Full Text Cases Parts III and IV

8/12/2019 Full Text Cases Parts III and IV

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PART III: Usury Law

G.R. No. 171925 July 23, 2010

SOLIDBANK CORPORATION, (now Metropolitan Bank andTrust Company),Petitioner,

vs.ERMANENT HOMES, INCORPORATED,Respondent.

D E C I S I O N

CARPIO,J.:

G.R. No. 171925 is a petition for review1assailing theDecision2promulgated on 29 June 2005 by the Court of Appeals(appellate court) as well as the Resolution3promulgated on 14March 2006 in CA-G.R. CV No. 75926. The appellate court grantedthe petition filed by Permanent Homes, Incorporated(Permanent) and reversed the decision of the Regional TrialCourt of Makati City, Branch 58 (trial court) dated 5 July 2002 inCivil Case No. 98-654. The appellate court ordered SolidbankCorporation (Solidbank) and Permanent to enter into an expressagreement about the applicable interest rates on Permanents

loan. Solidbank was also ordered to render an accounting ofPermanents payments, not to impose interest on interest uponPermanents loans, and to release the remaining amountavailable under Permanents omnibus credit line.

The Facts

The appellate court narrated the facts as follows:

The records disclose that PERMANENT HOMES is a real estatedevelopment company, and to finance its housing project knownas the "Buena Vida Townhomes" located within MervilleSubdivision, Paraaque City, it applied and was subsequentlygranted by SOLIDBANK with an "Omnibus Line" credit facility in

the total amount of SIXTY MILLION PESOS. Of the entire loan,FIFTY NINE MILLION as [sic] time loan for a term of up to threehundred sixty (360) days, with interest thereon at prevailingmarket rates, and subject to monthly repricing. The remainingONE MILLION was available for domestic bills purchase.

To secure the aforesaid loan, PERMANENT HOMES initiallymortgaged three (3) townhouse units within the Buena Vidaproject in Paraaque. At the time, however, the instant complaintwas filed against SOLIDBANK, a total of thirty six (36) townhouseunits were mortgaged with said bank.

Of the 60 million available to PERMANENT HOMES, it availed of atotal of 41.5 million pesos, covered by three (3) promissorynotes, which contain the following provisions, thus:

"xxx

5. We/I irrevocably authorize Solidbank to increase ordecrease at any time the interest rate agreed in thisNote or Loan on the basis of, among others, prevailingrates in the local or international capital markets. Forthis purpose, We/I authorize Solidbank to debit anydeposit or placement account with Solidbank belongingto any one of us. The adjustment of the interest rateshall be effective from the date indicated in the written

notice sent to us by the bank, or if no date is indicatedfrom the time the notice was sent.

6. Should We/I disagree to the interest rate adjustmentWe/I shall prepay all amounts due under this Note orLoan within thirty (30) days from the receipt by anyoneof us of the written notice. Otherwise, We/I shall bedeemed to have given our consent to the interest rateadjustment."

Contrary, however, to the specific provisions as afore-quotedthere was a standing agreement by the parties that any increaseor decrease in interest rates shall be subject to the mutuaagreement of the parties.

For the first loan availment of PERMANENT HOMES on March 201997, in the amount of 19.6 MILLION, from the initial interestrate of 14.25%per annum (p.a.), the same wasincreased 15%p.a. effective May 19, 1997; it was again increasedto 26% p.a.effective July 18, 1997. It was thereafter reducedto 20% p.a.effective August 18, 1997, and then increasedto 24% p.a.effective September 17, 1997. The rate wasincreased further to 30% p.a.effective October 17, 1997, thendecreased to 27% p.a.on November 17, 1997, and again

increased to 34% p.a.effective December 17, 1997. The rate thendecreased to 30% p.a.on January 16, 1998.

For the second loan availment in the amount of 18 million, therate was initially pegged at 15.75% p.a. on June 24, 1997. Amonth later, the rate increased to 23.5% p.a.It thereafterdecreased to 20% p.a.effective August 24, 1997, but againincreased to 22.5% p.a. effective September 24, 1997. For thenext month, the rate surged to 30% p.a.,and decreased to 27%p.a. for the month of November. The rate again surged to 34%p.a.for the month of December, and was decreased to 30%p.a.from January 22, 1998 to February 20, 1998.

For the third loan availment on July 15, 1997, in the amount of

3.9 million, the interest rate was initially pegged at35% p.a.,buthis was decreased to 21% p.a.from August 14 until September11, 1997. The rate increased slightly to 23% p.a.on September12, 1997, and surged to 27% p.a.on October 13, 1997. The ratewent down slightly to 27% p.a.for the month of November, andto 26% p.a.for the month of December. The rate, however, againsurged to 30% p.a. on January 12, 1998 before settling at 29%p.a.for the month of February.

It is [Permanents] stand that SOLIDBANK unilaterally and

arbitrarily accelerated the interest rates without any declaredbasis of such increases, of which PERMANENT HOMES had noagreed to, or at the very least, been informed of. This is contraryto their earlier agreement that any interest rate changes will be

subject to mutual agreement of the parties. PERMANENT HOMESfurther admits that it was not able to protest such arbitraryincreases at the time they were imposed by SOLIDBANK, for fearthat SOLIDBANK might cut off the credit facility it extended toPERMANENT HOMES. Permanent was then in the midst of theconstruction of its project in Merville, Paraaque City, andSOLIDBANK knew that it was relying substantially on the credifacility the latter extended to it.

[Permanent] thus filed a case before the trial court seeking thefollowing: (1) the annulment of the increases in interest rates onthe loans it obtained from SOLIDBANK, on the ground that it wasviolative of the principle of mutuality of agreement of the parties
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as enunciated in Article 1409 of the New Civil Code, (2) the fixingof the interest rates at the applicable interest rate, and (3) for thetrial court to order SOLIDBANK to make an accounting of thepayments it made, so as to determine the amount of refundPERMANENT is entitled to, as well as to order SOLIDBANK torelease the remaining available balance of the loan it extended toPERMANENT. In addition, [Permanent] prays for the payment ofcompensatory, moral and exemplary damages.

SOLIDBANK, on the other hand, avers that PERMANENT HOMES

has no cause of action against it, in view of the pertinentprovisions of the Omnibus Credit Line and the promissory notesagreed to and signed by PERMANENT HOMES. Thus, inaccordance with said provisions, SOLIDBANK was authorized to,upon due notice, periodically adjust the interest rates onPERMANENT HOMES loan availments during the monthly

interest repricing dates, depending on the changes in prevailinginterest rates in the local and international capital markets. Infact, SOLIDBANK avers that four (4) days before July 15, 1997,the Bangko Sentral ng Pilipinas (BSP) declared that it could nolonger support the Philippine currency from external speculativeforces, hence, the local currency was allowed to seek its ownexchange rate level. As a result of the volatile exchange rate ratio,banks were then hesitant to extend loans, and in some instancesthat it granted loans, they had to ensure that they will not be at

the losing end of the deal, so to speak, by the repricing of theinterest rates every month. SOLIDBANK insists that PERMANENTHOMES should not be allowed to renege on its contractualobligations, as it freely and voluntarily bound itself to theprovisions of the Omnibus Credit Line and the promissory notes.

PERMANENT HOMES presented as witnesses Jacqueline S. Lim,its Vice President and Chief Financial Officer, Engr. Rey A.Romasanta, its Executive Vice President and Chief OperatingOfficer, and Martha Julia Flores, its Treasury Officer.

On March 24, 1998, the trial court issued a temporary restrainingorder (TRO), after a summary hearing, which enjoinedSOLIDBANK from implementing and collecting the increases ininterest rates and from initiating any action, including theforeclosure of the mortgaged properties.

Ms. Lims testimony centered on PERMANENT HOMES

allegations that the repricing of the interest rates was done bySOLIDBANK without any written agreement entered intobetween the parties. In fact, Ms. Lim accounted that SOLIDBANKwill merely advise them of the interest rate for the period, aftersaid period had already commenced, and at times very late in theperiod, by fax messages. When PERMANENT HOMES calledSOLIDBANKs attention to the seemingly surging rates it imposed

on its loan, SOLIDBANK will merely answer that it was the banks

policy, without offering any basis for such increase. Furthermore,Ms. Lim also mentioned SOLIDBANKs alleged practice of

imposing interest on unpaid interest, at the highest rate of 30%p.a.. Ms. Lim also presented a tabulation, which presents thenumber of days their billing statements were sent late, from thetime the interest period started. It is PERMANENT HOMES standthat since the purpose of the billing statements was to informthem beforehand of the applicable interest rate for the period,the late billings will clearly show SOLIDBANKs arbitrary

imposition of the repriced interest rates, as well as itsindifference to PERMANENT HOMES plight.

To illustrate, for the first loan availment in the amount of P19.6million, the billing statements which should have notifiedPERMANENT HOMES of the repriced interest rates were faxed to

PERMANENT HOMES between eighteen (18) to thirty-three (33)days late. For the second loan availment in the amount of P18million, the faxed billings were late between six (6) to twenty-one(21) days, and one instance where PERMANENT HOMES receivedno billing at all. For the third loan availment in the amounof P3.9 million, the faxed billings were late between seven (7) totwenty-nine (29) days, and also an instance where PERMANENTHOMES received no billing at all.

