credit cases - commodatum and deposit

8/2/2019 Credit Cases - Commodatum and Deposit

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C R E D I T T R A N S A C T I O N S ( A T T Y . D I M A L A N T A ) | A Z I S ( A - 2 0 1 4 )

CASES | COMMODATUM

Republic v. Bagtas (1962, Padilla) Bagtas borrowed from the Republic (thru Bureau of Animal Industry) 3 bulls:

Red Sindhi (P1,176 .46), Bhagnari (P1320.56) and Sahiniw al (P7 44 .46) for 1year for breeding purposes, subject to government charge of 10% of the book value of

the bulls.

Upon expira tion of the contract, Bagtas asked for a renewal (for another 1year) Agri Sec. Approved a renewal ofonly 1 bull and requested the returnof the other 2.

Bagtas w rote to the Director that he would pay the value of the 3 bulls;reiterated his desire to buy them at a value with deduction of yearlydepreciation Director advised him that the book value of the bulls cannot

be reduced and that they be returned or their book value paid. Bagtas failed to pay or to return them Republic commenced an action

against him to return the bulls or to pay the book value (P3,241.45) and theunpaid breeding fee (P199.62).

Bagtas: Because of the bad peace and order situation in Cagayan Valley and ofthe pending appeal he had taken to the Agri Sec. from the refusal by theDirector to deduct from the book value the corresponding yearly depreciation,

he could not return the animals nor pay their value. TC: Ordered Bagtas to pay. Republic moved ex parte for a writ of execution and for the appointment of a

special sheriff to serv e the writ outside Manila GRANTED. Felicidad(surviving spouse and administratix of Bagtas) w as notified.

Felicidad filed a mot ion alleging that the Sindhi and the Bhagnari werereturned to the Bureau and that the Sahiniw al died from gunshot woundsduring a Huk raid on Hacienda Felicidad Intal. Prayed for the quashal of

the writ of execut ion and the issuance of a w rit of preliminary injunction. DENIED.

TRUE that Bagtas son Jose Jr. Returned the Sindhi and the Bhagnari to theSuperintendent of the NVB station, Bureau of Animal Industry in Nueva

Vizcaya.

RE: Sahiniw al Felicidad contends that since the death w as due to forcemajeure, she is relieved from the duty of returning the bull or paying its v alue.

NO MERIT.o The loan was subject to payment by the borrower of breeding fee of 10% of the book

value.

o Felicidad contends that the contract was commodatumand for that reason,as the Republic retained ownership or title to the bull, it should suffer itsloss due to force majeure.

o SC: A contract of commodatum is essentially gratuitous. If thebreeding fee be considered compensation, the contract w ould be aLEASE.

o Art. 1671 Less ee would be subject to the responsibilities of a posses sorin bad faith, because she continued possession of the bull after expiry ofthe contract.

o Even if the contract be commodatum, F elicidad w ould st ill be liablebecause under Art. 1942, a bailee in commodatum is liable for the loss of

the things, even if it should be through a fortuitous event, if he keeps itlonger than the period stipulated and if the thing loaned has beendelivered w ith appraisal of its value, unless there is a s tipulation exemptingthe bailee from responsibility in case of fortuitous event.

o HERE: The loan of one bull was extended to May 1950 , but w as kept andused by Felicidad until Nov. 19 53 w hen during a Huk raid, it w as killed bystray bullets. Moreover, the bulls had an appraised book value when lentand delivered to Bagtas. It w as not stipulated that in case of loss of thebull due to fortuitous event Bagtas would be exempt.

The estate of Bagtas is only liable for P859.63, the value of the bull which hasnot been returned.

Republic v. CA (1986, Paras) CFI Zam bales denied Baloys application for registration. CA reversed;

approved the application for registration.o Republic filed MR, alleging that Baloys possessory information title can

no longer be invoked and that they w ere not able to prove a registerabletitle over the land. Denied.

Poss essory information title shows that the description and the area of theland sta ted therein substantially coincides with the land applied for and thatsaid title had been regularly issued having been acquired by Baloy under theSpanish Mortgage Law .

Director of Lands opposed: The land became public land thru Act 6 27.o Pursuant to the executive order of the US Pres., the area w as declared

within the US Naval Reservation.o Under Act 62 7, a period w as fixed (60 days) w ithin w hich affected

persons can file their application, otherw ise the s aid lands or intereststherein will be conclusively adjudged to be public lands, and all claims notpresented w ill be forever barred. Since Baloy failed to file his claim

within the prescribed period, the land became irrevocably public andcould not be the subject of a valid registration for private ownership.

CA: There w as no judicial declaration to the effect that the land in questionbecame public.


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Sec. 3, Act 627 Procedures before any affected land can be conclusivelyadjudged to be public land.o Issue a notice stating that the land was reserved for military purposes

Claims for private lands must be presented for registration within 6months. All claims not presented will be conclusively adjudged to bepublic lands and will be forever barred.

o The notice must be published once a w eek for 3 successive w eeks in 2new spapers (English and Spanish) If there are no new spapers in the

area w here the land lies, it is sufficient compliance to publish the notice inthe Spanish and English daily newspaper in Manila.

o Clerk shall cause to be personally s erved the notice in Spanish upon everyperson living upon or in visible possession of any part of the militaryreservation.

Private land could be deemed to have become public land only by virtue of ajudicial declaration after due notice and hearing. This is contrary to

Republics contention that failure to present claims made the land ipso factopublic land w ithout need of judicial pronouncement.

Without a judgment or order declaring the land to be public, its privatecharacter and the possessory information title over it must be respected. No order = never became public.

It can be presumed that the notice required by law (publication andpersonalservice) did NOT include Baloys name and the subject land He and hisland were never brought w ithin the operation of Act 627.

CA finding that during the interim (occupation of US Navy) the possessoryrights of Baloy w ere merely suspended and not lost by prescription issupported by a communication of the Republic stating that Baloy has been in

continuous possession of the land since 1894 as attested by a possessoryinformation title granted by the Spanish Government. Disputed property isprivate land and this posses sion was interrupted only by the occupation of the

land by the US Navy in 1945 for recreational purposes.o The US Navy abandoned the premises; Baloys heirs are now in actual

possession.

Occupancy of US N avy w as not in the concept of an ow ner Partakes thenature of a COMMODATUM.o

Ones owners hip of a thing may be lost by prescription by reason ofanothers pos sess ion if such posses sion be under claim of ow nership, notwhere possession is only intended to be trans ient as in this case, where theow ner is not d ivested of his title although it cannot be exercised in themeantime.

De los Santos v. Jarra (1910, Torres) De los Santos filed suit against Jarra (administratix of estate of Jimenea).

o Jimenea borrowed from de los S antos 10 first-class carabaos, to be used atthe animal-power mill of his hacienda, w ithout recompense orremuneration thereof, under the sole condition that they be returned to theowner as soon as the work at the mill was terminated.

o He did not return the carabaos despite demands for its return after thework at the mill w as finished. The commiss ioners of his estat e rejected hisclaim.

Jarra: Jimenea only obtained 3 second-class animals which were transferred bysale by De los Santos to Jimenea.

Atty. Martinez notified Jarra and her counsel (Atty. Hilado) that he made anagreement w ith de los Santos to the effect that the latter w ould notcompromise the controversy w ithout his consent and that as professional fees,he was to receive of the amount allowed in the judgment.

TC: Sentenced Jarra to return to de los Santos the remaining 6 second andthird class carabaos or value thereof (P720 or P120 each)

Jarra admitted that Jimenea asked de los Santos for the loan of 10 carabaosw hich are now claimed by the latter; but Jimenea only obtained 3 second-class

carabaos, w hich w ere subsequently sold to him by de los Santos.

o De los Santos sent in charge of various persons the 10 carabaos requestedby Jimenea (his father-in-law); Jimenea received them in the presence ofsome of said persons, one of w hom being his brother.

o 4 died of rinderpest 6 are involved in the judgment appealed from.o The alleged purchase of 3 carabaos by Jimenea is not evidenced by any

trustw orthy documents nor w ere the declarations of the witnesses

affirming such sale satisfactory.o TO SUM: As the 6 carabaos w ere not the property of Jimenea nor of his

heirs, it is Jarras duty to return them or to indemnify the owner.

