contents of the safe and it has neither the possessionnor 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 thepetitioner) and the other to the Pugaos. A guard key remained in the possession of the respondent Bank. Thesafety deposit box has two (2) keyholes, one for the guard key and the other for the renter's key, and can beopened only with the use of both keys. Petitioner claims that the certificates of title were placed inside the saidbox.

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 P100.00per square meter or a total of P280,500.00 for the entire property. Mrs. Ramos demanded the executionof 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 openthe safety deposit box and get the certificates of title. However, when opened in the presence of theBank's representative, the box yielded no such certificates. Because of the delay in the reconstitution ofthe title, Mrs. Ramos withdrew her earlier offer to purchase the lots; as a consequence thereof, thepetitioner allegedly failed to realize the expected profit of P280,500.00. Hence, the latter filed on 1September 1980 a complaint 2for damages against the respondent Bank with the Court of First Instance(now Regional Trial Court) of Pasig, Metro Manila which docketed the same as Civil Case No. 38382.


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In its Answer with Counterclaim, 3 respondent 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 the itemsor articles contained in the box could not give rise to an action against it. It then interposed a counterclaimfor exemplary damages as well as attorney's fees in the amount of P20,000.00. Petitioner subsequentlyfiled an answer to the counterclaim. 4

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

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

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

With costs against plaintiff. 6

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

Its motion for reconsideration 7 having been denied, petitioner appealed from the adverse decision to therespondent Court of Appeals which docketed the appeal as CA-G.R. CV No. 15150. Petitioner urged therespondent Court to reverse the challenged decision because the trial court erred in (a) absolving therespondent Bank from liability from the loss, (b) not declaring as null and void, for being contrary to law,public order and public policy, the provisions in the contract for lease of the safety deposit box absolvingthe 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 denyingthe petitioner's prayer for nominal and exemplary damages and attorney's fees. 8

In its Decision promulgated on 4 July 1989, 9 respondent Court affirmed the appealed decision principallyon the theory that the contract (Exhibit "2") executed by the petitioner and respondent Bank is in thenature of a contract of lease by virtue of which the petitioner and its co-renter were given control over thesafety deposit box and its contents while the Bank retained no right to open the said box because it hadneither the possession nor control over it and its contents. As such, the contract is governed by Article1643 of the Civil Code 10 which provides:

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

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

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

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


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and then concluded that "[c]learly, the defendant-appellee is not under any duty to maintain thecontents of the box. The stipulation absolving the defendant-appellee from liability is in accordancewith the nature of the contract of lease and cannot be regarded as contrary to law, public order andpublic policy." 12 The appellate court was quick to add, however, that under the contract of lease of thesafety deposit box, respondent Bank is not completely free from liability as it may still be madeanswerable in case unauthorized persons enter into the vault area or when the rented box is forcedopen. 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 14 having been denied in the respondent Court's Resolution of 28 August1989, 15 petitioner took this recourse under Rule 45 of the Rules of Court and urges Us to review and setaside the respondent Court's ruling. Petitioner avers that both the respondent Court and the trial court (a)did not properly and legally apply the correct law in this case, (b) acted with grave abuse of discretion orin excess of jurisdiction amounting to lack thereof and (c) set a precedent that is contrary to, or is adeparture from precedents adhered to and affirmed by decisions of this Court and precepts in American

jurisprudence adopted in the Philippines. It reiterates the arguments it had raised in its motion toreconsider the trial court's decision, the brief submitted to the respondent Court and the motion toreconsider the latter's decision. In a nutshell, petitioner maintains that regardless of nomenclature, thecontract for the rent of the safety deposit box (Exhibit "2") is actually a contract of deposit governed byTitle XII, Book IV of the Civil Code of thePhilippines. 16 Accordingly, it is claimed that the respondent Bank is liable for the loss of the certificates oftitle pursuant to Article 1972 of the said Code which provides:

Art. 1972. The depositary is obliged to keep the thing safely and to return it, when required, tothe depositor, or to his heirs and successors, or to the person who may have been designatedin the contract. His responsibility, with regard to the safekeeping and the loss of the thing,shall be governed by the provisions of Title I of this Book.

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

Petitioner then quotes a passage from American Jurisprudence 17 which is supposed to expound onthe prevailing rule in the United States, to wit:

The prevailing rule appears to be that where a safe-deposit company leases a safe-depositbox or safe and the lessee takes possession of the box or safe and places therein hissecurities or other valuables, the relation of bailee and bail or is created between the partiesto the transaction as to such securities or other valuables; the fact that thesafe-deposit company does not know, and that it is not expected that it shall know, thecharacter or description of the property which is deposited in such safe-deposit box or safedoes not change that relation. That access to the contents of the safe-deposit box can be hadonly by the use of a key retained by the lessee ( whether it is the sole key or one to be used inconnection with one retained by the lessor) does not operate to alter the foregoing rule. The

argument that there is not, in such a case, a delivery of exclusive possession and control tothe deposit company, and that therefore the situation is entirely different from that of ordinarybailment, has been generally rejected by the courts, usually on the ground that as possessionmust be either 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 the contract, givenabsolute control of access to the property, and the depositor cannot gain access theretowithout the consent and active participation of the company. . . . (citations omitted).

and a segment from Words and Phrases 18 which states that a contract for the rental of a bank safetydeposit box in consideration of a fixed amount at stated periods is a bailment for hire.


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The banks shall perform the services permitted under subsections (a), (b) and (c) of thissection as depositories or 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 out ofthe 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 writing25

and, pursuant to Article 1306 ofthe Civil Code, the parties thereto may establish such stipulations, clauses, terms and conditions as theymay deem convenient, provided they are not contrary to law, morals, good customs, public order or publicpolicy. The depositary's responsibility for the safekeeping of the objects deposited in the case at bar isgoverned by Title I, Book IV of the Civil Code. Accordingly, the depositary would be liable if, in performingits obligation, it is found guilty of fraud, negligence, delay or contravention of the tenor of theagreement. 26 In the absence of any stipulation prescribing the degree of diligence required, that of a goodfather of a family is to be observed. 27 Hence, any stipulation exempting the depositary from any liabilityarising from the loss of the thing deposited on account of fraud, negligence or delay would be void forbeing contrary to law and public policy. In the instant case, petitioner maintains that conditions 13 and 14of the questioned contract of lease of the safety deposit box, which read:

13. The bank is not a depositary of the contents of the safe and it has neither the possession

nor control of the same.

