LLB Credtran Set 2 Case Digests

Part IV. Deposit (Articles 1962 2009) Part V. Warehouse Receipt Laws Part VI.
. Guaranty & Suretyship (Articles 2047 2084)
CREDIT TRANSACTIONS II-Manresa Atty. Jazzie Sarona
PART IV. DEPOSIT (Articles 1962 2009) I. Deposit in General and its Different Kinds
a. BPI vs. IAC (G.R. No. L-66826, August 19, 1988) BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. THE INTERMEDIATE APPELLATE COURT and ZSHORNACK respondents. FACTS: The original parties to the case were Zshornack and Commercial Bank and Trust Company of the Phils (Comtrust). In 1980, BPI absorbed Comtrust through a merger and was substituted as party to the case. Zshornack and his wife maintained in Comtrust a dollar savings account and a peso current account. On Dec 8, 1975, Zshornack delivered to the bank $3000 for safekeeping. When he requested the return of the money, Comtrust explained that the sum was disposed of in this manner: US$2,000.00 was sold on December 29, 1975 and the peso proceeds amounting to P14,920.00 were deposited to Zshornack's current account per deposit slip accomplished by Garcia; the remaining US$1,000.00 was sold on February 3, 1976 and the peso proceeds amounting to P8,350.00 were deposited to his current account per deposit slip also accomplished by Garcia. Aside from asserting that the US$3,000.00 was properly credited to Zshornack's current account at prevailing conversion rates, BPI now posits another ground to defeat private respondent's claim. It now argues that the contract embodied in the document is the contract of depositum (as defined in Article 1962, New Civil Code), which banks do not enter into. The bank alleges that Garcia exceeded his powers when he entered into the transaction. Hence, it is claimed, the bank cannot be liable under the contract, and the obligation is purely personal to Garcia. ISSUE: WON the contract between petitioner and respondent bank is a deposit YES HELD: 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, New Civil Code, which reads:
Art. 1962. A deposit is constituted from the moment a person receives a thing belonging to another, with the obligation of safely keeping it and of returning the same. If the safekeeping of the thing delivered is not the principal purpose of the contract, there is no deposit but some other contract . 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. Under the said circular, safekeeping of the greenbacks without selling them to Central Bank within 1 business day from receipt, is a transaction which is not authorized. As earlier stated, 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 the Civil Code, it is void, having been executed against the provisions of a mandatory/prohibitory law. More importantly, it affords neither of the parties a cause of action against the other. "When the nullity proceeds from the illegality of the cause or object of the contract, and the act constitutes a criminal offense, both parties being in pari delicto, they shall have no cause of action against each other. . ." [Art. 1411, New Civil Code.] The only remedy is one on behalf of the State to prosecute the parties for violating the law. Therefore, Zshornack cannot recover under this cause of action. II. Voluntary Deposit
a. Calibo vs. CA (G.R. No. 120528, January 29, 2001) ATTY. DIONISIO CALIBO, JR., petitioner, vs. COURT OF APPEALS and DR. PABLO U. ABELLA, respondents. FACTS: Pablo Abella purchased an agricultural tractor for his farm in Bohol.
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Part IV. Deposit (Articles 1962 2009) Part V. Warehouse Receipt Laws Part VI. Guaranty & Suretyship (Articles 2047 2084)
Sometime in October or November 1985, Pablo Abella's son, Mike, rented for residential purpose the house of Dionosio Calibo, Jr. In October 1986, Pablo Abella pulled out his aforementioned tractor from his farm, and left it in the safekeeping of his son, Mike. Mike kept the tractor in the garage of the house he was leasing from Calibo. At the start, Mike had been religiously paying the monthly rentals to Calibo, but beginning November of 1986, he stopped doing so. Mike also never paid the charges for electric and water consumption in the leased premises which the latter was duty-bound to shoulder. Mike assured Calibo that he would be settling his account with the latter, offering the tractor as security. Mike even asked Calibo to help him find a buyer for the tractor so he could sooner pay his outstanding obligation. Calibo thereafter had been trying to collect the payment from Mike several times but did not succeed. After a long while, or on November 22, 1988, Pablo Abella, went to Calibo to claim and take possession of the tractor. Calibo, however, informed Pablo that Mike left the tractor with him as security for the payment of Mike's obligation to him. Pablo offered to write Mike a check for P2,000 in payment of Mike's unpaid lease rentals, in addition to issuing postdated checks to cover the unpaid electric and water bills the correctness of which Pablo said he still had to verify with Mike. Calibo told Pablo that he would accept the P2,000.00-check only if the latter would execute a promissory note in his favor to cover the amount of the unpaid electric and water bills. Pablo was not amenable to this proposal. The two of them having failed to come to an agreement, Pablo left and went back to Cebu City, unsuccessful in his attempt to take possession of the tractor. Later, Pablo Abella instituted an action for replevin, claiming ownership of the tractor and seeking to recover possession thereof from Calibo. RTC ruled in favor of Pablo; so did the CA. Calibo before the SC now claims that the tractor in question was validly pledged to him by Pablos son, Mike, to answer for the latter's monetary obligations to Calibo. In the alternative, Calibo asserts that the tractor was left with him, in the concept of an innkeeper, on deposit and that he may validly hold on thereto until Mike pays his obligations.
same. Calibo himself states that he received the tractor not to safely keep it but as a form of security for the payment of Mike Abella's obligations. There is no deposit where the principal purpose for receiving the object is not safekeeping . Consequently, Calibo had no right to refuse delivery of the tractor to its lawful owner. On the other hand, Pablo, as owner, had every right to seek to repossess the tractor , including the institution of the instant action for replevin. Other SC Rulings (but not related to topic): No Contract of Pledge In a contract of pledge, the creditor is given the right to retain his debtor's movable property in his possession, or in that of a third person to whom it has been delivered, until the debt is paid. For the 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 his property, and in the absence thereof, that he be legally authorized for the purpose. As found by the RTC and CA, the pledgor in this case, Mike Abella, was not the absolute owner of the tractor that was allegedly pledged to Calibo. The tractor was owned by his father, Pablo, who left the equipment with him for safekeeping. Clearly, the second requisite for a valid pledge, that the pledgor be the absolute owner of the property, is absent in this case. Hence, there is no valid pledge. No Agency between Mike and Pablo: As indicated in Article 1869, for an agency relationship to be deemed as implied, the principal must know that another person is acting on his behalf without authority. Here, Pablo categorically stated that the only purpose for his leaving the subject tractor in the care and custody of Mike was for safekeeping, and definitely not for him to pledge or alienate the same. If it were true that Mike pledged the tractor to Calibo, then Mike was acting not only without Pablo's authority but without the latter's knowledge as well. In view of Pablo's lack of knowledge of Mike's pledging the tractor without any authority from him, it stands to reason that the former could not have allowed the latter to pledge the tractor as if he had full powers to do so. Calibos petition is DENIED. CAs decision affirmed. POLICY: There is no deposit where the principal purpose for receiving the object is not safekeeping.
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ISSUE: WON there was a valid deposit (of the tractor) in this case - NO HELD: There is no valid deposit in this case. In a contract of deposit, a person receives an object belonging to another with the obligation of safely keeping it AND of returning the
b. Chan vs. Maceda (402 SCRA 352, G.R. No. 142591, April 30, 2003) JOSEPH CHAN, WILSON CHAN and LILY CHAN, petitioners, vs. BONIFACIO S. MACEDA, JR., * respondent. FACTS: On July 28, 1976, Bonifacio S. Maceda, Jr., herein respondent, obtained a P7.3 million loan from the Development Bank of the Philippines for the construction of his New Gran Hotel Project in Tacloban City. Thereafter, on September 29, 1976, respondent entered into a building construction contract with Moreman Builders Co., Inc., (Moreman). 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, respondent filed with the then Court of First Instance (CFI, now Regional Trial Court), Branch 39, Manila, an action for rescission and damages against Moreman, docketed as Civil Case No. 113498. Meanwhile, during the pendency of the case, respondent ordered petitioners to return to him the construction materials and equipment which Moreman deposited in their warehouse. Petitioners, however, told them that Moreman withdrew those construction materials in 1977. Hence, on December 11, 1985, respondent filed with the Regional Trial Court, Branch 160, Pasig City, an action for damages with an application for a writ of preliminary 7 attachment against petitioners, docketed as Civil Case No. 53044. ISSUES: 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? NO 2. If so, does respondent have the right to demand the release of the said materials and equipment or claim for damages? NO HELD: Under Article 1311 of the Civil Code, 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. If at all, it was only between petitioners and Moreman. And granting arguendo that there was indeed a contract of deposit between petitioners and Moreman, it is still incumbent upon respondent to prove its existence and that it was executed in his favor. However, respondent 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 excontractu 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, we hold that petitioners have no corresponding obligation or liability to respondent with respect to those construction materials. Anent the issue of damages, petitioners are still not liable because, as expressly provided for in Article 2199 of the Civil Code, actual or compensatory damages cannot be presumed, but must be proved with reasonable degree of certainty. A court cannot rely on speculations, conjectures, or guesswork as to the fact and amount of damages, but must depend upon competent proof that they have been suffered by the injured party and on the best obtainable evidence of the actual amount thereof. It must point out specific facts which could afford a basis for measuring whatever compensatory or actual damages are borne. Considering our findings that there was no contract of deposit between petitioners and respondent or Moreman
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and that actually 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. c. Sia vs. CA (G.R. No. 102970, May 13, 1993) LUZAN SIA, petitioner, vs. COURT OF APPEALS and SECURITY BANK and TRUST COMPANY, respondents. FACTS: Herein petitioner and respondent entered into a contract denominated as a Lease Agreement whereby the former rented a safety deposit box owned by the latter . Petitioner placed in the deposit box her stamp collection which was subsequently lost and damaged due to a flood that took place in 1985 and 1986. The defendant bank rejected the petitioner s claim for compensation for his damaged stamps collection, so, the plaintiff instituted an action for damages against the defendant bank. The bank alleged that the contract was that of lease and its liability was 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; 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. RTC ruled in favor of petitioner. CA reversed the decision . ISSUE: Is SBTC liable for damages and loss? YES HELD: SBTC is a Depository Notwithstanding the Contract of Lease In the recent case CA Agro-Industrial Development Corp. vs. Court of Appeals, the Court held that the use of a safety deposit box is not a contract of lease and that it is actually a special kind of deposit. The prevailing rule in American jurisprudence that the relation between a bank renting out safe deposit boxes and its customer with respect to the contents of the box is that of a bailor and bailee, the bailment for hire and mutual benefit has been adopted in this jurisdiction, thus: In the context of our laws which authorize banking institutions to rent out safety deposit boxes, it is clear that in this jurisdiction, the prevailing rule in the United States has been adopted. Section 72 of
the General Banking Act [R.A. 337, as amended] pertinently provides: "Sec. 72. In addition to the operations specifically authorized elsewhere in this Act, banking institutions other than building and loan associations may perform the following services: (a) Receive in custody funds, documents, and valuable objects, and rent safety deposit boxes for the safequarding of such effects. xxx xxx xxx The banks shall perform the services permitted under subsections (a), (b) and (c) of this section asdepositories or as agents. . . ."(emphasis supplied) Note that 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 (Art. 1969, Civil Code] and, pursuant to Article 1306 of the Civil Code, the parties thereto may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy. The depositary's responsibility for the safekeeping of the objects deposited in the case at bar is governed by Title I, Book IV of the Civil Code. Accordingly, the depositary would be liable if, in performing its obligation, it is found guilty of fraud, negligence, delay or contravention of the tenor of the agreement [Art. 1170, id.]. In the absence of any stipulation prescribing the degree of diligence required, that of a good father of a family is to be observed [Art. 1173, id.]. 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. Condition 13 and 14 of the Contract of Lease are Void Conditions 13 and l4 of the questioned contract of lease of the safety deposit box, which read: "13. The bank is 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 as herein expressly provided, and it assumes absolutely no liability in connection therewith."
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are void as they are contrary to law and public policy. Said provisions are inconsistent with the respondent Bank's responsibility as a depositary under Section 72 (a) of the General Banking Act. Furthermore, condition 13 stands on a wrong premise and is contrary to the actual practice of the Bank. It is not correct to assert that the Bank has neither the possession nor control of the contents of the box since in fact, the safety deposit box itself is located in its premises and is under its absolute control; moreover, the respondent Bank keeps the guard key to the said box. As stated earlier, renters cannot open their respective boxes unless the Bank cooperates by presenting and using this guard key. Clearly then, to the extent above stated, the foregoing conditions in the contract in question are void and ineffective. It has been said: "With respect to property deposited in a safe-deposit box by a customer of a safe-deposit company, the parties, since the relation is a contractual one, may by special contract define their respective duties or provide for increasing or limiting the liability of the deposit company, provided such contract is not in violation of law or public policy. It must clearly appear that there actually was such a special contract, however, in order to vary the ordinary obligations implied by law from the relationship of the parties; liability of the deposit company will not be enlarged or restricted by words of doubtful meaning. The company, in renting safe-deposit boxes, cannot exempt itself from liability for loss of the contents by its own fraud or negligence or that, of its agents or servants, and if a provision of the contract may be construed as an attempt to do so, it will be held ineffective for the purpose. Although it has been held that the lessor of a safe-deposit box cannot limit its liability for loss of the contents thereof through its own negligence, the view has been taken that such a lessor may limit its liability to some extent by agreement or stipulation. SBTC is Negligent Respondent cannot invoke fortuitous event under Article 1174by reason of its 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. In view thereof, it should have lost no time in notifying the petitioner in order that the box could have been opened to retrieve the stamps, thus saving the same from further deterioration and loss. 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 is therefore applicable ; Those who in the performance of their obligation are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages d. CA Agro-Industrial vs. CA (G.R. No. 90027, March 3, 1993) CA AGRO-INDUSTRIAL DEVELOPMENT CORP., petitioner, vs. THE HONORABLE COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents. FACTS: On 3 July 1979, petitioner (through its President, Sergio Aguirre) and the spouses Ramon and Paula Pugao entered into an agreement whereby the former purchased from the latter two (2) parcels of land for a consideration of P350,625.00. Of this amount, P75,725.00 was paid as downpayment while the balance was covered by three (3) postdated checks. Among the terms and conditions of the agreement embodied 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 upon full payment of the purchase price and that the owner's copies of the certificates of titles thereto, Transfer Certificates of Title (TCT) Nos. 284655 and 292434, shall be deposited in a safety deposit box of any bank. The same could be withdrawn only upon the joint signatures of a representative of the petitioner and the Pugaos upon full payment of the purchase price. Petitioner, through Sergio Aguirre, and the Pugaos then rented Safety Deposit Box No. 1448 of private respondent Security Bank and Trust Company, a domestic banking corporation hereinafter referred to as the respondent Bank. For this purpose, both signed a contract of lease (Exhibit "2") which contains, inter alia, the following conditions: 13. The bank is not a depositary of the contents of the safe and it has neither the possession nor control of the same. 14. The bank has no interest whatsoever in said contents, except herein expressly provided, and it assumes absolutely no liability in connection therewith. After the execution of the contract, two (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 two (2) keyholes, one for the guard key and the other for the renter's key, and can be opened
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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 two (2) lots at a price of P225.00 per square meter which, as petitioner alleged in its complaint, 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 necessarily entailed the production of the certificates of title. In view thereof, Aguirre, accompanied by the Pugaos, then proceeded to the respondent Bank on 4 October 1979 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; as a consequence thereof, the petitioner allegedly failed to realize the expected profit of P280,500.00. Hence, the latter filed on 1 September 1980 a complaint for damages against the respondent Bank with the Court of First Instance (now Regional Trial Court) of Pasig, Metro Manila which docketed the same as Civil Case No. 38382. 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 (Exhibit "2"); corollarily, loss of any of the items or articles contained in the box could not give rise to an action against it. It then interposed a counterclaim for exemplary damages as well as attorney's fees in the amount of P20,000.00. Petitioner subsequently filed an answer to the counterclaim. ISSUE: Is the contractual relation between a commercial bank and another party in a contract of rent of a safety deposit box with respect to its contents placed by the latter one of bailor and bailee or one of lessor and lessee? BAILOR AND BAILEE. HELD: We agree with the petitioner's contention that the contract for the rent of the safety deposit box is not an ordinary contract of lease as defined in Article 1643 of the Civil Code. However, We do not fully subscribe to its view that the same is a contract of deposit that is to be strictly governed by the provisions in the Civil Code on deposit; the contract in the case at bar is a special kind of deposit. It cannot be characterized as an ordinary contract of lease under Article 1643 because the full and absolute possession and control of the safety deposit box was not given to the joint renters the petitioner and the Pugaos. The guard key of the box remained with the respondent Bank; without this key, neither of the renters could open the box. On the other hand, the respondent Bank could not likewise open the box without the renter's key. In this case, the said key had a
duplicate which was made so that both renters could have access to the box. Hence, the authorities cited by the respondent Court on this point do not apply. Neither could Article 1975, also relied upon by the respondent Court, be invoked as an argument against the deposit theory. Obviously, the first paragraph of such provision cannot apply to a depositary of certificates, bonds, securities or instruments which earn interest if such documents are kept in a rented safety deposit box. It is clear that the depositary cannot open the box without the renter being present. We observe, however, that the deposit theory itself does not altogether find unanimous support even in American jurisprudence. We 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. In the context of our laws which authorize banking institutions to rent out safety deposit boxes, it is clear that in this jurisdiction, the prevailing rule in the United States has been adopted. Section 72 of the General Banking Act pertinently provides: Sec. 72. In addition to the operations specifically authorized elsewhere in this Act, banking institutions other than building and loan associations may perform the following services: (a) Receive in custody funds, documents, and valuable objects, and rent safety deposit boxes for the safeguarding of such effects. xxx xxx xxx The banks shall perform the services permitted under subsections (a), (b) and (c) of this section as depositories or as agents. . . . Note that the primary function is still found within the parameters of a contract of deposit, 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 in the case at bar is governed by Title I, Book IV of the Civil