This practice, according to Ms. Lim, clearly affected its operations

as the completion of its construction project was unnecessarilydelayed, to its prejudice and its buyers. This was the import ofthe testimony of PERMANENT HOMES second witness, Engr. Rey

A. Romasanta. According to Engr. Rey, the target date ofcompletion was August 1997, but in view of the shortage of fundsby reason of SOLIDBANKs refusal for PERMANENT HOMES to

make further availments on its omnibus credit line, the projectwas completed only on February 1998.

PERMANENT HOMES third and final witness was Martha JuliaFlores, its Treasury Officer, who explained that as such, it was herwho received the late billings from SOLIDBANK. She would alsocall up SOLIDBANK to ask what the repriced interest rate for thecoming interest period, to no avail, as SOLIDBANK will merely fax

its billings almost always, as abovementioned, late in the periodMs. Flores admitted that she prepared the tabulation presentedbefore the court, which showed how late SOLIDBANKs billings

were sent to PERMANENT HOMES, as well as the computation ointerest rates that SOLIDBANK had allegedly overcharged on itsloan, vis-a-vis the average of the high and the low publishedlending rates of SOLIDBANK.

SOLIDBANK, to establish its defense, presented its lone witnessMr. Cesar Lugtu, who testified to the effect that, contrary toPERMANENT HOMES assertions that it was not promptly

informed of the repriced interest rates, SOLIDBANKs

officers verbally advised PERMANENT HOMES of the repricedrates at the start of the period, and even added that theirtransaction[s] were based on trust. Aside from these allegationshowever, no written memorandum or note was presented bySOLIDBANK to support their assertion that PERMANENT HOMESwas timely advised of the repriced interests.4

The Trial Courts Ruling

On 5 July 2002, the trial court promulgated its Decision in favorof Solidbank. The trial court ratiocinated and ruled thus:

It becomes crystal clear that there is sufficient proof to show thathe instant case was instituted by [Permanent] as an after-thought and as an obvious subterfuge intended to completely layon the defendant the blame for the debacle of its Buena Vida

project. An afterthought because the records of the case showthat the complaint was filed in March 16, 1998, already after itwas having difficulty making the amortization payments, the lastof which being in February 1998. A subterfuge because plaintiffinstead of blaming itself and its own business judgment that wentsour, would rather put the blame on [Solidbank], takingadvantage of every conceivable gray area of its contract with[Solidbank] to avoid its own liabilities. In fact, this complaint wasmade the very basis for [Permanent] to altogether stop thepayment of its loan from [Solidbank] including the interestpayment (TSN, May 07, 1998, p. 60).

x x x x
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WHEREFORE, finding the complaint not impressed with merit,judgment is hereby rendered dismissing the said complaint. TheCounterclaim is likewise dismissed for lack of evidence tosupport the same.

SO ORDERED.5

Permanent filed an appeal before the appellate court.

The Appellate CourtsRuling

The appellate court granted Permanents appeal, and set asidethe trial courts ruling. The appellate court not only recognized

the validity of escalation clauses, but also underscored thenecessity of a basis for the increase in interest rates and of theprinciple of mutuality of contracts.

The dispositive portion of the appellate courts decision reads,

thus:

THE FOREGOING CONSIDERED, the instant appeal is herebyGRANTED, the assailed decision dated July 5, 2002 is REVERSEDand SET ASIDE, and a new one is hereby entered as follows:

(1) Unless the parties herein subsequently enter intoan expressagreement regarding the applicable interestrates on PERMANENT HOMES loan availments

subsequent to the initial thirty-day (30) period, thelegal rate of twelve percent (12%) per annum ishereby FIXED, to be applied on the outstanding balanceof the loan;

(2) SOLIDBANK is ordered to render an accounting ofall the payments made by PERMANENT HOMES, and incase there is excess payment by reason of the wrongfulimposition of the repriced interest rates, to apply suchamount to the interest payment at the legal rate, and

thereafter to the outstanding principal amount;

(3) SOLIDBANK is directed not to impose penalties,particularly interest on interest, upon PERMANENTHOMES loan, there being no evidence that the latter

was in default on its payments;

(4) SOLIDBANK is hereby ordered to release theremaining amount available under the omnibus creditline, subject, however, to availability of funds on thepart of SOLIDBANK.

No pronouncement as to costs.

SO ORDERED.6

The appellate court resolved to deny Solidbanks Motion for

Reconsideration for lack of merit.7

The Issues

Solidbank raised the following issues in their petition:

(A) Whether the Honorable Court of Appeals wascorrect in ruling that the increases in the interest rates

on [Permanents] loans are void for having been

unilaterally imposed without basis.

(B) Whether the Honorable Court of Appeals wascorrect in ordering the parties to enter into an expressagreement regarding the applicable interest rates onPermanents loan availments subsequent to the initiathirty-day (30) period.

(C) Whether the Honorable Court of Appeals was

correct in ruling that [Permanent] is entitled toattorneys fees notwithstanding the absence of bad faith

or malice on the part of [Solidbank].8

The Courts Ruling

The petition has merit.

The Usury Law had been rendered legally ineffective byResolution No. 224 dated 3 December 1982 of the MonetaryBoard of the Central Bank, and later by Central Bank Circular No905 which took effect on 1 January 1983. These circularsremoved the ceiling on interest rates for secured and unsecured

loans regardless of maturity. The effect of these circulars is toallow the parties to agree on any interest that may be charged ona loan. The virtual repeal of the Usury Law is within the range ofjudicial notice which courts are bound to take intoaccount.9Although interest rates are no longer subject to aceiling, the lender still does not have an unbridled license toimpose increased interest rates. The lender and the borrowershould agree on the imposed rate, and such imposed rate shouldbe in writing.

The three promissory notes between Solidbank and Permanenall contain the following provisions:

5. We/I irrevocably authorize Solidbank to increase or

decrease at any time the interest rate agreed in thisNote or Loan on the basis of, among others, prevailingrates in the local or international capital markets. Forthis purpose, We/I authorize Solidbank to debit anydeposit or placement account with Solidbank belongingto any one of us. The adjustment of the interest rateshall be effective from the date indicated in the writtennotice sent to us by the bank, or if no date is indicatedfrom the time the notice was sent.

6. Should We/I disagree to the interest rate adjustmentWe/I shall prepay all amounts due under this Note orLoan within thirty (30) days from the receipt by anyoneof us of the written notice. Otherwise, We/I shall be

deemed to have given our consent to the interest rateadjustment.

The stipulations on interest rate repricing are valid because (1)the parties mutually agreed on said stipulations; (2) repricingtakes effect only upon Solidbanks written notice to Permanent o

the new interest rate; and (3) Permanent has the option toprepay its loan if Permanent and Solidbank do not agree on thenew interest rate. The phrases "irrevocably authorize," "at anytime" and "adjustment of the interest rate shall be effective fromthe date indicated in the written notice sent to us by the bank, orif no date is indicated, from the time the notice was sent,"emphasize that Permanent should receive a written notice fromSolidbank as a condition for the adjustment of the interest rates.
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In order that obligations arising from contracts may have theforce of law between the parties, there must be a mutualitybetween the parties based on their essential equality.10Acontract containing a condition which makes its fulfillmentdependent exclusively upon the uncontrolled will of one of thecontracting parties is void.11There was no showing that eitherSolidbank or Permanent coerced each other to enter into the loanagreements. The terms of the Omnibus Line Agreement and thepromissory notes were mutually and freely agreed upon by theparties.

Moreover, Solidbanks range of lending rates were consistent

with "prevailing rates in the local or international capitalmarkets." Permanent presented a tabulation12of the range ofSolidbanks lending rates, as reported to Bangko Sentral ng

Pilipinas and compared the lending rates with the interest ratescharged by Solidbank on Permanents loans, thus:

Solidbanks

range of lendingrates as per BSPrecords

High Low Interest rates

charged bySolidbank onPermanents

loans

Excess

InterestRate OvertheAverageof Highand LowRates

Sept.12,1997

25.0% 22.0% 23.0%

Sept.17,1997

27.0% 24.0% 24.0%

Sept.22,1997

26.0% 23.0% 22.5%

Oct.13,1997

29.0% 26.0% 28.0%

Oct.17,1997

30.0% 27.0% 30.0%

Oct.22,

1997

32.0% 29.0% 30.0%

Nov.12,1997

28.0% 25.0% 27.0%

Nov.17,1997

28.0% 25.0% 27.0%

Nov.21,1997

27.0% 24.0% 27.0%

Dec.12,1997

25.0% 23.0% 26.0% 2.0%

Dec.17,1997

25.0% 23.0% 34.0% 10.0%

Dec.22,

1997

25.0% 23.0% 32.0% 8.0%

Jan.12,1998

26.0% 24.0% 30.0% 5.0%

Jan.16,1998

28.0% 25.0% 30.0% 3.5%

Jan.22,1998

28.0% 25.0% 30.0% 3.5%

Feb.

9,1998

27.0% 24.0% 30.0% 3.5%

Feb.11,1998

27.0% 24.0% 29.0% 4.5%

Feb.12,1998

27.0% 24.0% 30.0% 4.5%

The repriced interest rates from 12 September to 21 November1997 conformed to the range of Solidbanks lending rates to

other borrowers. The 12 December 1997 to 12 February 1998

repriced interest rates were not unconscionably out of line withthe upper range of lending rates to other borrowers. The interestrate repricing happened at the height of the Asian financial crisesin late 1997, when banks clamped down on lendings because ohigher credit risks across industries, particularly the real estateindustry.

