DEPOSIT (General, Voluntary, Necessary)

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

DOCTRINE/SUMMARY:
The situation is one contemplated in Art. 1962 of the NCC:
Art. 1962. A deposit is constituted from the moment a person receives a thing belonging to another,
with the obligation of safely keeping it and of returning the same. If the safekeeping of the thing
delivered is not the principal purpose of the contract, there is no deposit but some other contract.
Since the document and the subsequent acts of the parties show that they intended the bank to
safekeep the foreign exchange, and return it later to Zshornack, who alleged in his complaint that he is
a Philippine resident, the parties did not intend to sell the US dollars to the Central Bank within one
business day from receipt. Otherwise, the contract of depositum would never have been entered into at
all.

FACTS:
Rizaldy Zshornack and his wife maintained in COMTRUST (Commercial Bank and Trust
Company of the Philippines later absorbed by BPI through corporate merger), a dollar savings account
and a peso current account. On October 27, 1975, an application for a dollar draft was accomplished by
Virgilio V. Garcia, Assistant Branch Manager of COMTRUST, payable to a certain Leovigilda D.
Dizon in the amount of $1,000.00. In the application, Garcia indicated that the amount was to be
charged to the Dollar Savings Acct. of the Zshornacks. There was no indication of the name of the
purchaser of the dollar draft. Also under the signature of Garcia, COMTRUST issued a check payable
to the order of Dizon. When Zshornack noticed the withdrawal, he demanded an explanation from the
bank. In answer, COMTRUST claimed that the peso value of the withdrawal was given to Atty.
Ernesto Zshornack, Jr., brother of Rizaldy when he (Ernesto) encashed with COMTRUST a cashier's
check issued by the Manila Banking Corporation payable to Ernesto. The bank claims that the
withdrawal was made pursuant to an agreement where Zshornack allegedly authorized the bank to
withdraw from his dollar savings account such amount which, when converted to pesos, would be
needed to fund his peso current account.
(*4 causes of action were filed)
ISSUE:
Whether the contract entered into was a contract of depositum?

RULING:
Yes. In accordance with Art 1962 of NCC. The document and the subsequent acts of the parties
show that they intended the bank to safekeep the foreign exchange, and return it later to Zshornack,
who alleged in his complaint that he is a Philippine resident. The parties did not intended to sell the US
dollars to the Central Bank within one business day from receipt. Otherwise, the contract of depositum
would never have been entered into at all.
The second cause of action filed with the trial court alleged that Zshornack entrusted to
COMTRUST, thru Garcia, US $3,000.00 cash (popularly known as greenbacks) for safekeeping,
and that the agreement was based on an actionable document. It was also alleged in the complaint that
despite demands, the bank refused to return the money. In its answer, COMTRUST averred that the
US$3,000 was credited to Zshornack's peso current account at prevailing conversion rates.
BUT it was noted by the SC that the object of the contract between Zshornack and
COMTRUST was foreign exchange. Hence, the transaction was covered by Central Bank Circular No.
20, Restrictions on Gold and Foreign Exchange Transactions, enforced during their transaction which
provides that transactions involving money expressed in foreign currencies shall not be effected;
all receipts of foreign exchange by any resident shall be sold daily to the Central Bank and that
failure to comply with, or abide by, or shall violate the same, shall be subject to the penal
sanctions provided in the Central Bank Act.

Since the mere safekeeping of the greenbacks, without selling them to the Central Bank within
one business day from receipt, is a transaction which is not authorized by CB Circular No. 20, it must
be considered as one which falls under the general class of prohibited transactions. Hence, pursuant to
Article 5 of the Civil Code, it is void, having been executed against the provisions of a
mandatory/prohibitory law. More importantly, it affords neither of the parties a cause of action against
the other. "When the nullity proceeds from the illegality of the cause or object of the contract, and the
act constitutes a criminal offense, both parties being in pari delicto, they shall have no cause of
action against each other. . ." [Art. 1411, New Civil Code.] The only remedy is one on behalf of the
State to prosecute the parties for violating the law.

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

*On the first cause of action, with regards to the unauthorized withdrawal, SC finds no reason to
disturb trial court and IAC decision that BPI must be held liable for the unauthorized withdrawal.The
P8,000.00 awarded by the courts a quo as damages in the concept of litigation expenses and attorney's
fees to be reasonable. The award is sustained.

[G.R. No. 142591. April 30, 2003]

JOSEPH CHAN, WILSON CHAN and LILY CHAN, petitioners, vs. BONIFACIO S. MACEDA,
JR., respondent.
Doctrine:
· In an action against the depositary, the burden is on the plaintiff to prove the bailment or
deposit and the performance of conditions precedent to the right of action.

FACTS: Respondent Bonifacio S. Maceda, Jr. entered into a contract with Moreman Builders
Co., Inc for the construction of the New Gran Hotel. Respondent purchased various construction
materials and equipment in Manila. Moreman, in turn, deposited them in the warehouse of Wilson and
Lily Chan, herein petitioners. The deposit was free of charge. Unfortunately, Moreman failed to finish
the construction of the hotel at the stipulated time. Hence, respondent filed with the Regional Trial
Court an action for rescission and damages against Moreman. The trial court rendered its decision
rescinding the contract between Moreman and Maceda.

Respondent ordered petitioners to return to him the construction materials and equipment which
Moreman deposited in their warehouse. Petitioners, however, told them that Moreman withdrew those
construction materials in 1977. As a result, respondent filed with the Regional Trial Court an action for
damages with an application for a writ of preliminary attachment against petitioners. The RTC ruled in
favor of Maceda, and the said decision was affirmed by the Court of Appeals. Petitioners contend that
the actual damages claimed by respondent in the present case were already awarded to him in the case
between him and Moreman and hence, he cannot recover damages again. On the other hand,
respondent maintains that petitioners, as depositaries under the law, have both the fiduciary and
extraordinary obligations not only to safely keep the construction material deposited, but also to return
them with all their products, accessories and accessions, pursuant to Articles 1972, 1979, 1983, and
1988 of the Civil Code. Considering that petitioners duty to return the construction materials in
question has already become impossible, it is only proper that the prices of those construction materials
in 1996 should be the basis of the award of actual damages.

ISSUE: Does respondent have the right to demand the release of the materials and equipment or
claim damages from petitioners?
RULING: No, respondent cannot demand the release of the materials and equipment or claim
damages from petitioners. In an action against the depositary, the burden is on the plaintiff to prove the
bailment or deposit and the performance of conditions precedent to the right of action. Article 1972
states that the depositary is obliged to return the thing to the depositor, or to his heirs or successors, or
to the person who may have been designated in the contract. However, in this case, there was no
contract of deposit, oral or written, between petitioners and respondent. If at all, it was only between
petitioners and Moreman. And granting that there was indeed a contract of deposit between petitioners
and Moreman, it is still incumbent upon respondent to prove its existence and that it was executed in
his favor. However, respondent failed to do so. The only pieces of evidence respondent presented to
prove the contract of deposit were the delivery receipts. Significantly, they are unsigned and not duly
received or authenticated by either Moreman, petitioners or respondent or any of their authorized
representatives. Hence, those delivery receipts have no probative value at all.