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Code. Accordingly, the depositary would be liable if, in performing its obligation, it is found guilty of fraud, negligence, delay or contravention of the tenor of the agreement. In the absence of any stipulation prescribing the degree of diligence required, that of a good father of a family is to be observed. Hence, any stipulation exempting the depositary from any liability arising from the loss of the thing deposited on account of fraud, negligence or delay would be void for being contrary to law and public policy. In the instant case, petitioner maintains that conditions 13 and 14 of the questioned contract of lease of the safety deposit box, which read: 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. are void as they are contrary to law and public policy. We find Ourselves in agreement with this proposition for indeed, said provisions are inconsistent with the respondent Bank's responsibility as a depositary under Section 72(a) of the General Banking Act. Both exempt the latter from any liability except as contemplated in condition 8 thereof which limits its duty to exercise reasonable diligence only with respect to who shall be admitted to any rented safe, to wit: 8. The Bank shall use due diligence that no unauthorized person shall be admitted to any rented safe and beyond this, the Bank will not be responsible for the contents of any safe rented from it. Furthermore, condition 13 stands on a wrong premise and is contrary to the actual practice of the Bank. It is not correct to assert that the Bank has neither the possession nor control of the contents of the box since in fact, the safety deposit box itself is located in its premises and is under its absolute control; moreover, the respondent Bank keeps the guard key to the said box. As stated earlier, renters cannot open their respective boxes unless the Bank cooperates by presenting and using this guard key. Clearly then, to the extent above stated, the foregoing conditions in the contract in question are void and ineffective. Thus, we reach the same conclusion which the Court of Appeals arrived at, that is, that the petition should be dismissed, but on grounds quite different from those relied upon by the Court of Appeals. In the instant case, the respondent Bank's exoneration cannot, contrary to the holding of the Court of Appeals, be based on or proceed from
a characterization of the impugned contract as a contract of lease, but rather on the fact that no competent proof was presented to show that respondent Bank was aware of the agreement between the petitioner and the Pugaos to the effect that the certificates of title were withdrawable from the safety deposit box only upon both parties' joint signatures, and that no evidence was submitted to reveal that the loss of the certificates of title was due to the fraud or negligence of the respondent Bank. This in turn flows from this Court's determination that the contract involved was one of deposit. Since both the petitioner and the Pugaos agreed that each should have one (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. e. Baron vs. David (G.R. Nos. L-26948 and L-26949, October 8, 1927) SILVESTRA BARON, plaintiff-appellant, vs. PABLO DAVID, defendant-appellant and GUILLERMO BARON, plaintiffappellant, vs. PABLO DAVID, defendant-appellant. FACTS: Silvestra and Guillermo are Pablo Davids aunt and uncle. Pablo owned a popular rice mill in Pampanga, which burned in a fire on Jan. 17 1921. Prior to the fire, at around June 1920, Silvestra deposited 1k cavans and 24kilos of rice in Pablos mill. Guillermo placed another 1.8k cavans and 43kilos. Pablo made an advance to Guillermo in the amount of P2800. The Barons claim that they sold the palay to David; that the deliveries were made at Davids request, as he promised that he would resell the palay during the times when the selling price were the highest. He would then pay his aunt and uncle in December. David, on the other hand, claims that the palay were mere deposits subject to future withdrawal the depositors or subject to some future sale which was never effected. He therefore supposes himself to be relieved from all responsibility by virtue of the fire of January 17, 1921. ISSUES: 1.) What is the nature of the contract between the Barons and David? COMMODATUM 2.) WON David is liable for the value of the palay. YES HELD: Contract of commodatum present if depository has permission to make use of the thing deposited Under article 1768 of the Civil Code, when the depository has permission to make use of the thing
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deposited, the contract loses the character of mere deposit and becomes a loan or a commodatum; and of course by appropriating the thing, the bailee becomes responsible for its value. The Court further said that Davids lawyers were under the mistaken impression that if they were to prove that the contract was that of a deposit, David would be absolved of liability. Even if the palay may have been delivered in the character of deposit, subject to future sale or withdrawal at plaintiffs' election, nevertheless if it was understood that the defendant might mill the palay and he has in fact appropriated it to his own use, he is of course bound to account for its value. David is liable, as he has appropriated the palay delivered by the Barons long before the fire The palay in question was placed by the plaintiffs in the defendant's mill with the understanding that the defendant was at liberty to convert it into rice and dispose of it at his pleasure. The mill was actively running during the entire season, and as palay was daily coming in from many customers and as rice was being constantly shipped by the defendant to Manila, or other rice markets, it was impossible to keep the plaintiffs' palay segregated. In view of the nature of the defendant's activities and the way in which the palay was handled in the defendant's mill, it is quite certain that all of the plaintiffs' palay, which was put in before June 1, 1920, been milled and disposed of long prior to the fire of January 17, 1921. Considering the fact that the defendant had thus milled and doubtless sold the plaintiffs' palay prior to the date of the fire, it result that he is bound to account for its value, and his liability was not extinguished by the occurence of the fire. f. Javellana vs. Lim (G.R. No. 4015, August 24, 1908) ANGEL JAVELLANA, plaintiff-appellee, vs. JOSE LIM, ET AL., defendants-appellants FACTS: Angel Javellana filed a complaint on the 30th of October, 1906 against Jose Lim and Ceferino Domingo Lim. It was then alleged that on the 26th of May, 1897, Lim executed and subscribed a document, in favor of Javellana, reading as follows: We have received from Angel Javellana, as a deposit without interest, the sum of two thousand six hundred and eighty-six cents of pesos fuertes, which we will return to the said gentleman, jointly and severally, on the 20th of January, 1898. Jaro, 26th
of May, 1897. Signed Jose Lim. Signed: Ceferino Domingo Lim. It was also alleged that, when the obligation became due, Lim begged Javellana for an extension of time for the payment thereof, building themselves to pay interest at the rate of 15 per cent on the amount of their indebtedness, to which Javellana acceded; that on the 15th of May, 1902, the debtors paid on account of interest due the sum of P1,000 pesos, with the exception of either capital or interest, had thereby been subjected to loss and damages. Lim answered that they admitted the statements of the plaintiff relative to the payment of 1,102.16 pesos made on the 15th of November, 1902, not, however, as payment of interest on the amount stated in the foregoing document, but on account of the principal, and denied that there had been any agreement as to an extension of the time for payment and the payment of interest at the rate of 15 per cent per annum. ISSUE: WON the contract is a deposit. NO, it was a contract of loan. HELD: The document of indebtedness inserted in the complaint states that the Javellana left on deposit with Lim a given sum of money which they were jointly and severally obliged to return on a certain date fixed in the document; but that, nevertheless, when the document written in the Visayan dialect and followed by a translation into Spanish was executed, it was acknowledged, at the date thereof, the 15th of November, 1902, that the amount deposited had not yet been returned to Javellana. He was subjected to losses and damages amounting to 830 pesos since the 20th of January, 1898, when the return was again stipulated with the further agreement that the amount deposited should bear interest at the rate of 15 per cent per annum from January 20. The 1,000 pesos paid to the depositor on the 15th of May, 1900, according to the receipt issued by him to the debtors, would be included, and that the said rate of interest would obtain until the debtors on the 20th of May, 1897, it is called a deposit consisted, and they could have accomplished the return agreed upon by the delivery of a sum equal to the one received by them. For this reason it must be understood that the debtors were lawfully authorized to make use of the amount deposited, which they have done, as subsequent shown when asking for an extension of the time for the return thereof, inasmuch as, acknowledging that they have subjected the letter, their creditor, to losses and damages for not complying with what had been stipulated, and being conscious that they had used, for their own profit and gain, the money that they
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received apparently as a deposit, they engaged to pay interest to the creditor from the date named until the time when the refund should be made. Such conduct on the part of the debtors is unquestionable evidence that the transaction entered into between the interested parties was not a deposit, but a real contract of loan. Article 1767 of the Civil Code provides that The depository can not make use of the thing deposited without the express permission of the depositor. Otherwise he shall be liable for losses and damages. Article 1768 also provides that When the depository has permission to make use of the thing deposited, the contract loses the character of a deposit and becomes a loan or bailment. The permission shall not be presumed, and its existence must be proven. Depository making use of the thing deposited: When on one of the latter days of January, 1898, Jose Lim went to the office of the creditor asking for an extension of one year, in view of the fact the money was scare, and because neither himself nor the other defendant were able to return the amount deposited, for which reason he agreed to pay interest at the rate of 15 per cent per annum, it was because, as a matter of fact, he did not have in his possession the amount deposited, he having made use of the same in his business and for his own profit; Express permission: Javellana, the creditor, by granting them the extension, evidently confirmed the express permission previously given to use and dispose of the amount stated as having been deposited, which, in accordance with the loan, to all intents and purposes gratuitously, until the 20th of January, 1898, and from that dated with interest at 15 per cent per annum until its full payment, deducting from the total amount of interest the sum of 1,000 pesos, in accordance with the provisions of article 1173 of the Civil Code. Notwithstanding that it does not appear that Jose Lim signed the document executed in the presence of three witnesses on the 15th of November, 1902, by Ceferino Domingo Lim on behalf of himself and the former, nevertheless, the said document has not been contested as false, either by a criminal or by a civil proceeding, nor has any doubt been cast upon the authenticity of the signatures of the witnesses who attested the execution of the same; and from the evidence in the case one is sufficiently convinced that the said Jose Lim was perfectly aware of and authorized his joint codebtor to liquidate the interest, to pay the sum of 1,000 pesos, on account thereof, and to execute the
aforesaid document No. 2. A true ratification of the original document of deposit was thus made, and not the least proof is shown in the record that Jose Lim had ever paid the whole or any part of the capital stated in the original document. There was no renewal of the contract deposited converted into a loan, because, as has already been stated, the defendants received said amount by virtue of real loan contract under the name of a deposit, since the so-called bailees were forthwith authorized to dispose of the amount deposited. This they have done, as has been clearly shown. g. Compaia Agricola vs. Nepomuceno (G.R. No. L-32778, November 14, 1930) Involuntary insolvency of Mariano Velasco and Co., et al. COMPAIA AGRICOLA DE ULTRAMAR, claimant-appellee, vs. VICENTE NEPOMUCENO, assignee-appellant. FACTS: On the 16th day of April, 1927, the Compania Agricola de Ultramar filed a claim against one of the insolvents Mariano Velasco & Co., claiming the sum of P10,000, with the agreed interest thereon at the rate of 6 per cent per annum from April 5, 1918, until its full payment was a deposit with said Mariano Velasco & Co. and asked the court to declare it a preferred claim. The assignee of the insolvency answered the claim by interposing a general denial. The claim was thereupon referred by the court to a Commissioner to receive the evidence, and on September 23, 1929, the court rendered a decision declaring that the alleged deposit was a preferred claim for the sum mentioned, with interest at 6 per cent per annum from April 5, 1918, until paid. From this decision the assignee appealed. The evidence presented by the claimant Compania Agricola de Ultramar consisted of a receipt in writing, and the testimony of Jose Velasco who was manager of Mariano Velasco & Co. at the time the note was executed. The receipt reads as follow (translation): MANILA, P. I., April 5, 1918. Received from the "Compania Agricola de Ultramar" the sum of ten thousand Philippine pesos as a deposit at the interest of six per cent annually, for the term of three months from date. In witness thereof, I sign the present. MARIANO VELASCO & CO. By (Sgd.) JOSE VELASCO Manager. P10,000.00.
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In his testimony, Jose Velasco stated that his signature on the receipt was authentic and that he received the said sum of P10,000 from the appellee and deposited it with the bank in the current account of Mariano Velasco & Co. ISSUE: WON the claim filed is that of a deposit or a loan? LOAN HELD: In the case of Gavieres vs. De Tavera (1 Phil., 17), very similar to the present case, this court held that the transaction therein involved was a loan and not a deposit. The facts of the case were that in 1859 Ignacia de Gorricho delivered P3,000 to Felix Pardo de Tavera. After the death of both parties, Gavieres, as plaintiff and successor in interest of the deceased Ignacia de Gorricho, brought the action against Trinidad H. Pardo de Tavera, the successor in interest of the deceased Felix Pardo de Tavera, for the collection of the sum of P1,423.75, the remaining portion of the 3,000 pesos. The plaintiff Gavieres alleged that the money was delivered to Felix Pardo de Tavera as a deposit, but the defendant insisted that the agreement above quoted was not a contract of deposit but one of loan. The court said: Although in the document in question a deposit is spoken of, nevertheless from an examination of the entire document it clearly appears that the contract was a loan and that such was the intention of the parties. It is unnecessary to recur to the cannons of interpretation to arrive at this conclusion. The obligation of the depository to pay interest at the rate of 6 per cent to the depositor suffices to cause the obligation to be considered as a loan and makes it likewise evident that it was the intention of the parties that the depository should have the right to make use of the amount deposited, since it was stipulated that the amount could be collected after notice of two months in advance. Such being the case, the contract lost the character of a deposit and acquired that of a loan . (Art. 1768, Civil Code.) Article 1767 of the Civil Code provides that "The depository cannot make use of the thing deposited without the express permission of the depositor." "Otherwise he shall be liable for losses and damages." Article 1768 also provides that "When the depository has permission to make use of the thing deposited, the contract loses the character of a deposit and becomes a loan or bailment."
"The permission not be presumed, and its existence must be proven." Moreover it may, as a matter of course, be inferred that there was no renewal of the contract of deposit converted into a loan, because, as has already been stated, the defendants received said amount by virtue of a real loan contract under the name of a deposit, since the so-called bailees were forthwith authorized to dispose of the amount deposited. This they have done, as has been clearly shown. (Mura ug second issue pero part lang sa main issue ): But the appellee argues that it is at least an "irregular deposit." Manresa, in his Commentaries on the Civil Code states that there are three points of difference between a loan and an irregular deposit. The first difference which he points out consists in the fact that in an irregular deposit the only benefit is that which accrues to the depositor, while in a loan the essential cause for the transaction is the necessity of the borrower. The contract in question does not fulfill this requirement of an irregular deposit. Nor does the contract in question fulfill the third requisite indicated by Manresa, which is, that in an irregular deposit, the depositor can demand the return of the article at any time, while a lender is bound by the provisions of the contract and cannot seek restitution until the time for payment, as provided in the contract, has arisen. It is apparent from the terms of this documents that the plaintiff could not demand his money at any time. He was bound to give notice of his desire for its return and then to wait for six months before he could insist upon payment. In the present case the transaction in question was clearly not for the sole benefit of the Compania Agricola de Ultramar; it was evidently for the benefit of both parties. Neither could the alleged depositor demand payment until the expiration of the term of three months. For the reasons stated, the appealed judgment is reversed, and we hold that the transaction in question must be regarded as a loan, without preference. Without costs. h. Rogers vs. Smith (10 Phil. 317, G.R. No. 4347, March 9, 1908) JOSE ROGERS, plaintiff-appellant, vs. SMITH, BELL, & CO., defendants-appellees. FACTS: Plaintiff Jose Rogers (Rogers) brought this action in the CFI city of Manila upon the following document:(the subject document of the case) No. 1418. $12,000.
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The sum of pesos twelve thousand has been deposited with us, received from Jose Rogers, which sum we will pay on the last day of the six months after the presentation of this document, to the order of Mr. Jose Rogers. Manila, February 17, 1876. SMITH, BELL & CO. The said sum of twelve thousand pesos shall bear interest at the rate of eight per centum (8%) per annum from this date, February 17, 1876. SMITH, BELL & CO. When this document was delivered by the defendants Smith, Bell & CO. (Smith) to Rogers, 12,000 pesos in silver were worth more than 12,000 pesos in gold. The only question in the case is, whether upon these documents Rogers is entitled to recover 12,000 pesos or 24,000 pesos. CFI held that he was entitled to recover only 12,000 pesos. Rogers has appealed. Rogers delivered to Smith, in consideration of the execution of the document, 12,000 in gold. Soon thereafter Rogers moved to Barcelona and has since resided there. Smith remitted the interest to him every three months at the rate of 8 per cent per annum until the 30th day of January, 1888, when they notified him that thereafter the interest would be 6 per cent. Rogers accepted this reduction and interest and that rate was remitted to him by Smith until the 10th of February, 1904. This interest was remitted in silver; that is to say, every three months the Smith took 180 pesos in silver and with it bought exchange on Barcelona or other European point converted into pesetas. Rogers received these payments in silver without any protest whatever until the 10th day of February, 1904. He then, in his letter of that date, called the attention of the Smith to the fact that by the new American law in force in the Philippines the gold standard had been introduced and that by reason thereof he was entitled to receive his interest in gold, in view of the fact that when he delivered the money to the Smith in 1876 he delivered it in gold coin. In another letter of the 15th of December, 1904, he expressly refers to the act of Congress of March 2, 1903, and to the subsequent proclamations of the Governor-General relating to coinage. Rogers claims that, having paid to Smith 12,000 pesos in gold coin, he is now entitled to receive from them the
