DEPOSIT
A. Definition
BANK OF THE PHILIPPINE ISLANDS v. THE INTERMEDIATE
APPELLATE COURT and ZSHORNACK
G.R. No. L-66826 August 19, 1988
FACTS
• Rizaldy Zshornack initiated proceedings by filing in the CFI a
complaint against Commercial Bank and Trust Company of the
Philippines (COMTRUST) alleging four causes of action. Except for
the third cause of action, the CFI ruled in favor of Zshornack. The
bank appealed to the Intermediate Appellate Court which modified
the CFI decision absolving the bank from liability on the fourth cause
of action.
• Undaunted, the bank comes to this Court praying that it be totally
absolved from any liability to Zshornack.
• Rizaldy Zshornack and his wife, Shirley Gorospe, maintained in
COMTRUST, Quezon City Branch, a dollar savings account and a
peso current account.
• An application for a dollar draft was accomplished by Virgilio V.
Garcia, Assistant Branch Manager of COMTRUST Quezon City,
payable to a certain Leovigilda D. Dizon in the amount of $1,000.00.
• Garcia indicated that the amount was to be charged to Dollar
Savings Acct. No. 25-4109, the savings account of the Zshornacks;
the charges for commission, documentary stamp tax and others
totalling P17.46 were to be charged to Current Acct. No. 210465-29,
again, the current account of the Zshornacks.
• On the same date, COMTRUST, under the signature of Virgilio V.
Garcia, issued a check payable to the order of Leovigilda D. Dizon in
the sum of US $1,000 drawn on the Chase Manhattan Bank, New
York, with an indication that it was to be charged to Dollar Savings
Acct. No. 25-4109.
• When Zshornack noticed the withdrawal of US$1,000.00 from his
account, he demanded an explanation from the bank. In answer,
COMTRUST claimed that the peso value of the withdrawal was
given to Atty. Ernesto Zshornack, Jr., brother of Rizaldy when
he (Ernesto) encashed with COMTRUST a cashier's check for
P8,450.00 issued by the Manila Banking Corporation payable to
Ernesto.
ISSUE
• Whether petitioner bank is liable to Zshornack. No. Zshornack
cannot recover under the second cause of action.
Credit Transactions - Deposit
RATIO
• This Court finds no reason to disturb the ruling of both the trial court
and the Appellate Court on the first cause of action. Petitioner must
be held liable for the unauthorized withdrawal of US$1,000.00 from
private respondent's dollar account.
• As to the second cause of action: The bank is deemed to have
admitted not only Garcia's authority, but also the bank's power, to
enter into the contract in question.
• The document which embodies the contract states that the
US$3,000.00 was received by the bank for safekeeping. The
subsequent acts of the parties also show that the intent of the
parties was really for the bank to safely keep the dollars and to
return it to Zshornack at a later time.
• The above arrangement is that contract defined under Article 1962,
New Civil Code: 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.
• 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.
B. Nature and Characteristics
BANK OF THE PHILIPPINE ISLANDS (successor-in- interest of
COMMERCIAL AND TRUST CO.) v. HON. COURT OF APPEALS,
EASTERN PLYWOOD CORP. and BENIGNO D. LIM
G.R. No. 104612 May 10, 1994
FACTS
• Private respondents Eastern Plywood Corporation (Eastern) and
Benigno D. Lim (Lim), an officer and stockholder of Eastern, held at
least one joint bank account ("and/or" account) with the Commercial
Bank and Trust Co. (CBTC).
• A joint checking account ("and" 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 for himself and as President
and General Manager of Eastern, one-half of this amount was
provisionally released and transferred to one of the bank accounts of
Eastern with CBTC.
• Eastern obtained a loan of P73,000.00 from CBTC as "Additional
Working Capital." The loan was payable on demand with interest at
14% per annum.
• For this loan, Eastern issued on the same day 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
both in his own capacity and as President and General Manager of
Eastern.
• In addition, Eastern and Lim, and CBTC signed another document
entitled "Holdout Agreement," also dated 18 August 1978, wherein it
was stated that "as security for the Loan [Lim and Eastern] have
offered [CBTC] and the latter accepts a holdout on said [Current
Account No. 2310-011-42 in the joint names of Lim and Velasco] to
the full extent of their alleged interests therein as these may appear
as a result of final and definitive judicial action or a settlement
between and among the contesting parties thereto."
• In the meantime, 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 the urgent motion of the heirs of Velasco
to withdraw the deposit under the joint account of Lim and Velasco
and authorized the heirs to divide among themselves the amount
withdrawn.
Credit Transactions - Deposit
• CBTC was merged with BPI. BPI filed with the RTC a complaint
against Lim and Eastern demanding payment of the promissory note
for P73,000.00.
o 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.
• Trial Court: dismissed the complaint because BPI failed to make out
its case. It ruled that "the promissory note in question is subject to
the 'hold-out' agreement," and that based on this agreement, "it was
the duty of BPI to debit the account of the defendants under the
promissory note to set off the loan even though the same has no
fixed maturity."
o As to the counterclaim the court denied it because the "said
claim cannot be awarded without disturbing the resolution" of
the intestate court.
• CA: affirmed the TC’s decision. As to the counter claim, in its
amended decision it ruled that the settlement of Velasco's estate had
nothing to do with the claim of the defendants for the return of the
balance of their account with CBTC/BPI as they were not privy to
that case, and that the defendants, as depositors of CBTC/BPI, are
the latter's creditors, hence, CBTC/BPI should have protected the
defendants' interest in Sp. Proc. No. 8959 when the said account
was claimed by Velasco's estate. It then ordered BPI "to pay
defendants the amount of P331,261.44 representing the outstanding
balance in the bank account of defendants."