Respondent also failed to prove that there were construction materials and equipment in
petitioners warehouse at the time he made a demand for their return. Considering that respondent failed
to prove the existence of any contract of deposit between him and petitioners, nor between the latter
and Moreman in his favor, and that there were construction materials in petitioners warehouse at the
time of respondents demand to return the same, the Supreme Court held that petitioners have no
corresponding obligation or liability to respondent with respect to those construction materials and
respondent has no right whatsoever to claim for damages.

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.
DAVIDE, JR., J.:

FACTS: CA Agro (through its President, Aguirre) and spouses Pugao entered into an agreement
whereby the former purchased two parcels of land for P350, 525 with a P75, 725 down payment while
the balance was covered by three postdated checks. Among the terms embodied in a Memorandum of
True and Actual Agreement of Sale of Land were that titles to the lots shall be transferred to the
petitioner upon full payment of the purchase price and that the owner’s copies of the certificates of
titles thereto shall be deposited in a safety deposit box of any bank. The same could be withdrawn
only upon the joint signatures of a representative of the petitioner upon full payment of the purchase
price. They then rented Safety Deposit box of private respondent Security Bank and Trust Company
(SBTC). For this purpose, both signed a contract of lease which contains the following conditions:

13. The bank is not a depositary of the contents of the safe and it has neither the possession nor control
of the same.
14. The bank has no interest whatsoever in said contents, except herein expressly provided, and it
assumes absolutely no liability in connection therewith.

After the execution of the contract, two renter’s key were given to Aguirre, and Pugaos. A key guard
remained with the bank. The safety deposit box has two key holes and can be opened with the use of
both keys. Petitioner claims that the CTC were placed inside the said box.
Thereafter, a certain Mrs. Margarita Ramos offered to buy from the petitioner the two lots at a price of
P225 per sqm. Mrs. Ramos demanded the execution of a deed of sale which necessarily entailed the
production of the CTC. Aguirre and Pugaos then proceeded to the bank to open the safety deposit box.
However, when opened in the presence of bank’s representative, the box yielded no certificates.
Because of the delay in reconstitution of title, Mrs. Ramos withdrew her earlier offer and as a
consequence petitioner failed to realize the expected profit of P280 , 500. Hence, the latter filed a
complaint for damages.

ISSUE: Was there a deposit?

RULING: Yes. The contract in the case at bar is a special kind of deposit. It cannot be characterized
as an ordinary contract of lease under Article 1643 because the full and absolute possession and
control of the safety deposit box was not given to the joint renters – the petitioner and Pugaos.

The guard key of the box remained with the respondent Bank, without this key, neither of the renters
could open the box. On the other hand, the respondent Bank could not likewise open the box without
the renter's key. In this case, the said key had a duplicate which was made so that both renters could
have access to the box.

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

In American Jurisprudence, the prevailing rule is that the relation between a bank renting out safe-
deposit boxes and its customer with respect to the contents of the box is that of a bail or bailee, the
bailment being for hire and mutual benefit. Our provisions on safety deposit boxes are governed by
Section 72 (a) of the General Banking Act, and this primary function is still found within the
parameters of a contract of deposit like the receiving in custody of funds, documents and other valuable
objects for safekeeping. The renting out of the safety deposit boxes is not independent from, but related
to or in conjunction with, this principal function. Thus, depositary’s liability is governed by our civil
code rules on obligation and contracts, and thus the SBTC would be liable if, in performing its
obligation, it is found guilty of fraud, negligence, delay or contravention of the tenor of the agreement.

The renting out of the safety deposit boxes is not independent from, but related to or in conjunction
with, this principal function. A contract of deposit may be entered into orally or in writing and,
pursuant to Article 1306 of the Civil Code, the parties thereto may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good
customs, public order or public policy. The depositary's responsibility for the safekeeping of the objects
deposited in the case at bar is governed by Title I, Book IV of the Civil Code. Accordingly, the
depositary would be liable if, in performing its obligation, it is found guilty of fraud, negligence, delay
or contravention of the tenor of the agreement. In the absence of any stipulation prescribing the degree
of diligence required, that of a good father of a family is to be observed. Hence, any stipulation
exempting the depositary from any liability arising from the loss of the thing deposited on account of
fraud, negligence or delay would be void for being contrary to law and public policy.

G.R. No. 102970 May 13, 1993

LUZAN SIA, petitioner,
vs.
COURT OF APPEALS and SECURITY BANK and TRUST COMPANY, respondents.
DAVIDE, JR., J.:

Contract of the use of a safety deposit box of a bank is not a deposit but a lease under Sec 72, A of
General Banking Act. Accordingly, it should have lost no time in notifying the petitioner in order that
the box could have been opened to retrieve the stamps, thus saving the same from further deterioration
and loss. The bank’s negligence aggravated the injury or damage to the stamp collection..
FACTS: Plaintiff Luzan Sia rented a safety deposit box of Security Bank and Trust Co. (Security
Bank) at its Binondo Branch wherein he placed his collection of stamps. The said safety deposit box
(Box No. 54) leased by the plaintiff was at the bottom or at the lowest level of the safety deposit boxes
of the defendant bank. During the floods that took place in 1985 and 1986, floodwater entered into the
defendant bank’s premises, seeped into the safety deposit box leased by the plaintiff and caused,
according damage to his stamps collection. Security Bank rejected the plaintiff’s claim for
compensation for his damaged stamps collection citing that it had no liability under Rule 9 that the
banks obligation is limited to prevent opening of the safe and that it is a contract of leas and not of
deposit.

Sia, thereafter, instituted an action for damages against the defendant bank. Security Bank contended
that its contract with the Sia over safety deposit box was one of lease and not of deposit and, therefore,
governed by the lease agreement which should be the applicable law; the destruction of the plaintiff’s
stamps collection was due to a calamity beyond obligation on its part to notify the plaintiff about the
flood waters that inundated its premises at Binondo branch which allegedly seeped into the safety
deposit box leased to the plaintiff. The trial court rendered in favor of plaintiff Sia and ordered Sia to
pay damages.

ISSUE: Was there a deposit?

RULING: Yes, there was a special kind of deposit.

In the recent case CA Agro-Industrial Development Corp. vs. Court of Appeals, this Court explicitly
rejected the contention that a contract for the use of a safety deposit box is a contract of lease governed
by Title VII, Book IV of the Civil Code. Nor did We fully subscribe to the view that it is a contract of
deposit to be strictly governed by the Civil Code provision on deposit. It is, as we declared, a special
kind of deposit. The prevailing rule in American jurisprudence — that the relation between a bank
renting out safe deposit boxes and its customer with respect to the contents of the box is that of a bailor
and bailee, the bailment for hire and mutual benefit — has been adopted in this jurisdiction, thus:

Section 72 of the General Banking Act prevails. Sec. 72. In addition to the operations specifically
authorized elsewhere in this Act, banking institutions other than building and loan associations may
perform the following services:

(a) Receive in custody funds, documents, and valuable objects, and rent safety deposit boxes for the
safequarding of such effects.

The banks shall perform the services permitted under subsections (a), (b) and (c) of this section as
depositories or as agents. Note that the primary function is still found within the parameters of a
contract of deposit, the receiving in custody of funds, documents and other valuable objects for
safekeeping. The renting out of the safety deposit boxes is not independent from, but related to or in
conjunction with, this principal function. A contract of deposit may be entered into orally or in writing
(Art. 1969, Civil Code] and, pursuant to Article 1306 of the Civil Code, the parties thereto may
establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they
are not contrary to law, morals, good customs, public order or public policy.

