December 03, 2014

Alright so we continue our discussions regarding bank deposits so

remember Article 1980. Fixed, savings and current deposits i banks
and similar institutions shall be governed by the provisions
concerning simple loan. This is again the kind of deposits in banks are
really loans, although as we have learned in the cases we have discussed
last night, we are aware that this kind of relation is also known as an
irregular deposit. and in fact, we have already noh in the case that we
have discussed last night in compania agricola we also discuss the
distinctions between a simple loan and an irregular deposit, again what are
these distinctions?

Student A: in irregular deposit maam, the only benefit is that which accrues
to the depositor, while in a loan, the essential cause for the transaction is
the necessity of the borrower. In irregular deposits maam the may demand
the thing deposited at will whereas in a simple loan maam the one who
loaned the amount is bound by the provisions of the contract and cannot
seek restitution until the time for payment, as provided in the contract.

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SUMMARY:
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DISTINCTIONS BETWEEN A SIMPLE LOAN AND IRREGULAR DEPOSIT
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1.) CONSUMABLE WILL DEMANDABLE AT WILL BY DEPOSITOR:
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Irregular deposit= consumable thing demandable at will by the

irregular depositor for whose benefit of the deposit has been constituted

Simple loan= the lender cannot demand restitution until the time for
payment and is bound by the provisions of the contract.

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2.) BENEFIT ACCRUES TO THE DEPOSITOR ONLY:
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Irregular deposit = the only benefit is that which accrues to the

depositor.

Simple Loan= the essential cause for the transaction is the necessity
of the borrower. AND a loan with a stipulation to pay interest is for the
benefit of both parties.

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3.) DEPOSITOR HAS PREFERENCE OVER OTHER CREDITORS:
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Irregular deposit= the depositor has preference over other creditors

with respect to the thing deposited.

Simple loan= common creditors enjoy no preference in the

distribution of the debtors property.

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Atty. JS: So what happened in the case of Rogers vs Smith?
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Student: In the case of Rogers vs Smith Maam
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Plaintiff Rogers deposited to respondent Smith 12,000 in gold. It was

agreed that the same amount shall bear 8% interest and shall be
demandable after six months after notice to rogers. So Rogers here maam
delivered the amount to smith in gold maam so Smith

Atty. JS: What was the value of this gold? These were actually gold coins.
Alright coninue

Syudent: So smith began to remit the interest to rogers every three months
at the interest rate of 8% until January 1988, when they notified Rogers that
thereafter the interest rate will be reduced to 6%. Rogers agreed to the
reduction and accepted the remittances. But in 1904, Rogers learned about
the law passed by the congress that all transactions shall be in accordance
with the Gold standard maam so therefore Rogers claims that the amount
should be in gold because smith here maam paid the interest in silver
coins. So the issue in this case maam is whether or not rogers is entitled to
payment in gold?

The SC held no, smith can pay Rogers in silver because the contract in this
case maam is not one of an irregular deposit but rather one of a loan.
(inaudible). The first difference which, he points out consists in the fact that
in an irregular deposit the only benefit is that which accrues to the
depositor, while in a loan the essential cause for the transaction is the
necessity of the borrower. The contract in question does not fulfill this
requirement of an irregular deposit. It is very apparent that it was not for the

sole benefit of Rogers. it, like any other loan of money, was for the benefit
of both parties. The benefit which Smith, Bell & Co. received was the use of
the money; the benefit which Rogers received was the interest on his
money. In the letter in which Smith, Bell & Co. on the 30th of June, 1888,
notified the plaintiff of the reduction of the interest, they said: "We call your
attention to this matter in order that you may if you think best employ your
money other place.

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

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Atty. JS: So what is the obligation here of the debtor really?
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Student: To pay maam. Because maam if its a depositary maam Rogers

delivered it in gold smith must also deliver it in gold. However, in this case it
is not one of a deposit maam so you can pay it in its equivalent.

Atty. JS: Alright. Thank you. So the distinctions that were discussed in the
case in company agricola are the same distinctions mentioned in this case.
Again, in an irregular deposit the only benefit accrues to the debtor. But, in
a loan the essential cause of the transaction is the necessity of the
borrower. He borrowed money because the debtor needs the money. Now,
also in an irregular deposit, the depositor can demand the article at anytime
but, in a contract of loan the debtor is bound by there agreement insomuch
as he cannot seek restitution. He cannot collect payment until the for
payment that they have agreed upon. Also, with regard to an irregular
deposit it considered as a preferred claim as compared to a contract of
loan. Notice that the parties here kept referring to the agreement as a
deposit. in the document that they executed, deposited the sum and the
obligation to pay after six months. But again, always go back to the
intention of the parties which in this case is clearly is one of a loan.

