Deposit Cases

THIRD DIVISION

[G.R. No. 156940. December 14, 2004]

ASSOCIATED BANK (Now WESTMONT vs. VICENTE HENRY TAN, respondent. DECISION
PANGANIBAN, J.:

BANK), petitioner,

While banks are granted by law the right to debit the value of a dishonored check from a depositors account, they must do so with the highest degree of care, so as not to prejudice the depositor unduly.

The Case Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, assailing the January 27, 2003 Decision[2] of the Court of Appeals (CA) in CA-GR CV No. 56292. The CA disposed as follows: WHEREFORE, premises considered, the Decision dated December 3, 1996, of the Regional Trial Court of Cabanatuan City, Third Judicial Region, Branch 26, in Civil Case No. 892-AF is hereby AFFIRMED. Costs against the [petitioner].[3]

The Facts The CA narrated the antecedents as follows: Vicente Henry Tan (hereafter TAN) is a businessman and a regular depositor-creditor of the Associated Bank (hereinafter referred to as the BANK). Sometime in September 1990, he deposited a postdated UCPB check with the said BANK in the amount of P101,000.00 issued to him by a certain Willy Cheng from Tarlac. The check was duly entered in his bank record thereby making his balance in the amount of P297,000.00, as of October 1, 1990, from his original deposit ofP196,000.00. Allegedly, upon advice and instruction of the BANK that the P101,000.00 check was already cleared and backed up by sufficient funds, TAN, on the same date, withdrew the sum of P240,000.00, leaving a balance of P57,793.45. A day after, TAN

deposited the amount of P50,000.00 making his existing balance in the amount of P107,793.45, because he has issued several checks to his business partners, to wit: CHECK NUMBERS a. 138814 b. 138804 c. 138787 d. 138847 e. 167054 f. 138792 g. 138774 h. 167072 i. 168802 DATE Sept. 29, 1990 Oct. 8, 1990 Sept. 30, 1990 Sept. 29, 1990 Sept. 29, 1990 Sept. 29, 1990 Oct. 2, 1990 Oct. 10, 1990 Oct. 10, 1990 AMOUNT P9,000.00 9,350.00 6,360.00 21,850.00 4,093.40 3,546.00 6,600.00 9,908.00 3,650.00

However, his suppliers and business partners went back to him alleging that the checks he issued bounced for insufficiency of funds. Thereafter, TAN, thru his lawyer, informed the BANK to take positive steps regarding the matter for he has adequate and sufficient funds to pay the amount of the subject checks. Nonetheless, the BANK did not bother nor offer any apology regarding the incident. Consequently, TAN, as plaintiff, filed a Complaint for Damages on December 19, 1990, with the Regional Trial Court of Cabanatuan City, Third Judicial Region, docketed as Civil Case No. 892-AF, against the BANK, as defendant. In his [C]omplaint, [respondent] maintained that he ha[d] sufficient funds to pay the subject checks and alleged that his suppliers decreased in number for lack of trust. As he has been in the business community for quite a time and has established a good record of reputation and probity, plaintiff claimed that he suffered embarrassment, humiliation, besmirched reputation, mental anxieties and sleepless nights because of the said unfortunate incident. [Respondent] further averred that he continuously lost profits in the amount of P250,000.00. [Respondent] therefore prayed for exemplary damages and that [petitioner] be ordered to pay him the sum of P1,000,000.00 by way of moral damages, P250,000.00 as lost profits, P50,000.00 as attorneys fees plus 25% of the amount claimed including P1,000.00 per court appearance. Meanwhile, [petitioner] filed a Motion to Dismiss on February 7, 1991, but the same was denied for lack of merit in an Order dated March 7, 1991. Thereafter, [petitioner] BANK on March 20, 1991 filed its Answer denying, among others, the allegations of [respondent] and alleged that no banking institution would give an assurance to any of its client/depositor that the check deposited by him had already been cleared and backed up by sufficient funds but it could only presume that the same has been honored by the drawee bank in view of the lapse of time that ordinarily takes for a check to be cleared. For its part, [petitioner] alleged that onOctober 2, 1990, it gave notice to the [respondent] as to the return of his UCPB check deposit in the amount of P101,000.00, hence, on even date, [respondent] deposited the amount of P50,000.00 to cover the returned check. By way of affirmative defense, [petitioner] averred that [respondent] had no cause of action against it and argued that it has all the right to debit the account of the [respondent] by reason of

the dishonor of the check deposited by the [respondent] which was withdrawn by him prior to its clearing. [Petitioner] further averred that it has no liability with respect to the clearing of deposited checks as the clearing is being undertaken by the Central Bank and in accepting [the] check deposit, it merely obligates itself as depositors collecting agent subject to actual payment by the drawee bank. [Petitioner] therefore prayed that [respondent] be ordered to pay it the amount of P1,000,000.00 by way of loss of goodwill, P7,000.00 as acceptance fee plus P500.00 per appearance and by way of attorneys fees. Considering that Westmont Bank has taken over the management of the affairs/properties of the BANK, [respondent] on October 10, 1996, filed an Amended Complaint reiterating substantially his allegations in the original complaint, except that the name of the previous defendant ASSOCIATED BANK is now WESTMONT BANK. Trial ensured and thereafter, the court rendered its Decision dated December 3, 1996 in favor of the [respondent] and against the [petitioner], ordering the latter to pay the [respondent] the sum of P100,000.00 by way of moral damages, P75,000.00 as exemplary damages, P25,000.00 as attorneys fees, plus the costs of this suit. In making said ruling, it was shown that [respondent] was not officially informed about the debiting of the P101,000.00 [from] his existing balance and that the BANK merely allowed the [respondent] to use the fund prior to clearing merely for accommodation because the BANK considered him as one of its valued clients. The trial court ruled that the bank manager was negligent in handling the particular checking account of the [respondent] stating that such lapses caused all the inconveniences to the [respondent]. The trial court also took into consideration that [respondents] mother was originally maintaining with the x x x BANK [a] current account as well as [a] time deposit, but [o]n one occasion, although his mother made a deposit, the same was not credited in her favor but in the name of another.[4] Petitioner appealed to the CA on the issues of whether it was within its rights, as collecting bank, to debit the account of its client for a dishonored check; and whether it had informed respondent about the dishonor prior to debiting his account.

Ruling of the Court of Appeals Affirming the trial court, the CA ruled that the bank should not have authorized the withdrawal of the value of the deposited check prior to its clearing. Having done so, contrary to its obligation to treat respondents account with meticulous care, the bank violated its own policy. It thereby took upon itself the obligation to officially inform respondent of the status of his account before unilaterally debiting the amount of P101,000. Without such notice, it is estopped from blaming him for failing to fund his account. The CA opined that, had the P101,000 not been debited, respondent would have had sufficient funds for the postdated checks he had issued. Thus, the supposed accommodation accorded by petitioner to him is the proximate cause of his business woes and shame, for which it is liable for damages.

Because of the banks negligence, the CA awarded respondent moral damages of P100,000. It also granted him exemplary damages ofP75,000 and attorneys fees of P25,000. Hence this Petition.[5]

Issue In its Memorandum, petitioner raises the sole issue of whether or not the petitioner, which is acting as a collecting bank, has the right to debit the account of its client for a check deposit which was dishonored by the drawee bank.[6] The Courts Ruling The Petition has no merit.

Sole Issue: Debit of Depositors Account Petitioner-bank contends that its rights and obligations under the present set of facts were misappreciated by the CA. It insists that its right to debit the amount of the dishonored check from the account of respondent is clear and unmistakable. Even assuming that it did not give him notice that the check had been dishonored, such right remains immediately enforceable. In particular, petitioner argues that the check deposit slip accomplished by respondent on September 17, 1990, expressly stipulated that the bank was obligating itself merely as the depositors collecting agent and -- until such time as actual payment would be made to it -- it was reserving the right to charge against the depositors account any amount previously credited. Respondent was allowed to withdraw the amount of the check prior to clearing, merely as an act of accommodation, it added. At the outset, we stress that the trial courts factual findings that were affirmed by the CA are not subject to review by this Court.[7] As petitioner itself takes no issue with those findings, we need only to determine the legal consequence, based on the established facts.

Right of Setoff A bank generally has a right of setoff over the deposits therein for the payment of any withdrawals on the part of a depositor.[8] The right of a collecting bank to debit a

clients account for the value of a dishonored check that has previously been credited has fairly been established by jurisprudence. To begin with, Article 1980 of the Civil Code provides that [f]ixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan. Hence, the relationship between banks and depositors has been held to be that of creditor and debtor.[9] Thus, legal compensation under Article 1278[10] of the Civil Code may take place when all the requisites mentioned in Article 1279 are present, [11] as follows: (1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; (2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; (3) That the two debts be due; (4) That they be liquidated and demandable; (5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor.[12] Nonetheless, the real issue here is not so much the right of petitioner to debit respondents account but, rather, the manner in which it exercised such right. The Court has held that even while the right of setoff is conceded, separate is the question of whether that remedy has properly been exercised.[13] The liability of petitioner in this case ultimately revolves around the issue of whether it properly exercised its right of setoff. The determination thereof hinges, in turn, on the banks role and obligations, first, as respondents depositary bank; and second, as collecting agent for the check in question.

Obligation as Depositary Bank In BPI v. Casa Montessori,[14] the Court has emphasized that the banking business is impressed with public interest. Consequently, the highest degree of diligence is expected, and high standards of integrity and performance are even required of it. By the nature of its functions, a bank is under obligation to treat the accounts of its depositors with meticulous care.[15] Also affirming this long standing doctrine, Philippine Bank of Commerce v. Court of Appeals[16] has held that 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.[17] Indeed, the banking business is vested with the trust and confidence of the public; hence the appropriate standard of diligence must be very high, if not the highest, degree of diligence.[18] The standard applies, regardless of whether the account consists of only a few hundred pesos or of millions. [19]

The fiduciary nature of banking, previously imposed by case law, [20] is now enshrined in Republic Act No. 8791 or the General Banking Law of 2000. Section 2 of the law specifically says that the State recognizes the fiduciary nature of banking that requires high standards of integrity and performance. Did petitioner treat respondents account with the highest degree of care? From all indications, it did not. It is undisputed -- nay, even admitted -- that purportedly as an act of accommodation to a valued client, petitioner allowed the withdrawal of the face value of the deposited check prior to its clearing. That act certainly disregarded the clearance requirement of the banking system. Such a practice is unusual, because a check is not legal tender or money;[21] and its value can properly be transferred to a depositors account only after the check has been cleared by the drawee bank. [22] Under ordinary banking practice, after receiving a check deposit, a bank either immediately credit the amount to a depositors account; orinfuse value to that account only after the drawee bank shall have paid such amount. [23] Before the check shall have been cleared for deposit, the collecting bank can only assume at its own risk -- as herein petitioner did -- that the check would be cleared and paid out. Reasonable business practice and prudence, moreover, dictated that petitioner should not have authorized the withdrawal by respondent ofP240,000 on October 1, 1990, as this amount was over and above his outstanding cleared balance of P196,793.45.[24] Hence, the lower courts correctly appreciated the evidence in his favor.

Obligation as Collecting Agent Indeed, the bank deposit slip expressed this reservation: In receiving items on deposit, this Bank obligates itself only as the Depositors Collecting agent, assuming no responsibility beyond carefulness in selecting correspondents, and until such time as actual payments shall have come to its possession, this Bank reserves the right to charge back to the Depositors account any amounts previously credited whether or not the deposited item is returned. x x x."[25] However, this reservation is not enough to insulate the bank from any liability. In the past, we have expressed doubt about the binding force of such conditions unilaterally imposed by a bank without the consent of the depositor. [26] It is indeed arguable that in signing the deposit slip, the depositor does so only to identify himself and not to agree to the conditions set forth at the back of the deposit sl ip.[27] Further, by the express terms of the stipulation, petitioner took upon itself certain obligations as respondents agent, consonant with the well-settled rule that the relationship between the payee or holder of a commercial paper and the collecting bank

is that of principal and agent.[28]Under Article 1909[29] of the Civil Code, such bank could be held liable not only for fraud, but also for negligence. As a general rule, a bank is liable for the wrongful or tortuous acts and declarations of its officers or agents within the course and scope of their employment. [30] Due to the very nature of their business, banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees. [31] Jurisprudence has established that the lack of diligence of a servant is imputed to the negligence of the employer, when the negligent or wrongful act of the former proximately results in an injury to a third person;[32] in this case, the depositor. The manager of the banks Cabanatuan branch, Consorcia Santiago, categorically admitted that she and the employees under her control had breached bank policies. They admittedly breached those policies when, without clearance from the drawee bank in Baguio, they allowed respondent to withdraw on October 1, 1990, the amount of the check deposited. Santiago testified that respondent was not officially informed about the debiting of the P101,000 from his existing balance of P170,000 on October 2, 1990 x x x.[33] Being the branch manager, Santiago clearly acted within the scope of her authority in authorizing the withdrawal and the subsequent debiting without notice. Accordingly, what remains to be determined is whether her actions proximately caused respondents injury. Proximate cause is that which -- in a natural and continuous sequence, unbroken by any efficient intervening cause --produces the injury, and without which the result would not have occurred.[34] Let us go back to the facts as they unfolded. It is undeniable that the banks premature authorization of the withdrawal by respondent on October 1, 1990, triggered - in rapid succession and in a natural sequence -- the debiting of his account, the fall of his account balance to insufficient levels, and the subsequent dishonor of his own checks for lack of funds. The CA correctly noted thus: x x x [T]he depositor x x x withdrew his money upon the advice by [petitioner] that his money was already cleared. Without such advice, [respondent] would not have withdrawn the sum of P240,000.00. Therefore, it cannot be denied that it was [petitioners] fault which allowed [respondent] to withdraw a huge sum which he believed was already his. To emphasize, it is beyond cavil that [respondent] had sufficient funds for the check. Had the P101,000.00 not [been] debited, the subject checks would not have been dishonored. Hence, we can say that [respondents] injury arose from the dishonor of his well-funded checks. x x x.[35] Aggravating matters, petitioner failed to show that it had immediately and duly informed respondent of the debiting of his account. Nonetheless, it argues that the giving of notice was discernible from his act of depositing P50,000 on October 2, 1990, to augment his account and allow the debiting. This argument deserves short shrift. First, notice was proper and ought to be expected. By the bank managers account, respondent was considered a valued client whose checks had always been sufficiently

funded from 1987 to 1990,[36] until the October imbroglio. Thus, he deserved nothing less than an official notice of the precarious condition of his account. Second, under the provisions of the Negotiable Instruments Law regarding the liability of a general indorser[37] and the procedure for a notice of dishonor,[38] it was incumbent on the bank to give proper notice to respondent. In Gullas v. National Bank,[39] the Court emphasized: x x x [A] general indorser of a negotiable instrument engages that if the instrument the check in this case is dishonored and the necessary proceedings for its dishonor are duly taken, he will pay the amount thereof to the holder (Sec. 66) It has been held by a long line of authorities that notice of dishonor is necessary to charge an indorser and that the right of action against him does not accrue until the notice is given. x x x. The fact we believe is undeniable that prior to the mailing of notice of dishonor, and without waiting for any action by Gullas, the bank made use of the money standing in his account to make good for the treasury warrant. At this point recall that Gullas was merely an indorser and had issued checks in good faith. As to a depositor who has funds sufficient to meet payment of a check drawn by him in favor of a third party, it has been held that he has a right of action against the bank for its refusal to pay such a check in the absence of notice to him that the bank has applied the funds so deposited in extinguishment of past due claims held against him. (Callahan vs. Bank of Anderson [1904], 2 Ann. Cas., 203.) However this may be, as to an indorser the situation is different, and notice should actually have been given him in order that he might protect his interests.[40] Third, regarding the deposit of P50,000 made by respondent on October 2, 1990, we fully subscribe to the CAs observations that it was not unusual for a well -reputed businessman like him, who ordinarily takes note of the amount of money he takes and releases, to immediately deposit money in his current account to answer for the postdated checks he had issued.[41]