The depositary's responsibility for the safekeeping of the objects deposited in the case at bar is
governed by Title I, Book IV of the Civil Code. Accordingly, the depositary would be liable if, in
performing its obligation, it is found guilty of fraud, negligence, delay or contravention of the tenor of
the agreement [Art. 1170, id.]. In the absence of any stipulation prescribing the degree of diligence
required, that of a good father of a family is to be observed. Hence, any stipulation exempting the
depositary from any liability arising from the loss of the thing deposited on account of fraud,
negligence or delay would be void for being contrary to law and public policy.

The company, in renting safe-deposit boxes, cannot exempt itself from liability for loss of the
contents by its own fraud or negligence or that, of its agents or servants, and if a provision of the
contract may be construed as an attempt to do so, it will be held ineffective for the purpose. Although it
has been held that the lessor of a safe-deposit box cannot limit its liability for loss of the contents
thereof through its own negligence, the view has been taken that such a lessor may limit its liability to
some extent by agreement or stipulation .

Section 72 of the General Banking Act [R.A. 337, as amended] pertinently provides: In addition to
the operations specifically authorized elsewhere in this Act, banking institutions other than building
and loan associations may perform the following services (a) Receive in custody funds, documents, and
valuable objects, and rent safety deposit boxes for the safeguarding of such effects.

The bank is liable for negligence. Article 1170 of the Civil Code, which reads “Those who in the
performance of their obligation are guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages” is applicable. Hence, the petition was granted.

The provisions contended by Security Bank in the lease agreement which are meant to exempt SBTC
from any liability for damage, loss or destruction of the contents of the safety deposit box which may
arise from its own agents’ fraud, negligence or delay must be stricken down for being contrary to law
and public policy.

G.R. Nos. L-26948 and L-26949             October 8, 1927

SILVESTRA BARON, plaintiff-appellant, 
vs.
PABLO DAVID, defendant-appellant.

FACTS: defendant Pablo David has been engaged in running a rice mill. a fire occurred
that destroyed the mill and its contents, and it was some time before the mill could be
rebuilt and put in operation again.  In the months of March, April, and May, 1920,
Silvestra Baron placed a quantity of palay in the defendant's mill; and this, in connection
with some that she took over from Guillermo Baron, amounted to 1,012 cavans and 24
kilos. During approximately the same period Guillermo Baron placed other 1,865 cavans
and 43 kilos of palay in the mill. No compensation has ever been received by Silvestra
Baron upon account of the palay delivered by Guillermo Baron, he has received from the
defendant advancements amounting to P2,800; but apart from this he has not been
compensated. Both the plaintiffs claim that the palay which was delivered by them to the
defendant was sold to the defendant; while the defendant, on the other hand, claims that
the palay was deposited subject to future withdrawal by the depositors or subject to some
future sale which was never effected. He therefore supposes himself to be relieved from
all responsibility by virtue of the fire of January 17, 1921, already mentioned. 

G.R. No. 4015            August 24, 1908

ANGEL JAVELLANA, plaintiff-appellee, 
vs.
JOSE LIM, ET AL., defendants-appellants.
JOSE ROGERS vs. SMITH, BELL, & CO.
GR. No. L-4347 March 9, 1908

FACTS:
Rogers delivered to the Smith, Bell & Co.(SBC) in consideration of the execution of the
document 12,000 in gold (this was evidenced with series of documents). When this document was
delivered 12,000 pesos in silver were worth more than 12,000 pesos in gold. Soon thereafter Rogers
removed to Barcelona and has since resided there. The SBC remitted the interest to him every three
months at the rate of 8 per cent per annum and was later reduced to 6%. This interest was remitted in
silver; that is to say, every three months SBC took 180 pesos in silver and with it bought exchange on
Barcelona or other European point converted into pesetas. Rogers received this payments in silver
without any protest whatever until Feb 10, 1904 when he called the attention of the SBC that the new
American Law in force in the Philippines, the gold standard has been introduced and that by reason
thereof, he was entitled to receive his interest in gold since he delivered it to SBC in gold coin. The
claim of Rogers is that, having paid to the SBC 12,000 pesos in gold coin, he is now entitled to receive
from them the value of 12,000 pesos in gold coin; that is to say, 24,000 pesos in silver. Rogers also
contended that their transaction was an irregular deposit in which the only benefit is that which accrues
to the depositor.

ISSUE:
1) Is the nature of the contract evidenced by the document executed between the parties a loan or
deposit?
2) Is Smith Bell required to return the same kind of money which was received?

RULING:
1) The SC ruled that the document in question is evidence of an ordinary loan and created
between the plaintiff and defendants the relation of debtor and creditor. Not a deposit, not
even considered as irregular deposit.

Manresa, in his Commentaries on the Civil Code states that there are three points of difference
between a loan and an irregular deposit.
The first difference which he points out consists in the fact that in an irregular deposit the
only benefit is that which accrues to the depositor, while in loan the essential cause for the
transaction is the necessity of the borrower. The contract in question does not fulfill this requirement of
an irregular deposit. It is very apparent that is was not for the sole benefit of Rogers. It, like any
other loan of money, was for the benefit of both parties. The benefit which Smith, Bell & Co. received
was the use of the money; the benefit which Rogers received was the interest of his money. In the letter
which Smith, Bell & Co. on the 30th of June, 1888, notified the plaintiff of the reduction of the interest,
they said: "We call your attention to this matter in order that you may if you think best employ your
money in some other place."

Nor does the contract in question fulfill the third requisite indicated by Manresa, which is, in
an irregular deposit, the depositor can demand the return of the article at any time, while a lender
is bound by the provisions of the contract and can not seek restitution until the time for payment, as
provided in the contract, has arisen. It is apparent from the terms of this document that Rogers could
not demand his money at any time. He was bound to give notice of his desire for its return and then to
wait for six months before he could insist upon payment.

The second difference which exists, according to Manresa, between an irregular deposit and
a loan lies in the fact that in an irregular deposit the depositor has a preference over other creditors in
the distribution of the debtor's property. That this preference may exist and the transaction be still a
loan.
2) But even if it is considered as an irregular deposit, it seems that the Rogers contention could not be
sustained. He claims that in accordance with said Law II, title III, Fifth Partida, SBC are bound to
return to him the same kind of money which was received.

Involuntary insolvency of Mariano Velasco and Co., et al. COMPAÑIA AGRICOLA DE

ULTRAMAR, claimant-appellee,
Vs.
VICENTE NEPOMUCENO
G.R. No. L-32778
November 14, 1930

Digested by: Michelle M. Alaba

Facts: It appears from the record that on March 17, 1927, the registered partnerships, Mariano Velasco
& Co., Mariano Velasco, Sons, & Co., and Mariano Velasco & Co., Inc., were, on petition of the
creditors, declared insolvent by the Court of First Instance of Manila.

On the 16th day of April, 1927, the Compania Agricola de Ultramar filed a claim against one of the
insolvents Mariano Velasco & Co., claiming the sum of P10,000, with the agreed interest thereon at the
rate of 6 per cent per annum from April 5, 1918, until its full payment was a deposit with said Mariano
Velasco & Co. and asked the court to declare it a preferred claim.