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Atty. JS: What is a nature of a bank deposit?
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Student: It is a loan maam.

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Atty. JS: A bank deposit is strictly a simple loan?
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Student: No maam.
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Atty. JS: So what happened in the case of BPI vs. CA?
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Student: In the case of BPI vs. CA. Herein private respondents Eastern
Plywood Corp. and Benigno Lim had a joint bank account with Commercial
bank which is the predecessor of BPI. So somewhere in March 1975
maam a joint checking account was opened by a certain Mariano Velasco
and the funds were withdrawn of Eastern and Mr. Benigno Lim. Now, later
when Velasco died there was an outstanding balance of 600,000. So when
this happened by virtue of an indemnity undertaking executed by Lim for
himself and as President and General Manager of Eastern, one-half of this
amount was provisionally released and transferred to one of the bank
accounts of Eastern with CBTC. While this was also happening, another
loan was obtained by Lim an even in the said loan, it was fully and partly
secured by the old account which was referred to the joint account of
Velasco and Lim. At the same time there was also a settlement in the
estate of Velasco wherein the Court ruled that the certain balance which
was the 330,000 pesos shall be given to the Velasco Heirs. And now when
BPI took over CBTC it now filed a case demanding the payment of the
75,000 of the loan obtained by Eastern and Lim. However, Eastern and Lim
claimed that they must set off the 300,000 from the said 75,000. So in this
case the RTC cad dismissed the complaint and the CA affirmed the RTC
decision. So the contention of the petitioner maam, it alleged that But
first, the RTC ruled that it is the duty of BPI to actually set off the said loan.
So they must set off the 75,000 loan from the 300,000 loan from the joint
account of Velasco and Lim. So that was the contention of the bank, and at
the same time, there was also a counterclaim from the petitioner that they
contended that there must be payment of the 300,000 in the part of Lim. So
the issue n this case maam is whether or not BPI canthere are actually
two issues in this case

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Atty. JS: With regard to our topic, what is the main issue?
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Student: Whether or not.
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Atty. JS: What happened to the money in the joint account of Lim and
Velasco?

Student: It was withdrawn or given maam to the heirs of Velasco based on

the settlement of the estate of Velasco.

Atty. JS: Was the release of the bank of 1/2 of that account in favor of the
Heirs of Velasco, was it proper?

Student: According to the SC maam it was not proper maam/ It was not
proper maam because according to the court clearly maam, the said
account was also of eastern and not just of Velasco.

Atty. JS: What rule was taken into consideration that the account really
belongs to Eastern and not to Lim and velasco? Because again, the
account name is under the name of Lim and Velasco so if you take a look
at it the Heirs of Velasco would have a right over it. What was the basis of
the court in saying that the Heirs of Velasco does not have the right over it
and tha it is actually eastern who owns it? What was the basis? You have
to consider the basis otherwise you cannot determine the liability on the
part of the bank in releasing the money in favor of the heirs.

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Atty. JS: Is the bank liable in releasing the amount to the Heirs of Velasco?
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Student: Yes maam. They are liable maam.
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Atty. JS: Why?
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Student: Because of the hold-out agreement.
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Atty. JS: Okay, what is there in the hold-out agreement?
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Student: In the said agreement maam the bank cannot be compelled to

retain or apply the deposit to the joint account of Lim and Velasco maam.

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Atty. JS: SO do we have a bank deposit here? Who is the depositor?
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Student: The depositor is Eastern maam.
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Atty. JS: What is the obligation of the bank, BPI to Eastern as a depositor?

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Student: It has the obligation to return the amount upon demand maam.
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Atty. JS: Alright, Thank you. Now, remember the nature of bank deposits
are irregular deposits, they are still deposits in a sense that the depositor
put the money in the bank for safekeeping. But, notice that what is to be
returned upon demand is not the exact thing itself but actually the value
thereof. And, what happens to the money deposited here by the depositor ,
Because it was acknowledged here in the bank, they know that the amount
therein did not really pertain to Velasco but in fact remains to be with
Eastern. With that hold-up agreement there is an acknowledgement that
they know they are aware that the owner or depositor thereof is actually
Lim and Eastern therefore having knowledge who are the rightful owners
thereto then the petitioner BPI should not have allowed such withdrawal in
favor of the heirs because it was already admitted in the hold-up agreement
the question to ownership in the money deposited in the account.