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

are void as they are contrary to law and public policy. We find Ourselves in agreement with thisproposition for indeed, said provisions are inconsistent with the respondent Bank's responsibility as adepositary under Section 72(a) of the General Banking Act. Both exempt the latter from any liabilityexcept as contemplated in condition 8 thereof which limits its duty to exercise reasonable diligenceonly with respect to who shall be admitted to any rented safe, to wit:

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

rented from it.29

Furthermore, condition 13 stands on a wrong premise and is contrary to the actual practice of theBank. It is not correct to assert that the Bank has neither the possession nor control of the contents ofthe box since in fact, the safety deposit box itself is located in its premises and is under its absolutecontrol; moreover, the respondent Bank keeps the guard key to the said box. As stated earlier, renterscannot open their respective boxes unless the Bank cooperates by presenting and using this guardkey. Clearly then, to the extent above stated, the foregoing conditions in the contract in question arevoid 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 the


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contents thereof through its own negligence, the view has been taken that such a lessormay limits its liability to some extent by agreement or stipulation. 30 (citations omitted)

Thus, we reach the same conclusion which the Court of Appeals arrived at, that is, that the petition should bedismissed, but on grounds quite different from those relied upon by the Court of Appeals. In the instant case,the respondent Bank's exoneration cannot, contrary to the holding of the Court of Appeals, be based on orproceed from a characterization of the impugned contract as a contract of lease, but rather on the fact that nocompetent proof was presented to show that respondent Bank was aware of the agreement between thepetitioner and the Pugaos to the effect that the certificates of title were withdrawable from the safety depositbox only upon both parties' joint signatures, and that no evidence was submitted to reveal that the loss of thecertificates of title was due to the fraud or negligence of the respondent Bank. This in turn flows from thisCourt's determination that the contract involved was one of deposit. Since both the petitioner and the Pugaosagreed that each should have one (1) renter's key, it was obvious that either of them could ask the Bank foraccess to the 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 its part hadbeen established, the trial court erred in condemning the petitioner to pay the respondent Bank attorney's fees.To this extent, the Decision (dispositive portion) of public respondent Court of Appeals must be modified.

WHEREFORE, the Petition for Review is partially GRANTED by deleting the award for attorney's fees from the4 July 1989 Decision of the respondent Court of Appeals in CA-G.R. CV No. 15150. As modified, and subject tothe pronouncement We made above on the nature of the relationship between the parties in a contract of leaseof safety deposit boxes, the dispositive portion of the said Decision is hereby AFFIRMED and the instantPetition for Review is otherwise DENIED for lack of merit.

No pronouncement as to costs.

SO ORDERED.


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The defendants excepted to the above decision and moved for a new trial. This motion was overruled andwas also excepted to by them; the bill of exceptions presented by the appellants having 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 with thedefendants 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 Exhibits 2, written in theVisayan dialect and followed by a translation into Spanish was executed, it was acknowledged, at thedate thereof, the 15th of November, 1902, that the amount deposited had not yet been returned to thecreditor, whereby he was subjected to losses and damages amounting to 830 pesos since the 20th ofJanuary, 1898, when the return was again stipulated with the further agreement that the amountdeposited should bear interest at the rate of 15 per cent per annum, from the aforesaid date of January20, and that the 1,000 pesos paid to the depositor on the 15th of May, 1900, according to the receiptissued by him to the debtors, would be included, and that the said rate of interest would obtain until thedebtors on the 20th of May, 1897, it is called a deposit consisted, and they could have accomplished thereturn agreed upon by the delivery of a sum equal to the one received by them. For this reason it must beunderstood that the debtors were lawfully authorized to make use of the amount deposited, which theyhave done, as subsequent shown when asking for an extension of the time for the return thereof,inasmuch as, acknowledging that they have subjected the letter, their creditor, to losses and damages fornot complying with what had been stipulated, and being conscious that they had used, for their own profitand gain, the money that they received apparently as a deposit, they engaged to pay interest to thecreditor from the date named until the time when the refund should be made. Such conduct on the part ofthe debtors is unquestionable evidence that the transaction entered into between the interested partieswas not a deposit, but a real 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 of thedepositor.

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 loses thecharacter 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 asking for anextension of one year, in view of the fact the money was scare, and because neither himself nor the otherdefendant were able to return the amount deposited, for which reason he agreed to pay interest at therate of 15 per cent per annum, it was because, as a matter of fact, he did not have in his possession theamount deposited, he having made use of the same in his business and for his own profit; and thecreditor, by granting them the extension, evidently confirmed the express permission previously given to

use and dispose of the amount stated as having bee deposited, which, in accordance with the loan, to allintents and purposes gratuitously, until the 20th of January, 1898, and from that dated with interest at 15per cent per annum until its full payment, deducting from the total amount of interest the sum of 1,000pesos, in accordance with the provisions of article 1173 of the Civil Code.

Notwithstanding that it does not appear that Jose Lim signed the document (Exhibit 2) executed in thepresence of three witnesses on the 15th of November, 1902, by Ceferino Domingo Lim on behalf ofhimself and the former, nevertheless, the said document has not been contested as false, either by acriminal or by a civil proceeding, nor has any doubt been cast upon the authenticity of the signatures of


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the witnesses who attested the execution of the same; and from the evidence in the case one issufficiently convinced that the said Jose Lim was perfectly aware of and authorized his joint codebtor toliquidate the interest, to pay the sum of 1,000 pesos, on account thereof, and to execute the aforesaiddocument No. 2. A true ratification of the original document of deposit was thus made, and not the leastproof is shown in the record that Jose Lim had ever paid the whole or any part of the capital stated in theoriginal 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 the existenceand certainty of said indebtedness imputed to the plaintiff has not been proven, and the defendants, whocall themselves creditors for the said amount have not proven in a satisfactory manner that the plaintiffhad received partial payments on account of the same; the latter alleges with good reason, that theyshould produce the receipts which he may have issued, and which he did issue whenever they paid himany money on account. The plaintiffs allegation that the two amounts of 400 and 1,200 pesos, referred toin documents marked "C" and "D" offered in evidence by the defendants, had been received fromCeferino Domingo Lim on account of other debts of his, has not been contradicted, and the fact that in theoriginal complaint the sum of 1,102.16 pesos, was expressed in lieu of 1,000 pesos, the only paymentmade on account of interest on the amount deposited according to documents No. 2 and letter "B" abovereferred 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, since theso-called bailees were forthwith authorized to dispose of the amount deposited. This they have done, ashas been clearly shown.