• BPI filed the instant petition alleging therein that the Holdout
Agreement in question was subject to a suspensive condition: 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."
• Private respondents Eastern and Lim dispute the "suspensive
condition" argument of the petitioner. The money deposited in the
joint account of Velasco and Lim came from Eastern and Lim's own
account as a finding that the money deposited in the joint account of
Lim and Velasco "rightfully belonged to Eastern Plywood Corporation
and/or Benigno Lim." And because the latter are the 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.
o They add that the ruling of the lower court that they own the
disputed amount is the final and definitive judicial action
 required by the Holdout Agreement; hence, the petitioner
can only hold the amount of P73,000.00 representing the
security required for the note and must return the rest.
ISSUES
(1) Whether BPI can demand payment of the loan of P73,000.00 despite
the existence of the Holdout Agreement. Yes.
(2) Whether 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.
RATIO
(1) Yes. BPI can demand payment of the loan despite the existence of the
Holdout Agreement.
• The collection suit of BPI is based on the promissory note for
P73,000.00. BPI was not a holder in due course because the note
was not indorsed to BPI by the payee, CBTC. It acquired the note
from CBTC by the contract of merger or sale between the two banks.
BPI, therefore, took the note subject to the Holdout Agreement.
• In the interpretation of the Holdout Agreement, it is clear from par. 2
thereof 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.
o It cannot be compelled to retain and apply the deposit in Lim
and Velasco's joint account to the payment of the note.
o 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, par. 5 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.
o What it provides is an alternative, not an exclusive, method
of enforcing its claim on the note. When it demanded
payment of the debt directly from Eastern and Lim, BPI had
opted not to exercise its right to apply part of the deposit
subject of the Holdout Agreement to the payment of the
promissory note for P73,000.00.
(2) Yes. 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 "fixed, savings,
Credit Transactions - Deposit
and current deposits of money in banks and similar institutions shall
be governed by the provisions concerning simple loan."
• “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 in Sp. Proc. No. 8959 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.
o The authorization given to the heirs of Velasco cannot be
construed as a final determination or adjudication that the
account belonged to Velasco.
o The determination by a probate court of whether that
property is included in the estate of a deceased is merely
provisional in character and cannot be the subject of
execution.
• Because the ownership of the deposit remained undetermined, BPI,
as the debtor with respect thereto, 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.
• The payment of the money deposited with BPI that will extinguish its
obligation to the creditor-depositor is payment to the person of the
creditor or to one authorized by him or by the law to receive it.
• 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.
o 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.
MANUEL M. SERRANO v. CENTRAL BANK OF THE PHILIPPINES;
OVERSEAS BANK OF MANILA; EMERITO M. RAMOS, SUSANA B.
RAMOS, EMERITO B. RAMOS, JR., JOSEFA RAMOS DELA RAMA,
HORACIO DELA RAMA, ANTONIO B. RAMOS, FILOMENA RAMOS
LEDESMA, RODOLFO LEDESMA, VICTORIA RAMOS TANJUATCO, and
TEOFILO TANJUATCO
G.R. No. L-30511 February 14, 1980
FACTS
• This is a Petition for mandamus and prohibition, with preliminary
injunction, that seeks the establishment of joint and solidary liability
to the amount of 350,000, with interest, against respondent Central
Bank of the Philippines and Overseas Bank of Manila and its
stockholders, on the alleged failure of the Overseas Bank of Manila
to return the time deposits made by petitioner and assigned to him,
on the ground that respondent Central Bank failed in its duty to
exercise strict supervision over respondent Overseas Bank of Manila
to protect depositors and the general public.
• Petitioner made a time deposit, for one year with 6% interest, of
P150,000.00 with the respondent Overseas Bank of Manila.
Concepcion Maneja also made a time deposit, for one year with 6
1⁄2% interest, of P200,000.00 with the same respondent Overseas
Bank of Manila.
• Concepcion Maneja, married to Felixberto M. Serrano, assigned and
conveyed to petitioner Manuel M. Serrano, her time deposit of
P200,000.00 with respondent Overseas Bank of Manila.
• Notwithstanding series of demands for encashment of the
aforementioned time deposits from the respondent Overseas Bank of
Manila, not a single one of the time deposit certificates was honored
by respondent Overseas Bank of Manila.
• Respondent Central Bank admits that it is charged with the duty of
administering the banking system of the Republic and it exercises
supervision over all doing business in the Philippines, but denies the
petitioner's allegation that the Central Bank has the duty to exercise
a most rigid and stringent supervision of banks, implying that
respondent Central Bank has to watch every move or activity of all
banks, including respondent Overseas Bank of Manila.
• Respondent Central Bank likewise denied that a constructive trust
was created in favor of petitioner and his predecessor in interest
Concepcion Maneja when their time deposits were made in 1966
and 1967 with the respondent Overseas Bank of Manila as during
that time the latter was not an insolvent bank and its
• operation as a banking institution was being salvaged by the
respondent Central Bank.
• Respondent Central Bank avers no knowledge of petitioner's claim
Credit Transactions - Deposit
that the properties given by respondent Overseas Bank of Manila as
additional collaterals to respondent Central Bank of the Philippines
for the former's overdrafts and emergency loans were acquired
through the use of depositors' money, including that of the petitioner
and Concepcion Maneja.