Atty. JS: Student 3, what happened in the case of metro bank?

Student 3: In the case of Metrobank vs BA Finance maam, Bitanga here
loaned from BA Finance PHP 329,280.00 and was secured by his car. The
car was insured with Malayan Insurance however the car was lost maam.
So Bitanga here asked Malayan Insurance for the amount of the insured
car. Malayan through its bank paid Bitangas account with BA Finance as
co payee. However Bitanga deposited the check to Asian Corporation and
although in the check both bitangga and BA Finance were payees,
Bitangga deposited in Metrobank and withdrawn the same without the
knowledge of BA Finance.
Atty. JS: What happened to the proceeds of the check? Deposited to
Bitangga diva? What Happened after?
Student 3: Later on maam BA Finance learned that the car was stolen
therefore it asked for the claim against Malayan Insurance. However,
Malayan said that they had already paid or released the amount as per the
insurance. So BA Finance proceeded to Metrobank to claim but again the
bank said that the check has already been withdrawn by Bitangga.
Atty. JS: So what is the issue here?
Student 3: The issue in this case maam, is whether or not Metrobank is
liable to pay BA Finance?
Atty. JS: What is the basis here for the liability of Metrobank to BA Finance?
Student 3: The basis here maam is that Metrobank as a banking institution
holds a fiduciary nature whereas that before it released the proceeds of the

check to Bitangga it should have first checked with BA Finance if Bitangga

alone had the authority to withdraw the proceeds of the check.
Atty. JS: Now what is the required diligence of a bank?
Student 3: Highest form of diligence maam.
Atty. JS: Alright, highest form of diligence because it is imbued with public
interest. So considering that the bank was not diligent in releasing the
check to Bitangga, the Bank is liable. Now, what is the relationship here
between Metrobank and BA Finance?
Student 3: It is a contract of agency maam.
Atty. JS: Why Agency?
Student 3: Because.
Atty. JS: Who is the principal and who is the agent?
Student 3: The Principal maam is BA Finance and Metrobank as the agent
because through Metrobank maam BA Finance can collect the amount of
the insured car with Malaya Insurance.
Atty. JS: So the basis of the liability here on the part of the bank is from the
fact that the bank is an agent of BA Finance. So what is the relevance here
with regard to the liability, why do we have to determine the relationship
between BA Finance and the Bank?
Student 3: For the liability on the part of the bank to exist maam there must
be trust maam between BA Finance and the bank maam to which the
bank negligently allowed to withdraw the full amount of the check, without
verifying with BA Finance if Bitangga was authorized to do so maam.
Atty. JS: Is the bank here liable for interest?
Student 3: Yes maam. 6% percent maam because it was not a loan
maam and .(inaudibe)
Atty. JS: Take note class that this case was decided in 2009. So 6% from
demand and 12% from the finality of judgment. Alright, Thank you.
SO what do we have here? In relation to negotiable instrument we have
here the concept of a cross check. A check with two parallel lines found at
the upper left corner of the check. There are three effects of such cross
check:
1.) that it was issued for a specific purpose
2.) it cannot be encashed but only be deposited to the payees account
3.) limited negotiation of the cross check.
So the liability here of the bank is it allowed the proceeds of the check to be
deposited to Bitangga even though there were two payees therein. In other
words for it to be deposited in favor of the account of Bitangga dapat
dalawa young endorsement from a rep. of BA Finance and Bitangga,
Pwede si Bitangga lang as long as he is also authorized by BA Finance

