Naguiat vs. Court of Appeals, G.R No.

118375 (2003)
Naguiat granted respondent Queañ o a loan for 200K. Naguiat indorsed to Queañ o Associated Bank Check for
95K which was earlier issued to Naguiat by the Corporate Resources Financing Corporation. She also issued
her own Filmanbank Check to the order of Queañ o for 95K. The proceeds of these checks were to constitute
the loan granted by Naguiat to Queañ o.

To secure the loan, Queañ o executed a Deed of Real Estate Mortgage in favor of Naguiat, and surrendered to
the latter the owner’s duplicates of the titles covering the mortgaged properties. On the same day, the
mortgage deed was notarized, and Queañ o issued to Naguiat a promissory note for the amount of 200K with
interest at 12% per annum, payable on 11 September 1980.
Queañ o also issued a Security Bank and Trust Company check, postdated September 11, 1980 for 200K and
payable to the order of Naguiat. Upon presentment on its maturity date, the Security Bank check was
dishonored for insufficiency of funds. The next day, Queañ o requested Security Bank to stop payment of her
postdated check, but the bank rejected the request pursuant to its policy not to honor such requests if the
check is drawn against insufficient funds.

On October 16, Queañ o received a letter from Naguiat’s lawyer, demanding settlement of the loan. Shortly
thereafter, Queañ o and one Ruebenfeldt met with Naguiat. At the meeting, Queañ o told Naguiat that she did
not receive the proceeds of the loan, adding that the checks were retained by Ruebenfeldt, who purportedly
was Naguiat’s agent. Thereafter, Naguiat applied for the extrajudicial foreclosure of the mortgage with the
Sheriff of Rizal Province, who then scheduled the foreclosure sale on 14 August 1981. Three days before the
scheduled sale, Queañ o filed the case in RTC seeking the annulment of the mortgage deed. Then RTC stopped
the auction sale.

RTC – declared the RE mortgage null and void, ordering Naguiat to return to Queañ o the owner’s duplicates
of her titles to the mortgaged lots.
CA – affirmed RTC decision.

Naguiat – questions the findings of facts made by CA especially on the issue of whether Queañ o had actually
received the loan proceeds which were supposed to be covered by the two checks Naguiat had issued or
indorsed. Naguiat claims that being a notarial instrument or public document, the mortgage deed enjoys the
presumption that the recitals therein are true. Naguiat also questions the admissibility of various
representations and pronouncements of Ruebenfeldt, invoking the rule on the non-binding effect of the
admissions of third persons.

Issue: Whether issuance of the checks resulted in the perfection of the contract? – NO.
Ruling: SC denied the petition. Loan is perfected only upon delivery.

There was absolutely no evidence submitted by Naguiat that the checks she issued or endorsed were
actually encashed or deposited. The mere issuance of the checks did not result in the perfection of the
contract of loan. CC provides that the delivery of bills of exchange and mercantile documents such as checks
shall produce the effect of payment only when they have been cashed. It is only after the checks have
produced the effect of payment that the contract of loan may be deemed perfected. Art. 1934 of the Civil
Code provides: "An accepted promise to deliver something by way of commodatum or simple loan is binding
upon the parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the
object of the contract."

A loan contract is a real contract, not consensual, and, as such, is perfected only upon the delivery of the
object of the contract.In this case, the objects of the contract are the loan proceeds which Queañ o would
enjoy only upon the encashment of the checks signed or indorsed by Naguiat. If indeed the checks were
encashed or deposited, Naguiat would have certainly presented the corresponding documentary evidence,
such as the returned checks and the pertinent bank records. Since Naguiat presented no such proof, it
follows that the checks were not encashed or credited to Queañ o’s account.

Ruebenfeldt was an authorized representative or agent of Naguiat the situation falls under a recognized
exception to the rule.22 Still, Naguiat insists that Ruebenfeldt was not her agent. Ruebenfeldt was not a
stranger or an unauthorized person. Naguiat instructed Ruebenfeldt to withhold from Queañ o the checks
she issued or indorsed to Queañ o, pending delivery by the latter of additional collateral. Ruebenfeldt served
as agent of Naguiat on the loan application of Queañ o’s friend, Marilou Farralese, and it was in connection
with that transaction that Queañ o came to know Naguiat. It was also Ruebenfeldt who accompanied Queañ o
in her meeting with Naguiat and on that occasion, on her own and without Queañ o asking for it, Reubenfeldt
actually drew a check for the sum of 220K payable to Naguiat, to cover for Queañ o’s alleged liability to
Naguiat under the loan agreement.

Agency by estoppel. As a consequence of the interaction between Naguiat and Ruebenfeldt, Queañ o got the
impression that Ruebenfeldt was the agent of Naguiat, but Naguiat did nothing tocorrect Queañ o’s
impression. In that situation, the rule is clear. One who clothes another with apparent authority as his agent,
and holds him out to the public as such, cannot be permitted to deny the authority of such person to act as
his agent, to the prejudice of innocent third parties dealing with such person in good faith, and in the honest
belief that he is what he appears to be. However, whatever was the true relationship between Naguiat and
Ruebenfeldt is irrelevant in the face of the fact that the checks issued or indorsed to Queañ o were never
encashed or deposited to her account of Naguiat.
 2008: People vs. Puig & Poitas, G.R No. 173654-765

On November 7, 2005 the Iloilo Provincial Prosecutor’s Office filed before Branch 68 of the RTC in
Dumangas, Iloilo, 112 cases of Qualified Theft against respondents Teresita Puig and Romeo Porras who
were the Cashier and Bookkeeper, respectively, of private complainant Rural Bank of Pototan, Inc.

RTC – dismissed the 112 cases. No probable cause that would have necessitated the issuance of a warrant of
arrest based on the
(1) the element of ‘taking without the consent of the owners’ was missing on the ground that it is the
depositors- clients, and not the Bank, which filed the complaint in these cases, who are the owners of the
money allegedly taken by respondents and hence, are the real parties-in-interest; and
(2) the Informations are bereft of the phrase alleging "dependence, guardianship or vigilance between
the respondents and the offended party that would have created a high degree of confidence between
them which the respondents could have abused."
Petitioner file for certiorari according to rule 45.

Petitioner – explains that under Art. 1980 of CC "fixed, savings, and current deposits of money in banks and
similar institutions shall be governed by the provisions concerning simple loans." And, Art. 1953 of CC
provides that "a person who receives a loan of money or any other fungible thing acquires the ownership
thereof, and is bound to pay to the creditor an equal amount of the same kind and quality." Thus, the
depositors who place their money with the bank are considered creditors of the bank. The bank acquires
ownership of the money deposited by its clients, making the money taken by respondents as belonging to
the bank. Petitioner also insists that the Informations sufficiently allege all the elements of the crime of
qualified theft, they specifically allege that the respondents were the Cashier and Bookkeeper of the Rural
Bank of Pototan, Inc., respectively, and that they took various amounts of money with grave abuse of
confidence, and without the knowledge and consent of the bank, to the damage and prejudice of the bank.

Issue: Whether the relationship between banks and depositors has been held to be that of creditor and
debtor? – YES.

Ruling: Reversed and set aside RTC decision. Warrant of arrest issued against respondents.
It is evident that the Information need not use the exact language of the statute in alleging the acts or
omissions complained of as constituting the offense. The test is whether it enables a person of common
understanding to know the charge against him, and the court to render judgment properly.

It is beyond doubt that tellers, Cashiers, Bookkeepers and other employees of a Bank who come into
possession of the monies deposited therein enjoy the confidence reposed in them by their employer. Banks,
on the other hand, where monies are deposited, are considered the owners thereof. This is very clear not
only from the express provisions of the law, but from established jurisprudence. The relationship between
banks and depositors has been held to be that of creditor and debtor. Art. 1953 and 1980 of CC:
Article 1953. A person who receives a loan of money or any other fungible thing acquires the ownership
thereof, and is bound to pay to the creditor an equal amount of the same kind and quality.
Article 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be
governed by the provisions concerning loan.

SC has firmly established the nature of possession by the Bank of the money deposits therein, and the duties
being performed by its employees who have custody of the money or have come into possession of it. The
Court has consistently considered the allegations in the Information that such employees acted with grave
abuse of confidence, to the damage and prejudice of the Bank, without particularly referring to it as owner of
the money deposits, as sufficient to make out a case of Qualified Theft.

Roque v. People: Since the teller occupies a position of confidence, and the bank places money in the teller’s
possession due to the confidence reposed on the teller, the felony of qualified theft would be committed.
People v. Locson: described the nature of possession by the Bank. The money in this case was in the
possession of the defendant as receiving teller of the bank, and the possession of the defendant was the
possession of the Bank. The Court held therein that when the defendant, with grave abuse of confidence,
removed the money and appropriated it to his own use without the consent of the Bank, there was taking as
contemplated in the crime of Qualified Theft.
In all of the foregoing cases, where the Informations merely alleged the positions of the respondents; that
the crime was committed with grave abuse of confidence, with intent to gain and without the knowledge and
consent of the Bank, without necessarily stating the phrase being assiduously insisted upon by respondents,
"of a relation by reason of dependence, guardianship or vigilance, between the respondents and the offended
party that has created a high degree of confidence between them, which respondents abused, and without
employing the word "owner" in lieu of the "Bank" were considered to have satisfied the test of sufficiency of
allegations.

As regards the respondents who were employed as Cashier and Bookkeeper of the Bank in this case, there is
even no reason to quibble on the allegation in the Informations that they acted with grave abuse of
confidence. In fact, the Information which alleged grave abuse of confidence by accused herein is even more
precise, as this is exactly the requirement of the law in qualifying the crime of Theft. In summary, the Bank
acquires ownership of the money deposited by its clients; and the employees of the Bank, who are
entrusted with the possession of money of the Bank due to the confidence reposed in them, occupy
positions of confidence. The Informations, therefore, sufficiently allege all the essential elements
constituting the crime of Qualified Theft.
 Equitable PCI Bank vs. Ngor, G.R No. 171545 (2007)

On October 7, 2001,respondents Ng Sheung Ngor, Ken Appliance Division, Inc. and Benjamin Go filed an
action for annulment and/or reformation of documents and contracts against petitioner Equitable PCI Bank
and its employees, Aimee Yu and Bejan Lionel Apas, in RTC. They claimed that Equitable induced them to
avail of its peso and dollar credit facilities by offering low interest rates so they accepted Equitable's
proposal and signed the bank's pre-printed promissory notes on various dates beginning 1996. They,
however, were unaware that the documents contained identical escalation clauses granting Equitable
authority to increase interest rates without their consent.