value of 12,000 pesos in gold coin; that is to say, 24,000 pesos in silver. It is necessary to determine in the first place the nature of the contract evidenced by the document of the 17th of February, 1876. ISSUE: WON the document is an evidence of an ordinary loan which created between the Rogers and the Smith the simple relation of debtor and creditor. YES HELD: The document is an evidence of ordinary loan. Rogers repeatedly calls it a deposit, that is, that the ownership of the particular coin which was delivered by him to Smith did not pass to Smith but remained in him and that Smith was bound to return to him the identical coin which they had received. It is apparent that no such claim could be maintained in view of that part of the instrument which provides for the payment of interest. But while not a deposit in the strict sense of the word, the document evidences what is known as an "irregular deposit." The parties agree that the case must be decided in this respect in view of the legislation in force prior to the adoption of the Civil Code, and Rogers says that the definition of an irregular deposit is found in Law II, Title III of the Fifth Partida. Manresa states that there are three points of difference between a loan and an irregular deposit. The first difference which he points out consists in the fact that in an irregular deposit, the only benefit is that which accrues to the depositor, while in loan the essential cause for the transaction is the necessity of the borrower. The contract in question does not fulfill this requirement of an irregular deposit. It is very apparent that it was not for the sole benefit of Rogers. It, like any other loan of money, was for the benefit of both parties. The benefit which Smith received was the use of the money; the benefit which Rogers received was the interest of his money. Nor does the contract in question fulfill the third requisite indicated by Manresa, which is, in an irregular deposit, the depositor can demand the return of the article at any time, while a lender is bound by the provisions of the contract and can not seek restitution until the time for payment, as provided in the contract, has arisen.
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It is apparent from the terms of this document that the Rogers could not demand his money at any time. He was bound to give notice of his desire for its return and then to wait for six months before he could insist upon payment. The second difference between an irregular deposit and a loan lies in the fact that in an irregular deposit the depositor has a preference over other creditors in the distribution of the debtor's property. It is apparent, therefore, that the document does not state those requisites which are essential to an irregular deposit. But even if it did, it seems that the appellant's contention could not be sustained. He claims that in accordance with said Law II, title III, Fifth Partida, Smith is bound to return to him the same kind of money which was received. That law is in part as follows: And the ownership of the thing given in deposit is not transferred to the one who receives the same; but, should the thing be one of those which can be counted, weighed, or measured, if, when receiving it, the same were given by count, weight, or measure, then the ownership would be transferred to him. Yet he would be obliged to return the same thing, or the same quantity, or another similar to the one received, to him who gave it to him in deposit. An examination, however, of Law II, Title I, of the Fifth Partida, which relates to loans, will show that the obligation of the borrower in such case is stated in almost exactly the same words. That law is in part as follows: A man may loan to another any of the things mentioned in the last law which are susceptible of being counted, weighed, or measured. And this is understood with regard to things belonging to him who lends them, or which are loaned by another by authority of his principal; provided, however, that once the thing is in the possession of him who secures the loan, he may dispose of it as though it were his own. But he must return to the owner of the thing equal amount of the same kind and quality, although the creditor should not specify either of the conditions. The supreme court of Spain in the judgment of the 27th of October, 1868, speaking of the obligation of the borrower in such case, says: Whereas the principle in Laws I and II of Title I of the Fifth Partida, according to which the borrower, acquires ownership of the thing and is bound to return an equal amount of the same kind and
quality, have special application to cases relating to loans of money or its equivalent; whereas the thing loaned not being in such cases what properly constitutes the material or the object of deposit, as happens with other perishable things, but rather the value that the coins or the paper money represents, the obligation of the depository in this kind of contracts is to return the sum or amount therein expressed, whatever may have been the increase or depreciation suffered by the specific kind of coin or paper, unless the contrary be stipulated. It seems clear from these citations that the document in question is evidence of an ordinary loan and created between Rogers and Smith the relation of debtor and creditor. It having been determined that the contract between the parties created the common relation of debtor and creditor, the case is easily resolved. Section 3 of the act of Congress of March 2, 1903, entitled "An act to establish a standard of value and to provide for a coinage system in the Philippine Islands," is as follows: That the silver Philippine pesos authorized by this act shall be legal tender in the Philippine Islands for all debts, public and private, unless otherwise specifically provided by contract: Provided, That debts contracted prior to the thirty-first day of December, nineteen hundred and three, may be paid in the legal tender currency of said Islands existing at the time of the making of said contracts, unless otherwise expressly provided by contract. That this case falls within the terms of this section is very clear. The debt in question is a private debt, calling for the payment of 12,000 pesos. This section authorizes the payment of that debt in the Philippine pesos authorized by the act. That the act applies as well to debts created prior to its passage as to those created after, appears from the proviso. The effect of that proviso is to give the debtor and not the creditor the option as to the kind of money with which the debt shall be paid. Rogers discusses at length the meaning of the word "dollars." We do not see how such a discussion is material. The contract provides for the payment of "pesos," not "dollars. That in English houses especially the word "dollars" was, until very recently, used to indicate pesos of local currency, whether Mexican, Spanish, or Hongkong, is well known.
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In conclusion it may be said that Rogers, in 1876, delivered to Smith the cheapest kind of money then in use. If he had desired to be repaid in the same money which he delivered, he should have so provided expressly in the contract. He had a perfect right to do so, and if he had done so he could now, by reason of the provisions of the said act of Congress, demand payment in gold. i. BPI vs. CA (232 SCRA 302, G.R. No. 104612, May 10, 1994) BANK OF THE PHILIPPINE ISLANDS (successor-in- interest of COMMERCIAL AND TRUST CO.), petitioner, vs. HON. COURT OF APPEALS, EASTERN PLYWOOD CORP. and BENIGNO D. LIM, respondents. FACTS: Private respondents Eastern Plywood Corporation (Eastern) and Benigno D. Lim (Lim), held one joint bank account with the Commercial Bank and Trust Co. (CBTC), the predecessor-in-interest of petitioner Bank of the Philippine Islands (BPI). Sometime in March 1975, a joint checking account with Lim in the amount of P120,000.00 was opened by Mariano Velasco with funds withdrawn from the account of Eastern and/or Lim. Velasco died. At the time of his death, the outstanding balance of the account stood at P662,522.87. On 5 May 1977, by virtue of an Indemnity Undertaking executed by Lim one-half of this amount was provisionally released and transferred to one of the bank accounts of Eastern with CBTC. Thereafter, Eastern obtained a loan of P73,000.00 from CBTC as "Additional Working Capital,". Eastern issued a negotiable promissory note for P73,000.00 payable on demand to the order of CBTC with interest at 14% per annum. The note was signed by Lim. The loan is wholly/partly secured by the Hold-Out on a 1:1 on C/A No. 2310-001-42, which refers to the joint account of Velasco and Lim with a balance of P331,261.44. In addition, Eastern and Lim, and CBTC signed another document entitled "Holdout Agreement," On the other hand, a case for the settlement of Velasco's estate was filed. In the said case, the whole balance of P331,261.44 in the aforesaid joint account of Velasco and Lim was being claimed as part of Velasco's estate. The intestate court granted motion of the heirs of Velasco to withdraw the balance and authorized the heirs to divide among themselves the amount withdrawn. CBTC was merged with BPI. BPI filed a complaint against Lim and Eastern demanding payment of the promissory note for P73,000.00. Defendants Lim and
Eastern, in turn, filed a counterclaim against BPI for the return of the balance in the disputed account subject of the Holdout Agreement and the interests thereon after deducting the amount due on the promissory note. RTC dismissed the complaint and CA affirmed the decision. PETITIONERs CONTENTION: BPI alleged that the Holdout Agreement in question was subject to a suspensive condition stated therein, viz., that the "P331,261.44 shall become a security for respondent Lim's promissory note only if respondents' Lim and Eastern Plywood Corporation's interests to that amount are established as a result of a final and definitive judicial action or a settlement between and among the contesting parties thereto." Hence, BPI asserts, the Court of Appeals erred in affirming the trial court's decision dismissing the complaint on the ground that it was the duty of CBTC to debit the account of the defendants to set off the amount of P73,000.00 covered by the promissory note. PRIV. RESPONDENTs CONTENTION: Eastern and Lim dispute the "suspensive condition" argument of the petitioner that they are rightful owners of the money in question, the suspensive condition does not find any application in this case and the bank had the duty to set off this deposit with the loan. ISSUES: 1. WON BPI can demand payment of the loan of P73,000.00 despite the existence of the Holdout Agreement? YES 2. WON BPI is still liable to the private respondents on the account subject of the Holdout Agreement after its withdrawal by the heirs of Velasco? YES HELD: ISSUE 1: It is clear in paragraph 02 of the Holdout Agreement that CBTC, or BPI as its successor -in-interest, had every right to demand that Eastern and Lim settle their liability under the promissory note. It cannot be compelled to retain and apply the deposit in Lim and Velasco's joint account to the payment of the note. What the agreement conferred on CBTC was a power, not a duty. Generally, a bank is under no duty or obligation to make the application. To apply the deposit to the payment of a loan is a privilege, a right of set-off which the bank has the option to exercise. Also, paragraph 05 of the Holdout Agreement itself states that notwithstanding the agreement, CBTC was not in any way precluded from demanding payment from Eastern and from instituting an action to recover payment of the loan.
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What it provides is an alternative, not an exclusive, method of enforcing its claim on the note. Its suit for the enforcement of the note was then in order and it was error for the trial court to dismiss it on the theory that it was set off by an equivalent portion in C/A No. 2310-001-42 which BPI should have debited. The "suspensive condition" theory of the petitioner is, therefore, untenable. ISSUE 2: The Court of Appeals correctly decided on the counterclaim. The counterclaim of Eastern and Lim for the return of the P331,261.44 was equivalent to a demand that they be allowed to withdraw their deposit with the bank. Article 1980 of the Civil Code expressly provides that "[f]ixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan." In Serrano vs. Central Bank of the Philippines, we held that bank deposits are in the nature of irregular deposits; they are really loans because they earn interest. The relationship then between a depositor and a bank is one of creditor and debtor. The deposit under the questioned account was an ordinary bank deposit; hence, it was payable on demand of the depositor. The account was proved and established to belong to Eastern even if it was deposited in the names of Lim and Velasco. As the real creditor of the bank, Eastern has the right to withdraw it or to demand payment thereof. BPI cannot be relieved of its duty to pay Eastern simply because it already allowed the heirs of Velasco to withdraw the whole balance of the account. The petitioner should not have allowed such withdrawal because it had admitted in the Holdout Agreement the questioned ownership of the money deposited in the account. Moreover, the order of the court merely authorized the heirs of Velasco to withdraw the account. BPI was not specifically ordered to release the account to the said heirs; hence, it was under no judicial compulsion to do so. Because the ownership of the deposit remained undetermined, BPI, as the debtor, had no right to pay to persons other than those in whose favor the obligation was constituted or whose right or authority to receive payment is indisputable. Payment made by the debtor to the wrong party does not extinguish the obligation as to the creditor who is without fault or negligence, even if the debtor acted in utmost good faith and by mistake as to the person of the creditor, or through error induced by fraud of a third person. The payment then by BPI to the heirs of Velasco, even if done in good faith, did not extinguish its obligation to the true depositor, Eastern.
POLICY: Bank deposits are in the nature of irregular deposits; they are really loans because they earn interest. The relationship then between a depositor and a bank is one of creditor and debtor. j. Metrobank vs. BA Finance (607 SCRA 620, G.R. No. 179952, December 4, 2009) METROPOLITAN BANK AND TRUST COMPANY vs. BA FINANCE CORPORATION and MALAYAN INSURANCE CO., INC. FACTS: Lamberto Bitanga obtained from respondent BA Finance Corporation a loan, to secure which, hemortgaged his car to respondent BA Finance. Bitanga had the mortgaged car insured by respondentMalayan Insurance. The car was stolen. On Bitangas claim, Malayan Insurance issued a check payable to the order of "B.A. Finance Corporation and Lamberto Bitanga", drawn against China. The check was crossed with the notation "For Deposit Payees Account Only." Without the indorsement or authority of his co-payee BA Finance, Bitanga deposited the check to his account with the Asianbank, now merged with herein petitioner Metrobank. Bitanga subsequently withdrew the entire proceeds of the check. In the meantime, Bitangas loan became past due, but despite demands, he failed to settle it. BA Finance eventually learned of the loss of the car and of Malayan Insurances issuance of a crossed check payable to it and Bitanga, and of Bitangas depositing it in his account at Asian bank and withdrawing the entire proceeds thereof. BA Finance thereupon demanded the payment of the value of the check from Asian bank but to no avail, prompting it to file a complaint before the RTC for sum of money and damages against Asian bank and Bitanga, alleging that, inter alia, it is entitled to the entire proceeds of the check. The trial court, holding that Asian bank was negligent in allowing Bitanga to deposit the check to his account and to withdraw the proceeds thereof, without his co-payee BA Finance having either indorsed it or authorized him to indorse it in its behalf, found Asian bank and Bitanga jointly and severally liable to BA Finance following Section 41 of the Negotiable Instruments Law. The appellate court, affirming the trial courts decision, held that BA Finance has a cause of action against [it] even if the subject check had not been delivered to BA Finance by the issuer itself. Hence, the present Petition for Review on Certiorari filed by Metrobank to which Asian bank was, as earlier stated, merged, faulting the appellate court. ISSUE: WON the petitioner is liable for the full value of the check? YES HELD: Affirming the decision of the CA, the SC held that Section 41 of the Negotiable Instruments Law provides: Where an
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instrument is payable to the order of two or more payees or indorsees who are not partners, all must indorse unless the one indorsing has authority to indorse for the others. Bitanga alone endorsed the crossed check, and petitioner allowed the deposit and release of the proceeds thereof, despite the absence of authority of Bitangas co -payee BA Finance to endorse it on its behalf. The payment of an instrument over a missing indorsement is the equivalent of payment on a forged indorsement or an unauthorized indorsement in itself in the case of joint payees. Clearly, petitioner,through its employee, was negligent when it allowed the deposit of the crossed check, despite the lone endorsement of Bitanga, ostensibly ignoring the fact that the check did not, it bears repeating, carry the indorsement of BA Finance. k. Guingona vs. City Fiscal (128 SCRA 577, G.R. No. L-60033, April 4, 1984) TEOFISTO GUINGONA, JR., ANTONIO I. MARTIN, and TERESITA SANTOS vs. THE CITY FISCAL OF MANILA, HON. JOSE B. FLAMINIANO, ASST. CITY FISCAL FELIZARDO N. LOTA and CLEMENT DAVID FACTS: From March 20, 1979 to March, 1981, David invested with the Nation Savings and Loan Association, (hereinafter called NSLA) the sum of P1,145,546.20 on nine deposits, P13,531.94 on savings account deposits (jointly with his sister, Denise Kuhne), US$10,000.00 on time deposit, US$15,000.00 under a receipt and guarantee of payment and US$50,000.00 under a receipt dated June 8, 1980 (jointly with Denise Kuhne), that David was induced into making the aforestated investments by Robert Marshall an Australian national who was allegedly a close associate of petitioner Guingona Jr., then NSLA President. NSLA was placed under receivership by the Central Bank, so that David filed claims therewith for his investments and those of his sister; On June 1981, Guingona and Martin, upon Davids request, assumed the banks obligation to David by executing a joint promissory note in favor of private respondent acknowledging an indebtedness of Pl,336,614.02 and US$75,000.00. This promissory note was based on the statement of account as of June 30, 1981 prepared by the private respondent. The amount of indebtedness assumed appears to be bigger than the original claim because of the added interest and the inclusion of other deposits of private respondent's sister in the amount of P116,613.20. On July 17, 1981, petitioners Guingona and Martin agreed to divide the said indebtedness, and petitioner Guingona executed another promissory note antedated to June 17, 1981 whereby he personally acknowledged an indebtedness of P668,307.01) and US$37,500.00 in favor of private respondent. On July 22, 1981 David received a report
from the Central Bank that only P305,821.92 of those investments were entered in the records of NSLA. On December 1981, David filed I.S. No. 81-31938in the Office of the City Fiscal. David charged petitioners with estafa and violation of Central Bank Circular No. 364 and related regulations on foreign exchange transactions. Petitioners moved to dismiss the charges against them for lack of jurisdiction because Davids claims allegedly comprised a purely civil obligation, but the motion was denied. After the presentation of Davids principal witness, petitioners filed this petition for prohibition and injunction because: a. The production of various documents showed that the transactions between David and NSLA were simple loans i.e., civil obligations which were novated when Guingona and Martin assumed them ISSUE: WON the contract perfected was a contract of simple loan. YES. HELD: It must be pointed out that when private respondent David invested his money on nine. and savings deposits with the aforesaid bank, the contract that was perfected was a contract of simple loan or mutuum and not a contract of deposit. Thus, Article 1980 of the New Civil Code provides that: Article 1980. Fixed, savings, and current deposits ofmoney in banks and similar institutions shall be governed by the provisions concerning simple loan. In the case of Central Bank of the Philippines vs. Morfe , We said: It should be noted that fixed, savings, and current deposits of money in banks and similar institutions are hat true deposits. are considered simple loans and, as such, are not preferred credits. This Court also declared in the recent case of Serrano vs. Central Bank of the Philippines that: Bank deposits are in the nature of irregular deposits. They are really 'loans because they earn interest. All kinds of bank deposits, whether fixed, savings, or current are to be treated as loans and are to be covered by the law on loans (Art. 1980 Civil Code Gullas vs. Phil. National Bank, 62 Phil. 519). Current and saving deposits, are loans to a bank because it can use the same.
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Hence, the relationship between the private respondent and the Nation Savings and Loan Association is that of creditor and debtor; consequently, the ownership of the amount deposited was transmitted to the Bank upon the perfection of the contract and it can make use of the amount deposited for its banking operations, such as to pay interests on deposits and to pay withdrawals. While the Bank has the obligation to return the amount deposited, it has, however, no obligation to return or deliver the same money that was deposited. And, the failure of the Bank to return the amount deposited will not constitute estafa through misappropriation punishable under Article 315, par. l(b) of the Revised Penal Code, but it will only give rise to civil liability. The nature of simple loan is defined in Articles 1933 and 1953 of the Civil Code. "Art. 1933. By the contract of loan, one of the parties delivers to another, either something not consumable so that the latter may use the same for a certain time- and return it, in which case the contract is called a commodatum; or money or other consumable thing, upon the condition that the same amount of the same kind and quality shall he paid in which case the contract is simply called a loan or mutuum. "Commodatum is essentially gratuitous. "Simple loan may be gratuitous or with a stipulation to pay interest. "In commodatum the bailor retains the ownership of the thing loaned while in simple loan, ownership passes to the borrower. "Art. 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." It can be readily noted from the above-quoted provisions that in simple loan (mutuum), as contrasted to commodatum the borrower acquires ownership of the money, goods or personal property borrowed Being the owner, the borrower can dispose of the thing borrowed (Article 248, Civil Code) and his act will not be considered misappropriation thereof' (Yam vs. Malik). But even granting that the failure of the bank to pay the time and savings deposits of private respondent David would constitute a violation of paragraph 1(b) of Article 315 of the Revised Penal Code, nevertheless any incipient criminal liability was deemed avoided, because when the aforesaid bank was placed under receivership by the Central Bank,