We also recognize that Solidbank admitted that it did nopromptly send Permanent written repriced rates, but ratherverbally advised Permanents officers over the phone at the startof the period. Solidbank did not present any writtenmemorandum to support its allegation that it promptly advisedPermanent of the change in interest rates.13Solidbank advisedPermanent on the repriced interest rate applicable for the 30-dayinterest period only after the period had begun. Permanentpresented a tabulation which showed that Solidbank either didnot send a billing statement, or sent a billing statement 6 to 33days late.14We reproduce the tabulation below:

PN #435 P19.6MM

Reference No.

Interest Period DateBillingStatements werefaxed toPermane

Numberof daysBillingStatement wasLate
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nt

1 03/20/97

04/18/97

04/17/97 28

2 04/18/97

05/19/97

05/16/97 28

05/19/97

06/19/97

nostatementreceived

3 06/19/97

07/18/97

07/12/97 23

4 07/18/97

08/18/97

08/05/97 18

5 08/18/97

09/17/97

09/10/97 23

6 09/17/97

10/17/97

10/06/97 19

7 10/17/97

11/17/97

11/11/97 25

8 11/17/97

12/17/97

12/12/97 25

9 12/17/97

01/16/98

01/09/98 23

14 01/16/98

02/20/98

02/18/98 33

PN #969 P18MM

Reference No.

Interest Period DateBillingStatements werefaxed toPermanent


3 06/24/97

07/24/97

07/12/97 18

4 07/24/97

08/22/97

08/05/97 12

5 08/22/9

7

09/22/9

7

09/10/97 19

6 09/22/97

10/22/97

10/06/97 14

7 10/22/97

11/21/97

11/11/97 20

8 11/21/97

12/22/97

12/12/97 21

9 12/22/97

01/22/98

01/09/98 18

01/22/98

02/12/97

nostatementreceived

14 02/12/98

02/20/98

02/18/98 6

PN #1077 P3.9MM

Reference No.

Interest Period DateBillingStatements werefaxed toPermanent


10 07/15/97

08/14/97

08/14/97 30

11 08/14/97

08/26/97

08/26/97 12

5 08/26/97 09/12/97 09/10/97 15

6 09/12/97

10/13/97

10/06/97 24

7 10/13/97

11/12/97

11/11/97 29

12 11/12/97

12/12/97

12/10/97 28

9 12/12/97

01/12/98

01/09/98 28

13 01/12/98

02/09/98

02/09/98 28

02/09/98

02/11/98

nostatementreceived

14 02/11/98

03/13/98

02/18/98 7

We rule that Solidbanks computation of the interest due from

Permanent should be adjusted to take effect only uponPermanents receipt of the written notice from

Solidbank.1avvphi1

WHEREFORE, we GRANTthe petition in part. We SET ASIDE theDecision of the Court of Appeals promulgated on 29 June 2005 aswell as the Resolution promulgated on 14 March 2006 in CA-G.RCV No. 75926 andAFFIRMthe decision of the Regional TriaCourt of Makati City, Branch 58 dated 5 July 2002 in Civil CaseNo. 98-654 with the MODIFICATION that the repricing of theinterest rates should take effect only upon Permanent HomesIncorporateds receipt of the written notice from Solidbank

Corporation of the adjustment in interest rate. The records of thiscase are therefore remanded to the trial court for thecomputation of the proper interest payments based on the datesof receipt of written notice. SO ORDERED.


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PART IV: DEPOSIT (Articles 1962-2009)

I. Deposit in General and its Different Kinds

G.R. No. L-66826 August 19, 1988

BANK OF THE PHILIPPINE ISLANDS, petitioner,vs.

THE INTERMEDIATE APPELLATE COURT andZSHORNACK respondents.

Pacis & Reyes Law Office for petitioner.

Ernesto T. Zshornack, Jr. for private respondent.

CORTES,J.:

The original parties to this case were Rizaldy T. Zshornack andthe Commercial Bank and Trust Company of the Philippines[hereafter referred to as "COMTRUST."] In 1980, the Bank of thePhilippine Islands (hereafter referred to as BPI absorbedCOMTRUST through a corporate merger, and was substituted asparty to the case.

Rizaldy Zshornack initiated proceedings on June 28,1976 by filingin the Court of First Instance of Rizal Caloocan City a complaintagainst COMTRUST alleging four causes of action. Except for thethird cause of action, the CFI ruled in favor of Zshornack. Thebank appealed to the Intermediate Appellate Court whichmodified the CFI decision absolving the bank from liability on thefourth cause of action. The pertinent portions of the judgment, asmodified, read:

IN VIEW OF THE FOREGOING, the Courtrenders judgment as follows:

1. Ordering the defendant COMTRUST torestore to the dollar savings account ofplaintiff (No. 25-4109) the amount of U.S$1,000.00 as of October 27, 1975 to earninterest together with the remaining balanceof the said account at the rate fixed by thebank for dollar deposits under Central BankCircular 343;

2. Ordering defendant COMTRUST to return tothe plaintiff the amount of U.S. $3,000.00immediately upon the finality of this decision,without interest for the reason that the saidamount was merely held in custody for

safekeeping, but was not actually depositedwith the defendant COMTRUST because beingcash currency, it cannot by law be depositedwith plaintiffs dollar account and defendant'sonly obligation is to return the same toplaintiff upon demand;

xxx xxx xxx

5. Ordering defendant COMTRUST to payplaintiff in the amount of P8,000.00 asdamages in the concept of litigation expensesand attorney's fees suffered by plaintiff as a

result of the failure of the defendant bank torestore to his (plaintiffs) account the amounof U.S. $1,000.00 and to return to him(plaintiff) the U.S. $3,000.00 cash left forsafekeeping.

Costs against defendant COMTRUST.

SO ORDERED. [Rollo, pp. 47-48.]

Undaunted, the bank comes to this Court praying that it be totallyabsolved from any liability to Zshornack. The latter not havingappealed the Court of Appeals decision, the issues facing thisCourt are limited to the bank's liability with regard to the firstand second causes of action and its liability for damages.

1. We first consider the first cause of action, On the dates materiato this case, Rizaldy Zshornack and his wife, Shirley Gorospemaintained in COMTRUST, Quezon City Branch, a dollar savingsaccount and a peso current account.

On October 27, 1975, an application for a dollar draft wasaccomplished by Virgilio V. Garcia, Assistant Branch Manager o

COMTRUST Quezon City, payable to a certain Leovigilda D. Dizonin the amount of $1,000.00. In the application, Garcia indicatedthat the amount was to be charged to Dollar Savings Acct. No. 25-4109, the savings account of the Zshornacks; the charges forcommission, documentary stamp tax and others totalling P17.46were to be charged to Current Acct. No. 210465-29, again, thecurrent account of the Zshornacks. There was no indication of thename of the purchaser of the dollar draft.

On the same date, October 27,1975, COMTRUST, under thesignature of Virgilio V. Garcia, issued a check payable to the orderof Leovigilda D. Dizon in the sum of US $1,000 drawn on theChase Manhattan Bank, New York, with an indication that it wasto be charged to Dollar Savings Acct. No. 25-4109.

When Zshornack noticed the withdrawal of US$1,000.00 from hisaccount, he demanded an explanation from the bank. In answerCOMTRUST claimed that the peso value of the withdrawal wasgiven to Atty. Ernesto Zshornack, Jr., brother of Rizaldy, onOctober 27, 1975 when he (Ernesto) encashed with COMTRUST acashier's check for P8,450.00 issued by the Manila BankingCorporation payable to Ernesto.

Upon consideration of the foregoing facts, this Court finds noreason to disturb the ruling of both the trial court and theAppellate Court on the first cause of action. Petitioner must beheld liable for the unauthorized withdrawal of US$1,000.00 fromprivate respondent's dollar account.

In its desperate attempt to justify its act of withdrawing from itsdepositor's savings account, the bank has adopted inconsistenttheories. First, it still maintains that the peso value of the amountwithdrawn was given to Atty. Ernesto Zshornack, Jr. when thelatter encashed the Manilabank Cashier's Check. At the sametime, the bank claims that the withdrawal was made pursuant toan agreement where Zshornack allegedly authorized the bank towithdraw from his dollar savings account such amount whichwhen converted to pesos, would be needed to fund his pesocurrent account. If indeed the peso equivalent of the amounwithdrawn from the dollar account was credited to the pesocurrent account, why did the bank still have to pay Ernesto?


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At any rate, both explanations are unavailing. With regard to thefirst explanation, petitioner bank has not shown how thetransaction involving the cashier's check is related to thetransaction involving the dollar draft in favor of Dizon financedby the withdrawal from Rizaldy's dollar account. The twotransactions appear entirely independent of each other.Moreover, Ernesto Zshornack, Jr., possesses a personality distinctand separate from Rizaldy Zshornack. Payment made to Ernestocannot be considered payment to Rizaldy.