The original joint obligation contracted by the defendant debtor still exists, and it has not been shown orproven in the proceedings that the creditor had released Joe Lim from complying with his obligation inorder that he should not be sued for or sentenced to pay the amount of capital and interest together withhis codebtor, Ceferino Domingo Lim, because the record offers satisfactory evidence against thepretension of Jose Lim, and it further appears that document No. 2 was executed by the other debtor,Ceferino Domingo Lim, for himself and on behalf of Jose Lim; and it has also been proven that Jose Lim,

being fully aware that his debt had not yet been settled, took steps to secure an extension of the time forpayment, and consented to pay interest in return for the concession requested from the creditor.

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


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compensation has ever been received by Silvestra Baron upon account of the palay delivered byGuillermo Baron, he has received from the defendant advancements amounting to P2,800; but apart fromthis he has not been compensated. Both the plaintiffs claim that the palay which was delivered by them tothe defendant was sold to the defendant; while the defendant, on the other hand, claims that the palaywas deposited subject to future withdrawal by the depositors or subject to some future sale which wasnever effected. He therefore supposes himself to be relieved from all responsibility by virtue of the fire ofJanuary 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 to paythem severally the price of P8.40 per cavan, which was about the top of the market for the season,provided they would wait for payment until December. The trial judge found that no such promise hadbeen given; and the incredulity of the court upon this point seems to us to be justified. A carefulexamination of the proof, however, leads us to the conclusion that the plaintiffs did, some time in the earlypart of August, 1920, make demand upon the defendant for a settlement, which he evaded or postponedleaving the exact amount due to the plaintiffs undetermined.

It should be stated that the palay in question was place by the plaintiffs in the defendant's mill with

the understanding that the defendant was at liberty to convert it into rice and dispose of it at his pleasure.The mill was actively running during the entire season, and as palay was daily coming in from manycustomers and as rice was being constantly shipped by the defendant to Manila, or other rice markets, itwas 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 inwhich the palay was handled in the defendant's mill, it is quite certain that all of the plaintiffs' palay, whichwas put in before June 1, 1920, been milled and disposed of long prior to the fire of January 17, 1921.Furthermore, the proof shows that when the fire occurred there could not have been more than about 360cavans of palay in the mill, none of which by any reasonable probability could have been any part of thepalay delivered by the plaintiffs. Considering the fact that the defendant had thus milled and doubtlesssold the plaintiffs' palay prior to the date of the fire, it result that he is bound to account for its value, andhis liability was not extinguished by the occurence of the fire. In the briefs before us it seems to havebeen assumed by the opposing attorneys that in order for the plaintiffs to recover, it is necessary that theyshould be able to establish that the plaintiffs' palay was delivered in the character of a sale, and that if, onthe contrary, the defendant should prove that the delivery was made in the character of deposit, thedefendant should be absolved. But the case does not depend precisely upon this explicit alternative; foreven supposing 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 its value.Under article 1768 of the Civil Code, when the depository has permission to make use of the thingdeposited, the contract loses the character of mere deposit and becomes a loan or a commodatum ; andof course by appropriating the thing, the bailee becomes responsible for its value. In this connection wewholly reject the defendant's pretense that the palay delivered by the plaintiffs or any part of it wasactually consumed in the fire of January, 1921. Nor is the liability of the defendant in any wise affected bythe circumstance that, by a custom prevailing among rice millers in this country, persons placing palaywith them without special agreement as to price are at liberty to withdraw it later, proper allowance beingmade 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 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 by whichhe arrived at this figure, we are nevertheless of the opinion that, all things considered, the result isapproximately correct. It appears that the price of palay during the months of April, May, and June, 1920,had been excessively high in the Philippine Islands and even prior to that period the Government of thePhilippine Islands had been attempting to hold the price in check by executive regulation. The highestpoint was touched in this season was apparently about P8.50 per cavan, but the market began to sag in


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May or June and presently entered upon a precipitate decline. As we have already stated, the plaintiffsmade 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 thedefendant should be required to settle as of that date. It was the date of the demand of the plaintiffs forsettlement that determined the price to be paid by the defendant, and this is true whether the palay wasdelivered in the character of sale with price undetermined or in the character of deposit subject to use bythe defendant. It results that the plaintiffs are respectively entitle to recover the value of the palay whichthey had placed with the defendant during the period referred to, with interest from the date of the filing oftheir several complaints.

As already stated, the trial court found that at the time of the fire there were about 360 cavans ofpalay in the mill and that this palay was destroyed. His Honor assumed that this was part of the palaydelivered by the plaintiffs, and he held that the defendant should be credited with said amount. His Honortherefore deducted from the claims of the plaintiffs their respective proportionate shares of this amount ofpalay. We are unable to see the propriety of this feature of the decision. There were many customers ofthe defendant's rice mill who had placed their palay with the defendant under the same conditions as theplaintiffs, and nothing can be more certain than that the palay which was burned did not belong to theplaintiffs. That palay without a doubt had long been sold and marketed. The assignments of error of eachof the plaintiffs-appellants in which this feature of the decision is attacked are therefore well taken; andthe appealed judgments must be modified by eliminating the deductions which the trial court allowed fromthe 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 exhibits relateto transactions that occurred nearly two years after the transactions with which we are here concerned,and they were offered in evidence merely to show the character of subsequent transactions between theparties, it appearing that at the time said exhibits came into existence the defendant had reconstructedhis mill and that business relations with Guillermo Baron had been resumed. The transactions shown bythese exhibits (which relate to palay withdrawn by the plaintiff from the defendant's mill) were not madethe subject of controversy in either the complaint or the cross-complaint of the defendant in the secondcase. They therefore should not have been taken into account as a credit in favor of the defendant. Saidcredit must therefore be likewise of course be without prejudice to any proper adjustment of the rights ofthe parties with respect to these subsequent transactions that they have heretofore or may hereaftereffect.