where such authority s clearly absent in this case. TAKE NOTE that the
banking business is very much imbued with public interest therefore it must
observe the highest form of diligence and highest standard of integrity and
performance. These are required of a bank to maintain the trust and
confidence of the public. Do take not that Article 1980 is NOT applicable
here because we are not taling about a bank deposit. BA Finance is not a
depositor of Metrobank and therefore their relationship cannot be
considered as that of a contract of loan but rather an agency wherein the
bank is considered a collecting bank an agent of BA Finance with the
obligation to collect from BA Finance the corresponding proceeds of the
check. And its relevance since it is an agency it is not a forbearance of
money the interest rate applicable is 6% from extrajudicial demand until
finality of the judgment and 12% from finality and payment. Again, this is
promulgated in 2009.
What Happened in the case of Reyes vs. CA?
Student 4: In the case of Reyes vs. CA, the facts are as follows, Philippine
Racing Club Inc. sent 4 delegates to Sydney, AUS for the Asian Racing
Conference. Petitioner Gregorio H. Reyes, as vice-president for finance,
racing manager, treasurer, and director of PRCI, ordered Godofredo Reyes,
the clubs chief cashier, to the respondent bank to apply for a foreign
exchange demand draft in Australian dollars. So Godofredo approached
Far East Bank and initially Far East Bank denied its application because
Reyes had no foreign acct. but after due consideration they established an
agreement wherein Far East would draw a demand draft against Westpac
Bank in Sydney which again would be reimbursed by Westpac Bank in NY.
So understanding that they had already had an agreement when
Godofredo Reyes went to Sydney he presented the demand draft but said
draft was rejected by Westpac saying that the individual does not have an
account in their bank. SO Far East contacted Westpac saying that they
were to suppose to issue the demand draft which will be reimbursed by
Westpac bank New York branch. However, despite of such notice, the
petitioner trying again to withdraw from Westpac, he was again rejected so
when they went to the Conference when Godofredo Reyes was denied
admission because apparently he had not yet paid their admission fee to
the said event. Afterwards, Consuelo Reyes, his wife, was also denied
admission but Godofredo came in to an agreement that he would just pay
the amount in cash. so ager the event, Godofredo and Consuelo Reyes
filed a case against Far East Bank for the failure of Far East to uphold the
agreement which was the demand draft with Westpac Bank Aus.

So the issue in this case maam, whether or not Far East Bank can be held
liable for negligence maam. In this case the SC held that Far East. cannot
be held liable nor negligent especially through the banks efforts, it tried its
best to make contact with Westpac. And furthermore, it was discovered that
the Westpac AUS. did not that there was indeed a demand draft by Far
East to Westpac but the same was dishonored because Westpac NY was
not able to communicate the same to AUS. So the source of the
miscommunication was not in fact Far East Bank but Westpac Bank NY
maam.
Atty. JS: What is the standard of diligence required here?
Student 4: In this case maam the general rule is that a bank s required tp
exercise extraordinary diligence but in this case since it is not wherein the
bank was supposed to act under in fiduciary capacity it does not apply in
this case maam. What applies in this case is that
Atty. JS: What kind of diligence is required under the facts of this case?]
Student 4: Diligence of a good father of family maam.
Atty. JS: Because what is the nature of the contract here between the
spouses Reyes and Far East?
Student 4: Uhm it is merely a contract of sale an not one of a deposit
maam.
Atty. JS: What is the required diligence from the bank here? Only Diligence
of a good father of a family.
As I mentioned earlier what is involved is an irregular deposit. What is
required from the bank is the highest degree of diligence because it
involves a banking transaction imbued with public interest. In this case,
what is involved is not a contract of deposit or irregular deposit but rather a
contract of sale. You pay to the bank and the bank will issue a draft and you
will have a demand draft and transmit it to in this case to Australia. The
bank exercised ordinary diligence of a good father of a family and that is
enough for them to be not held liable for damages because they need not
require the highest degree of care, only ordinary diligence under the
circumstances. Because the contractual relation between Spouses Reyes
and Far East is really that of a contract of sale. So the employees of the
bank did everything they could under the circumstances and actually the
error was not on their part but rather on the employee of West-Pac Sydney
in Australia by having made the SWIFT CODE erroneously transmitted. So
here, what is involve is a contract of sale or contract or purchase,
respondent bank is not required to exert the diligence more than that of a
good father of a family. This case does not involve of the handling of the
petitioners deposit as what is involve is that of a buyer and a seller.