As to the second explanation, even if we assume that there wassuch an agreement, the evidence do not show that thewithdrawal was made pursuant to it. Instead, the record revealsthat the amount withdrawn was used to finance a dollar draft infavor of Leovigilda D. Dizon, and not to fund the current accountof the Zshornacks. There is no proof whatsoever that pesoCurrent Account No. 210-465-29 was ever credited with the pesoequivalent of the US$1,000.00 withdrawn on October 27, 1975from Dollar Savings Account No. 25-4109.

2. As for the second cause of action, the complaint filed with thetrial court alleged that on December 8, 1975, Zshornackentrusted to COMTRUST, thru Garcia, US$3,000.00cash (popularly known as greenbacks)

forsafekeeping, and that the agreement was embodied in adocument, a copy of which was attached to and made part of thecomplaint. The document reads:

Makati Cable Address:Philippines "COMTRUST"COMMERCIAL BANK AND TRUST COMPANYof the PhilippinesQuezon City Branch

December 8, 1975MR. RIZALDY T. ZSHORNACK&/OR MRS SHIRLEY E. ZSHORNACKSir/Madam:

We acknowledged (sic)having received from youtoday the sum of USDOLLARS: THREETHOUSAND ONLY(US$3,000.00) forsafekeeping.

It was also alleged in the complaint that despite demands, thebank refused to return the money.

In its answer, COMTRUST averred that the US$3,000 wascredited to Zshornack's peso current account at prevailingconversion rates.

It must be emphasized that COMTRUST did not deny specificallyunder oath the authenticity and due execution of the aboveinstrument.

During trial, it was established that on December 8, 1975Zshornack indeed delivered to the bank US $3,000 forsafekeeping. When he requested the return of the money on May10, 1976, COMTRUST explained that the sum was disposed of inthis manner: US$2,000.00 was sold on December 29, 1975 andthe peso proceeds amounting to P14,920.00 were deposited toZshornack's current account per deposit slip accomplished byGarcia; the remaining US$1,000.00 was sold on February 3, 1976

and the peso proceeds amounting to P8,350.00 were deposited tohis current account per deposit slip also accomplished by Garcia.

Aside from asserting that the US$3,000.00 was properly creditedto Zshornack's current account at prevailing conversion ratesBPI now posits another ground to defeat private respondent'sclaim. It now argues that the contract embodied in the documentis the contract of depositum (as defined in Article 1962, New CivilCode), which banks do not enter into. The bank alleges thatGarcia exceeded his powers when he entered into the

transaction. Hence, it is claimed, the bank cannot be liable underthe contract, and the obligation is purely personal to Garcia.

Before we go into the nature of the contract entered into, animportant point which arises on the pleadings, must beconsidered.

The second cause of action is based on a document purporting tobe signed by COMTRUST, a copy of which document was attachedto the complaint. In short, the second cause of action was basedon an actionable document. It was therefore incumbent upon thebank to specifically deny under oath the due execution of thedocument, 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. [See, E.BMerchant v. International Banking Corporation, 6 Phil. 314(1906).] No sworn answer denying the due execution of thedocument in question, or questioning the authority of Garcia tobind the bank, or denying the bank's capacity to enter into thecontract, was ever filed. Hence, the bank is deemed to haveadmitted not only Garcia's authority, but also the bank's powerto enter into the contract in question.

In the past, this Court had occasion to explain the reason behindthis procedural requirement.

The reason for the rule enunciated in theforegoing authorities will, we think, be readily

appreciated. In dealing with corporations thepublic at large is bound to rely to a largeextent upon outward appearances. If a man isfound acting for a corporation with theexternal indicia of authority, any person, nothaving notice of want of authority, may usuallyrely upon those appearances; and if it be foundthat the directors had permitted the agent toexercise that authority and thereby held himout as a person competent to bind thecorporation, or had acquiesced in a contractand retained the benefit supposed to havebeen conferred by it, the corporation will bebound, notwithstanding the actual authority

may never have been granted

... Whether a particular officer actuallypossesses the authority which he assumes toexercise is frequently known to very few, andthe proof of it usually is not readily accessibleto the stranger who deals with the corporationon the faith of the ostensible authorityexercised by some of the corporate officers. Iis therefore reasonable, in a case where anofficer of a corporation has made a contract inits name, that the corporation should berequired, if it denies his authority, to statesuch defense in its answer. By this means the


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plaintiff is apprised of the fact that the agent'sauthority is contested; and he is given anopportunity to adduce evidence showingeither that the authority existed or that thecontract was ratified and approved. [Ramirezv. Orientalist Co. and Fernandez, 38 Phil. 634,645- 646 (1918).]

Petitioner's argument must also be rejected for another reason.The practical effect of absolving a corporation from liability every

time an officer enters into a contract which is beyond corporatepowers, even without the proper allegation or proof that thecorporation has not authorized nor ratified the officer's act, is tocast corporations in so perfect a mold that transgressions andwrongs by such artificial beings become impossible [Bissell v.Michigan Southern and N.I.R. Cos 22 N.Y 258 (1860).] "To saythat a corporation has no right to do unauthorized acts is only toput forth a very plain truism but to say that such bodies have nopower or capacity to err is to impute to them an excellence whichdoes not belong to any created existence with which we areacquainted. The distinction between power and right is no moreto be lost sight of in respect to artificial than in respect to naturalpersons." [Ibid.]

Having determined that Garcia's act of entering into the contractbinds the corporation, we now determine the correct nature ofthe contract, and its legal consequences, including itsenforceability.

The document which embodies the contract states that theUS$3,000.00 was received by the bank for safekeeping. Thesubsequent acts of the parties also show that the intent of theparties was really for the bank to safely keep the dollars and toreturn it to Zshornack at a later time, Thus, Zshornack demandedthe return of the money on May 10, 1976, or over five monthslater.

The above arrangement is that contract defined under Article

1962, New Civil Code, which reads:

Art. 1962. A deposit is constituted from themoment a person receives a thing belonging toanother, with the obligation of safely keepingit and of returning the same. If the safekeepingof the thing delivered is not the principalpurpose of the contract, there is no deposit butsome other contract.

Note that the object of the contract between Zshornack andCOMTRUST was foreign exchange. Hence, the transaction wascovered by Central Bank Circular No. 20, Restrictions on Gold andForeign Exchange Transactions, promulgated on December 9,

1949, which was in force at the time the parties entered into thetransaction involved in this case. The circular provides:

xxx xxx xxx

2. Transactions in the assets described belowand all dealings in them of whatever nature,including, where applicable their exportationand importation, shall NOT be effected, exceptwith respect to deposit accounts included insub-paragraphs (b) and (c) of this paragraph,when such deposit accounts are owned by andin the name of, banks.

(a) Any and all assetsprovided they are heldthrough, in, or with banksor banking institutionslocated in the Philippinesincluding money, checksdrafts, bullions bank draftsdeposit accounts (demandtime and savings), all debtsindebtedness orobligations, financiabrokers and investmenhouses, notes, debenturesstocks, bonds, couponsbank acceptancesmortgages, pledges, liens orother rights in the nature osecurity, expressed in

foreign currencies, or ipayable abroadirrespective of the currencyin which they areexpressed, and belonging toany person, firmpartnership, association

branch office, agencycompany or otherunincorporated body orcorporation residing orlocated within thePhilippines;

(b) Any and all assets of thekinds included and/ordescribed in subparagraph(a) above, whether or noheld through, in, or withbanks or bankinginstitutions, and existen

within the Philippineswhich belong to any personfirm, partnershipassociation, branch officeagency, company or otherunincorporated body orcorporation not residing orlocated within thePhilippines;

(c) Any and all assetsexistent within thePhilippines includingmoney, checks, drafts

bullions, bank drafts, aldebts, indebtedness orobligations, financiasecurities commonly dealin by bankers, brokers andinvestment houses, notesdebentures, stock, bondscoupons, bank acceptancesmortgages, pledges, liens orother rights in the nature osecurity expressed inforeign currencies, or ipayable abroadirrespective of the currency


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in which they areexpressed, and belonging toany person, firm,partnership, association,branch office, agency,company or otherunincorporated body orcorporation residing orlocated within thePhilippines.

xxx xxx xxx

4. (a)All receipts of foreign exchange shall besold daily to theCentral Bankby thoseauthorized to deal in foreign exchange. Allreceipts of foreign exchange by any person,firm, partnership, association, branch office,agency, company or other unincorporatedbody or corporation shall be sold to theauthorized agents of the Central Bank bythe recipients within one business day followingthe receipt of such foreign exchange . Anyperson, firm, partnership, association, branch

office, agency, company or otherunincorporated body or corporation, residingor located within the Philippines, whoacquires on and after the date of this Circularforeign exchange shall not, unless licensed bythe Central Bank, dispose of such foreignexchange in whole or in part, nor receive lessthan its full value, nor delay taking ownershipthereof except as such delay is customary;Provided, further, That within one day upontaking ownership, or receiving payment, offoreign exchange the aforementioned personsand entities shall sell such foreign exchange todesignated agents of the Central Bank.

xxx xxx xxx

8. Strict observance of the provisions of thisCircular is enjoined; and any person, firm orcorporation, foreign or domestic, who beingbound to the observance thereof, or of suchother rules, regulations or directives as mayhereafter be issued in implementation of thisCircular, shall fail or refuse to comply with, orabide by, or shall violate the same, shallbe subject to the penal sanctions provided in theCentral Bank Act.

xxx xxx xxx

Paragraph 4 (a) above was modified by Section 6 of Central BankCircular No. 281, Regulations on Foreign Exchange, promulgatedon November 26, 1969 by limiting its coverage to Philippineresidents only. Section 6 provides:

SEC. 6. All receipts of foreign exchange byany residentperson, firm, company orcorporation shall be sold to authorized agentsof the Central Bank by the recipients withinone business day following the receipt of suchforeign exchange. Any residentperson, firm,

company or corporation residing or locatedwithin the Philippines, who acquires foreignexchange shall not, unless authorized by theCentral Bank, dispose of such foreign exchangein whole or in part, nor receive less than itsfull value, nor delay taking ownership thereoexcept as such delay is customary; ProvidedThat, within one business day upon takingownership or receiving payment of foreignexchange the aforementioned persons andentities shall sell such foreign exchange to theauthorized agents of the Central Bank.