petitioners Guingona and Martin assumed the obligation of the bank to private respondent David, thereby resulting in the novation of the original contractual obligation arising from deposit into a contract of loan and converting the original trust relation between the bank and private respondent David into an ordinary debtor-creditor relation between the petitioners and private respondent. Consequently, the failure of the bank or petitioners Guingona and Martin to pay the deposits of private respondent would not constitute a breach of trust but would merely be a failure to pay the obligation as a debtor. POLICY: While the bank has the obligation to return the amount deposited, it has, however, no obligation to return or deliver the same money that was deposited. l. Reyes vs. CA (G.R. No. 118492, August 15, 2001) GREGORIO H. REYES and CONSUELO PUYAT-REYES, petitioners, vs. THE HON. COURT OF APPEALS and FAR EAST BANK AND TRUST COMPANY, respondents. FACTS: In view of the 20th Asian Racing Conference to be held in Sydney, Australia, the Philippine Racing Club, Inc. (PRCI) sent 4 delegates to the said conference. Petitioner Gregorio H. Reyes, as VP for finance, racing manager, treasurer, and director of PRCI, sent Godofredo Reyes, the club's chief cashier, to Far East Bank and Trust Company (respondent) to apply for a foreign exchange demand draft in Australian dollars (AU$1,610.00). Mr.Yasis, banks assistant cashier, first denied the application for the reason that respondent bank did not have an Australian dollar account in any bank in Sydney. Since Godofredo asked if there could be a way for respondent bank to accommodate PRCI's urgent need to remit Australian dollars to Sydney, Yasis informed him of another way of effecting the requested remittance. The respondent bank would draw a demand draft against Westpac-Sydney and have the latter reimburse itself from the U.S. dollar account of the respondent in WestpacNew York. This arrangement has been customarily resorted to since the 1960's and the procedure has proven to be problem-free. July 28, 1988, the respondent bank approved the said application of PRCI and issued Foreign Exchange Demand Draft (FXDD) No. 209968 in the sum applied forpayable to the order of the 20th Asian Racing Conference Secretariat of Sydney, Australia, and addressed to Westpac-Sydney as the drawee bank.
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August 10, 1988, upon due presentment of the FXDD the same was dishonored, with the notice of dishonor stating: "xxx No account held with Westpac." Meanwhile, on August 16, 1988, Wespac-New York sent a cable to respondent bank informing the latter that its dollar account in the sum of AU$ 1,610.00 was debited. The respondent bank informed Wespac-New York requesting the latter to honor the reimbursement claim of Wespac-Sydney. Upon its second presentment for payment, FXDD No. 209968 was again dishonored by Westpac-Sydney for the same reason. When petitioner Gregorio H. Reyes arrived in Sydney in the morning of September 18, 1988, he went directly to the lobby of Hotel Regent Sydney to register as a conference delegate. At the registration desk, the conference secretariat said that he could not register because the FXDD for his registration fee had been dishonored for the second time. The same situation was experienced by his wife Consuelo who is a member of the House of Rep representing the District of Makati, Metro Manila. The petitioners filed a complaint for damages against FEBTC. Claiming that as a result of the dishonor of the said demand draft, they were exposed to unnecessary shock, social humiliation, and deep mental anguish in a foreign country, and in the presence of an international audience. RTC and CA ruled in favor of respondent. ISSUE: WON the respondent bank was negligent. NO HELD: The facts as found by the courts a quo show that respondent bank did not cause an erroneous transmittal of its SWIFT cable message to Westpac-Sydney. It was the erroneous decoding of the cable message on the part of Westpac-Sydney that caused the dishonor of the FXDD. An employee of Westpac-Sydney mistakenly read the printed figures in the SWIFT cable message of respondent bank as "MT799" instead of as "MT199". As a result, Westpac-Sydney construed the said cable message as a format for a letter of credit, and not for a demand draft. Th The figure before '99' can still be distinctly seen as a number '1' and not number '7'." Indeed, the line of a "7" is in a slanting position while the line of a "1" is in a horizontal position. Thus, the number "1" in "MT199" cannot be construed as "7". The degree of diligence required of banks, is more than that of a good father of a family where the fiduciary nature of their relationship with their depositors is concerned. In other words banks are duty bound to treat the deposit accounts of their depositors with the highest degree of care. But the said ruling applies only to cases where banks act under their fiduciary capacity, that is, as depositary of the deposits of their depositors. But the same higher degree of
diligence is not expected to be exerted by banks in commercial transactions that do not involve their fiduciary relationship with their depositors. Respondent bank was not required to exert more than the diligence of a good father of a family in regard to the sale and issuance of the subject FXDD. The case at bar does not involve the handling of petitioners' deposit. Instead, the relationship involved was that of a buyer and seller, that is, between the respondent bank as the seller of the subject foreign exchange demand draft, and PRCI as the buyer of the same, with the 20th Asian Racing conference Secretariat in Sydney, Australia as the payee thereof. The FXDD was intended for the payment of the registration fees of the petitioners as delegates of the PRCI. The evidence shows that the respondent bank did everything within its power to prevent the dishonor of the subject foreign exchange demand draft. The erroneous reading of its cable message to Westpac-Sydney by an employee of the latter could not have been foreseen by the respondent bank. Being unaware that its employee erroneously read the said cable message, Westpac-Sydney merely stated that the respondent bank has no deposit account with it to cover for the amount AU $1610.00 indicated in the FXDD. Thus, the respondent bank had the impression that Westpac-New York had not yet made available the amount for reimbursement to Westpac-Sydney despite the fact that respondent bank has a sufficient deposit dollar account with Westpac-New York. That was the reason why the respondent bank had to re-confirm and repeatedly notify Westpac-New York to debit its (respondent bank's) deposit dollar account with it and to transfer or credit the corresponding amount to Westpac-Sydney to cover the amount of the said demand draft. POLICY:The degree of diligence required of banks, is more than that of a good father of a family where the fiduciary nature of their relationship with their depositors is concerned. m. Province of Bataan vs. Villafuerte (G.R. No. 129995, October 19, 2001) THE PROVINCE OF BATAAN, petitioner-appellant, vs. HON. PEDRO VILLAFUERTE, JR., as Presiding Judge of the Regional Trial Court of Bataan (Branch 4), and THE PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, respondentsappellees. FACTS: In its order, the lower court directed that petitioner Province of Bataan to remit to said court whatever lease rentals petitioner may receive from lessees 7-R Port and Marina Port Services, and that such lease rentals be placed
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under a special time deposit with the Land Bank for the account of the RTC-Balanga Branch 4, in escrow, for the person or persons, natural or juridical, who may be adjudged lawfully entitled thereto. The order denied herein petitioners motion for reconsideration of the 28 July, 1993 order. Pursuant to Presidential Decree No. 464, otherwise known as the Real Property Tax Code of 1974, the Provincial Treasurer of Bataan advertised for auction sale the BASECO property due to real estate tax delinquency amounting to P7,914,281.72, inclusive of penalties. At the auction sale, no bidder vied for said property as a result of which, the Provincial Treasurer of Bataan adjudged the property to, and acquired the same for, and in the name of herein petitioner Province of Bataan. Upon the expiration of the one-year redemption period, and without the owner exercising its right to redeem the subject property, the Provincial Government of Bataan consolidated its title thereon; the corresponding certificates of title were then issued in the name of herein petitioner Province of Bataan. Eventually, petitioner, thru then Provincial Governor Enrique T. Garcia, entered into a ten-year contract of lease with 7-R Port Services, Inc., whereby portions of the BASECO property including facilities and improvements thereon, were leased to the latter for a minimum escalating annual rental of P18 million. Petitioner forged another contract of lease with Marina Port Services, over a ten-hectare portion of the BASECO property. Private respondent filed for annulment of sale, principally assailing the validity of the tax delinquency sale of the BASECO property in favor of petitioner Province of Bataan. PCGG filed for writ of preliminary injunction to enjoin herein petitioner from entering into a lease contract with Marina Port Services, Inc. (Marina), or any other entity, and/or from implementing/enforcing such lease contract, if one has already been executed, and to maintain the status quo until further orders from the Court. The lower court denied the motion ratiocinating that the lease contract with Marina was already a fait accompli when the motion was filed, and that Marina was not a party to the suit for not having been impleaded as partydefendant. The PCGG filed with the lower court an Urgent Motion to Deposit Lease Rentals, alleging inter alia that the rentals amounting to Hundreds of Millions of Pesos are in danger of being unlawfully spent, squandered and dissipated to the great and irreparable damage of plaintiffs who are the rightful owners of the property leased. The lower court granted the PCGGs urgent motion and ordered the defendant Province of Bataan to remit to the court the lease rentals it may receive from the defendant 7-R
Port Services and the Marina Port Services from the receipt of this order. It also ordered the clerk of court to deposit the amount under special time deposit with the Land Bank in the name or account of the Court to be held in trust for the person, natural or juridical, who may lawfully be entitled thereto. ISSUE: WON the deposit of rentals in escrow was proper. YES HELD: In the main, petitioner insists that the issuance of the escrow order by the trial court was patently irregular, if not downright anomalous, reasoning that nowhere in the Revised Rules of Court is the trial court, or any court for that matter, authorized to issue such escrow order, whether as a provisional or permanent remedy. According to petitioner, the escrow orders in question are null and void ab initio for having been issued absent any legal basis and are merely calculated to prejudice the petitioner province without any practical or worthwhile, much less legal objective. The court does not agree. An escrow fills a definite niche in the body of the law; it has a distinct legal character. The usual definition is that an escrow is a written instrument which by its terms imports a legal obligation and which is deposited by the grantor, promisor, or obligor, or his agent with a stranger or third party, to be kept by the depositary until the performance of a condition or the happening of a certain event, and then to be delivered over to the grantee, promisee, or obligee. While originally, the doctrine of escrow applied only to deeds by way of grant, or as otherwise stated, instruments for the conveyance of land, under modern theories of law, the term escrow is not limited in its application to deeds, but is applied to the deposit of any written instrument with a third person. Particular instruments which have been held to be the subject of an escrow include bonds or covenants, deeds, mortgages, oil and gas leases, contracts for the sale of land or for the purchase of personal property, corporate stocks and stock subscriptions, promissory notes or other commercial paper, insurance applications and policies, contracts for the settlement of will-contest cases, indentures of apprenticeship, receipts assigning concessions and discontinuances and releases of causes of action. Moreover, it is no longer open to question that money may be delivered in escrow. X X X the impugned orders appear to us as a fair response to the exigencies and equities of the situation. Parenthetically, it is not disputed that even before the institution of the case, the Province of Bataan has been utilizing the rental payments on the Baseco Property to meet
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its financial requirements. To us, this circumstance adds a more compelling dimension for the issuance of the assailed orders. X X X Applying the foregoing principles and considering the peculiarities of the instant case, the lower court, in the course of adjudicating and resolving the issues presented in the main suit, is clearly empowered to control the proceedings therein through the adoption, formulation and issuance of orders and other ancillary writs, including the authority to place the properties in custodia legis, for the purpose of effectuating its judgment or decree and protecting further the interests of the rightful claimants of the subject property. To trace its source, the courts authority proceeds from its jurisdiction and power to decide, adjudicate and resolve the issues raised in the principal suit. Stated differently, the deposit of the rentals in escrow with the bank, in the name of the lower court, is only an incident in the main proceeding. To be sure, placing property in litigation under judicial possession, whether in the hands of a receiver, and administrator, or as in this case, in a government bank is an ancient and accepted procedure. Consequently, we find no cogency to disturb the questioned orders of the lower court and in effect uphold the propriety of the subject escrow orders. III. Necessary Deposit
McLoughlin immediately confronted Lainez and Payam. Both admitted that Tan opened the safety deposit box with the key assigned to him. When McLoughlin confronted Tan, she admitted to have stolen the key with the assistance of Lopez, Payam and Lainez. A promissory note was written by Lopez, promising to pay the amount of $4,000 (AUS) and $2,000 (US). McLoughlin insisted that Tropicana Hotel be responsible for the loss. However, Lopez refused and relied on the conditions for renting the safety deposit box which provides that the hotel is free from any liability arising from loss should the key be lost and to return the key and execute the release in favor of the hotel upon giving up the use of the box. McLoughlin filed a case against petitioners. RTC ruled in favor of McLoughlin, making petitioners jointly and severally liable for the losses plus damages. The hotel conditions were ruled not valid for being contrary to Art 2003 of the NCC and public policy. The CA also ruled in favor of McLoughlin.
ISSUE: WON YHT Corporation is jointly and severally liable for the losses suffered by McLoughlin? YES. HELD: SC appreciated the facts found and proven by the lower court that McLoughlin indeed deposited such cash and valuables as he claimed. The evidence also revealed that the hotel guest alone cannot open the safety deposit box without the assistance of the hotel management or its employees. In case of loss of any item deposited, it is inevitable to conclude that the management had at least a hand in the consummation of the taking, unless the reason for the loss is force majeure. Noteworthy is the fact that Payam and Lainez, who were employees of Tropicana, had custody of the master key of the management when the loss took place. They even admitted that they assisted Tan on 3 separate occasions in opening McLoughlins safety deposit box. It is proved that Tropicana had prior knowledge that a person aside from the registered guest had access to the safety deposit box. Yet the management failed to notify McLoughlin of the incident and waited for him to discover the taking before it disclosed the matter to him. Therefore, Tropicana should be held responsible for the damage suffered by McLoughlin by reason of the negligence of its employees. Tans acts should have prompted the management to investigate her relationship with McLoughlin. Then, petitioners would have exercised due diligence required of them. Failure to do so warrants the conclusion that
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a. YHT Realty vs. CA (451 SCRA 638, G.R. No. 126780, February 17, 2005) FACTS: McLoughlin (private respondent) an Australian businessman regularly stayed at Sheraton Hotel during trips to Philippines. McLoughlin became friends with Tan, who convinced the former to transfer from Sheraton Hotel to Tropicana Hotel were (petitioners) Lainez, Payam and Lopez. Lopez served as manager while Lainez and Payam had custody of the keys for the safety deposit boxes of Tropicana Hotel. The procedure for the safety deposit box at Tropicana Hotel was that it can be opened by 2 keys only. 1 key is given to the registered hotel guest while the other key is held by the hotel management. McLoughlin deposited $15,000 (US) and $10,000 (AUS) as well as letters, bankbooks, credit cards and a checkbook in the safety deposit box during his stay at Tropicana Hotel. After his trips abroad, McLoughlin discovered that some cash and valuables he deposited in the safety deposit box were missing.
the management had been remiss in complying with the obligations imposed upon hotel-keepers under the law. Under Art 1170 of NCC, those who, in the performance of their obligations, are guilty of negligence, are liable for damages. As to who shall bear the burden of paying damages, Art 2180 Par (4) of NCC provides that the owners and managers of an establishment are likewise responsible for damages caused by their employees in the service of the branches in which the latter are employed or on the occasion of their functions. Also, this Court has ruled that if an employee is found negligent, it is presumed that the employer was negligent in selecting and/or supervising him for it is hard for the victim to prove the negligence of such employer. Thus, given the fact that the loss of McLoughlins money was consummated through the negligence of Tropicanas employees in allowing Tan to open the safety deposit box without the guests consent, both the assisting employees and YHT Realty Corporation itself, as owner and operator of Tropicana, should be held solidarily liable pursuant to Article 2193. Also, Art 2003 is controlling which provides that the hotel-keeper cannot free himself from responsibility by posting notices to the effect that he is not liable for the articles brought by the guest. Any stipulation between the hotel-keeper and the guest whereby the responsibility of the former as set forth in Articles 1998 to 2001 is suppressed or diminished shall be void. Petitioners contend that McLoughlins case was mounted on the theory of contract, but the trial court and the appellate court upheld the grant of the claims of the latter on the basis of tort. There is nothing anomalous in how the lower courts decided the controversy for this Court has pronounced a jurisprudential rule that tort liability can exist even if there are already contractual relations. The act that breaks the contract may also be tort. CA decision AFFIRMED.
On July 22, 2003, Pioneer Insurance and Surety Corporation, by right of subrogation, filed [with the RTC of Makati City] a Complaint for Recovery of Damages against Durban Apartments Corporation, doing business under the name and style of City Garden Hotel, and [defendant before the RTC] Vicente Justimbaste.
Respondents contention: Respondent averred that it is the insurer for loss and damage of Jeffrey Sees Suzuki Grand Vitara (Plate No. XBH-510) in the amount of P1,175,000. On April 30, 2002, See arrived and checked in at the City Garden Hotel in Makati corner Kalayaan Avenues, Makati City before midnight, and its parking attendant, defendant Justimbaste got the key to said Vitara from See to park it. On May 1, 2002 (1am) the Hotel Chief Security Officer informed him that his car was carnapped while it was parked unattended at the parking area of Equitable PCI Bank along Makati Ave. See then reported the incident to the Operations Division of Makati City Police Anti-Carnapping unit and then conducted investigation. The car has not yet been recovered since July 23, 2002. Respondent paid P1,163,250 money claim of See and mortagee ABN AMRO Savings Bank as indemnity for the loss of the car. The car was lost due to the negligence of Durban Apartments and Justimbaste because it was discovered that this was the second time that a similar incident of carnapping happened in the valet parking service of Durban Apartments and no necessary precautions were taken to prevent its repetition. Defendant Justimbaste and Durban Apartments failed and refused to pay Pioneers valid, just, and lawful claim despite written demands. Petitioners contention: See did not check in at its hotel, on the contrary, he was a guest of a certain Ching Montero x x x; defendant x x x Justimbaste did not get the ignition key of Sees Vitara, on the contrary, it was See who requested a parking attendant to park the Vitara at any available parking space, and it was parked at the Equitable Bank parking area, which was within Sees view, while he and Montero were waiting in front of the hotel. They made a written denial of the demand of [respondent] Pioneer Insurance for want of legal basis; valet parking services are provided by the hotel for the convenience of its customers looking for a parking space near the hotel premises; it is a special privilege that it gave to Montero and See; it does not include responsibility for any losses or damages to motor