• In G.R. No. L-29362, entitled "Emerita M. Ramos, et al. vs. Central
Bank of the Philippines," a case was filed by the petitioner Ramos,
wherein respondent Overseas Bank of Manila sought to prevent
respondent Central Bank from closing, declaring the former
insolvent, and liquidating its assets.
o Petitioner Manuel Serrano in this case, filed a motion to
intervene in G.R. No. L-29352, on the ground that Serrano
had a real and legal interest as depositor of the Overseas
Bank of Manila in the matter in litigation in that case.
o Respondent Central Bank in G.R. No. L-29352 opposed
petitioner Manuel Serrano's motion to intervene in that case,
on the ground that his claim as depositor of the Overseas
Bank of Manila should properly be ventilated in the Court of
First Instance.
o TC: Denied petitioner’s Motion to Intervene. This court
rendered a decision in favor of respondent Overseas Bank of
Manila.
• Because of the above decision, petitioner in this case filed a motion
for judgment in this case, praying for a decision on the merits,
adjudging respondent Central Bank jointly and severally liable with
respondent Overseas Bank of Manila to the petitioner for the
P350,000 time deposit made with the latter bank, with all interests
due therein; and declaring all assets assigned or mortgaged by the
respondents Overseas Bank of Manila and the Ramos groups in
favor of the Central Bank as trust funds for the benefit of petitioner
and other depositors.
ISSUE
• Whether there was a constructive trust created in petitioner’s favor
when the respondent Overseas Bank of Manila increased its
collaterals in favor of respondent Central Bank for the former's
overdrafts and emergency loans, since these collaterals were
acquired by the use of depositors' money. No.
RATIO
• By the very nature of the claims and causes of action against
respondents, they in reality are recovery of time deposits plus
interest from respondent Overseas Bank of Manila, and recovery of
damages against respondent Central Bank for its alleged failure to
strictly supervise the acts of the other respondent Bank and protect
 the interests of its depositors by virtue of the constructive trust
created when respondent Central Bank required the other
respondent to increase its collaterals for its overdrafts said
emergency loans, said collaterals allegedly acquired through the use
of depositors money.
• These claims should be ventilated in the CFI of proper jurisdiction.
• Claims of these nature are not proper in actions for mandamus and
prohibition as there is no shown clear abuse of discretion by the
Central Bank in its exercise of supervision over the other respondent
Overseas Bank of Manila, and if there was, petitioner here is not the
proper party to raise that question, but rather the Overseas Bank of
Manila.
• Furthermore, both parties overlooked one fundamental principle in
the nature of bank deposits when the petitioner claimed that there
should be created a constructive trust in his favor when the
respondent Overseas Bank of Manila increased its collaterals in
favor of respondent Central Bank for the former's overdrafts and
emergency loans, since these collaterals were acquired by the use of
depositors' money.
• 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. Current and
savings deposit are loans to a bank because it can use the
same.
• The petitioner here in making time deposits that earn interests with
respondent Overseas Bank of Manila was in reality a creditor of the
respondent Bank and not a depositor. The respondent Bank was in
turn a debtor of petitioner.
• Failure of he respondent Bank to honor the time deposit is failure to
pay its obligation as a debtor and not a breach of trust arising from
depositary's failure to return the subject matter of the deposit.
DISPOSITIVE: the petition is dismissed for lack of merit, with costs against
petitioner.
LUA KIAN v. MANILA RAILROAD COMPANY and MANILA PORT
SERVICE
G.R. No. L-23033 January 5, 1967
FACTS
• The present suit was filed by Lua Kian against the Manila Railroad
Co. and Manila Port Service for the recovery of the invoice value of
imported evaporated "Carnation" milk alleged to have been
undelivered.
Credit Transactions - Deposit
• Defendant Manila Port Service as a subsidiary of defendant Manila
Railroad Company operated the arrastre service at the Port of Manila
under and pursuant to the Management Contract entered into by and
between the Bureau of Customs and defendant Manila Port Service.
• Plaintiff Lua Kian imported 2,000 cases of Carnation Milk from the
Carnation Company of San Francisco, California, and shipped on
Board SS "GOLDEN BEAR" per Bill of Lading No. 17.
o Out of the aforesaid shipment of 2,000 cases of Carnation
Milk per Bill of Lading No. 17, only 1,829 cases marked
`LUA KIAN 1458' were discharged from the vessel SS
`GOLDEN BEAR' and received by defendant Manila Port
Service per pertinent tally sheets issued by the said carrying
vessel.
• Discharged from the same vessel on the same date unto the custody
of defendant Manila Port Service were 3,171 cases of Carnation Milk
marked "CEBU UNITED 4860-PH-MANILA" consigned to Cebu
United Enterprises, per Bill of Lading No. 18.
• Defendant Manila Port Service delivered to the plaintiff thru its
broker, Ildefonso Tionloc, Inc. 1,913 cases of Carnation Milk marked
"LUA KIAN 1458" per pertinent gate passes and broker's delivery
receipts.
• A provisional claim was filed by the consignee's broker for and in
behalf of the plaintiff with defendant Manila Port Service.
• The invoice value of the 87 cases of Carnation Milk claimed by the
plaintiff to have been short-delivered by defendant Manila Port
Service is P1,183.11 while the invoice value of the 87 cases of
Carnation Milk claimed by the defendant Manila Port Service to have
been over-delivered by it to plaintiff is P1,130.65.
• The 1,913 cases of Carnation mentioned in paragraph 5 hereof were
taken by the broker at Pier 13, Shed 3, sometime in February, 1960,
where at the time, there were stored therein, aside from the shipment
involved herein, 1000 cases of Carnation Milk bearing the same
marks and also consigned to plaintiff Lua Kian but had been
discharged from SS `STEEL ADVOCATE' and covered by Bill of
Lading No. 11.