Equitable – asserted that respondents knowingly accepted all the terms and conditions contained in the
promissory notes. In fact, they continuously availed of and benefited from Equitable's credit facilities for five
years.
RTC – upheld the validity of promissory notes. Equitables. The trial court, however, invalidated the
escalation clause contained therein because it violated the principle of mutuality of contracts.

Issue: Whether the escalation clause in this case violated the mutuality of contracts? – YES.

Ruling:

SC held that scalation clauses are not void per se. However, one "which grants the creditor an
unbridled/uncontrolled right to adjust the interest independently and upwardly, completely depriving the
debtor of the right to assent to an important modification in the agreement" is void. Clauses of that nature
violate the principle of mutuality of contracts. Art. 1308 of CC holds that a contract must bind both
contracting parties; its validity or compliance cannot be left to the will of one of them. For this reason,
we have consistently held that a valid escalation clause provides:
1. that the rate of interest will only be increased if the applicable maximum rate of interest is increased by
law or by the Monetary Board
2. that the stipulated rate of interest will be reduced if the applicable maximum rate of interest is reduced by
law or by the Monetary Board (de-escalation clause).

Equitable dictated the interest rates if the term (or period for repayment) of the loan was extended.
Respondents had no choice but to accept them. This was a violation of Art. 1308. Furthermore, the assailed
escalation clause did not contain the necessary provisions for validity, that is, it neither provided that the
rate of interest would be increased only if allowed by law or the Monetary Board, nor allowed de-escalation.
For these reasons, the escalation clause was void.
 With regard to the proper rate of interest, in New Sampaguita Builders v. Philippine National Bank we held
that, because the escalation clause was annulled, the principal amount of the loan was subject to the original
or stipulated rate of interest. Upon maturity, the amount due was subject to legal interest at the rate of 12%
per annum.

Therefore, respondents should pay Equitable the interest rates of 12.66% p.a. for their dollar-denominated
loans and 20% p.a. for their peso-denominated loans from January 10, 2001 to July 9, 2001. Thereafter,
Equitable was entitled to legal interest of 12% p.a. on all amounts due.

The Promissory Notes Were Valid

A contract of adhesion is a contract whereby almost all of its provisions are drafted by one party. The
participation of the other party is limited to affixing his signature or his "adhesion" to the contract. For this
reason, contracts of adhesion are strictly construed against the party who drafted it. It is erroneous,
however, to conclude that contracts of adhesion are invalid per se. They are, on the contrary, as binding as
ordinary contracts. A party is in reality free to accept or reject it. A contract of adhesion becomes
void only when the dominant party takes advantage of the weakness of the other party, completely
depriving the latter of the opportunity to bargain on equal footing.
That was not the case here. As the trial court noted, if the terms and conditions offered by Equitable had
been truly prejudicial to respondents, they would have walked out and negotiated with another bank
at the first available instance. But they did not. Instead, they continuously availed of Equitable's
credit facilities for 5 long years.

Deposits Bank of the Philippine Islands vs. IAC (1988)

General Principles and Common Provisions
Applicable provisions: Civil Code Arts. 1316, 1962- The original parties to this case were Rizaldy T. Zshornack and the Commercial Bank and Trust Company of the Philippines (COMTRUST)
1967 Cases: which BPI absorbed through a corporate merger, and was substituted as party to the case.

Art. 1962. A deposit is constituted from the Thereafter, Zshornack filed in CFI of Rizal a complaint against COMTRUST alleging 4 causes of action. Except for the 3 rd cause of action, the
moment a person receives a thing belonging to CFI ruled in favor of Zshornack. The bank appealed to the Intermediate Appellate Court which modified the CFI decision absolving the bank
another, with the obligation of safely keeping it and from liability on the fourth cause of action.
of returning the same. If the safekeeping of the
thing delivered is not the principal purpose of the IAC – ruled in favor of Zshornack & modified the CFI judgement:
contract, there is no deposit but some other 1. Ordered COMTRUST to restore to the dollar savings account of Zshornack for $1K as of October 27, 1975 to earn interest together with
contract. the remaining balance of the said account at the rate fixed by the bank for dollar deposits.
2. Ordering COMTRUST to return to the plaintiff the amount of $3K immediately upon the finality of this decision, w/o interest since the
Art. 1963. An agreement to constitute a deposit is said amount was merely held in custody for safekeeping, but was not actually deposited with the defendant COMTRUST because being cash
binding, but the deposit itself is not perfected until currency, it cannot by law be deposited with plaintiff's dollar account and defendant's only obligation is to return the same to plaintiff upon
the delivery of the thing. (n) demand.

Art. 1964. A deposit may be constituted judicially COMTRUST/BPI – prayed in SC to be totally absolved from any liability to Zshornack.
or extrajudicially. (1759) Petitioner – further alleged in the complaint that despite demands, the bank refused to return the money.
It was established by IAC that Zshornack indeed delivered to the bank $3K for safekeeping. When he requested the return of the money,
Art. 1965. A deposit is a gratuitous contract, COMTRUST explained that the sum was disposed of in this manner: $2K was sold on December 29, 1975 and the peso proceeds amounting
except when there is an agreement to the contrary, to P14,920.00 were deposited to Zshornack's current account per deposit slip accomplished by Garcia; the remaining US$1,000. 00 was
or unless the depositary is engaged in the business sold on February 3, 1976 and the peso proceeds amounting to P8,350.00 were deposited to his current account per deposit slip also
of storing goods. (1760a) accomplished by Garcia.

Art. 1966. Only movable things may be the object COMTRUST/BPI –the $3K was credited to Zshornack's peso current account at prevailing conversion rates. COMTRUST did not deny
of a deposit. (1761) specifically under oath the authenticity and due execution of the above instrument. Aside from asserting that the US$3,000.00 was properly
credited to Zshornack's current account at prevailing conversion rates, BPI now that the contract embodied in the document is the contract
Art. 1967. An extrajudicial deposit is either of depositum (Article 1962), which banks do not enter into. The bank alleges that Garcia exceeded his powers when he entered into the
voluntary or necessary. (1762) transaction. Hence, it is claimed, the bank cannot be liable under the contract, and the obligation is purely personal to Garcia.

Issue: Whether the $3K case was actually deposited to COMTRUST? – YES.

Ruling: void, can no longer be recovered.

The cause of action was based on an actionable document. It was therefore incumbent upon the bank to specifically deny under oath the
due execution of the document, as prescribed under Rule 8, Section 8, if it desired: (1) to question the authority of Garcia to bind the
corporation; and (2) to deny its capacity to enter into such contract. o sworn answer denying the due execution of the document in
question, or questioning the authority of Garcia to bind the bank, or denying the bank's capacity to enter into the contract, was ever filed.
Hence, the bank is deemed to have admitted not only Garcia's authority, but also the bank's power, to enter into the contract in question.

The document which embodies the contract states that the US$3,000.00 was received by the bank for safekeeping. The subsequent acts of
the parties also show that the intent of the parties was really for the bank to safely keep the dollars and to return it to Zshornack at a later
time. Thus, Zshornack demanded the return of the money on May 10, 1976, or over five months later. The above arrangement is that
contract defined under Article 1962.

Note that the object of the contract between Zshornack and COMTRUST was foreign exchange. Hence, the transaction was covered by
Central Bank Circular No. 20, Restrictions on Gold and Foreign Exchange Transactions, promulgated on December 9, 1949, which was in
force at the time the parties entered into the transaction involved in this case.

The document and the subsequent acts of the parties show that they intended the bank to safekeep the foreign exchange, and return it later
to Zshornack, who alleged in his complaint that he is a Philippine resident. The parties did not intended to sell the US dollars to the Central
Bank within one business day from receipt. Otherwise, the contract of depositum would never have been entered into at all.

Since the mere safekeeping of the greenbacks, without selling them to the Central Bank within one business day from receipt, is a
transaction which is not authorized by CB Circular No. 20, it must be considered as one which falls under the general class of prohibited
transactions. Hence, pursuant to Article 5 of CC, it is void, having been executed against the provisions of a mandatory/prohibitory law.
More importantly, it affords neither of the parties a cause of action against the other. "When the nullity proceeds from the illegality of the
cause or object of the contract, and the act constitutes a criminal offense, both parties being in pari delicto, they shall have no cause of
action against each other . " [Art. 1411 of CC] The only remedy is one on behalf of the State to prosecute the parties for violating the law.
We thus rule that Zshornack cannot recover under the second cause of action.
Roman Catholic Bishop vs. De La Pena (1913)

The Roman Catholic Bishop Of Jaro, plaintiff-appellee, is the trustee of a charitable bequest made for the construction of a leper hospital
and that Father Agustin de la Peñ a was the duly authorized representative of the plaintiff to receive the legacy. Father Agustin de la Peñ a,
defendant is the administrator of the estate of Father De la Peñ a.

In the year 1898 the books of Father de la Peñ a, as trustee, showed that he had on hand as such trustee the sum of P6,641, collected by him
for the charitable purposes. In the same year he deposited in his personal account 19K in the Hongkong and Shanghai Bank at Iloilo.
Shortly thereafter and during the war of the revolution, Father dela Peñ a was arrested by the military authorities as a political prisoner, and
while thus detained, he made an order on said bank in favor of US Army officer under whose charge he then was, so for the sum thus
deposited in said bank. The arrest of Father de la Peñ a and the confiscation of the funds in the bank were the result of the claim of the
military authorities that he was an insurgent and that the funds thus deposited had been collected by him for revolutionary purposes.
The money was taken from the bank by the military authorities by virtue of such order, was confiscated and turned over to the
Government. While there is considerable dispute in the case over the question whether the P6,641 of trust funds was included in the 19K
deposited as aforesaid.