The preceding discussion disposes of all vital contentions relative to the liability of the defendantupon the causes of action stated in the complaints. We proceed therefore now to consider the question ofthe liability of the plaintiff Guillermo Baron upon the cross-complaint of Pablo David in case R. G. No.26949. In this cross-action the defendant seek, as the stated in the third paragraph of this opinion, torecover damages for the wrongful suing out of an attachment by the plaintiff and the levy of the sameupon the defendant's rice mill. It appears that about two and one-half months after said action was begun,the plaintiff, Guillermo Baron, asked for an attachment to be issued against the property of the defendant;and to procure the issuance of said writ the plaintiff made affidavit to the effect that the defendant wasdisposing, or attempting the plaintiff. Upon this affidavit an attachment was issued as prayed, and onMarch 27, 1924, it was levied upon the defendant's rice mill, and other property, real and personal. 1awph!l.net

Upon attaching the property the sheriff closed the mill and placed it in the care of a deputy.Operations were not resumed until September 13, 1924, when the attachment was dissolved by an orderof the court and the defendant was permitted to resume control. At the time the attachment was leviedthere were, in the bodega, more than 20,000 cavans of palay belonging to persons who held receiptstherefor; and in order to get this grain away from the sheriff, twenty-four of the depositors found itnecessary to submit third-party claims to the sheriff. When these claims were put in the sheriff notified theplaintiff that a bond in the amount of P50,000 must be given, otherwise the grain would be released. Theplaintiff, being unable or unwilling to give this bond, the sheriff surrendered the palay to the claimants; butthe attachment on the rice mill was maintained until September 13, as above stated, covering a period of


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one hundred seventy days during which the mill was idle. The ground upon which the attachment wasbased, as set forth in the plaintiff's affidavit was that the defendant was disposing or attempting to disposeof his property for the purpose of defrauding the plaintiff. That this allegation was false is clearly apparent,and not a word of proof has been submitted in support of the assertion. On the contrary, the defendanttestified that at the time this attachment was secured he was solvent and could have paid hisindebtedness to the plaintiff if judgment had been rendered against him in ordinary course. His financialconditions was of course well known to the plaintiff, who is his uncle. The defendant also states that hehad not conveyed away any of his property, nor had intended to do so, for the purpose of defrauding theplaintiff. We have before us therefore a case of a baseless attachment, recklessly sued out upon a falseaffidavit and 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 circumstance that theattachment was finally dissolved upon the motion of the plaintiff himself.

The defendant testified that his mill was accustomed to clean from 400 to 450 cavans of palay perday, producing 225 cavans of rice of 57 kilos each. The price charged for cleaning each cavan rice was30 centavos. The defendant also stated that the expense of running the mill per day was from P18 toP25, and that the net profit per day on the mill was more than P40. As the mill was not accustomed to runon Sundays and holiday, we estimate that the defendant lost the profit that would have been earned onnot less than one hundred forty work days. Figuring his profits at P40 per day, which would appear to bea conservative estimate, the actual net loss resulting from his failure to operate the mill during the timestated could not have been less than P5,600. The reasonableness of these figures is also indicated in thefact that the twenty-four customers who intervened with third-party claims took out of the camarin 20,000cavans of palay, practically all of which, in the ordinary course of events, would have been milled in thisplant by the defendant. And of course other grain would have found its way to this mill if it had remainedopen during the one hundred forty days when it was closed.

But this is not all. When the attachment was dissolved and the mill again opened, the defendantfound that his customers had become scattered and could not be easily gotten back. So slow, indeed,was his patronage in returning that during the remainder of the year 1924 the defendant was able to millscarcely more than the grain belonging to himself and his brothers; and even after the next seasonopened many of his old customers did not return. Several of these individuals, testifying as witnesses inthis case, stated that, owing to the unpleasant experience which they had in getting back their grain fromthe sheriff to the mill of the defendant, though they had previously had much confidence in him.

As against the defendant's proof showing the facts above stated the plaintiff submitted no evidencewhatever. We are therefore constrained to hold that the defendant was damaged by the attachment to theextent of P5,600, in profits lost by the closure of the mill, and to the extent of P1,400 for injury to thegood-will of his business, making a total of P7,000. For this amount the defendant must recover judgmenton 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 of thesheriff for which the plaintiff was not responsible and that the defendant might have been permitted by thesheriff to continue running the mill if he had applied to the sheriff for permission to operate it. This singularsuggestion will not bear a moment's criticism. It was of course the duty of the sheriff, in levying theattachment, to take the attached property into his possession, and the closure of the mill was a natural,and even necessary, consequence of the attachment. For the damage thus inflicted upon the defendantthe plaintiff is undoubtedly responsible.

One feature of the cross-complaint consist in the claim of the defendant (cross-complaint) for thesum of P20,000 as damages caused to the defendant by the false and alleged malicious statementscontained in the affidavit upon which the attachment was procured. The additional sum of P5,000 is alsoclaimed as exemplary damages. It is clear that with respect to these damages the cross-action cannot bemaintained, for the reason that the affidavit in question was used in course of a legal proceeding for thepurpose of obtaining a legal remedy, and it is therefore privileged. But though the affidavit is not


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actionable as a libelous publication, this fact in no obstacle to the maintenance of an action to recover thedamage resulting from the levy of the attachment.

Before closing this opinion a word should be said upon the point raised in the first assignment oferror 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 under considerationthat the deposition is not available as evidence to the plaintiff because it was not actually read out incourt. This connection is not well founded. It is true that in section 364 of the Code of Civil Procedure it issaid that a deposition, once taken, may be read by either party and will then be deemed the evidence ofthe party reading it. The use of the word "read" in this section finds its explanation of course in the

American practice of trying cases for the most part before juries. When a case is thus tried the actualreading of the deposition is necessary in order that the jurymen may become acquainted with its contents.But in courts of equity, and in all courts where judges have the evidence before them for perusal at theirpleasure, it is not necessary that the deposition should be actually read when presented as evidence.

From what has been said it result that judgment of the court below must be modified with respect tothe amounts recoverable by the respective plaintiffs in the two actions R. G. Nos. 26948 and 26949 andmust be reversed in respect to the disposition of the cross-complaint interposed by the defendant in case

R. G. No. 26949, with the following result: In case R. G. No. 26948 the plaintiff Silvestra Baron willrecover of the Pablo David the sum of P6,227.24, with interest from November 21, 1923, the date of thefiling of her complaint, and with costs. In case R. G. No. 26949 the plaintiff Guillermo Baron will recover ofthe defendant Pablo David the sum of P8,669.75, with interest from January 9, 1924. In the same casethe defendant Pablo David, as plaintiff in the cross-complaint, will recover of Guillermo Baron the sum ofP7,000, without costs.

So ordered.


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

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

W. A. Kincaid, Thos. L. Hartigan, and Jose Robles 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 to beat 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-eightpesos (P2,498), the balance from Juana Montilla's sugar. Iloilo, June 26, 1911, Jose Igpuara, forRamirez and Co.

The Court of First Instance of Iloilo sentenced the defendant to two years of presidio correccional , to payJuana Montilla P2,498 Philippine currency, and in case of insolvency to subsidiary imprisonment at P2.50per 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 of theP2,498; and (3) classifying the facts in the case as the crime of estafa .