Pertinent provisions of the OCC:ART. 17 40. B y the contract of loan, one of the parties delivers to the other, either anything notperishable, in order that the latter may use it duringa certain period and return it to theformer, inwhich case it is called commodatum, or money or any other perishable thing, under the conditionto return an equ al amount of the same ki nd and quality, in which case it is merely called a loan.

Commodatum is essentially gratuitous.

A simple loan may be gratuitous, or made under a stipulation to pay interest.

ART. 1741 . The bailee acquires r etains the ownership of the thing loaned. The bailee acquires theuse thereof, but not its fruits; if any compensation is involved, to be paid by the person requiringthe us e, the agreement ceases to be a commodatum.

ART. 174 2. The obligations and rights which arise fr om the commodatum pass to the heirs ofboth contracting parties, unless the loan has been in consideration for the person of the bailee, inwhich case his heirs shall not have the right to continue usi ng the thing loaned.


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The carabaos delivered to be used not being returned by Jimenea upondemand, there is no doubt that she is under obligation to indemnify the ow nerthereof by paying him their value.

Supreme Tribunal of Spain: Although it is true that in com modatum, the bailorretains the ownership of the thing loaned, and at the expiration of the periodor after the use for which it was loaned has been accomplished, it is theimperative duty of the bailee to return the thing itself to its ow ner or to pay

him damages if through the fault of the bailee the thing should have been lost

or injured.

Manzano v. Perez (2001, Pan ganiban) Em ilia Manzano ow ns a house and lot in Laguna. Nieves Manzano (sist er)

allegedly borrowed the property as collateral for a projected loan. Emilia

agreed upon the latters promise that she would return the propertyimmediately upon payment of her loan.

Emilia executed 2 deeds of conveyance for the sale of the house and the lost,both for P1 plus other valuables received from Nieves.

Niev es, together with Perez Sr. and their son Macario, obtained a loan fromthe Rural Bank of Infanta (P30K). Executed a Real Estate Mortgage overthe subject property in favor of the bank.

When Nieves died, her heirs (Perez Sr. and Macario) refused to return thehouse and lot to Emilia even after payment of their loan. Sincere efforts toamicably settle the dispute failed and the unw arranted refusal of P erez Sr. to

return the property caused her sleepless nights. Emilia sought theannulment of the deeds of sale and execution of a deed of transfer or

reconveyance of the subject property in her favor.o Perez Sr. countered that they are the ow ners of the property, being the

legal heirs of Nieves w ho purchased the same from Emilia for value andin good faith; and that the latter failed to show any proof that the

transaction she entered into with her sister w as a loan and not a sale. What the parties agreed upon was to resell the property to Emilia

after the payment of the loan w ith the Rural Bank. Since Perez Sr.

felt that the property was the only memory left by Nieves, they

informed Emilia of their refusal to sell the same. TC: Ruled in favor of Emilia

o The documents covering the properties were returned to Emilia byFlorencio P erez.

o Perez, Sr. failed to present payment of real estate tax es for said properties;it w as E milia w ho has been paying for same.

o Emilia w ent to the house and hacked the stairs, and P erez, Sr. did not fileany action against her Indication that Perez, Sr. recognized Emilia asthe owner.

o Cadastral Notice of said properties were in the name of Emilia and thesame w as sent to her.

o Upon request to return the property, Perez, Sr. promised and prepared anEJ partition w ith Sale over said properties, but the same did notmaterialize.

o The consideration in quest ion is P 1 and other valuables. CA: Not convinced that there was an oral agreement of commodatum over

the house and lot; nor was it persuaded by the allegation that Nieves gave no

consideration for the sale of the property.o If E milia remained as rightful owner, she would not have agreed to

reacquire thereof for P10K.o If the agreement was to use the property as collateral in a mortgage loan,

it w as not explained w hy physical posses sion of the same had to be withthe supposed vendee. Mere execution of document transferring title

would have sufficed.

o Tax receipts only become strong evidence of ow nership w henaccompanied by actual possession of the property. Perez, Sr. et. al.

were the ones in actual occupation, which was unnecessary if the real

agreement w as merely to lend the property to be used as collateral.o Certificate of Tax Declaration named Nieves as the owner and possessor

of the property in question.o Execution of a deed purporting to convey ownership of realty is in itself

prima facie evidence of existence of valuable consideration. Inadequacy of the same does not render a conveyance null and void, for

the vendors liberality may be a sufficient cause for a valid contract. Em ilia has presented no conv incing proof of her continued ow nership of the

subject property.

Perez Sr. et. al. presented 2 Deeds of Sale w hich Emilia executed in favor ofNieves. Both deeds having been notarized, they are presumed to have been

duly executed.

Facts a lleged by E milia in her favor:o She inherited the property from her parents, with her siblings waiving in

her favor their claim over the same.o It w as mortgaged to secure a loan of P30K taken in the name of Nieves

and Perez, Sr.o Upon full payment, the documents pertaining to the property were

returned by Florencio Perez to Emilia.o 3 of respondents w ere signatories to a document transferring of the

property to E milia in consideration of P1 0K, which did not materializebecause of the refusal of the other respondents to sign the same.

o Emilia hacked the stairs of the house yet no case w as filed against her. SC: These are NOT convincing indicators of Em ilias ow nership.

o How could one of them have obtained a mortgage over the propertywithout having dominion over it?


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o Why w ould they execute a reconveyance of of it in favor of Emilia?o Why w ould the latter have to pay P10K for that portion if she owns the

whole? SALE, NOT COMMODATUM.

Producers Bank v. CA (2003, Callejo Sr.) Vives (respondent) w as asked by Sanchez (formers neighbor and friend) to

help Col. Doronilla (latters friend and townmate) in incorporating his business(Sterela). Sanchez asked Vives to deposit in a bank a certain amount in the

account of Sterela for the purpose of incorporation; and assured him that hecould withdraw his money from said account w ithin a months time.

Vives, Sanchez, Doronilla and Dumagpi (Doronillas secretary) met anddiscussed the matter. Vives issued a check for P200K in favor of Sterela.

o Vives asked Inocencia (his w ife) to accompany Doronilla and Sanchez inopening a savings account in the name of Sterela in Producers Bank.

Only Sanchez, Inocencia and Dumagpi w ent to the bank to deposit thecheck.

o They had an authorization letter from Doronilla, authorizing Sanchez andher companions to open an account for Sterela (Savings account 10-1567). Authorized signatories w ere Inocencia and/or Sanchez.

Vives learned that Sterela w as no longer holding office in the address given tohim. He and his w ife went to the bank to verify if their money was still intact Atienza (Asst. Manager) informed them that part of the money in 10-1567

had been w ithdraw n by Doronilla, and only P90K remained therein.o Inocencia could not w ithdraw the remaining amount because it had to

answer for s ome postdated checks issued by Doronilla, who opened

Current account 10-0320 for Sterela and authorized the bank to debit 10-1567 for the amounts necessary to cover overdrawings in 10-0320. Sterela, through Doronilla, obtained a loan of P175K from the bank,

and to cover payment thereof, Doronilla issued 3 postdated checks,all of which were d ishonored.

Doronilla issued a pos tdated check for P212K in favor of Vives, w hich wassubsequently dishonored.