Issue: Whether Father De la Peñ a was responsible for the loss of money he deposited in Hongkong and Shanghai Bank at Iloilo? – NO.

Ruling:

SC found that the money which is the subject matter of this action was deposited by Father De la Peñ a in the Hongkong and Shanghai
Banking Corporation of Iloilo; that said money was forcibly taken from the bank by the armed forces of the United States during the war of
the insurrection; and that said Father De la Peñ a was not responsible for its loss.

The said trust funds were a part of the funds deposited and which were removed and confiscated by the military authorities of the United
States. Branch of the law know in England and America as the law of the trusts had no exact counterpart in the Roman law and is more has
none under the Spanish law.

In this jurisdiction, therefore, Father dela Peñ a's liability is determined by those portions of the Civil Code which relate to obligations (Book
4, Title 1.)
Although CC states that a "person obliged to give something is also bound to preserve it with the diligence pertaining to a good father of a
family" (art. 1094), it also provides, following the principle of the Roman law, major casus est, cui humana infirmitas resistere non potest,
that "no one shall be liable for events which could not be foreseen, or which having been foreseen were inevitable, with the exceptions of
the cases expressly mentioned in the law of those in which the obligation so declares." (Art. 1105).

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

The fact that he placed the trust fund in the bank is his personal account does not add to his responsibility. Such deposit did not make him a
debtor who must respond at all the hazards.
We do not enter into a discussion for the purpose of determining whether he acted more or less negligently by depositing the money in the
bank than he would if had left it in his home: or whether he was more or less negligent by depositing the money in his personal account
than he would have been if had deposited it in a separate account as trustee. There was no law prohibiting him from depositing it as he did
and there was no law which changed his responsibility by reason of the deposit, While it may be true that one who is under obligation to do
or give a things is in duty bound, when he sees events approaching the results of which will be dangerous to his trust, to take all reasonable
 means and measures to escape or, if unavoidable, to temper the effects of those events, we do not been constrained to hold that, in choosing
between two means equally legal, he is culpably negligent in selecting negligent in selecting one whereas he would not have been if he had
selected the other.
Art. 1972. The depositary is obliged to keep the CA Agro-Industrial Dev. Corp. vs. CA (1993)
thing safely and to return it, when required, to the Petitioner CA Agro-Industrial Development Corp. through its President, Sergio Aguirre and Sps. Ramon and Paula Pugao entered into an
depositor, or to his heirs and successors, or to the agreement whereby CA Agro Dev. purchased from the Sps. Ramon & Puago, 2 parcels of land for P350,625. Of this amount P75,725 was
person who may have been designated in the paid as downpayment while the balance was covered by 3 postdated checks. Among the terms and conditions of the agreement embodied
contract. His responsibility, with regard to the in a Memorandum of True and Actual Agreement of Sale of Land were that the titles to the lots shall be transferred to the petitioner
safekeeping and the loss of the thing, shall be upon full payment of the purchase price and that the owner's copies of the certificates of titles, shall be deposited in a safety deposit
governed by the provisions of Title I of this Book. box of any bank. The same could be withdrawn only upon the joint signatures of a representative of the petitioner and the Pugaos
upon full payment of the purchase price.
If the deposit is gratuitous, this fact shall be taken
into account in determining the degree of care that Petitioner, through Sergio Aguirre, and the Pugaos then rented Safety Deposit Box No. 1448 of private respondent Security Bank and Trust
the depositary must observe. Company, a domestic banking corporation. For this purpose, both signed a contract of lease which contains the ff:
13. The bank is not a depositary of the contents of the safe and it has neither the possession nor control of the same.
14. The bank has no interest whatsoever in said contents, except herein expressly provided, and it assumes absolutely no liability in
connection therewith.

After the execution of the contract, 2 renter's keys were given to the renters: one to Aguirre (for the petitioner) and the other to the Pugaos.
A guard key remained in the possession of the respondent Bank. The safety deposit box has 2 keyholes, one for the guard key and the other
for the renter's key, and can be opened only with the use of both keys. Petitioner claims that the certificates of title were placed inside the
said box.

Thereafter, a certain Mrs. Margarita Ramos offered to buy from the petitioner the 2 lots at a price of P225.00 per square meter which,
translates to a profit of P100.00 per square meter or a total of P280,500.00 for the entire property. Mrs. Ramos demanded the execution of
a deed of sale which entailed the production of the certificates of title. Then, Aguirre accompanied by the Pugaos, then proceeded to the
respondent Bank to open the safety deposit box and get the certificates of title. However, when opened in the presence of the Bank's
representative, the box yielded no such certificates. Because of the delay in the reconstitution of the title, Mrs. Ramos withdrew her earlier
offer to purchase the lots and as a consequence, petitioner allegedly failed to realize the expected profit of P280,500.00. Hence, petitioner
filed a complaint for damages against the respondent Bank CFI/RTC.

In its Answer with Counterclaim, respondent Bank alleged that the petitioner has no cause of action because of paragraphs 13 and 14 of the
contract of lease. Corollarily, loss of any of the items or articles contained in the box could not give rise to an action against it.

RTC – dismissed the complaint bec. under paragraphs 13 and 14 of the contract of lease, the Bank has no liability for the loss of the
certificates of title and the said provisions are binding on the parties.
CA – affirmed RTC decision and ruled that the contract executed by the petitioner and respondent Bank is in the nature of a contract of
lease by virtue of which the petitioner and its co-renter were given control over the safety deposit box and its contents while the Bank
retained no right to open the said box because it had neither the possession nor control over it and its contents.

Moreover, Art. 1975 shall not apply to contracts for the rent of safety deposit boxes. And, defendant-appellee is not under any duty to
maintain the contents of the box. The stipulation absolving the defendant-appellee from liability is in accordance with the nature of the
contract of lease and cannot be regarded as contrary to law, public order and public policy. However, that under the contract of lease of the
safety deposit box, respondent Bank is not completely free from liability as it may still be made answerable in case unauthorized persons
enter into the vault area or when the rented box is forced open.

Petitioner – filed motion for recon & maintains that regardless of nomenclature, the contract for the rent of the safety deposit box is
actually a contract of deposit governed by Title XII, Book IV of CC. It is claimed that the respondent Bank is liable for the loss of the
certificates of title pursuant to Art. 1972. And further argues that conditions 13 and 14 of the contract are contrary to law and public policy
and should be declared null and void. Cite Art. 1306 of CC which provides that parties to a contract may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public
policy.

Issue: Whether the contract between petitioner in a bank is one of deposit? – YES.

Ruling: Partially granted by deleting award for atty.’s fees.

SC determined that the contract involved was one of deposit. Since both the petitioner and the Pugaos agreed that each should have 1
renter's key, it was obvious that either of them could ask the Bank for access to the safety deposit box and, with the use of such key and the
Bank's own guard key, could open the said box, without the other renter being present.

The contract for the rent of the safety deposit box is not an ordinary contract of lease as defined in Art. 1643. However, the contract is a
special kind of deposit. It cannot be characterized as an ordinary contract of lease under Article 1643 because the full and absolute
possession and control of the safety deposit box was not given to the joint renters: the petitioner and the Pugaos. The guard key of the box
remained with the respondent Bank and without this key, neither of the renters could open the box.
On the other hand, the respondent Bank could not likewise open the box without the renter's key. In this case, the said key had a duplicate
which was made so that both renters could have access to the box.

Hence, neither could Article 1975 be applied, since the 1 st paragraph of such provision cannot apply to a depositary of certificates, bonds,
securities or instruments which earn interest if such documents are kept in a rented safety deposit box. It is clear that the depositary
cannot open the box without the renter being present. SC agree with the petitioner that under the latter, the prevailing rule is that the
relation between a bank renting out safe-deposit boxes and its customer with respect to the contents of the box is that of a bail or and
 bailee, the bailment being for hire and mutual benefit. This is just the prevailing view because the relationship in question might be more
properly characterized as that of landlord and tenant, or lessor and lessee. It has also been suggested that it should be characterized as that
of licensor and licensee. The relation between a bank, safe-deposit company, or storage company, and the renter of a safe-deposit box
therein, is often described as contractual, express or implied, oral or written, in whole or in part. But there is apparently no jurisdiction in
which any rule other than that applicable to bailments governs questions of the liability and rights of the parties in respect of loss of the
contents of safe-deposit boxes.

The primary function is still found within the parameters of a contract of deposit, i.e., the receiving in custody of funds, documents and
other valuable objects for safekeeping. The renting out of the safety deposit boxes is not independent from, but related to or in conjunction
with, this principal function. A contract of deposit may be entered into orally or in writing and, pursuant to Article 1306 of the Civil Code,
the parties thereto may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order or public policy. The depositary's responsibility for the safekeeping of the objects
deposited is governed by Title I, Book IV of CC. Thedepositary would be liable if, in performing its obligation, it is found guilty of fraud,
negligence, delay or contravention of the tenor of the agreement. In the absence of any stipulation prescribing the degree of diligence
required, that of a good father of a family is to be observed. Hence, any stipulation exempting the depositary from any liability arising from
the loss of the thing deposited on account of fraud, negligence or delay would be void for being contrary to law and public policy. The
stipulation is void contrary to law, morals, etc.
Voluntary Deposit Ortiz vs. Kayanan (1979)
Applicable provisions: Civil Code Arts. 1968-1995 The lot in controversy was formerly the subject of Homestead Application No. 122417 of Martin Dolorico II, plaintiff's ward who died on
August 20, 1931. Since then, it was plaintiff who continued the cultivation and possession of the property, without however filing any
application to acquire title thereon.

In the Homestead Application, Martin Dolorico II named his uncle, Martin Dolorico I as his heir and successor in interest. Then, in 1951
Martin Dolorico I executed an affidavit relinquishing his rights over the property in favor of defendants Quirino Comintan and
Eleuterio Zamora, his grandson and son-in-law, respectively, and requested the Director of Lands to cancel the homestead application.
Because of the affidavit, Homestead Application was cancelled and thereafter, defendants Comintan and Zamora filed their respective sales
applications Nos. 8433 and 9258.