As earlier stated, the document and the subsequent acts of theparties show that they intended the bank to safekeep the foreignexchange, and return it later to Zshornack, who alleged in hiscomplaint that he is a Philippine resident. The parties did notintended to sell the US dollars to the Central Bank within onebusiness day from receipt. Otherwise, the contracof depositumwould never have been entered into at all.

Since the mere safekeeping of the greenbacks, without sellingthem to the Central Bank within one business day from receipt, isa transaction which is not authorized by CB Circular No. 20, it

must be considered as one which falls under the general class oprohibited transactions. Hence, pursuant to Article 5 of the CiviCode, it is void, having been executed against the provisions of amandatory/prohibitory law. More importantly, it affords neitherof the parties a cause of action against the other. "When thenullity proceeds from the illegality of the cause or object of thecontract, and the act constitutes a criminal offense, both partiesbeing in pari delicto, they shall have no cause of action againsteach other. . ." [Art. 1411, New Civil Code.] The only remedy isone on behalf of the State to prosecute the parties for violatingthe law.

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

3. Lastly, we find the P8,000.00 awarded by the courts a quoasdamages in the concept of litigation expenses and attorney's feesto be reasonable. The award is sustained.

WHEREFORE, the decision appealed from is hereby MODIFIEDPetitioner is ordered to restore to the dollar savings account ofprivate respondent the amount of US$1,000.00 as of October 271975 to earn interest at the rate fixed by the bank for dollarsavings deposits. Petitioner is further ordered to pay privaterespondent the amount of P8,000.00 as damages. The othercauses of action of private respondent are ordered dismissed.

SO ORDERED.


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II. Voluntary Deposit

G.R. No. 120528 January 29, 2001

ATTY. DIONISIO CALIBO, JR., petitioner,vs.

COURT OF APPEALS and DR. PABLO U. ABELLA, respondents.

QUISUMBING,J.:

Before us is the petition for review on certiorari by petitionerDionisio Calibo, Jr., assailing the decision of the Court of Appealsin CA-G.R. CV No. 39705, which affirmed the decision of theRegional Trial Court of Cebu, Branch 11, declaring privaterespondent as the lawful possessor of a tractor subject of areplevin suit and ordering petitioner to pay private respondentactual damages and attorney's fees.

The facts of the case, as summarized by respondent court, areundisputed.

"on January 25, 1979, plaintiff-appellee [hereinpetitioner] Pablo U. Abella purchased an MF 210

agricultural tractor with Serial No. 00105 and EngineNo. P126M00199 (Exhibit A; Record, p.5) which he usedin his farm in Dagohoy, Bohol.

Sometimes in October or November 1985, PabloAbella's son, Mike abella rented for residential purposethe house of defendant-appellant Dionosio R. Calibo, Jr.,in Tagbilaran City.

In October 1986, Pablo Abella pulled out hisaforementioned tractor from his farm in Dagohoy,Bohol, and left it in the safekeeping of his son, MikeAbella, in Tagbilaran City. Mike kept the tractor in thegarage of the house he was leasing from Calibo.

Since he started renting Calibo's house, Mike had beenreligiously paying the monthly rentals therefor, butbeginning November of 1986, he stopped doing so. Thefollowing month, Calibo learned that Mike had neverpaid the charges for electric and water consumption inthe leased premises which the latter was duty-bound toshoulder. Thus, Calibo confronted Mike about his rentalarrears and the unpaid electric and water bills. Duringthis confrontation, Mike informed Calibo that he (Mike)would be staying in the leased property only until theend of December 1986. Mike also assured Calibo that hewould be settling his account with the latter, offeringthe tractor as security. Mike even asked Calibo to help

him find a buyer for the tractor so he could sooner payhis outstanding obligation.1wphi1.nt

In January 1987 when a new tenant moved into thehouse formerly leased to Mike, Calibo had the tractormoved to the garage of his father's house, also inTagbilaran City.

Apprehensive over Mike's unsettled account, Calibovisited him in his Cebu City address in January,February and March, 1987 and tried to collect payment.On all three occasions, Calibo was unable to talk to Mikeas the latter was reportedly out of town. On his third

trip to Cebu City, Calibo left word with the occupants othe Abella residence thereat that there was aprospective buyer for the tractor. The following weekMike saw Calibo in Tagbilaran City to inquire about thepossible tractor buyer. The sale, however, did not pushthrough as the buyer did not come back anymore. Whenagain confronted with his outstanding obligation, Mikereassured Calibo that the tractor would stand as aguarantee for its payment. That was the last time Calibosaw or heard from Mike.

After a long while, or on November 22, 1988, Mike'sfather, Pablo Abella, came to Tagbilaran City to claimand take possession of the tractor. Calibo, howeverinformed Pablo that Mike left the tractor with him assecurity for the payment of Mike's obligation to himPablo offered to write Mike a check for P2,000.00 inpayment of Mike's unpaid lease rentals, in addition toissuing postdated checks to cover the unpaid electricand water bills the correctness of which Pablo said hestill had to verify with Mike. Calibo told Pablo that hewould accept the P2,000.00-check only if the latterwould execute a promissory note in his favor to coverthe amount of the unpaid electric and water bills. Pablowas not amenable to this proposal. The two of them

having failed to come to an agreement, Pablo left andwent back to Cebu City, unsuccessful in his attempt totake possession of the tractor."1

On November 25, 1988, private respondent instituted an actionfor replevin, claiming ownership of the tractor and seeking torecover possession thereof from petitioner. As adverted to abovethe trial court ruled in favor of private respondent; so did theCourt of Appeals when petitioner appealed.

The Court of Appeals sustained the ruling of the trial court thatMike Abella could not have validly pledged the subject tractor topetitioner since he was not the owner thereof, nor was heauthorized by its owner to pledge the tractor. Respondent courtalso rejected petitioner's contention that, if not a pledge, then adeposit was created. The Court of Appeals said that under theCivil Code, the primary purpose of a deposit is only safekeepingand not, as in this case, securing payment of a debt.

The Court of Appeals reduced the amount of actual damagespayable to private respondent, deducting therefrom the cost otransporting the tractor from Tagbilaran, Bohol, to Cebu City.

Hence, this petition.

Essentially, petitioner claims that the tractor in question wasvalidly pledged to him by private respondent's son Mike Abella to

answer for the latter's monetary obligations to petitioner. In thealternative, petitioner asserts that the tractor was left with himin the concept of an innkeeper, on deposit and that he may validlyhold on thereto until Mike Abella pays his obligations.

Petitioner maintains that even if Mike Abella were not the ownerof the tractor, a principal-agent relationship may be impliedbetween Mike Abella and private respondent. He contends thatthe latter failed to repudiate the alleged agency, knowing that hisson is acting on his behalf without authority when he pledged thetractor to petitioner. Petitioner argues that, under Article 1911 ofthe Civil Code, private respondent is bound by the pledge, even if


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it were beyond the authority of his son to pledge the tractor,since he allowed his son to act as though he had full powers.

On the other hand, private respondent asserts that respondentcourt had correctly ruled on the matter.

In a contract of pledge, the creditor is given the right to retain hisdebtor's movable property in his possession, or in that of a thirdperson to whom it has been delivered, until the debt is paid. Forthe contract to be valid, it is necessary that: (1) the pledge is

constituted to secure the fulfillment of a principal obligation; (2)the pledgor be the absolute owner of the thing pledged; and (3)the person constituting the pledge has the free disposal of hisproperty, and in the absence thereof, that he be legallyauthorized for the purpose.2

As found by the trial court and affirmed by respondent court, thepledgor in this case, Mike Abella, was not the absolute owner ofthe tractor that was allegedly pledged to petitioner. The tractorwas owned by his father, private respondent, who left theequipment with him for safekeeping. Clearly, the second requisitefor a valid pledge, that the pledgor be the absolute owner of theproperty, is absent in this case. Hence, there is no valid pledge.

"He who is not the owner or proprietor of the propertypledged or mortgaged to guarantee the fulfillment of aprincipal obligation, cannot legally constitute such aguaranty as may validly bind the property in favor of hiscreditor, and the pledgee or mortgagee in such a caseacquires no right whatsoever in the property pledged ormortgaged."3

There also does not appear to be any agency in this case. Weagree with the Court of Appeals that:

"As indicated in Article 1869, for an agency relationshipto be deemed as implied, the principal must know thatanother person is acting on his behalf without authority.Here, appellee categorically stated that the only purposefor his leaving the subject tractor in the care andcustody of Mike Abella was for safekeeping, anddefinitely not for him to pledge or alienate the same. If itwere true that Mike pledged appeellee's tractor toappellant, then Mike was acting not only withoutappellee's authority but without the latter's knowledgeas well.