Damages Inasmuch as petitioner does not contest the basis for the award of damages and attorneys fees, we will no longer address these matters. WHEREFORE, the Petition is DENIED and Decision AFFIRMED. Costs against petitioner. SO ORDERED. Sandoval-Gutierrez, Carpio-Morales, and Garcia, JJ., concur. Corona, J., on leave. the assailed

[1]

Rollo, pp. 18-42. Penned by Justice Mercedes Gozo-Dadole and concurred in by Justices B. A. Adefuin de la Cruz (then Chairman, Ninth Division) and Mariano C. del Castillo. CA Decision, p. 9; rollo, p. 92. Id., pp. 2-4 & 85-87. Citations omitted. The Petition was deemed submitted for decision on December 1, 2003, upon the courts receipt of respondents Memorandum signed by Atty. Cesar R. Villar. Petitioners Memorandum, signed by Atty. Edgardo G. Villarin, was received by the Court on November 5, 2003. Petitioners Memorandum, p. 8; rollo, p. 121. Aclon v. CA, 436 Phil. 219, 230, August 20, 2002; Reyes v. CA & Far East Bank and Trust Company, 415 Phil. 258, 267, August 15, 2001; W-Red Construction and Development Corporation v. CA, 392 Phil. 888, 894, August 17, 2000. Gullas v. National Bank, 62 Phil. 519, 521, November 13, 1935. Consolidated Bank & Trust Corporation v. CA, 410 SCRA 562, 574, September 11, 2003; Guingona Jr. v. City Fiscal of Manila, 128 SCRA 577, 584, April 4, 1984; Serrano v. Central Bank of the Phils., 96 SCRA 96, 102-103, February 14, 1980. Article 1278 provides:

[2]

[3]

[4]

[5]

[6]

[7]

[8]

[9]

[10]

Art. 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other. (See also Bank of the Philippine Islands v. CA, 325 Phil. 930, 938-939, March 29, 1996.)
[11]

Article 1290 of the Civil Code. Article 1279 of the Civil Code. Gullas v. National Bank; supra, p. 522. GR No. 149454, May 28, 2004. Id., per Panganiban, J. 336 Phil. 667, March 14, 1997 (cited in Reyes v. CA & Far East Bank and Trust Company; supra, p. 269.) Id., p. 681, per Hermosisima Jr., J. See also Consolidated Bank & Trust Corporation v. CA; supra, pp. 574-575. Philippine Commercial International Bank v. CA, 350 SCRA 446, 472, January 29, 2001, per Quisumbing, J (citing Simex International (Manila), Inc. v. CA, 183 SCRA 360, 367, March 19, 1990). Prudential Bank v. CA, 384 Phil. 817, 825, March 16, 2000; Philippine National Bank v. CA, 373 Phil. 942, 948, September 28, 1999; Simex International v. CA, supra; BPI v. Intermediate Appellate Court, 206 SCRA 408, 412-413, February 21, 1992. Simex International v. CA, supra; BPI v. IAC, supra; Metropolitan Bank & Trust Co. v. CA, 237 SCRA 761, 767, October 26, 1994. Philippine Airlines, Inc. v. CA, 181 SCRA 557, 568, January 30, 1990. Roman Catholic Bishop of Malolos, Inc. v. IAC, 191 SCRA 411, 422, November 16, 1990 (cited in Bank of the Philippine Islands v. CA, 383 Phil. 538, 547, February 29, 2000).

[12]

[13]

[14]

[15]

[16]

[17]

[18]

[19]

[20]

[21]

[22]

[23]

Bank of the Philippine Islands v. CA; supra, p. 554 (citing Banco Atlantico v. Auditor General, 81 SCRA 335, 340-341, January 31, 1978). This amount was computed based on the bank ledger which was submitted as Annex A of Respondents Complaint; rollo, p. 48. Petitioners (then Defendant-Appellants) Brief to the CA, pp. 5-6; rollo, pp. 62-63. Metropolitan Bank & Trust Company v. CA, 194 SCRA 169, 175, February 18, 1991. Ibid. Philippine Commercial International Bank v. CA; supra, p. 466. Art. 1909 of the Civil Code provides:

[24]

[25]

[26]

[27]

[28]

[29]

Art. 1909. The agent is responsible not only for fraud, but also for negligence, which shall be judged with more or less rigor by the courts, according to whether the agency was or was not for compensation.
[30]

Philippine Commercial International Bank v. CA; supra at p. 470; Producers Bank of the Philippines (Now First International Bank) v. CA, 397 SCRA 651, 663, February 19, 2003. Article 2180 of the Civil Code, which embodies this principle, provides:

Art. 2180. The obligation imposed by Article 2176 is demandable not only for ones own acts or omissions, but also for those of persons for whom one is demandable. xxx xxx xxx

Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry.
[31]

Philippine Commercial International Bank v. CA; supra, p. 472. Id., p. 464; BPI v. Casa Montessori Internationale; supra. RTC Decision, p. 4; rollo, p. 77. BPI v. Casa Montessori Internationale; supra, p. 26. CA Decision, pp. 7-8; rollo, pp. 90-91. RTC Decision, p. 3; id., p. 76. 66 of the Negotiable Instruments Law provides:

[32]

[33]

[34]

[35]

[36]

[37]

Sec. 66. Liability of general indorser. Every indorser who indorses without qualification, warrants to all subsequent holders in due course: xxx xxx xxx

And, in addition, he engages that, on due presentment, it shall be accepted or paid, or both, as the case may be, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it.
[38]

The procedure as to the manner and the time of giving notice is outlined under 89-118 of the said law. 89, in particular, provides as follows:

Sec. 89. To whom notice of dishonor must be given. Except as herein otherwise provided, when a negotiable instrument has been dishonored by non-acceptance or non-payment, notice of

dishonor must be given to the drawer and to each indorser, and any drawer or indorser to whom such notice is not given is discharged.
[39]

Supra. Id., pp. 521-522, per Malcolm, J CA Decision, p. 7; rollo, p. 90.

[40]

[41]

SECOND DIVISION

[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. DECISION

TINGA, J.:

The primary question of interest before this Court is the only legal issue in the case: It is whether a hotel may evade liability for the loss of items left with it for safekeeping by its guests, by having these guests execute written waivers holding the establishment or its employees free from blame for such loss in light of Article 2003 of the Civil Code which voids such waivers. Before this Court is a Rule 45 petition for review of the Decision[1] dated 19 October 1995 of the Court of Appeals which affirmed the Decision[2] dated 16 December 1991 of the Regional Trial Court (RTC), Branch 13, of Manila, finding YHT Realty Corporation, Brunhilda Mata-Tan (Tan), Erlinda Lainez (Lainez) and Anicia Payam (Payam) jointly and solidarily liable for damages in an action filed by Maurice McLoughlin (McLoughlin) for the loss of his American and Australian dollars deposited in the safety deposit box of Tropicana Copacabana Apartment Hotel, owned and operated by YHT Realty Corporation. The factual backdrop of the case follow. Private respondent McLoughlin, an Australian businessman-philanthropist, used to stay at Sheraton Hotel during his trips to the Philippines prior to 1984 when he met Tan. Tan befriended McLoughlin by showing him around, introducing him to important people, accompanying him in visiting impoverished street children and assisting him in buying gifts for the children and in distributing the same to charitable institutions for poor children. Tan convinced McLoughlin to transfer from Sheraton Hotel to Tropicana where Lainez, Payam and Danilo Lopez were employed. Lopez served as manager of the hotel while Lainez and Payam had custody of the keys for the safety deposit boxes

of Tropicana. Tan took care of McLoughlins booking at the Tropicana where he started staying during his trips to the Philippines from December 1984 to September 1987.[3] On 30 October 1987, McLoughlin arrived from Australia and registered with Tropicana. He rented a safety deposit box as it was his practice to rent a safety deposit box every time he registered at Tropicana in previous trips. As a tourist, McLoughlin was aware of the procedure observed by Tropicana relative to its safety deposit boxes. The safety deposit box 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. When a registered guest wished to open his safety deposit box, he alone could personally request the management who then would assign one of its employees to accompany the guest and assist him in opening the safety deposit box with the two keys.[4] McLoughlin allegedly placed the following in his safety deposit box: Fifteen Thousand US Dollars (US$15,000.00) which he placed in two envelopes, one envelope containing Ten Thousand US Dollars (US$10,000.00) and the other envelope Five Thousand US Dollars (US$5,000.00); Ten Thousand Australian Dollars (AUS$10,000.00) which he also placed in another envelope; two (2) other envelopes containing letters and credit cards; two (2) bankbooks; and a checkbook, arranged side by side inside the safety deposit box.[5] On 12 December 1987, before leaving for a brief trip to Hongkong, McLoughlin opened his safety deposit box with his key and with the key of the management and took therefrom the envelope containing Five Thousand US Dollars (US$5,000.00), the envelope containing Ten Thousand Australian Dollars (AUS$10,000.00), his passports and his credit cards.[6] 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 Five Thousand US Dollars (US$5,000.00) and discovered upon counting that only Three Thousand US Dollars (US$3,000.00) were enclosed therein.[7] Since he had no idea whether somebody else had tampered with his safety deposit box, he thought that it was just a result of bad accounting since he did not spend anything from that envelope. [8] After returning to Manila, he checked out of Tropicana on 18 December 1987 and left for Australia. When he arrived in Australia, he discovered that the envelope with Ten Thousand US Dollars (US$10,000.00) was short of Five Thousand US Dollars (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, except for a diamond bracelet.[9] When McLoughlin came back to the Philippines on 4 April 1988, 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 told him that no one in the hotel found such things and none were turned over to the management. He again registered at Tropicana and rented a safety deposit box. He placed therein one (1) envelope containing Fifteen Thousand US Dollars (US$15,000.00), another envelope containing Ten Thousand Australian Dollars (AUS$10,000.00) and other envelopes containing his traveling papers/documents. On 16 April 1988, McLoughlin requested Lainez and Payam to

open his safety deposit box. He noticed that in the envelope containing Fifteen Thousand US Dollars (US$15,000.00), Two Thousand US Dollars (US$2,000.00) were missing and in the envelope previously containing Ten Thousand Australian Dollars (AUS$10,000.00), Four Thousand Five Hundred Australian Dollars (AUS$4,500.00) were missing.[10] 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.[11] McLoughlin went up to his room where Tan was staying and confronted her. Tan admitted that she had stolen McLoughlins key and was able to open the safety deposit box with the assistance of Lopez, Payam and Lainez.[12] Lopez also told McLoughlin that Tan stole the key assigned to McLoughlin while the latter was asleep. [13] McLoughlin requested the management for an investigation of the incident. Lopez got in touch with Tan and arranged for a meeting with the police and McLoughlin. When the police did not arrive, Lopez and Tan went to the room of McLoughlin at Tropicana and thereat, Lopez wrote on a piece of paper a promissory note dated 21 April 1988. The promissory note reads as follows:

I promise to pay Mr. Maurice McLoughlin the amount of AUS$4,000.00 and US$2,000.00 or its equivalent in Philippine currency on or before May 5, 1988.

[14]

Lopez requested Tan to sign the promissory note which the latter did and Lopez also signed as a witness. 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,[15] specifically paragraphs (2) and (4) thereof, to wit:

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.
[16]

On 17 May 1988, McLoughlin went back to Australia and he consulted his lawyers as to the validity of the abovementioned stipulations. They opined that the stipulations are void for being violative of universal hotel practices and customs. His lawyers prepared a letter dated 30 May 1988 which was signed by McLoughlin and sent to President Corazon Aquino.[17] The Office of the President referred the letter to the Department of Justice (DOJ) which forwarded the same to the Western Police District (WPD).[18]

After receiving a copy of the indorsement in Australia, McLoughlin came to the Philippines and registered again as a hotel guest of Tropicana. McLoughlin went to Malacaang to follow up on his letter but he was instructed to go to the DOJ. The DOJ directed him to proceed to the WPD for documentation. But McLoughlin went back to Australia as he had an urgent business matter to attend to. For several times, McLoughlin left for Australia to attend to his business and came back to the Philippines to follow up on his letter to the President but he failed to obtain any concrete assistance.[19] McLoughlin left again for Australia and upon his return to the Philippines on 25 August 1989 to pursue his claims against petitioners, the WPD conducted an investigation which resulted in the preparation of an affidavit which was forwarded to the Manila City Fiscals Office. Said affidavit became the basis of preliminary investigation. However, McLoughlin left again for Australia without receiving the notice of the hearing on 24 November 1989. Thus, the case at the Fiscals Office was dismissed for failure to prosecute. Mcloughlin requested the reinstatement of the criminal charge for theft. In the meantime, McLoughlin and his lawyers wrote letters of demand to those having responsibility to pay the damage. Then he left again for Australia. Upon his return on 22 October 1990, he registered at the Echelon Towers at Malate, Manila. Meetings were held between McLoughlin and his lawyer which resulted to the filing of a complaint for damages on 3 December 1990 against YHT Realty Corporation, Lopez, Lainez, Payam and Tan (defendants) for the loss of McLoughlins money which was discovered on 16 April 1988. After filing the complaint, McLoughlin left again for Australia to attend to an urgent business matter. Tan and Lopez, however, were not served with summons, and trial proceeded with only Lainez, Payam and YHT Realty Corporation as defendants. After defendants had filed their Pre-Trial Brief admitting that they had previously allowed and assisted Tan to open the safety deposit box, McLoughlin filed an Amended/Supplemental Complaint[20] dated 10 June 1991 which included another incident of loss of money and jewelry in the safety deposit box rented by McLoughlin in the same hotel which took place prior to 16 April 1988. [21] The trial court admitted theAmended/Supplemental Complaint. During the trial of the case, McLoughlin had been in and out of the country to attend to urgent business in Australia, and while staying in the Philippines to attend the hearing, he incurred expenses for hotel bills, airfare and other transportation expenses, long distance calls to Australia, Meralco power expenses, and expenses for food and maintenance, among others.[22] After trial, the RTC of Manila rendered judgment in favor of McLoughlin, the dispositive portion of which reads:

WHEREFORE, above premises considered, judgment is hereby rendered by this Court in favor of plaintiff and against the defendants, to wit:

1.