Vives, thru counsel, made a w ritten demand upon Doronilla for the return ofthe money. Doronilla issued another check for P212K, w hich was again

dishonored for insufficiency of funds. Vives instituted an action for recovery of sum of money in RTC Pasig. RTC: Ordered Doronilla, Dumagpi and Producers to pay Vives jointly and

severally P200K (money deposited) as w ell as dam ages and other costs. CA: Affirmed. Producers:

o The transaction between Vives and Doronilla is a simple loan (mutuum)since all the elements are present:

What w as delivered by Vives to Doronilla was money (consumable) The transaction was onerous as Doronilla was obliged to pay interest

(P2 12K is P12K more than w hat Vives deposited) The fact that Vives sued his good friend Sanchez for his failure to

recover his money from Doronilla show s that the transaction w as notgratuitous but had a business angle to it.

HENCE, it cannot be held liable for the return of the P200Kbecause it is not privy to the transaction betw een Vives andDoronilla.

o Its Asst. Manager could not be faulted for a llowing Doronilla to withdrawfrom the savings account of Sterela s ince the latter w as the sole proprietorof said company. Authorization letter did not contain any authorization for Inocencia

and Sanchez to w ithdraw from said account. Authority tow ithdraw remained exclusively with Doronilla.

Vives:o The transaction between him and Doronilla is not a mutuum but an

accommodation, since he did not actually part w ith the ownership of his

P200K and in fact asked Inocencia to deposit said amount in Sterelas

account so that a certification can be issued to the effect that Sterela hadsufficient funds for purposes of its incorporation but at the s ame time heretained some degree of control over his money through his w ife w ho was

made a signatory and in w hose poss ession the passbook w as given.o Atienza connived w ith Doronilla in defrauding him since it was he who

facilitated the opening of Sterelas Current account 3 days after Inocenciaand Sanchez opened a Savings account w ith Producers, as w ell as theapproval of the authority to debit Sterelas Savings account to cover anyoverdrawings in its Current account.

SC: The transaction w as a COMMODATUM. (See Art. 1933)o Art. 1933 seems to imply that if the subject of the contract is a

consumable such as money, the contract w ould be a mutuum. BUT, thereare some ins tances where a commodatum may hav e for its object a

consumable thing. (See Art. 1936)o Under Art. 1936, if consumables are loaned only for purposes of

exhibition or w hen the intention of the parties is to lend consum ables andto have the very same goods returned at the end of the period agreedupon, the loan is a commodatum and NOT a mutuum.

o HERE: Vives agreed to deposit his money in Sterelas saving accountspecifically for the purpose of making it appear that said firm hadsufficient capitalization for incorporation, with the promise that the

amount shall be returned within 30 days. He merely accommodated


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Doronilla by lending his money w ithout consideration, as a favor to hisfriend Sanchez.

o Doronillas attempt to return P200K with alleged interest on the mutuumof P12K did not convert the transaction of commodatum into a mutuumbecause such w as not the intent of the parties and because the additionalP12K corresponds to the fruits of lending P 200K Under Art. 1935, thebailee acquires the use of thing loaned, but not its fruits. It was onlyproper therefore, for Doronilla to remit the interest accruing to Vives

money deposited with Producers. SC: The nature of the transaction between Doronilla and Vives has no bearing

on Producers liability because the facts of the case show that Producers,

through Atienza, was partly responsible for the loss of Vives money and isliable for its restitution.o Neither a deposit nor a withdrawal w ill be permitted except upon

production of the depositor savings bank book. Even if the passbook

was w ith Inocencia, Doronilla w as permitted by Atienza to w ithdraw fromthe account.

o Atienza was s how n to be a party to Doronillas scheme: The deposit was made in the Buendia branch where Atienza w as a

key officer. Vives wanted to make the deposit in Manila Banking,

but Doronilla insisted that it be made in the Buendia branch for itw ill be easier for them to get a certification.

Authorization letter prepared by Doronilla: * * * as per coordinationw ith Mr. Atienza * * *

Atienza did not follow procedure (that only the signatories can make w ithdraw als) because Sterela was ow ned by Doronilla. He w as

fully aware that the money came from Vives , and w as told byInocencia of the purpose of the deposit w hich was to merelyaccommodate Doronilla.

The transfer from the sav ings account to the current account w as w ithout the submission of the passbook w hich Atienza gave toInocencia. It w as made to appear in a certification signed byDumagpi that a duplicate passbook w as issued to Sterela because theoriginal had been surrendered to the Makati Branch in view of a loanaccommodation as signing the savings account. Atienza was aw are

that the pas sbook was w ith Inocencia and that it was neversurrendered.

TO SUM, Atienzas active participation in the fraud caused the lossof Vives money.

Under Art. 2180, Producers is liable for Vives loss and is solidarily liable w ithDoronilla and Dumagpi for the return of the P200K since it is clear that itfailed to prove that it exercised due diligence to prevent the unauthorized

w ithdraw als from S terelas s avings account and that it w as not negligent in the

selection and supervision of Atienza.

Saura Import and Export Co. v. DBP (1972, Makalintal) Saura applied to the Rehabilitation Finance Corp. for an industrial loan

(P500K):o P250K - factory buildingo P240,900 - balance of price of jute mill machinery and equipmento P9,100 - additional working capital

The jute mill machinery had already been purchased by Saura on the strengthof a letter of credit extended by Prudential Bank and Trust Co., and to secureits release w ithout first paying the draft, Saura executed a trust receipt in favor

of P rudential.

RFC passed Reso 145 approving the loan application for P500K to be securedby a first mortgage on the factory buildings to be constructed, land site, andmachinery to be installed.o Mr. and Mrs. Saura, Inocencia Arellano, Aniceto Caolboy and Gregoria

Estabillo and China Engineers s hall sign the promiss ory notes jointly w iththe borrower-corporation.

Saura w rote to RFC, requesting a modification of the terms laid dow n by it In lieu of China E ngineers (w hich w as willing to assume liability only to theextent of its stock subscription with Saura) sign as co-maker of the notes,Saura w ould put up a bond for P1 23.5K and that Maria Roca would be

substituted for Arellano. RFC passed Reso 736, designating members of its Board to reexamine all

aspects of the approved loan.

Saura w rote RFC that China Engineers had again agreed to act as co-signer forthe loan. Each party named their respective committee of engineers and

technical men to undertake the necessary studies in accordance w ith Reso 736;although Saura manifested that the same should not be taken as acquiescenceon its part to novate or accept new conditions to the agreement already

entered into (Reso 145).

Despite the formal execution of the loan agreement, the reexamination in Reso736 proceeded. It was decided to reduce the loan from P500K to P300K(Reso 3989).

F.R. Halling, who signed the promissory note for China Engineers jointly andseverally with other co-signers, w rote RFC that his company no longer w ishedto avail of the loan and therefore considered the s ame cancelled as far as it w as

concerned. Saura w rote to RFC requesting that the loan of P 500K be granted. Denied;

the loan is considered cancelled.

Saura informed RFC that China Engineers w ill reinstate their s ignature if thelatter releases the P500K originally approved.


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RFC passed Reso 9083, restoring the original P500K loan (it appearing thatChina Engineers is now w illing to sign the promissory notes), provided thatthe Dept. of Agri and Natural Resources certifies to the following:o The raw materials needed are av ailable in the immediate vicinity.o There is prospect of increased production thereof to provide adequately

for the requirements of the factory. The certification by the Dept. of Agri and Natura l Resou rces w as required as

the intention of the original approval of the loan is to develop the manufacture of

sacks on the basis of locally available raw materials. Sauras project is a joint venture to finance, manage and operate a Kenafmill

plant, to manufacture copra and corn bags, runners, floor mattings, carpets,draperies out of 100% local raw materials, principal kenaf. This is w hatmov ed RFC to approve the loan application in the first place, and to require inReso 9083 a certification as to the availability of local raw materials to provideadequately for the requirements of the factory.