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b. Durban Apartments vs. Pioneer (639 SCRA 441, G.R. No. 179419, January 12, 2011) DURBAN APARTMENTS CORPORATION, doing business under the name and style of City Garden Hotel, Petitioner, vs. PIONEER INSURANCE AND SURETY CORPORATION,Respondent. FACTS: For review is the Decision of the CA which affirmed the decision of the RTC holding petitioner Durban Apartments Corporation solely liable to respondent Pioneer Insurance and Surety Corporation for the loss of Jeffrey Sees (Sees) vehicle.
vehicles and its accessories in the parking area; and the same holds true even if it was See himself who parked his Vitara within the premises of the hotel as evidenced by the valet parking customers claim stub issued to him. Defendant Justimbaste saw the Vitara speeding away from the place where it was parked; he tried to run after it, and blocked its possible path but to no avail. RTC ruled in favor of respondent and ordered Durban Apartment to pay respondent the sum of P1, 163, 250.00. CA affirmed the decision of RTC. Hence, present petition. ISSUE: WON petitioner is liable to respondent for the loss of Sees vehicle.YES. HELD: In this case, respondent substantiated the allegations in its complaint, i.e., a contract of necessary deposit existed between the insured See and petitioner . On this score, we find no error in the following disquisition of the appellate court:[The] records also reveal that upon arrival at the City Garden Hotel, See gave notice to the doorman and parking attendant of the said hotel, x x x Justimbaste, about his Vitara when he entrusted its ignition key to the latter. x x x Justimbaste issued a valet parking customer claim stub to See, parked the Vitara at the Equitable PCI Bank parking area, and placed the ignition key inside a safety key box while See proceeded to the hotel lobby to check in. The Equitable PCI Bank parking area became an annex of City Garden Hotel when the management of the said bank allowed the parking of the vehicles of hotel guests thereat in the evening after banking hours. Article 1962, in relation to Article 1998, of the Civil Code defines a contract of deposit and a necessary deposit made by persons in hotels or inns: Art. 1962. A deposit is constituted from the moment a person receives a thing belonging to another, with the obligation of safely keeping it and returning the same. If the safekeeping of the thing delivered is not the principal purpose of the contract, there is no deposit but some other contract. Art. 1998. The deposit of effects made by travelers in hotels or inns shall also be regarded as necessary. The keepers of hotels or inns shall be responsible for them as depositaries, provided that notice was given to them, or to their employees, of the effects brought by the guests and that, on the part of the latter, they take the precautions which said hotel-keepers or their substitutes advised relative to the care and vigilance of their effects.
Plainly, from the facts found by the lower courts, the insured See deposited his vehicle for safekeeping with petitioner, through the latters employee, Justimbaste. In turn, Justimbaste issued a claim stub to See. Thus, the contract of deposit was perfected from Sees delivery, when he handed over to Justimbaste the keys to his vehicle, which Justimbaste received with the obligation of safely keeping and returning it. Ultimately, petitioner is liable for the loss of Sees vehicle.
POLICY: 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. IV. Sequestration or Judicial Deposit
a. Los Baos vs. Africa (384 SCRA 535, G.R. No. 143994, July 11, 2002) LOS BAOS RURAL BANK, INC. vs. PACITA O. AFRICA, GLORIA AFRICA, ANTONIO AFRICA, ARISTEO AFRICA, SOCORRO AFRICA, CONSUELO AFRICA, AND LOURDES AFRICA, (G.R. No. 143994 , July 11, 2002) FACTS: Petitioner Pacita Africa (Pacita for brevity) is the widow of Alberto Africa and the rest of her co-petitioners are their children. Records disclose that sometime in June 1989, the Quezon City Hall building where the Register of Deeds was then holding office was razed by fire, destroying some of its records/documents among which was the original Transfer Certificate of Title (TCT) No. 203492 covering a parcel of land situated in Diliman, Quezon City, and registered in the name of petitioner Pacita. The aforesaid property was part of the conjugal property of petitioner Pacita and her late husband Alberto Africa. On request of Pacita, private respondent Macy Africa, the common-law wife of petitioner Antonio Africa, worked for the reconstitution of the aforesaid TCT No. 203492. The same was done and a new Transfer Certificate of Title (TCT) No. RT-76140 (203492) PR-36463 was issued in the name of Pacita Africa. While the reconstituted title was in her possession, Macy allegedly forged, or caused the forgery of, Pacitas signature on a Deed of Absolute Sale dated December 29, 1992, purporting to transfer ownership of the subject property to Macy. On the strength of the forged Deed of Absolute Sale, Macy was able to cause the issuance of TCT No. 81519 in her name, without the knowledge of any of herein petitioners.
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Still as part of the scheme to defraud petitioners, Macy caused the preparation of a fake TCT No. 81519 in the name of Pacita, which the former showed to the latter to make Pacita believe that the said title was issued in her (Pacitas) name. Sometime in March 1994, petitioners discovered private respondents fraudulent act. They (petitioners) likewise came to know that the subject property was mortgaged by Macy to the respondent bank. To protect their interests over the subject property, petitioners lodged an action in court against Macy and the respondent bank for Annulment of Title, Deed of Absolute Sale and Deed of Mortgage. The case was originally assigned to Branch 99 of the RTC of Quezon City and docketed as Civil Case No. Q-9420898. After the filing of the aforesaid case, the respondent bank in utter bad faith, foreclosed the subject property on June 11, 1996 without due notice to the petitioners, prompting the petitioners to amend [their] complaint, this time incorporating therein a prayer for the issuance of a temporary restraining order and/or writ of preliminary injunction, to stop the respondent bank from, among others, consolidating title to the subject property. RTC DECISION - RTC Branch 99 issued an Order granting petitioners application for a temporary restraining order. The court denied the respondent banks motion to postpone and proceeded with the hearing of petitioners application. Thereafter, petitioners application was considered submitted for resolution. The Court issued an Order granting petitioners application for a writ of preliminary injunction to which respondent bank filed a Motion for Reconsideration followed by a Motion for Inhibition. RTC Branch 220, public respondent issued the questioned Order. CA DECISION - The CA overturned the RTC Order and granted the issuance of a preliminary injunction to restrain petitioner from proceeding with the foreclosure and the consolidation of title over the subject property. The CA ruled that respondents had title to and possession of the property and were deprived thereof by petitioner. Thus, respondents had a clear and unmistakable right to protect their title and possession. ISSUES: 1) WON the appellate court erred in issuing a writ of preliminary injunction to stop petitioners consolidation of its title to the subject property? NO. 2) WON there is sequestration or judicial deposit and the same is appropriately applied in this case? YES.
HELD: The Petition is not meritorious; it has not shown any reversible error in the CAs Decision. Main Issue: Propriety of Preliminary Injunction The grounds for the issuance of a writ of preliminary injunction are enumerated in Rule 58, Section 3 of the Revised Rules of Court, which reads as follows: "Sec. 3. Grounds for issuance of preliminary injunction. A preliminary injunction may be granted when it is established; (a)That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in restraining the commission or continuance of the act or acts complained of, or in requiring the performance of an act or acts, either for a limited period or perpetually; (b)That the commission, continuance or nonperformance of the act or acts complained of during the litigation would probably work injustice to the applicant; or (c)That a party, court, agency or a person is doing, threatening, or is attempting to do, or is procuring or suffering to be done, some act or acts probably in violation of the rights of the applicant respecting the subject of the action or proceeding, and tending to render the judgment ineffectual." Injunction is a preservative remedy aimed at no other purpose than to protect the complainants substantive rights and interests during the pendency of the principal action. A preliminary injunction, as the term itself suggests, is merely temporary. It is to be resorted to only when there is a pressing necessity to avoid injurious consequences that cannot be remedied under any standard of compensation. Moreover, injunction, like other equitable remedies, should be issued only at the instance of a suitor who has sufficient interest in or title to the right or the property sought to be protected. It is proper only when the plaintiff appears to be entitled to the relief demanded in the complaint. In particular, the existence of the right and the violation thereof must appear in the allegations of the complaint and must constitute at least a prima facie showing of a right to the final relief. Thus, there are two requisite conditions for the issuance of a preliminary injunction, namely, (1) the right to
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be protected exists prima facie, and (2) the acts sought to be enjoined are violative of that right. It must be proven that the violation sought to be prevented would cause an irreparable injustice. Further, while a clear showing of the right is necessary, its existence need not be conclusively established. In fact, the evidence required to justify the issuance of a writ of preliminary injunction in the hearing thereon need not be conclusive or complete. The evidence need only be a "sampling" intended merely to give the court an idea of the justification for the preliminary injunction, pending the decision of the case on the merits. Thus, to be entitled to the writ, respondents are only required to show that they have the ostensible right to the final relief prayed for in their Complaint. First Requisite: Existence of the Right In the case at bar, we find ample justification for the issuance of a writ of preliminary injunction. Evidently, the question on whether or not respondents possess the requisite right hinges on the prima facie existence of their legal title to the subject property. They have shown that they have that right, and that it is directly threatened by the act sought to be enjoined. First, as alleged in the Complaint, Respondent Pacita Africa is the registered owner of the subject property. Her ownership is evidenced by the reconstituted Transfer Certificate of Title (TCT) No. RT-76140 (203492) PR-36463, issued by the Registry of Deeds of Quezon City. Second, the validity of the Deed of Sale dated December 29, 1992, is still in dispute because Respondent Pacita Africa claims that her signature was forged by the vendee, Macy Africa. Third, there is doubt as to the validity of the mortgage in favor of petitioner, because there exists on record two TCTs covering the mortgaged property: (1) TCT No. 81519 registered in the name of Pacita Africa and (2) TCT No. 81519 registered in the name of Macy Africa. If indeed the Deed of Sale is a forgery, no parcel of land was ever transferred to the purported buyer who, not being the owner, could not have validly mortgaged the property. Consequently, neither has petitioner -- the buyer and mortgagee of the same lot -- ever acquired any title thereto. Significantly, no evidence was presented by petitioner to controvert these allegations put forward by respondents. Clearly then, on the basis of the evidence presented, respondents possess the right to prevent petitioner from consolidating the title in its name. The first
requisite -- the existence of a right to be protected -- is thus present. Second Requisite: Violation of Applicants Right As to the second requisite, what is sought to be enjoined by respondents is the consolidation of the title to the subject property in petitioners name. After havi ng discovered that the property had been mortgaged to petitioner, respondents filed on June 12, 1994 an action for Annulment of Title, Deed of Sale, and Mortgage to protect their rights over the property. This notwithstanding, petitioner foreclosed it on June 11, 1996. To enjoin petitioner from consolidating the title in its name, respondents then filed an Amended Complaint, praying for a writ of preliminary injunction. Unless legally stopped, petitioner may consolidate title to the property in its name and enjoy the unbridled freedom to dispose of it to third persons, to the damage and prejudice of respondents. What respondents stand to lose is material and substantial. They would lose their ancestral home even without the benefit of a trial. Clearly, the act sought to be enjoined is violative of their proprietary right over the property. A writ of preliminary injunction is issued precisely to preserve threatened or continuous irremediable injury to some of the parties before their claims can be thoroughly studied and adjudicated. Denial of the application for the writ may make the Complaint of respondents moot and academic. Furthermore, it would render ineffectual a final judgment in their favor or, at the very least, compel them to litigate needlessly with third persons who may have acquired an interest in the property. Such a situation cannot be countenanced. Lis Pendens Petitioner further contends that respondents are not entitled to the relief prayed for, because they caused a notice of lis pendens to be annotated at the back of TCT No. 81519, registered in the name of Macy P. Africa; thus, that notice provided ample protection of their rights and interests. We are not persuaded. A notice of lis pendens serves as an announcement to the whole world that a particular real property is in litigation and as a warning that those who acquire an interest in the property do so at their own risk -- they gamble on the result of the litigation over it. However, the cancellation of such notice may be ordered by the court that has jurisdiction over it at any given time. Its continuance or removal -- like the continuance or the removal of a preliminary attachment or injunction -- is not contingent on the existence of a final judgment on the action and ordinarily has no effect on the merits thereof. Thus, the
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notice of lis pendens does not suffice to protect herein respondents rights over the property. It does not provide complete and ample protection. Status Quo Ante It is a well-entrenched rule that consummated acts can no longer be restrained by injunction whose sole objective is to preserve the status quo until the merits of the case are fully heard. Status quo is defined as the last actual peaceful uncontested situation that precedes a controversy, and its preservation is the office of an injunctive writ. In the instant case, the status quo was the situation of the parties at the time of the filing of the Amended Complaint with a prayer for a writ of preliminary injunction. It was that point at which petitioner had already foreclosed the subject property and, hence, could no longer be enjoined from going on with the foreclosure. However, the last actual uncontested status that preceded the controversy was when the property in dispute was still registered in the name of Macy Africa, petitioner not having consolidated in its name the title thereto. Thus, the issuance of the writ would no doubt preserve the status quo. Petition is DENIED and the assailed Decision of the Court of Appeals AFFIRMED. PART V. WAREHOUSE RECEIPT LAWS PART VI. GUARANTY & SURETYSHIP (Articles 2047 2084) I. Nature and Extent
On March 6, 1981, Forte Merchant Finance, Inc., executed a Surety Agreement in favor of PBCOM with Joseph L.G. Chua as one of the sureties On October 24, 1983 Chua executed a Deed of Exchange transferring a parcel of land with improvements thereon covered by TCT No. S-52808 (343721) to JALECO Development, Inc. As a result, TCT No. 126573 of the Register of Deeds of Rizal covering the aforementioned parcel of land was issued in the name of JALECO Development, Inc., on November 24, 1983. On November 2, 1983, Chua sold 6,000 shares of JALECO Development, Inc., to Mr. Chua Tiong King for P600,000.00 and another 6,000 shares of JALECO Development, Inc. to Guillermo Jose, Jr. also for P600,000.00 and Caw Le Ja Chua, wife of Chua sold the 6,000 share of JALECO Development, Inc., to Chua Tiong King for P200,000.00 In the meanwhile, for failure of both Fortune Motors (Phils.), Inc. and Forte Merchant Finance, Inc. to meet their respective financial obligations with PBCOM, the latter filed Civil Case No. 84-25159 against Fortune Motors (Phils.), Inc., Joseph L. G. Chua et. al. and Civil Case No. 84-25160 against Forte Merchant Finance, Inc., Joseph L. G. Chua et. al. with the Regional Trial Court of Manila, both for Sum of Money with Writ of Preliminary Attachment where PBCOM was able to obtain a notice of levy on the properties of Fortune Motors (Phils.) When plaintiff was able to locate Chua's former property situated in Dasmarias, Makati, Metro Manila, covered by TCT No. S-52808 containing an area of 1,541 square meters which was already transferred to JALECO Development, Inc., under TCT No. 126573 by virtue of the Deed of Exchange dated October 24, 1983, PBCOM filed Civil Case No. 7889 for annulment of Deed of Exchange with the Regional Trial Court of Makati, Metro Manila. Chua admitted the Deed of Exchange in favor of JALECO and contended that it was done in good faith and in accordance with law. ISSUE: WON the Deed of Exchange should be cancelled. YES HELD:
a. PBCOM vs. CA (G.R. No. 90267, March 22, 1991) Philippine Bank of Communications vs. Court of Appeals, Joseph L.G. Chua and JALECO Devt, Inc. FACTS : On April 14, 1976, Fortune Motors (Phils.), Inc. executed a Surety Agreement in favor of Philippine Bank of Communications (PBCOM for short) with Joseph L.G. Chua, as one of the sureties.
1
Creditor: PBCOM Principal Debtors: Fortune Motors (Phils), Inc. and Forte Merchant Finance, Inc. Surety: Chua Principal debtors failed to pay. Creditor filed a complaint against principal debtors but the latters properties are mortgaged to another prior lien holders. Creditor went after the surety but discovered that his only property is sold to JALECO. Creditor filed an annulment of the deed of exchange (rescission) contending that this is in fraud of creditors.
For failure of both Fortune Motors (Phils), Inc. and Forte Merchant Finance, Inc. to pay their obligations with the petitioner, the latter filed the two civil cases against Fortune Motors (Phils.), Inc. and Forte Merchant Finance, Inc. and respondent Chua, among others with the Regional Trial Court of Manila. The petitioner was granted a writ of attachment as
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a result of which properties belonging to Fortune Motors (Phils.) were attached. It turned out, however, that the attached properties of Fortune Motors (Phils.), Inc. were already previously attached/mortgaged to prior lien holders in the amount of about P70,000,000.00. As regards Forte Merchant Finance, Inc., it appears that it has no property to satisfy the debts it incurred with PBCOM. The record further shows that as regards Chua, the property subject of the Deed of Exchange between him and JALECO was his only property. Under these circumstances, the petitioner's petition for annulment of the deed of exchange on the ground that the deed was executed in fraud of creditors, despite the pendency of the two (2) other civil cases is well-taken. As surety for the financial obligations of Fortune Motors (Phils.), Inc. and the Forte Merchant Finance, Inc., with the petitioner, respondent Chua bound himself solidarily liable with the two (2) principal debtors. (Article 2047, Civil Code) The petitioner may therefore demand payment of the whole financial obligations of Fortune Motors (Phils.), Inc. and Forte Finance, Inc., from Chua, if the petitioner chooses to go directly after him. Hence, since the only property of Chua was sold to JALECO after the debts became due, the petitioner has the right to file an annulment of the deed of exchange between Chua and JALECO wherein Chua sold his only property to JALECO to protect his interests and so as not to make the judgments in the two (2) cases illusory. Parenthetically, the appellate court's observation that the petitioner's interests are sufficiently protected by a writ of attachment on the properties of Fortune Finance (Phils.), Inc. has neither legal nor factual basis. b. Willex vs. CA (256 SCRA 478, G.R. No. 103066, April 25, 1996) WILLEX PLASTIC INDUSTRIES, CORPORATION vs. HON. COURT OF APPEALS and INTERNATIONAL CORPORATE BANK FACTS: Sometime in 1978, Inter-Resin Industrial Corporation opened a letter of credit with the Manila Banking Corporation. To secure payment of the credit accommodation, Inter-Resin Industrial and the Investment and Underwriting Corporation of the Philippines (IUCP) executed two documents, both entitled Continuing Surety Agreement, whereby they bound themselves solidarily to pay Manilabank obligations of every kind, on which the [Inter-Resin Industrial] may now be indebted or hereafter become indebted to the [Manilabank]. On April 2, 1979, Inter-Resin Industrial, together with Willex Plastic Industries Corp., executed a Continuing Guaranty in favor of IUCP whereby For and in consideration of the sum or sums obtained and/or to be obtained by Inter-