Respondent Bank acted in good faith and therefore it would not be held
liable for damages.
Student 5, what happened in the case of Guingona?
Student 5: In the case of Guingona vs. City Fiscal maam, the private
respondent here maam invested with an Agency (inaudible and name ng
agency) the sum of 1,145,446.20 in nine deposits of 13,531 and amount of
$10,000 deposits among other things and that David was induced into
making the aforestated investments by Robert Marshall an Australian
national who was allegedly a close associate of petitioner Guingona Jr.,
then NSLA President. So NSLA was subsequently was placed as a
receivership of the Central Bank and David files his claims against the
Bank and along with David, his sister, However, Guingona and Martin here,
assumed the Banks obligation to David through executing a joint
promissory note in favor of David amounting to 1,336,614 and $75,000.
One promissory note executed by Guingona and Martin was based on the
statement of account issued on June 1981 prepared by respondents.
However maam, it appears of indebtedness assumed to be bigger than the
original (given?) cost with interest and with the inclusion of deposits of
private respondents sister. However, they agreed to divide the
indebtedness and Guingona executed another promissory note antedating
a certain amount in favor of private respondent and David subsequently
required from Central Bank that 5,000 of those investments be entered into
the NSLA. so David filed with the City Fiscal charging the petitioners with
Estafa and a violation of Central Bank circular 364. So the petitioners here
maam moved to dismiss the charges filed against them for lack of
jurisdiction because Davids claim allegedly complies with (inaudible).
However, the motion was dismissed by the City Fiscal. However, after the
presentation of David of his first witness for a hearing on the motion for a
prohibition and writ of mandatory injunction. However, records show that
the contractual relations between David and respondents were that of
simple loans.
The issue here maam is whether the contracts perfected here maam were
contracts of that of a simple loan? And, the SC said yes.
Atty. JS: Why would that be relevant? The determination of what kind of
contract?
Student 4: It would be relevant ma;am in order to determine the criminal
liability of guingona and martin maam.
Atty. JS: In this case if it was really a loan, what is the effect on the case of
estafa?
Student 4: If it was a loan maam, the respondents would be held liable.

Atty. JS: If it is a loan? Are you sure? What happens in a simple loan?
Student 4: Ay, if it is a loan maamay di papa maam. If it is a contract of
deposit then the petitioners here would be liable for estafa but if it is a loan
they would not be held liable because in a contract of loan the obligation is
only to return the same amount of the same kind and quality maam.
Atty. JS: What is the basis of the liability for estafa?
Student 4: The basis for the liability of estafa maam is the misappropriation
of the said amount of maam. So in this case maam since it was a contact
of simple loan and not a deposit, Guingona and Martin are not liable for
estafa.
Atty. JS: But they do have civil liability right? So what is involved here is a
simple loan or an irregular deposit. Again if what is involved is an irregular
deposit which is considered as a contract of simple loan because they earn
interests. So the relationship is one of debtor creditor, as such a failure of
one to fulfill his obligation as a debtor will only give rise to a civil liability and
not criminal liability of Estafa. Remember that in a simple loan there is a
transfer of ownership. So one can really use what he has received by virtue
of that transfer of ownership. So if youre demanding for payment, you are
not demanding for the return of what you have deposited but only the
payment of the same amount of the same kind and quality. The bank, the
debtor in this case will have its obligation but only civil in nature, there is no
estafa because there was no misappropriation where in this case the fiscal
has no jurisdiction. However in this case the bank is civilly liable but
considering that there was already novation of the contract, it is now
Guingona and Martin in their respective personal capacity which should be
held civilly liable otherwise if there is no novation the bank will be liable.
Why? Because there was a prior agreement execute by Guingona and
Martin that they will assume or answer of the obligation. So no breach of
trust, no liability for estafa, civil liability is what is present.
Student 5: What is escrow?
Student 5: Escrow maam is (inaudible na dyud siya)
Atty. JS: Can money be subject to an agreement of escrow? What
happened in the case of Province vs. Villafuerte?
Student 5: In this case maam, (inaudible siya) ill add the digest instead

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Province of Bataan vs. Villafuerte

(G.R. No. 129995, October 19, 2001)

FACTS:

In its order, the lower court directed that petitioner Province of Bataan to remit to said
court whatever lease rentals petitioner may receive from lessees 7-R Port and Marina Port
Services, and that such lease rentals be placed under a special time deposit with the Land
Bank for the account of the RTC-Balanga Branch 4, in escrow, for the person or persons,
natural or juridical, who may be adjudged lawfully entitled thereto. The order denied
herein petitioners motion for reconsideration of the 28 July, 1993 order.