Ordering defendants, jointly and severally, to pay plaintiff the sum of US$11,400.00 or its equivalent in Philippine Currency of P342,000.00, more or less, and the sum of AUS$4,500.00 or its equivalent in Philippine Currency of P99,000.00, or a total of P441,000.00, more or less, with 12% interest from April 16 1988 until said amount has been paid to plaintiff (Item 1, Exhibit CC); Ordering defendants, jointly and severally to pay plaintiff the sum of P3,674,238.00 as actual and consequential damages arising from the loss of his Australian and American dollars and jewelries complained against and in prosecuting his claim and rights administratively and judicially (Items II, III, IV, V, VI, VII, VIII, and IX, Exh. CC); Ordering defendants, jointly and severally, to pay plaintiff the sum of P500,000.00 as moral damages (Item X, Exh. CC); Ordering defendants, jointly and severally, to pay plaintiff the sum of P350,000.00 as exemplary damages (Item XI, Exh. CC); And ordering defendants, jointly and severally, to pay litigation expenses in the sum of P200,000.00 (Item XII, Exh. CC); Ordering defendants, jointly and severally, to pay plaintiff the sum of P200,000.00 as attorneys fees, and a fee of P3,000.00 for every appearance; and

2.

3. 4. 5. 6.

7. Plus costs of suit.

SO ORDERED.

[23]

The trial court found that McLoughlins allegations as to the fact of loss and as to the amount of money he lost were sufficiently shown by his direct and straightforward manner of testifying in court and found him to be credible and worthy of belief as it was established that McLoughlins money, kept in Tropicanas safety deposit box, wa s taken by Tan without McLoughlins consent. The taking was effected through the use of the master key which was in the possession of the management. Payam and Lainez allowed Tan to use the master key without authority from McLoughlin. The trial court added that if McLoughlin had not lost his dollars, he would not have gone through the trouble and personal inconvenience of seeking aid and assistance from the Office of the President, DOJ, police authorities and the City Fiscals Office in his desire to rec over his losses from the hotel management and Tan.[24] As regards the loss of Seven Thousand US Dollars (US$7,000.00) and jewelry worth approximately One Thousand Two Hundred US Dollars (US$1,200.00) which allegedly occurred during his stay at Tropicana previous to 4 April 1988, no claim was made by McLoughlin for such losses in his complaint dated 21 November 1990 because he was not sure how they were lost and who the responsible persons were. But considering the admission of the defendants in their pre-trial brief that on three previous occasions they allowed Tan to open the box, the trial court opined that it was logical and reasonable to presume that his personal assets consisting of Seven Thousand US Dollars (US$7,000.00) and jewelry were taken by Tan from the safety deposit box without McLoughlins consent through the cooperation of Payam and Lainez. [25]

The trial court also found that defendants acted with gross negligence in the performance and exercise of their duties and obligations as innkeepers and were therefore liable to answer for the losses incurred by McLoughlin.[26] Moreover, the trial court 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. [27] Thus, there being fraud or wanton conduct on the part of defendants, they should be responsible for all damages which may be attributed to the non-performance of their contractual obligations.[28] The Court of Appeals affirmed the disquisitions made by the lower court except as to the amount of damages awarded. The decretal text of the appellate courts decision reads:

THE FOREGOING CONSIDERED, the appealed Decision is hereby AFFIRMED but modified as follows: The appellants are directed jointly and severally to pay the plaintiff/appellee the following amounts: 1) 2) 3) 4) 5) P153,200.00 representing the peso equivalent of US$2,000.00 and AUS$4,500.00; P308,880.80, representing the peso value for the air fares from Sidney [sic] to Manila and back for a total of eleven (11) trips; One-half of P336,207.05 or P168,103.52 representing payment to Tropicana Apartment Hotel; One-half of P152,683.57 or P76,341.785 representing payment to Echelon Tower; One-half of P179,863.20 or P89,931.60 for the taxi xxx transportation from the residence to Sidney [sic] Airport and from MIA to the hotel here in Manila, for the eleven (11) trips; One-half of P7,801.94 or P3,900.97 representing Meralco power expenses; One-half of P356,400.00 or P178,000.00 representing expenses for food and maintenance; P50,000.00 for moral damages;

6) 7) 8)

9)

P10,000.00 as exemplary damages; and

10) P200,000 representing attorneys fees. With costs. SO ORDERED.

[29]

Unperturbed, YHT Realty Corporation, Lainez and Payam went to this Court in this appeal by certiorari. Petitioners submit for resolution by this Court the following issues: (a) whether the appellate courts conclusion on the alleged prior existence and subsequent loss of the subject money and jewelry is supported by the evidence on record; (b) whether the finding of gross negligence on the part of petitioners in the performance of their duties as innkeepers is supported by the evidence on record; (c) whether the Undertaking For The Use of Safety Deposit Box admittedly executed by private respondent is null and void; and (d) whether the damages awarded to private respondent, as well as the amounts thereof, are proper under the circumstances.[30] The petition is devoid of merit. It is worthy of note that the thrust of Rule 45 is the resolution only of questions of law and any peripheral factual question addressed to this Court is beyond the bounds of this mode of review. Petitioners point out that the evidence on record is insufficient to prove the fact of prior existence of the dollars and the jewelry which had been lost while deposited in the safety deposit boxes of Tropicana, the basis of the trial court and the appellate court being the sole testimony of McLoughlin as to the contents thereof. Likewise, petitioners dispute the finding of gross negligence on their part as not supported by the evidence on record. We are not persuaded. We adhere to the findings of the trial court as affirmed by the appellate court that the fact of loss was established by the credible testimony in open court by McLoughlin. Such findings are factual and therefore beyond the ambit of the present petition. The trial court had the occasion to observe the demeanor of McLoughlin while testifying which reflected the veracity of the facts testified to by him. On this score, we give full credence to the appreciation of testimonial evidence by the trial court especially if what is at issue is the credibility of the witness. The oft-repeated principle is that where the credibility of a witness is an issue, the established rule is that great respect is accorded to the evaluation of the credibility of witnesses by the trial court. [31] The trial court is in the best position to assess the credibility of witnesses and their testimonies because of its unique opportunity to observe the witnesses firsthand and note their demeanor, conduct and attitude under grilling examination.[32]

We are also not impressed by petitioners argument that the finding of gross negligence by the lower court as affirmed by the appellate court is not supported by evidence. The evidence reveals that two keys are required to open the safety deposit boxes of Tropicana. One key is assigned to the guest while the other remains in the possession of the management. If the guest desires to open his safety deposit box, he must request the management for the other key to open the same. In other words, the guest alone cannot open the safety deposit box without the assistance of the management or its employees. With more reason that access to the safety deposit box should be denied if the one requesting for the opening of the safety deposit box is a stranger. Thus, in case of loss of any item deposited in the safety deposit box, it is inevitable to conclude that the management had at least a hand in the consummation of the taking, unless the reason for the loss is force majeure. Noteworthy is the fact that Payam and Lainez, who were employees of Tropicana, had custody of the master key of the management when the loss took place. In fact, they even admitted that they assisted Tan on three separate occasions in opening McLoughlins safety deposit box.[33] This only proves that Tropicana had prior knowledge that a person aside from the registered guest had access to the safety deposit box. Yet the management failed to notify McLoughlin of the incident and waited for him to discover the taking before it disclosed the matter to him. Therefore, Tropicana should be held responsible for the damage suffered by McLoughlin by reason of the negligence of its employees. The management should have guarded against the occurrence of this incident considering that Payam admitted in open court that she assisted Tan three times in opening the safety deposit box of McLoughlin at around 6:30 A.M. to 7:30 A.M. while the latter was still asleep.[34] In light of the circumstances surrounding this case, it is undeniable that without the acquiescence of the employees of Tropicana to the opening of the safety deposit box, the loss of McLoughlins money could and should have been avoided. The management contends, however, that McLoughlin, by his act, made its employees believe that Tan was his spouse for she was always with him most of the time. The evidence on record, however, is bereft of any showing that McLoughlin introduced Tan to the management as his wife. Such an inference from the act of McLoughlin will not exculpate the petitioners from liability in the absence of any showing that he made the management believe that Tan was his wife or was duly authorized to have access to the safety deposit box. Mere close companionship and intimacy are not enough to warrant such conclusion considering that what is involved in the instant case is the very safety of McLoughlins deposit. If only petitioners exercised due diligence in taking care of McLoughlins safety deposit box, they should have confronted him as to his relationship with Tan considering that the latter had been observed opening McLoughlins safety deposit box a number of times at the early hours of the morning. Tans acts should have prompted the management to investigate her relationship with McLoughlin. Then, petitioners would have exercised due diligence required of them. Failure to do so warrants the conclusion that the management had been remiss in complying with the obligations imposed upon hotel-keepers under the law.

Under Article 1170 of the New Civil Code, those who, in the performance of their obligations, are guilty of negligence, are liable for damages. As to who shall bear the burden of paying damages, Article 2180, paragraph (4) of the same Code provides that the owners and managers of an establishment or enterprise are likewise responsible for damages caused by their employees in the service of the branches in which the latter are employed or on the occasion of their functions. Also, this Court has ruled that if an employee is found negligent, it is presumed that the employer was negligent in selecting and/or supervising him for it is hard for the victim to prove the negligence of such employer.[35] Thus, given the fact that the loss of McLoughlins money was consummated through the negligence of Tropicanas employees in allowing Tan to open the safety deposit box without the guests consent, both the assisting employees and YHT Realty Corporation itself, as owner and operator of Tropicana, should be held solidarily liable pursuant to Article 2193.[36] The issue of whether the Undertaking For The Use of Safety Deposit Box executed by McLoughlin is tainted with nullity presents a legal question appropriate for resolution in this petition. Notably, both the trial court and the appellate court found the same to be null and void. We find no reason to reverse their common conclusion. Article 2003 is controlling, thus:

Art. 2003. The hotel-keeper cannot free himself from responsibility by posting notices to the effect that he is not liable for the articles brought by the guest. Any stipulation between the hotel-keeper and the guest whereby the responsibility of the former as set forth in Articles 1998 to 2001 is suppressed or diminished shall be void.
[37]

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 carriers 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. In an early case,[38] the Court of Appeals through its then Presiding Justice (later Associate Justice of the Court) Jose P. Bengzon, ruled that 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.[39] With greater reason should the liability of the hotelkeeper be enforced when the missing items are taken without the guests 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.[40] 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.[41] 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.[42] Petitioners likewise anchor their defense on Article 2002 [43] which exempts the hotelkeeper from liability if the loss is due to the acts of his guest, his family, or visitors. Even a cursory reading of the provision would lead us to reject petitioners contention. The justification they raise would render nugatory the public interest sought to be protected by the provision. What if the negligence of the employer or its employees facilitated the consummation of a crime committed by the registered guests relatives or visitor? Should the law exculpate the hotel from liability since the loss was due to the act of the visitor of the registered guest of the hotel? Hence, this 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.[44] 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. To rule otherwise would result in undermining the safety of the safety deposit boxes in hotels for the management will be given imprimatur to allow any person, under the pretense of being a family member or a visitor of the guest, to have access to the safety deposit box without fear of any liability that will attach thereafter in case such person turns out to be a complete stranger. This will allow the hotel to evade responsibility for any liability incurred by its employees in conspiracy with the guests relatives and visitors. Petitioners contend that McLoughlins case was mounted on the theory of contract, but the trial court and the appellate court upheld the grant of the claims of the latter on the basis of tort.[45] There is nothing anomalous in how the lower courts decided the controversy for this Court has pronounced a jurisprudential rule that tort liability can exist even if there are already contractual relations. The act that breaks the contract may also be tort.[46] As to damages awarded to McLoughlin, we see no reason to modify the amounts awarded by the appellate court for the same were based on facts and law. It is within the province of lower courts to settle factual issues such as the proper amount of damages awarded and such finding is binding upon this Court especially if sufficiently proven by evidence and not unconscionable or excessive. Thus, the appellate court correctly awarded McLoughlin Two Thousand US Dollars (US$2,000.00) and Four

Thousand Five Hundred Australian dollars (AUS$4,500.00) or their peso equivalent at the time of payment,[47] being the amounts duly proven by evidence.[48] The alleged loss that took place prior to 16 April 1988 was not considered since the amounts alleged to have been taken were not sufficiently established by evidence. The appellate court also correctly awarded the sum of P308,880.80, representing the peso value for the air fares from Sydney to Manila and back for a total of eleven (11) trips; [49] one-half of P336,207.05 or P168,103.52 representing payment to Tropicana; [50] one-half of P152,683.57 or P76,341.785 representing payment to Echelon Tower;[51] one-half of P179,863.20 or P89,931.60 for the taxi or transportation expenses from McLoughlins residence to Sydney Airport and from MIA to the hotel here in Manila, for the eleven (11) trips;[52] one-half of P7,801.94 or P3,900.97 representing Meralco power expenses;[53] one-half of P356,400.00 or P178,000.00 representing expenses for food and maintenance.[54] The amount of P50,000.00 for moral damages is reasonable. Although trial courts are given discretion to determine the amount of moral damages, the appellate court may modify or change the amount awarded when it is palpably and scandalously excessive. Moral damages are not intended to enrich a complainant at the expense of a defendant. They are awarded only to enable the injured party to obtain means, diversion or amusements that will serve to alleviate the moral suffering he has undergone, by reason of defendants culpable action.[55] The awards of P10,000.00 as exemplary damages and P200,000.00 representing attorneys fees are likewise sustained. WHEREFORE, foregoing premises considered, the Decision of the Court of Appeals dated 19 October 1995 is hereby AFFIRMED. Petitioners are directed, jointly and severally, to pay private respondent the following amounts:

(1) (2) (3) (4) (5)

US$2,000.00 and AUS$4,500.00 or their peso equivalent at the time of payment; P308,880.80, representing the peso value for the air fares from Sydney to Manila and back for a total of eleven (11) trips; One-half of P336,207.05 or P168,103.52 representing payment to Tropicana Copacabana Apartment Hotel; One-half of P152,683.57 or P76,341.785 representing payment to Echelon Tower; One-half of P179,863.20 or P89,931.60 for the taxi or transportation expense from McLoughlins residence to Sydney Airport and from MIA to the hotel here in Manila, for the eleven (11) trips;

(6) (7) (8) (9)

One-half of P7,801.94 or P3,900.97 representing Meralco power expenses; One-half of P356,400.00 or P178,200.00 representing expenses for food and maintenance; P50,000.00 for moral damages; P10,000.00 as exemplary damages; and

(10) P200,000 representing attorneys fees. With costs.

SO ORDERED. Puno, (Chairman), Callejo, Sr., and Chico-Nazario, JJ., concur. Austria-Martinez, J., no part.