Resin Industrial Corporation from IUCP, Inter-Resin Industrial and Willex Plastic jointly and severally guaranteed the prompt and punctual payment at maturity of the NOTE/S issued by the DEBTOR/S . . . to the extent of the aggregate principal sum of FIVE MILLION PESOS (P5,000,000.00) Philippine Currency and such interests, charges and penalties as hereafter may be specified. On January 7, 1981, following demand upon it, IUCP paid to Manilabank the sum of P4,334,280.61 representing Inter-Resin Industrials outstanding obligation. Later, Atrium Capital Corp., which in the meantime had succeeded IUCP, demanded from Inter-Resin Industrial and Willex Plastic the payment of what it (IUCP) had paid to Manilabank. As neither one of the sureties paid, Atrium filed this case in the court below against Inter-Resin Industrial and Willex Plastic. On August 11, 1982, Inter-Resin Industrial paid Interbank, which had in turn succeeded Atrium, the sum of P687,500.00 representing the proceeds of its fire insurance policy for the destruction of its properties. In its answer, Inter-Resin Industrial admitted that the Continuing Guaranty was intended to secure payment to Atrium of the amount of P4,334,280.61 which the latter had paid to Manilabank. It claimed, however, that it had already fully paid its obligation to Atrium Capital. On April 29, 1986, Interbank was substituted as plaintiff in the action. The case then proceeded to trial. The trial court declared Inter-Resin Industrial to have waived the right to present evidence for its failure to appear at the hearing despite due notice. On the other hand, Willex Plastic rested its case without presenting any evidence. The trial court likewise rendered judgment, ordering Inter-Resin Industrial and Willex Plastic jointly and severally to pay to Interbank the indebtedness and damages suffered. The CA affirmed the TC Decision. ISSUE: WON under the Continuing Guaranty signed on April 2, 1979 petitioner Willex Plastic may be held jointly and severally liable with Inter-Resin Industrial for the amount paid by Interbank to Manilabank. YES. HELD: As already stated, the amount had been paid by Interbanks predecessor-in-interest, Atrium Capital, to Manilabank pursuant to the Continuing Surety Agreements made on December 1, 1978. In denying liability to Interbank for the amount, Willex Plastic argues that under the Continuing Guaranty, its liability is for sums obtained by Inter-Resin Industrial from Interbank, not for sums paid by the latter to Manilabank for the account of Inter-Resin Industrial.
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The contention is untenable. What Willex Plastic has overlooked is the fact that evidence aliunde was introduced in the trial court to explain that it was actually to secure payment to Interbank (formerly IUCP) of amounts paid by the latter to Manilabank that the Continuing Guaranty was executed. Willex Plastic argues that the Continuing Guaranty, being an accessory contract, cannot legally exist because of the absence of a valid principal obligation. Its contention is based on the fact that it is not a party either to the Continuing Surety Agreement or to the loan agreement between Manilabank and Inter-Resin Industrial. Put in another way the consideration necessary to support a surety obligation need not pass directly to the surety, a consideration moving to the principal alone being sufficient. For a guarantor or surety is bound by the same consideration that makes the contract effective between the principal parties thereto. . . . It is never necessary that a guarantor or surety should receive any part or benefit, if such there be, accruing to his principal. Willex Plastic contends that the Continuing Guaranty cannot be retroactively applied so as to secure the payments made by Interbank under the two Continuing Surety Agreements. Willex Plastic invokes the ruling in El Vencedor v. Canlas (44 Phil. 699 [1923]) and Dio v. Court of Appeals (216 SCRA 9 [1992]) in support of its contention that a contract of suretyship or guaranty should be applied prospectively. The cases cited are, however, distinguishable from the present case. In El Vencedor v. Canlas we held that a contract of suretyship is not retrospective and no liability attaches for defaults occurring before it is entered into unless an intent to be so liable is indicated. There we found nothing in the contract to show that the parties intended the surety bonds to answer for the debts contracted previous to the execution of the bonds. In contrast, in this case, the parties to the Continuing Guaranty clearly provided that the guaranty would cover sums obtained and/or to be obtained by Inter-Resin Industrial from Interbank. On the other hand, in Dio v. Court of Appeals the issue was whether the sureties could be held liable for an obligation contracted after the execution of the continuing surety agreement. It was held that by its very nature a continuing suretyship contemplates a future course of dealing. It is prospective in its operation and is gebnerally intended to provide security with respect to future transactions. By no means, however, was it meant in that case that in all instances a contract of guaranty or suretyship should be prospective in application. Indeed, as we also held
in Bank of the Philippine Islands v. Foerster, (49 Phil. 843 [1926]) although a contract of suretyship is ordinarily not to be construed as retrospective, in the end the intention of the parties as revealed by the evidence is controlling. What was said there applies mutatis mutandis to the case at bar: In our opinion, the appealed judgment is erroneous. It is very true that bonds or other contracts of suretyship are ordinarily not to be construed as retrospective, but that rule must yield to the intention of the contracting parties as revealed by the evidence, and does not interfere with the use of the ordinary tests and canons of interpretation which apply in regard to other contracts. POLICY: The consideration necessary to support a surety obligation need not pass directly to the surety. A consideration moving to the principal alone is sufficient. Moreover, although a contract of surety is ordinarily not to be construed as retrospective, in the end the intention of the parties as revealed by the evidence is controlling. c. RCBC vs. Judge Arro (G.R. No. L-49401, July 30, 1982) RIZAL COMMERCIAL BANKING CORPORATION (RCBC) vs. HON. JOSE P. ARRO, Judge of the Court of First instance of Davao, and RESIDORO CHUA FACTS: On October 19, 1976, Residoro Chua and Enrique Go, Sr. executed a comprehensive surety agreements to guaranty, among others, any existing indebtedness of Davao Agricultural Industries Corporation (Borrower; Daicor), or to make any loans or advances evidenced or secured by any instrument upon which the Borrower is or may become liable, provided that the liability shall not exceed at any one time the aggregate principal sum of P100,000.00. On April 29, 1977 a promissory note in the amount of P100,000.00 was issued in favor of petitioner payable on June 13, 1977. Said note was signed by Enrique Go, Sr. in his personal capacity and in behalf of Daicor. The promissory note was not fully paid despite repeated demands; hence, on June 30, 1978, petitioner filed a complaint for a sum of money against Daicor, Enrique Go, Sr. and Residoro Chua. ISSUE: WON the comprehensive surety agreement, particularly in reference to the indebtedness evidenced by the promissory note involved in the instant case, said comprehensive surety agreement having been signed by Enrique Go, Sr. and private respondent, binding themselves as solidary debtors of said corporation not only to existing obligations but to future ones.
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HELD: The comprehensive surety agreement was jointly executed by Residoro Chua and Enrique Go, Sr., President and General Manager, respectively of Daicor, on October 19, 1976 to cover existing as well as future obligations which Daicor may incur with the petitioner bank, subject only to the proviso that their liability shall not exceed at any one time the aggregate principal sum of P100,000.00. The agreement was executed obviously to induce petitioner to grant any application for a loan Daicor may desire to obtain from petitioner bank. The guaranty is a continuing one which shall remain in full force and effect until the bank is notified of its termination. This is a continuing guaranty and shall remain in fun force and effect until written notice shall have been received by you that it has been revoked by the undersigned... At the time the loan of P100,000.00 was obtained from petitioner by Daicor, for the purpose of having an additional capital for buying and selling coco-shell charcoal and importation of activated carbon, the comprehensive surety agreement was admittedly in full force and effect. The loan was, therefore, covered by the said agreement, and private respondent, even if he did not sign the promisory note, is liable by virtue of the surety agreement. The only condition that would make him liable thereunder is that the Borrower "is or may become liable as maker, endorser, acceptor or otherwise". There is no doubt that Daicor is liable on the promissory note evidencing the indebtedness. The surety agreement which was earlier signed by Enrique Go, Sr. and private respondent, is an accessory obligation, it being dependent upon a principal one which is the loan obtained by Daicor as evidenced by a promissory note. By terms that are unequivocal, it can be clearly seen that the surety agreement was executed to guarantee future debts which Daicor may incur with petitioner, as is legally allowable under the Civil Code. Thus Article 2053. A guaranty may also be given as security for future debts, the amount of which is not yet known; there can be no claim against the guarantor until the debt is liquidated. A conditional obligation may also be secured.
d. Atok vs. CA (222 SCRA 232, G.R. No. 80078, May 18, 1993) ATOK FINANCE CORPORATION, petitioner, vs. COURT OF APPEALS, SANYU CHEMICAL CORPORATION, DANILO E. ARRIETA, NENITA B. ARRIETA, PABLITO BERMUNDO and LEOPOLDO HALILI, respondents. FACTS: Atok and Sanyu Chemical entered into a Continuing Suretyship Agreement in favor of Atok Finance with the latter being the creditor and Sanyu Chemical and several stockholders as sureties. SanyuChemical, in consideration of receipt from Atok Finance of the amount of P105,000.00, assigned several receivables in favor of Atok. Later, additional trade receivables were assigned by Sanyu Chemical to Atok Finance with a total face value of P100,378.45. Atok Finance commenced action against Sanyu Chemical, and the sureties before the RTC to collect the sum of P120,240.00. Atok Finance alleged that Sanyu Chemical had failed to collect and remit the amounts due under the trade receivables. Sanyu Chemical and the individual private respondents sought dismissal of Atok's claim upon the ground that such claim had prescribed under Article 1629 of the Civil Code and for lack of cause of action. The private respondents contended that the Continuing Suretyship Agreement, being an accessory contract, was null and void since, at the time of its execution, Sanyu Chemical had no pre-existing obligation due to Atok Finance. It is the contention of respondents that the suretyship agreement is null and void because it is not in consonance with the laws on guaranty and security. The said agreement was entered into by the parties two years before the Deed of Assignment was executed. Thus, allegedly, it ran counter to the provision that guaranty cannot exist independently because by nature it is merely an accessory contract: first, because this contract, just like guaranty, cannot exist without a valid obligation (Art. 2052, Civil Code); and, second, although it may be given as security for future debt (Art. 2053, C.C.), the obligation contemplated in the case at bar cannot be considered 'future debt' as envisioned by this law ISSUES. 1. May a surety agreement, being an accessory contract, be effected to secure future (non-existing) debts? May the continuing suretyship agreement be declared null and void for alleged lack of consideration since there was still no preexisting obligation for the surety to attach to? 2. WON private respondents are liable under the Deed of Assignment which they, along with the principal debtor Sanyu
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Chemical, executed in favor of petitioner, on the receivables thereby assigned. HELD1. Surety agreements may secure future debts. It is true that a guaranty or a suretyship agreement is an accessory contract in the sense that it is entered into for the purpose of securing the performance of another obligation which is denominated as the principal obligation. It is also true that Article 2052 of the Civil Code states that "a guarantee cannot exist without a valid obligation." This legal proposition is not, however, like most legal principles, to be read in an absolute and literal manner and carried to the limit of its logic. The argument of respondents has been debunked in the cases of National Rice and Corn Corporation (NARIC) v. Jose A. Fojas and Alto Surety Co., Inc. and in Rizal Commercial Banking Corporation v. Arro. In NARIC v Fojas: This defense is untenable, because in its complaint the NARIC averred, and the appellant did not deny that these bonds were posted to secure the additional credit that Fojas has applied for, and the credit increase over his original contract was sufficient consideration for the bonds. That the latter were signed and filed before the additional credit was extended by the NARIC is no ground for complaint. Article 1825 of the Civil Code of 1889, in force in 1948, expressly recognized that 'a guaranty may also be given as security for future debts the amount of which is not yet known. In RCBC v Arro: The surety agreement which was earlier signed by Enrique Go., Sr. and private respondent, is an accessory obligation, it being dependent upon a principal one which, in this case is the loan obtained by Daicor as evidenced by a promissory note. What obviously induced petitioner bank to grant the loan was the surety agreement whereby Go and Chua bound themselves solidarily to guaranty the punctual payment of the loan at maturity. By terms that are unequivocal, it can be clearly seen that the surety agreement was executed to guarantee future debts which Daicor may incur with petitioner, as is legally allowable under the Civil Code. e. Dio vs. CA (216 SCRA 9, G.R. No. 89775, November 26, 1992) Jacinto Uy Dino and Norberto Uy vs. Hon. Court of appeals and Metropolitan Bank and Trust Company FACTS: Uy Tiam Enterprises and Freight Services (UTEFS), thru its representative Uy Tiam, applied for and obtained credit accommodations from Metrobank in the sum of P700k. to secure the credit accommodations, Norberto Uy and Jacinto Uy Dino executed separate Continuing Suretyships, dated 25 Feb 1977, in favor of the latter. Under the aforesaid agreements, Norberto agreed to pay Metrobank any indebtedness of UTEFS up to the aggregate sum of P300k
while Jacinto agreed to be bound up to the aggregate sum of P800k. Having paid the obligation under the letter of credit in 1977, UTEFS, through Uy Tiam, obtained another credit accommodation from Metrobank in 1978, which credit accommodation was fully settled before an irrevocable letter of credit was applied for and obtained by the abovementioned business entity in 1979. The Irrevocable letter of credit, dated in 30 Mar 1979, in the sum of P 815,600, covered UTEFS purchase of 8K Bags Planters Urea and 4k Bags Planters 21-0-0. It was applied for and obtained by UTEFS without the participation of Norberto and Jacinto as they did not sign the Commercial Letter of Credit and Application. Also, they were not asked to execute any suretyship to guarantee its payment. Neither did Metrobank nor UTEFS inform them that the 1979 Letter of Credit has been opened and the Continuing Suretyships separately executed in February, 1979 shall guarantee its payment. Pursuant to the commercial transaction, UTEFS executed and delivered to Metrobank, whereby the former acknowledged receipt in trust from the latter the goods form Planters Products. However, UTEFS did not acquiesce to the obligatory stipulations in the trust receipt. As a consequence, Metrobank sent letters to UTEFS, Norberto and Jacinto, demanding payment of the amount due. Jacinto and Norberto denied their liability for the amount demanded and requested by Metrobank alleging that the obligation they guaranteed in 1977 has been extinguished since it has already been paid in the same year. Moreover, they cannot be held liable for the obligation contracted in 1979 because they are not privies thereto as it was contracted without their participation. ISSUES: 1. Are Jacinto Dino and Norberto Uy liable as sureties for the 1979 obligations of Uy Tiam to Metrobank by virtue of the Continuing Suretyship Agreements they separately signed in 1977? YES 2. On the assumption that they are, what is the extent of their liabilities for said 1979 obligations? Up to the maximum limit only of their respective Continuing Suretyship Agreement HELD: 1. Under the Civil Code, a guaranty may be given to secure even future debts, the amount of which may not be known at the time the guaranty is executed. This is the basis for contracts denominated as continuing guaranty or suretyship. A continuing guaranty is one which is not
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limited to a single transaction, but which contemplates a future course of dealing, covering a series of transactions, generally for an indefinite time or until revoked. It is prospective in its operation and is generally intended to provide security with respect to future transactions within certain limits, and contemplates a succession of liabilities, for which, as they accrue, the guarantor becomes liable. Otherwise stated, a continuing guaranty is one which covers all transactions, including those arising in the future, which are within the description or contemplation of the contract, of guaranty, until the expiration or termination thereof. A guaranty shall be construed as continuing when by the terms thereof it is evident that the object is to give a standing credit to the principal debtor to be used from time to time either indefinitely or until a certain period, especially if the right to recall the guaranty is expressly reserved. Hence, where the contract of guaranty states that the same is to secure advances to be made "from time to time" the guaranty will be construed to be a continuing one. In the case at bar, par 1 and 4 of the agreements unequivocally reveal that the suretyship agreement are continuing in nature. Norberto and Jacinto do not deny this; in fact, they candidly admitted it. Neither have they denied the fact that they had not revoked the suretyhip agreements. Undoubtedly, the purpose of the execution of the Continuing Suretyships was to induce appellant to grant any application for credit accommodation (letter of credit/trust receipt) UTEFS may desire to obtain from appellant bank. By its terms, each suretyship is a continuing one which shall remain in full force and effect until the bank is notified of its revocation. Petitioners maintain, however, that their Continuing Suretyship Agreements cannot be made applicable to the 1979 obligation because the latter was not yet in existence when the agreements were executed in 1977; under Article 2052 of the Civil Code, a guaranty "cannot exist without a valid obligation." We cannot agree. First of all, the succeeding article provides that "[a] guaranty may also be given as security for future debts, the amount of which is not yet known." Secondly, Article 2052 speaks about a valid obligation, as distinguished from a void obligation, and not an existing or current obligation. This distinction is made clearer in the second paragraph of Article 2052 which reads: 2.
Nevertheless, a guaranty may be constituted to guarantee the performance of a voidable or an unenforceable contract. It may also guarantee a natural obligation. As to the amount of their liability under the Continuing Suretyship Agreements, petitioners contend that the public respondent gravely erred in finding them liable for more than the amount specified in their respective agreements, to wit: (a) P800,000.00 for petitioner Dio and (b) P300,000.00 for petitioner Uy. The limit of the petitioners respective liabilities must be determined from the suretyship agreement each had signed. Indeed, the Continuing Suretyship Agreements signed by petitioner Dio and petitioner Uy fix the aggregate amount of their liability, at any given time, at P800,000.00 and P300,000.00, respectively. The law is clear that a guarantor may bond himself for less, but not for more than the principal debtor, both as regards the amount and the onerous nature of the conditions. f. Fortune Motors vs. CA (267 SCRA 653, G.R. No. 112191, February 7, 1997) FORTUNE MOTORS (PHILS.) CORPORATION and EDGAR L. RODRIGUEZA, petitioners, vs. THE HONORABLE COURT OF APPEALS and FILINVEST CREDIT CORPORATION, respondents. Nota bene: Please refer to the first paragraph of the full text of the case for the background on the nature of this transaction FACTS: On or about August 4, 1981, Joseph Chua and Petitioner Rodrigueza each executed an undated Surety Undertaking whereunder they absolutely, unconditionally and solidarily guaranteed to Respondent Filinvest and its affiliated and subsidiary companies the full, faithful and prompt performance, payment and discharge of any and all obligations and agreements of Fortune Motors with respect to agreements of the latter with Filinvest. The following year, Fortune, Filinvest and Canlubang Automotive Resources Corporation (CARCO) entered into a Financing Agreement under which CARCO will deliver motor vehicles to Fortune for the purpose of resale in the latters ordinary course of business; Fortune, in turn, will execute trust receipts over said vehicles and accept drafts drawn by CARCO, which will discount the same together with the trust receipts and invoices and assign them in favor of Filinvest, which will pay the motor vehicles for Fortune. Under the same agreement, Fortune, as trustee of the motor vehicles,