• Lua Kian as consignee thereof filed a claim for short-delivery against
defendant Manila Port Service, and said defendant Manila Port
Service paid Lua Kian plaintiff herein, P750.00 in settlement of its
claim.
• CFI: ruled that 1,829 cases marked Lua Kian (171 cases less than
the 2,000 cases indicated in the bill of lading and 3,171 cases
marked "Cebu United" (171 cases over the 3,000 cases in the bill of
lading were discharged to the Manila Port Service.
o Considering that Lua Kian and Cebu United Enterprises
were the only consignees of the shipment of 5,000 cases of
 "Carnation" milk, it found that of the 3,171 cases marked
"Cebu United", 171 should have been delivered to Lua
Kian.
o Inasmuch as the defendant Manila Port Service actually
delivered 1,913 cases to plaintiff, which is only 87 cases
short of 2,000 cases as per bill of lading the former was
ordered to pay Lua Kian the sum of P1,183.11 representing
such shortage of 87 cases, with legal interest from the date
of the suit, plus P500 as attorney's fees.
• Defendants appealed to the Supreme Court and contend that they
should not be made to answer for the undelivered cases of milk,
insisting that Manila Port Service was bound to deliver only
1,829 cases to Lua Kian and that it had there before in fact over-
delivered to the latter.
ISSUE
• Whether defendant Manila Port Service is liable for the undelivered
cases of “Carnation” milk to petitioner due to improper marking. Yes.
RATIO
• The bill of lading in favor of Cebu United Enterprises indicated that
only 3,000 cases were due to said consignee, although 3,171 cases
were marked in its favor. Lua Kian whose bill of lading on the other
hand indicated that it should receive 171 cases more.
• The legal relationship between an arrastre operator and the
consignee is akin to that of a depositor and warehouseman. As
custodian of the goods discharged from the vessel, it was defendant
arrastre operator's duty, like that of any ordinary depositary, to take
good care of the goods and to turn them over to the party entitled to
their possession.
o The said defendant should have withheld delivery because
of the discrepancy between the bill of lading and the
markings and conducted its own investigation, not unlike that
under Section 18 of the Warehouse Receipts Law, or called
upon the parties, to interplead, such as in a case under
Section 17 of the same law, in order to determine the rightful
owner of the goods.
o It is true that Section 12 of the Management Contract
exempts the arrastre operator from responsibility for
misdelivery or non-delivery due to improper or insufficient
marking.
• It cannot however excuse the defendant from liability in this case
because the bill of lading showed that only 3,000 cases were
consigned to Cebu United Enterprises. The fact that the excess of
171 cases were marked for Cebu United Enterprises and that the
Credit Transactions - Deposit
consignment to Lua Kian was 171 cases less than the 2,000 in the
bill of lading, should have been sufficient reason for the defendant
Manila Port Service to withhold the goods pending determination of
their rightful ownership.
• With respect to the attorney's fees awarded below, this Court notices
that the same is about 50% of the litigated amount of P1,183.11.
Attorney’s fees was decreased to P300.00.
C. Rights and Obligations of Depositor and Depositary
ANGEL JAVELLANA v. JOSE LIM, ET AL.
G.R. No. 4015 August 24, 1908
FACTS
Defendants executed a document in favor of plaintiff-appellee wherein it
states that they have received, as a deposit, without interest, money from
plaintiff-appellee and agreed upon a date when they will return the money.
Upon the stipulated due date, defendants asked for an extension to pay and
binding themselves to pay 15% interest per annum on the amount of their
indebtedness, to which the plaintiff-appellee acceded. The defendants were
not able to pay the full amount of their indebtedness notwithstanding the
request made by plaintiff-appellee. The lower court ruled in favor of plaintiff-
appellee for the recovery of the amount due.
ISSUE
• Whether the agreement entered into by the parties is one of loan or
of deposit. Contract of loan.
RATIO
• The document executed was a contract of loan. Where money,
consisting of coins of legal tender, is deposited with a person and the
latter is authorized by the depositor to use and dispose of the same,
the agreement is not a contract of deposit, but a loan. A subsequent
agreement between the parties as to interest on the amount said to
have been deposited, because the same could not be returned at the
time fixed therefor, does not constitute a renewal of an agreement of
deposit, but it is the best evidence that the original contract entered
into between therein was for a loan under the guise of a deposit.
SILVESTRA BARON v. PABLO DAVID and GUILLERMO BARON v.
PABLO DAVID
G.R. Nos. L-26948 and L-26949 October 8, 1927
FACTS
• The defendant owns a rice mill, which was well patronized by the rice
growers of the vicinity.
• On January 17, 1921, a fire occurred that destroyed the mill and its
contents, and it was some time before the mill could be rebuilt and
put in operation again.
• Silvestra Baron (P1) and Guillermo Baron (P2) each filed an action
for the recovery of the value of palay from the defendant (D), alleged
that:
o The palay have been sold by both plaintiffs to the defendant
in the year 1920.
o Palay was delivered to defendant at his special request, with
a promise of compensation at the highest price per cavan.
• D claims that the palay was deposited subject to future withdrawal by
the depositors or to some future sale, which was never effected.
Defendant also contended that in order for the plaintiffs to recover, it
is necessary that they should be able to establish that the plaintiffs'
palay was delivered in the character of a sale, and that if, on the
contrary, the defendant should prove that the delivery was made in
the character of deposit, the defendant should be absolved.
ISSUE
• Whether there was a deposit? No.
RATIO
• Art. 1978. When the depositary has permission to use the thing
deposited, the contract loses the concept of a deposit and becomes
a loan or commodatum, except where safekeeping is still the
principal purpose of the contract. The permission shall not be
presumed, and its existence must be proved.