Plaintiff filed his protest alleging that he should be given preference to purchase the lot inasmuch as he is the actual occupant and has been
in continuous possession of the same since 1931 and inspite of plaintiff's opposition of the property, it was sold at public auction wherein
defendant Comintan was the only bidder.

The investigation was conducted on plaintiff's protest by Assistant Public Lands Inspector Serapion Bauzon who submitted his report to
the Regional Land Officer, and dismissed plaintiff's claim and gave due course to defendants' sales applications on the ground that the
relinquishment of the homestead rights of Martin Dolorico I in favor of Comintan and Zamora is proper, the former having been
designated as successor in interest of the original homestead applicant and because plaintiff failed to participate in the public
auction, he is forever barred to claim the property.

Plaintiff filed a motion for reconsideration of this decision which was denied by the Director of Lands . And on appeal to the Secretary of
Agriculture and Natural Resources, the decision rendered by the Regional Land Officer was affirmed in toto.

CFI Quezon – awarded the half of the lot to Comitan and another to Zamora w/o prejudice to Ortiz.

2 years after the judgment by the court a quo, while the case was pending appeal and upon petition of private respondents Comintan and
Zamora, respondent Court appointed respondent Vicente Ferro, Clerk of Court, as Receiver to collect tolls on a portion of the property used
as a diversion road.

CA – annulled the Order appointing the Receiver.

A petition for review on certiorari of the decision of CA was denied by SC.
Private respondents – filed a petition for appointment of a new receiver with the court a quo. This petition was granted and the receiver
was reappointed.
Petitioner – sought the annulment of this Order with the Court of Appeals, but said Court ruled that its decision had already become final
and that the records of the case were to be remanded to the trial court.

Not satisfied with such denial, petitioner filed a petitioner for certiorari, prohibition and mandamus with preliminary injunction, praying
for the annulment of the Order reappointing the Receiver. Dismissed by SC due to insufficient showing of grave abuse of discretion.

However, the records further disclosed that from March 1967 to December 31, 1968, plaintiff Ortiz collected tolls on a portion of the
property in question wherein he has not introduced any improvement particularly on Lot No. 5785-A; PLS-45 awarded to defendant
Comintan, thru which vehicular traffic was detoured or diverted, and again from September 1969 to March 31, 1970, Ortiz resumed
the collection of tools on the same portion without rendering any accounting on said tolls to the Receiver, who, was reappointed
after submitting the required bond and specifically authorized only to collect tolls leaving the harvesting of the improvements to the
plaintiff.

The Court ruled allowing defendants to file a bond in such amount as this Honorable Court may fix, in lieu of the P13,632 required to be
paid to plaintiff, conditioned that after the accounting of the tools collected by plaintiff, there is still an amount due and payable to
said plaintiff, then if such amount is not paid on demand, including the legal interests, said bond shall be held answerable. Ordering further
the plaintiff to render an accounting of the tolls he collected from March of 1967 to December 31, 1968 and from September 1969 to March
31, 1970, and deliver said tolls collected to the receiver and if judgment is already executed, then to Quirino Comintan and Eleuterio
Zamora.
Finally, to condemn plaintiff to pay moral damages for withholding the tools which belong to movant in an amount this Court may deem
just in the premises.
Petitioner contends that so long as the aforesaid amount of P13,632,00 decreed in the judgment representing the expenses for clearing the
land and the value of the coconuts and fruit trees planted by him remains unpaid, he can appropriate for his exclusive benefit all the fruits
which he may derive from the property, without any obligation to apply any portion thereof to the payment of the interest and the principal
of the debt.

Issue: Whether petitioner can appropriate for his exclusive benefit all the fruits which he may derive from the property so long as
respondents failed to pay the decreed expenses? – NO.

Ruling:

A possessor in good faith is entitled to the fruits received before the possession is legally interrupted. Possession in good faith ceases or is
legally interrupted from the moment defects in the title are made known to the possessor, by extraneous evidence or by the filing of an
action in court by the true owner for the recovery of the property. Hence, all the fruits that the possessor may receive from the time he is
summoned in court, or when he answers the complaint, must be delivered and paid by him to the owner or lawful possessor.

However, even after his good faith ceases, the possessor in fact can still retain the property, pursuant to Article 546 of the New Civil Code,
until he has been fully reimbursed for all the necessary and useful expenses made by him on the property. Its object is to guarantee the
reimbursement of the expenses, such as those for the preservation of the property, or for the enhancement of its utility or productivity. It
permits the actual possessor to remain in possession while he has not been reimbursed by the person who defeated him in the possession
for those necessary expenses and useful improvements made by him on the thing possessed. The principal characteristic of the right of
retention is its accessory character. It is accessory to a principal obligation. Considering that the right of the possessor to receive the fruits
terminates when his good faith ceases, it is necessary, in order that this right to retain may be useful, to concede to the creditor the right to
secure reimbursement from the fruits of the property by utilizing its proceeds for the payment of the interest as well as the principal of the
debt while he remains in possession. This right of retention of the property by the creditor, according to Scaevola, in the light of the
provisions of Article 502 of the Spanish Civil Code, is considered not a coercive measure to oblige the debtor to pay, depriving him
temporarily of the enjoyment of the fruits of his property, but as a means of obtaining compensation for the debt.

According to Manresa, the right of retention is, analogous to that of a pledge, if the property retained is a movable, and to that of
antichresis, if the property held is immovable. This appears to be in harmony with similar provisions of the civil law which employs the
right of retention as a means or device by which a creditor is able to obtain the payment of a debt. Thus, under Article 1731 CC, any
person who has performed work upon a movable has a right to retain it by way of pledge until he is paid. Similarly, under Article 1914, the
agent may retain in pledge the things which are the object of the agency until the principal effects reimbursement of the funds advanced by
the former for the execution of the agency, or he is indemnified for all damages which he may have suffered as a consequence of the
execution of the agency, provided he is free from fault. To the same effect, the depositary, under Article 1994 of the same Code, may
retain the thing in pledge until the full payment of what may be due him by reason of the deposit. The usufructuary, pursuant to
Article 612 of the same Code, may retain the property until he is reimbursed for the amount paid for taxes levied on the capital (Article
597) and tor extraordinary repairs (Article 594).

In a pledge, if the thing pledged earns or produces fruits, income, dividends or interests, the creditor shall compensate what he receives
with those which are owing him. In the same manner, in a contract of antichresis, the creditor acquires the right to receive the fruits of an
immovable of his debtor with the obligation to apply them to payment of the interest, if owing, and thereafter to the principal of his credit.
The debtor cannot reacquire enjoyment of the immovable until he has actually paid what he owes the creditor.

Therefore, petitioner Ortiz cannot appropriate for his own exclusive benefit the tolls which he collected from the property retained by him.
It was his duty under the law, after deducting the necessary expenses for his administration, to apply such amount collected to the payment
of the interest, and the balance to the payment of the obligation. Thus, the disputed tolls, after deducting petitioner's expenses for
administration, belong to Quirino Comintan, owner of the land through which the toll road passed, further considering that the same was
on portions of the property on which petitioner had not introduced any improvement. The trial court itself clarified this matter when it
placed the toll road under receivership. The omission of any mention of the tolls in the decision itself may be attributed to the fact that the
tolls appear to have been collected after the rendition of the judgment of the trial court.

The records further reveal that earnest efforts have been made by private respondents to have the judgment executed in the most
practicable manner. They deposited in court the amount of the judgment in the sum of P13,632.00 in cash, subject only to the accounting of
the tolls collected by the petitioner so that whatever is due from him may be set off with the amount of reimbursement.

Sia vs. CA (1990)

Plaintiff rented on March 22, 1985 the Safety Deposit Box No. 54 of the defendant Security Bank and Trust Company at its Binondo Branch
located at the Fookien Times Building, Binondo, Manila wherein he placed his collection of stamps. The said safety deposit box leased by
Sia was at the bottom or at the lowest level of the safety deposit boxes of Security Bank.

During the floods that took place in 1985 and 1986, floodwater entered into the defendant bank's premises, seeped into the safety deposit
box leased by Sia and caused, according to the plaintiff, damage to his stamps collection. The defendant bank rejected the plaintiff's claim
for compensation for his damaged stamps collection, so, the plaintiff instituted an action for damages against the defendant bank.
Security Bank – denied liability for the damaged stamps collection of Sia on the basis of Par. 9 and 13 of Rules and Regulations Governing
the Lease of Safe Deposit Boxes:
9. The liability of the Bank by reason of the lease, is limited to the exercise of the diligence to prevent the opening of the safe by any
person other than the Renter, his authorized agent or legal representative
13. The Bank is not a depository of the contents of the safe and it has neither the possession nor the control of the same. The Bank has
no interest whatsoever in said contents, except as herein provided, and it assumes absolutely no liability in connection therewith.
Moreover, the bank also contended that its contract with the plaintiff over safety deposit box No. 54 was one of lease and not of deposit
and, therefore, governed by the lease agreement which should be the applicable law. And the destruction of the plaintiff's stamps collection
was due to a calamity beyond obligation on its part to notify the plaintiff about the floodwaters that inundated its premises at
Binondo branch which allegedly seeped into the safety deposit box leased to the plaintiff.

RTC – ruled in favor of Sia. Conducted ocular inspection and found Both albums are wet, moldy and badly damaged.

Security Bank filed an appeal. And contends that RTC erred in holding that the lease agreement is a contract of adhesion; (b) finding
that the defendant had failed to exercise the required diligence expected of a bank in maintaining the safety deposit box etc.