[1]

Rollo, p. 38. Decision penned by Justice Bernardo LL. Salas and concurred in by Justices Pedro A. Ramirez and Ma. Alicia Austria-Martinez. Id. at 118. Decision penned by Judge Gerardo M.S. Pepito. Id. at 119. Id. at 120. Ibid. Ibid. Ibid. Ibid. Ibid. Id. at 121 and 41. TSN, 9 September 1991, p. 10. Id. at 42. Ibid. Id. at 121. Exhibit V. Exh. W. Rollo, p. 122. Ibid.

[2]

[3]

[4]

[5]

[6]

[7]

[8]

[9]

[10]

[11]

[12]

[13]

[14]

[15]

[16]

[17]

[18]

Ibid. Id. at 123. Records, p. 52. Rollo, p. 125. Exh. CC. Records (Exhibit Folder), pp. 146-147. The Itemized Claims for Damages allegedly incurred by McLoughlin: CLAIMS FOR STOLEN MONIES AND PERSONAL PROPERTY: A. US$2,000.00 US$4,500.00..P153,200.00 B. US$8,000.00 cash and US$1,200.00 with jewelry257,600.00

[19]

[20]

[21]

[22]

I.

II. III. IV. V.

AIR FARES from Sydney to Manila and back (11trips up to date of testimony).308,880.00 PAYMENTS TO TROPICANA APARTMENT HOTEL336,207.05 PAYMENTS TO ECHELON TOWER......152,683.57 Taxes, fees, transportation from residence to Sydney airport and from MIA to hotel in Manila and vice versa..179,863.20

VI. VII.

MERALCO POWER EXPENSES....7,811.94 PLDT EXPENSES(overseas telephone calls) Paid in the Philippines.....5,597.68 Paid in Australia....166,795.20

VIII. IX.

EXPENSES FOR FOOD AND MAINTENANCE..356,400.00 BUSINESS/OPPORTUNITY LOSS IN SYDNEY WHILE IN THE PHILIPPINES BECAUSE OF CASE..2,160,000.00

X. XI. XII.

MORAL DAMAGES........500,000.00 EXEMPLARY DAMAGES...350,000.00 LITIGATION EXPENSES.... 200,000.00

TOTAL. . P5,135,038.64 ATTORNEYS FEES...200,000.00 Plus, appearance fee of P3,000.00 for every court appearance.
[23]

Rollo, pp. 141-142. Id. at 127. Ibid. Id. at 134.

[24]

[25]

[26]

[27]

Id. at 135. Id. at 138. Id. at 63-64. Id. at 19-20. People v. Andales, G.R. Nos. 152624-25, February 5, 2004; People v. Fucio, G.R. No. 151186-95, February 13, 2004; People v. Preciados, G.R. No. 122934, January 5, 2001, 349 SCRA 1; People v. Toyco, Sr., G.R. No. 138609, January 17, 2001, 349 SCRA 385; People v. Cabareo, G.R. No. 138645, January 16, 2001, 349 SCRA 297; People v. Valdez, G.R. No. 128105, January 24, 2001, 350 SCRA 189. People v. Dimacuha, G.R. Nos. 152592-93, February 13, 2004; People v. Yang, G.R. No. 148077, February 16, 2004; People v. Betonio, G.R. No. 119165, September 26, 1997, 279 SCRA 532; People v. Cabel, G.R. No. 121508, 282 SCRA 410. Id. at 125. Id. at 128. Campo, et al. v. Camarote and Gemilga, 100 Phil. 459 (1956). Art. 2194. The responsibility of two or more persons who are liable for a quasi-delict is solidary. 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. Art. 1999. The hotel-keeper is liable for the vehicles, animals and articles which have been introduced or placed in the annexes of the hotel. Art. 2000. The responsibility referred to in the two preceding articles shall include the loss of, or injury to the personal property of the guests caused by the servants or employees of the keepers of hotels or inns as well as by strangers; but not that which may proceed from any force majeure. The fact that travellers are constrained to rely on the vigilance of the keeper of the hotel or inn shall be considered in determining the degree of care required of him. Art. 2001. The act of a thief or robber, who has entered the hotel is not deemed force majeure, unless it is done with the use of arms or through an irresistible force.

[28]

[29]

[30]

[31]

[32]

[33]

[34]

[35]

[36]

[37]

[38]

De Los Santos v. Tan Khey, 58 O.G. No. 45-53, p. 7693. Ibid at 7694-7695. Exh. W. Art. 2000, New Civil Code. Art. 2001, supra at note 39. Art. 2002. The hotel-keeper is not liable for compensation if the loss is due to the acts of the guest, his family, servants or visitors, or if the loss arises from the character of the things brought into the hotel. 26 C.J.S. 731 citing Griffith v. Zipperwick, 28 Ohio St. 388. Rollo, pp. 31-32. Air France v. Carrascoso, et al., 124 Phil. 722 (1966).

[39]

[40]

[41]

[42]

[43]

[44]

[45]

[46]

[47]

Zagala v. Jimenez, G.R. No. 33050, July 23, 1987, 152 SCRA 147. According to the case of Phoenix Assurance Company v. Macondray & Co., Inc., (64 SCRA 15) a judgment awarding an amount in U.S. dollars may be paid with its equivalent amount in local currency based on the conversion rate prevailing at the time of payment. If the parties cannot agree on the same, the trial court should determine such conversion rate. Needless to say, the judgment debtor may simply satisfy said award by paying in full the amount in U.S. dollars. Exh. V. Exh. CC, p. 146. Id. The Court of Appeals noted that during his stay in the Philippines, McLoughlins time was not totally devoted to following up his claim as he had business arrangements to look into. Ibid. Ibid. Ibid. Expenses for power and air-conditioning were separate from room payment. Ibid. Business losses were rejected because of lack of proof. Prudenciado v. Alliance Transport System, Inc., G.R. No. 33836, March 16, 1987.

[48]

[49]

[50]

[51]

[52]

[53]

[54]

[55]

Republic of the Philippines

Supreme Court
Manila
SECOND DIVISION

DURBAN APARTMENTS CORPORATION, doing business under the name and style of City Garden Hotel, Petitioner,

G.R. No. 179419 Present: CARPIO, J., Chairperson, NACHURA, PERALTA, ABAD, and MENDOZA, JJ.

- versus -

PIONEER INSURANCE AND SURETY CORPORATION, Respondent.

Promulgated: January 12, 2011

x------------------------------------------------------------------------------------x DECISION NACHURA, J.: For review is the Decision[1] of the Court of Appeals (CA) in CA-G.R. CV No. 86869, which affirmed the decision[2] of the Regional Trial Court (RTC), Branch 66, Makati City, in Civil Case No. 03-857, holding petitioner Durban Apartments Corporation solely liable to respondent Pioneer Insurance and Surety Corporation for the loss of Jeffrey Sees (Sees) vehicle. The facts, as found by the CA, are simple.
On July 22, 2003, [respondent] Pioneer Insurance and Surety Corporation x x x, by right of subrogation, filed [with the RTC of Makati City] a Complaint for Recovery of Damages against [petitioner] Durban Apartments Corporation, doing business under the name and style of City Garden Hotel, and [defendant before the RTC] Vicente Justimbaste x x x. [Respondent averred] that: it is the insurer for loss and damage of Jeffrey S. Sees [the insureds] 2001 Suzuki Grand Vitara x x x with Plate No. XBH-510 under Policy No. MC-CV-HO-01-000384600-D in the amount of P1,175,000.00; on April 30, 2002, See arrived and checked

in at the City Garden Hotel in Makati corner Kalayaan Avenues, Makati City before midnight, and its parking attendant, defendant x x x Justimbaste got the key to said Vitara from See to park it[. O]n May 1, 2002, at about 1:00 oclock in the morning, See was awakened in his room by [a] telephone call from the Hotel Chief Security Officer who informed him that his Vitara was carnapped while it was parked unattended at the parking area of Equitable PCI Bank along Makati Avenue between the hours of 12:00 [a.m.] and 1:00 [a.m.]; See went to see the Hotel Chief Security Officer, thereafter reported the incident to the Operations Division of the Makati City Police Anti-Carnapping Unit, and a flash alarm was issued; the Makati City Police Anti-Carnapping Unit investigated Hotel Security Officer, Ernesto T. Horlador, Jr. x x x and defendant x x x Justimbaste; See gave his Sinumpaang Salaysay to the police investigator, and filed a Complaint Sheet with the PNP Traffic Management Group in Camp Crame, Quezon City; the Vitara has not yet been recovered since July 23, 2002 as evidenced by a Certification of Non- Recovery issued by the PNP TMG; it paid the P1,163,250.00 money claim of See and mortgagee ABN AMRO Savings Bank, Inc. as indemnity for the loss of the Vitara; the Vitara was lost due to the negligence of [petitioner] Durban Apartments and [defendant] Justimbaste because it was discovered during the investigation that this was the second time that a similar incident of carnapping happened in the valet parking service of [petitioner] Durban Apartments and no necessary precautions were taken to prevent its repetition; [petitioner] Durban Apartments was wanting in due diligence in the selection and supervision of its employees particularly defendant x x x Justimbaste; and defendant x x x Justimbaste and [petitioner] Durban Apartments failed and refused to pay its valid, just, and lawful claim despite written demands. Upon service of Summons, [petitioner] Durban Apartments and [defendant] Justimbaste filed their Answer with Compulsory Counterclaim alleging that: 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 Sees 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 Sees 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 customers claim stub issued to him; the carnapper was able to open the Vitara without using the key given earlier to the parking attendant and subsequently turned over to See after the Vitara was stolen; defendant x x x 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; and See was duly

and immediately informed of the carnapping of his Vitara; the matter was reported to the nearest police precinct; and defendant x x x Justimbaste, and Horlador submitted themselves to police investigation. During the pre-trial conference on November 28, 2003, counsel for [respondent] Pioneer Insurance was present. Atty. Monina Lee x x x, counsel of record of [petitioner] Durban Apartments and Justimbaste was absent, instead, a certain Atty. Nestor Mejia appeared for [petitioner] Durban Apartments and Justimbaste, but did not file their pre-trial brief. On November 5, 2004, the lower court granted the motion of [respondent] Pioneer Insurance, despite the opposition of [petitioner] Durban Apartments and Justimbaste, and allowed [respondent] Pioneer Insurance to present its evidence ex parte before the Branch Clerk of Court. See testified that: on April 30, 2002, at about 11:30 in the evening, he drove his Vitara and stopped in front of City Garden Hotel in Makati Avenue, Makati City; a parking attendant, whom he had later known to be defendant x x x Justimbaste, approached and asked for his ignition key, told him that the latter would park the Vitara for him in front of the hotel, and issued him a valet parking customers claim stub; he and Montero, thereafter, checked in at the said hotel; on May 1, 2002, at around 1:00 in the morning, the Hotel Security Officer whom he later knew to be Horlador called his attention to the fact that his Vitara was carnapped while it was parked at the parking lot of Equitable PCI Bank which is in front of the hotel; his Vitara was insured with [respondent] Pioneer Insurance; he together with Horlador and defendant x x x Justimbaste went to Precinct 19 of the Makati City Police to report the carnapping incident, and a police officer came accompanied them to the Anti-Carnapping Unit of the said station for investigation, taking of their sworn statements, and flashing of a voice alarm; he likewise reported the said incident in PNP TMG in Camp Crame where another alarm was issued; he filed his claim with [respondent] Pioneer Insurance, and a representative of the latter, who is also an adjuster of Vesper Insurance AdjustersAppraisers [Vesper], investigated the incident; and [respondent] Pioneer Insurance required him to sign a Release of Claim and Subrogation Receipt, and finally paid him the sum of P1,163,250.00 for his claim. Ricardo F. Red testified that: he is a claims evaluator of [petitioner] Pioneer Insurance tasked, among others, with the receipt of claims and documents from the insured, investigation of the said claim, inspection of damages, taking of pictures of insured unit, and monitoring of the processing of the claim until its payment; he monitored the processing of Sees claim when the latter reported the incident to [respondent] Pioneer Insurance; [respondent] Pioneer Insurance assigned the case to Vesper who verified Sees report, conducted an investigation, obtained the necessary documents for the processing of the claim, and tendered a settlement check to See; they evaluated the case upon receipt of the subrogation documents and the adjusters report, and eventually recommended for its

settlement for the sum of P1,163,250.00 which was accepted by See; the matter was referred and forwarded to their counsel, R.B. Sarajan & Associates, who prepared and sent demand letters to [petitioner] Durban Apartments and [defendant] Justimbaste, who did not pay [respondent] Pioneer Insurance notwithstanding their receipt of the demand letters; and the services of R.B. Sarajan & Associates were engaged, for P100,000.00 as attorneys fees plus P3,000.00 per court appearance, to prosecute the claims of [respondent] Pioneer Insurance against [petitioner] Durban Apartments and Justimbaste before the lower court. Ferdinand Cacnio testified that: he is an adjuster of Vesper; [respondent] Pioneer Insurance assigned to Vesper the investigation of Sees case, and he was the one actually assigned to investigate it; he conducted his investigation of the matter by interviewing See, going to the City Garden Hotel, required subrogation documents from See, and verified the authenticity of the same; he learned that it is the standard procedure of the said hotel as regards its valet parking service to assist their guests as soon as they get to the lobby entrance, park the cars for their guests, and place the ignition keys in their safety key box; considering that the hotel has only twelve (12) available parking slots, it has an agreement with Equitable PCI Bank permitting the hotel to use the parking space of the bank at night; he also learned that a Hyundai Starex van was carnapped at the said place barely a month before the occurrence of this incident because Liberty Insurance assigned the said incident to Vespers, and Horlador and defendant x x x Justimbaste admitted the occurrence of the same in their sworn statements before the Anti-Carnapping Unit of the Makati City Police; upon verification with the PNP TMG [Unit] in Camp Crame, he learned that Sees Vitara has not yet been recovered; upon evaluation, Vesper recommended to [respondent] Pioneer Insurance to settle Sees claim for P1,045,750.00; See contested the recommendation of Vesper by reasoning out that the 10% depreciation should not be applied in this case considering the fact that the Vitara was used for barely eight (8) months prior to its loss; and [respondent] Pioneer Insurance acceded to Sees contention, tendered the sum of P1,163,250.00 as settlement, the former accepted it, and signed a release of claim and subrogation receipt. The lower court denied the Motion to Admit Pre-Trial Brief and Motion for Reconsideration field by [petitioner] Durban Apartments and Justimbaste in its Orders dated May 4, 2005 and October 20, 2005, respectively, for being devoid of merit.[3]

Thereafter, on January 27, 2006, the RTC rendered a decision, disposing, as follows:
WHEREFORE, judgment is hereby rendered ordering [petitioner Durban Apartments Corporation] to pay [respondent Pioneer Insurance and Surety Corporation] the sum of P1,163,250.00 with legal interest thereon from July 22,

2003 until the obligation is fully paid and attorneys fees and litigation expenses amounting to P120,000.00. SO ORDERED.[4]

On appeal, the appellate court affirmed the decision of the trial court, viz.:
WHEREFORE, premises considered, the Decision dated January 27, 2006 of the RTC, Branch 66, Makati City in Civil Case No. 03-857 is hereby AFFIRMED insofar as it holds [petitioner] Durban Apartments Corporation solely liable to [respondent] Pioneer Insurance and Surety Corporation for the loss of Jeffrey Sees Suzuki Grand Vitara. SO ORDERED.[5]

Hence, this recourse by petitioner. The issues for our resolution are: 1. Whether the lower courts erred in declaring petitioner as in default for failure to appear at the pre-trial conference and to file a pre-trial brief; 2. Corollary thereto, whether the trial court correctly allowed respondent to present evidence ex-parte; 3. Whether petitioner is liable to respondent for attorneys fees in the amount of P120,000.00; and 4. Ultimately, whether petitioner is liable to respondent for the loss of Sees vehicle. The petition must fail. We are in complete accord with the common ruling of the lower courts that petitioner was in default for failure to appear at the pre-trial conference and to file a pre-trial brief, and thus, correctly allowed respondent to present evidence exparte. Likewise, the lower courts did not err in holding petitioner liable for the loss of Sees vehicle.