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

That the defendant received P2,498 is a fact proven. The defendant drew up a document declaring that

they remained in his possession, which he could not have said had he not received them. They remainedin his possession, surely in no other sense than to take care of them, for they remained has no otherpurpose. They remained in the defendant's possession at the disposal of Veraguth; but on August 23 ofthe same year Veraguth demanded for him through a notarial instrument restitution of them, and to datehe 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 indorse andnegotiate it like any other commercial instrument. There is no doubt that if Veraguth accepted the receiptfor P2,498 it was because at that time he agreed with the defendant to consider the operation of sale oncommission closed, leaving the collection of said sum until later, which sum remained as a loan payableupon presentation of the receipt." (Brief, 3 and 4.)

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

It is erroneous to assert that the certificate of deposit in question is negotiable like any other commercialinstrument: First, because every commercial instrument is not negotiable; and second, because only


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instruments payable to order are negotiable. Hence, this instrument not being to order but to bearer, it isnot negotiable.

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 thing lent,while in a deposit the use of the thing is not transmitted, but merely possession for its custody or safe-

keeping.

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

The rights and obligations of the depositary and of the depositor shall cease, and the rules andprovisions applicable to commercial loans, commission, or contract which took the place of the depositshall 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 on thesame or the next day after the certificate was signed, does not operate against the depositor, or signifyanything except the intention not to press it. Failure to claim at once or delay for sometime in demandingrestitution of the things deposited, which was immediately due, does not imply such permission to use thething 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 beresponsible for all damages that may accrue and shall respond to the depositor for the legal interest onthe amount.

Whereupon the commentators say:

In this case the deposit becomes in fact a loan, as a just punishment imposed upon him who abusesthe sacred nature of a deposit and as a means of preventing the desire of gain from leading him intospeculations 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 orabstract for their own use money, goods, or other personal property which they may have received asa deposit, on commission, or for administration, or for any other purpose which produces the obligationof delivering it or returning it, and deny having received it, shall suffer the penalty of the precedingarticle," which punishes such act as the crime of estafa . The corresponding article of the Penal Codeof the Philippines in 535, No. 5.

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


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

Likewise erroneous is the construction apparently at tempted to be given to two decisions of this SupremeCourt (U. S. vs. Dominguez, 2 Phil. Rep., 580, and U. S. vs. Morales and Morco, 15 Phil. Rep., 236) as

implying that what constitutes estafa is not the disposal of money deposited, but denial of having receivedsame. In the first of said cases there was no evidence that the defendant had appropriated the graindeposited 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 it wasnecessary to prove that the depositary had appropriated it to himself or diverted the deposit to his own oranother's benefit. He was accused or refusing to restore, and it was held that the code does not penalizerefusal to restore but denial of having received. So much for the crime of omission; now with reference tothe crime of commission, it was not held in that decision that appropriation or diversion of the thing

deposited would not constitute the crime of estafa .

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

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


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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 FELIZARDO N. LOTAand 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 restraining orderand/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, a temporaryrestraining order was duly issued ordering the respondents, their officers, agents, representatives and/orperson or persons acting upon their (respondents') orders or in their place or stead to refrain from proceedingwith 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 Clement David filed a motion to lift restraining order which was

denied in the resolution of this Court dated May 18, 1983.

As can be gleaned from the above, the instant petition seeks to prohibit public respondents from proceedingwith the preliminary investigation of I.S. No. 81-31938, in which petitioners were charged by private respondentClement David, with estafa and violation of Central Bank Circular No. 364 and related regulations regardingforeign exchange transactions principally, on the ground of lack of jurisdiction in that the allegations of thecharged, as well as the testimony of private respondent's principal witness and the evidence through saidwitness, showed that petitioners' obligation is civil in nature.

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

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

In I.S. No. 81-31938, David charged petitioners (together with one Robert Marshall and thefollowing directors of the Nation Savings and Loan Association, Inc., namely HomeroGonzales, Juan Merino, Flavio Macasaet, Victor Gomez, Jr., Perfecto Manalac, Jaime V. Paz,Paulino B. Dionisio, and one John Doe) with estafa and violation of Central Bank Circular No.364 and related Central Bank regulations on foreign exchange transactions, allegedlycommitted as follows (Petition, Annex "A"): t.hqw

"From March 20, 1979 to March, 1981, David invested with the NationSavings and Loan Association, (hereinafter called NSLA) the sum ofP1,145,546.20 on nine deposits, P13,531.94 on savings account deposits(jointly with his sister, Denise Kuhne), US$10,000.00 on time deposit,

US$15,000.00 under a receipt and guarantee of payment and US$50,000.00under a receipt dated June 8, 1980 (au jointly with Denise Kuhne), that Davidwas induced into making the aforestated investments by Robert Marshall an

Australian national who was allegedly a close associate of petitionerGuingona Jr., then NSLA President, petitioner Martin, then NSLA ExecutiveVice-President of NSLA and petitioner Santos, then NSLA General Manager;that on March 21, 1981 N LA was placed under receivership by the CentralBank, so that David filed claims therewith for his investments and those ofhis sister; that on July 22, 1981 David received a report from the CentralBank that only P305,821.92 of those investments were entered in the


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records of NSLA; that, therefore, the respondents in I.S. No. 81-31938misappropriated the balance of the investments, at the same time violatingCentral Bank Circular No. 364 and related Central Bank regulations onforeign exchange transactions; that after demands, petitioner Guingona Jr.paid only P200,000.00, thereby reducing the amounts misappropriated toP959,078.14 and US$75,000.00."

Petitioners, Martin and Santos, filed a joint counter-affidavit (Petition, Annex' B') in which theystated the following. t.hqw

"That Martin became President of NSLA in March 1978 (after the resignationof Guingona, Jr.) and served as such until October 30, 1980, while Santoswas General Manager up to November 1980; that because NSLA wasurgently in need of funds and at David's insistence, his investments weretreated as special- accounts with interest above the legal rate, an recorded inseparate confidential documents only a portion of which were to be reportedbecause he did 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 loan ofSantos; that David's check for US$50,000.00 was cleared through Guingona,

Jr.'s dollar account because NSLA did not have one, that a draft ofUS$30,000.00 was placed in the name of one Paz Roces because of apending transaction with her; that the Philippine Deposit InsuranceCorporation had already reimbursed David within the legal limits; thatmajority of the stockholders of NSLA had filed Special Proceedings No. 82-1695 in the Court of First Instance to contest its (NSLA's) closure; that afterNSLA was placed under receivership, Martin executed a promissory note inDavid's favor and caused the transfer to him of a nine and on behalf (9 1/2)carat diamond ring with a net value of P510,000.00; and, that the liabilities ofNSLA to David were civil in nature."