CA – reversed RTC decision and absolving SBTC from liability.

a) the fine print in the "Lease Agreement " constitutes the terms and conditions of the contract of lease which Sia had voluntarily and
knowingly executed with SBTC
b) the contract entered into by the parties regarding Safe Deposit Box No. 54 was not a contract of deposit wherein the bank became a
depositary of the subject stamp collection. As contended by SBTC, the provisions of Book IV, Title XII of the Civil Code on deposits do not
apply;
c) The following provisions of the questioned lease agreement of the safety deposit box limiting SBTC's liability is Par. 9 and 13.
d) No concrete evidence to show that SBTC failed to exercise the required diligence. What was proven was that the floods were beyond the
control of SBTC, caused the damage to the stamp collection. The floods were fortuitous events which SBTC should not be held liable for
since it was not shown to have participated in the aggravation of the damage to the stamp collection. SBTC offered its services to secure the
assistance of an expert in order to save most of the stamps, but the appellee refused; appellee must then bear the lose under the principle
of "res perit domino." Bank is guarded 24hrs/day.
Petitioner Sia – argued that SBTC failed to exercise the required diligence expected of a bank maintaining such safety deposit box and the
bank is guarded 24hrs.day so it is safe to conclude that it was also aware of the inundation of the premises where the safety deposit box
was located; despite such knowledge, however, it never bothered to inform the petitioner of the flooding or take any appropriate measures
to insure the safety and good maintenance of the safety deposit box in question.

Issue: Whether the contract between Sia and SBTC is one of lease? – NO. special kind of deposit.

Ruling:

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

Both conditions No. 9 and No. 13 of the "Lease Agreement" covering the safety deposit box in question must be stricken down for being
contrary to law and public policy as they are meant to exempt SBTC from any liability for damage, loss or destruction of the contents of the
safety deposit box which may arise from its own or its agents' fraud, negligence or delay. Accordingly, SBTC cannot take refuge under the
said conditions.

The argument about fortuitous event was also dismissed by SC because the public respondent failed to consider that SBTC was guilty of
negligence. SBTC's negligence aggravated the injury or damage to the stamp collection. SBTC was aware of the floods of 1985 and 1986, it
also knew that the floodwaters inundated the room where Safe Deposit Box No. 54 was located. Thus, it should have immediatly notify the
petitioner in order that the box could have been opened to retrieve the stamps, thus saving the same from further deterioration and loss. In
this respect, it failed to exercise the reasonable care and prudence expected of a good father of a family, thereby becoming a party to the
aggravation of the injury or loss. Accordingly, the aforementioned fourth characteristic of a fortuitous event is absent Article 1170 of the
Civil Code.

Therefore, the destruction or loss of the stamp collection which was the product of 27yrs of patience and diligence caused Sia pecuniary
loss; hence, he must be compensated. No moral damages – contract.
Chan vs. Maceda (2003)

Respondent Maceda, Jr., obtained a P7.3 M loan from the Development Bank of the Philippines for the construction of his New Gran Hotel
Project in Tacloban City. Thereafter, he entered into a building construction contract with Moreman Builders Co., Inc. They agreed that the
construction would be finished not later than December 22, 1977.

Respondent purchased various construction materials and equipment in Manila. Moreman, in turn, deposited them in the warehouse of
Wilson and Lily Chan, herein petitioners. The deposit was free of charge. Unfortunately, Moreman failed to finish the construction of the
hotel at the stipulated time. Hence, on February 1, 1978, Maceda filed with then CFI now RTC Manila, an action for rescission and damages
against Moreman. CFI – rendered decision rescinding the contract between Moreman and Maceda. Moreman interposed an appeal CAbut
the same was dismissed being dilatory. The elevate to SC.

Meanwhile, during the pendency of the case, Maceda ordered petitioners Chan to return to him the construction materials and
equipment which Moreman deposited in their warehouse. However, Petitioners told them that Moreman withdrew those
construction materials in 1977. So respondent filed an action for damages with an application for a writ of preliminary attachment
against petitioners Chan.

After almost 4 years, trial court dismissed respondent's complaint for his failure to prosecute and for lack of interest. Then, after 5yrs.
respondent filed a motion for reconsideration, but the same was denied because of the failure of respondent and his counsel to appear on
the scheduled hearing. So, respondent filed a 2nd motion for reconsideration. This time, the motion was granted and the case was ordered
reinstated or 10 yrs. from the time the action was originally filed.
On March 2, 1995, counsel for petitioners filed a motion to dismiss on several grounds. Respondent, on the other hand, moved to declare
petitioners in default on the ground that their motion to dismiss was filed out of time and that it did not contain any notice of hearing. RTC
issued an order declaring petitioners in default. This was affirmed by CA.

Then, respondent present his witnesses, Leonardo Conge, Alfredo Maceda and Engr. Damiano Nadera in MTC Tacloban. Deponent
Leonardo, a labor contractor, testified that he was contracted by petitioner Lily Chan to get bags of cement and steel bars from the New
Gran Hotel construction site and to store the same into the latter's warehouse in Tacloban City. Deponent Alfredo Maceda testified that he
was respondent's Disbursement and Payroll Officer who supervised the construction and kept inventory of the properties of the New Gran
Hotel. While conducting the inventory on November 23, 1977, he found that the approximate total value of the materials stored in
petitioners' warehouse was P214,310. This Deponent Damiano Nadera testified on the current cost of the architectural and structural
requirements needed to complete the construction of the New Gran Hotel.

RTC & CA – ordered the Chan’s to jointly pay Maceda.

Maceda’s Comment – petitioners, as depositaries under the law, have both the fiduciary and extraordinary obligations not only to safely
keep the construction material deposited, but also to return
them with all their products, accessories and accessions. Considering that petitioners' duty to return the construction materials in question
has already become impossible, it is only proper that the prices of those construction materials in 1996 should be the basis of the award of
actual damages. This is the only way to fulfill the "duty to return" contemplated in the applicable laws. And, petitioners must bear the
increase in market prices from 1977 to 1996 because liability for fraud includes "all damages which may be reasonably attributed to the
non-performance of the obligation." Lastly, there can be no double recovery because in the other case, the parties were respondent himself
and Moreman and the cause of action was the rescission of their building contract. In the present case, the parties are respondent and
petitioners and the cause of action between them is for recovery of damages arising from petitioners' failure to return the construction
materials and equipment.

Issue: Whether respondent Maceda should be compensated for the deposited properties? – NO.

Ruling: Granted the petition. Reversed and set aside CA ruling.

Even without such serious procedural flaw, the case should also be dismissed for utter lack of merit.

Respondent's claim for damages is based on petitioners' failure to return or to release to him the construction materials and equipment
deposited by Moreman to their warehouse. Hence, the essential issues to be resolved are:
(1) Has respondent presented proof that the construction materials and equipment were actually in petitioners' warehouse when he asked
that the same be turned over to him?
 (2) If so, does respondent have the right to demand the release of the said materials and equipment or claim for damages?

Under Article 1311 of CC, contracts are binding upon the parties (and their assigns and heirs) who execute them. When there is no privity
of contract, there is likewise no obligation or liability to speak about and thus no cause of action arises. Specifically, in an action against
the depositary, the burden is on the plaintiff to prove the bailment or deposit and the performance of conditions precedent to the
right of action. A depositary is obliged to return the thing to the depositor, or to his heirs or successors, or to the person who may
have been designated in the contract.

In the present case, the record is bereft of any contract of deposit, oral or written, between petitioners and respondent. The contract was
only between petitioners and Moreman. It is still incumbent upon respondent to prove its existence and that it was executed in his favor.
However, respondent miserably failed to do so. The only pieces of evidence respondent presented to prove the contract of deposit
were the delivery receipts. Significantly, they are unsigned and not duly received or authenticated by either Moreman, petitioners or
respondent or any of their authorized representatives. Hence, those delivery receipts have no probative value at all. While our laws grant a
person the remedial right to prosecute or institute a civil action against another for the enforcement or protection of a right, or the
prevention or redress of a wrong, every cause of action ex-contractu must be founded upon a contract, oral or written, express or implied.

Moreover, respondent also failed to prove that there were construction materials and equipment in petitioners' warehouse at the time he
made a demand for their return. Considering that respondent failed to prove (1) the existence of any contract of deposit between him and
petitioners, nor between the latter and Moreman in his favor, and (2) that there were construction materials in petitioners' warehouse at
the time of respondent's demand to return the same. Then, petitioners have no corresponding obligation or liability to respondent with
respect to those construction materials.

Since there was no contract of deposit between petitioners and respondent or Moreman and that there were no more construction
materials or equipment in petitioners' warehouse when respondent made a demand for their return, we hold that he has no right
whatsoever to claim for damages.
Necessary Deposit Durban Apartments vs. Pioneer Insurance (2011)
Applicable Provisions: Civil Code Arts. 1754, 1996-
2004, 2168 On July 22, 2003, respondent Pioneer Insurance and Surety Corporation, by right of subrogation, filed a Complaint for Recovery of Damages
against petitioner Durban Apartments Corporation, dba City Garden Hotel, and defendant Vicente Justimbaste.

Respondent averred that it is the insurer for loss and damage of Jeffrey S. See’s insured 2001 Suzuki Grand Vitara for 1.175M. Then, on
April 30, 2002, See arrived and checked in at the City Garden Hotel in Makati before midnight, and its parking attendant, defendant
Justimbaste got the key to said Vitara from See to park it. Then around 1am, 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 12-1am. See went to see the Hotel CSO and reported the incident to the Operations
Division of the Makati City Police Anti-Carnapping Unit, and a flash alarm was issued. An investigation was conducted but the Vitara has not
yet been recovered since July 23, 2002 as evidenced by a Certification of Non- Recovery issued by the PNP TMG.

Petitioner paid the ₱1,163,250 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 2nd time that a similar incident of carnapping happened in the valet parking service of Durban Apartments
and no necessary precautions were taken to prevent its repetition. Durban Apartments was wanting in due diligence in the selection and
supervision of its employees particularly Justimbaste and they failed and refused to pay its valid, just, and lawful claim despite written
demands.

Durban – argued that See did not check in at its hotel, he was a guest of a certain Ching Montero. And defendant Justimbaste did not get the
ignition key of See’s Vitara, on the contrary, it was See who requested a parking attendant to park the Vitara at any available parking space,
and it was parked at the Equitable Bank parking area, which was within See’s view, while he and Montero were waiting in front of the hotel.
They made a written denial of the demand of 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 and it does not include responsibility for any losses or damages to motor vehicles and
its accessories in the parking area. The same holds true even if it was See himself who parked his Vitara within the premises of the hotel as
evidenced by the valet parking customer’s claim stub issued to him. 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. Justimbaste saw the Vitara speeding away
from the place where it was parked and he tried to run after it, and blocked its possible path but to no avail. Also, See was duly and
immediately informed of the carnapping of his Vitara and the matter was reported to the nearest police precinct in which Justimbaste and
Horlador submitted themselves to police investigation.