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was to report and remit proceeds of any sale for cash or on terms to Filinvest immediately without necessity of demand. Subsequently, several motor vehicles were delivered by CARCO to Fortune, and trust receipts covered by demand drafts and deeds of assignment were executed in favor of Filinvest but not all the proceeds of the vehicles sold by Fortune were remitted to Filinvest. Fortune likewise failed to turn over to Filinvest several unsold motor vehicles covered by the trust receipts. Thus, Filinvest demanded for the payment of Fortunes unsettled account. Filinvest also sent demand letters to Chua and Rodrigueza as sureties. Despite said demands, the amount was not paid. Hence, Filinvest filed in the RTC a complaint for a sum of money with preliminary attachment against Fortune, Chua and Rodrigueza. Petitioners argue that future debts which can be guaranteed under Article 2053 of the Civil Code refer only to debts existing at the time of the constitution of the guaranty but the amount thereof is unknown, and that a guaranty being an accessory obligation cannot exist without a principal obligation. Petitioners claim that the surety undertakings cannot be made to cover the Financing Agreement executed by Fortune, Filinvest and CARCO since the latter contract was not yet in existence when said surety contracts were entered into. ISSUE: WON surety can exist even if there is no existing indebtedness at the time of its execution. YES HELD: The surety undertakings executed by Chua and Rodrigueza were continuing guaranties or suretyships covering all future obligations of Fortune with Filinvest. This is evident from the written contract itself which contained the words absolutely, unconditionally and solidarily guarantee(d) to Filinvest and its affiliated and subsidiary companies the full, faithful and prompt performance, payment and discharge of any and all obligations and agreements of Fortune under or with respect to any and all such contracts and any and all other agreements (whether by way of guaranty or otherwise) of the latter with Filinvest and its affiliated and subsidiary companies now in force or hereafter made. Moreover, Petitioner Rodrigueza and Joseph Chua knew exactly where they stood at the time they executed their respective surety undertakings in favor of Fortune. Rodrigueza and Chua were fully aware of the business of Fortune, an automobile dealer; Chua being the corporate president of Fortune and even a signatory to the Financial
Agreement with Filinvest. Both sureties knew the purpose of the surety undertaking which they signed and they must have had an estimate of the amount involved at that time. Their undertaking by way of the surety contracts was critical in enabling Fortune to acquire credit facility from Filinvest and to procure cars for resale, which was the business of Fortune Filinvest, for its part, relied on the surety contracts when it agreed to be the assignee of CARCO with respect to the liabilities of Fortune with CARCO. After benefiting therefrom, petitioners cannot now impugn the validity of the surety contracts on the ground that there was no pre-existing obligation to be guaranteed at the time said surety contracts were executed. They cannot resort to equity to escape liability for their voluntary acts, and to heap injustice to Filinvest, which relied on their signed word. This is a clear case of estoppel by deed. By the acts of petitioners, Filinvest was made to believe that it can collect from Chua and/or Rodrigueza in case of Fortunes default. Filinvest relied upon the surety contracts when it demanded payment from the sureties of the unsettled liabilities of Fortune. A refusal to enforce said surety contracts would virtually sanction the perpetration of fraud or injustice. POLICY: A continuing guaranty is one which is not limited to a single transaction, but which contemplates a future course of dealing, covering a series of transactions, generally for an indefinite time or until revoked. g. Prudential Bank vs. Alviar (464 SCRA 353, G.R. No. 150197, July 28, 2005) PRUDENTIAL BANK, Petitioner, vs. DON A. ALVIAR and GEORGIA B. ALVIAR, Respondents. FACTS: Don A. Alviar and Georgia B. Alviar are the registered owners of a parcel of land (TCT No. 438157). In 1975, they executed a deed of real estate mortgage in favor of petitioner Prudential Bank to secure the payment of a loan worth P250,000.00. On 4 August 1975, respondents executed a promissory note covering the said loan and that the note is secured by a real estate mortgage as aforementioned. The real estate mortgage contained the following clause: That for and in consideration of certain loans, overdraft and other credit accommodations obtained from the Mortgagee by the Mortgagor and/or ________________ hereinafter referred to, irrespective of number, as DEBTOR, and to secure the payment of the same and those that may hereafter be obtained, the principal or all of which is hereby fixed at Two Hundred Fifty Thousand
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(P250,000.00) Pesos, Philippine Currency, as well as those that the Mortgagee may extend to the Mortgagor and/or DEBTOR, including interest and expenses or any other obligation owing to the Mortgagee, whether direct or indirect, principal or secondary as appears in the accounts, books and records of the Mortgagee, the Mortgagor does hereby transfer and convey by way of mortgage unto the Mortgagee, its successors or assigns, the parcels of land which are described in the list inserted on the back of this document, and/or appended hereto, together with all the buildings and improvements now existing or which may hereafter be erected or constructed thereon, of which the Mortgagor declares that he/it is the absolute owner free from all liens and encumbrances. (*Emphasis supplied = Blanket Mortgage Clause) On 22 October 1976, Don Alviar executed another promissory note, PN BD#76/C-345 for P2,640,000.00, signifying that the loan was secured by a "hold-out" on the mortgagors foreign currency savings account and that the mortgagors passbook is to be surrendered to the bank until the amount secured by the "hold-out" is settled. On 27 December 1976, respondent spouses executed for Donalco Trading, Inc., PN BD#76/C-430 covering P545,000.000. As provided in the note, the loan is secured by "Clean-Phase out TOD CA 3923," which means that the temporary overdraft incurred by Donalco Trading, Inc. with petitioner is to be converted into an ordinary loan in compliance with a Central Bank circular directing the discontinuance of overdrafts. On 16 March 1977, petitioner wrote Donalco Trading, Inc., informing the latter of its approval of a straight loan of P545,000.00, the proceeds of which shall be used to liquidate the outstanding loan of P545,000.00 TOD. The letter likewise mentioned that the securities for the loan were the deed of assignment on two promissory notes executed by Bancom Realty Corporation with Deed of Guarantee in favor of A.U. Valencia and Co. and the chattel mortgage on various heavy and transportation equipment. On 06 March 1979, respondents paid petitioner P2,000,000.00, to be applied to the obligations of G.B. Alviar Realty and Development, Inc. and for the release of the real estate mortgage for the P450,000.00 loan covering the two (2) lots. The payment was acknowledged by petitioner who accordingly released the mortgage over the two properties. On 15 January 1980, petitioner moved for the extrajudicial foreclosure of the mortgage on the property. Per petitioners computation, respondents had the total
obligation of P1,608,256.68, covering the three (3) promissory notes, to wit: PN BD#75/C-252 for P250,000.00, PN BD#76/C-345 for P382,680.83, and PN BD#76/C-430 for P545,000.00, plus assessed past due interests and penalty charges. Respondents filed a complaint for damages with a prayer for the issuance of a writ of preliminary injunction with the RTC of Pasig, claiming that they have paid their principal loan secured by the mortgaged property (TCT No. 438157), and thus the mortgage should not be foreclosed. For its part, petitioner averred that the payment of P2,000,000.00 was not a payment made by respondents, but by G.B. Alviar Realty and Development Inc., which has a separate loan with the bank secured by a separate mortgage. ISSUES: 1. WON the "blanket mortgage" clause applies even to subsequent advancements for which other securities were intended, to PN BD#76/C-345 (second promissory note). NO 2. WON foreclosure of the mortgaged property for the nonpayment of the three loans is proper. NO Side Issue: (i) WON "blanket mortgage clause" or the "dragnet clause" is valid; Valid Held: A "blanket mortgage clause," also known as a "dragnet clause" in American jurisprudence, is one which is specifically phrased to subsume all debts of past or future origins. Such clauses are "carefully scrutinized and strictly construed." Mortgages of this character enable the parties to provide continuous dealings, the nature or extent of which may not be known or anticipated at the time, and they avoid the expense and inconvenience of executing a new security on each new transaction. A "dragnet clause" operates as a convenience and accommodation to the borrowers as it makes available additional funds without their having to execute additional security documents, thereby saving time, travel, loan closing costs, costs of extra legal services, recording fees, et cetera. Indeed, it has been settled in a long line of decisions that mortgages given to secure future advancements are valid and legal contracts, and the amounts named as consideration in said contracts do not limit the amount for which the mortgage may stand as security if from the four corners of the instrument the intent to secure future and other indebtedness can be gathered. Under American jurisprudence, two schools of thought have emerged on this question. One school advocates that a "dragnet clause" so worded as to be broad enough to cover all other debts in addition to the one
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specifically secured will be construed to cover a different debt, although such other debt is secured by another mortgage. The contrary thinking maintains that a mortgage with such a clause will not secure a note that expresses on its face that it is otherwise secured as to its entirety, at least to anything other than a deficiency after exhausting the security specified therein, such deficiency being an indebtedness within the meaning of the mortgage, in the absence of a special contract excluding it from the arrangement. The latter school represents the better position. The parties having conformed to the "blanket mortgage clause" or "dragnet clause," it is reasonable to conclude that they also agreed to an implied understanding that subsequent loans need not be secured by other securities, as the subsequent loans will be secured by the first mortgage. In other words, the sufficiency of the first security is a corollary component of the "dragnet clause." But of course, there is no prohibition, as in the mortgage contract in issue, against contractually requiring other securities for the subsequent loans. Thus, when the mortgagor takes another loan for which another security was given it could not be inferred that such loan was made in reliance solely on the original security with the "dragnet clause," but rather, on the new security given. This is the "reliance on the security test." It was therefore improper for petitioner in this case to seek foreclosure of the mortgaged property because of non-payment of all the three promissory notes. While the existence and validity of the "dragnet clause" cannot be denied, there is a need to respect the existence of the other security given for PN BD#76/C-345. The foreclosure of the mortgaged property should only be for the P250,000.00 loan covered by PN BD#75/C-252, and for any amount not covered by the security for the second promissory note. Petitioner, however, is not without recourse . Both the Court of Appeals and the trial court found that respondents have not yet paid the P250,000.00, and gave no credence to their claim that they paid the said amount when they paid petitioner P2,000,000.00. Thus, the mortgaged property could still be properly subjected to foreclosure proceedings for the unpaid P250,000.00 loan, and as mentioned earlier, for any deficiency after D/A SFDX#129, security for PN BD#76/C-345, has been exhausted, subject of course to defenses which are available to respondents. Policy: In the absence of clear, supportive evidence of a contrary intention, a mortgage containing a "dragnet clause" will not be extended to cover future advances unless the document evidencing the subsequent advance refers to the mortgage as providing security therefor.
While the "dragnet clause" subsists, the security specifically executed for subsequent loans must first be exhausted before the mortgaged property can be resorted to. h. Pacific Banking vs. IAC (203 SCRA 496, G.R. No. 72275, November 13, 1991) PACIFIC BANKING CORPORATION, petitioner, vs. HON INTERMEDIATE APPELLATE COURT AND ROBERTO REGALA, JR., respondents. FACTS: On October 24, 1975, defendant Celia Syjuco Regala obtained from the plaintiff the issuance and use of Pacificard credit card and and her spouse defendant-appelant Robert Regala, Jr., executed a "Guarantor's Undertaking in favor of the appellee Bank. Celia Regala failed to settle her account of P92,803.98 after several demands were made to the spouses so a complaint was subsequently filed in Court. Celia was declared in default for her failure to file her answer within the reglementary period. Roberto Regala, Jr., on the other hand, filed his Answer with Counterclaim admitting his execution of the "Guarantor's Understanding", "but with the understanding that his liability would be limited to P2,000.00 per month." In view of the solidary nature of the liability of the parties, the presentation of evidence ex-parte as against the defendant Celia Regala was jointly held with the trial of the case as against defendant Roberto Regala. TC finds the defendants liable jointly and severally, the amount of P92,803.98, with interest at 14% per annum, compounded annually, from the time of demand on November 17, 1978 until said principal amount is fully paid; plus 15% of the principal obligation. The counterclaim of defendant Roberto Regala, Jr. is dismissed for lack of merit. CA modified the decision of the trial court. Roberto Regala, Jr. was made liable only to the extent of the monthly credit limit granted to Celia Regala, i.e., at P2,000.00 a month and only for the advances made during the one year period of the card's effectivity counted from October 29, 1975 up to October 29, 1976, 14% interest per annum. ISSUE: WON Roberto Regala, Jr.'s liability is that of a guarantor or surety. HELD: Although denominated "Guarantor's Undertaking," it was in substance a contract of surety. As distinguished from a contract of guaranty where the guarantor binds himself to the creditor to fulfill the obligation of the principal debtor only in case the latter should fail to do so, in a contract of
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suretyship, the surety binds himself solidarily with the principal debtor (Art. 2047, Civil Code of the Philippines). As a surety he bound himself jointly and severally with the debtor Celia Regala "to pay the Pacific Banking Corporation upon demand, any and all indebtedness, obligations, charges or liabilities due and incurred by said Celia Syjuco Regala with the use of Pacificard or renewals thereof issued in (her) favor by Pacific Banking Corporation." Under Article 2054 of the Civil Code, "(A) guarantor may bind himself for less, but not for more than the principal debtor, both as regards the amount and the onerous nature of the conditions. The credit limit granted to Celia Regala was P2,000.00 per month and that Celia Regala succeeded in using the card beyond the original period of its effectivity, October 29, 1979. Roberto Jr.'s liability should not be limited to that extent. As surety of his wife, he expressly bound himself up to the extent of the debtor's (Celia) indebtedness likewise expressly waiving any "discharge in case of any change or novation of the terms and conditions in connection with the issuance of the Pacificard credit card." Roberto, in fact, made his commitment as a surety a continuing one, binding upon himself until all the liabilities of Celia Regala have been fully paid. All these were clear under the "Guarantor's Undertaking" Roberto signed, thus: . . . Any changes of or novation in the terms and conditions in connection with the issuance or use of said Pacificard, or any extension of time to pay such obligations, charges or liabilities shall not in any manner release me/us from the responsibility hereunder, it being understood that the undertaking is a continuing one and shall subsist and bind me/us until all the liabilities of the said Celia Syjuco Regala have been fully satisfied or paid. As in guaranty, a surety may secure additional and future debts of the principal debtor the amount of which is not yet known. A guarantor or surety does not incur liability unless the principal debtor is held liable. It is in this sense that a surety, although solidarily liable with the principal debtor, is different from the debtor. It does not mean, however, that the surety cannot be held liable to the same extent as the principal debtor. Petition GRANTED. The decision of appellate court is SET ASIDE and the decision of the trial court is REINSTATED.
i. Molino vs. Security (358 SCRA 363, G.R. No. 136780, August 16, 2001) JEANETTE D. MOLINO, petitioner, vs. SECURITY DINERS INTERNATIONAL CORPORATION, respondent. FACTS: The Security Diners International Corporation (SDIC) operates a credit card system under the name of Diners Club through which it extends credit accommodation to its cardholders for the purchase of goods and payment of services from its member establishments to be reimbursed later on by the cardholder upon proper billing. There are two types of credit cards issued: one, the Regular (Local) Card which entitles the cardholder to purchase goods and pay services from member establishments in an amount not exceeding P10,000.00; and two, the Diamond (Edition) Card which entitles the cardholder to purchase goods and pay services from member establishments in unlimited amounts. One of the requirements for the issuance of either of these cards is that an applicant should have a surety. On July 24, 1987, Danilo A. Alto applied for a Regular (Local) Card with SDIC. He got as his surety his own sister-inlaw Jeanette Molino Alto. Thus, Danilo signed the printed application form and Jeanette signed the Surety Undertaking. On February 8, 1988, Danilo wrote SDIC a letter requesting it to upgrade his Regular (Local) Diners Club Card to a Diamond (Edition) one. As a requirement of SDIC, Danilo secured from Jeanette her approval. Danilos request was granted and he was issued a Diamond (Edition) Diners Club Card. On October 1, 1988 Danilo had incurred credit charged plus appropriate interest and service charges in the aggregate amount of P166,408.31. He defaulted in the payment of this obligation. SDIC demanded of Danilo and Jeanette to pay said obligation but they did not pay. So, SDIC filed an action before the RTC of Makati to collect said indebtedness against Danilo and Jeanette. Defendant Danilo Alto failed to file an Answer, and during the pre-trial conference respondent moved to have the complaint dismissed against him, without prejudice to a subsequent re-filing. Petitioner was left as the lone defendant, sued in her capacity as surety of Danilo. Jeanette claimed that her liability under the Surety Undertaking was limited to P10,000.00 and that she did not expressly and categorically agree to act as surety for Danilo in an amount higher than P10,000.00. On August 19, 1991, the trial court rendered a decision dismissing the complaint and further state that
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petitioner was not liable for any amount, not even for P10,000.00 which is the maximum credit limit for Regular Diners Club Cards, since at the time of the upgrading Danilo had no outstanding credit card debts. CA reversed RTCs ruling, and declared that the Surety Undertaking signed by petitioner when Danilo Alto first applied for a Regular Diners Club Card clearly applied to the unpaid purchases of Danilo Alto under the Diamond card. In holding thus, the Court of Appeals referred to the terms of the said Surety Undertaking, which stated that any change or novation in the agreement on the use of the Diners Club card does not release the surety from his obligations, it being understood that the undertaking is a continuing one which subsists until all obligations and charges under the subject credit card are paid and satisfied. ISSUE: WON Ms. Jeanette Molino is liable as surety. YES. HELD: Petitioner posits that she did not expressly give her consent to be bound as surety under the upgraded card. She points out that the note she signed registering her approval of the request of Danilo Alto to upgrade his card, renders the Surety Undertaking she signed under the terms of the previous card without probative value, immaterial and irrelevant as it covers only the liability of the surety in the use of the regular credit card by the principal debtor xxx . She argues further that because the principal debtor, Danilo Alto, was not held liable, having been dropped as a defendant, she could not be said to have incurred liability as surety. This is without merit. The resolution of whether petitioner is liable as surety under the Diamond card revolves around the effect of the upgrading by Danilo Alto of his card. Was the upgrading a novation of the original agreement governing the use of Danilo Altos first credit card, as to extinguish that obligation and the Surety Undertaking which was simply accessory to it? Novation, as a mode of extinguishing obligations, may be done in two ways: by explicit declaration, or by material incompatibility (implied novation). There is no doubt that the upgrading was a novation of the original agreement covering the first credit card issued to Danilo Alto, basically since it was committed with the intent of cancelling and replacing the said card. However, the novation did not serve to release petitioner from her surety obligations because in the Surety Undertaking she expressly waived discharge in case of change or novation in the agreement governing the use of the first credit card.
The Surety Undertaking expressly provides that petitioners liability is solidary. A surety is considered in law as being the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter, and their liabilities are interwoven as to be inseparable. Although the contract of a surety is in essence secondary only to a valid principal obligation, his liability to the creditor is direct, primary and absolute; he becomes liable for the debt and duty of another although he possesses no direct or personal interest over the obligations nor does he receive any benefit therefrom.
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Part IV. Deposit (Articles 1962 2009) Part V. Warehouse Receipt Laws Part VI.