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

"That he had no hand whatsoever in the transactions between David andNSLA since he (Guingona Jr.) had resigned as NSLA president in March1978, or prior to those transactions; that he assumed a portion o; theliabilities of NSLA to David because of the latter's insistence that he placedhis investments with NSLA because of his faith in Guingona, Jr.; that in aPromissory Note dated June 17, 1981 (Petition, Annex "D") he (Guingona,Jr.) bound himself to pay David the sums of P668.307.01 and US$37,500.00in stated installments; that he (Guingona, Jr.) secured payment of thoseamounts with second mortgages over two (2) parcels of land under a deed ofSecond Real Estate Mortgage (Petition, Annex "E") in which it was providedthat the mortgage over one (1) parcel shall be cancelled upon payment ofone-half of the obligation to David; that he (Guingona, Jr.) paid P200,000.00and tendered another P300,000.00 which David refused to accept, hence, he(Guingona, Jr.) filed Civil Case No. Q-33865 in the Court of First Instance ofRizal at Quezon City, to effect the release of the mortgage over one (1) ofthe two parcels of land conveyed to David under second mortgages."

At the inception of the preliminary investigation before respondent Lota, petitioners moved todismiss the charges against them for lack of jurisdiction because David's claims allegedlycomprised a purely civil obligation which was itself novated. Fiscal Lota denied the motion todismiss (Petition, p. 8).

But, after the presentation of David's principal witness, petitioners filed the instant petitionbecause: (a) the production of the Promisory Notes, Banker's Acceptance, Certificates of


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Time Deposits and Savings Account allegedly showed that the transactions between Davidand NSLA were simple loans, i.e., civil obligations on the part of NSLA which were novatedwhen Guingona, Jr. and Martin assumed them; and (b) David's principal witness allegedlytestified that the duplicate originals of the aforesaid instruments of indebtedness were all onfile with NSLA, contrary to David's claim that some of his investments were not record(Petition, pp. 8-9).

Petitioners alleged that they did not exhaust available administrative remedies because to doso 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 public respondentsacted without jurisdiction when they investigated the charges (estafa and violation of CB Circular No. 364 andrelated regulations regarding foreign exchange transactions) subject matter of I.S. No. 81-31938.

There is merit in the contention of the petitioners that their liability is civil in nature and therefore, publicrespondents 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 of Manila byprivate respondent David against petitioners Teopisto Guingona, Jr., Antonio I. Martin and Teresita G. Santos,together with one Robert Marshall and the other directors of the Nation Savings and Loan Association, willshow that from March 20, 1979 to March, 1981, private respondent David, together with his sister, DeniseKuhne, invested with the Nation Savings and Loan Association the sum of P1,145,546.20 on time depositscovered by Bankers Acceptances and Certificates of Time Deposits and the sum of P13,531.94 on savingsaccount deposits covered by passbook nos. 6-632 and 29-742, or a total of P1,159,078.14 (pp. 15-16, roc.). Itappears further that private respondent David, together with his sister, made investments in the aforesaid bankin the amount of US$75,000.00 (p. 17, rec.).

Moreover, the records reveal that when the aforesaid bank was placed under receivership on March 21, 1981,petitioners Guingona and Martin, upon the request of private respondent David, assumed the obligation of thebank to private respondent David by executing on June 17, 1981 a joint promissory note in favor of privaterespondent acknowledging an indebtedness of Pl,336,614.02 and US$75,000.00 (p. 80, rec.). This promissorynote was based on the statement of account as of June 30, 1981 prepared by the private respondent (p. 81,rec.). The amount of indebtedness assumed appears to be bigger than the original claim because of the added

interest and the inclusion of other deposits of private respondent's sister in the amount of P116,613.20.

Thereafter, or on July 17, 1981, petitioners Guingona and Martin agreed to divide the said indebtedness, andpetitioner Guingona executed another promissory note antedated to June 17, 1981 whereby he personallyacknowledged an indebtedness of P668,307.01 (1/2 of P1,336,614.02) and US$37,500.00 (1/2 ofUS$75,000.00) in favor of private respondent (p. 25, rec.). The aforesaid promissory notes were executed as aresult of deposits made by Clement David and Denise Kuhne with the Nation Savings and Loan Association.

Furthermore, the various pleadings and documents filed by private respondent David, before this Courtindisputably show that he has indeed invested his money on time and savings deposits with the Nation Savingsand Loan Association.

It must be pointed out that when private respondent David invested his money on nine. and savings depositswith the aforesaid bank, the contract that was perfected was a contract of simple loan or mutuum and not acontract of deposit. Thus, Article 1980 of the New Civil Code provides that: t.hqw

Article 1980. Fixed, savings, and current deposits of-money in banks and similar institutionsshall be governed by the provisions concerning simple loan.

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

It should be noted that fixed, savings, and current deposits of money in banks and similarinstitutions are hat true deposits. are considered simple loans and, as such, are not preferred


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credits (Art. 1980 Civil Code; In re Liquidation of Mercantile Batik of China Tan Tiong Tick vs. American Apothecaries Co., 66 Phil 414; Pacific Coast Biscuit Co. vs. Chinese Grocers Association 65 Phil. 375; Fletcher American National Bank vs. Ang Chong UM 66 PWL 385;Pacific Commercial Co. vs. American Apothecaries Co., 65 PhiL 429; Gopoco Grocery vs.Pacific Coast Biscuit CO.,65 Phil. 443)."

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

Bank deposits are in the nature of irregular deposits. They are really 'loans because they earninterest. All kinds of bank deposits, whether fixed, savings, or current are to be treated asloans and are to be covered by the law on loans (Art. 1980 Civil Code Gullas vs. Phil. NationalBank, 62 Phil. 519). Current and saving deposits, are loans to a bank because it can usethe same. The petitioner here in making time deposits that earn interests will respondentOverseas Bank of Manila was in reality a creditor of the respondent Bank and not a depositor.The respondent Bank was in turn a debtor of petitioner. Failure of the respondent Bank tohonor the time deposit is failure to pay its obligation as a debtor and not a breach oftrust arising from a depositary's failure to return the subject matter of the deposit (Emphasissupplied).