Ferdinand Cacnio testified that – respondent Pioneer Insurance assigned to Vesper the investigation of See’s case. 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. And 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 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. Moreover, he 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.

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, he learned that See’s Vitara has not yet been recovered. Upon evaluation, Vesper recommended to
respondent Pioneer Insurance to settle See’s claim for ₱1,045,750; 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 8 months prior to its loss and
[respondent] Pioneer Insurance acceded to See’s contention, tendered the sum of ₱1,163,250.00 as settlement, the former accepted it, and
signed a release of claim and subrogation receipt.

RTC – ruled in favor of Pioneer Insurance and order to pay 1.163M

CA – affirmed RTC ruling as it holds Durban Apartments Corporation solely liable to respondent Pioneer Insurance and Surety Corporation
for the loss of Jeffrey See’s Suzuki Grand Vitara.

Issue: Whether petitioner is liable to respondent for the loss of See’s vehicle deposited to it? – YES.

Ruling:

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 ex-parte. Likewise, the lower courts did not err in holding petitioner liable for the loss of See’s vehicle.

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. They failed to file a pre-trial brief. 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.
Respondent substantiated the allegations that it is a contract of necessary deposit existed between the insured See and petitioner.

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

Article 1962, in relation to Article 1998, of the Civil Code defines a contract of deposit and a necessary deposit made by persons in
hotels or inns:
Art. 1962. A deposit is constituted from the moment a person receives a thing belonging to another, with the obligation of safely keeping it
and returning the same. If the safekeeping of the thing delivered is not the principal purpose of the contract, there is no deposit but some
other contract.

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

Thus, the insured See deposited his vehicle for safekeeping with petitioner, through its employee, Justimbaste. In turn, Justimbaste issued a
claim stub to See. Thus, the contract of deposit was perfected from See’s delivery, when he handed over to Justimbaste the keys to
his vehicle, which Justimbaste received with the obligation of safely keeping and returning it. Ultimately, petitioner is liable for the loss of
See’s vehicle.
Triple-V vs. Filipino Merchants Insurance Corp. (2005)

Around 2:15pm, a certain Mary Jo-Anne De Asis dined at herein petitioner’s (Triple-V) Kamayan Restaurant at Quezon City. De Asis was
using a Mitsubishi Galant Super Saloon Model 1995 with plate, assigned to her by her employer Crispa Textile. De Asis availed of the valet
parking service of Triple-V and entrusted her car key to its valet counter. A corresponding parking ticket was issued as receipt for the car.

The car was park by Madridano, employee of petitioner at the designated parking area. Few minutes later, Madridano noticed that the car
was not in its parking slot and its key no longer in the box where valet attendants usually keep the keys of cars entrusted to them. The car
was never recovered.

Thereafter, Crispa filed a claim against its insurer, herein respondent Filipino Merchants Insurance Company, Inc. (FMICI). FMICI
indemnified Crispa for 669K for the loss of the subject vehicle. Then, FMICI, as subrogee to Crispa's rights, filed with the RTC at Makati City
an action for damages against petitioner Triple-V Food Services.

Triple-V – argued that the complaint failed to aver facts to support the allegations of recklessness and negligence committed in the
safekeeping and custody of the subject vehicle, claiming that it and its employees wasted no time in ascertaining the loss of the car and in
informing De Asis of the discovery of the loss. Petitioner further argued that in accepting the complimentary valet parking service, De Asis
received a parking ticket provided that management and staff will not be responsible for any loss of or damage incurred on the vehicle nor
of valuables contained therein. Moreover, De Asis knowingly assumed the risk of loss when she allowed petitioner to park her vehicle,
adding that its valet parking service did not include extending a contract of insurance or warranty for the loss of the vehicle. TripleV also
challenged FMICI's subrogation to Crispa's right to file a claim for the loss of the car, arguing that theft is not a risk insured against under
FMICI's Insurance Policy.

RTC – ruled in favor of the plaintiff.

CA – dismissed appeal of Triple V.

Petitioner – further argued that it was not a depositary of the subject car and that it exercised due diligence and prudence in the safe
keeping of the vehicle, in handling the car-napping incident and in the supervision of its employees. It further argued that there was no
valid subrogation of rights between Crispa and respondent FMICI.
 Issue: Whether Triple V was a depositary of the subject car? – YES.

Ruling:
When De Asis entrusted the car in question to petitioner's valet attendant while eating at petitioner's Kamayan Restaurant, the former
expected the car's safe return at the end of her meal. Thus, petitioner was constituted as a depositary of the same car. Petitioner cannot
evade liability by arguing that neither a contract of deposit nor that of insurance, guaranty or surety for the loss of the car was constituted
when De Asis availed of its free valet parking service.
In a contract of deposit, a person receives an object belonging to another with the obligation of safely keeping it and returning the same. A
deposit may be constituted even without any consideration. It is not necessary that the depositary receives a fee before it becomes
obligated to keep the item entrusted for safekeeping and to return it later to the depositor.

The parking claim stub embodying the terms and conditions of the parking, including that of relieving petitioner from any loss or damage
to the car, is essentially a contract of adhesion, drafted and prepared as it is by the petitioner alone with no participation whatsoever on the
part of the customers, like De Asis, who merely adheres to the printed stipulations therein appearing. While contracts of adhesion are not
void in themselves, yet this Court will not hesitate to rule out blind adherence thereto if they prove to be one-sided under the attendant
facts and circumstances.

Petitioner must not be allowed to use its parking claim stub's exclusionary stipulation as a shield from any responsibility for any loss or
damage to vehicles or to the valuables contained therein. It is evident that De Asis deposited the car in question with the petitioner as part
of the tatter's enticement for customers by providing them a safe parking space within the vicinity of its restaurant. A safe parking space is
an added attraction to petitioner's restaurant business because customers are thereby somehow assured that their vehicle are safely kept,
rather than parking them elsewhere at their own risk. Having entrusted the subject car to petitioner's valet attendant, customer De Asis,
like all of petitioner's customers, fully expects the security of her car while at petitioner's premises/designated parking areas and its safe
return at the end of her visit at petitioner's restaurant.

Subrogation of Rights – FMCI indemnified CRISPA for the stolen car, FMICI, thus it was proper subrogated to Crispa's rights against
petitioner, pursuant to Article 2207 of the New Civil Code.

5. Interest and Charges: Legal 2009: Siga-an vs. Villanueva, G.R. No. 173227 Respondent claimed that the application of Art.
Perspectives and Cases 1956 of CC should not be absolute, and an
Respondent Alicia Villanueva, a businesswoman engaged in supplying office materials and equipments to the exception to the application of such provision
a. Applicable provisions: Civil Code Arts. Philippine Navy Office (PNO) claimed that sometime in 1992, petitioner Siga-an approached her inside the should be made when the borrower admits that
1226, 1253, 1306, 1956-1961, 2209, PNO and offered to loan her 540K. Since she needed capital for her business transactions with the PNO, she a specific rate of interest was agreed upon as in
2210, 2212, 2213, 2226, 2227; RA 8183. accepted petitioner’s proposal. The loan agreement was not reduced in writing. Also, there was no the present case; and that it would be unfair to
stipulation as to the payment of interest for the loan. allow respondent to pay only the loan when the
latter very well knew and even admitted in the
On 31 August 1993, Villanueva issued a check of 500K to petitioner as partial payment of the loan. On 31 BP 22 cases that there was an agreed 7% rate of
October 1993, she issued another check for 200K to petitioner as payment of the remaining balance of the interest on the loan.
loan. Siga-an told her that since she paid 700K for 540K worth of loan, the excess amount of 160K would be
applied as interest for the loan. Not satisfied with the amount applied as interest, Siga-an pestered her to pay We held in Eastern Shipping Lines, Inc. v. Court
additional interest. Petitioner threatened to block or disapprove her transactions with the PNO if she would of Appeals, that when an obligation, not
not comply with his demand. As all her transactions with the PNO were subject to the approval of petitioner constituting a loan or forbearance of money is
as comptroller of the PNO, she paid additional amounts in cash and checks as interests for the loan. She breached, an interest on the amount of damages
asked Siga-an for receipt for the payments but he told her that it was not necessary as there was mutual awarded may be imposed at the rate of 6% per
trust and confidence between them. The total amount she paid to petitioner for the loan and interest annum. Awarding a sum of money becomes final
accumulated to 1.2M. and executory, the rate of legal interest, whether
it is a loan/forbearance of money or not, shall
Thereafter, Villanueva consulted a lawyer regarding the propriety of paying interest on the loan despite be 12% per annum from such finality until its
absence of agreement to that effect. Her lawyer told her that petitioner could not validly collect interest on satisfaction, this interim period being deemed
the loan because there was no agreement between her and petitioner regarding payment of interest. Upon equivalent to a forbearance of credit.
being advised by her lawyer that she made overpayment to petitioner, she sent a demand letter to petitioner In the present case, petitioner’s obligation arose
asking for the return of the excess amount of 660K. Petitioner, despite receipt of the demand letter, ignored from a quasi-contract of solutio indebiti and not
her claim for reimbursement. from a loan or forbearance of money. Thus, an
interest of 6% per annum should be imposed on
Petitioner –denied that he offered a loan to respondent. He averred that in 1992, respondent approached the amount to be refunded as well as on the
and asked him if he could grant her a loan, as she needed money to finance her business venture with the damages awarded and on the attorney’s fees, to
PNO. At first, he was reluctant to deal with respondent, because the latter had a spotty record as a supplier be computed from the time of the extra-judicial
of the PNO. However, since respondent was an acquaintance of his officemate, he agreed to grant her a demand on 3 March 1998, up to the finality of
loan. Respondent paid the loan in full. this Decision. In addition, the interest shall
Subsequently, respondent again asked him to give her a loan. As respondent had been able to pay the become 12% per annum from the finality of this
previous loan in full, he agreed to grant her another loan. Later, respondent requested him to restructure the Decision up to its satisfaction.
payment of the loan because she could not give full payment on the due date. He acceded to her request.
Thereafter, respondent pleaded for another restructuring of the payment of the loan. This time he rejected
her plea. Thus, respondent proposed to execute a promissory note wherein she would acknowledge her
obligation to him, inclusive of interest, and that she would issue several postdated checks to guarantee the
payment of her obligation.