Well-entrenched in jurisprudence is the rule that factual findings of the trial court, especially when affirmed by the appellate court, are accorded the highest degree of respect and are considered conclusive between the parties.[6] A review of such findings by this Court is not warranted except upon a showing of highly meritorious circumstances, such as: (1) when the findings of a trial court are grounded entirely on speculation, surmises, or conjectures; (2) when a lower courts inference from its factual findings is manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of discretion in the appreciation of facts; (4) when the findings of the appellate court go beyond the issues of the case, or fail to notice certain relevant facts which, if properly considered, will justify a different conclusion; (5) when there is a misappreciation of facts; (6) when the findings of fact are conclusions without mention of the specific evidence on which they are based, are premised on the absence of evidence, or are contradicted by evidence on record.[7] None of the foregoing exceptions permitting a reversal of the assailed decision exists in this instance. Petitioner urges us, however, that strong [and] compelling reason[s] such as the prevention of miscarriage of justice warrant a suspension of the rules and excuse its and its counsels non-appearance during the pre-trial conference and their failure to file a pre-trial brief. We are not persuaded. Rule 18 of the Rules of Court leaves no room for equivocation; appearance of parties and their counsel at the pre-trial conference, along with the filing of a corresponding pre-trial brief, is mandatory, nay, their duty. Thus, Section 4 and Section 6 thereof provide:
SEC. 4. Appearance of parties.It shall be the duty of the parties and their counsel to appear at the pre-trial. The non-appearance of a party may be excused only if a valid cause is shown therefor or if a representative shall appear in his behalf fully authorized in writing to enter into an amicable settlement, to submit to alternative modes of dispute resolution, and to enter into stipulations or admissions of facts and documents. SEC. 6. Pre-trial brief.The parties shall file with the court and serve on the adverse party, in such manner as shall ensure their receipt thereof at least three

(3) days before the date of the pre-trial, their respective pre-trial briefs which shall contain, among others: xxxx Failure to file the pre-trial brief shall have the same effect as failure to appear at the pre-trial.

Contrary to the foregoing rules, petitioner and its counsel of record were not present at the scheduled pre-trial conference. Worse, they did not file a pre-trial brief. Their non-appearance cannot be excused as Section 4, in relation to Section 6, allows only two exceptions: (1) a valid excuse; and (2) appearance of a representative on behalf of a party who is fully authorized in writing to enter into an amicable settlement, to submit to alternative modes of dispute resolution, and to enter into stipulations or admissions of facts and documents. Petitioner is adamant and harps on the fact that November 28, 2003 was merely the first scheduled date for the pre-trial conference, and a certain Atty. Mejia appeared on its behalf. However, its assertion is belied by its own admission that, on said date, this Atty. Mejia did not have in his possession the Special Power of Attorney issued by petitioners Board of Directors. As pointed out by the CA, petitioner, through Atty. Lee, received the notice of pre-trial on October 27, 2003, thirty-two (32) days prior to the scheduled conference. In that span of time, Atty. Lee, who was charged with the duty of notifying petitioner of the scheduled pre-trial conference,[8] petitioner, and Atty. Mejia should have discussed which lawyer would appear at the pre-trial conference with petitioner, armed with the appropriate authority therefor. Sadly, petitioner failed to comply with not just one rule; it also did not proffer a reason why it likewise failed to file a pre-trial brief. In all, petitioner has not shown any persuasive reason why it should be exempt from abiding by the rules. The appearance of Atty. Mejia at the pre-trial conference, without a pre-trial brief and with only his bare allegation that he is counsel for petitioner, was correctly rejected by the trial court. Accordingly, the trial court, as affirmed by the appellate court, did not err in allowing respondent to present evidence ex-parte.

Former Chief Justice Andres R. Narvasas words continue to resonate, thus:

Everyone knows that a pre-trial in civil actions is mandatory, and has been so since January 1, 1964. Yet to this day its place in the scheme of things is not fully appreciated, and it receives but perfunctory treatment in many courts. Some courts consider it a mere technicality, serving no useful purpose save perhaps, occasionally to furnish ground for non-suiting the plaintiff, or declaring a defendant in default, or, wistfully, to bring about a compromise. The pre-trial device is not thus put to full use. Hence, it has failed in the main to accomplish the chief objective for it: the simplification, abbreviation and expedition of the trial, if not indeed its dispensation. This is a great pity, because the objective is attainable, and with not much difficulty, if the device were more intelligently and extensively handled. xxxx Consistently with the mandatory character of the pre-trial, the Rules oblige not only the lawyers but the parties as well to appear for this purpose before the Court, and when a party fails to appear at a pre-trial conference (he) may be nonsuited or considered as in default. The obligation to appear denotes not simply the personal appearance, or the mere physical presentation by a party of ones self, but connotes as importantly, preparedness to go into the different subject assigned by law to a pre-trial. And in those instances where a party may not himself be present at the pre-trial, and another person substitutes for him, or his lawyer undertakes to appear not only as an attorney but in substitution of the clients person, it is imperative for that representative of the lawyer to have special authority to make such substantive agreements as only the client otherwise has capacity to make. That special authority should ordinari ly be in writing or at the very least be duly established by evidence other than the self serving assertion of counsel (or the proclaimed representative) himself. Without that special authority, the lawyer or representative cannot be deemed capacitated to appear in place of the party; hence, it will be considered that the latter has failed to put in an appearance at all, and he [must] therefore be non-suited or considered as in default, notwithstanding his lawyers or delegates presence.[9]

We are not unmindful that defendants (petitioners) preclusion from presenting evidence during trial does not automatically result in a judgment in favor of plaintiff (respondent). The plaintiff must still substantiate the allegations in its complaint.[10]Otherwise, it would be inutile to continue with the plainti ffs presentation of evidence each time the defendant is declared in default.

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.[11]

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.

Plainly, from the facts found by the lower courts, the insured See deposited his vehicle for safekeeping with petitioner, through the latters employee, Justimbaste. In turn, Justimbaste issued a claim stub to See. Thus, the contract of deposit was perfected from Sees 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 Sees vehicle.

Lastly, petitioner assails the lower courts award of attorneys fees to respondent in the amount of P120,000.00. Petitioner claims that the award is not substantiated by the evidence on record. We disagree. While it is a sound policy not to set a premium on the right to litigate,[12] we find that respondent is entitled to reasonable attorneys fees. Attorneys fees may be awarded when a party is compelled to litigate or incur expenses to protect its interest,[13] or when the court deems it just and equitable.[14] In this case, petitioner refused to answer for the loss of Sees vehicle, which was deposited with it for safekeeping. This refusal constrained respondent, the insurer of See, and subrogated to the latters right, to litigate and incur expenses. However, we reduce the award of P120,000.00 to P60,000.00 in view of the simplicity of the issues involved in this case. WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 86869 is AFFIRMEDwith the MODIFICATION that the award of attorneys fees is reduced to P60,000.00. Costs against petitioner. SO ORDERED.

ANTONIO EDUARDO B. NACHURA Associate Justice WE CONCUR:

ANTONIO T. CARPIO Associate Justice Chairperson

DIOSDADO M. PERALTA Associate Justice

ROBERTO A. ABAD Associate Justice

JOSE CATRAL MENDOZA Associate Justice

ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

ANTONIO T. CARPIO Associate Justice Chairperson, Second Division

CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

RENATO C. CORONA Chief Justice

[1]

Penned by Associate Justice Remedios A. Salazar-Fernando, with Associate Justices Rosalinda Asuncion-Vicente and Enrico A. Lanzanas, concurring; rollo, pp. 93-109. [2] Penned by Pairing Judge Rommel O. Baybay; id. at 33-35.
[3] [4]

Id. at 94-101. Id. at 35. [5] Id. at 108. [6] Titan Construction Corporation v. Uni-Field Enterprises, Inc., G.R. No. 153874, March 7, 2007, 517 SCRA 180, 186; Sigaya v. Mayuga, 504 Phil. 600, 611 (2005). [7] See Child Learning Center, Inc. v. Tagorio, 512 Phil. 618, 623 (2005); Ilao-Quianay v. Mapile, 510 Phil. 736, 744-745 (2005).
[8]

RULES OF COURT, Rule 18, Sec. 3: SEC. 3. Notice of pre-trial.The notice of pre-trial shall be served on counsel, or on the party who has no counsel. The counsel served with such notice is charged with the duty of notifying the party represented by him. [9] Development Bank of the Phils. v. CA, 251 Phil. 390, 392-395 (1989). (Citations omitted.)
[10] [11]

See SSS v. Hon. Chaves, 483 Phil. 292, 302 (2004). Rollo, p. 105. [12] Bank of the Philippine Islands v. Casa Montessori International, G.R. Nos. 149454 & 149507, May 28, 2004, 430 SCRA 261, 296. [13] CIVIL CODE, Art. 2208, par. 2. [14] CIVIL CODE, Art. 2208, par. 11.

FIRST DIVISION

BANK OF THE PHILIPPINEISLANDS,

G.R. No. 136202

Petitioner,

Present:

PUNO, C.J., Chairperson,

SANDOVAL-GUTIERREZ, - versus CORONA, AZCUNA, and GARCIA, JJ.

COURT OF APPEALS, ANNABELLE A. SALAZAR, and JULIO R. TEMPLONUEVO, Respondents.

Promulgated:

January 25, 2007

x-----------------------------------------------------------------------------------------x

DECISION
AZCUNA, J.:

This is a petition for review under Rule 45 of the Rules of Court seeking the reversal of the Decision[1] dated April 3, 1998, and the Resolution[2] dated November 9, 1998, of the Court of Appeals in CA-G.R. CV No. 42241.

The facts[3] are as follows:

A.A. Salazar Construction and Engineering Services filed an action for a sum of money with damages against herein petitioner Bank of the Philippine Islands (BPI) on December 5, 1991 before Branch 156 of the Regional Trial Court (RTC) of Pasig City. The complaint was later amended by substituting the name of Annabelle A. Salazar as the real party in interest in place of A.A. Salazar Construction and Engineering Services. Private respondent Salazar prayed for the recovery of the amount of Two Hundred Sixty-Seven Thousand, Seven Hundred Seven Pesos and Seventy Centavos (P267,707.70) debited by petitioner BPI from her account. She likewise prayed for damages and attorneys fees.

Petitioner BPI, in its answer, alleged that on August 31, 1991, Julio R. Templonuevo, third-party defendant and herein also a private respondent, demanded from the former payment of the amount of Two Hundred Sixty-Seven Thousand, Six Hundred Ninety-Two Pesos and Fifty Centavos (P267,692.50) representing the aggregate value of three (3) checks, which were allegedly payable to him, but which were deposited with the petitioner bank to private respondent Salazars account (Account No. 0203-1187-67) without his knowledge and corresponding endorsement.

Accepting that Templonuevos claim was a valid one, petitioner BPI froze Account No. 0201-0588-48 of A.A. Salazar and Construction and Engineering Services, instead of Account No. 0203-1187-67 where the checks were deposited,

since this account was already closed by private respondent Salazar or had an insufficient balance.

Private respondent Salazar was advised to settle the matter with Templonuevo but they did not arrive at any settlement. As it appeared that private respondent Salazar was not entitled to the funds represented by the checks which were deposited and accepted for deposit, petitioner BPI decided to debit the amount of P267,707.70 from her Account No. 0201-0588-48 and the sum ofP267,692.50 was paid to Templonuevo by means of a cashiers check. The difference between the value of the checks (P267,692.50) and the amount actually debited from her account (P267,707.70) represented bank charges in connection with the issuance of a cashiers check to Templonuevo.

In the answer to the third-party complaint, private respondent Templonuevo admitted the payment to him of P267,692.50 and argued that said payment was to correct the malicious deposit made by private respondent Salazar to her private account, and that petitioner banks negligence and tolerance regarding the matter was violative of the primary and ordinary rules of banking. He likewise contended that the debiting or taking of the reimbursed amount from the account of private respondent Salazar by petitioner BPI was a matter exclusively between said parties and may be pursuant to banking rules and regulations, but did not in any way affect him. The debiting from another account of private respondent Salazar, considering that her other account was effectively closed, was not his concern.

After trial, the RTC rendered a decision, the dispositive portion of which reads thus:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff [private respondent Salazar] and against the defendant [petitioner BPI] and ordering the latter to pay as follows:

1.

The amount of P267,707.70 with 12% interest thereon from September 16, 1991 until the said amount is fully paid; The amount of P30,000.00 as and for actual damages; The amount of P50,000.00 as and for moral damages; The amount of P50,000.00 as and for exemplary damages; The amount of P30,000.00 as and for attorneys fees; and Costs of suit.

2. 3. 4. 5. 6.

The counterclaim is hereby ordered DISMISSED for lack of factual basis.

The third-party complaint [filed by petitioner] is hereby likewise ordered DISMISSED for lack of merit.

Third-party defendants *i.e., private respondent Templonuevos+ counterclaim is hereby likewise DISMISSED for lack of factual basis.

SO ORDERED.[4]

On appeal, the Court of Appeals (CA) affirmed the decision of the RTC and held that respondent Salazar was entitled to the proceeds of the three (3) checks notwithstanding the lack of endorsement thereon by the payee. The CA concluded that Salazar and Templonuevo had previously agreed that the checks payable to

JRT Construction and Trading[5] actually belonged to Salazar and would be deposited to her account, with petitioner acquiescing to the arrangement.[6]

Petitioner therefore filed this petition on these grounds:

I. The Court of Appeals committed reversible error in misinterpreting Section 49 of the Negotiable Instruments Law and Section 3 (r and s) of Rule 131 of the New Rules on Evidence.

II. The Court of Appeals committed reversible error in NOT applying the provisions of Articles 22, 1278 and 1290 of the Civil Code in favor of BPI.

III. The Court of Appeals committed a reversible error in holding, based on a misapprehension of facts, that the account from which BPI debited the amount of P267,707.70 belonged to a corporation with a separate and distinct personality.