• The case does not depend precisely upon this explicit alternative; for
even supposing that 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.
• In this connection we wholly reject the defendant's pretense that the
palay delivered by the plaintiffs or any part of it was actually
consumed in the fire of January, 1921. Nor is the liability of the
defendant in any wise affected by the circumstance that, by a custom
prevailing among rice millers in this country, persons placing palay
Credit Transactions - Deposit
with them without special agreement as to price are at liberty to
withdraw it later, proper allowance being made for storage and
shrinkage, a thing that is sometimes done, though rarely.
SPOUSES TIRSO I. VINTOLA and LORETO DY VINTOLA v. INSULAR
BANK OF ASIA AND AMERICA
G.R. No. 73271 May 29, 1987
FACTS
• This case was appealed to the IAC which, however, certified the
same to this Court, the issue involved being purely legal.
• Spouses Tirso and Loreta Vintola doing business under the name
and style "Dax Kin International," engaged in the manufacture of raw
sea shells into finished products, applied for and were granted a
domestic letter of credit by the Insular Bank of Asia and America
(IBAA), Cebu City, in the amount of P40,000.00.
• The Letter of Credit authorized the bank to negotiate for their
account drafts drawn by their supplier, one Stalin Tan, on Dax Kin
International for the purchase of puka and olive seashells.
• In consideration thereof, the VINTOLAS, jointly and severally, agreed
to pay the bank "at maturity, in Philippine currency, the equivalent, of
the aforementioned amount or such portion thereof as may be drawn
or paid, upon the faith of the said credit together with the usual
charges."
• On the same day, August 20, 1975, having received from Stalin Tan
the puka and olive shells worth P40,000.00, the VINTOLAS executed
a Trust Receipt agreement with IBAA, Cebu City.
o Under that Agreement, the VINTOLAS agreed to hold the
goods in trust for IBAA as the "latter's property with liberty to
sell the same for its account, " and "in case of sale" to turn
over the proceeds as soon as received to (IBAA) the due
date indicated in the document was October 19, 1975.
• Having defaulted on their obligation, IBAA demanded payment from
the VINTOLAS in a letter dated January 1, 1976.
• The VINTOLAS, who were unable to dispose of the shells,
responded by offering to return the goods.
• IBAA refused to accept the merchandise, and due to the continued
refusal of the VINTOLAS to make good their undertaking, IBAA
charged them with Estafa for having misappropriated, misapplied
and converted for their own personal use and benefit the aforesaid
goods.
• During the trial of the criminal case the VINTOLAS turned over the
seashells to the custody of the Trial Court.
• CFI: acquitted the VINTOLAS of the crime charged, after finding that
the element of misappropriation or conversion was inexistent.
 o “Finally, it should be mentioned that under the trust receipt,
in the event of default and/or non-fulfillment on the part of
the accused of their undertaking, the bank is entitled to take
possession of the goods or to recover its equivalent value
together with the usual charges. In either case, the remedy
of the Bank is civil and not criminal in nature...”
• Shortly thereafter, IBAA commenced the present civil action to
recover the value of the goods before the Regional Trial Court of
Cebu.
• RTC: Holding that the complaint was barred by the judgment of
acquittal in the criminal case, said Court dismissed the complaint.
However, on IBAA's motion, the Court granted reconsideration and:
(1) ordered defendants jointly and severally to pay the plaintiff the
sum of P72,982.27, plus interest of 14% per annum and service
charge of 1% per annum computed from judicial demand and until
the obligation is fully paid; (2) Ordered defendants jointly and
severally to pay attorney's fees to the plaintiff in the sum of
P4,000.00, plus costs of the suit.
• The VINTOLAS take the position that their obligation to IBAA has
been extinguished inasmuch as, through no fault of their own, they
were unable to dispose of the seashells, and that they have
relinquished possession thereof to the IBAA, as owner of the goods,
by depositing them with the Court.
ISSUE
• Whether or not the obligation of spouses was extinguished by the
surrender of the goods. No.
RATIO
• The foregoing submission overlooks the nature and mercantile
usage of the transaction involved. A letter of credit-trust receipt
arrangement is endowed with its own distinctive features and
characteristics. Under that set-up, a bank extends a loan covered by
the Letter of Credit, with the trust receipt as a security for the loan. In
other words, the transaction involves a loan feature represented by
the letter of credit, and a security feature, which is in the covering
trust receipt.
• Thus, Section 4 of P.D. No. 115 defines a trust receipt transaction
as: ... any transaction by and between a person referred to in this
Decree as the entruster, and another person referred to in this
Decree as the entrustee, whereby the entruster, who owns or holds
absolute title or security interests over certain specified goods,
documents or instruments, releases the same to the possession of
the entrustee upon the latter's execution and delivery to the entruster
of a signed document called a "trust receipt" wherein the entrustee
Credit Transactions - Deposit
binds himself to hold the designated goods, documents or
instruments in trust for the entruster and to sell or otherwise dispose
of the goods, documents or instrument thereof to the extent of the
amount owing to the entruster or as appears in the trust receipt or
the goods, documents or instruments themselves if they are unsold
or not otherwise disposed of, in accordance with the terms and
conditions specified in the trust receipt, or for other purposes
substantially equivalent to any one of the following:
1. In the case of goods or documents, (a) to sell the goods or procure their
sale...
A trust receipt, therefore, is a security agreement, pursuant to which a bank
acquires a "security interest" in the goods. "It secures an indebtedness and
there can be no such thing as security interest that secures no obligation." As
defined in our laws:
(h) "Security Interest" means a property interest in goods, documents or
instruments to secure performance of some obligations of the entrustee or of
some third persons to the entruster and includes title, whether or not
expressed to be absolute, whenever such title is in substance taken or
retained for security only.