Pursuant to Presidential Decree No. 464, otherwise known as the Real Property Tax Code
of 1974, the Provincial Treasurer of Bataan advertised for auction sale the BASECO
property due to real estate tax delinquency amounting to P7,914,281.72, inclusive of
penalties. At the auction sale, no bidder vied for said property as a result of which, the
Provincial Treasurer of Bataan adjudged the property to, and acquired the same for, and
in the name of herein petitioner Province of Bataan. Upon the expiration of the one-year
redemption period, and without the owner exercising its right to redeem the subject
property, the Provincial Government of Bataan consolidated its title thereon; the
corresponding certificates of title were then issued in the name of herein petitioner
Province of Bataan.

Eventually, petitioner, thru then Provincial Governor Enrique T. Garcia, entered into a
ten-year contract of lease with 7-R Port Services, Inc., whereby portions of the BASECO
property including facilities and improvements thereon, were leased to the latter for a
minimum escalating annual rental of P18 million. Petitioner forged another contract of
lease with Marina Port Services, over a ten-hectare portion of the BASECO property.
Private respondent filed for annulment of sale, principally assailing the validity of the tax
delinquency sale of the BASECO property in favor of petitioner Province of Bataan.
PCGG filed for writ of preliminary injunction to enjoin herein petitioner from entering
into a lease contract with Marina Port Services, Inc. (Marina), or any other entity, and/or
from implementing/enforcing such lease contract, if one has already been executed, and
to maintain the status quo until further orders from the Court.

The lower court denied the motion ratiocinating that the lease contract with Marina was
already afait accompli when the motion was filed, and that Marina was not a party to the
suit for not having been impleaded as party- defendant.

The PCGG filed with the lower court an Urgent Motion to Deposit Lease Rentals,
alleging inter alia that the rentals amounting to Hundreds of Millions of Pesos are in
danger of being unlawfully spent, squandered and dissipated to the great and irreparable
damage of plaintiffs who are the rightful owners of the property leased.

The lower court granted the PCGGs urgent motion and ordered the defendant Province
of Bataan to remit to the court the lease rentals it may receive from the defendant Port

Services and the Marina Port Services from the receipt of this order. It also ordered the
clerk of court to deposit the amount under special time deposit with the Land Bank in the
name or account of the Court to be held in trust for the person, natural or juridical, who
may lawfully be entitled thereto.

ISSUE: WON the deposit of rentals in escrow was proper. YES

HELD:

In the main, petitioner insists that the issuance of the escrow order by the trial court was
patently irregular, if not downright anomalous, reasoning that nowhere in the Revised
Rules of Court is the trial court, or any court for that matter, authorized to issue such
escrow order, whether as a provisional or permanent remedy. According to petitioner,
the escrow orders in question are null and void ab initio for having been issued absent
any legal basis and are merely calculated to prejudice the petitioner province without
any practical or worthwhile, much less legal objective.

The court does not agree. An escrow fills a definite niche in the body of the law; it has a
distinct legal character. The usual definition is that an escrow is a written instrument
which by its terms imports a legal obligation and which is deposited by the grantor,
promisor, or obligor, or his agent with a stranger or third party, to be kept by the
depositary until the performance of a condition or the happening of a certain event, and
then to be delivered over to the grantee, promisee, or obligee.

While originally, the doctrine of escrow applied only to deeds by way of grant, or as
otherwise stated, instruments for the conveyance of land, under modern theories of law,
the term escrow is not limited in its application to deeds, but is applied to the deposit of
any written instrument with a third person. Particular instruments which have been held
to be the subject of an escrow include bonds or covenants, deeds, mortgages, oil and gas
leases, contracts for the sale of land or for the purchase of personal property, corporate
stocks and stock subscriptions, promissory notes or other commercial paper, insurance
applications and policies, contracts for the settlement of will-contest cases, indentures of
apprenticeship, receipts assigning concessions and discontinuances and releases of causes
of action. Moreover, it is no longer open to question that money may be delivered in
escrow.

X X X the impugned orders appear to us as a fair response to the exigencies and
equities of the situation. Parenthetically, it is not disputed that even before the institution
of the case, the Province of Bataan has been utilizing the rental payments on the Baseco
Property to meet its financial requirements. To us, this circumstance adds a more
compelling dimension for the issuance of the assailed orders. X X X

Applying the foregoing principles and considering the peculiarities of the instant case, the
lower court, in the course of adjudicating and resolving the issues presented in the main
suit, is clearly empowered to control the proceedings therein through the adoption,
formulation and issuance of orders and other ancillary writs, including the authority to
place the properties in custodia legis, for the purpose of effectuating its judgment or
decree and protecting further the interests of the rightful claimants of the subject property.