Hence, the relationship between the private respondent and the Nation Savings and Loan Association is that ofcreditor and debtor; consequently, the ownership of the amount deposited was transmitted to the Bank uponthe perfection of the contract and it can make use of the amount deposited for its banking operations, such asto pay interests on deposits and to pay withdrawals. While the Bank has the obligation to return the amountdeposited, it has, however, no obligation to return or deliver the same money that was deposited. And, thefailure of the Bank to return the amount deposited will not constitute estafa through misappropriationpunishable under Article 315, par. l(b) of the Revised Penal Code, but it will only give rise to civil liability overwhich the public respondents have no- jurisdiction.

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

In order that a person can be convicted under the above-quoted provision, it mus t be proventhat he has the obligation to deliver or return the some money, goods or personal property

that he received Petitioners had no such obligation to return the same money, i.e., the bills orcoins, which they received from private respondents. This is so because as clearly as statedin criminal complaints, the related civil complaints and the supporting sworn statements, thesums of money that petitioners received were loans.

The nature of simple loan is defined in Articles 1933 and 1953 of the Civil Code. t.hqw

"Art. 1933. By the contract of loan, one of the parties delivers to another,either something not consumable so that the latter may use the same for acertain time- and return it, in which case the contract is called acommodatum; or money or other consumable thing, upon the condition thatthe same amount of the same kind and quality shall he paid in which casethe contract is simply called a loan or mutuum.

"Commodatum is essentially gratuitous.

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

"In commodatum the bailor retains the ownership of the thing loaned while insimple loan, ownership passes to the borrower.


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Petitioners herein were likewise charged with violation of Section 3 of Central Bank Circular No. 364 and otherrelated regulations regarding foreign exchange transactions by accepting foreign currency deposit in theamount of US$75,000.00 without authority from the Central Bank. They contend however, that the US dollarsintended by respondent David for deposit were all converted into Philippine currency before acceptance anddeposit into Nation Savings and Loan Association.

Petitioners' contention is worthy of behelf for the following reasons:

1. It appears from the records that when respondent David was about to make a deposit of bank draft issued inhis name in the amount of US$50,000.00 with the Nation Savings and Loan Association, the same had to becleared first and converted into Philippine currency. Accordingly, the bank draft was endorsed by respondentDavid to petitioner Guingona, who in turn deposited it to his dollar account with the Security Bank and TrustCompany. Petitioner Guingona merely accommodated the request of the Nation Savings and loan Associationin order to clear the bank draft through his dollar account because the bank did not have a dollar account.Immediately after the bank draft was cleared, petitioner Guingona authorized Nation Savings and Loan

Association to withdraw the same in order to be utilized by the bank for its operations.

2. It is safe to assume that the U.S. dollars were converted first into Philippine pesos before they wereaccepted and deposited in Nation Savings and Loan Association, because the bank is presumed to havefollowed the ordinary course of the business which is to accept deposits in Philippine currency only, and that

the transaction was regular and fair, in the absence of a clear and convincing evidence to the contrary (seeparagraphs p and q, Sec. 5, Rule 131, Rules of Court).

3. Respondent David has not denied the aforesaid contention of herein petitioners despite the fact that it wasraised. in petitioners' reply filed on May 7, 1982 to private respondent's comment and in the July 27, 1982 replyto public respondents' comment and reiterated in petitioners' memorandum filed on October 30, 1982, therebyadding more support to the conclusion that the US$75,000.00 were really converted into Philippine currencybefore they were accepted and deposited into Nation Savings and Loan Association. Considering that thismight adversely affect his case, respondent David should have promptly denied petitioners' allegation.

In conclusion, considering that the liability of the petitioners is purely civil in nature and that there is no clearshowing that they engaged in foreign exchange transactions, We hold that the public respondents actedwithout jurisdiction when they investigated the charges against the petitioners. Consequently, public

respondents should be restrained from further proceeding with the criminal case for to allow the case tocontinue, even if the petitioners could have appealed to the Ministry of Justice, would work great injustice topetitioners and would render meaningless the proper administration of justice.

While as a rule, the prosecution in a criminal offense cannot be the subject of prohibition and injunction, thiscourt has recognized the resort to the extraordinary writs of prohibition and injunction in extreme cases, thus: t.hqw

On the issue of whether a writ of injunction can restrain the proceedings in Criminal Case No.3140, the general rule is that "ordinarily, criminal prosecution may not be blocked by courtprohibition or injunction." Exceptions, however, are allowed in the following instances: t.hqw

"1. for the orderly administration of justice;

"2. to prevent the use of the strong arm of the law in an oppressive andvindictive manner;

"3. to avoid multiplicity of actions;

"4. to afford adequate protection to constitutional rights;

"5. in proper cases, because the statute relied upon is unconstitutional orwas held invalid" ( Primicias vs. Municipality of Urdaneta, Pangasinan, 93


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

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

Petitioner bank concedes that it is its obligation to honor checks issued by private respondent which aresufficiently funded, but, it contends, private respondent has also the duty to use her account in accordance with

the rules of petitioner bank to which she has contractually acceded. Among such rules, contained in its"brochures" governing current account deposits, is the following printed provision:

In making a deposit . . . kindly insure accuracy in filing said deposit slip forms as we holdourselves free of any liability for loss due to an incorrect account number indicated in thedeposit slip although the name of the depositor is correctly written.

Exactly the same issue was addressed by the appellate court, which, after its deliberations, made thefollowing findings and conclusions: 1

We cannot uphold the position of defendant. For, even if it be true that there was error on thepart of the plaintiff in omitting a "zero" in her account number, yet, it is a fact that her name,"Emme E. Herrero", is clearly written on said deposit slip (Exh. "B"). This is controlling in

determining in whose account the deposit is made or should be posted. This is so because itis not likely to commit an error in one's name than merely relying on numbers which aredifficult to remember, especially a number with eight (8) digits as the account numbers ofdefendant's depositors. We view the use of numbers as simply for the convenience of thebank but was never intended to disregard the real name of its depositors. The bank isengaged in business impressed with public interest, and it is its duty to protect in return itsmany clients and depositors who transact business with it. It should not be a matter of thebank alone receiving deposits, lending out money and collecting interests. It is also itsobligation to see to it that all funds invested with it are properly accounted for and duly postedin its ledgers.