As elucidated in Samo vs. People "a trust receipt is considered as a security
transaction intended to aid in financing importers and retail dealers who do
not have sufficient funds or resources to finance the importation or purchase
of merchandise, and who may not be able to acquire credit except through
utilization, as collateral of the merchandise imported or purchased."
• Contrary to the allegation of the VINTOLAS, IBAA did not become
the real owner of the goods. It was merely the holder of a security
title for the advances it had made to the VINTOLAS The goods the
VINTOLAS had purchased through IBAA financing remain their own
property and they hold it at their own risk. The trust receipt
arrangement did not convert the IBAA into an investor; the latter
remained a lender and creditor.
• ... For the bank has previously extended a loan which the L/C
represents to the importer, and by that loan, the importer should be
the real owner of the goods. If under the trust receipt, the bank is
made to appear as the owner, it was but an artificial expedient, more
of a legal fiction than fact, for if it were so, it could dispose of the
goods in any manner it wants, which it cannot do, just to give
consistency with the purpose of the trust receipt of giving a stronger
security for the loan obtained by the importer. To consider the bank
as the true owner from the inception of the transaction would be to
 disregard the loan feature thereof…
• Since the IBAA is not the factual owner of the goods, the VINTOLAS
cannot justifiably claim that because they have surrendered the
goods to IBAA and subsequently deposited them in the custody of
the court, they are absolutely relieved of their obligation to pay their
loan because of their inability to dispose of the goods.
o The fact that they were unable to sell the seashells in
question does not affect IBAA's right to recover the
advances it had made under the Letter of Credit.
• The foregoing premises considered, it follows that the acquittal of the
VINTOLAS in the Estafa case is no bar to the institution of a civil
action for collection. It is inaccurate for the VINTOLAS to claim that
the judgment in the Estafa case had declared that the facts from
which the civil action might arise, did not exist, for, it will be recalled
that the decision of acquittal expressly declared that "the remedy of
the Bank is civil and not criminal in nature."
• This amounts to a reservation of the civil action in IBAA's favor, for
the Court would not have dwelt on a civil liability that it had intended
to extinguish by the same decision.
• The VINTOLAS are liable ex contractu for breach of the Letter of
Credit — Trust Receipt, whether they did or they did not
"misappropriate, misapply or convert" the merchandise as charged in
the criminal case.
• Their civil liability does not arise ex delicto, the action for the
recovery of which would have been deemed instituted with the
criminal-action (unless waived or reserved) and where acquittal
based on a judicial declaration that the criminal acts charged do not
exist would have extinguished the civil action.
o Rather, the civil suit instituted by IBAA is based ex contractu
and as such is distinct and independent from any criminal
proceedings and may proceed regardless of the result of the
latter.
JOSE O. SIA v. THE PEOPLE OF THE PHILIPPINES
G.R. No. L-30896 April 28, 1983
FACTS
• Jose Sia, president and GM of Metal Manufacturing Company of the
Phil., on behalf of said company, obtained delivery of 150 cold rolled
steel sheets valued at P71,023.60 under a trust receipt agreement.
• Said sheets were consigned to the Continental Bank, under the
express obligation on the part of Sia of holding the sheets in trust
and selling them and turning over the proceeds to the bank.
• Sia, however, allegedly failed and refused to return the sheets or
account for the proceeds thereof if sold, converting it to his own
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personal use and benefit.
• Continental Bank filed a complaint for estafa against Sia. The trial
court and CA ruled against Sia.
ISSUE
• Whether or not Sia, acting as President of MMCP, may be held liable
for estafa. No. Sia was acquitted. CA decision is reversed.
RATIO Ver. 1
• An officer of a corporation can be held criminally liable for acts or
omissions done in behalf of the corporation only where the law
directly requires the corporation to do an act in a given manner. In he
absence of a law making a corporate officer liable for a criminal
offense committed by the corporation, the existence of the criminal
liability of he former may not be said to be beyond doubt. Hence in
the absence of an express provision of law making Sia liable for the
offense done by MMCP of which he is President, as in fact there is
no such provision under the Revised Penal Code, Sia cannot be said
to be liable for estafa.
RATIO Ver. 2
• The case of People vs. Tan Boon Kong (54 Phil. 607) provides for
the general principle that for crimes committed by a corporation, the
responsible officers thereof would personally bear the criminal
liability as a corporation is an artificial person, an abstract being.
• However, the Court ruled that such principle is not applicable in this
case because the act alleged to be a crime is not in the performance
of an act directly ordained by law to be performed by the corporation.
The act is imposed by agreement of parties, as a practice observed
in the usual pursuit of a business or a commercial transaction. The
offense may arise, if at all, from the peculiar terms and condition
agreed upon by the parties to the transaction, not by direct provision
of the law. In the absence of an express provision of law making the
petitioner liable for the criminal offense committed by the corporation
of which he is a president as in fact there is no such provisions in the
Revised Penal Code under which petitioner is being prosecuted, the
existence of a criminal liability on his part may not be said to be
beyond any doubt. In all criminal prosecutions, the existence of
criminal liability for which the accused is made answerable must be
clear and certain. Further, the civil liability imposed by the trust
receipt is exclusively on the Metal Company. Speaking of such
liability alone, the petitioner was never intended to be equally liable
as the corporation. Without being made so liable personally as the
corporation is, there would then be no basis for holding him
criminally liable, for any violation of the trust receipt.

RAMON GONZALES v. GO TIONG and LUZON SURETY CO., INC.