The assignee of the insolvency answered the claim by interposing a general denial. The claim was
thereupon referred by the court to a Commissioner to receive the evidence, and on September 23, 1929,
the court rendered a decision declaring that the alleged deposit was a preferred claim for the sum
mentioned, with interest at 6 per cent per annum from April 5, 1918, until paid. From this decision the
assignee appealed.

The evidence presented by the claimant Compania Agricola de Ultramar consisted of a receipt in
writing, and the testimony of Jose Velasco who was manager of Mariano Velasco & Co. at the time the
note was executed. The receipt reads as follow:

MANILA, P. I., April 5, 1918

Received from the "Compania Agricola de Ultramar" the sum of ten thousand Philippine pesos as a
deposit at the interest of six per cent annually, for the term of three months from date.

In witness thereof, I sign the present.

MARIANO VELASCO & CO.
By (Sgd.) JOSE VELASCO
Manager.
P10,000.00.

In his testimony, Jose Velasco stated that his signature on the receipt was authentic and that he received
the said sum of P10,000 from the appellee and deposited it with the bank in the current account of
Mariano Velasco & Co.

Issue: Whether or not the claim filed is that of a deposit or a loan

Held: The claim was that of a loan.

Although in the document in question a deposit is spoken of, nevertheless from an examination of the
entire document it clearly appears that the contract was a loan and that such was the intention of the
parties. It is unnecessary to recur to the cannons of interpretation to arrive at this conclusion. The
obligation of the depository to pay interest at the rate of 6 per cent to the depositor suffices to cause the
obligation to be considered as a loan and makes it likewise evident that it was the intention of the
parties that the depository should have the right to make use of the amount deposited, since it was
stipulated that the amount could be collected after notice of two months in advance. Such being the
case, the contract lost the character of a deposit and acquired that of a loan. (Art. 1768, Civil Code.)

Article 1767 of the Civil Code provides that —

"The depository cannot make use of the thing deposited without the express permission of the
depositor."

"Otherwise he shall be liable for losses and damages."

Article 1768 also provides that —
"When the depository has permission to make use of the thing deposited, the contract loses the
character of a deposit and becomes a loan or bailment."
"The permission not be presumed, and its existence must be proven."
xxx xxx xxx

Moreover, for the reasons above set forth it may, as a matter of course, be inferred that there was no
renewal of the contract of deposit converted into a loan, because, as has already been stated, the
defendants received said amount by virtue of a real loan contract under the name of a deposit, since the
so-called bailees were forthwith authorized to dispose of the amount deposited. This they have done, as
has been clearly shown.

● [NOTE: SC cited Gavieres vs. De Tavera (1 Phil., 17), very similar to the present case and
also Javellana vs. Lim (11 Phil., 141) the discussions were more on facts]

The two cases quoted are sufficient to show that the ten thousand pesos delivered by the appellee to
Mariano Velasco & Co. cannot de regarded as a technical deposit. But the appellee argues that it is at
least an "irregular deposit." This argument is, we think, sufficiently answered in the case of Rogers vs.
Smith, Bell & Co. (10 Phil., 319). There this court said:

. . . Manresa, in his Commentaries on the Civil Code (vol. 11, p. 664), states that there are three points
of difference between a loan and an irregular deposit. The first difference which he points out consists
in the fact that in an irregular deposit the only benefit is that which accrues to the depositor, while in a
loan the essential cause for the transaction is the necessity of the borrower. The contract in question
does not fulfill this requirement of an irregular deposit. It is very apparent that it was not for the sole
benefit of Rogers. It, like any other loan of money, was for the benefit of both parties. The benefit
which Smith, Bell & Co. received was the use of the money; the benefit which Rogers received was the
interest on his money. In the letter in which Smith, Bell & Co. on the 30th of June, 1888, notified the
plaintiff of the reduction of the interest, they said: "We call your attention to this matter in order that
you may if you think best employ your money in some other place."

Nor does the contract in question fulfill the third requisite indicated by Manresa, which is, that in an
irregular deposit, the depositor can demand the return of the article at any time, while a lender is bound
by the provisions of the contract and cannot seek restitution until the time for payment, as provided in
the contract, has arisen. It is apparent from the terms of this documents that the plaintiff could not
demand his money at any time. He was bound to give notice of his desire for its return and then to wait
for six months before he could insist upon payment.
In the present case the transaction in question was clearly not for the sole benefit of the Compania
Agricola de Ultramar; it was evidently for the benefit of both parties. Neither could the alleged
depositor demand payment until the expiration of the term of three months.

For the reasons stated, the appealed judgment is reversed, and we hold that the transaction in question
must be regarded as a loan, without preference.

G.R. No. 104612 May 10, 1994

BANK OF THE PHILIPPINE ISLANDS (successor-in- interest of COMMERCIAL AND
TRUST CO.), petitioner,
vs.
HON. COURT OF APPEALS, EASTERN PLYWOOD CORP. and BENIGNO D. LIM,
respondents.
DAVIDE, JR., J.:

FACTS: Private respondents Eastern Plywood Corporation and Benigno Lim as officer of the
corporation, had an “AND/OR” joint account with Commercial Bank and Trust Co (CBTC), the
predecessor-in-interest of petitioner Bank of the Philippine Islands. Lim withdraw funds from such
account and used it to open a joint checking account (an “AND” account) with Mariano Velasco. When
Velasco died in 1977, said joint checking account had P662,522.87. By virtue of an Indemnity
Undertaking executed by Lim and as President and General Manager of Eastern withdrew one half of
this amount and deposited it to one of the accounts of Eastern with CBTC.

Eastern obtained a loan of P73,000.00 from CBTC which was not secured. However, Eastern and
CBTC executed a Holdout Agreement providing that the loan was secured by the “Holdout of the C/A
No. 2310-001-42” referring to the joint checking account of Velasco and Lim.

Meanwhile, a judicial settlement of the estate of Velasco ordered the withdrawal of the balance of the
account of Velasco and Lim.

Asserting that the Holdout Agreement provides for the security of the loan obtained by Eastern and that
it is the duty of CBTC to debit the account of respondents to set off the amount of P73,000 covered by
the promissory note, BPI filed the instant petition for recovery. Private respondents Eastern and Lim,
however, assert that the amount deposited in the joint account of Velasco and Lim came from Eastern
and therefore rightfully belong to Eastern and/or Lim. Since the Holdout Agreement covers the loan of
P73,000, then petitioner can only hold that amount against the joint checking account and must return
the rest.

ISSUE: Whether BPI can demand the payment of the loan despite the existence of the Holdout
Agreement and whether BPI is still liable to the private respondents on the account subject of the
withdrawal by the heirs of Velasco.

RULING: Yes, the Holdout Agreement conferred on CBTC the power, not the duty, to set off the loan
from the account subject of the Agreement. When BPI demanded payment of the loan from Eastern, it
exercised its right to collect payment based on the promissory note, and disregarded its option under
the Holdout Agreement. Therefore, its demand was in the correct order.