Article 1911, on the other hand, mandates that theprincipal is solidarily liable with the agent if the formerallowed the latter to act as though he had full powers.Again, in view of appellee's lack of knowledge of Mike'spledging the tractor without any authority from him, it

stands to reason that the former could not have allowedthe latter to pledge the tractor as if he had full powersto do so."4

There is likewise no valid deposit in this case. In a contract ofdeposit, a person receives an object belonging to another withthe obligation of safely keeping it and of returning thesame.5 Petitioner himself states that he received the tractor notto safely keep it but as a form of security for the payment of MikeAbella's obligations. There is no deposit where the principalpurpose for receiving the object is not safekeeping.6

Consequently, petitioner had no right to refuse delivery of thetractor to its lawful owner. On the other hand, privaterespondent, as owner, had every right to seek to repossess thetractor, including the institution of the instant action forreplevin.1wphi1.nt

We do not here pass upon the other assignment of errors madeby petitioner concerning alleged irregularities in the raffle anddisposition of the case at the trial court. A petition for review oncertiorari is not the proper vehicle for such allegations.

WHEREFORE, the instant petition is DENIED for lack of meritand the decision of the Court of Appeals in CA-G.R. CV No. 39705isAFFIRMED.Costs against petitioner.

SO ORDERED.

Bellosillo, Mendoza, Buena, and De Leon, Jr., JJ.,concur.


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G.R. No. 142591 April 30, 2003

JOSEPH CHAN, WILSON CHAN and LILY CHAN,petitioners,vs.

BONIFACIO S. MACEDA, JR.,* respondent.

SANDOVAL-GUTIERREZ,J.:

A judgment of default does not automatically imply admission bythe defendant of the facts and causes of action of the plaintiff. TheRules of Court require the latter to adduce evidence in support ofhis allegations as an indispensable condition before finaljudgment could be given in his favor.1The trial judge has toevaluate the allegations with the highest degree of objectivity andcertainty. He may sustain an allegation for which the plaintiff hasadduced sufficient evidence, otherwise, he has to reject it. In thecase at bar, judicial review is imperative to avert the award ofdamages that is unreasonable and without evidentiary support.

Assailed in this petition for review under Rule 45 of the 1997Rules of Civil Procedure, as amended, is the Decision 2dated June17, 1999 of the Court of Appeals in CA-G.R. CV No. 57323, entitled"Bonifacio S. Maceda, Jr. versus Joseph Chan, et al.," affirming intotothe Decision3dated December 26, 1996 of the Regional Trial

Court, Branch 160, Pasig City, in Civil Case No. 53044.

The essential antecedents are as follows:

On July 28, 1976, Bonifacio S. Maceda, Jr., herein respondent,obtained a P7.3 million loan from the Development Bank of thePhilippines for the construction of his New Gran Hotel Project inTacloban City.

Thereafter, on September 29, 1976, respondent entered into abuilding construction contract with Moreman Builders Co., Inc.,(Moreman). They agreed that the construction would be finishednot later than December 22, 1977.

Respondent purchased various construction materials andequipment in Manila. Moreman, in turn, deposited them in thewarehouse of Wilson and Lily Chan, herein petitioners . Thedeposit was free of charge.

Unfortunately, Moreman failed to finish the construction of thehotel at the stipulated time. Hence, on February 1, 1978,respondent filed with the then Court of First Instance (CFI, nowRegional Trial Court), Branch 39, Manila, an action for rescissionand damages against Moreman, docketed as Civil Case No.113498.

On November 28, 1978, the CFI rendered its Decision4rescinding

the contract between Moreman and respondent and awarding tothe latter P445,000.00 as actual, moral and liquidateddamages; P20,000.00 representing the increase in the constructionmaterials; and P35,000.00 as attorney's fees. Moremaninterposed an appeal to the Court of Appeals but the same wasdismissed on March 7, 1989 for being dilatory. He elevated thecase to this Court via a petition for review on certiorari. In aDecision5 dated February 21, 1990, we denied the petition. OnApril 23, 1990,6an Entry of Judgment was issued.

Meanwhile, during the pendency of the case, respondent orderedpetitioners to return to him the construction materials andequipment which Moreman deposited in their warehouse.

Petitioners, however, told them that Moreman withdrew thoseconstruction materials in 1977.

Hence, on December 11, 1985, respondent filed with the RegionaTrial Court, Branch 160, Pasig City, an action for damages with anapplication for a writ of preliminary attachment againstpetitioners,7docketed as Civil Case No. 53044.

In the meantime, on October 30, 1986, respondent was appointedJudge of the Regional Trial Court, Branch 12, San Jose Antique.8

On August 25, 1989, or after almost four (4) years, the trial courtdismissed respondent's complaint for his failure to prosecute andfor lack of interest."9On September 6, 1994, or five yearsthereafter, respondent filed a motion for reconsideration, but thesame was denied in the Order dated September 9, 1994 becauseof the failure of respondent and his counsel to appear on thescheduled hearing.10

On October 14, 1994, respondent filed a second motion for

reconsideration. This time, the motion was granted and the casewas ordered reinstated on January 10, 1995, or ten (10) years fromthe time the action was originally filed.11 Thereafter, summonstogether with the copies of the complaint and its annexes, were

served on petitioners.

On March 2, 1995, counsel for petitioners filed a motion todismiss on several grounds.12Respondent, on the other handmoved to declare petitioners in default on the ground that theirmotion to dismiss was filed out of time and that it did not containany notice of hearing.13

On April 27, 1995, the trial court issued an order declaringpetitioners in default.14

Petitioners filed with the Court of Appeals a petition forcertiorari15to annul the trial court's order of default, but the

same was dismissed in its Order16

dated August 31, 1995. Thecase reached this Court, and in a Resolution dated October 251995,17we affirmed the assailed order of the Court of Appeals. OnNovember 29, 1995,18the corresponding Entry of Judgment wasissued.

Thus, upon the return of the records to the RTC, Branch 160Pasig City, respondent was allowed to present his evidence ex

parte.

Upon motion of respondent, which was granted by the trial courtin its Order dated April 29, 1996,19the depositions of hiswitnesses, namely, Leonardo Conge, Alfredo Maceda and EngrDamiano Nadera were taken in the Metropolitan Trial Court in

Cities, Branch 2, Tacloban City.20 Deponent Leonardo Conge, alabor contractor, testified that on December 14 up to December24, 1977, he was contracted by petitioner Lily Chan to get bags ocement from the New Gran Hotel construction site and to storethe same into the latter's warehouse in Tacloban City. Aside fromthose bags of cement, deponent also hauled about 400 bundles osteel bars from the same construction site, upon order opetitioners. Corresponding delivery receipts were presented andmarked as Exhibits "A", "A-1", "A-2", "A-3" and "A-4". 21

Deponent Alfredo Maceda testified that he was respondent'sDisbursement and Payroll Officer who supervised theconstruction and kept inventory of the properties of the New


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Gran Hotel. While conducting the inventory on November 23,1977, he found that the approximate total value of the materialsstored in petitioners' warehouse was P214,310.00. This amountwas accordingly reflected in the certification signed by MarioRamos, store clerk and representative of Moreman who waspresent during the inventory.22

Deponent Damiano Nadera testified on the current cost of thearchitectural and structural requirements needed to completethe construction of the New Gran Hotel.23

On December 26, 1996, the trial court rendered a decision infavor of respondent, thus:

"WHEREFORE, foregoing considered, judgment ishereby rendered ordering defendants to jointly andseverally pay plaintiff:

1) P1,930,000.00 as actual damages;

2) P2,549,000.00 as actual damages;

3) Moral damages of P150,000.00; exemplary

damages of P50,000.00 and attorney's fees ofP50,000.00 and to pay the costs.

"SO ORDERED."

The trial court ratiocinated as follows:

"The inventory of other materials, aside from the steelbars and cement is found highly reliable based on first,the affidavit of Arthur Edralin dated September 15,1979, personnel officer of Moreman Builders that hewas assigned with others to guard the warehouse;(Exhs. "M" & "O"); secondly, the inventory (Exh. "C")dated November 23, 1977 shows (sic) deposit ofassorted materials; thirdly, that there were items in thewarehouse as of February 3, 1978 as shown in thebalance sheet of Moreman's stock clerk Jose Cedilla.

"Plaintiff is entitled to payment of damages for theoverhauling of materials from the construction site byLily Chan without the knowledge and consent of itsowner. Article 20 of the Civil Code provides:

'Art. 20. Every person who contrary to law,willfully or negligently caused damage toanother, shall indemnify the latter for thesame.'

"As to the materials stored inside the bodega ofdefendant Wilson Chan, the inventory (Exh. "C") show(sic), that the same were owned by the New Gran Hotel.Said materials were stored by Moreman Builders Co.,Inc. since it was attested to by the warehouseman aswithout any lien or encumbrances, the defendants areduty bound to release it. Article 21 of the Civil Codeprovides:

'Art. 21. Any person who willfully caused lossor injury to another in a manner that iscontrary to morals, good customs or public

policy shall compensate the latter for thedamage.'