To trace its source, the courts authority proceeds from its jurisdiction and power to
decide, adjudicate and resolve the issues raised in the principal suit. Stated differently, the
deposit of the rentals in escrow with the bank, in the name of the lower court,is only an
incident in the main proceeding. To be sure, placing property in litigation under judicial
possession, whether in the hands of a receiver, and administrator, or as in this case, in a
government bank is an ancient and accepted procedure. Consequently, we find no
cogency to disturb the questioned orders of the lower court and in effect uphold the
propriety of the subject escrow orders.

Atty. JS: Why was the action for an escrow here necessary?

Student 5: To avoid the misuse of the rentals maam because it was not yet
determined who was the owner of the rentals maam.

Atty. JS: So essentially escrow here can be considered a deposit diba? And
when will the amour subject to the escrow here be released?

Student 5: The amount will be released upon the finality of the judgment as
to who the real owners are or who is entitled to such rentals maam.

Atty. JS: So you have here the term escrow, a legal instrument which by its
terms imports a legal obligation and which is deposited by the grantor,
promisor, or his agent to a stranger or third party who is a bank to be kept
by the depositary until the performance of the obligation or the happening
of a certain event and then deliverd by the grantee or obligee. An escrow is
not limited in its application to things, it can be any instrument of any kind
deposited to a third person, such as bonds, contracts, commercial paper,
insurance, promissory notes and also money as in this case. In this case
the happening of the certain event is the determination by the court who
has the right over the rents. So pending the determination of who has the
rights over the said rentals the same are subject to escrow. Just take note
there that the contract is similar to a contract of deposit.

Now lets have Article 1981 and 1982.

Art. 1981. When the thing deposited is delivered closed and sealed, the
depositary must return it in the same condition, and he shall be liable for
damages should the seal or lock be broken through his fault.
Fault on the part of the depositary is presumed, unless there is proof to the
contrary.

As regards the value of the depositary is presumed, unless there is proof to

the contrary.
As regards the value of the thing deposited, the statement of the depositor
shall be accepted, when the forcible opening is imputable to the depositary,
should there be no proof to the contrary. However, the courts may pass
upon the credibility of the depositor with respect to the value claimed by
him.
When the seal or lock is broken, with or without the depositary's fault, he
shall keep the secret of the deposit. (1769a)

Article 1982. When it becomes necessary to open a locked box or

receptacle, the depositary is presumed authorized to do so, if the key has
been delivered to him; or when the instructions of the depositor as regards
the deposit cannot be executed without opening the box or receptacle. (n)

Alright, so here we have the obligation of a depositary when the thing

deposited is sealed or locked. So what are they?

1.) Return the thing deposited when delivered closed and sealed in the

same condition

2.) Must pay for damages should the seal or lock be broken through his
fault (in case it is broken there is a prima facie presumption that it is
through his fault and he has the burden of proof to prove otherwise.)
3.) To keep secret of the deposit, when the seal or lock is broken with or
without the depositarys fault. ( when the seal or lock is broken it is not
sufficient for the depositary to keep secret the deposit, by exercising the
diligence as required from a depositary he must also inform the depositor
with regard the condition of the said subject matter.)

These are the obligations of the depositary because based from trust and
confidence.

Remember ha the presumption here is that the depositary is at fault if the

seal or lock is broken. However, take note if 1982, there is a
necessity on the part of the depositor to open it if the key of the lock
was delivered to him.
Article 1983. The thing deposited shall be returned with all its
products, accessories and accessions.
Should the deposit consist of money, the provisions relative to agents
in article 1896 shall be applied to the depositary.

So again there is no transfer of ownership in a contract of deposit.

Depositor is still the owner or represent the owner of the thing deposited
because again it is not required the the depositor be the owner of the thing
deposited. Now on the part of the depositary is to return the thing itself plus
the products, the fruits along with all it accessions and accessories which
are a consequence of ownership. Also remember as we have discussed
before, depositary has no right to make use of the thing, so obligation to
deliver. If the depositary is in delay or has used the money, he will be liable
for interest as indemnity from the day which he did so and from the day of
which he still owes until the extinguishment of the contract of deposit.

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