G.R. No. L-11776 August 30, 1958
FACTS
• Go Tiong (respondent) owned a rice mill and warehouse, located in
Pangasinan. Thereafter, he obtained a license to engage in the business
of a bonded warehouseman.
• Subsequently, respondent Tiong executed a Guaranty Bond with the
Luzon Surety Co to secure the performance of his obligations as such
bonded warehouseman, in the sum of P18,334, in case he was unable
to return the same.
• Afterwards, respondent Tiong insured the warehouse and the palay
deposited therein with the Alliance Surety and Insurance Company.
• But prior to the issuance of the license to Respondent, he had on several
occasions received palay for deposit from Plaintiff Gonzales, totaling 368
sacks, for which he issued receipts.
• After he was licensed as a bonded warehouseman, Go Tiong again
received various deliveries of palay from Plaintiff, totaling 492 sacks, for
which he issued the corresponding receipts, all the grand total of 860
sacks, valued at P8,600 at the rate of P10 per sack.
• Noteworthy is that the receipts issued by Go Tiong to the Plaintiff were
ordinary receipts, not the "warehouse receipts" defined by the
Warehouse Receipts Act (Act No. 2137).
• On or about March 15, 1953, Plaintiff demanded from Go Tiong the value
of his deposits in the amount of P8,600, but he was told to return after
two days, which he did, but Go Tiong again told him to come back.
• A few days later, the warehouse burned to the ground.
• Before the fire, Go Tiong had been accepting deliveries of palay from
other depositors and at the time of the fire, there were 5,847 sacks of
palay in the warehouse, in excess of the 5,000 sacks authorized under
his license.
• After the burning of the warehouse, the depositors of palay, including
Plaintiff, filed their claims with the Bureau of Commerce.
• However, according to the decision of the trial court, nothing came from
Plaintiff's efforts to have his claim paid.
• Thereafter, Gonzales filed the present action against Go Tiong and the
Luzon Surety for the sum of P8,600, the value of his palay, with legal
interest, damages in the sum of P5,000 and P1,500 as attorney's fees.
• While the case was pending in court, Gonzales and Go Tiong entered
into a contract of amicable settlement to the effect that upon the
settlement of all accounts due to him by Go Tiong, he, Gonzales, would
have all actions pending against Go Tiong dismissed.
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• Inasmuch as Go Tiong failed to settle the accounts, Gonzales
prosecuted his court action.
ISSUE
• Whether or not Plaintiff’s claim is governed by the Bonded
Warehouse Act due to Go Tiong’s act of issuing to the former
ordinary receipts, not warehouse receipts. Yes. SC ruled in plaintiff’s
favor.
RATIO
• Act No. 3893 provides that any deposit made with Respondent Tiong as
a bonded warehouseman must necessarily be governed by the
provisions of Act No. 3893.
• The kind or nature of the receipts issued by him for the deposits is not
very material much less decisive since said provisions are not mandatory
and indispensable.
• Under Section 1 of the Warehouse Receipts Act, the issuance of a
warehouse receipt in the form provided by it is merely permissive and
directory and not obligatory. . "Receipt", under this section, can be
construed as any receipt issued by a warehouseman for commodity
delivered to him.
• As the trial court well observed, as far as Go Tiong was concerned, the
fact that the receipts issued by him were not "quedans" is no valid
ground for defense because he was the principal obligor.
• Furthermore, as found by the trial court, Go Tiong had repeatedly
promised Plaintiff to issue to him "quedans" and had assured him that he
should not worry; and that Go Tiong was in the habit of issuing ordinary
receipts (not "quedans") to his depositors.
• Furthermore, Section 7 of said law provides that as long as the depositor
is injured by a breach of any obligation of the warehouseman, which
obligation is secured by a bond, said depositor may sue on said bond.
• In other words, the surety cannot avoid liability from the mere failure of
the warehouseman to issue the prescribed receipt.
CONSOLIDATED TERMINALS, INC. v. ARTEX DEVELOPMENT CO., INC.
G.R. No. L-25748 March 10, 1975
FACTS
CTI was the operator of a customs bonded warehouse located at Port Area,
Manila. It received on deposit of 193 bales of high density compressed raw
cotton. It was understood that CTI would keep the cotton in behalf of Luzon
Brokerage Corporation until the consignee thereof, Paramount Textile Mills,
Inc., had opened the corresponding letter of credit in favor of shipper.
Allegedly by virtue of a forged permit to deliver imported goods, purportedly
issued by the Bureau of Customs, Artex was able to obtain delivery of the
bales of cotton on after paying CTI P15,000 as storage and handling
charges. At the time the merchandise was released to Artex, the letter of
credit had not yet been opened and the customs duties and taxes due on the
shipment had not been paid.
CTI, in its original complaint, sought to recover possession of the cotton by
means of a writ of replevin. The writ could not be executed. CTI then filed an
amended complaint by transforming its original complaint into an action for
the recovery from Artex of P99,609.76 as compensatory damages, P10,000
as nominal and exemplary damages and P20,000 as attorney's fees
It should be clarified that CTI alleged that Artex acquired the cotton from
Paramount Textile Mills, Inc., the consignee. Artex alleged in its motion to
dismiss that it was not shown in the delivery permit that Artex was the entity
that presented that document to the CTI. Artex further averred that it returned
the cotton to Paramount Textile Mills, Inc. when the contract of sale between
them was rescinded because the cotton did not conform to the stipulated
specifications as to quality.
ISSUE
• Whether Consolidated Terminals Inc (CTI) as warehouseman was
entitled to the possession of the bales of cotton. No. CTI had no
cause of action. It was not the owner of the cotton. It was not a real
party of interest in the case. CTI was not sued for damages by the
real party in interest.