"Plaintiff is entitled to payment of actual damages basedon the inventory as of November 23, 1977 amounting toP1,930,080.00 (Exhs. "Q" & "Q-1"). The inventory wassigned by the agent Moreman Builders Corporation anddefendants.

"Plaintiff is likewise entitled to payment of 12,500 bags

of cement and 400 bundles of steel bars totalingP2,549,000.00 (Exhs. "S" & "S-1"; Exhs. "B" & "B-3").

"Defendants should pay plaintiff moral damages oP150,000.00; exemplary damages of P50,000.00 andattorney's fees of P50,000.00 and to pay the costs.

"The claim of defendant for payment of damages withrespect to the materials appearing in the balance sheetsas of February 3, 1978 in the amount of P3,286,690.00not having been established with enoughpreponderance of evidence cannot be given weight."24

Petitioners then elevated the case to the Court of Appealsdocketed as CA-G.R. CV No. 57323. On June 17, 1999, theAppellate Court rendered the assailed Decision25affirming intotothe trial court's judgment, ratiocinating as follows:

"Moreover, although the prayer in the complaint did notspecify the amount of damages sought, the same wassatisfactorily proved during the trial. For damages to beawarded, it is essential that the claimant satisfactorilyprove during the trial the existence of the factual basisthereof and its causal connection with the adverseparty's act (PAL, Inc. vs. NLRC, 259 SCRA 459). Insustaining appellee's claim for damages, the court a quoheld as follows:

'The Court finds the contention of plaintiff thatmaterials and equipment of plaintiff werestored in the warehouse of defendants andadmitted by defendants in the certificationissued to Sheriff Borja. x x x

'Evidence further revealed that assortedmaterials owned by the New Gran Hotel (Exh"C") were deposited in the bodega odefendant Wilson Chan with a total marketvalue of P1,930,000.00, current price.

'The inventory of other materials, aside from

the steel bars and cement, is highly reliablebased on first, the affidavit of Arthur Edralindated September 15, 1979, personnel officerof Moreman Builders; that he was assignedwith others to guard the warehouse (Exhs. M& O); secondly, the inventory (Exh. C)November 23, 1977 shows deposit of assortedmaterials; thirdly, that there were items in thewarehouse as of February 3, 1978, as shown inthe balance sheet of Moreman's stock clerkJose Cedilla (pp. 6061, Rollo).'

"The Court affirms the above findings.


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"Well settled is the rule that 'absent any proper reasonto depart from the rule, factual conclusions reached bythe trial court are not to be disturbed (People vs. Dupali,230 SCRA 62).' Hence, in the absence of any showingthat serious and substantial errors were committed bythe lower court in the appraisal of the evidence, the trialjudge's assessment of the credibility of the witnesses isaccorded great weight and respect (People vs. Jain, 254SCRA 686). And, there being absolutely nothing onrecord to show that the court a quooverlooked,disregarded, or misinterpreted facts of weight andsignificance, its factual findings and conclusions must begiven great weight and should not be disturbed onappeal.

"WHEREFORE, being in accord with law and evidence,the appealed decision is hereby AFFIRMED in toto."

Hence, this petition for review on certiorari anchored on thefollowing grounds:

I

The Court of Appeals acted with grave abuse of discretion and

under a misapprehension of the law and the facts when itaffirmed in toto the award of actual damages made by the trialcourt in favor of respondent in this case.

II

The awards of moral and exemplary damages of the trial court torespondent in this case and affirmed in totoby the Court ofAppeals are unwarranted by the evidence presented byrespondent at the ex partehearing of this case and should,therefore, be eliminated or at least reduced.

III

The award of attorney's fees by the trial court to respondent inthis case and affirmed by the Court of Appeals should be deletedbecause of the failure of the trial court to state the legal andfactual basis of such award."

Petitioners contend inter aliathat the actual damages claimed byrespondent in the present case were already awarded to him inCivil Case No. 11349826 and hence, cannot be recovered by himagain. Even assuming that respondent is entitled to damages, hecan not recover P4,479,000.00 which is eleven (11) times morethan the total actual damages of P365,000.00 awarded to him inCivil Case No. 113498.27

In his comment on the petition, respondent maintains thatpetitioners, as depositaries under the law, have both the fiduciaryand extraordinary obligations not only to safely keep theconstruction material deposited, but also to return them with alltheir products, accessories and accessions, pursuant to Articles1972,281979,291983,30and 198831of the Civil Code. Consideringthat petitioners' duty to return the construction materials inquestion has already become impossible, it is only proper thatthe prices of those construction materials in 1996 should be thebasis of the award of actual damages. This is the only way tofulfill the "duty to return" contemplated in the applicablelaws.32Respondent further claims that petitioners must bear theincrease in market prices from 1977 to 1996 because liability for

fraud includes "all damages which may be reasonably attributedto the non-performance of the obligation." Lastly, respondeninsists that there can be no double recovery because in Civil CaseNo. 113498,33the parties were respondent himself and Moremanand the cause of action was the rescission of their buildingcontract. In the present case, however, the parties are respondentand petitioners and the cause of action between them is forrecovery of damages arising from petitioners' failure to returnthe construction materials and equipment.

Obviously, petitioners' assigned errors call for a review of thelower court's findings of fact.

Succinct is the rule that this Court is not a trier of facts and doesnot normally undertake the re-examination of the evidencesubmitted by the contending parties during the trial of the caseconsidering that findings of fact of the Court of Appeals aregenerally binding and conclusive on this Court.34The jurisdictionof this Court in a petition for review on certiorari is limited toreviewing only errors of law,35not of fact, unless it is shown, intealia, that: (1) the conclusion is a finding grounded onspeculations, surmises or conjectures; (2) the inference ismanifestly mistaken, absurd and impossible; (3) there is graveabuse of discretion; (4) the judgment is based on

misapprehension of facts; (5) the findings of fact are conflictingand (6) the Court of Appeals, in making its findings went beyondthe issues of the case and the same is contrary to the admission oboth parties.36

Petitioners submit that this case is an exception to the generalrule since both the trial court and the Court of Appeals basedtheir judgments on misapprehension of facts.

We agree.

At the outset, the case should have been dismissed outright bythe trial court because of patent procedural infirmities. It bearsstressing that the case was originally filed on December 11, 1985

Four (4) years thereafter, or on August 25, 1989, the case wasdismissed for respondent's failure to prosecute. Five (5) yearsafter, or on September 6, 1994, respondent filed his motion forreconsideration. From here, the trial court already erred in itsruling because it should have dismissed the motion forreconsideration outright as it was filed far beyond the fifteen-dayreglementary period.37Worse, when respondent filed his secondmotion for reconsideration on October 14, 1994, a prohibitedpleading,38 the trial court still granted the same and reinstatedthe case on January 10, 1995. This is a glaring gross proceduralerror committed by both the trial court and the Court of Appeals.

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

It must be stressed that respondent's claim for damages is basedon petitioners' failure to return or to release to him theconstruction materials and equipment deposited by Moreman totheir warehouse. Hence, the essential issues to be resolved are(1) Has respondent presented proof that the constructionmaterials and equipment were actually in petitioners' warehousewhen he asked that the same be turned over to him? (2) If so,does respondent have the right to demand the release of the saidmaterials and equipment or claim for damages?

Under Article 1311 of the Civil Code, contracts are binding uponthe parties (and their assigns and heirs) who execute them. When


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there is no privity of contract, there is likewise no obligation orliability to speak about and thus no cause of action arises.Specifically, in an action against the depositary, the burden is onthe plaintiff to prove the bailment or deposit and theperformance of conditions precedent to the right of action.39Adepositary is obliged to return the thing to the depositor, or to hisheirs or successors, or to the person who may have beendesignated in the contract.40

In the present case, the record is bereft of any contract of deposit,

oral or written, between petitioners and respondent. If at all, itwas only between petitioners and Moreman. And grantingarguendo that there was indeed a contract of deposit betweenpetitioners and Moreman, it is still incumbent upon respondentto prove its existence and that it was executed in his favor.However, respondent miserably failed to do so. The only pieces ofevidence respondent presented to prove the contract of depositwere the delivery receipts.41 Significantly, they areunsigned andnot 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 ourlaws grant a person the remedial right to prosecute or institute acivil action against another for the enforcement or protection of aright, or the prevention or redress of a wrong, 42every cause ofaction ex-contractumust be founded upon a contract, oral or

written, express or implied.

Moreover, respondent also failed to prove that there wereconstruction materials and equipment in petitioners' warehouseat the time he made a demand for their return.

Considering that respondent failed to prove (1) the existence ofany contract of deposit between him and petitioners, norbetween the latter and Moreman in his favor, and (2) that therewere construction materials in petitioners' warehouse at the timeof respondent's demand to return the same, we hold thatpetitioners have no corresponding obligation or liability torespondent with respect to those construction materials.

Anent the issue of damages, petitioners are still not liablebecause, as expressly provided for in Article 2199 of the CivilCode,43actual or compensatory damages cannot be presumed,but must be proved with reasonable degree of certainty. A courtcannot rely on speculations, conjectures, or guesswork as to thefact and amount of damages, but must depend upon competentproof that they have been suffered by the injured party and onthe best obtainable evidence of the actual amount thereof. It mustpoint out specific facts which could afford a basis for measuringwhatever compensatory or actual damages are borne.44

Considering our findings that there was no contract of depositbetween petitioners and respondent or Moreman and that

actually there were no more construction materials or equipmentin petitioners' warehouse when respondent made a demand fortheir return, we hold that he has no right whatsoever to claim fordamages.