IV. The Court of Appeals committed a reversible error in holding, based entirely on speculations, surmises or conjectures, that there was an agreement between SALAZAR and TEMPLONUEVO that checks payable to TEMPLONUEVO may be deposited by SALAZAR to her personal account and that BPI was privy to this agreement. V. The Court of Appeals committed reversible error in holding, based entirely on speculation, surmises or conjectures, that SALAZAR suffered great damage and prejudice and that her business standing was eroded.

VI. The Court of Appeals erred in affirming instead of reversing the decision of the lower court against BPI and dismissing SALAZARs complaint.

VII. The Honorable Court erred in affirming the decision of the lower court dismissing the third-party complaint of BPI.[7]

The issues center on the propriety of the deductions made by petitioner from private respondent Salazars account. Stated otherwise, does a collecting bank, over the objections of its depositor, have the authority to withdraw unilaterally from such depositors account the amount it had previously paid upon certain unendorsed order instruments deposited by the depositor to another account that she later closed?

Petitioner argues thus:

1.

There is no presumption in law that a check payable to order, when found in the possession of a person who is neither a payee nor the indorsee thereof, has been lawfully transferred for value. Hence, the CA should not have presumed that Salazar was a transferee for value within the contemplation of Section 49 of the Negotiable Instruments Law,[8] as the latter applies only to a holder defined under Section 191of the same.[9]

2.

Salazar failed to adduce sufficient evidence to prove that her possession of the three checks was lawful despite her allegations that these checks were deposited pursuant to a prior internal arrangement with Templonuevo and that petitioner was privy to the arrangement.

3.

The CA should have applied the Civil Code provisions on legal compensation because in deducting the subject amount from Salazars account, petitioner was merely rectifying the undue payment it made upon the checks and exercising its prerogative to alter or modify an erroneous credit entry in the regular course of its business.

4.

The debit of the amount from the account of A.A. Salazar Construction and Engineering Services was proper even though the value of the checks had been originally credited to the personal account of Salazar because A.A. Salazar Construction and Engineering Services, an unincorporated single proprietorship, had no separate and distinct personality from Salazar.

5.

Assuming the deduction from Salazars account was improper, the CA should not have dismissed petitioners third-party complaint against Templonuevo because the latter would have the legal duty to return to petitioner the proceeds of the checks which he previously received from it.

6.

There was no factual basis for the award of damages to Salazar.

The petition is partly meritorious.

First, the issue raised by petitioner requires an inquiry into the factual findings made by the CA. The CAs conclusion that the deductions from the bank account of A.A. Salazar Construction and Engineering Services were improper stemmed from its finding that there was no ineffective payment to Salazar which would call for the exercise of petitioners right to set off against the formers bank deposits. This finding, in turn, was drawn from the pleadings of the parties, the evidence adduced during trial and upon the admissions and stipulations of fact made during the pre-trial, most significantly the following:

(a)

That Salazar previously had in her possession the following checks:

(1)

Solid Bank Check No. CB766556 dated January 30, 1990 in the amount of P57,712.50; Solid Bank Check No. CB898978 dated July 31, 1990 in the amount of P55,180.00; and, Equitable Banking Corporation Check No. 32380638 dated August 28, 1990 for the amount of P154,800.00;

(2)

(3)

(b) That these checks which had an aggregate amount of P267,692.50 were payable to the order of JRT Construction and Trading, the name and style under which Templonuevo does business;

(c) That despite the lack of endorsement of the designated payee upon such checks, Salazar was able to deposit the checks in her personal savings account with petitioner and encash the same;

(d) That petitioner accepted and paid the checks on three (3) separate occasions over a span of eight months in 1990; and (e) That Templonuevo only protested the purportedly unauthorized encashment of the checks after the lapse of one year from the date of the last check.[10]

Petitioner concedes that when it credited the value of the checks to the account of private respondent Salazar, it made a mistake because it failed to notice the lack of endorsement thereon by the designated payee. The CA, however, did not lend credence to this claim and concluded that petitioners actions were deliberate, in view of its admission that the mistake was committed three times on three separate occasions, indicating acquiescence to the internal arrangement between Salazar and Templonuevo. The CA explained thus:

It was quite apparent that the three checks which appellee Salazar deposited were not indorsed. Three times she deposited them to her account and three times the amounts borne by these checks were credited to the same. And in those separate occasions, the bank did not return the checks to her so that she could have them indorsed. Neither did the bank question her as to why she was depositing the checks to

her account considering that she was not the payee thereof, thus allowing us to come to the conclusion that defendant-appellant BPI was fully aware that the proceeds of the three checks belong to appellee.

For if the bank was not privy to the agreement between Salazar and Templonuevo, it is most unlikely that appellant BPI (or any bank for that matter) would have accepted the checks for deposit on three separate times nary any question. Banks are most finicky over accepting checks for deposit without the corresponding indorsement by their payee. In fact, they hesitate to accept indorsed checks for deposit if the depositor is not one they know very well.[11]

The CA likewise sustained Salazars position that she received the checks from Templonuevo pursuant to an internal arrangement between them, ratiocinating as follows:

If there was indeed no arrangement between Templonuevo and the plaintiff over the three questioned checks, it baffles us why it was only onAugust 31, 1991 or more than a year after the third and last check was deposited that he demanded for the refund of the total amount of P267,692.50.

A prudent man knowing that payment is due him would have demanded payment by his debtor from the moment the same became due and demandable. More so if the sum involved runs in hundreds of thousand of pesos. By and large, every person, at the very moment he learns that he was deprived of a thing which rightfully belongs to him, would have created a big fuss. He would not have waited for a year within which to do so. It is most inconceivable that Templonuevo did not do this.[12]

Generally, only questions of law may be raised in an appeal by certiorari under Rule 45 of the Rules of Court.[13] Factual findings of the CA are

entitled to great weight and respect, especially when the CA affirms the factual findings of the trial court.[14]Such questions on whether certain items of evidence should be accorded probative value or weight, or rejected as feeble or spurious, or whether or not the proofs on one side or the other are clear and convincing and adequate to establish a proposition in issue, are questions of fact. The same holds true for questions on whether or not the body of proofs presented by a party, weighed and analyzed in relation to contrary evidence submitted by the adverse party may be said to be strong, clear and convincing, or whether or not inconsistencies in the body of proofs of a party are of such gravity as to justify refusing to give said proofs weight all these are issues of fact which are not reviewable by the Court.[15]

This rule, however, is not absolute and admits of certain exceptions, namely: a) when the conclusion is a finding grounded entirely on speculations, surmises, or conjectures; b) when the inference made is manifestly mistaken, absurd, or impossible; c) when there is a grave abuse of discretion; d) when the judgment is based on a misapprehension of facts; e) when the findings of fact are conflicting; f) when the CA, in making its findings, went beyond the issues of the case and the same are contrary to the admissions of both appellant and appellee; g) when the findings of the CA are contrary to those of the trial court; h) when the findings of fact are conclusions without citation of specific evidence on which they are based; i) when the finding of fact of the CA is premised on the supposed absence of evidence but is contradicted by the evidence on record; and j) when the CA manifestly overlooked certain relevant facts not disputed by the parties and which, if properly considered, would justify a different conclusion.[16]

In the present case, the records do not support the finding made by the CA and the trial court that a prior arrangement existed between Salazar and

Templonuevo regarding the transfer of ownership of the checks. This fact is crucial as Salazars entitlement to the value of the instruments is based on the assumption that she is a transferee within the contemplation of Section 49 of the Negotiable Instruments Law.

Section 49 of the Negotiable Instruments Law contemplates a situation whereby the payee or indorsee delivers a negotiable instrument for value without indorsing it, thus:

Transfer without indorsement; effect of- Where the holder of an instrument payable to his order transfers it for value without indorsing it, the transfer vests in the transferee such title as the transferor had therein, and the transferee acquires in addition, the right to have the indorsement of the transferor. But for the purpose of determining whether the transferee is a holder in due course, the negotiation takes effect as of the time when the indorsement is actually made.
[17]

It bears stressing that the above transaction is an equitable assignment and the transferee acquires the instrument subject to defenses and equities available among prior parties. Thus, if the transferor had legal title, the transferee acquires such title and, in addition, the right to have the indorsement of the transferor and also the right, as holder of the legal title, to maintain legal action against the maker or acceptor or other party liable to the transferor. The underlying premise of this provision, however, is that a valid transfer of ownership of the negotiable instrument in question has taken place.

Transferees in this situation do not enjoy the presumption of ownership in favor of holders since they are neither payees nor indorsees of such instruments.

The weight of authority is that the mere possession of a negotiable instrument does not in itself conclusively establish either the right of the possessor to receive payment, or of the right of one who has made payment to be discharged from liability. Thus, something more than mere possession by persons who are not payees or indorsers of the instrument is necessary to authorize payment to them in the absence of any other facts from which the authority to receive payment may be inferred.[18]

The CA and the trial court surmised that the subject checks belonged to private respondent Salazar based on the pre-trial stipulation that Templonuevo incurred a one-year delay in demanding reimbursement for the proceeds of the same. To the Courts mind, however, such period of delay is not of such unreasonable length as to estop Templonuevo from asserting ownership over the checks especially considering that it was readily apparent on the face of the instruments[19] that these were crossed checks.

In State Investment House v. IAC,[20] the Court enumerated the effects of crossing a check, thus: (1) that the check may not be encashed but only deposited in the bank; (2) that the check may be negotiated only once - to one who has an account with a bank; and (3) that the act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose so that such holder must inquire if the check has been received pursuant to that purpose.

Thus, even if the delay in the demand for reimbursement is taken in conjunction with Salazars possession of the checks, it cannot be said that the presumption of ownership in Templonuevos favor as the designated payee therein was sufficiently overcome. This is consistent with the principle that if instruments payable to named payees or to their order have not been indorsed in

blank, only such payees or their indorsees can be holders and entitled to receive payment in their own right.[21]

The presumption under Section 131(s) of the Rules of Court stating that a negotiable instrument was given for a sufficient consideration will not inure to the benefit of Salazar because the term given does not pertain merely to a transfer of physical possession of the instrument. The phrase given or indorsed in the context of a negotiable instrument refers to the manner in which such instrument may be negotiated. Negotiable instruments are negotiated by transfer to one person or another in such a manner as to constitute the transferee the holder thereof. If payable to bearer it is negotiated by delivery. If payable to order it is negotiated by the indorsement completed by delivery.[22] The present case involves checks payable to order. Not being a payee or indorsee of the checks, private respondent Salazar could not be a holder thereof.

It is an exception to the general rule for a payee of an order instrument to transfer the instrument without indorsement. Precisely because the situation is abnormal, it is but fair to the maker and to prior holders to require possessors to prove without the aid of an initial presumption in their favor, that they came into possession by virtue of a legitimate transaction with the last holder.[23]Salazar failed to discharge this burden, and the return of the check proceeds to Templonuevo was therefore warranted under the circumstances despite the fact that Templonuevo may not have clearly demonstrated that he never authorized Salazar to deposit the checks or to encash the same. Noteworthy also is the fact that petitioner stamped on the back of the checks the words: "All prior endorsements and/or lack of endorsements guaranteed," thereby making the assurance that it had ascertained the genuineness of all prior endorsements.

Having assumed the liability of a general indorser, petitioners liability to the designated payee cannot be denied.

Consequently, petitioner, as the collecting bank, had the right to debit Salazars account for the value of the checks it previously credited in her favor. It is of no moment that the account debited by petitioner was different from the original account to which the proceeds of the check were credited because both admittedly belonged to Salazar, the former being the account of the sole proprietorship which had no separate and distinct personality from her, and the latter being her personal account.

The right of set-off was explained in Associated Bank v. Tan:[24]

A bank generally has a right of set-off over the deposits therein for the payment of any withdrawals on the part of a depositor. The right of a collecting bank to debit a client's account for the value of a dishonored check that has previously been credited has fairly been established by jurisprudence. To begin with, Article 1980 of the Civil Code provides that "[f]ixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan.

Hence, the relationship between banks and depositors has been held to be that of creditor and debtor. Thus, legal compensation under Article 1278 of the Civil Code may take place "when all the requisites mentioned in Article 1279 are present," as follows:

(1)

That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated;

(2)

(3) (4) (5)

That the two debts be due; That they be liquidated and demandable; That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor.

While, however, it is conceded that petitioner had the right of set-off over the amount it paid to Templonuevo against the deposit of Salazar, the issue of whether it acted judiciously is an entirely different matter.[25] As businesses affected with public interest, and because of the nature of their functions, banks are under obligation to treat the accounts of their depositors with meticulous care, always having in mind the fiduciary nature of their relationship.[26] In this regard, petitioner was clearly remiss in its duty to private respondent Salazar as its depositor.

To begin with, the irregularity appeared plainly on the face of the checks. Despite the obvious lack of indorsement thereon, petitioner permitted the encashment of these checks three times on three separate occasions. This negates petitioners claim that it merely made a mistake in crediting the value of the checks to Salazars account and instead bolsters the conclusion of the CA that petitioner recognized Salazars claim of ownership of checks and acted deliberately in paying the same, contrary to ordinary banking policy and practice. It must be emphasized that the law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it, for the purpose of determining their genuineness and regularity. The collecting bank, being primarily engaged in banking, holds itself out to the public as the expert on this field, and the law thus holds it to a high standard of conduct.[27] The taking and collection of

a check without the proper indorsement amount to a conversion of the check by the bank.[28]

More importantly, however, solely upon the prompting of Templonuevo, and with full knowledge of the brewing dispute between Salazar and Templonuevo, petitioner debited the account held in the name of the sole proprietorship of Salazar without even serving due notice upon her. This ran contrary to petitioners assurances to private respondent Salazar that the account would remain untouched, pending the resolution of the controversy between her and Templonuevo.[29] In this connection, the CA cited the letter dated September 5, 1991 of Mr. Manuel Ablan, Senior Manager of petitioner banks Pasig/Ortigas branch, to private respondent Salazar informing her that her account had been frozen, thus:

From the tenor of the letter of Manuel Ablan, it is safe to conclude that Account No. 0201-0588-48 will remain frozen or untouched until herein [Salazar] has settled matters with Templonuevo. But, in an unexpected move, in less than two weeks (eleven days to be precise) from the time that letter was written, [petitioner] bank issued a cashiers check in the name of Julio R. Templonuevo of the J.R.T. Construction and Trading for the sum of P267,692.50 (Exhibit 8) and debited said amount from Ms. Arcillas account No. 0201-0588-48 which was supposed to be frozen or controlled. Such a move by BPI is, to Our minds, a clear case of negligence, if not a fraudulent, wanton and reckless disregard of the right of its depositor.