RTC – ordered petitioner to pay Villanueva the 660K, legal interest, moral, exemplary damages ad attorney’s
fees. Respondent made an overpayment of her loan obligation to petitioner and that the latter should refund
the excess amount to the former. Respondent’s obligation was only to pay the loaned amount of 540K and
that the alleged interests due should not be included in the computation of respondent’s total monetary debt
because there was no agreement between them regarding payment of interest. Since respondent made an
excess payment to petitioner in the amount of 660K through mistake, petitioner should return the said
amount to respondent pursuant to the principle of solutio indebiti.
CA – affirmed RTC ruling.

Issue: Whether the principle of solution indebiti applies in this case? – YES.
Whether petitioner can claim the monetary interest? – NO. not stipulated. (2212 is compensatory)

Ruling: Petitioner is not entitled to payment of interest and that the principle of solutio indebiti applies
Interest is a compensation fixed by the parties for the use or forbearance of money. This is referred to as
monetary interest. Interest may also be imposed by law or by courts as penalty or indemnity for damages.
This is called compensatory interest. The right to interest arises only by virtue of a contract or by virtue of
damages for delay or failure to pay the principal loan on which interest is demanded.

Article 1956 of CC, which refers to monetary interest, specifically mandates that no interest shall be due
unless it has been expressly stipulated in writing. As can be gleaned from the foregoing provision, payment
of monetary interest is allowed only if:
(1) there was an express stipulation for the payment of interest
(2) the agreement for the payment of interest was reduced in writing.
The concurrence of the two conditions is required for the payment of monetary interest. Thus, we have held
that collection of interest without any stipulation therefor in writing is prohibited by law.

It appears that petitioner and respondent did not agree on the payment of interest for the loan. Neither was
there convincing proof of written agreement between the two regarding the payment of interest.
Respondent testified that although she accepted petitioner’s offer of loan amounting to 540K there was,
nonetheless, no verbal or written agreement for her to pay interest on the loan.

RTC did not make a ruling therein that petitioner and respondent agreed on the payment of interest at the
rate of 7% for the loan. The RTC clearly stated that although petitioner and respondent entered into a valid
oral contract of loan of 540K they, never intended the payment of interest. While the Court of Appeals
mentioned in its Decision that it concurred in the RTC’s ruling that petitioner and respondent agreed on a
certain rate of interest as regards the loan, we consider this as merely an inadvertence because, as earlier
elucidated, both the RTC and the Court of Appeals ruled that petitioner is not entitled to the payment
of interest on the loan. M onetary interest is due only if there was an express stipulation in writing
for the payment of interest.

There are instances in which an interest may be imposed even in the absence of express stipulation, verbal
or written, regarding payment of interest. Art. 2209 states that if the obligation consists in the payment of a
sum of money, and the debtor incurs delay, a legal interest of 12% per annum may be imposed as indemnity
for damages if no stipulation on the payment of interest was agreed upon. Likewise, Art. 2212 provides that
interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be
silent on this point. Thus, the interest under these two instances may be imposed only as a penalty or
damages for breach of contractual obligations. It cannot be charged as a compensation for the use or
forbearance of money. In other words, the two instances apply only to compensatory interest and not to
monetary interest. The case at bar involves petitioner’s claim for monetary interest.

Further, said compensatory interest is not chargeable in the instant case because it was not duly proven that
respondent defaulted in paying the loan. Also, as earlier found, no interest was due on the loan because there
was no written agreement as regards payment of interest.

Moreover, petitioner argues that the principle of solutio indebiti does not apply to the instant case. Thus, he
cannot be compelled to return the alleged excess amount paid by respondent as interest. Under Art. 1960, if
the borrower of loan pays interest when there has been no stipulation therefor, the provisions of the Civil
Code concerning solutio indebiti shall be applied. Art. 2154 explains the principle of solutio indebiti. Said
provision provides that if something is received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises. In such a case, a creditor-debtor
relationship is created under a quasi-contract whereby the payor becomes the creditor who then has the
right to demand the return of payment made by mistake, and the person who has no right to receive such
payment becomes obligated to return the same.

The quasi-contract of solutio indebiti harks back to the ancient principle that no one shall enrich himself
unjustly at the expense of another. The principle of solutio indebiti applies where:
(1) a payment is made when there exists no binding relation between the payor, who has no duty to pay, and
the person who received the payment
(2) the payment is made through mistake, and not through liberality or some other cause.

We have held that the principle of solutio indebiti applies in case of erroneous payment of undue interest. It
was duly established that respondent paid interest to petitioner. Respondent was under no duty to make
such payment because there was no express stipulation in writing to that effect. There was no binding
relation between petitioner and respondent as regards the payment of interest. The payment was clearly a
mistake. Since petitioner received something when there was no right to demand it, he has an
obligation to return it.

SC: Petitioner is not entitled to payment of interest and that the principle of solutio indebiti applies to the
instant case, petitioner should return to respondent the excess amount of ₱160,000.00 and ₱175,000.00 or
the total amount of ₱335,000.00. Accordingly, the reimbursable amount to respondent fixed by the RTC and
the Court of Appeals should be reduced from ₱660,000.00 to ₱335,000.00.
2002: Ligutan vs. Court of Appeals, G.R No. 138677

Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained a loan of 120K from respondent Security
Bank and Trust Company. Petitioners executed a promissory note binding themselves, jointly and severally,
to pay the sum borrowed with an interest of 15.189% per annum upon maturity and to pay a penalty of 5%
every month on the outstanding principal and interest in case of default. In addition, petitioners agreed to
pay 10% of the total amount due by way of attorney’s fees if the matter were indorsed to a lawyer for
collection or if a suit were instituted to enforce payment. The obligation matured on 8 September 1981; the
bank, however, granted an extension but only up until December , 291981.

Despite several demands from the bank, petitioners failed to settle the debt which, as of May 20, 1982 for
P114,416.10. On September 30, 1982 the bank sent a final demand letter to petitioners informing them that
they had 5 days within which to make full payment. Since petitioners still defaulted on their obligation, the
bank filed a complaint for recovery of the due amount.

RTC – ordered petitioners to pay jointly and severally the respondents. The Court imposed the 2% service
charge, the 5% per month penalty charge and 10% attorney's fees.
CA – affirmed RTC ruling but not the 2% service charge. The interest must commence not on the date of
filing of the complaint as we have previously held in our decision but on the date when the obligation
became due.
Default generally begins from the moment the creditor demands the performance of the obligation. However,
demand is not necessary to render the obligor in default when the obligation or the law so provides.

Petitioners prayed for the reduction of the 5% stipulated penalty for being unconscionable. The bank, asked
that the payment of interest and penalty be commenced not from the date of filing of complaint but from the
time of default as so stipulated in the contract of the parties.

Issue: Whether the interest agreed by the parties reasonable an iniquitous? – YES.
Penalty of 5% reduced to 3%.

Ruling:
The question of whether a penalty is reasonable or iniquitous can be partly subjective and partly objective.
Its resolution would depend on such factors as, but not necessarily confined to, the type, extent and purpose
of the penalty, the nature of the obligation, the mode of breach and its consequences, the supervening
realities, the standing and relationship of the parties, and the like, the application of which, by and large, is
addressed to the sound discretion of the court.
CA, exercising its good judgment in the instant case, has reduced the penalty interest from 5% a month to
3% a month which petitioner still disputes. Given the circumstances, not to mention the repeated acts of
breach by petitioners of their contractual obligation, the Court sees no cogent ground to modify the ruling of
the appellate court.

The stipulated interest of 15.189% per annum, on its face, does not appear as being that excessive. The
essence or rationale for the payment of interest, quite often referred to as cost of money, is not exactly the
same as that of a surcharge or a penalty. A penalty stipulation is not necessarily preclusive of interest, if
there is an agreement to that effect, the two being distinct concepts which may separately be demanded.

What may justify a court in not allowing the creditor to impose full surcharges and penalties, despite an
express stipulation therefor in a valid agreement, may not equally justify the non-payment or reduction of
interest. Indeed, the interest prescribed in loan financing arrangements is a fundamental part of the banking
business and the core of a bank's existence.

Petitioners next assail the award of 10% of the total amount of indebtedness by way of attorney's fees for
being grossly excessive, exorbitant and unconscionable vis-a-vis the time spent and the extent of services
rendered by counsel for the bank and the nature of the case. Bearing in mind that the rate of attorney’s fees
has been agreed to by the parties and intended to answer not only for litigation expenses but also for
collection efforts as well, the Court, like the appellate court, deems the award of 10% attorney’s fees to be
reasonable.