It is clear from paragraph 02 thereof that CBTC, or BPI as its successor-in-interest, had every right to
demand that Eastern and Lim settle their liability under the promissory note. It cannot be compelled to
retain and apply the deposit in Lim and Velasco's joint account to the payment of the note. What the
agreement conferred on CBTC was a power, not a duty. Generally, a bank is under no duty or
obligation to make the application. To apply the deposit to the payment of a loan is a privilege, a right
of set-off which the bank has the option to exercise.
The account was proved and established to belong to Eastern even if it was deposited in the names of
Lim and Velasco. As the real creditor of the bank, Eastern has the right to withdraw it or to demand
payment thereof. BPI cannot be relieved of its duty to pay Eastern simply because it already allowed
the heirs of Velasco to withdraw the whole balance of the account. The petitioner should not have
allowed such withdrawal because it had admitted in the Holdout Agreement the questioned ownership
of the money deposited in the account. As early as 12 May 1979, CBTC was notified by the Corporate
Secretary of Eastern that the deposit in the joint account of Velasco and Lim was being claimed by
them and that one-half was being claimed by the heirs of Velasco.
Because the ownership of the deposit remained undetermined, BPI, as the debtor with respect thereto,
had no right to pay to persons other than those in whose favor the obligation was constituted or whose
right or authority to receive payment is indisputable. The payment of the money deposited with BPI
that will extinguish its obligation to the creditor-depositor is payment to the person of the creditor or to
one authorized by him or by the law to receive it. Payment made by the debtor to the wrong party does
not extinguish the obligation as to the creditor who is without fault or negligence, even if the debtor
acted in utmost good faith and by mistake as to the person of the creditor, or through error induced by
fraud of a third person. The payment then by BPI to the heirs of Velasco, even if done in good faith,
did not extinguish its obligation to the true depositor, Eastern.

G.R. No. 179952 December 4, 2009

METROPOLITAN BANK AND TRUST COMPANY (formerly ASIANBANK
CORPORATION), Petitioner, vs. BA FINANCE CORPORATION and MALAYAN
INSURANCE CO., INC., Respondents.

FACTS: Lamberto Bitanga obtained a loan from respondent BA Finance Corporation. To secure
payment for said loan, Bitanga mortgaged his car to respondent BA Finance. Bitanga then had the
mortgaged car insured by respondent Malayan Insurance Co., Inc. which issued a policy stipulating that
any loss shall be payable to BA Finance Corporation. The car was stolen. On Bitanga’s claim,
Malayan Insurance issued a check payable to the order of "B.A. Finance Corporation and Lamberto
Bitanga" for ₱224,500, drawn against China Bank. The check was crossed with the notation "For
Deposit Payees’ Account Only." Without the indorsement or authority of his co-payee BA Finance,
Bitanga deposited the check to his account with the Asianbank, now merged with herein petitioner
Metrobank. Bitanga subsequently withdrew the entire proceeds of the check. Bitanga’s loan became
past due, but despite demands, he failed to settle it.

BA Finance eventually learned of the loss of the car and the issuance of a crossed check by
Malayan Insurance payable to BA Finance and Bitanga, and that Bitanga deposited it in his account at
Asianbank and withdrew the entire proceeds thereof. BA Finance thereupon demanded the payment of
the value of the check from Asianbank but to no avail, prompting it to file a complaint before the
Regional Trial Court for sum of money and damages against Asianbank and Bitanga, alleging that it is
entitled to the entire proceeds of the check. Asianbank filed a third-party complaint against Malayan
Insurance alleging that Malayan Insurance was grossly negligent in issuing the check payable to both
Bitanga and BA Finance and delivering it to Bitanga without the consent of BA Finance.

The RTC held that Malayan Insurance was not privy to the contract between BA Finance and
Bitanga, and that Malayan Insurance cannot be faulted for negligence for issuing the check payable to
both BA Finance and Bitanga because it is the policy of Malayan Insurance to issue checks to both the
insured and the financing company. The trial court, holding that Asianbank was negligent in allowing
Bitanga to deposit the check to his account and to withdraw the proceeds thereof, without his co-payee
BA Finance having either indorsed it or authorized him to indorse it in its behalf, found Asianbank and
Bitanga jointly and severally liable to BA Finance.
ISSUE: Is petitioner liable for the payment of damages and the full value of the check?

RULING: Yes, petitioner is liable for the payment of damages and the full value of the check.
Section 41 of the Negotiable Instruments Law provides that where an instrument is payable to the order
of two or more payees or indorsees who are not partners, all must indorse unless the one indorsing has
authority to indorse for the others. In this case, Bitanga alone endorsed the crossed check, and
petitioner allowed the deposit and release of the proceeds thereof, despite the absence of authority of
Bitanga’s co-payee BA Finance to endorse it on its behalf. Petitioner, through its employee, was
negligent when it allowed the deposit of the crossed check, despite the lone endorsement of Bitanga,
ostensibly ignoring the fact that the check did not, it bears repeating, carry the indorsement of BA
Finance.

A collecting bank, Asianbank in this case, where a check is deposited and which indorses the
check upon presentment with the drawee bank, is an indorser. This is because in indorsing a check to
the drawee bank, a collecting bank stamps the back of the check with the phrase "all prior
endorsements and/or lack of endorsement guaranteed"and, for all intents and purposes, treats the check
as a negotiable instrument, hence, assumes the warranty of an indorser. Without Asianbank’s warranty,
the drawee bank (China Bank in this case) would not have paid the value of the subject check.

Petitioner, as the collecting bank or last indorser, generally suffers the loss because it has the
duty to ascertain the genuineness of all prior indorsements considering that the act of presenting the
check for payment to the drawee is an assertion that the party making the presentment has done its duty
to ascertain the genuineness of prior indorsements. Accordingly, one who credits the proceeds of a
check to the account of the indorsing payee is liable in conversion to the non-indorsing payee for the
entire amount of the check.
The business of a bank is affected with public interest; thus it makes a sworn profession of
diligence and meticulousness in giving irreproachable service. The award of exemplary damages is
proper as a warning to the petitioner and all concerned not to recklessly disregard their obligation to
exercise the highest and strictest diligence in serving their depositors.

As to the payment of legal interest on the value of the check, Article 1980 of the Civil Code will not
apply in this case. Article 1980 of the Civil Code provides that: Fixed savings, and current deposits of
money in banks and similar institutions shall be governed by the provisions concerning simple loan.
Said provision is not applicable in this case since the nature of the relationship between BA Finance
and petitioner is one of agency whereby petitioner, as collecting bank, is to collect for BA Finance the
corresponding proceeds from the check. Not being a loan or forbearance of money, the interest should
be 6% per annum computed from the date of extrajudicial demand on September 25, 1992 until finality
of judgment; and 12% per annum from finality of judgment until payment.

GREGORIO H. REYES and CONSUELO PUYAT-REYES, petitioners,

vs.
THE HON. COURT OF APPEALS and FAR EAST BANK AND TRUST COMPANY,
respondents.
G.R. No. 118492
August 15, 2001
DE LEON, JR., J.:

Doctrine: Degree of diligence required of banks, is more than that of a good father of a family where
the fiduciary nature of their relationship with their depositors is concerned. In other words banks are
duty bound to treat the deposit accounts of their depositors with the highest degree of care. But the said
ruling applies only to cases where banks act under their fiduciary capacity, that is, as depositary of the
deposits of their depositors. But the same higher degree of diligence is not expected to be exerted by
banks in commercial transactions that do not involve their fiduciary relationship with their depositors.