Saura confirmed the RFCs stand impliedly in its letter:o Stating that according to a study by the Bureau of Forestry, kenafw ill not

be available in sufficient quantity this year or probably next year.

o Requesting assu rances from RFC that the company w ill be able to bring insufficient jute materials as may be necessary for the full operation of thejute mill

oAsking that releases of the loan be made as follow s:Payment of receipt of jute mill

machineries with PrudentialP250K

Purchase of materials andequipment to enable the jute mill

to operate

P182,413.91

Raw materials and labor P67,586.091. P25K on the opening of

the L/C for raw jute

2. P25K upon arrival of rawjute

3. P17 ,586.09 as soon as themill is ready to operate

RFC replied that releases of the loan are proposed to be made from time totime, subject to the availability of funds towards the end that the sack factoryshall be placed in actual operating status.o With respect to the requirement of certification, the basis of the original

approval is to develop the manufacture of sacks on the basis of locallyavailable raw materials. The statement of reliance on importation ofjute is not in line with its principle in approving the loan.

Negotiations came to a standstill. Saura requested RFC to cancel mortgage.RFC ex ecuted the corresponding deed of cancellation and delivered it to Saurahimself.

The cancellation w as requested to make w ay for registration of a mortgagecontract executed ov er the same property in favor of Prudential, under whichcontract Sau ra had up to Dec. 31 w ithin which to pay its obligation on thetrust receipt. For failure to pay the obligation, Prudential sued Saura.

Almost 9 years after the mortgage in favor of RFC was cancelled at the requestof Saura, the latter commenced the present suit for damages, alleging RFCsfailure to comply w ith its obligation to release the proceeds of the loan appliedfor and approved, thereby preventing Saura from completing or payingcontractual commitments it entered into in connection with its jute millproject.

TC: Ruled in favor of Saura. There w as a perfected contract between theparties and DBP w as guilty of breach thereof.

SC: There was indeed a perfected consensual contract (s ee Art. 193 4).o Application of Saura for a loan of P500K w as approved by resolution of

RFC, and the corresponding mortgage was executed and registered.o BUT, it should be noted that RFC entertained Sauras loan application on

the assumption that the factory to be constructed would utilize locally

grow n raw materials, principallykenaf. (see 2 conditions)

o The imposition of these conditions was by no means a deviation from theterms of the agreement, but rather a step in its implementation. Nothing in said conditions that contradicted the terms in Reso 145. Saura realized that it could not meet the conditions required by RFC

and so w rote the latter sta ting that local jute w ill not be available insufficient quantity and asking that P67K be released for raw materialsand labor. Deviation from terms of Reso 145.

o The cancellation of the mortgage w as in the nature of mutual desistance,which is a mode of extinguishing obligations. Saura did not protest against any alleged breach of contract by RFC.

Its request for cancellation of mortgage carried no reservation ofw hatever rights it believed it might have against RFC for the lattersnon-compliance. Last ly, the action was brought only 9 years after theloan agreement w as cancelled at its ow n request.

Quintos v. Beck (1939, Imperial) Beck w as Quintos tenant w ho occupied the latters house in M.H. del Pilar St. Upon the novation of the lease contract, Quintos gratuitously granted to Beck

the use of the furniture, subject to the condition that Beck would return them

to Quintos upon the latters demand.


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Quintos sold the property to Maria and Rosario Lopez. The 3 notified Beck ofthe conveyance, giving him 60 days to vacate the premises.

Quintos thereafter required Beck to return all the furniture transferred to himfor his u se. Beck ans w ered that she m ay call for them in the house w here theyare found.o Beck w rote a letter informing Quintos that he could not give up 3 gas

heaters and 4 electric lamps because he would use them until the 15th of

the month w hen the lease was due to expire.

o Quintos refused to get the furniture in view of the fact that Beck declinedto make delivery of all of them. Before vacat ing, Beck deposited with the sheriff all the furniture belonging to

Quintos and are now deposited in a w arehouse in Rizal Avenue. Plaintiffs alleged that the TC incorrectly applied the law in (1) holding that

they violated the contract by not calling for all the furniture, (2) not orderingBeck to pay them the value of the furniture in case they are not delivered, (3)holding that they should get all the furniture from the sheriff at their expense,

(4) ordering them to pay of the expenses claimed by the sheriff for thedeposit of the furniture.

Contract here is one of COMMODATUM, because under it, Quintosgratuitously granted the use of the furniture to Beck, reserving for herself theow nership thereof.

o Beck bound himself to return the furniture to Quintos upon the lattersdemand. It means that he should return all of them to the plaintiff atthe latters residence or house.

o Beck did not comply w ith his obligation w hen he merely placed them atthe disposal of Quintos, retaining for his benefit the 3 gas heaters and the4 electric lamps.

As Beck voluntarily undertook to return all the furniture to Quintos upon thelatters demand, the Court cannot legally compel her to bear the expensesoccasioned by the deposit of the furniture at Becks behest.o Beck, as bailee, w as not entitled to place the furniture on deposit, nor was

Quintos under a duty to accept the offer to return the furniture becauseBeck w anted to retain the 3 gas heaters and the 4 electric lamps .

BUT, Quintos was not entitled to payment of the value of the furniture in caseof Becks inability to return some of the furniture

Beck has neither agreedto nor admitted the correctness of the value.

Beck w as the one w ho breached the contract of commodatum, and w ithoutany reason he refused to return and deliver all the furniture upon Quintos

demand. Just and equitable that he pay the legal expenses.

CASES | DEPOSIT

Javellana v. Lim (1908, Torres) Javellana filed a complaint w ith CFI I loilo, praying that Lim et. al. be

sentenced to jointly and severally pay P2686.58 with 15% interest, deductingfrom the amount of interest due P1102.16.

Complaint w as amended Alleged that Lim et. al. executed a document infavor of Javellana:o We received from Javellana, as a deposit withou t int erest, P2682.50 which w e

will return to the said person jointly and severally, on Jan. 20, 1898.o When the obligation became due, Lim et. al. begged Javellana for an

extens ion for the payment thereof, binding t hemselves to pay interest at 15 % onthe amount of their indebtednes s, to w hich Javellana acceded. Lim et.

al. paid P 1K on account of interest due, w ith the exception of which theyhad not paid any other sum on account of either capital or interest.

LIM: They paid to Javellana sums totaling P5602.16 (including the P1102.16acknowledged in the complaint), and deducting therefrom the P26 86.58 stated

in the document, Javellana still owed them P2915.58. TC: Ruled in favor of Javellana for the recovery of P5714.44 and costs. Document of indebtedness in the complaint: Javellana left on depositwith Lim

et. al. a s um of m oney which they w ere jointly and severally obliged to returnon a certain date fixed; nevertheless, w hen the document (EXH. 2) written in

Visayan and followed by a translation into Spanish was executed, it wasacknowledged that on Nov. 15, 1902, the amount had not yet been returned tothe creditor, whereby he w as subjected to losses amounting to P830 since Jan.20, 1898

o w here the return w as stipulated with further agreement on interest at15% from said date (Jan. 20) until the debtors paid the creditor in full andthat the P1K paid to depositor on May 1900 would be included.

In this second document, the contract, w hich is a real loan of money with interest,appears perfectly defined, notwithstanding the fact that in the originaldocument, it is called a deposit.

o When they bound themselves jointly and severally to refund P2686.58 to Javellana, they did not engage to return the same coins received and ofwhich the amount deposited consist ed, and they could have accomplishedthe return agreed upon by the delivery of a sum equalto the one receivedby them.

o Lim et. al. w ere lawfully authorized to make use of the amount deposited,inasmuch as acknowledging that they have subjected the lender (creditor),to losses and damages for not complying with what had been stipulated,they engaged to pay interest to the creditor from the date named until thetime w hen the refund should be made.


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NOT a deposit, but a REAL CONTRACT OF LOAN. Pertinent provisions of the OCC:

Art.1767. The depository can not make use of the thing deposited without the express permissi onof the depositor.