As we stressed in the beginning, a judgment of default does notautomatically imply admission by the defendant of plaintiff'scauses of action. Here, the trial court merely adoptedrespondent's allegations in his complaint and evidence withoutevaluating them with the highest degree of objectivity andcertainty.

WHEREFORE, the petition is GRANTED. The challenged Decisionof the Court of Appeals dated June 17, 1999 is REVERSED andSET ASIDE. Costs against respondent.

SO ORDERED.

Puno, Panganiban, Corona and Carpio Morales, JJ .,concur.


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G.R. No. 102970 May 13, 1993

LUZAN SIA, petitioner,vs.

COURT OF APPEALS and SECURITY BANK and TRUSTCOMPANY, respondents.

Asuncion Law Offices for petitioner.

Cauton, Banares, Carpio & Associates for private respondent.

DAVIDE, JR.,J.:

The Decision of public respondent Court of Appeals in CA-G.R. CVNo. 26737, promulgated on 21 August 1991, 1reversing andsetting aside the Decision, dated 19 February 1990, 2of Branch47 of the Regional Trial Court (RTC) of Manila in Civil Case No.87-42601, entitled "LUZAN SIAvs. SECURITY BANK and TRUSTCO.," is challenged in this petition for review oncertiorariunderRule 45 of the Rules Court.

Civil Case No. 87-42601 is an action for damages arising out ofthe destruction or loss of the stamp collection of the plaintiff

(petitioner herein) contained in Safety Deposit Box No. 54 whichhad been rented from the defendant pursuant to a contractdenominated as a Lease Agreement. 3Judgment therein wasrendered in favor of the dispositive portion of which reads:

WHEREFORE, premises considered, judgmentis hereby rendered in favor of the plaintiff andagainst the defendant, Security Bank & TrustCompany, ordering the defendant bank to paythe plaintiff the sum of

a) Twenty Thousand Pesos (P20,000.00),Philippine Currency, as actual damages;

b) One Hundred Thousand Pesos(P100,000.00), Philippine Currency, as moraldamages; and

c) Five Thousand Pesos (P5,000.00),Philippine Currency, as attorney's fees andlegal expenses.

The counterclaim set up by the defendant arehereby dismissed for lack of merit.

No costs.

SO ORDERED.4

The antecedent facts of the present controversy are summarizedby the public respondent in its challenged decision as follows:

The plaintiff rented on March 22, 1985 theSafety Deposit Box No. 54 of the defendantbank at its Binondo Branch located at theFookien Times Building, Soler St., Binondo,Manila wherein he placed his collection ofstamps. The said safety deposit box leased bythe plaintiff was at the bottom or at the lowestlevel of the safety deposit boxes of the

defendant bank at its aforesaid BinondoBranch.

During the floods that took place in 1985 and1986, floodwater entered into the defendanbank's premises, seeped into the safetydeposit box leased by the plaintiff and causedaccording to the plaintiff, damage to hisstamps collection. The defendant bankrejected the plaintiff's claim for compensation

for his damaged stamps collection, so, theplaintiff instituted an action for damagesagainst the defendant bank.

The defendant bank denied liability for thedamaged stamps collection of the plaintiff onthe basis of the "Rules and RegulationsGoverning the Lease of Safe Deposit Boxes"(Exhs. "A-1", "1-A"), particularly paragraphs 9and 13, which reads (sic):

"9. The liability of the Bank by reason of thelease, is limited to the exercise of the diligenceto prevent the opening of the safe by any

person other than the Renter, his authorizedagent or legal representative;

xxx xxx xxx

"13. The Bank is not a depository of thecontents of the safe and it has neither thepossession nor the control of the same. TheBank has no interest whatsoever in saidcontents, except as herein provided, and itassumes absolutely no liability in connectiontherewith."

The defendant bank also contended that itscontract with the plaintiff over safety depositbox No. 54 was one of lease and not of depositand, therefore, governed by the leaseagreement (Exhs. "A", "L") which should be theapplicable law; that the destruction of theplaintiff's stamps collection was due to acalamity beyond obligation on its part to notifythe plaintiff about the floodwaters thatinundated its premises at Binondo branchwhich allegedly seeped into the safety deposibox leased to the plaintiff.

The trial court then directed that an ocularinspection on (sic) the contents of the safety

deposit box be conducted, which was done onDecember 8, 1988 by its clerk of court in thepresence of the parties and their counsels. Areport thereon was then submitted onDecember 12, 1988 (Records, p. 98-A) andconfirmed in open court by both parties thrucounsel during the hearing on the same date(Ibid., p. 102) stating:

"That the Safety BoxDeposit No. 54 was openedby both plaintiff Luzan Siaand the Acting Branch


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Manager Jimmy B. Ynion inthe presence of theundersigned, plaintiff's anddefendant's counsel. SaidSafety Box when openedcontains two albums ofdifferent sizes andthickness, length and widthand a tin box with printedword 'Tai Ping Shiang RoastPork in pieces with Chinesedesigns and character."

Condition of the above-stated Items

"Both albums are wet, moldy and badlydamaged.

1. The first album measures 10 1/8 inches inlength, 8 inches in width and 3/4 in thick. Theleaves of the album are attached to every pageand cannot be lifted without destroying it,hence the stamps contained therein are nolonger visible.

2. The second album measure 12 1/2 inches inlength, 9 3/4 in width 1 inch thick. Some of itspages can still be lifted. The stamps thereincan still be distinguished but beyondrestoration. Others have lost its original form.

3. The tin box is rusty inside. It contains analbum with several pieces of papers stuck upto the cover of the box. The condition of thealbum is the second abovementioned album."5

The SECURITY BANK AND TRUST COMPANY, hereinafterreferred to as SBTC, appealed the trial court's decision to thepublic respondent Court of Appeals. The appeal was docketed asCA-G.R. CV No. 26737.

In urging the public respondent to reverse the decision of thetrial court, SBTC contended that the latter erred in (a) holdingthat the lease agreement is a contract of adhesion; (b) findingthat the defendant had failed to exercise the required diligenceexpected of a bank in maintaining the safety deposit box; (c)awarding to the plaintiff actual damages in the amount ofP20,000.00, moral damages in the amount of P100,000.00 andattorney's fees and legal expenses in the amount of P5,000.00;and (d) dismissing the counterclaim.

On 21 August 1991, the respondent promulgated its decision thedispositive portion of which reads:

WHEREFORE, the decision appealed from ishereby REVERSED and instead the appellee'scomplaint is hereby DISMISSED. The appellantbank's counterclaim is likewise DISMISSED.No costs.6

In reversing the trial court's decision and absolving SBTC fromliability, the public respondent found and ruled that:

a) the fine print in the "Lease Agreement " (Exhibits "A" and "1" )constitutes the terms and conditions of the contract of leasewhich the appellee (now petitioner) had voluntarily andknowingly executed with SBTC;

b) the contract entered into by the parties regarding Safe DepositBox No. 54 was not a contract of deposit wherein the bankbecame a depositary of the subject stamp collection; hence, ascontended by SBTC, the provisions of Book IV, Title XII of theCivil Code on deposits do not apply;

c) The following provisions of the questioned lease agreement ofthe safety deposit box limiting SBTC's liability:

9. The liability of the bank by reason of thelease, is limited to the exercise of the diligenceto prevent the opening of the Safe by anyperson other than the Renter, his authorizedagent or legal representative.

xxx xxx xxx

13. The bank is not a depository of the

contents of the Safe and it has neither thepossession nor the control of the same. TheBank has no interest whatsoever in saidcontents, except as herein provided, and itassumes absolutely no liability in connectiontherewith.

are valid since said stipulations are not contrary to law, moralsgood customs, public order or public policy; and

d) there is no concrete evidence to show that SBTC failed toexercise the required diligence in maintaining the safety depositbox; what was proven was that the floods of 1985 and 1986which were beyond the control of SBTC, caused the damage to

the stamp collection; said floods were fortuitous events whichSBTC should not be held liable for since it was not shown to haveparticipated in the aggravation of the damage to the stampcollection; on the contrary, it offered its services to secure theassistance of an expert in order to save most of the stamps, buthe appellee refused; appellee must then bear the lose under theprinciple of "res perit domino."

Unsuccessful in his bid to have the above decision reconsideredby the public respondent, 7petitioner filed the instant petitionwherein he contends that:

I

IT WAS A GRAVE ERROR OR AN ABUSE OFDISCRETION ON THE PART OF THERESPONDENT COURT WHEN IT RULED THATRESPONDENT SBTC DID NOT FAIL TOEXERCISE THE REQUIRED DILIGENCE INMAINTAINING THE SAFETY DEPOSIT BOX OFTHE PETITIONER CONSIDERING THATSUBSTANTIAL EVIDENCE EXIST (sic)PROVING THE CONTRARY.


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II

THE RESPONDENT COURT SERIOUSLY ERREDIN EXCULPATING PRIVATE RESPONDENTFROM ANY LIABILITY WHATSOEVER BYREASON OF THE PROVISIONS OFPARAGRAPHS 9 AND 13 OF THE AGR

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