In the case before Us, We are not persuaded that defendant bank was not free from blame forthe fiasco. In the first place, the teller should not have accepted plaintiff's deposit withoutcorrecting the account number on the deposit slip which, obviously, was erroneous because,

as pointed out by defendant, it contained only seven (7) digits instead of eight (8). Second, thecomplete name of plaintiff depositor appears in bold letters on the deposit slip (Exh. "B").There could be no mistaking in her name, and that the deposit was made in her name, "EmmaE. Herrero." In fact, defendant's teller should not have fed her deposit slip to the computerknowing that her account number written thereon was wrong as it contained only seven (7)digits. As it happened, according to defendant, plaintiff's deposit had to be consigned to thesuspense accounts pending verification. This, indeed, could have been avoided at the firstinstance had the teller of defendant bank performed her duties efficiently and well. For thenshe could have readily detected that the account number in the name of "Emma E. Herrero"was erroneous and would be rejected by the computer. That is, or should be, part of thetraining and standard operating procedure of the bank's employees. On the other hand, thedepositors are not concerned with banking procedure. That is the responsibility of the bankand its employees. Depositors are only concerned with the facility of depositing their money,earning interest thereon, if any, and withdrawing therefrom, particularly businessmen, like

plaintiff, who are supposed to be always "on-the-go". Plaintiff's account is a "current account"which should immediately be posted. After all, it does not earn interest. At least, theforbearance should be commensurated with prompt, efficient and satisfactory service.

Bank clients are supposed to rely on the services extended by the bank, including theassurance that their deposits will be duly credited them as soon as they are made. For, anydelay in crediting their account can be embarrassing to them as in the case of plaintiff.

We agree with plaintiff that


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. . . even in computerized systems of accounts, ways and means areavailable whereby deposits with erroneous account numbers are properlycredited depositor's correct account numbers. They add that failure on thepart of the defendant to do so is negligence for which they are liable. Asproof thereof plaintiff alludes to five particular incidents where plaintiffadmittedly wrongly indicated her account number in her deposit slips(Exhs. "J", "L", "N", "O" and "P"), but were nevertheless properly credited herdeposit (pp. 4-5, Decision).

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

Having accepted a deposit in the course of its business transactions, itbehooved upon defendant bank to see to it and without recklessness thatthe depositor was accurately credited therefor. To post a deposit insomebody else's name despite the name of the depositor clearly written onthe deposit slip is indeed sheer negligence which could have easily beenavoided if defendant bank exercised due diligence and circumspection in theacceptance and posting of plaintiff's deposit.

We subscribe to the above disquisitions of the appellate court. In Simex International (Manila), Inc . vs . Court of Appeals, 183 SCRA 360, reiterated in Bank of Philippine Islands vs . Intermediate Appellate Court, 206 SCRA408, we similarly said, in cautioning depository banks on their fiduciary responsibility, that

In every case, the depositor expects the bank to treat his account with utmost fidelity, whethersuch account consists only of a few hundred pesos or of millions. The bank must record everysingle transaction accurately, down to the last centavo, and as promptly as possible. This hasto be done if the account is to reflect at any given time the amount of money the depositor candispose of as he sees fit, confident that the bank will deliver it as and to whomever he directs.

A blunder on the part of the bank, such as the dishonor of a check without good reason, cancause the depositor not a little embarrassment if not also financial loss and perhaps even civiland criminal litigation.

The point is that as a business affected with public interest and because of the nature of itsfunctions, the bank is under obligation to treat the accounts of its depositors with meticulouscare, always having in mind the fiduciary nature of their relationship.

We agree with petitioner, however, that it is wrong to award, along with nominal damages, temperate ormoderate damages. The two awards are incompatible and cannot be granted concurrently. Nominal damagesare given in order that a right of the plaintiff, which has been violated or invaded by the defendant, may bevindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him (Art.2221, New Civil Code; Manila Banking Corp . vs . Intermediate Appellate Court, 131 SCRA 271). Temperate ormoderate damages, which are more than nominal but less than compensatory damages, on the other hand,may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, fromthe nature of the case, be proved with reasonable certainty (Art. 2224, New Civil Code).

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

WHEREFORE, the appealed decision is MODIFIED by deleting the award of temperate or moderate damages.In all other respects, the appellate court's decision is AFFIRMED. No costs in this instance.

SO ORDERED.


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G.R. No. 126490 March 31, 1998

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

REGALADO,J .:

Where a party signs a promissory note as a co-maker and binds herself to be jointly and severally liable withthe principal debtor in case the latter defaults in the payment of the loan, is such undertaking of the formerdeemed to be that of a surety as an insurer of the debt, or of a guarantor who warrants the solvency of thedebtor?

Pursuant to a promissory note dated March 13, 1990, private respondent M.B. Lending Corporationextended a loan to the spouses Osmea and Merlyn Azarraga, together with petitioner Estrella Palmares,in the amount of P30,000.00 payable on or before May 12, 1990, with compounded interest at the rate of6% per annum to be computed every 30 days from the date thereof. 1 On four occasions after the

execution of the promissory note and even after the loan matured, petitioner and the Azarraga spouseswere able to pay a total of P16,300.00, thereby leaving a balance of P13,700.00. No payments weremade after the last payment on September 26, 1991. 2

Consequently, on the basis of petitioner's solidary liability under the promissory note, respondentcorporation filed a complaint 3 against petitioner Palmares as the lone party-defendant, to the exclusion ofthe principal debtors, allegedly by reason of the insolvency of the latter.

In her Amended Answer with Counterclaim, 4 petitioner alleged that sometime in August 1990,immediately after the loan matured, she offered to settle the obligation with respondent corporation butthe latter informed her that they would try to collect from the spouses Azarraga and that she need notworry about it; that there has already been a partial payment in the amount of P17,010.00; that theinterest of 6% per month compounded at the same rate per month, as well as the penalty charges of 3%

per month, are usurious and unconscionable; and that while she agrees to be liable on the note but onlyupon default of the principal debtor, respondent corporation acted in bad faith in suing her alone withoutincluding the Azarragas when they were the only ones who benefited from the proceeds of the loan.

During the pre-trial conference, the parties submitted the following issues for the resolution of the trialcourt: (1) what the rate of interest, penalty and damages should be; (2) whether the liability of thedefendant (herein petitioner) is primary or subsidiary; and (3) whether the defendant Estrella Palmares isonly a guarantor with a subsidiary liability and not a co-maker with primary liability. 5

Thereafter, the parties agreed to submit the case for decision based on the pleadings filed and thememoranda to be submitted by them. On November 26, 1992, the Regional Trial Court of Iloilo City,Branch 23, rendered judgment dismissing the complaint without prejudice to the filing of a separate actionfor a sum of money against the spouses Osmea and Merlyn Azarraga who are primarily liable on theinstrument. 6 This was based on the findings of the court a quo that the filing of the complaint againstherein petitioner Es

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