Otherwise he shall be liable f or losses and damages.

Art. 1768. When the depository has permission to make use of the thing deposited, the contractloses the character of a deposit and becomes a loan or bailment.

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

When Lim asked Javellana for an extension of payment, it was because he didnot have in his possession the amount deposited, he having made use of thesame in his business and for his ow n profit; and Javellana, by granting themthe extension, evidently confirmed the express permission previously giventhem to use and dispose of the amount stated as having been deposited, whichin accordance w ith law , must be considered as given them on loan.

Based on evidence, Jose Lim w as perfectly aw are of and had authorized his co-debtor (Ceferino Lim) to liquidate the interest, to pay the P1K, and to executethe second document. True ratification of the original documents w as thismade.

There was no renew al of the contract of deposit converted into a loan. The original joint obligation contracted by the debtors (Lims) still exists.

Serrano v. Central Bank (1980, Concepcion Jr.) In Oct. and Dec. 1966, Manuel Serrano made a time deposit, for 1 year w ith

6% interest, of P150K with the Overseas Bank of Manila. Maneja also made a

time deposit, for 1 year with 6-% interest, in Mar. 1967 , of P200K w ith thesame bank.

Maneja, married to Felixberto Serrano, assigned and conveyed her time depositto petitioner Manuel.

Notwithstanding series of demands for encashment of the time deposits, not asingle one of the time deposit certificates was honored by the bank.

Central Bank:o Admits that it is charged with the duty of administering the banking

system of the Republic and it ex ercises supervision over all doing businessin the Phils.; denies Serrano's allegation that it has the duty to exercise amost rigid and stringent supervision of banks, implying that it has to

watch every move or activity of all banks, including the Overseas Bank. As of Mar. 1965, the Overseas Bank w as only on a limited degree of

banking operations since the Monetary Board decided in a Reso toprohibit it from mak ing new loans and investments in v iew of itschronic reserve deficiencies against its deposit liabilities. This

limited operation continued up to 196 8.

o Also denied that it is guarantor of the permanent solvency of any bankinginstitution. Neither the law nor sound banking supervision requires it

to advertise or represent to the public any remedial measures it mayimpose upon chronic delinquent banks as such action may inevitablyresult to panic or bank "runs".

In 1966-67, there w ere no findings to declare the Overseas Bank asinsolvent.

o Denied that a constructive trust was created in favor of Serrano andManeja when their time deposits w ere made in 1966 and 1967 with theOverseas Bank as during that time the latter was not an insolvent bank.

o Avers no know ledge of Serrano's claim that the properties given byOverseas Bank as additional collaterals to the Central Bank for the

former's overdrafts and emergency loans w ere acquired through the use ofdepositors' money, including that of Serrano and Maneja.

Ramos, et al. v. Central Bank : Serrano filed a motion to intervene on the groundthat he had a real and legal interest as depositor of the Overseas Bank in thematter in litigation in that case. Central Bank opposed the motion, on the

ground that his claim as depositor of the Overseas Bank should properly beventilated in the CFI, and if he was to be allowed to intervene, thousands ofother depositors w ould follow and thus cause an avalanche of cases in this

Court. SC denied Serranos motion to intervene; the contents of his motionare substantially the same as those of the present petition.o The Court rule in favor of Overseas Bank.o HERE: Because of the above decision, Serrano filed a motion for

judgment, praying that the Central Bank be adjudged jointly and severallyliable w ith the Overseas Bank for the P35 0K time deposit made with thelatter bank; and declaring all assets assigned/mortgaged by the Overseas

Bank and the Ramos groups in favor of the Central Bank as trust fundsfor his benefit and other depositors.

SC: The claims in reality are recovery of time deposits plus interest fromOverseas Bank, and recovery of damages against the Central Bank for itsalleged failure to strictly supervise the acts of the other bank and protect theinterests of its depositors by v irtue of the constructive trust created w hen it

required Overseas Bank to increase its collaterals for its overdrafts saidemergency loans, said collaterals allegedly acquired through the use of

depositors m oney. Should be ventilated in the CFI.o Claims of this nature are not proper in actions for mandamus and

prohibition as there is no show n clear abuse of discretion by the CentralBank in its exercise of supervision over Overseas Bank, and if there was,Serrano is NOT the proper party to raise that question, but rather the

Overseas Bank.o Neither is there anything to prohibit in this case, since the quest ioned acts

of the Central Bank, w hich Serrano here intends to use as his basis for


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claims of damages against the Central Bank, had been accomplished along time ago.

Both parties overlooked 1 fundamental principle in the nature of bankdeposits w hen Serrano claimed that there should be created a constructivetrust in his favor w hen Overseas Bank increased its collaterals in favor of the

Central Bank for the former's overdrafts and emergency loans, since thesecollaterals w ere acquired by the use of depositors' money.o Bank deposits are in the nature of irregular deposits. Really LOAN S

because they earn interest.o All kinds of bank depos its, w hether fixed, s avings, or current are to be

treated as loans and are to be covered by the law on loans.

o Current and savings deposit are loans to a bank because it can use thesame.

o Serrano, in mak ing time deposits that earn interests w ith Overseas Bankwas in reality a creditor of the bank and not a depositor. The bank w as in

turn a debtor of petitioner. Failure of the bank to honor the time depositis failure to pay his obligation as a debtorand NOT a breach of trust arisingfrom depositary's failure to return the subject matter of the deposit.

BPI v. IAC (1988, Cortes) BPI absorbed COMTRUST through a corporate merger. Rizaldy Zshornack filed in the CFI Rizal a complaint against COMTRUST (4

COA). Except for 3rd COA, CFI ruled in his favor.

IAC absolved the bank from liability on the 4 th COA.o Ordered COMTRUST to restore to the dollar savings account of

Zshornack $1K as of Oct. 27, 1 975 to earn interest together w ith the

remaining balance of said account.o Ordered COMTRUST to return to Zshornack $3K upon finality of this

decision, without interest Said amount w as merely held in custody for

safekeeping, but was not actually deposited because being cash currency, itcannot by law be deposited with his dollar account.

Zshornack and his w ife Shirley Gorospe maintained a dollar savings accountand a peso current account in COMTRUST.

[1ST COA] An application for a dollar draft w as accomplished by VirgilioGarcia (Ass t. Branch Manager) payable to Leovigilda D izon, amounting to$1K. The amount was to be charged to Dollar Savings Account 25-4109(savings account of Zshornacks); the charges for commission, documentarystam p tax etc. totaling P17 .46 w ere to be charged to Current Account 210-465-29 (current account of Zshornacks). No indication of name of purchaser ofdollar draft.

o COMTRUST issued a check payable to the order of Dizon ($1K) draw non the Chase Manhattan Bank, NY , with an indication that it was to be

charged to 25-4109.o When Z shornack noticed the w ithdraw al of $1K, he demanded an

explanation from the bank. COMTRUST claimed that the peso value

of the withdraw al was given to Atty. Ernesto Zshornack Jr., Rizaldysbrother, when the former encashed with COMTRUST a cashiers checkfor P8450 issued by Manila Banking Corp. payable to Ernesto.

SC: COMTRUST m ust be held liable for the unauthorized w ithdraw al of $1K.o COMTRUST: (1 ) The peso value of the amount w ithdraw n w as given to

Atty. Zshornack when he encashed the Manilabank Cashiers check. At

the same time, it claims that (2) the withdraw al w as made pursuant to anagreement w here Rizaldy allegedly authorized it to withdraw from hisdollar savings account such amount w hich, when converted to pesos,

would be needed to fund his peso current account.

SC: If the peso equivalent w as credited to the peso current account,w hy did it still have to pay Atty. Zshornack?