Facts: In view of the 20th Asian Racing Conference, the PRCI, Petitioner Gregorio H. Reyes sent
Godofredo Reyes to the respondent Far East Bank to apply for a foreign exchange demand draft in
Australian dollars in the amount of AU$1,610.00. He was attended to by respondent bank's assistant
cashier, Mr. Yasis, who at first denied the application for the reason that respondent bank did not have
an Australian dollar account in any bank in Sydney. Godofredo asked if there could be a way for
respondent bank to accommodate PRCI's urgent need to remit Australian dollars to Sydney. Yasis of
respondent bank then informed Godofredo of a roundabout way of effecting the requested remittance to
Sydney thus: the respondent bank would draw a demand draft against Westpac Bank in Sydney,
Australia and have the latter reimburse itself from the U.S. dollar account of the respondent in Westpac
Bank in New York, U.S.A. This arrangement has been customarily resorted to since the 1960's and the
procedure has proven to be problem-free (it is called SWIFT).

PRCI and the petitioner Gregorio H. Reyes agreed to this arrangement or approach in order to effect
the urgent transfer of Australian dollars payable to the Secretariat of the 20 th Asian Racing Conference.
On July 28, 1988, the respondent bank approved the said application of PRCI and issued FXDD No.
209968 in the sum applied for.

On August 10, 1988, upon due presentment of the foreign exchange demand draft, denominated as
FXDD No. 209968, the same was dishonored, with the notice of dishonor stating the following: "xxx
No account held with Westpac." Meanwhile, on August 16, 1988, Wespac-New York sent a cable to
respondent bank informing the latter that its dollar account in the sum of AU$ 1,610.00 was debited.
On August 19, 1988, in response to PRCI's complaint about the dishonor of the said foreign exchange
demand draft, respondent bank informed Westpac-Sydney of the issuance of the said demand draft
FXDD No. 209968, drawn against the Wespac-Sydney and informing the latter to be reimbursed from
the respondent bank's dollar account in Westpac-New York. The respondent bank on the same day
likewise informed Wespac-New York requesting the latter to honor the reimbursement claim of
Wespac-Sydney. On September 14, 1988, upon its second presentment for payment, FXDD No.
209968 was again dishonored by Westpac-Sydney for the same reason, that is, that the respondent bank
has no deposit dollar account with the drawee Wespac-Sydney.

When petitioner spouses arrived in Australia, they said that they were embarrassed in front of many
delegates since they could not register because the foreign exchange demand draft for their registration
fee had been dishonored. Both paid in cash instead.

Petitioners filed a complaint for damages against Far East Bank due to the dishonor of the said foreign
exchange demand draft issued by the respondent bank. The petitioners claim that as a result of the
dishonor of the said demand draft, they were exposed to unnecessary shock, social humiliation, and
deep mental anguish in a foreign country, and in the presence of an international audience.

RTC: In favor of the bank

CA: In favor of the bank. There is no basis to hold the respondent bank liable for damages for the
reason that it exerted every effort for the subject foreign exchange demand draft to be honored.

Petitioner’s Contention: Due to the fiduciary nature of the relationship between the respondent bank
and its clients, the respondent should have exercised a higher degree of diligence than that expected of
an ordinary prudent person in the handling of its affairs.

Issue: Whether or not the respondent bank was negligent

Held: No.

The facts as found by the courts a quo show that respondent bank did not cause an erroneous
transmittal of its SWIFT cable message to Westpac-Sydney. It was the erroneous decoding of the cable
message on the part of Westpac-Sydney that caused the dishonor of the FXDD. An employee of
Westpac-Sydney mistakenly read the printed figures in the SWIFT cable message of respondent bank
as "MT799" instead of as "MT199". As a result, Westpac-Sydney construed the said cable message as a
format for a letter of credit, and not for a demand draft. Th The figure before '99' can still be distinctly
seen as a number '1' and not number '7'." Indeed, the line of a "7" is in a slanting position while the line
of a "1" is in a horizontal position. Thus, the number "1" in "MT199" cannot be construed as "7".

The degree of diligence required of banks, is more than that of a good father of a family where the
fiduciary nature of their relationship with their depositors is concerned. In other words banks are duty
bound to treat the deposit accounts of their depositors with the highest degree of care. But the said
ruling applies only to cases where banks act under their fiduciary capacity, that is, as depositary of the
deposits of their depositors. But the same higher degree of diligence is not expected to be exerted by
banks in commercial transactions that do not involve their fiduciary relationship with their depositors.

Respondent bank was not required to exert more than the diligence of a good father of a family in
regard to the sale and issuance of the subject FXDD. The case at bar does not involve the handling of
petitioners' deposit. Instead, the relationship involved was that of a buyer and seller, that is,
between the respondent bank as the seller of the subject foreign exchange demand draft, and
PRCI as the buyer of the same, with the 20th Asian Racing Conference Secretariat in Sydney,
Australia as the payee thereof. The FXDD was intended for the payment of the registration fees of
the petitioners as delegates of the PRCI.

The evidence shows that the respondent bank did everything within its power to prevent the dishonor
of the subject foreign exchange demand draft. The erroneous reading of its cable message to Westpac-
Sydney by an employee of the latter could not have been foreseen by the respondent bank. Being
unaware that its employee erroneously read the said cable message, Westpac-Sydney merely stated that
the respondent bank has no deposit account with it to cover for the amount AU $1610.00 indicated in
the FXDD. Thus, the respondent bank had the impression that Westpac-New York had not yet made
available the amount for reimbursement to Westpac-Sydney despite the fact that respondent bank has a
sufficient deposit dollar account with Westpac-New York. That was the reason why the respondent
bank had to re-confirm and repeatedly notify Westpac-New York to debit its (respondent bank's)
deposit dollar account with it and to transfer or credit the corresponding amount to Westpac-Sydney to
cover the amount of the said demand draft.

In view of all the foregoing, and considering that the dishonor of the subject foreign exchange demand
draft is not attributable to any fault of the respondent bank, whereas the petitioners appeared to be
under estoppel as earlier mentioned, it is no longer necessary to discuss the alleged application of
Section 61 of the Negotiable Instruments Law to the case at bar. In any event, it was established that
the respondent bank acted in good faith and that it did not cause the embarrassment of the petitioners in
Sydney, Australia. Hence, the CA did not commit any reversible error in its challenged decision.

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. LOTA and CLEMENT DAVID, respondents.
MAKASIAR, Actg. C.J.
FACTS: From March 20, 1979 to March, 1981, David invested with the Nation Savings and Loan
Association, (hereinafter called NSLA) the sum of P1,145,546.20 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$50,000.00 under a receipt dated June
8, 1980 (au jointly with Denise Kuhne), that David was induced into making the aforestated
investments by Robert Marshall an Australian national who was allegedly a close associate of
petitioner Guingona Jr., then NSLA President, petitioner Martin, then NSLA Executive Vice-President
of NSLA and petitioner Santos, then NSLA General Manager; that on March 21, 1981 N LA was
placed under receivership by the Central Bank, so that David filed claims therewith for his investments
and those of his sister; that on July 22, 1981 David received a report from the Central Bank that only
P305,821.92 of those investments were entered in the records of NSLA; that, therefore, the respondents
in I.S. No. 81-31938 misappropriated the balance of the investments, at the same time violating Central
Bank Circular No. 364 and related Central Bank regulations on foreign exchange transactions; that
after demands, petitioner Guingona Jr. paid only P200,000.00, thereby reducing the amounts
misappropriated to P959,078.14 and US$75,000.00.