RATIO
• CTI in this appeal contends that, as warehouseman, it was entitled to
the repossession of the bales of cotton; that Artex acted wrongfully in
depriving CTI of the possession of the merchandise because Artex
presented a falsified delivery permit, and that Artex should pay
damages to CTI.
• The only statutory rule cited by CTI is section 10 of the Warehouse
Receipts Law which provides that "where a warehouseman delivers
the goods to one who is not in fact lawfully entitled to the possession
of them, the warehouseman shall be liable as for conversion to all
having a right of property or possession in the goods..."
• We hold that CTI's appeal has not merit. Its amended complaint does
not clearly show that, as warehouseman, it has a cause of action for
damages against Artex. The real parties interested in the bales of
cotton were Luzon Brokerage Corporation as depositor, Paramount
Textile Mills, Inc. as consignee, Adolph Hanslik Cotton as shipper
and the Commissioners of Customs and Internal Revenue with
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respect to the duties and taxes. These parties have not sued CTI for
damages or for recovery of the bales of cotton or the corresponding
taxes and duties.
• The case might have been different if it was alleged in the amended
complaint that the depositor, consignee and shipper had required
CTI to pay damages, or that the Commissioners of Customs and
Internal Revenue had held CTI liable for the duties and taxes. In
such a case, CTI might logically and sensibly go after Artex for
having wrongfully obtained custody of the merchandise.
• But that eventuality has not arisen in this case. So, CTI's basic action
to recover the value of the merchandise seems to be untenable. It
was not the owner of the cotton. How could it be entitled to claim the
value of the shipment?
• The negotiation of the warehouse receipt by the buyer of goods
purchased from and deposited to the warehouse is valid even if the
warehouseman who issued a negotiable warehouse receipt was not
the buyer. The validity of the negotiation cannot be impaired by the
fact that the owner/warehouseman was deprived of the possession
of the same by fraud, mistake or conversion.
D. Modes of Extinguishment
THE ROMAN CATHOLIC BISHOP OF JARO v. GREGORIO DE LA PEÑA
administrator of the estate of Father Agustin de la Peña
G.R. No. L-6913 November 21, 1913
FACTS
• This is an appeal by the defendant from a judgment of the CFI,
awarding to the plaintiff the sum of P6,641, with interest at the legal
rate from the beginning of the action.
• It is established in this case that the plaintiff is the trustee of a
charitable bequest made for the construction of a leper hospital and
that father Agustin de la Peña was the duly authorized representative
of the plaintiff to receive the legacy. The defendant is the
administrator of the estate of Father De la Peña.
• In the year 1898 the books Father De la Peña, as trustee, showed
that he had on hand as such trustee the sum of P6,641, collected by
him for the charitable purposes aforesaid.
• In the same year he deposited in his personal account P19,000 in
the Hongkong and Shanghai Bank at Iloilo.
• Shortly thereafter and during the war of the revolution, Father De la
Peña was arrested by the military authorities as a political prisoner,
and while thus detained made an order on said bank in favor of the
 United States Army officer under whose charge he then was for the
sum thus deposited in said bank.
• The arrest of Father De la Peña and the confiscation of the funds in
the bank were the result of the claim of the military authorities that he
was an insurgent and that the funds thus deposited had been
collected by him for revolutionary purposes. The money was taken
from the bank by the military authorities by virtue of such order, was
confiscated and turned over to the Government.
ISSUE
• Whether de la Peña is liable to the petitioner for the loss of the
money deposited in his personal bank account. No.
that, in choosing between two means equally legal, he is culpably
negligent in selecting one whereas he would not have been if he had
selected the other.
• The court, therefore, finds and declares that the money which is the
subject matter of this action was deposited by Father De la Peña in
the Hongkong and Shanghai Banking Corporation of Iloilo; that said
money was forcibly taken from the bank by the armed forces of
the United States during the war of the insurrection; and that
said Father De la Peña was not responsible for its loss.
DISPOSITIVE: The judgment is therefore reversed, and it is decreed that the
plaintiff shall take nothing by his complaint.

RATIO
• In this jurisdiction, therefore, Father De la Peña's liability is
determined by those portions of the Civil Code which relate to
obligations. (Book 4, Title 1.)
• Although the Civil Code states that "a person obliged to give
something is also bound to preserve it with the diligence pertaining to
a good father of a family" (art. 1094), it also provides, following the
principle of the Roman law, major casus est, cui humana infirmitas
resistere non potest, that "no one shall be liable for events which
could not be foreseen, or which having been foreseen were
inevitable, with the exception of the cases expressly mentioned in
the law or those in which the obligation so declares." (Art. 1105.)
• By placing the money in the bank and mixing it with his personal
funds De la Peña did not thereby assume an obligation different from
that under which he would have lain if such deposit had not been
made, nor did he thereby make himself liable to repay the money at
all hazards.
• If they had been forcibly taken from his pocket or from his house by
the military forces of one of the combatants during a state of war, it is
clear that under the provisions of the Civil Code he would have been
exempt from responsibility.
o The fact that he placed the trust fund in the bank in his
personal account does not add to his responsibility. Such
deposit did not make him a debtor who must respond at all
hazards.
• There was no law prohibiting him from depositing it as he did and
there was no law which changed his responsibility be reason of the
deposit. While it may be true that one who is under obligation to do
or give a thing is in duty bound, when he sees events approaching
the results of which will be dangerous to his trust, to take all
reasonable means and measures to escape or, if unavoidable, to
temper the effects of those events, we do not feel constrained to hold

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