Re: (1) COMTRUST has not shown how the transactioninvolving the cashiers check is related to the transaction involvingthe dollar draft in favor of Dizon financed by the w ithdrawal from

Rizaldys dollar account. Moreover, Atty. Zshornack Rizaldy. Re: (2) Evidence does not show that the withdraw al was made

pursuant to it.

[2ND COA - based on an actionable document] Zshornack entrusted toCOMTRUST (thru Garcia) $3K (greenbacks) for safekeeping, acknowledgedin a document. Despite demands, the bank refused to return the money.o COMTRUST averred that the am ount was credited to Zshornacks peso

current account at prevailing conversion rates.o When Zshornack requested the return of the money, COMTRUST

explained that the sum w as disposed of in this m anner: $2K:$1K was soldand the peso proceeds (P14,920:P8,250) w ere deposited to his currentaccount; both transactions being accompanied by deposit slipsaccomplished by Garcia.

o BPI: Now posits that the contract embodied in the document is one ofdepositum (Art. 1 962) w hich banks do not enter into Garcia exceeded

his pow ers w hen he entered into the transaction, hence the bank cannotbe liable under the contract.

SC: It w as incumbent upon the bank to specifically deny under oath the dueexecution of the document (1) to question Garcias authority to bind the corp.and (2) to deny its capacity to enter into such contract. Failed to do so,

hence it w as deemed to have admitted not only Garcias au thority but also thebanks pow er to enter into the contract in question.o The practical effect of absolving a corporation from liability every time an

officer enters into a contract w hich is beyond corporate pow ers is to cas t


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corporations in so perfect a mold that transgressions and w rongs by suchartificial beings become impossible.

o DOCUMENT AND SUBSEQUENT ACTS: The intent of the partieswas for the bank to safely keep the dollars and to return it to Zshornackat a later time. Zshornack demanded the return of the money.

The arrangement is that of a DEPOSIT (Art. 1962).o The object of the contract was foreign exchange. Covered by CB

Circular 20 (Restrictions on Gold and Forex Transactions)

Sec. 4(a): All receipts of foreign exchange shall be sold daily to theCB * * * All receipts of foreign exchange * * * shall be sold to theauthorized agents of the CB by the recipients w ithin 1 business dayfollowing the receipt of such foreign exchange. * * *

Modified by Sec. 6 of CB Circular 281 by limit ing its coverage to Phil.Residents only.

HERE: The parties did not intend to sell the US dollars to the CB w ithin one business day from receipt. Otherwise, the contract ofdepositum w ould never have been entered into at all.

o Since the mere safekeeping of greenbacks w ithout s elling them to the CBwithin 1 business day from receipt is a transaction NOT authorized by CBCircular 20 Must be one which falls under the general class of

prohibited transactions. = VOID.o Parties are IN PARI DELICTO.

Sia v. CA (1993, Davide) Sia filed an action for damages arising out of the destruction or loss of his

stam p collection contained in Safety Deposit Box No. 54 rented from SecurityBank (SBTC) pursuant to a contract (Lease Agreement). TC ruled in favorof Sia.

The deposit box w as at the bottom/low est level of SBTCs deposit boxes at itsBinondo branch.

During the floods of 198 5-86, floodw ater entered into SBTCs premises,seeped into the deposit box leased by Sia and caused damage to his stampcollection. SBTC rejected Sias claim for compensation, so he filed anaction for damages.

SBTC: Denied liability based on the Rules governing the lease of depositboxes:Par. 9. Liability of the Bank, by reason of the lease, is limited to the exerciseof diligenceto preventthe opening of thes afe by any person other than the renter, his authorized agent or legal rep.

Par. 13. The Bank is NOT a depositary of the contents of the safe and it has neither thepossession nor the control of the same. The Bank has no interest whatsoever in said contents,except as herein provided, and it assumes absolutely no liability in connection therewith.o The contract was one of lease and NOT deposit.

o The destruction was due to a calamity beyond its control; there w as noobligation on its part to notify Sia about floodw aters that inundated its

premises. TC ordered an ocular inspection. The 2 albums are w et, moldy and badly

damaged.

CA: Reversed the TC.o The fine print in the Lease Agreement constitutes the terms and

conditions of the lease contract w hich Sia had voluntarily and knowingly

executed with SBTC.o The contract entered into by the parties w as not a contract of depos it

where the bank became a depositary of the stamp collection.

o The state provisions limiting SBTCs liability are valid since they are notcontrary to LMGcPoPp.

o No concrete ev idence to show that SBTC failed to exercise the requireddiligence in maintaining the deposit box; said floods w ere fortuitous event

which SBTC should not be held liable for since it was not show n to haveparticipated in the aggravation of the damage It even offered to securethe assistance of an expert to save most of the stamps, but Sia refused.

Sia: The TC ruled correctly that SBTC failed to exercise the required diligenceexpected of a bank SBTC knew that the premises w ere inundated, and

considering that the bank is guarded 2 4/7, it can be presumed that it w as

aw are of the inundation of the premises w here the deposit box w as located,and despite such know ledge, it never bothered to inform Sia of the flooding ortake appropriate measures to insure the safety and maintenance of the depositbox in question.

SBTC: The lease agreement is just a contract of lease and not a deposit. SC: Petition is impressed with merit.

o CA Agro-Industrial v. CA: SC rejected the contention that a contract forthe use of a safety deposit box is a contract of lease. It did not fullysubscribe to the view that it is a contract of deposit. Special kind of

deposit. Prevailing rule in Am Jur: Relation betw een a bank and the customer

w ith respect to the contents of box Bailor and bailee, the bailmentbeing for hire and mutual benefit.

o HERE: The conditions imposed in the lease agreement are similar to thatin the agreement in the cited case. In all other situations, it would s eemthat SBTC is not bound to exercise diligence of any kind at all.

o HENCE, both conditions 9 and 13 of the Lease Agreement must bestricken down for being contrary to law and public policy as they aremeant to exempt SBTC from any liability for damage, loss or destructionof the contents of the safety deposit box which may arise from its ow n orits agents fraud, negligence or delay.


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o Re: Fortuitous event argument SBTC was guilty of negligence. Suchnegligence aggravated the injury or damage to Sia w hich resu lted from theloss/destruction of the stamp collection. SBTC should have notified Sia in order that the box be opened to

retrieve the stamps. It failed to exercise the reasonable care andprudence expected of a FDD 4TH characteristic of fortuitousevent (obligor must be free from any participation in the aggravationof the injury) is absent and Art. 1170 comes to the succor of Sia.

o The destruction of the product of 27 years of patience and diligencecaused Sia pecuniary loss; he must be compensated therefor.

CA Agro-Industrial Devt Corp. v. CA (1993, Davide) Agro (thru Aguirre) and Spouses Pugao Agreement where the former

purchased from the latter 2 parcels of land (P350,625 = P75,725 as DP, thebalance covered by 3 postdated checks).

Memorandum of True and Actual Agreement of Sale of Land: Titles to thelots shall be transferred to Agro upon full payment of the price and theow ners copies of TCTs shall be deposited in a safety deposit box of any bank(the same could be w ithdraw n only upon joint signatures of a rep of Agro and

the Pugaos upon full payment).

The parties rented Safety Deposit Box No. 1448 of SBTC

Contract oflease:

Par. 1 3. The bank is not a depositary of the content of the safe and it has neither the possessionnor control of the same.

Par. 14. The bank has no interest whatsoever in s aid contents, except herein expr essly provi ded,and it assumes no liability in connection therewith.

2 renters keys were given (1 to Agro, 1 to the Pugaos). A guard key remainedw ith the S BTC. The deposit box has 2 keyholes - 1 for renters key and 1 forthe guard key - and can be opened only with the use of BOTH keys.