The records further bear out the fact that respondent Salazar had issued several checks drawn against the account of A.A. Salazar Construction and Engineering Services prior to any notice of deduction being served. The CA sustained private respondent Salazars claim of damages in this regard:

The act of the bank in freezing and later debiting the amount of P267,692.50 from the account of A.A. Salazar Construction and Engineering Services caused plaintiffappellee great damage and prejudice particularly when she had already issued checks drawn against the said account. As can be expected, the said checks bounced. To prove this, plaintiff-appellee presented as exhibits photocopies of checks dated September 8, 1991,October 28, 1991, and November 14, 1991 (Exhibits D, E and F respectively)[30]

These checks, it must be emphasized, were subsequently dishonored, thereby causing private respondent Salazar undue embarrassment and inflicting damage to her standing in the business community. Under the circumstances, she was clearly not given the opportunity to protect her interest when petitioner unilaterally withdrew the above amount from her account without informing her that it had already done so.

For the above reasons, the Court finds no reason to disturb the award of damages granted by the CA against petitioner. This whole incident would have been avoided had petitioner adhered to the standard of diligence expected of one engaged in the banking business. A depositor has the right to recover reasonable moral damages even if the banks negligence may not have been attended with malice and bad faith, if the former suffered mental anguish, serious anxiety, embarrassment and humiliation.[31] Moral damages are not meant to enrich a complainant at the expense of defendant. It is only intended to alleviate the moral suffering she has undergone. The award of exemplary damages is justified, on the other hand, when the acts of the bank are attended by malice, bad faith or gross negligence. The award of reasonable attorneys fees is proper where exemplary damages are awarded. It is proper where depositors are compelled to litigate to protect their interest.[32]

WHEREFORE, the petition is partially GRANTED. The assailed Decision dated April 3, 1998 and Resolution dated April 3, 1998 rendered by the Court of Appeals in CA-G.R. CV No. 42241 are MODIFIED insofar as it ordered petitioner Bank of the Philippine Islands to return the amount of Two Hundred Sixty-seven Thousand Seven Hundred and Seven and 70/100 Pesos (P267,707.70) to respondent Annabelle A. Salazar, which portion is REVERSED and SET ASIDE. In all other respects, the same are AFFIRMED.

No costs.

SO ORDERED.

ADOLFO S. AZCUNA Associate Justice

WE CONCUR:

REYNATO S. PUNO Chairperson Chief Justice

ANGELINA SANDOVAL-GUTIERREZ Associate Justice

RENATO C. CORONA Associate Justice

CANCIO C. GARCIA Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

REYNATO S. PUNO Chief Justice

[1] [2] [3] [4] [5]

[6] [7]

CA Rollo, pp. 100-116. Rollo, p. 57. CA Rollo, pp. 100-105. Records, pp. 323-324. Private respondent Templonuevo admitted that he was doing business under the name and style, JRT Construction and Trading. See Records, p.179. Rollo, p. 106. Id. at 12-13.

[8] [9]

Infra note 17. Sec. 191. Definition and meaning of terms. - In this Act, unless the contract otherwise requires: xxx "Holder" means the payee or indorsee of a bill or note who is in possession of it, or the bearer thereof; xxx Records, pp. 178-179. CA Rollo, pp. 106-107. Id. at 107. Madrigal v. CA, G.R. No. 142944, April 15, 2005, 456 SCRA 247; Bernardo v. CA, G.R. No. 101680, December 7, 1992, 216 SCRA 224; Remalante v. Tibe, G.R. No. L-59514,February 25,1988, 158 SCRA 138.

[10] [11] [12] [13]

[14] [15] [16]

[17] [18]

[19] [20] [21] [22] [23]

[24] [25] [26]

[27]

Borromeo v. Sun, G.R. No. 75908, October 22, 1999, 317 SCRA 176. Paterno v. Paterno, G.R. No. 63680, March 23, 1990, 183 SCRA 630. Arcaba v. Tabancura, 421 Phil. 1096 (2001); Martinez v. CA, G.R. No. 123547, May 21, 2001, 358 SCRA 38. Act No. 2031 (1911). 11 Am Jur 2d, 988, citing Doubleday v. Kress, 50 NY 410, Hoffmaster v. Black, 84 NE 423, and First Nat. Bank v. Gorman, 21 P2d 549. Records, pp. 286-293. G.R. No. 72764, July 13, 1989, 175 SCRA 310. Supra note 18. Negotiable Instruments Law, Section 30. Campos Jr. and Lopez Campos, Notes and Selected Cases on Negotiable Instruments Law, p. 108, (1994). G.R. No. 156940, December 14, 2004, 446 SCRA 282. Id. Prudential Bank v. CA, G.R. No. 125536, March 16, 2000, 328 SCRA 264; Simex International [Manila], Inc. v. CA, G.R. No.88013, March 19, 1990, 183 SCRA 360; BPI v. IAC, G.R. No. 69162, February 21, 1992, 206 SCRA 408. Banco de Oro Savings and Mortgage Bank v. Equitable Banking Corp., G.R. No. L-74917, January 20,1988, 157 SCRA 188. Associated Bank v. CA, G.R. No. 89802, May 7, 1992, 208 SCRA 465; City Trust Banking Corp. v. IAC, G.R. No. 84281, May 27, 1994, 232 SCRA 559. CA rollo, p. 112; Transcript of Stenographic Notes dated November 9, 1992, pp. 8-9. CA rollo, pp. 111. Civil Code, Article 2217. Prudential Bank v. CA, supra note 26.

[28]

[29] [30] [31] [32]

BPI vs Court of Appeals, 538 SCRA 184, GR No. 123498, November 23, 2007
Posted by Pius Morados on January 12, 2012

(Negotiable Instruments Money as a medium of exchange) Facts: Franco opened 3 accounts with BPI with the total amount of P2,000,000.00. The said amount used to open these accounts is traceable to a check issued by Tevesteco. The funding for

the P2,000,000.00 check was part of the P80,000,000.00 debited by BPI from FMICs account (with a deposit of P100,000,000.00) and credited to Tevestecos account pursuant to an Authority to Debit which was allegedly forged as claimed by FMIC. Tevesteco effected several withdrawals already from its account amounting to P37,455,410.54 including the P2,000,000.00 paid to Franco. Franco issued two checks which were dishonoured upon presentment for payment due to garnishment of his account filed by BPI. BPI claimed that it had a better right to the amounts which consisted of part of the money allegedly fraudulently withdrawn from it by Tevesteco and ending up in Francos account. BPI urges us that the legal consequence of FMICs forgery claim is that the money transferred by BPI to Tevesteco is its own, and considering that it was able to recover possession of the same when the money was redeposited by Franco, it had the right to set up its ownership thereon and freeze Francos accounts. Issue: WON the bank has a better right to the deposits in Francos account. Held: No. Significantly, while Article 559 permits an owner who has lost or has been unlawfully deprived of a movable to recover the exact same thing from the current possessor, BPI simply claims ownership of the equivalent amount of money, i.e., the value thereof, which it had mistakenly debited from FMICs account and credited to Tevestecos, and subsequently traced to Francos account. Money bears no earmarks of peculiar ownership, and this characteristic is all the more manifest in the instant case which involves money in a banking transaction gone awry. Its primary function is to pass from hand to hand as a medium of exchange, without other evidence of its title. Money, which had been passed through various transactions in the general course of banking business, even if of traceable origin, is no exception.
Share this:

Today is Wednesday, December 04, 2013

Search

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 179096 February 06, 2013

JOSEPH GOYANKO, JR., as administrator of the Estate of Joseph Goyanko, Sr., Petitioner, vs. UNITED COCONUT PLANTERS BANK, MANGO AVENUE BRANCH, Respondent. DECISION BRION, J.: We resolve the petition for review on certiorari1 filed by petitioner Joseph Goyanko, Jr., administrator of the Estate of Joseph Goyanko, Sr., to nullify the decision2 dated February 20, 2007 and the resolution3 dated July 31, 2007 of the Court of Appeals (CA) in CA-G.R. CV. No. 00257 affirming the decision4 of the Regional Trial Court of Cebu City, Branch 16(RTC) in Civil Case No. CEB-22277. The RTC dismissed the petitioners complaint for recovery of sum money against United Coconut Planters Bank, Mango Avenue Branch (UCPB). The Factual Antecedents In 1995, the late Joseph Goyanko, Sr. (Goyanko) invested Two Million Pesos (P2,000,000.00) with Philippine Asia Lending Investors, Inc. family, represented by the petitioner, and his illegitimate family presented conflicting claims to PALII for the release of the investment. Pending the investigation of the conflicting claims, PALII deposited the proceeds of the investment with UCPB on October 29, 19965 under the name "Phil Asia: ITF (In Trust For) The Heirs of Joseph Goyanko, Sr." (ACCOUNT). On September 27, 1997, the deposit under the ACCOUNT was P1,509,318.76. On December 11, 1997, UCPB allowed PALII to withdraw One Million Five Hundred Thousand Pesos (P1,500,000.00) from the Account, leaving a balance of only P9,318.76. When UCPB refused the demand to restore the amount withdrawn plus legal interest from December 11, 1997, the petitioner filed a complaint before the RTC. In its answer to the complaint, UCPB admitted, among others, the opening of the ACCOUNT under the name "ITF (In Trust For) The Heirs of Joseph Goyanko, Sr.," (ITF HEIRS) and the withdrawal on December 11, 1997. The RTC Ruling In its August 27, 2003 decision, the RTC dismissed the petitioners complaint and awarded UCPB attorneys fees, litigation expenses and the costs of the suit.6 The RTC did not consider the words "ITF HEIRS" sufficient to charge UCPB with knowledge of any trust relation between PALII and Goyankos heirs (HEIRS). It concluded that UCPB merely performed its duty as a depository bank in allowing PALII to withdraw from the ACCOUNT, as the contract of deposit was officially only between PALII, in its own capacity, and UCPB. The petitioner appealed his case to the CA. The CAs Ruling Before the CA, the petitioner maintained that by opening the ACCOUNT, PALII established a trust by which it was the "trustee" and the HEIRS are the "trustors-beneficiaries;" thus, UCPB should be liable for allowing the withdrawal. The CA partially granted the petitioners appeal. It affirmed the August 27, 2003 decision of the RTC, but deleted the award of attorneys fees and litigation expenses. The CA held that no express trust was created between the HEIRS and PALII. For a trust to be established, the law requires, among others, a competent trustor and trustee and a clear intention to create a trust, which were absent in this case. Quoting the RTC with approval, the CA noted that the contract of deposit was only between PALII in its own capacity and UCPB, and the words "ITF HEIRS" were insufficient to establish the existence of a trust. The CA concluded that as no trust existed, expressly or impliedly, UCPB is not liable for the amount withdrawn.7 In its July 31, 2007 resolution,8 the CA denied the petitioners motion for reconsideration. Hence, the petitioners present recourse.

The Petition The petitioner argues in his petition that: first, an express trust was created, as clearly shown by PALIIs March 28, 1996 and November 15, 1996 letters.9 Citing jurisprudence, the petitioner emphasizes that from the established definition of a trust,10 PALII is clearly the trustor as it created the trust; UCPB is the trustee as it is the party in whom confidence is reposed as regards the property for the benefit of another; and the HEIRS are the beneficiaries as they are the persons for whose benefit the trust is created.11 Also, quoting Development Bank of the Philippines v. Commission on Audit,12 the petitioner argues that the naming of the cestui que trust is not necessary as it suffices that they are adequately certain or identifiable.13 Second, UCPB was negligent and in bad faith in allowing the withdrawal and in failing to inquire into the nature of the ACCOUNT.14 The petitioner maintains that the surrounding facts, the testimony of UCPBs witness, and UCPBs own records showed that: (1) UCPB was aware of the trust relation between PALII and the HEIRS; and (2) PALII held the ACCOUNT in a trust capacity. Finally, the CA erred in affirming the RTCs dismissal of his case for lack of cause of action. The p etitioner insists that since an express trust clearly exists, UCPB, the trustee, should not have allowed the withdrawal. The Case for UCPB UCPB posits, in defense, that the ACCOUNT involves an ordinary deposit contract between PALII and UCPB only, which created a debtor-creditor relationship obligating UCPB to return the proceeds to the account holder-PALII. Thus, it was not negligent in handling the ACCOUNT when it allowed the withdrawal. The mere designation of the ACCOUNT as "ITF" is insufficient to establish the existence of an express trust or charge it with knowledge of the relation between PALII and the HEIRS. UCPB also argues that the petitioner changed the theory of his case. Before the CA, the petitioner argued that the HEIRS are the trustors-beneficiaries, and PALII is the trustee. Here, the petitioner maintains that PALII is the trustor, UCPB is the trustee, and the HEIRS are the beneficiaries. Contrary to the petitioners assertion, the records failed to show that PALII and UCPB execu ted a trust agreement, and PALIIs letters made it clear that PALII, on its own, intended to turn-over the proceeds of the ACCOUNT to its rightful owners. The Courts Ruling The issue before us is whether UCPB should be held liable for the amount withdrawn because a trust agreement existed between PALII and UCPB, in favor of the HEIRS, when PALII opened the ACCOUNT with UCPB. We rule in the negative. We first address the procedural issues. We stress the settled rule that a petition for review on certiorari under Rule 45 of the Rules of Court resolves only questions of law, not questions of fact.15 A question, to be one of law, must not examine the probative value of the evidence presented by the parties;16 otherwise, the question is one of fact.17 Whether an express trust exists in this case is a question of fact whose resolution is not proper in a petition under Rule 45. Reinforcing this is the equally settled rule that factual findings of the lower tribunals are conclusive on the parties and are not generally reviewable by this Court,18 especially when, as here, the CA affirmed these findings. The plain reason is that this Court is not a trier of facts.19 While this Court has, at times, permitted exceptions from the restriction,20 we find that none of these exceptions obtain in the present case. Second, we find that the petitioner changed the theory of his case. The petitioner argued before the lower courts that an express trust exists between PALII as the trustee and the HEIRS as the trustor-beneficiary.21 The petitioner now asserts that the express trust exists between PALII as the trustor and UCPB as the trustee, with the HEIRS as the beneficiaries.22 At this stage of the case, such change of theory is simply not allowed as it violates basic rules of fair play, justice and due process. Our rulings are clear - "a party who deliberately adopts a certain theory upon which the case was decided by the lower court will not be permitted to change [it] on appeal";23 otherwise, the lower courts will effectively be deprived of the opportunity to decide the merits of the case fairly.24 Besides, courts of justice are devoid of jurisdiction to resolve a question not in issue.25 For these reasons, the petition must fail. Independently of these, the petition must still be denied.