At any rate, the subsequent execution of the real estate mortgage as security for the existing loan would not
have resulted in the extinguishment of the original contract of loan because of novation. Petitioners
acknowledge that the real estate mortgage contract does not contain any express stipulation by the parties
intending it to supersede the existing loan agreement between the petitioners and the bank. Respondent
bank has correctly postulated that the mortgage is but an accessory contract to secure the loan in the
promissory note.
An obligation to pay a sum of money is not extinctively novated by a new instrument which merely changes
the terms of payment or adding compatible covenants or where the old contract is merely supplemented by
the new one.24 When not expressed, incompatibility is required so as to ensure that the parties have indeed
intended such novation despite their failure to express it in categorical terms.
1994: Eastern Shipping Lines vs. Court of Appeals, G.R. No. 97412 Under Art. 1737 of the New Civil Code, the
common carrier's duty to observe extraordinary
This is an action against defendants shipping company, arrastre operator and broker-forwarder for damages diligence in the vigilance of goods remains in
sustained by a shipment while in defendants' custody, filed by the insurer-subrogee who paid the consignee full force and effect even if the goods are
the value of such losses/damages. temporarily unloaded and stored in transit in
the warehouse of the carrier at the place of
On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel destination, until the consignee has been
"SS EASTERN COMET" owned by defendant Eastern Shipping Lines under Bill of Lading No. YMA-8. The advised and has had reasonable opportunity to
shipment was insured under plaintiff's Marine Insurance Policy. Upon arrival of the shipment in Manila on, it remove or dispose of the goods.
was discharged unto the custody of defendant Metro Port Service, Inc. The latter excepted to one drum, said
to be in bad order, which damage was unknown to plaintiff.
Art. 2209. — If the obligation consists in the
Then, defendant Allied Brokerage Corporation received the shipment from Metro Port Service, Inc., one payment of a sum of money, and the debtor
drum opened and without seal (per "Request for Bad Order Survey."). Allied Brokerage Corporation made incurs in delay, the indemnity for damages,
deliveries of the shipment to the consignee's warehouse. The latter excepted to one drum which contained there being no stipulation to the contrary, shall
spillages, while the rest of the contents was adulterated/fake. Plaintiff contended that due to the be the payment of interest agreed upon, and in
losses/damage sustained by said drum, the consignee suffered losses due to the fault and negligence of the absence of stipulation, the legal interest
defendants. Claims were presented against defendants who failed and refused to pay the same. which is six percent per annum.

As a consequence of the losses sustained, plaintiff was compelled to pay the consignee under the marine
insurance policy, so that it became subrogated to all the rights of action of said consignee against defendants.

Eastern Shipping – alleged that the shipment was discharged in good order from the vessel unto the
custody of Metro Port Service so that any damage/losses incurred after the shipment was incurred after the
shipment was turned over to the latter, is no longer its liability.
Metroport – averred that although subject shipment was discharged unto its custody, portion of the same
was already in bad order.
Allied Brokerage – alleged that plaintiff has no cause of action against it, not having negligent or at fault for
the shipment was already in damage and bad order condition when received by it, but nonetheless, it still
exercised extra ordinary care and diligence in the handling/delivery of the cargo to consignee in the same
condition shipment was received by it.

The losses/damages were sustained while in the respective and/or successive custody and possession of
defendants carrier (Eastern), arrastre operator (Metro Port) and broker (Allied Brokerage). This becomes
evident when the Marine Cargo Survey Report in its "Additional Survey Notes", are considered. It is stated
that when the shipment was "landed on vessel" to dock of Pier # 15, South Harbor, Manila and it was
observed that "1 fiber drum was in damaged condition, covered by the vessel's Agent's Bad Order Tally Sheet
No. 86427." The report further states that when defendant Allied Brokerage withdrew the shipment from
defendant arrastre operator's custody, 1 drum was found opened without seal, cello bag partly torn but
contents intact. Net unrecovered spillages was15 kgs. The report went on to state that when the drums
reached the consignee, one drum was found with adulterated/faked contents. I
RTC – ordered defendants to pay the plaintiff of 19K with legal interest of 12% per annum for the date of
filing of complaints until the full payment.

Issue: Whether the interest should be 6% per annum instead of 12%? – 6%.

Ruling: 6% per annum computed from the decision.

SC held that there is sufficient evidence that the shipment sustained damage while in the successive
possession of appellant.

In Malayan Insurance Co., Inc., vs. Manila Port – SC held that the provisions of Article 2213 of CC states that
interest cannot be recovered upon unliquidated claims or damages, except when the demand can be
established with reasonable certainty."
Rivera vs. Perez – if the suit were for damages, "unliquidated and not known until definitely ascertained,
assessed and determined by the courts after proof then, interest should be from the date of the decision.

Central Bank CircularNo. 416 states that the rate of interest for the loan, or forbearance of any money, goods,
or credits and the rate allowed in judgments, in the absence of express contract as to such rate of interest,
shall be twelve (12%) percent per annum.

However, this case is for Action for Damages for injury to persons and loss of property and does not involve
any loan, much less forbearances of any money, goods or credits. As correctly argued by the private
respondents, the law applicable to the said case is Article 2209 of CC which is the 6% per annum.

The imposition of 12% interest pursuant to Central Bank Circular No. 416 is applicable only in the ff:
(1) loans
(2) forbearance of any money, goods or credit
(3) rate allowed in judgments (judgments spoken of refer to judgments involving loans or forbearance of any
money, goods or credits.

The Court reiterated that the 6% interest per annum on the damages should be computed from the time the
complaint was filed until the amount is fully paid.

Guideline:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts18
is breached, the contravenor can be held liable for damages.The provisions under Title XVIII on "Damages"
of the Civil Code govern in determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the
rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded.
In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169
of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per
annum.No interest, however, shall be adjudged on unliquidated claims or damages except when or
until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run
from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is made, the interest shall begin to run only
from the date the judgment of the court is made (at which time the quantification of damages may be
deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in
any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of
legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per
annum from such finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.

2013: Nacar vs. Gallery Frames, G.R. No. 189871

Petitioner Dario Nacar filed a complaint for constructive dismissal before the Arbitration Branch of the NLRC
against respondents Gallery Frames and/or Felipe Bordey, Jr., On October 15, 1998, the Labor Arbiter
rendered a Decision in favor of petitioner and found that he was dismissed from employment without a valid
or just cause. Thus, petitioner was awarded backwages and separation pay in lieu of reinstatement in the
amount of ₱158,919.92. Complainant was never afforded due process before he was terminated.

Respondents appealed to the NLRC, but it was dismissed for lack of merit. Accordingly, the NLRC sustained
the decision of the Labor Arbiter. On January 14, 2003, the Labor Arbiter issued an Alias Writ of Execution to
satisfy the judgment award that was due to petitioner in the amount of ₱147,560.19, which petitioner
eventually received.

Petitioner then filed a Manifestation and Motion praying for the re-computation of the monetary
award to include the appropriate interests.

Labor Arbiter granted the motion but only up to the amount of ₱11,459.73. The Labor Arbiter reasoned that
it is the October 15, 1998 Decision that should be enforced considering that it was the one that became
final and executory. However, the Labor Arbiter reasoned that since the decision states that the separation
pay and backwages are computed only up to the promulgation of the said decision, it is the amount of
₱158,919.92 that should be executed. Thus, since petitioner already received ₱147,560.19, he is only entitled
to the balance of ₱11,459.73.

CA opined that since petitioner no longer appealed the October 15, 1998 Decision of the Labor Arbiter,
which already became final and executory, a belated correction thereof is no longer allowed. The CA stated
that there is nothing left to be done except to enforce the said judgment. Consequently, it can no longer be
modified in any respect, except to correct clerical errors or mistakes.

Respondents insist that since the decision clearly stated that the separation pay and backwages are
"computed only up to [the] promulgation of this decision," and considering that petitioner no longer
appealed the decision, petitioner is only entitled to the award as computed by the Labor Arbiter in the total
amount of ₱158,919.92. Respondents added that it was only during the execution proceedings that the
petitioner questioned the award, long after the decision had become final and executory.

Issue: Whether the 12% interest should apply?

Ruling:

The payment of legal interest:

In the landmark case of Eastern Shipping Lines, Inc. v. Court of
Appeals, SC laid down the guidelines regarding the manner of computing legal interest, to wit:
II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.
 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum.
No interest, however, shall be adjudged on unliquidated claims or damages except when or until the
demand can be established with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount
finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of
legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum
from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.

Recently, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB) in its Resolution No. 796 dated 16 May
2013, approved the following revisions governing the rate of interest in the absence of stipulation in loan
contracts, thereby amending Section 2 of Circular No. 905, Series of 1982:
Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed
in judgments, in the absence of an express contract as to such rate of interest, shall be six percent (6%)
per annum.

The Circular shall take effect on 1 July 2013.

In the absence of an express stipulation as to the rate of interest that would govern the parties, the rate of
legal interest for loans or forbearance of any money, goods or credits and the rate allowed in judgments shall
no longer be twelve percent (12%) per annum - as reflected in the case of Eastern Shipping Lines and
Subsection X305.1 of the Manual of Regulations for Banks and Sections 4305Q. 4305S.3 and 4303P.1 of the
Manual of Regulations for Non-Bank Financial Institutions, before its amendment by BSP-MB Circular No.
799 - but will now be six percent (6%) per annum effective July 1, 2013. It should be noted, that the new
rate could only be applied prospectively and not retroactively. Consequently, the twelve percent (12%) per
annum legal interest shall apply only until June 30, 2013. Come July 1, 2013 the new rate of six percent (6%)
per annum shall be the prevailing rate of interest when applicable.

Corollarily, in the recent case of Advocates for Truth in Lending, Inc. and Eduardo B. Olaguer v. Bangko
Sentral Monetary Board, this Court affirmed the authority of the BSP-MB to set interest rates and to issue
and enforce Circulars when it ruled that "the BSP-MB may prescribe the maximum rate or rates of interest
for all loans or renewals thereof or the forbearance of any money, goods or credits, including those for loans
of low priority such as consumer loans, as well as such loans made by pawnshops, finance companies and
similar credit institutions. It even authorizes the BSP-MB to prescribe different maximum rate or rates for
different types of borrowings, including deposits and deposit substitutes, or loans of financial
intermediaries." Nonetheless, with regard to those judgments that have become final and executory prior to
July 1, 2013, said judgments shall not be disturbed and shall continue to be implemented applying the rate of
interest fixed therein.

To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping
Lines are accordingly modified to embody BSP-MB Circular No. 799, as follows:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is
breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of
the Civil Code govern in determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the
rate of interest, as well as the accrual thereof, is imposed, as follows:
When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance
of money, the interest due should be that which may have been stipulated in writing. Furthermore, the
interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 6% per annum to be computed from default, i.e., from judicial
or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount
of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest,
however, shall be adjudged on unliquidated claims or damages, except when or until the demand can be
established with reasonable certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art.
1169, Civil Code), but when such certainty cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally adjudged.
When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such
finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of
credit.
And, in addition to the above, judgments that have become final and executory prior to July 1, 2013, shall not
be disturbed and shall continue to be implemented applying the rate of interest fixed therein.