Mrs. Ramos offered to buy from Agro the 2 lots at P22 5/sqm (translating to aprofit of P100/sqm or P280.5K for the entire property). She demanded theexecution of a deed of sale w hich necessarily entailed the product ion of the

TCTs.o Aguirre and the Pugaos proceeded to SBTC to open the deposit box.

When opened in the presence of SBTCs rep, the box yielded no suchcertificates.

o Because of delay in reconstitution of the title, Mrs. Ramos w ithdrew herearlier offer to purchase the lots Agro allegedly failed to realize the

expected profit. It filed a complaint for damages against SBTC with CFIPasig.

o SBTC: Agro has no COA because of Pars. 13 and 14; corollarily, loss ofany of the items contained in the box could not give rise to an action

against it. RTC: Ruled in favor of SBTC. The provisions of the contract of lease are

binding on the parties.

CA: Affirmed; the contract w as one of lease by virtue of which Agro and itsco-renter w ere given control over the deposit box and its contents w hile SBTC

retained no right to open it because it had neither the possession nor control

over it and its contents (Art. 1643).o Invoked Tolentino v. Gonzales(Ow ner of the property loses his control over

the property leased during the period of the contract) and Art. 1975.

SBTC is not under any duty to maintain the contents of the box.o Under the contract of lease, SBTC is not completely free from liability as

it m ay s till be made answ erable in case unauthorized persons enter into

the vault area or when the deposit box is forced open.Par. 8. The Bank shall use due diligence that no unauthorized person shall be admitted toany rented safe and beyond this, the Bank will not be responsible for the contents of anysafe rented from it.

Agro: Regardless of nomenclature, the contract for the rent of the safetydeposit box is actually a contract of deposit governed by Title XII , Book IV ofthe Civil Code SBTC is liable for the loss of the certificates of title pursuant

to Art. 1972.

o AmJur: Where a safe-deposit company leases a safe-deposit box or safe and the lessee takespossession of the box or safe and places therein his securities or other valuables, the relationof bailee and bailor is created between the parties to the transaction as to such securities orother valuables; * * * The argument that there is no delivery of exclusive possession andcontrol to the deposit company, and therefore the situation is entirelydifferent from that ofordinary bailment, has been generally rejected by the courts, usually on the ground that aspossession must be either in the depositor or in the company, it should reasonably beconsidered as in the latter rather than in the former, since the company is, by the nature ofthe contract, given absolute control of access to the pr operty, and the depositor cannot gainaccess thereto without the consent and active participation of the company * * *

o Words and Phrases: A contract for the rental of a bank safety deposit box in considerationof a fixed amount at stated periods is a bailment for hire.

o Conditions 13 and 14 a re contrary to law and public policy and should bedeclared null and void.

SC: The contract for the rent of the deposit box is NOT an ordinary contractof lease (A rt. 1643 ). BUT, it does not fully subscribe to the view that the sam e

is a contract of deposit that is to be strictly governed by the provisions in theCivil Code on deposit The contract here is a special kind of deposit.

o NOT an ordinary contract of lease because the full and absolutepossession and control of the deposit box was NOT given to the joint

renters. The guard key of the box remained w ith SBTC, and withoutthis k ey, neither of the renters could open the box. SBTC could notlikew ise open the box w ithout the renter's key.

o Neither could Art. 1975 be invoked as an argument against the deposittheory. The 1ST Par. cannot apply to a depositary of certificates, bonds,


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securities or instruments w hich earn interest if such documents are kept ina rented safety deposit box. It is clear that the depositary cannot open the

box w ithout the renter being present. AmJur: P revailing rule is that the relation betw een a bank renting out safe-

deposit boxes and its customer with respect to the contents of the box is that

of a bail or and bailee, the bailment being for hire and mutual benefit. Inthis jurisdiction, the prevailing rule in the US has been adopted.

o Sec. 72, Gen. Banking Act: * * * Banking institutions other than buildingand loan associations may perform the following services: (a) Receive incustody funds, documents, and valuable objects, and rent safety deposit boxesfor the safeguarding of such effects. * * * The banks shall perform the services

permitted under subsections (a), (b) and (c) of this section as depositoriesor as agents * * *

o The primary function is still found within the parameters of a contract ofdeposit (the receiving in custody of funds, documents and other valuable

objects for safekeeping).o The renting out of the safety deposit boxes is not independent from, but

related to or in conjunction with, this principal function.o A contract of deposit m ay be entered into orally or in w riting and,

pursuant to Art. 1306 of the Civil Code, the parties thereto may establishsuch stipulations, clauses, terms and conditions as they may deemconvenient, provided they are not contrary to LMGcPoPp.

o The depositary's responsibility for the safekeeping of the objectsdeposited in the case at bar is governed by Title I, Book IV of the CivilCode. It w ould be liable if, in performing its obligation, it is foundguilty of fraud, negligence, delay or contravention of the tenor of the

agreement.o In the absence of any stipulation prescribing the degree of diligence

required, that of a GFF.o HENCE, any stipulation exempting the depositary from any liability

arising from the loss of the thing deposited on account of fraud,negligence or delay w ould be VOI D for being contrary to law and publicpolicy.

o HERE: The provisions cited are inconsistent w ith SBTCs responsibilityas a depositary under Sec. 72(a) of the Gen. Banking Act. Both exempt

the latter from any liability except as contemplated in Par. 8 thereof w hichlimits its duty to exercise reasonable diligence only w ith respect to w hoshall be admitted to any rented safe. Par. 13 stands on a wrong premise and is contrary to the actual

practice of SBTC Not correct to assert that SBTC has neither the

possession nor control of the contents of the box since in fact, thedeposit box itself is located in its premises and is under its absolutecontrol; moreover, SBTC keeps the guard key to the said box.

Renters cannot open their respective boxes unless SBTC cooperatesby presenting and using this guard key.

o With respect to property deposited in a deposit box, the parties, since therelation is a contractual one, may by special contract define theirrespective duties or provide for increasing or limiting the liability of thedeposit company, provided such contract is not in violation of law orpublic policy. * * * The company, in renting safe-deposit boxes, cannotexempt itself from liability for loss of the contents by its ow n fraud or

negligence or that of its agents or servants, and if a provision of thecontract may be construed as an attempt to do s o, it will be heldineffective for the purpose. * * *

The petition should be dismissed, but on grounds quite different from thoserelied upon by the CA.o SBTCS exoneration is correctly based on the fact that no competent

proof w as presented to s how that SBTC was aw are of the agreementbetw een Agro and the Pugaos to the effect that the certificates of title

were w ithdraw able from the safety deposit box only upon both parties'

joint signatures, and that no evidence w as submitted to reveal that the lossof the certificates of title was due to the fraud or negligence of SBTC.

This flows from the Court's determination that the contract involved w asone of deposit. Since both the petitioner and the Pugaos agreed that eachshould have 1 renter's key, it w as obvious that either of them could ask

the Bank for access to the s afety deposit box and, w ith the use of such keyand the Bank's ow n guard key, could open the said box, w ithout the otherrenter being present.

YHT Realty v. CA (2005, Tinga) McLoughlin used to stay at Sheraton Hotel during his trips prior to 1984,

w hen he m et Tan. The latter befriended McLoughlin by showing him around,introducing him to important people and accompanying him in his charitable

w ork. Tan convinced him to transfer from Sheraton to Tropicana w hereLopez (manager), Lainez and Payam (custodians of keys to the deposit boxes)

w ere employed. McLoughlin started staying in Tropicana from Dec. 1984 -Sept. 1987.

Procedure in renting a safety deposit box The box can only be openedthrough use of 2 keys (1 given to the guest and the other remained w ithmanagement); the guest alone could personally request the management who

w ould assign 1 of its employees to accompany the guest and assist him inopening the deposit box.