No express trust exists; UCPB exercised the required diligence in handling the ACCOUNT; petitioner has no cause of action against UCPB A trust, either express or implied,26 is the fiduciary relationship "x x x between one person having an equitable ownership of property and another person owning the legal title to such property, the equitable ownership of the former entitling him to the performance of certain duties and the exercise of certain powers by the latter."27Express or direct trusts are created by the direct and positive acts of the trustor or of the parties.28 No written words are required to create an express trust. This is clear from Article 1444 of the Civil Code,29 but, the creation of an express trust must be firmly shown; it cannot be assumed from loose and vague declarations or circumstances capable of other interpretations.30 In Rizal Surety & Insurance Co. v. CA,31 we laid down the requirements before an express trust will be recognized: Basically, these elements include a competent trustor and trustee, an ascertainable trust res, and sufficiently certain beneficiaries. xxx each of the above elements is required to be established, and, if any one of them is missing, it is fatal to the trusts (sic). Furthermore, there must be a present and complete disposition of the trust property, notwithstanding that the enjoyment in the beneficiary will take place in the future. It is essential, too, that the purpose be an active one to prevent trust from being executed into a legal estate or interest, and one that is not in contravention of some prohibition of statute or rule of public policy. There must also be some power of administration other than a mere duty to perform a contract although the contract is for a thirdparty beneficiary. A declaration of terms is essential, and these must be stated with reasonable certainty in order that the trustee may administer, and that the court, if called upon so to do, may enforce, the trust. [emphasis ours] Under these standards, we hold that no express trust was created. First, while an ascertainable trust res and sufficiently certain beneficiaries may exist, a competent trustor and trustee do not. Second, UCPB, as trustee of the ACCOUNT, was never under any equitable duty to deal with or given any power of administration over it. On the contrary, it was PALII that undertook the duty to hold the title to the ACCOUNT for the benefit of the HEIRS.Third, PALII, as the trustor, did not have the right to the beneficial enjoyment of the ACCOUNT. Finally, the terms by which UCPB is to administer the ACCOUNT was not shown with reasonable certainty. While we agree with the petitioner that a trusts beneficiaries need not be particularly identified for a trust to exist, the intention to create an express trust must first be firmly established, along with the other elements laid above; absent these, no express trust exists. Contrary to the petitioners contention, PALIIs letters and UCPBs records established UCPBs participation as a mere depositary of the proceeds of the investment. In the March 28, 1996 letter, PALII manifested its intention to pursue an active role in and up to the turnover of those proceeds to their rightful owners,32 while in the November 15, 1996 letter, PALII begged the petitioner to trust it with the safekeeping of the investment proceeds and documents.33 Had it been PALIIs intention to create a trust in favor of the HEIRS, it would have relinquished any right or claim over the proceeds in UCPBs favor as the trustee. As matters stand, PALII never did. UCPBs records and the testimony of UCPBs witness34 likewise lead us to the same conclusion. While the words "ITF HEIRS" may have created the impression that a trust account was created, a closer scrutiny reveals that it is an ordinary savings account.35 We give credence to UCPBs explanation that the word "ITF" was merely used to distinguish the ACCOUNT from PALIIs other accounts with UCPB. A trust can be created without using the word "trust" or "trustee," but the mere use of these words does not automatically reveal an intention to create a trust.36If at all, these words showed a trustee-beneficiary relationship between PALII and the HEIRS. Contrary to the petitioners position, UCPB did not become a trustee by the mere opening of the ACCOUNT. While this may seem to be the case, by reason of the fiduciary nature of the banks relationship with its depositors,37 this fiduciary relationship does not "convert the contract between the bank and its depositors from a simple loan to a trust agreement, whether express or implied."38 It simply means that the bank is obliged to observe "high standards of integrity and performance" in complying with its obligations under the contract of simple loan.39 Per Article 1980 of the Civil Code,40 a creditor-debtor relationship exists between the bank and its depositor.41 The savings deposit agreement is between the bank and the depositor;42 by receiving the deposit, the bank impliedly agrees to pay upon demand and only upon the depositors order.43
1wphi1

Since the records and the petitioners own admission showed that the ACCOUNT was opened by PALII, UCPBs receipt of the deposit signified that it agreed to pay PALII upon its demand and only upon its order. Thus, when UCPB allowed PALII to withdraw from the ACCOUNT, it was merely performing its contractual obligation under their savings deposit agreement. No negligence or bad faith44 can be imputed to UCPB for this action. As far as UCPB was concerned, PALII is the account holder and not the HEIRS. As we held in Falton Iron Works Co. v. China Banking Corporation.45 the banks duty is to its creditordepositor and not to third persons. Third persons, like the HEIRS here, who may have a right to the money deposited, cannot hold the bank responsible unless there is a court order or garnishment.46 The petitioners recourse is to go before a court of competent jurisdiction to prove his valid right over the money deposited. In these lights, we find the third assignment of error mooted. A cause of action requires that there be a right existing in favor of the plaintiff, the defendants obligation to respect that right, and an act or omission of the defendant in breach of that right.47 We reiterate that UCPBs obligation was towards PALII as its creditor-depositor. While the HEIRS may have a valid claim over the proceeds of the investment, the obligation to turn-over those proceeds lies with PALII. Since no trust exists the petitioners complaint was correctly dismissed and the CA did not commit any reversible error in affirming the RTC decision. One final note, the burden to prove the existence of an express trust lies with the petitioner.48 For his failure to discharge this burden, the petition must fail. WHEREFORE, in view of these considerations, we hereby DENY the petition and AFFIRM the decision dated February 20, 2007 and the resolution dated July 31, 2007 of the Court of Appeals in CA-G.R. CV. No. 00257. Costs against the petitioner. SO ORDERED: ARTURO D. BRION Associate Justice WE CONCUR: ANTONIO T. CARPIO Associate Justice Chairperson MARIANO C. DEL CASTILLO Associate Justice JOSE PORTUGAL PEREZ Associate Justice

ESTELA M. PERLAS-BERNABE Associate Justice ATTESTATION I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. ANTONIO T. CARPIO Associate Justice Chairperson CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court' Division.

MARIA LOURDES P.A. SERENO Chief Justice

Footnotes
1

Dated September 25, 2007 and filed on September 24, 2007 under Rule 45 of the 1997 Rules of Civil Procedure: rollo. pp 24-42.
2

Penned by Associate Justice Priscila Baltazar-Padilla, and concurred in by Executive Justice Arsenio I. Magpale and Associate Justice Romeo F. Barza: id. at 9-17.
3

Id at 19-20. Dated August 27, 2008 per the CA decision: id at 9.

The amount deposited was P1,485,685.09 per the CA decision dated February 20, 2007. Per the attached copy of UCPBs record pertaining to the ACCOUNT, and UCPBs comment, the ACCOUNT was opened on May 31, 1996. Also, per UCPBs comment, the initial deposit on the ACCOUNT was P173,250.00, with subsequent deposits made in the succeeding months, the last of which was on October 28, 1996; id. at 60 and 77.
6

From the dispositive portion of the RTC decision, as quoted by the CA; id. at 10. Id. at 15. Supra note 3. Rollo, pp. 33-35, 113-114; copy of the letters at pp. 59 and 61.

The petitioner cites the Courts ruling in Estate of Edward Grimm v. Estate of Charles Parsons and Patrick C. Parsons, G.R. No. 159810, October 9, 2006, 504 SCRA 67; id. at 36. The petitioner also citesGalvez v. Court of Appeals, 485 SCRA 346; id. at 115-116.
10 11

Rollo, pp. 34-36, 115-116. G.R. No. 144516, February 11, 2004, 422 SCRA 459. Rollo, pp. 35, 116-117. Id. at 36-40, 119-123.

12

13

14

15

Andrada v. Pilhino Sales Corporation, G.R. No. 156448, February 23, 2011, 644 SCRA 1, 8-9; Philippine Commercial International Bank v. Balmaceda, G.R. No. 158143, September 21, 2011, 658 SCRA 33, 4243;Lorzano v. Tabayag, Jr., G.R. No. 189647, February 6, 2012, 665 SCRA 38, 46-47; and Republic v. De Guzman, G.R. No. 175021, June 15, 2011, 652 SCRA 101, 113.
16

Lorzano v. Tabayag, Jr. supra note 15, at 46-47; Republic v. De Guzman, supra note 15, at 113. See also Heirs of Pacencia Racaza, etc. v. Spouses Florencio Abay-abay, et al., G.R. No. 198402, June 13, 2012.

17

Lorzano v. Tabayag, Jr., supra note 15, at 46-47; Republic v. De Guzman, supra note 15, at 113. See Heirs of Pacencia Racaza, etc. v. Spouses Florencio Abay-abay, supra note 16. Id. Among the recognized exceptions to the restriction are: (a) When the findings are grounded entirely on speculation, surmises, or conjectures; (b) When the inference made is manifestly mistaken, absurd, or impossible; (c) When there is grave abuse of discretion; (d) When the judgment is based on a misapprehension of facts; (e) When the findings of facts are conflicting; (f) When in making its findings, the CA went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant and the appellee; (g) When the CAs findings are contrary to those by the trial court; (h) When the findings are conclusions without specific citation of specific evidence on which they are based; (i) When the facts set forth in the petition as well as in the petitioners main and reply briefs are not disputed by the respondent; (j) When the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record; or (k) When the CA manifestly overlooked certain relevant facts not disputed by the parties which, if properly considered, would justify a different conclusion.

18

19

20

21

See rollo, pp. 12-13. Id. at 34-36, 115-116. Morla v. Belmonte, G.R. No. 171146, December 7, 2011, 661 SCRA 717, 727. Pea v. Tolentino, G.R. Nos. 155227-28, February 9, 2011, 642 SCRA 310, 323. Id. at 324.

22

23

24

25

26

Estate of Margarita D. Cabacungan v. Laigo, G.R. No. 175073, August 15, 2011, 655 SCRA 366, 376. See also Philippine National Bank v. Aznar, G.R. Nos. 171805 and 172021, May 30, 2011, 649 SCRA 214, 230; and Torbela v. Rosario, G.R. Nos. 140528 and 140553, December 7, 2011, 661 SCRA 633, 661.
27

Estate of Margarita D. Cabacungan v. Laigo, supra, at 376. See also Philippine National Bank v. Aznar,

supra; Torbela v. Rosario, supra; and Metropolitan Bank & Trust Company, Inc. v. Board of Trustees of Riverside Mills Corporation Provident and Retirement Fund, G.R. No. 176959, September 8, 2010, 630 SCRA 350, 357.
28

Torbela v. Rosario, supra note 26; and PNB v. Aznar, supra note 26.

29

Art. 1444. No particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended.
30

Philippine National Bank v. Aznar, supra note 26, at 230.

31

329 Phil. 789, 805-806, citing Mindanao Development Authority v. Court of Appeals, No. L-49087, April 5, 1982, 113 SCRA 429, 436-437.
32

Rollo, p. 59. The letter stated: "In the meantime, the monthly interest that will accrue to said investments will be, at the instance of our client, deposited in a bank under the account name, Heirs of Joseph Goyanko, Sr., x x x x. x x x our client will be constrained to bring an action before the court for interpleader to compel the claimants to interplead and litigate their several claims among themselves. (emphasis ours)
33

Id. at 61. To quote PALII: "Since the money is intact and safe in the bank ready for turn-over to the righteous owner, so with all the documents of the investment in our possession, we would like to request your goodself to please trust us for its safekeeping." (emphasis ours) Id. at 62-64. UCPBs witness testified that the ACCOUNT was owned by PALII and that he was not personally aware of any trust relation between PALII and the HEIRS since he was not yet the banks branch manager at that time.
34

Id. at 60. In the copy of the UCPBs record, UCPB Form No. 4-1118, under the heading "TYPE OF ACCOUNT," the option "Savings Account" bears a check mark. Also, on the reverse side, under the heading "TYPE OF ACCT." "Savings Acct." was written. Also the ACCOUNTs authorized signatory was only Crisanto Pescadero, PALIIs general manager.
35 36

See Torbela v. Rosario, supra note 26, at 661. See BPI Family Bank v. Franco, G.R. No. 123498, November 23, 2007, 538 SCRA 184, 198.

37

38

Consolidated Bank and Trust Corporation v. Court of Appeals, G.R. No. 138569, September 11, 2003, 457 Phil. 688, 707.
39

Id. at 705. Article 1980 of the Civil Code provides: Art. 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan. (emphasis ours)

40

41

See Central Bank of the Philippines v. Citytrust Banking Corporation, G.R. No. 141835, February 4, 2009, 578 SCRA 27, 32, quoting Consolidated Bank and Trust Corporation v. Court of Appeals, supra note 38 at, 574575; Lucman v. Malawi, 540 Phil. 289, 300 (2006); and Allied Banking Corporation v. Lim Sio Wan, G.R. No. 133179, March 27, 2008, 549 SCRA 504, 515. See Samsung Construction Co. Phils., Inc. v. FEBTC, 480 Phil.

39, 49 (2004).
42

Consolidated Bank and Trust Corporation v. Court of Appeals, supra note 38, at 705.

43

Samsung Construction Co. Phils., Inc. v. FEBTC, supra note 41, at 49; and Central Bank of the Philippines v. Citytrust Banking Corporation, supra note 41, at 32.
44

Article 1173. Civil Code of the Philippines provides:"Negligence consists in the omission of that diligence which is required by the nature of the obligation, and corresponds with the circumstances of the persons, of the time and of the place." Bad faith implies a conscious or intentional design to do a wrongful act for a dishonest purpose or moral obliquity. (Arenas v. CA, G.R. No. 126466, January 14, 1999, 345 SCRA 617)
45

55 Phil. 208; 216-217 (1930). Ibid.

46

47

NAI Rathschild & Sons (Australia) Limited v. Lepanto Consolidated Mining Company, G.R. No. 175799, November 28, 2011, 664 SCRA 328 338-339; and Manalo v. PAIC Savings Bank, 493 Phil. 854, 859, 2005). Section 2 of the Rules of Court provides: SEC. 2. Cause of action defined "A cause of action is the act or omission by which a party violates a right of another.
48

Caezo v. Rojas, G.R. No. 448788, November 23, 2007, 538 SCRA 242, 253; and Duran v. Court of Appeals. 522 Phil. 399, 407 (2006).

The Lawphil Project - Arellano Law Foundation

In Goyanko, Jr. v. UCPB, G.R. No. 179096, 6 February 2013, the Petitioners filed a complaint against UCPB for recovery of sum of money.

Specifically, Petitioners claim that UCPB should not have allowed Philippine Asia Lending Investors, Inc. (Phil Asia or "PALII") to have withdrawn the money deposited with the said bank since it was made under the name of Phil Asia: ITF (In Trust For) the Heirs of Joseph Goyanko, Sr.

According to the Petitioners, when Phil Asia opened the said account with UCPB, using the words ITF , the bank was charged with the knowledge that it was being opened in trust for the heirs. Thus, when UCPB allowed Phil Asia to withdraw almost the entire amount deposited, the bank acted negligently or in bad faith, thus making it liable to return the amount withdrawn.

In disposing of the case, the Supreme Court examined the factual milieu and ruled that no express trust was created. Contrary to the petitioners (heirs) argument, the mere use of the words ITF is not sufficient to establish an express trust in favor of the heirs:

A trust, either express or implied, is the fiduciary relationship ". . . between one person having an equitable ownership of property and another person owning the legal title to such property, the equitable ownership of the former entitling him to the performance of certain duties and the exercise of certain powers by the latter." Express or direct trusts are created by the direct and positive acts of the trustor or of the parties. No written words are required to create an express trust. This is clear from Article 1444 of the Civil Code, but, the creation of an express trust must be firmly shown; it cannot be assumed from loose and vague declarations or circumstances capable of other interpretations.