. Guaranty & Suretyship (Articles 2047 2084)

CREDIT TRANSACTIONS II-Manresa Atty. Jazzie Sarona

CREDIT TRANSACTIONS II-Manresa Atty. Jazzie Sarona

CREDIT TRANSACTIONS II-Manresa Atty. Jazzie Sarona

CREDIT TRANSACTIONS II-Manresa Atty. Jazzie Sarona

CREDIT TRANSACTIONS II-Manresa Atty. Jazzie Sarona

CREDIT TRANSACTIONS II-Manresa Atty. Jazzie Sarona

CREDIT TRANSACTIONS II-Manresa Atty. Jazzie Sarona

CREDIT TRANSACTIONS II-Manresa Atty. Jazzie Sarona

CREDIT TRANSACTIONS II-Manresa Atty. Jazzie Sarona

CREDIT TRANSACTIONS II-Manresa Atty. Jazzie Sarona

CREDIT TRANSACTIONS II-Manresa Atty. Jazzie Sarona

CREDIT TRANSACTIONS II-Manresa Atty. Jazzie Sarona

CREDIT TRANSACTIONS II-Manresa Atty. Jazzie Sarona

CREDIT TRANSACTIONS II-Manresa Atty. Jazzie Sarona

CREDIT TRANSACTIONS II-Manresa Atty. Jazzie Sarona

CREDIT TRANSACTIONS II-Manresa Atty. Jazzie Sarona

CREDIT TRANSACTIONS II-Manresa Atty. Jazzie Sarona

CREDIT TRANSACTIONS II-Manresa Atty. Jazzie Sarona

CREDIT TRANSACTIONS II-Manresa Atty. Jazzie Sarona

CREDIT TRANSACTIONS II-Manresa Atty. Jazzie Sarona

CREDIT TRANSACTIONS II-Manresa Atty. Jazzie Sarona

CREDIT TRANSACTIONS II-Manresa Atty. Jazzie Sarona

CREDIT TRANSACTIONS II-Manresa Atty. Jazzie Sarona

CREDIT TRANSACTIONS II-Manresa Atty. Jazzie Sarona

CREDIT TRANSACTIONS II-Manresa Atty. Jazzie Sarona

CREDIT TRANSACTIONS II-Manresa Atty. Jazzie Sarona

CREDIT TRANSACTIONS II-Manresa Atty. Jazzie Sarona

CREDIT TRANSACTIONS II-Manresa Atty. Jazzie Sarona

CREDIT TRANSACTIONS II-Manresa Atty. Jazzie Sarona

CREDIT TRANSACTIONS II-Manresa Atty. Jazzie Sarona

CREDIT TRANSACTIONS II-Manresa Atty. Jazzie Sarona

CREDIT TRANSACTIONS II-Manresa Atty. Jazzie Sarona

CREDIT TRANSACTIONS II-Manresa Atty. Jazzie Sarona

CREDIT TRANSACTIONS II-Manresa Atty. Jazzie Sarona

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