But the petitioners contend that Martin became President of NSLA in March 1978 (after the
resignation of Guingona, Jr.) and served as such until October 30, 1980, while Santos was General
Manager up to November 1980; that because NSLA was urgently in need of funds and at David's
insistence, his investments were treated as special- accounts with interest above the legal rate, an
recorded in separate confidential documents only a portion of which were to be reported because he did
not want the Australian government to tax his total earnings (nor) to know his total investments; that all
transactions with David were recorded except the sum of US$15,000.00 which was a personal loan of
Santos; 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 of US$30,000.00 was placed in the name of one Paz
Roces because of a pending transaction with her; that the Philippine Deposit Insurance Corporation had
already reimbursed David within the legal limits; that majority 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
after NSLA was placed under receivership, Martin executed a promissory note in David'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 of NSLA to David were civil in nature.

ISSUE: Was there a deposit in this case?

RULING: There was no deposit but the contract that was perfected was a contract of simple loan or
mutuum.
It must be pointed out that when private respondent David invested his money on nine savings deposits
with the aforesaid bank. Thus, Article 1980 of the New Civil Code provides that:

Article 1980. Fixed, savings, and current deposits of-money in banks and similar institutions shall be
governed by the provisions concerning simple loan.
In the case of Central Bank of the Philippines vs. Morfe : It should be noted that fixed, savings, and
current deposits of money in banks and similar institutions are hat true deposits. are considered simple
loans and, as such, are not preferred credits.

This Court also declared in the recent case of Serrano vs. Central Bank of the Philippines: Bank
deposits are in the nature of irregular deposits. They are really 'loans because they earn interest. All
kinds of bank deposits, whether fixed, savings, or current are to be treated as loans and are to be
covered by the law on loans (Art. 1980 Civil Code Gullas vs. Phil. National Bank, 62 Phil. 519).
Current and saving deposits, are loans to a bank because it can use the same. The petitioner here in
making time deposits that earn interests will respondent Overseas Bank of Manila was in reality a
creditor of the respondent Bank and not a depositor. The respondent Bank was in turn a debtor of
petitioner. Failure of the respondent Bank to honor the time deposit is failure to pay its obligation as a
debtor and not a breach of trust arising from a depositary's failure to return the subject matter of the
deposit.

DURBAN APARTMENTS CORPORATION, doing business under

the name and style of City Garden Hotel,Petitioner,
vs.
PIONEER INSURANCE AND SURETY CORPORATION, Respondent.
G.R. No. 179419
January 12, 2011

Digested by: Michelle M. Alaba

Doctrine: Please see Article 1962 and Article 1998 cited below.

Facts: On July 22, 2003, respondent Pioneer Insurance and Surety Corporation, by right of
subrogation, filed a Complaint for Recovery of Damages against petitioner Durban Apartments
Corporation, doing business under the name and style of City Garden Hotel, and Vicente Justimbaste.
[Jeffrey See owned the lost car]

Contention of Respondent Pioneer Insurance:

● Respondent averred that it is the insurer for loss and damage of Jeffrey See’s Suzuki Grand
Vitara (Plate No. XBH-510) in the amount of P1,175,000.
● On April 30, 2002, Jeffrey See arrived and checked in at the City Garden Hotel in Makati
corner Kalayaan Avenues, Makati City before midnight, and its parking attendant, defendant
Justimbaste got the key to said Vitara from See to park it.
● On May 1, 2002 (1am) – the Hotel Chief Security Officer informed him that his car was
carnapped while it was parked unattended at the parking area of Equitable PCI Bank along
Makati Ave.
● See then reported the incident to the Operations Division of Makati City Police Anti-
Carnapping unit and then conducted investigation.
● The car has not yet been recovered since July 23, 2002.
● Respondent paid P1,163,250 money claim of See and mortagee ABN AMRO Savings Bank as
indemnity for the loss of the car.
● The car was lost due to the negligence of Durban Apartments and Justimbaste because it was
discovered that this was the second time that a similar incident of carnapping happened in the
valet parking service of Durban Apartments and no necessary precautions were taken to
prevent its repetition.
● Defendant Justimbaste and Durban Apartments failed and refused to pay Pioneer’s valid, just,
and lawful claim despite written demands.

Contention of Petitioner Durban Apartments:

● Jeffrey See did not check in at its hotel, on the contrary, he was a guest of a certain Ching
Montero x x x; defendant x x x Justimbaste did not get the ignition key of See’s Vitara, on the
contrary, it was See who requested a parking attendant to park the Vitara at any available
parking space, and it was parked at the Equitable Bank parking area, which was within See’s
view, while he and Montero were waiting in front of the hotel.
● They made a written denial of the demand of [respondent] Pioneer Insurance for want of legal
basis; valet parking services are provided by the hotel for the convenience of its customers
looking for a parking space near the hotel premises; it is a special privilege that it gave to
Montero and See; it does not include responsibility for any losses or damages to motor
vehicles and its accessories in the parking area; and the same holds true even if it was See
 himself who parked his Vitara within the premises of the hotel as evidenced by the valet
parking customer’s claim stub issued to him.
● Defendant Justimbaste saw the Vitara speeding away from the place where it was parked; he
tried to run after it, and blocked its possible path but to no avail.

RTC ruled in favor of respondent and ordered Durban Apartment to pay respondent the sum of P1, 163,
250.00.

CA affirmed the decision of RTC. Hence, present petition.

Issue: Whether petitioner is liable to respondent for the loss of See’s vehicle

Held: Yes.

In this case, respondent substantiated the allegations in its complaint, i.e., a contract of necessary
deposit existed between the insured See and petitioner. On this score, we find no error in the
following disquisition of the appellate court:

The records also reveal that upon arrival at the City Garden Hotel, See gave notice to the doorman and
parking attendant of the said hotel, x x x Justimbaste, about his Vitara when he entrusted its ignition
key to the latter. x x x Justimbaste issued a valet parking customer claim stub to See, parked the Vitara
at the Equitable PCI Bank parking area, and placed the ignition key inside a safety key box while See
proceeded to the hotel lobby to check in. The Equitable PCI Bank parking area became an annex of
City Garden Hotel when the management of the said bank allowed the parking of the vehicles of hotel
guests thereat in the evening after banking hours.

Article 1962, in relation to Article 1998, of the Civil Code defines a contract of deposit and a necessary
deposit made by persons in hotels or inns:

Art. 1962. A deposit is constituted from the moment a person receives a thing belonging to another,
with the obligation of safely keeping it and returning the same. If the safekeeping of the thing delivered
is not the principal purpose of the contract, there is no deposit but some other contract.

Art. 1998. The deposit of effects made by travelers in hotels or inns shall also be regarded as
necessary.The keepers of hotels or inns shall be responsible for them as depositaries, provided that
notice was given to them, or to their employees, of the effects brought by the guests and that, on the
part of the latter, they take the precautions which said hotel-keepers or their substitutes advised relative
to the care and vigilance of their effects.