Oct. 1987: Rented a deposit box and placed US$15K (2 envelopes: 1 ST - 10K;2ND - 5K); AUS$10K; letters and credit cards, 2 bankbooks and a checkbook.o Before leaving for a brief trip to HK, he took the 2ND envelope, the

envelope containing the AUS$, his passports and credit cards. In HK,


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he discovered that only $3K (ou t of $5K) was in the envelope. Hethought it w as jus t bad accounting.

o After checking out of Tropicana, he discovered that only $5K (out of$10K) w as left in the other envelope. He also noticed that the jewelry hebought in HK and stored in the deposit box was likew ise m issing, exceptfor a diamond bracelet/

Apr. 1988: Upon inquiry, Lainez told him that no one found such things andnone were turned over to management. He again rented a deposit box

US$15K; AUS$10K; other envelopes containing his travel documents.o McLoughlin requested Lainez and Payam to open the box US$2K and

AUS$4K were missing.o He confronted the 2, who admitted that Tan opened the deposit box w ith

the key assigned to him.o Tan admitted that she stole McLoughlins key while the latter was asleep

and w as able to open the deposit box with the assistance of Lopez, P ayamand Lainez.

When the police did not arrive for investigat ion, Lopez and Tan went toMcLoughlins room and Lopez w rote a promissory note to repay the amounts(or its peso equivalent) lost in the second occasion. Both Lopez and Tansigned, w ith the former as a w itness.o McLoughlin insis ted that it is Tropicana w ho mus t assume responsibility

for the loss. Lopez refused to accept the responsibility based on theUndertaking for the Use of the Deposit Box:Par. 2. To release and hold free and blameless TROPICANA APARTMENT HOTEL fromany liability arising from any loss in the contents and/or use of the said deposit box for anycause whatsoever, including but not limited to the presentation or use thereof by any otherperson sh ould the key be lost;

Par. 4. To return the key and execute the RELEASE in favor of TROPICANAAPARTMENT HOTEL upon giving up the u se of the box.

May 1988: McLoughlins law yers w rote a letter signed by the former and sentto Pres. Aquino referred the letter to the DOJ, which forw arded the sameto the WPD.o He came back to the Phils. to follow up on his letter to the Pres. but

failed to obtain any concrete assistance.

Aug. 1989: WPD prepared an affidavit w hich became the basis of PI.However, McLoughlin left again for Australia w ithout receiving notice of thehearing case at the Fiscals office w as dismiss ed for failure to prosecute.

o McLoughlin requested the reinstatement of the criminal charge for theft. Oct. 199 0: He registered at the Echelon Tow ers Filed a complaint for

damages against YHT, Lopez, Lainez, Payam and Tan.o Summons w ere not served to Tan and Lopez; trial proceeded with only

Lainez, Payam and YHT as defendants.

o McLoughlin filed an Amended Complaint w hich included anotherincident of loss of money and jew elry which took place prior to Apr.

1988. RTC: Ruled in favor of McLoughlin.

o It w as established that his money was taken by Tan w ithout his consent;and Payam and Lainez allowed Tan to use the master key w ithoutauthority from McLoughlin.

o Re: First occasion of theft Considering the admission of defendantsthat on 3 previous occasions they allowed Tan to open the box, it waslogical to presume tha t McLoughlins m oney ($7K) and jew elry w eretaken by Tan w ithout his consent through the cooperation of Payam and

Lainez.o Defendants acted with gross negligence in the performance and exercise

of their duties and obligations as innkeepers, therefore they w ere liable toanswer for McLoughlins losses.

o Pars. 2 and 4 of the Undertaking w ere not valid for being contrary to theexpress mandate of Art. 2003 and against public policy.

CA affirmed (except as to amount of damages). SC: Petition devoid of merit. Re: Negligence The guest alone cannot open the depos it box w ithout the

assis tance of management or its employees, w ith more reason that access to

the same be denied if the one requesting for the opening of the box is astranger. Thus, in case of loss, it is inevitable to conclude that managementhad at least a hand in the consummation of the taking, unless there was forcemajeure.o Payam and Lainez had custody of the master key; they even admitted that

they assisted Tan on 3 separate occasions in opening McLoughlins box Tropicana had prior knowledge that a person aside from the guest hadaccess to the deposit box, yet it failed to notify McLoughlin of the

incident.o Without the acquiescence of the employees of Tropicana to the opening

of the box, the loss of the money could and should have been avoided.o YHT: McLoughlins acts made the employees believe that Tan was his

spouse NO ev idence to show that Tan was introduced as his wife. If YHT exercised due diligence in taking care of McLoughlins box, they

should have confronted him as to his relationship w ith Tan consideringthat the latter had been observed opening his box a number of times atthe early hours of the morning. Tans acts should have prompted management to investigate her

relationship with McLoughlin Failure to do so w arrants the

conclusion that management had been remiss in complying w ith theobligations imposed upon hotel-keepers under the law .

o Art. 11 70: Thos e who, in the performance of their obligations, are guiltyof negligence, are liable for damages.


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o Art. 2180.4: O w ners and managers of an establishment or enterprise arelikew ise responsible for damages caused by their employees in the serv ice

of the branches in w hich the latter are employed or on the occasion oftheir functions. The loss of McLoughlin's money was consummated through the

negligence of Tropicana's employees in allow ing Tan to open thesafety deposit box w ithout the guest's consent Both employeesand YHT, as ow ner and operator of Tropicana, should be held

solidarily liable pursuant to Art. 2193. Re: Provisions of the Undertaking NULL AND VOID. (See Art. 2003)

o Art. 2003 w as incorporated in the Code as an expression of public policyprecisely to apply to situations such as that presented in this case.

o The hotel business like the common carrier's business is imbued with publicinterest.

o Catering to the public, hotelkeepers are bound to provide not onlylodging for hotel guests and security to their persons and belongings.

o The law in turn does not allow such duty to the public to be negated ordiluted by any contrary stipulation in so-called "undertakings" that

ordinarily appear in prepared forms imposed by hotel keepers on guestsfor their signature.

o De los Santos v. Tan Khey: To hold hotelkeepers or innkeeper liable for theeffects of their guests, it is not necessary that they be actually delivered to

the innkeepers or their employees. It is enough that such effects arewithin the hotel or inn.

o Pars. 2 and 4 manifestly contravene Art. 200 3 for they allow Tropicana tobe released from liability arising from any loss in the contents and/or use

of the s afety deposit box for any cause w hatsoever. The Code is explicit that the responsibility of the hotel-keeper shall

extend to loss of, or injury to, the personal property of the guestseven if caused by servants or employees of the keepers of hotels orinns as w ell as by st rangers, except as it may proceed from any forcemajeure.

HERE: There is no showing that the act of the thief or robber wasdone w ith the use of arms or through an irresistible force to qualifythe same as force majeure.

o YHT: Invokes Art. 2002. SC: Such justification w ould render nugatorythe public interest sought to be protected by the provision. This provision presupposes that the hotel-keeper is not guilty of

concurrent negligence or has not contributed in any degree to theoccurrence of the loss. A depositary is not responsible for the loss of

goods by theft, unless his actionable negligence contributes to theloss.

HERE: The responsibility of securing the safety deposit box w asshared not only by the guest himself but also by the management

since 2 keys are necessary to open the deposit box. Without theass istance of hotel employees, the loss w ould not have occurred.

THUS, Tropicana w as guilty ofconcu rrent negligence in allowing Tan,w ho w as not the registered guest, to open McLoughlins deposit box,even as suming that the latter w as also guilty of negligence in allow ing

another person to use his key. To rule otherw ise w ould result inundermining the safety of deposit boxes in hotels for themanagement will be given imprimatur to allow any person, under the

pretense of being a family member or a visitor of the guest, to haveaccess to the safety deposit box w ithout fear of any liability that w illattach thereafter in case such person turns out to be a completestranger. This w ill allow the hotel to evade responsibility for any

liability incurred by its employees in conspiracy with the guest 'srelatives and visitors.

credit cases - commodatum and deposit

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