The insured See deposited his vehicle for safekeeping with petitioner, through the latter’s employee,
Justimbaste. In turn, Justimbaste issued a claim stub to See. Thus, the contract of deposit was perfected
from See’s delivery, when he handed over to Justimbaste the keys to his vehicle, which Justimbaste
received with the obligation of safely keeping and returning it. Ultimately, petitioner is liable for the
loss of See’s vehicle.

G.R. No. 126780 February 17, 2005

YHT REALTY CORPORATION, ERLINDA LAINEZ and ANICIA PAYAM, petitioners, vs.
THE COURT OF APPEALS and MAURICE McLOUGHLIN, respondents.
Doctrine:
· The New Civil Code is explicit that the responsibility of the hotel-keeper shall extend to loss
of, or injury to, the personal property of the guests even if caused by servants or employees of the
keepers of hotels or inns as well as by strangers, except as it may proceed from any force majeure.
 It is the loss through force majeure that may spare the hotel-keeper from liability. In the case at
bar, there is no showing that the act of the thief or robber was done with the use of arms or through
an irresistible force to qualify the same as force majeure.

FACTS: Private respondent McLoughlin is an Australian businessman-philanthropist. During

his trips to the Philippines, he used to stay at the Sheraton Hotel but he was convinced by Brunhilda
Tan to stay instead at the Tropicana Suites which is owned by petitioner YHT Realty Corporation.
Lopez served as manager of the hotel while petitioners Lainez and Payam had custody of the keys for
the safety deposit boxes of Tropicana. McLoughlin rented a safety deposit box which could only be
opened through the use of two keys, one of which is given to the registered guest, and the other
remaining in the possession of the management of the hotel.

Before leaving for a brief trip to Hongkong, McLoughlin opened his safety deposit box and took
therefrom the envelope containing US$5,000.00, the envelope containing AUS$10,000.00, his
passports and his credit cards. McLoughlin left the other items in the box as he did not check out of his
room at the Tropicana during his short visit to Hongkong. When he arrived in Hongkong, he opened
the envelope which contained US$5,000.00 and discovered upon counting that only US$3,000.00 were
enclosed therein. After returning to Manila, he checked out of Tropicana and left for Australia. When
he arrived in Australia, he discovered that the envelope with US$10,000.00 was short of US$5,000. He
also noticed that the jewelry which he bought in Hongkong and stored in the safety deposit box upon
his return to Tropicana was likewise missing.
When McLoughlin came back to the Philippines, he asked Lainez if some money and/or jewelry
which he had lost were found and returned to her or to the management. However, Lainez answered in
the negative. Thereafter, McLoughlin again registered at Tropicana and rented a safety deposit box. He
placed therein one envelope containing US$15,000.00, another envelope containing AUS$10,000.00
and other envelopes containing his traveling papers/documents. When McLoughlin requested Lainez
and Payam to open his safety deposit box, he noticed that in the envelope containing US$15,000.00,
Two Thousand US Dollars (US$2,000.00) were missing and in the envelope previously containing
AUS$10,000.00, Four Thousand Five Hundred Australian Dollars (AUS$4,500.00) were missing.

When McLoughlin discovered the loss, he immediately confronted Lainez and Payam who
admitted that Tan opened the safety deposit box with the key assigned to him. Tan admitted that she
had stolen McLoughlin's key and was able to open the safety deposit box with the assistance of Lopez,
Payam and Lainez. Tan then executed a promissory note in favor of McLoughlin. Despite the
execution of promissory note by Tan, McLoughlin insisted that it must be the hotel who must assume
responsibility for the loss he suffered. However, Lopez refused to accept the responsibility relying on
the conditions for renting the safety deposit box entitled "Undertaking For the Use Of Safety Deposit
Box," specifically paragraphs (2) and (4) thereof:
2. To release and hold free and blameless TROPICANA APARTMENT HOTEL from any liability
arising from any loss in the contents and/or use of the said deposit box for any cause whatsoever,
including but not limited to the presentation or use thereof by any other person should the key be lost;
4. To return the key and execute the RELEASE in favor of TROPICANA APARTMENT HOTEL
upon giving up the use of the box.

McLoughlin filed a complaint for damages against herein petitioners. The RTC rendered a
decision in favor of McLoughlin, and ruled that paragraphs 2 and 4 of the "Undertaking For The Use
Of Safety Deposit Box" are not valid for being contrary to the express mandate of Article 2003 of the
New Civil Code and against public policy. The court of Appeals affirmed said decision.
ISSUE: Whether the Undertaking For The Use Of Safety Deposit Box admittedly executed by
McLoughlin is null and void.

RULING: Yes, paragraphs 2 and 4 of the "Undertaking” is null and void. Article 2003 was
incorporated in the New Civil Code as an expression of public policy precisely to apply to situations
such as that presented in this case. The hotel business like the common carrier's business is imbued
with public interest. Catering to the public, hotelkeepers are bound to provide not only lodging for
hotel guests and security to their persons and belongings. The twin duty constitutes the essence of the
business. The law in turn does not allow such duty to the public to be negated or diluted by any
contrary stipulation in so-called "undertakings" that ordinarily appear in prepared forms imposed by
hotel keepers on guests for their signature.

To hold hotelkeepers or innkeeper liable for the effects of their guests, it is not necessary that
they be actually delivered to the innkeepers or their employees. It is enough that such effects are within
the hotel or inn. With greater reason should the liability of the hotelkeeper be enforced when the
missing items are taken without the guest's knowledge and consent from a safety deposit box provided
by the hotel itself, as in this case.

Paragraphs (2) and (4) of the "undertaking" manifestly contravene Article 2003 of the New
Civil Code for they allow Tropicana to be released from liability arising from any loss in the contents
and/or use of the safety deposit box for any cause whatsoever. Evidently, the undertaking was intended
to bar any claim against Tropicana for any loss of the contents of the safety deposit box whether or not
negligence was incurred by Tropicana or its employees. The New Civil Code is explicit that the
responsibility of the hotel-keeper shall extend to loss of, or injury to, the personal property of the guests
even if caused by servants or employees of the keepers of hotels or inns as well as by strangers, except
as it may proceed from any force majeure. It is the loss through force majeure that may spare the hotel-
keeper from liability. In the case at bar, there is no showing that the act of the thief or robber was done
with the use of arms or through an irresistible force to qualify the same as force majeure.

Petitioners likewise anchor their defense on Article 2002 which exempts the hotel-keeper
from liability if the loss is due to the acts of his guest, his family, or visitors. However, said provision
presupposes that the hotel-keeper is not guilty of concurrent negligence or has not contributed in any
degree to the occurrence of the loss. A depositary is not responsible for the loss of goods by theft,
unless his actionable negligence contributes to the loss.

In the case at bar, the responsibility of securing the safety deposit box was shared not only by
the guest himself but also by the management since two keys are necessary to open the safety deposit
box. Without the assistance of hotel employees, the loss would not have occurred. Thus, Tropicana was
guilty of concurrent negligence in allowing Tan, who was not the registered guest, to open the safety
deposit box of McLoughlin, even assuming that the latter was also guilty of negligence in allowing
another person to use his key.

G.R. No. 189998               August 29, 2012

MAKATI SHANGRI-LA HOTEL AND RESORT, INC., Petitioner,

vs.
ELLEN JOHANNE HARPER, JONATHAN CHRISTOPHER HARPER, and
RIGOBERTO GILLERA, Respondents.

DECISION

BERSAMIN, J.: