Contents
Definition .................................................................................................................................................................................................................2
BPI v. IAC 164 SCRA 630 (1988) .............................................................................................................................................................2
Kinds of Deposit: Nature and Characteristics ..................................................................................................................................... 10
BPI v. CA 232 SCRA 302 (1994) ............................................................................................................................................................ 10
Serrano v. CB 96 SCRA 96 (1980) ........................................................................................................................................................ 16
Lua Kian v. Manila Railroad 9 SCRA 5 (1967) ................................................................................................................................ 21
Rights and Obligations of Depositor & Depositary ........................................................................................................................... 24
Javellana v. Lim 11 Phil 141 (1908) .................................................................................................................................................... 24
Baron v. David 51 Phil 2 (1927) ........................................................................................................................................................... 28
Vintola v. IBAA 150 SCRA 578 ............................................................................................................................................................... 35
Sia v. People, 121 SCRA 661 (1983).................................................................................................................................................... 38
Gonzales v. Go Tiong and Luzon Surety, 104 Phil 492 (1958) ............................................................................................... 48
Consolidated Terminals v. Artex Dev’t. Co., 63 SCRA 46 (1975)........................................................................................... 53
Mode of Extinguishment ............................................................................................................................................................................... 56
Roman Catholic Bishop v. de la Pena, 26 Phil 144 (1913) ....................................................................................................... 56
Definition
BPI v. IAC 164 SCRA 630 (1988)
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-66826 August 19, 1988
BANK OF THE PHILIPPINE ISLANDS, petitioner,
vs.
THE INTERMEDIATE APPELLATE COURT and ZSHORNACK respondents.
Pacis & Reyes Law Office for petitioner.
Ernesto T. Zshornack, Jr. for private respondent.
CORTES, J.:
The original parties to this case were Rizaldy T. Zshornack and the Commercial Bank and Trust Company of the
Philippines [hereafter referred to as "COMTRUST."] In 1980, the Bank of the Philippine Islands (hereafter referred to as
BPI absorbed COMTRUST through a corporate merger, and was substituted as party to the case.
Rizaldy Zshornack initiated proceedings on June 28,1976 by filing in the Court of First Instance of
Rizal — Caloocan City a complaint against 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. The pertinent portions of the judgment, as modified, read:
IN VIEW OF THE FOREGOING, the Court renders judgment as follows:
1. Ordering the defendant COMTRUST to restore to the dollar savings account of
plaintiff (No. 25-4109) the amount of U.S $1,000.00 as of October 27, 1975 to earn
interest together with the remaining balance of the said account at the rate fixed by
the bank for dollar deposits under Central Bank Circular 343;
2. Ordering defendant COMTRUST to return to the plaintiff the amount of U.S.
$3,000.00 immediately upon the finality of this decision, without interest for the
reason that the said amount was merely held in custody for safekeeping, but was not
actually deposited with the defendant COMTRUST because being cash currency, it
cannot by law be deposited with plaintiffs dollar account and defendant's only
obligation is to return the same to plaintiff upon demand;
2
xxx xxx xxx
5. Ordering defendant COMTRUST to pay plaintiff in the amount of P8,000.00 as
damages in the concept of litigation expenses and attorney's fees suffered by
plaintiff as a result of the failure of the defendant bank to restore to his (plaintiffs)
account the amount of U.S. $1,000.00 and to return to him (plaintiff) the U.S.
$3,000.00 cash left for safekeeping.
Costs against defendant COMTRUST.
SO ORDERED. [Rollo, pp. 47-48.]
Undaunted, the bank comes to this Court praying that it be totally absolved from any liability to
Zshornack. The latter not having appealed the Court of Appeals decision, the issues facing this Court
are limited to the bank's liability with regard to the first and second causes of action and its liability
for damages.
1. We first consider the first cause of action, On the dates material to this case, Rizaldy Zshornack
and his wife, Shirley Gorospe, maintained in COMTRUST, Quezon City Branch, a dollar savings
account and a peso current account.
On October 27, 1975, 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. In the application, 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. There was no indication of the
name of the purchaser of the dollar draft.
On the same date, October 27,1975, 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, on October 27, 1975 when he
(Ernesto) encashed with COMTRUST a cashier's check for P8,450.00 issued by the Manila Banking
Corporation payable to Ernesto.
Upon consideration of the foregoing facts, 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.
In its desperate attempt to justify its act of withdrawing from its depositor's savings account, the
bank has adopted inconsistent theories. First, it still maintains that the peso value of the amount
withdrawn was given to Atty. Ernesto Zshornack, Jr. when the latter encashed the Manilabank
Cashier's Check. At the same time, the bank claims that the withdrawal was made pursuant to an
agreement where Zshornack allegedly authorized the bank to withdraw from his dollar savings
3
account such amount which, when converted to pesos, would be needed to fund his peso current
account. If indeed the peso equivalent of the amount withdrawn from the dollar account was
credited to the peso current account, why did the bank still have to pay Ernesto?
At any rate, both explanations are unavailing. With regard to the first explanation, petitioner bank
has not shown how the transaction involving the cashier's check is related to the transaction
involving the dollar draft in favor of Dizon financed by the withdrawal from Rizaldy's dollar
account. The two transactions appear entirely independent of each other. Moreover, Ernesto
Zshornack, Jr., possesses a personality distinct and separate from Rizaldy Zshornack. Payment
made to Ernesto cannot be considered payment to Rizaldy.
As to the second explanation, even if we assume that there was such an agreement, the evidence do
not show that the withdrawal was made pursuant to it. Instead, the record reveals that the amount
withdrawn was used to finance a dollar draft in favor of Leovigilda D. Dizon, and not to fund the
current account of the Zshornacks. There is no proof whatsoever that peso Current Account No.
210-465-29 was ever credited with the peso equivalent of the US$1,000.00 withdrawn on October
27, 1975 from Dollar Savings Account No. 25-4109.
2. As for the second cause of action, the complaint filed with the trial court alleged that on
December 8, 1975, Zshornack entrusted to COMTRUST, thru Garcia, US $3,000.00 cash (popularly
known as greenbacks) for safekeeping, and that the agreement was embodied in a document, a copy
of which was attached to and made part of the complaint. The document reads:
Makati Cable Address:
Philippines "COMTRUST"
COMMERCIAL BANK AND TRUST COMPANY
of the Philippines
Quezon City Branch
December 8, 1975
MR. RIZALDY T. ZSHORNACK
&/OR MRS SHIRLEY E. ZSHORNACK
Sir/Madam:
We acknowledged (sic) having received from you today the sum of
US DOLLARS: THREE THOUSAND ONLY (US$3,000.00) for
safekeeping.
Received by:
(Sgd.) VIRGILIO V. GARCIA
4
It was also alleged in the complaint that despite demands, the bank refused to return the money.
In its answer, COMTRUST averred that the US$3,000 was credited to Zshornack's peso current
account at prevailing conversion rates.
It must be emphasized that COMTRUST did not deny specifically under oath the authenticity and
due execution of the above instrument.
During trial, it was established that on December 8, 1975 Zshornack indeed delivered to the bank
US $3,000 for safekeeping. When he requested the return of the money on May 10, 1976,
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.
Before we go into the nature of the contract entered into, an important point which arises on the
pleadings, must be considered.
The second cause of action is based on a document purporting to be signed by COMTRUST, a copy of
which document was attached to the complaint. In short, the second cause of action was based on
an actionable document. It was therefore incumbent upon the bank to specifically deny under oath
the due execution of the document, as prescribed under Rule 8, Section 8, if it desired: (1) to
question the authority of Garcia to bind the corporation; and (2) to deny its capacity to enter into
such contract. [See, E.B. Merchant v. International Banking Corporation, 6 Phil. 314 (1906).] No
sworn answer denying the due execution of the document in question, or questioning the authority
of Garcia to bind the bank, or denying the bank's capacity to enter into the contract, was ever filed.
Hence, the bank is deemed to have admitted not only Garcia's authority, but also the bank's power,
to enter into the contract in question.
In the past, this Court had occasion to explain the reason behind this procedural requirement.
The reason for the rule enunciated in the foregoing authorities will, we think, be
readily appreciated. In dealing with corporations the public at large is bound to rely
to a large extent upon outward appearances. If a man is found acting for a
corporation with the external indicia of authority, any person, not having notice of
want of authority, may usually rely upon those appearances; and if it be found that
the directors had permitted the agent to exercise that authority and thereby held
him out as a person competent to bind the corporation, or had acquiesced in a
contract and retained the benefit supposed to have been conferred by it, the
corporation will be bound, notwithstanding the actual authority may never have
been granted
5
... Whether a particular officer actually possesses the authority which he assumes to
exercise is frequently known to very few, and the proof of it usually is not readily
accessible to the stranger who deals with the corporation on the faith of the
ostensible authority exercised by some of the corporate officers. It is therefore
reasonable, in a case where an officer of a corporation has made a contract in its
name, that the corporation should be required, if it denies his authority, to state
such defense in its answer. By this means the plaintiff is apprised of the fact that the
agent's authority is contested; and he is given an opportunity to adduce evidence
showing either that the authority existed or that the contract was ratified and
approved. [Ramirez v. Orientalist Co. and Fernandez, 38 Phil. 634, 645- 646 (1918).]
Petitioner's argument must also be rejected for another reason. The practical effect of absolving a
corporation from liability every time an officer enters into a contract which is beyond corporate
powers, even without the proper allegation or proof that the corporation has not authorized nor
ratified the officer's act, is to cast corporations in so perfect a mold that transgressions and wrongs
by such artificial beings become impossible [Bissell v. Michigan Southern and N.I.R. Cos 22 N.Y 258
(1860).] "To say that a corporation has no right to do unauthorized acts is only to put forth a very
plain truism but to say that such bodies have no power or capacity to err is to impute to them an
excellence which does not belong to any created existence with which we are acquainted. The
distinction between power and right is no more to be lost sight of in respect to artificial than in
respect to natural persons." [Ibid.]
Having determined that Garcia's act of entering into the contract binds the corporation, we now
determine the correct nature of the contract, and its legal consequences, including its enforceability.
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. The circular provides:
xxx xxx xxx
2. Transactions in the assets described below and all dealings in them of whatever
nature, including, where applicable their exportation and importation, shall NOT be
effected, except with respect to deposit accounts included in sub-paragraphs (b) and
(c) of this paragraph, when such deposit accounts are owned by and in the name of,
banks.
6
(a) Any and all assets, provided they are held through, in, or with
banks or banking institutions located in the Philippines,
including money, checks, drafts, bullions bank drafts, deposit
accounts (demand, time and savings), all debts, indebtedness or
obligations, financial brokers and investment houses, notes,
debentures, stocks, bonds, coupons, bank acceptances, mortgages,
pledges, liens or other rights in the nature of security, expressed in
foreign currencies, or if payable abroad, irrespective of the currency
in which they are expressed, and belonging to any person, firm,
partnership, association, branch office, agency, company or other
unincorporated body or corporation residing or located within the
Philippines;
(b) Any and all assets of the kinds included and/or described in
subparagraph (a) above, whether or not held through, in, or with
banks or banking institutions, and existent within the Philippines,
which belong to any person, firm, partnership, association, branch
office, agency, company or other unincorporated body or
corporation not residing or located within the Philippines;
(c) Any and all assets existent within the Philippines including
money, checks, drafts, bullions, bank drafts, all debts, indebtedness
or obligations, financial securities commonly dealt in by bankers,
brokers and investment houses, notes, debentures, stock, bonds,
coupons, bank acceptances, mortgages, pledges, liens or other rights
in the nature of security expressed in foreign currencies, or if
payable abroad, irrespective of the currency in which they are
expressed, and belonging to any person, firm, partnership,
association, branch office, agency, company or other unincorporated
body or corporation residing or located within the Philippines.
xxx xxx xxx
4. (a) All receipts of foreign exchange shall be sold daily to the Central Bank by those
authorized to deal in foreign exchange. All receipts of foreign exchange by any
person, firm, partnership, association, branch office, agency, company or other
unincorporated body or corporation shall be sold to the authorized agents of the
Central Bank by the recipients within one business day following the receipt of such
foreign exchange. Any person, firm, partnership, association, branch office, agency,
company or other unincorporated body or corporation, residing or located within
the Philippines, who acquires on and after the date of this Circular foreign exchange
shall not, unless licensed by the Central Bank, dispose of such foreign exchange in
whole or in part, nor receive less than its full value, nor delay taking ownership
thereof except as such delay is customary; Provided, further, That within one day
upon taking ownership, or receiving payment, of foreign exchange the
aforementioned persons and entities shall sell such foreign exchange to designated
agents of the Central Bank.
xxx xxx xxx
7
8. Strict observance of the provisions of this Circular is enjoined; and any person,
firm or corporation, foreign or domestic, who being bound to the observance
thereof, or of such other rules, regulations or directives as may hereafter be issued
in implementation of this Circular, shall fail or refuse to comply with, or abide by, or
shall violate the same, shall be subject to the penal sanctions provided in the Central
Bank Act.
xxx xxx xxx
Paragraph 4 (a) above was modified by Section 6 of Central Bank Circular No. 281, Regulations on
Foreign Exchange, promulgated on November 26, 1969 by limiting its coverage to Philippine
residents only. Section 6 provides:
SEC. 6. All receipts of foreign exchange by any resident person, firm, company or
corporation shall be sold to authorized agents of the Central Bank by the recipients
within one business day following the receipt of such foreign exchange.
Any resident person, firm, company or corporation residing or located within the
Philippines, who acquires foreign exchange shall not, unless authorized by the
Central Bank, dispose of such foreign exchange in whole or in part, nor receive less
than its full value, nor delay taking ownership thereof except as such delay is
customary; Provided, That, within one business day upon taking ownership or
receiving payment of foreign exchange the aforementioned persons and entities
shall sell such foreign exchange to the authorized agents of the Central Bank.
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.
We thus rule that Zshornack cannot recover under the second cause of action.
3. Lastly, we find the P8,000.00 awarded by the courts a quo as damages in the concept of litigation
expenses and attorney's fees to be reasonable. The award is sustained.
WHEREFORE, the decision appealed from is hereby MODIFIED. Petitioner is ordered to restore to
the dollar savings account of private respondent the amount of US$1,000.00 as of October 27, 1975
to earn interest at the rate fixed by the bank for dollar savings deposits. Petitioner is further
8
ordered to pay private respondent the amount of P8,000.00 as damages. The other causes of action
of private respondent are ordered dismissed.
SO ORDERED.
Gutierrez, Jr. and Bidin, JJ., concur.
Fernan, C.J., took no part
Feliciano, J., concur in the result.
9
Kinds of Deposit: Nature and Characteristics
BPI v. CA 232 SCRA 302 (1994)
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
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.
Leonen, Ramirez & Associates for petitioner.
Constante A. Ancheta for private respondents.
DAVIDE, JR., J.:
The petitioner urges us to review and set aside the amended Decision 1 of 6 March 1992 of
respondent Court of Appeals in CA- G.R. CV No. 25739 which modified the Decision of 15 November
1990 of Branch 19 of the Regional Trial Court (RTC) of Manila in Civil Case No. 87-42967,
entitled Bank of the Philippine Islands (successor-in-interest of Commercial Bank and Trust
Company) versus Eastern Plywood Corporation and Benigno D. Lim. The Court of Appeals had
affirmed the dismissal of the complaint but had granted the defendants' counterclaim for
P331,261.44 which represents the outstanding balance of their account with the plaintiff.
As culled from the records and the pleadings of the parties, the following facts were duly
established:
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), the predecessor-in-interest of
petitioner Bank of the Philippine Islands (BPI). Sometime in March 1975, 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. Various amounts were later deposited or
withdrawn from the joint account of Velasco and Lim. The money therein was placed in the money
market.
10
Velasco died on 7 April 1977. 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, 2 one-half of this amount was provisionally
released and transferred to one of the bank accounts of Eastern with CBTC. 3
Thereafter, on 18 August 1978, Eastern obtained a loan of P73,000.00 from CBTC as "Additional
Working Capital," evidenced by the "Disclosure Statement on Loan/Credit Transaction" (Disclosure
Statement) signed by CBTC through its branch manager, Ceferino Jimenez, and Eastern, through
Lim, as its President and General Manager. 4The 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. 5 The note was signed by Lim both
in his own capacity and as President and General Manager of Eastern. No reference to any security
for the loan appears on the note. In the Disclosure Statement, the box with the printed word
"UNSECURED" was marked with "X" — meaning unsecured, while the line with the words "this loan
is wholly/partly secured by" is followed by the typewritten words "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,"
also dated 18 August 1978, 6 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." 7 Paragraph 02 of the Agreement provides as follows:
Eastply [Eastern] and Mr. Lim hereby confer upon Comtrust [CBTC], when and if
their alleged interests in the Account Balance shall have been established with
finality, ample and sufficient power as shall be necessary to retain said Account
Balance and enable Comtrust to apply the Account Balance for the purpose of
liquidating the Loan in respect of principal and/or accrued interest.
And paragraph 05 thereof reads:
The acceptance of this holdout shall not impair the right of Comtrust to declare the
loan payable on demand at any time, nor shall the existence hereof and the nonresolution of the dispute between the contending parties in respect of entitlement to
the Account Balance, preclude Comtrust from instituting an action for recovery
against Eastply and/or Mr. Lim in the event the Loan is declared due and payable
and Eastply and/or Mr. Lim shall default in payment of all obligations and liabilities
thereunder.
In the meantime, a case for the settlement of Velasco's estate was filed with Branch 152 of the RTC
of Pasig, entitled "In re Intestate Estate of Mariano Velasco," and docketed as Sp. Proc. No. 8959. 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. On 9 September 1986, 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. 8
11
Sometime in 1980, CBTC was merged with BPI. 9 On 2 December 1987, BPI filed with the RTC of
Manila a complaint against Lim and Eastern demanding payment of the promissory note for
P73,000.00. The complaint was docketed as Civil Case No. 87- 42967 and was raffled to Branch 19
of the said court, then presided over by Judge Wenceslao M. Polo. 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.
After due proceedings, the trial court rendered its decision on
15 November 1990 dismissing the complaint because BPI failed to make out its case. Furthermore,
it ruled that "the promissory note in question is subject to the 'hold-out' agreement," 10 and that
based on this agreement, "it was the duty of plaintiff Bank [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." 11 As to the defendants' counterclaim, the trial court, recognizing the fact that the entire
amount in question had been withdrawn by Velasco's heirs pursuant to the order of the intestate
court in Sp. Proc. No. 8959, denied it because the "said claim cannot be awarded without disturbing
the resolution" of the intestate court. 12
Both parties appealed from the said decision to the Court of Appeals. Their appeal was docketed as
CA-G.R. CV No. 25739.
On 23 January 1991, the Court of Appeals rendered a decision affirming the decision of the trial
court. It, however, failed to rule on the defendants' (private respondents') partial appeal from the
trial court's denial of their counterclaim. Upon their motion for reconsideration, the Court of
Appeals promulgated on 6 March 1992 an Amended Decision 13 wherein 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." 14
On 22 April 1992, BPI filed the instant petition alleging therein 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." 15 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.
Private respondents Eastern and Lim dispute the "suspensive condition" argument of the
petitioner. They interpret the findings of both the trial and appellate courts that 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 belong[ed] 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. 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
12
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. 16
The petitioner filed a Reply to the aforesaid Comment. The private respondents filed a Rejoinder
thereto.
We gave due course to the petition and required the parties to submit simultaneously their
memoranda.
The key issues in this case are whether BPI can demand payment of the loan of P73,000.00 despite
the existence of the Holdout Agreement and 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.
The collection suit of BPI is based on the promissory note for P73,000.00. On its face, the note is an
unconditional promise to pay the said amount, and as stated by the respondent Court of Appeals,
"[t]here is no question that the promissory note is a negotiable instrument." 17 It further correctly
ruled that BPI was not a holder in due course because the note was not indorsed to BPI by the
payee, CBTC. Only a negotiation by indorsement could have operated as a valid transfer to make BPI
a holder in due course. 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.
We disagree, however, with the Court of Appeals in its interpretation of the Holdout Agreement. It
is clear from paragraph 02 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. 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. 18 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. 19
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. 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. 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 Court
of Appeals also erred in affirming such dismissal.
The "suspensive condition" theory of the petitioner is, therefore, untenable.
The Court of Appeals correctly decided on the counterclaim. The counterclaim of Eastern and Lim
for the return of the P331,261.44 20 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, 21 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
13
the questioned account was an ordinary bank deposit; hence, it was payable on demand of the
depositor. 22
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. As early as 12 May 1979, CBTC was
notified by the Corporate Secretary of Eastern that the deposit in the joint account of Velasco and
Lim was being claimed by them and that one-half was being claimed by the heirs of Velasco.23
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. The authorization given to the heirs of Velasco
cannot be construed as a final determination or adjudication that the account belonged to Velasco.
We have ruled that when the ownership of a particular property is disputed, 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. 24
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. 25 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. 26 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.
In the light of the above findings, the dismissal of the petitioner's complaint is reversed and set
aside. The award on the counterclaim is sustained subject to a modification of the interest.
WHEREFORE, the instant petition is partly GRANTED. The challenged amended decision in CA-G.R.
CV No. 25735 is hereby MODIFIED. As modified:
(1) Private respondents are ordered to pay the petitioner the promissory note for
P73,000.00 with interest at:
(a) 14% per annum on the principal, computed from
18 August 1978 until payment;
(b) 12% per annum on the interest which had accrued up to the date
of the filing of the complaint, computed from that date until payment
pursuant to Article 2212 of the Civil Code.
(2) The award of P331,264.44 in favor of the private respondents shall bear interest
at the rate of 12%per annum computed from the filing of the counterclaim.
14
No pronouncement as to costs.
SO ORDERED.
Cruz, Bellosillo, Quiason and Kapunan, JJ., concur
15
Serrano v. CB 96 SCRA 96 (1980)
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-30511 February 14, 1980
MANUEL M. SERRANO, petitioner,
vs.
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, respondents.
Rene Diokno for petitioner.
F.E. Evangelista & Glecerio T. Orsolino for respondent Central Bank of the Philippines.
Feliciano C. Tumale, Pacifico T. Torres and Antonio B. Periquet for respondent Overseas Bank of
Manila.
Josefina G. Salonga for all other respondents.
CONCEPCION, JR., J.:
Petition for mandamus and prohibition, with preliminary injunction, that seeks the establishment of
joint and solidary liability to the amount of Three Hundred Fifty Thousand Pesos, 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.1 Petitioner also prays that both respondent banks be ordered to execute the proper
and necessary documents to constitute all properties fisted in Annex "7" of the Answer of
respondent Central Bank of the Philippines in G.R. No. L-29352, entitled "Emerita M. Ramos, et al vs.
Central Bank of the Philippines," into a trust fund in favor of petitioner and all other depositors of
respondent Overseas Bank of Manila. It is also prayed that the respondents be prohibited
permanently from honoring, implementing, or doing any act predicated upon the validity or efficacy
of the deeds of mortgage, assignment. and/or conveyance or transfer of whatever nature of the
properties listed in Annex "7" of the Answer of respondent Central Bank in G.R. No. 29352. 2
A sought for ex-parte preliminary injunction against both respondent banks was not given by this
Court.
16
Undisputed pertinent facts are:
On October 13, 1966 and December 12, 1966, petitioner made a time deposit, for one year with 6%
interest, of One Hundred Fifty Thousand Pesos (P150,000.00) with the respondent Overseas Bank
of Manila. 3 Concepcion Maneja also made a time deposit, for one year with 6-½% interest, on
March 6, 1967, of Two Hundred Thousand Pesos (P200,000.00) with the same respondent Overseas
Bank of Manila.4
On August 31, 1968, 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. 5
Notwithstanding series of demands for encashment of the aforementioned time deposits from the
respondent Overseas Bank of Manila, dating from December 6, 1967 up to March 4, 1968, not a
single one of the time deposit certificates was honored by respondent Overseas Bank of Manila. 6
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
claims that as of March 12, 1965, the Overseas Bank of Manila, while operating, was only on a
limited degree of banking operations since the Monetary Board decided in its Resolution No. 322,
dated March 12, 1965, to prohibit the Overseas Bank of Manila from making new loans and
investments in view of its chronic reserve deficiencies against its deposit liabilities. This limited
operation of respondent Overseas Bank of Manila continued up to 1968. 7
Respondent Central Bank also denied that it is guarantor of the permanent solvency of any banking
institution as claimed by petitioner. It claims that neither the law nor sound banking supervision
requires respondent Central Bank to advertise or represent to the public any remedial measures it
may impose upon chronic delinquent banks as such action may inevitably result to panic or bank
"runs". In the years 1966-1967, there were no findings to declare the respondent Overseas Bank of
Manila as insolvent. 8
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. 9
Respondent Central Bank avers no knowledge of petitioner's claim 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. 10
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.
Petitioner Manuel Serrano in this case, filed on September 6, 1968, a motion to intervene in G.R. No.
17
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. 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, and if this Court were to allow Serrano to intervene as depositor in G.R. No. L-29352,
thousands of other depositors would follow and thus cause an avalanche of cases in this Court. In
the resolution dated October 4, 1968, this Court denied Serrano's, motion to intervene. The
contents of said motion to intervene are substantially the same as those of the present petition. 11
This Court rendered decision in G.R. No. L-29352 on October 4, 1971, which became final and
executory on March 3, 1972, favorable to the respondent Overseas Bank of Manila, with the
dispositive portion to wit:
WHEREFORE, the writs prayed for in the petition are hereby granted and
respondent Central Bank's resolution Nos. 1263, 1290 and 1333 (that prohibit the
Overseas Bank of Manila to participate in clearing, direct the suspension of its
operation, and ordering the liquidation of said bank) are hereby annulled and set
aside; and said respondent Central Bank of the Philippines is directed to comply
with its obligations under the Voting Trust Agreement, and to desist from taking
action in violation therefor. Costs against respondent Central Bank of the
Philippines. 12
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. 13
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 shoud be ventilated in the Court of First Instance of proper
jurisdiction as We already pointed out when this Court denied petitioner's motion to intervene in
G.R. No. L-29352. 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, as it did in G.R. No. L-29352.
Neither is there anything to prohibit in this case, since the questioned acts of the respondent
Central Bank (the acts of dissolving and liquidating the Overseas Bank of Manila), which petitioner
here intends to use as his basis for claims of damages against respondent Central Bank, had been
accomplished a long time ago.
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
18
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. 14 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 s obligation as a debtor and not a breach of trust arising from
depositary's failure to return the subject matter of the deposit
WHEREFORE, the petition is dismissed for lack of merit, with costs against petitioner.
SO ORDERED.
Antonio, Abad Santos, JJ., concur.
Barredo (Chairman) J., concur in the judgment on the of the concurring opinion of Justice Aquino.
Separate Opinions
AQUINO, J., concurring:
The petitioner prayed that the Central Bank be ordered to pay his time deposits of P350,000, plus
interests, which he could not recover from the distressed Overseas Bank of Manila, and to declare
all the assets assigned or mortgaged by that bank and the Ramos group to the Central Bank as trust
properties for the benefit of the petitioner and other depositors.
The petitioner has no causes of action agianst the Central Bank to obtain those reliefs. They cannot
be granted in petitioner's instant original actions in this Court for mandamus and prohibition. It is
not the Central Bank's ministerial duty to pay petitioner's time deposits or to hold the mortgaged
properties in trust for the depositors of the Overseas Bank of Manila. The petitioner has no cause of
action for prohibition, a remedy usually available against any tribunal, board, corporation or person
exercising judicial or ministerial functions.
Since the Overseas Bank of Manila was found to be insolvent and the Superintendent of Banks was
ordered to take over its assets preparatory to its liquidation under section 29 of Republic Act No.
265 (p. 197, Rollo, Manifestation of September 19, 1973), petitioner's remedy is to file his claim in
the liquidating proceeding (Central Bank vs. Morfe, L-38427, March 12, 1975, 63 SCRA 114;
Hernandez vs. Rural Bank of Lucena, Inc., L-29791, January 10, 1978, 81 SCRA 75).
Separate Opinions
AQUINO, J., concurring:
The petitioner prayed that the Central Bank be ordered to pay his time deposits of P350,000, plus
interests, which he could not recover from the distressed Overseas Bank of Manila, and to declare
19
all the assets assigned or mortgaged by that bank and the Ramos group to the Central Bank as trust
properties for the benefit of the petitioner and other depositors.
The petitioner has no causes of action agianst the Central Bank to obtain those reliefs. They cannot
be granted in petitioner's instant original actions in this Court for mandamus and prohibition. It is
not the Central Bank's ministerial duty to pay petitioner's time deposits or to hold the mortgaged
properties in trust for the depositors of the Overseas Bank of Manila. The petitioner has no cause of
action for prohibition, a remedy usually available against any tribunal, board, corporation or person
exercising judicial or ministerial functions.
Since the Overseas Bank of Manila was found to be insolvent and the Superintendent of Banks was
ordered to take over its assets preparatory to its liquidation under section 29 of Republic Act No.
265 (p. 197, Rollo, Manifestation of September 19, 1973), petitioner's remedy is to file his claim in
the liquidating proceeding (Central Bank vs. Morfe, L-38427, March 12, 1975, 63 SCRA 114;
Hernandez vs. Rural Bank of Lucena, Inc., L-29791, January 10, 1978, 81 SCRA 75).
20
Lua Kian v. Manila Railroad 9 SCRA 5 (1967)
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-23033
January 5, 1967
LUA KIAN, plaintiff and appellee,
vs.
MANILA RAILROAD COMPANY and MANILA PORT SERVICE, defendants and appellants.
D. F. Macaranas and S. V. Pampolina Jr. for defendants and appellants.
San Juan, Laig and Associates for plaintiff and appellee.
BENGZON, J. P., J.:
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. The following stipulation of facts was made:
1. They admit each other's legal personality, and that during the time material to this action,
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 on February 29, 1956;
2. On December 31, 1959, 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;
3. 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, on January 24, 1960;
4. 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, and on this shipment, Cebu
United Enterprises has a pending claim for short-delivery against defendant Manila Port
Service;
5. 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;
21
6. A provisional claim was filed by the consignee's broker for and in behalf of the plaintiff on
January 19, 1960, with defendant Manila Port Service;
7. 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 overdelivered by it to plaintiff is P1,130.65;
8. 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;
9. Of the shipment of 1000 cases of Carnation Milk which also came from the Carnation
Company, San Francisco, California, U.S.A. and bearing the same marks as the shipment
herein but had been discharged from S/S "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;
10. They reserve the right to submit documentary evidence;
11. They submit the matter of attorney's fees and costs to the sound discretion of the Court.
On these facts and documentary evidence subsequently presented, the Court of First Instance of
Manila 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. 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.
Inasmuch as the defendant Manila Port Service actually delivered 1,913 cases to plaintiff,1 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 Us 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.
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. Accordingly, the excess 171 cases
marked "Cebu United" placed the defendant arrastre operator in a dilemma, for should it deliver
them to Lua Kian the goods could be claimed by the consignee Cebu United Enterprises whose
markings they bore, and should it deliver according to markings, to Cebu United Enterprises, it
might be sued by the consignee, Lua Kian whose bill of lading indicated that it should receive 171
cases more. The dilemma itself, however, offered the solution. The legal relationship between an
arrastre operator and the consignee is akin to that of a depositor and warehouseman. 2 As custodian
of the goods discharged from the vessel, it was defendant arrastre operator's duty, like that of any
22
ordinary depositary, to take good care of the goods and to turn them over to the party entitled to
their possession.3 Under this particular set of circumstances, 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.
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. We cannot
however excuse the aforestated defendant from liability in this case before Us now 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 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.
We therefore find the defendants liable, without prejudice to their taking whatever proper legal
steps they may consider worthwhile to recover the excess delivered to Cebu United Enterprises.
With respect to the attorney's fees awarded below, this Court notices that the same is about 50 per
cent of the litigated amount of P1,183.11. We therefore deem it reasonable to decrease the
attorney's fees to P300.00.
Wherefore, with the aforesaid reservation, and with the modification that the attorney's fee is
reduced to P300.00, the judgment appealed from is affirmed, with costs against appellants. So
ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Zaldivar, Sanchez and Castro, JJ., concur
23
Rights and Obligations of Depositor & Depositary
Javellana v. Lim 11 Phil 141 (1908)
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 4015
August 24, 1908
ANGEL JAVELLANA, plaintiff-appellee,
vs.
JOSE LIM, ET AL., defendants-appellants.
R. Zaldarriaga for appellants.
B. Montinola for appellee.
TORRES, J.:
The attorney for the plaintiff, Angel Javellana, file a complaint on the 30th of October, 1906, with the
Court of First Instance of Iloilo, praying that the defendants, Jose Lim and Ceferino Domingo Lim, he
sentenced to jointly and severally pay the sum of P2,686.58, with interest thereon at the rate of 15
per cent per annum from the 20th of January, 1898, until full payment should be made, deducting
from the amount of interest due the sum of P1,102.16, and to pay the costs of the proceedings.
Authority from the court having been previously obtained, the complaint was amended on the 10th
of January, 1907; it was then alleged, on the 26th of May, 1897, the defendants executed and
subscribed a document in favor of the plaintiff 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.
That, when the obligation became due, the defendants begged the plaintiff 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 the plaintiff 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.
A demurrer to the original complaint was overruled, and on the 4th of January, 1907, the
defendants answered the original complaint before its amendment, setting forth that they
acknowledged the facts stated in Nos. 1 and 2 of the complaint; 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
24
payment and the payment of interest at the rate of 15 per cent per annum as alleged in paragraph 3
of the complaint, and also denied all the other statements contained therein.
As a counterclaim, the defendants alleged that they had paid to the plaintiff sums which, together
with the P1,102.16 acknowledged in the complaint, aggregated the total sum of P5,602.16, and that,
deducting therefrom the total sum of P2,686.58 stated in the document transcribed in the
complaint, the plaintiff still owed the defendants P2,915.58; therefore, they asked that judgment be
entered absolving them, and sentencing the plaintiff to pay them the sum of P2,915.58 with the
costs.
Evidence was adduced by both parties and, upon their exhibits, together with an account book
having been made of record, the court below rendered judgment on the 15th of January, 1907, in
favor of the plaintiff for the recovery of the sum of P5,714.44 and costs.
The defendants excepted to the above decision and moved for a new trial. This motion was
overruled and was also excepted to by them; the bill of exceptions presented by the appellants
having been approved, the same was in due course submitted to this court.
The document of indebtedness inserted in the complaint states that the plaintiff left on deposit with
the defendants 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 appearing as
Exhibits 2, 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 the creditor, whereby 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 the aforesaid date of January 20, and that 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 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 —
25
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.
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; and the creditor, by granting them the extension, evidently confirmed the express
permission previously given to use and dispose of the amount stated as having bee 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 (Exhibit 2) 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, Exhibit 1.
If the amount, together with interest claimed in the complaint, less 1,000 pesos appears as fully
established, such is not the case with the defendant's counterclaim for P5,602.16, because the
existence and certainty of said indebtedness imputed to the plaintiff has not been proven, and the
defendants, who call themselves creditors for the said amount have not proven in a satisfactory
manner that the plaintiff had received partial payments on account of the same; the latter alleges
with good reason, that they should produce the receipts which he may have issued, and which he
did issue whenever they paid him any money on account. The plaintiffs allegation that the two
amounts of 400 and 1,200 pesos, referred to in documents marked "C" and "D" offered in evidence
by the defendants, had been received from Ceferino Domingo Lim on account of other debts of his,
has not been contradicted, and the fact that in the original complaint the sum of 1,102.16 pesos, was
expressed in lieu of 1,000 pesos, the only payment made on account of interest on the amount
deposited according to documents No. 2 and letter "B" above referred to, was due to a mistake.
Moreover, for the reason above set forth it may, as a matter of course, be inferred that 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.
The original joint obligation contracted by the defendant debtor still exists, and it has not been
shown or proven in the proceedings that the creditor had released Joe Lim from complying with his
26
obligation in order that he should not be sued for or sentenced to pay the amount of capital and
interest together with his codebtor, Ceferino Domingo Lim, because the record offers satisfactory
evidence against the pretension of Jose Lim, and it further appears that document No. 2 was
executed by the other debtor, Ceferino Domingo Lim, for himself and on behalf of Jose Lim; and it
has also been proven that Jose Lim, being fully aware that his debt had not yet been settled, took
steps to secure an extension of the time for payment, and consented to pay interest in return for the
concession requested from the creditor.
In view of the foregoing, and adopting the findings in the judgment appealed from, it is our opinion
that the same should be and is hereby affirmed with the costs of this instance against the appellant,
provided that the interest agreed upon shall be paid until the complete liquidation of the debt. So
ordered.
Arellano, C.J., Carson, Willard and Tracey, JJ., concur.
27
Baron v. David 51 Phil 2 (1927)
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. Nos. L-26948 and L-26949
October 8, 1927
SILVESTRA BARON, plaintiff-appellant,
vs.
PABLO DAVID, defendant-appellant.
And
GUILLERMO BARON, plaintiff-appellant,
vs.
PABLO DAVID, defendant-appellant.
Jose Gutierrez David for plaintiff-appellant in case of No. 26948.
Gregorio Perfecto for defendant-appellant in both cases.
Francisco, Lualhati & Lopez and Jose Gutierrez David for plaintiff-appellant in case No. 26949.
STREET, J.:
These two actions were instituted in the Court of First Instance of the Province of Pampanga by the
respective plaintiffs, Silvestra Baron and Guillermo Baron, for the purpose of recovering from the
defendant, Pablo David, the value of palay alleged to have been sold by the plaintiffs to the
defendant in the year 1920. Owing to the fact that the defendant is the same in both cases and that
the two cases depend in part upon the same facts, the cases were heard together in the trial court
and determined in a single opinion. The same course will accordingly be followed here.
In the first case, i. e., that which Silvestra Baron is plaintiff, the court gave judgment for her to
recover of the defendant the sum of P5,238.51, with costs. From this judgment both the plaintiff and
the defendant appealed.
In the second case, i. e., that in which Guillermo Baron, is plaintiff, the court gave judgment for him
to recover of the defendant the sum of P5,734.60, with costs, from which judgment both the plaintiff
and the defendant also appealed. In the same case the defendant interposed a counterclaim in
which he asked credit for the sum of P2,800 which he had advanced to the plaintiff Guillermo Baron
on various occasions. This credit was admitted by the plaintiff and allowed by the trial court. But
the defendant also interposed a cross-action against Guillermo Baron in which the defendant
claimed compensation for damages alleged to have Ben suffered by him by reason of the alleged
malicious and false statements made by the plaintiff against the defendant in suing out an
28
attachment against the defendant's property soon after the institution of the action. In the same
cross-action the defendant also sought compensation for damages incident to the shutting down of
the defendant's rice mill for the period of one hundred seventy days during which the abovementioned attachment was in force. The trial judge disallowed these claims for damages, and from
this feature of the decision the defendant appealed. We are therefore confronted with five distinct
appeals in this record.
Prior to January 17, 1921, the defendant Pablo David has been engaged in running a rice mill in the
municipality of Magalang, in the Province of Pampanga, a mill which was well patronized by the rice
growers of the vicinity and almost constantly running. On the date stated 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, the plaintiff in the first of the actions before us, is an aunt of the
defendant; while Guillermo Baron, the plaintiff in the other action; is his uncle. In the months of
March, April, and May, 1920, Silvestra Baron placed a quantity of palay in the defendant's mill; and
this, in connection with some that she took over from Guillermo Baron, amounted to 1,012 cavans
and 24 kilos. During approximately the same period Guillermo Baron placed other 1,865 cavans
and 43 kilos of palay in the mill. No compensation has ever been received by Silvestra Baron upon
account of the palay delivered by Guillermo Baron, he has received from the defendant
advancements amounting to P2,800; but apart from this he has not been compensated. Both the
plaintiffs claim that the palay which was delivered by them to the defendant was sold to the
defendant; while the defendant, on the other hand, claims that the palay was deposited subject to
future withdrawal by 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, already mentioned.
The plaintiff further say that their palay was delivered to the defendant at his special request,
coupled with a promise on his part to pay for the same at the highest price per cavan at which palay
would sell during the year 1920; and they say that in August of that year the defendant promised to
pay them severally the price of P8.40 per cavan, which was about the top of the market for the
season, provided they would wait for payment until December. The trial judge found that no such
promise had been given; and the incredulity of the court upon this point seems to us to be justified.
A careful examination of the proof, however, leads us to the conclusion that the plaintiffs did, some
time in the early part of August, 1920, make demand upon the defendant for a settlement, which he
evaded or postponed leaving the exact amount due to the plaintiffs undetermined.
It should be stated that the palay in question was place 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 fact the defendant admits
that the plaintiffs' palay was mixed with that of others. 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. Furthermore, the proof shows that when the fire occurred
there could not have been more than about 360 cavans of palay in the mill, none of which by any
reasonable probability could have been any part of the palay delivered by the plaintiffs. 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. In the briefs before us it seems to have been assumed by the opposing
29
attorneys 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. But 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. Under article 1768 of the Civil Code, when the depository has permission to
make use of the thing 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. 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 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.
In view of what has been said it becomes necessary to discover the price which the defendant
should be required to pay for the plaintiffs' palay. Upon this point the trial judge fixed upon P6.15
per cavan; and although we are not exactly in agreement with him as to the propriety of the method
by which he arrived at this figure, we are nevertheless of the opinion that, all things considered, the
result is approximately correct. It appears that the price of palay during the months of April, May,
and June, 1920, had been excessively high in the Philippine Islands and even prior to that period the
Government of the Philippine Islands had been attempting to hold the price in check by executive
regulation. The highest point was touched in this season was apparently about P8.50 per cavan, but
the market began to sag in May or June and presently entered upon a precipitate decline. As we
have already stated, the plaintiffs made demand upon the defendant for settlement in the early part
of August; and, so far as we are able to judge from the proof, the price of P6.15 per cavan, fixed by
the trial court, is about the price at which the defendant should be required to settle as of that date.
It was the date of the demand of the plaintiffs for settlement that determined the price to be paid by
the defendant, and this is true whether the palay was delivered in the character of sale with price
undetermined or in the character of deposit subject to use by the defendant. It results that the
plaintiffs are respectively entitle to recover the value of the palay which they had placed with the
defendant during the period referred to, with interest from the date of the filing of their several
complaints.
As already stated, the trial court found that at the time of the fire there were about 360 cavans of
palay in the mill and that this palay was destroyed. His Honor assumed that this was part of the
palay delivered by the plaintiffs, and he held that the defendant should be credited with said
amount. His Honor therefore deducted from the claims of the plaintiffs their respective
proportionate shares of this amount of palay. We are unable to see the propriety of this feature of
the decision. There were many customers of the defendant's rice mill who had placed their palay
with the defendant under the same conditions as the plaintiffs, and nothing can be more certain
than that the palay which was burned did not belong to the plaintiffs. That palay without a doubt
had long been sold and marketed. The assignments of error of each of the plaintiffs-appellants in
which this feature of the decision is attacked are therefore well taken; and the appealed judgments
must be modified by eliminating the deductions which the trial court allowed from the plaintiffs'
claims.
30
The trial judge also allowed a deduction from the claim of the plaintiff Guillermo Baron of 167
cavans of palay, as indicated in Exhibit 12, 13, 14, and 16. This was also erroneous. These exhibits
relate to transactions that occurred nearly two years after the transactions with which we are here
concerned, and they were offered in evidence merely to show the character of subsequent
transactions between the parties, it appearing that at the time said exhibits came into existence the
defendant had reconstructed his mill and that business relations with Guillermo Baron had been
resumed. The transactions shown by these exhibits (which relate to palay withdrawn by the
plaintiff from the defendant's mill) were not made the subject of controversy in either the
complaint or the cross-complaint of the defendant in the second case. They therefore should not
have been taken into account as a credit in favor of the defendant. Said credit must therefore be
likewise of course be without prejudice to any proper adjustment of the rights of the parties with
respect to these subsequent transactions that they have heretofore or may hereafter effect.
The preceding discussion disposes of all vital contentions relative to the liability of the defendant
upon the causes of action stated in the complaints. We proceed therefore now to consider the
question of the liability of the plaintiff Guillermo Baron upon the cross-complaint of Pablo David in
case R. G. No. 26949. In this cross-action the defendant seek, as the stated in the third paragraph of
this opinion, to recover damages for the wrongful suing out of an attachment by the plaintiff and the
levy of the same upon the defendant's rice mill. It appears that about two and one-half months after
said action was begun, the plaintiff, Guillermo Baron, asked for an attachment to be issued against
the property of the defendant; and to procure the issuance of said writ the plaintiff made affidavit to
the effect that the defendant was disposing, or attempting the plaintiff. Upon this affidavit an
attachment was issued as prayed, and on March 27, 1924, it was levied upon the defendant's rice
mill, and other property, real and personal. 1awph!l.net
Upon attaching the property the sheriff closed the mill and placed it in the care of a deputy.
Operations were not resumed until September 13, 1924, when the attachment was dissolved by an
order of the court and the defendant was permitted to resume control. At the time the attachment
was levied there were, in the bodega, more than 20,000 cavans of palay belonging to persons who
held receipts therefor; and in order to get this grain away from the sheriff, twenty-four of the
depositors found it necessary to submit third-party claims to the sheriff. When these claims were
put in the sheriff notified the plaintiff that a bond in the amount of P50,000 must be given,
otherwise the grain would be released. The plaintiff, being unable or unwilling to give this bond, the
sheriff surrendered the palay to the claimants; but the attachment on the rice mill was maintained
until September 13, as above stated, covering a period of one hundred seventy days during which
the mill was idle. The ground upon which the attachment was based, as set forth in the plaintiff's
affidavit was that the defendant was disposing or attempting to dispose of his property for the
purpose of defrauding the plaintiff. That this allegation was false is clearly apparent, and not a word
of proof has been submitted in support of the assertion. On the contrary, the defendant testified
that at the time this attachment was secured he was solvent and could have paid his indebtedness
to the plaintiff if judgment had been rendered against him in ordinary course. His financial
conditions was of course well known to the plaintiff, who is his uncle. The defendant also states that
he had not conveyed away any of his property, nor had intended to do so, for the purpose of
defrauding the plaintiff. We have before us therefore a case of a baseless attachment, recklessly
sued out upon a false affidavit and levied upon the defendant's property to his great and needless
damage. That the act of the plaintiff in suing out the writ was wholly unjustifiable is perhaps also
indicated in the circumstance that the attachment was finally dissolved upon the motion of the
plaintiff himself.
31
The defendant testified that his mill was accustomed to clean from 400 to 450 cavans of palay per
day, producing 225 cavans of rice of 57 kilos each. The price charged for cleaning each cavan rice
was 30 centavos. The defendant also stated that the expense of running the mill per day was from
P18 to P25, and that the net profit per day on the mill was more than P40. As the mill was not
accustomed to run on Sundays and holiday, we estimate that the defendant lost the profit that
would have been earned on not less than one hundred forty work days. Figuring his profits at P40
per day, which would appear to be a conservative estimate, the actual net loss resulting from his
failure to operate the mill during the time stated could not have been less than P5,600. The
reasonableness of these figures is also indicated in the fact that the twenty-four customers who
intervened with third-party claims took out of the camarin 20,000 cavans of palay, practically all of
which, in the ordinary course of events, would have been milled in this plant by the defendant. And
of course other grain would have found its way to this mill if it had remained open during the one
hundred forty days when it was closed.
But this is not all. When the attachment was dissolved and the mill again opened, the defendant
found that his customers had become scattered and could not be easily gotten back. So slow, indeed,
was his patronage in returning that during the remainder of the year 1924 the defendant was able
to mill scarcely more than the grain belonging to himself and his brothers; and even after the next
season opened many of his old customers did not return. Several of these individuals, testifying as
witnesses in this case, stated that, owing to the unpleasant experience which they had in getting
back their grain from the sheriff to the mill of the defendant, though they had previously had much
confidence in him.
As against the defendant's proof showing the facts above stated the plaintiff submitted no evidence
whatever. We are therefore constrained to hold that the defendant was damaged by the attachment
to the extent of P5,600, in profits lost by the closure of the mill, and to the extent of P1,400 for
injury to the good-will of his business, making a total of P7,000. For this amount the defendant must
recover judgment on his cross-complaint.
The trial court, in dismissing the defendant's cross-complaint for damages resulting from the
wrongful suing out of the attachment, suggested that the closure of the rice mill was a mere act of
the sheriff for which the plaintiff was not responsible and that the defendant might have been
permitted by the sheriff to continue running the mill if he had applied to the sheriff for permission
to operate it. This singular suggestion will not bear a moment's criticism. It was of course the duty
of the sheriff, in levying the attachment, to take the attached property into his possession, and the
closure of the mill was a natural, and even necessary, consequence of the attachment. For the
damage thus inflicted upon the defendant the plaintiff is undoubtedly responsible.
One feature of the cross-complaint consist in the claim of the defendant (cross-complaint) for the
sum of P20,000 as damages caused to the defendant by the false and alleged malicious statements
contained in the affidavit upon which the attachment was procured. The additional sum of P5,000 is
also claimed as exemplary damages. It is clear that with respect to these damages the cross-action
cannot be maintained, for the reason that the affidavit in question was used in course of a legal
proceeding for the purpose of obtaining a legal remedy, and it is therefore privileged. But though
the affidavit is not actionable as a libelous publication, this fact in no obstacle to the maintenance of
an action to recover the damage resulting from the levy of the attachment.
Before closing this opinion a word should be said upon the point raised in the first assignment of
error of Pablo David as defendant in case R. G. No. 26949. In this connection it appears that the
32
deposition of Guillermo Baron was presented in court as evidence and was admitted as an exhibit,
without being actually read to the court. It is supposed in the assignment of error now under
consideration that the deposition is not available as evidence to the plaintiff because it was not
actually read out in court. This connection is not well founded. It is true that in section 364 of the
Code of Civil Procedure it is said that a deposition, once taken, may be read by either party and will
then be deemed the evidence of the party reading it. The use of the word "read" in this section finds
its explanation of course in the American practice of trying cases for the most part before juries.
When a case is thus tried the actual reading of the deposition is necessary in order that the jurymen
may become acquainted with its contents. But in courts of equity, and in all courts where judges
have the evidence before them for perusal at their pleasure, it is not necessary that the deposition
should be actually read when presented as evidence.
From what has been said it result that judgment of the court below must be modified with respect
to the amounts recoverable by the respective plaintiffs in the two actions R. G. Nos. 26948 and
26949 and must be reversed in respect to the disposition of the cross-complaint interposed by the
defendant in case R. G. No. 26949, with the following result: In case R. G. No. 26948 the plaintiff
Silvestra Baron will recover of the Pablo David the sum of P6,227.24, with interest from November
21, 1923, the date of the filing of her complaint, and with costs. In case R. G. No. 26949 the plaintiff
Guillermo Baron will recover of the defendant Pablo David the sum of P8,669.75, with interest from
January 9, 1924. In the same case the defendant Pablo David, as plaintiff in the cross-complaint, will
recover of Guillermo Baron the sum of P7,000, without costs. So ordered.
Avanceña, C.J., Johnson, Malcolm, Villamor, Romualdez and Villa-Real, JJ., concur.
Separate Opinions
JOHNS, J., dissenting and concurring:
The plaintiff Silvestra Baron is the aunt of the defendant, and Guillermo Baron, the plaintiff in the
other action, is his uncle. There is no dispute as to the amount of palay which each delivered to the
mill of the defendant. Owing to the fact that they were relatives and that the plaintiffs reposed
special reposed special trust and confidence in the defendant, who was their nephew, they were not
as careful and prudent in their business dealings with him as they should have been. Plaintiffs
allege that their respective palay was delivered to the defendant at his mill with the understanding
and agreement between them that they should receive the highest market price for the palay for
that season, which was P8.50 per cavan. They further allege that about August first they made
another contract in and by which he promised and agreed to pay them P8.40 per cavan for their
palay, in consideration of which they agreed to extend the time for payment to the first of December
of that year. The amount of palay is not in dispute, and the defendant admits that it was delivered to
his mill, but he claims that he kept it on deposit and as bailee without hire for the plaintiffs and at
their own risk, and that the mill was burned down, and that at the time of the fire, plaintiffs' palay
was in the mill. The lower court found as a fact that there was no merit in that defense, and that
there was but little, if any, palay in the mill at the time of the fire and that in truth and in fact that
defense was based upon perjured testimony.
The two cases were tried separately in the court below, but all of the evidence in the case was
substituted and used in the other. Both plaintiffs testified to the making of the respective contracts
as alleged in their complaint; to wit, that they delivered the palay to the defendant with the express
understanding and agreement that he would pay them for the palay the highest market price for the
33
season, and to the making of the second contract about the first of August, in which they had a
settlement, and that the defendant then agreed to pay them P8.40 per cavan, such payment to be
made on December first. It appears that the highest market price for palay for that season was
P8.50 per cavan. The defendant denied the making of either one of those contracts, and offered no
other evidence on that question. That is to say, we have the evidence of both Silvestra Baron and
Guillermo Baron to the making of those contracts, which is denied by the defendant only. Plaintiffs'
evidence is also corroborated by the usual and customary manner in which the growers sell their
palay. That is to say, it is their custom to sell the palay at or about the time it is delivered at the mill
and as soon as it is made ready for market in the form of rice. As stated the lower court found as a
fact that the evidence of the defendants as to plaintiffs' palay being in the mill at the time of the fire
was not worthy of belief, and that in legal effect it was a manufactured defense. Yet, strange as it
may seem, both the lower court and this court have found as a fact that upon the question of the
alleged contracts, the evidence for the defendant is true and entitled to more weight than the
evidence of both plaintiffs which is false.
It appears that the plaintiff Silvestra Baron is an old lady about 80 years of age and the aunt of the
defendant, and Guillermo Baron is the uncle. Under the theory of the lower court and of this court,
both of them at all the time during the high prices held their palay in defendant's mill at their own
risk, and that upon that point the evidence of the defendant, standing alone is entitled to more
weight and is more convincing than the combined evidence of the two plaintiffs. In the very nature
of things, if defendant's evidence upon that point is true, it stands to reason that, following the
custom of growers, the plaintiffs would have sold their palay during the period of high prices, and
would not have waited until it dropped from P8.50 per cavan to P6.15 per cavan about the first of
August. Upon that question, both the weight and the credibility of the evidence is with the plaintiffs,
and they should have judgment for the full amount of their palay on the basis of P8.40 per cavan.
For such reason, I vigorously dissent from the majority opinion.
I frankly concede that the attachment was wrongful, and that it should never have been levied. It
remained in force for a period of one hundred and seventy days at which time it was released on
motion of the plaintiffs. The defendant now claims, and the majority opinion has allowed him,
damages for that full period, exclusive of Sundays, at the rate, of P40 per day, found to be the net
profit for the operation of the rice mill. It further appears, and this court finds, that the defendant
was a responsible man, and that he had ample property out which to satisfy plaintiffs' claim.
Assuming that to be true, there was no valid reason why he could not had given a counter bond and
released the attachment. Upon the theory of the majority opinion, if the plaintiffs had not released
the attachment, they would still be liable to the defendant at the rate of P40 per day up to the
present time. When the mill was attached, if he was in a position to do so, it was the duty of the
defendant to give a counter bond and release the attachment and resume its operation. The
majority opinion also allowed the defendant P1,400 "for injury to the goodwill of his business." The
very fact that after a delay of about four years, both of the plaintiffs were compelled to bring to their
respective actions against the defendant to recover from him on a just and meritorious claim, as
found by this court and the lower court, and the further fact that after such long delay, the
defendant has sought to defeat the actions by a sham and manufactured defense, as found by this
and the lower court, would arouse the suspicion of any customers the defendant ever had, and
shake their confidence in his business honor and integrity, and destroy any goodwill which he ever
did have. Under such conditions, it would be strange that the defendant would have any customers
left. He is not entitled to any compensation for the loss of goodwill, and P5,000 should be the very
limit of the amount of his damages for the wrongful attachment, and upon that point I vigorously
dissent. In all other respects, I agree with the majority opinion.
34
Vintola v. IBAA 150 SCRA 578
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 78671 March 25, 1988
SPOUSES TIRZO VINTOLA and LORETA DY VINTOLA defendants-appellants,
vs.
INSULAR BANK OF ASIA AND AMERICA, plaintiff- appellee.
CORTES, J.:
This case n on all fours with the decision of this Tribunal in G.R. No. 73271 promulgated on May 29,
1987, entitled Spouses Tirzo L. Vintola and Loreto Dy Vintola v. Insular Bank of Asia and
America (150 SCRA 578). The same issues and vittually the same facts were involved in that case
between the same parties, hence, the decision in said can foreclosure this appeal.
Spouses Tirzo Vintola and Loreta Dy Vintola, hereinafter referred to as VINTOLA'S, are the
proprietors of Dax Kin International, a company engaged in the manufacture of raw Us into finished
products.
On August 20, 1975, the VINTOLA'S applied for, and were granted, a commercial letter of credit
with the Insular Bank of Asia and America (IBAA for short), Cebu City. The letter of credit
authorized the bank to negotiate for their account, drawn in favor of one of their suppliers, Efren
Alani, on Dax Kin International in the amount of P35,000.00 to represent a shipment of a variety of
puka and olive shells. For their part the VINTOLAS promised and agreed to pay the bank at maturity
Id amount together with the usual charges.
To secure the release of the raw seashells, on the same day the VINTOLAS executed in favor of IBAA
a trust receipt agreement which was to mature on October 19, 1975.
On January 9, 1976 IBAA demanded from the VINTOLAS payment of the P35,000.00, the latter
having failed to make good their obligation. The VINTOLAS offered to return the raw seashells to
IBAA as they were unable to dispose of the same. IBAA refused to accept them.
As found by the Regional Trial Court, the VINTOLAS made several promises to IBAA to settle their
account. But due to their failure to pay their obligation, on August 4, 1977 IBAA was constrained to
institute Criminal Case No. CU-2928 for estafa under Art. 315 No. 1(b) of the Revised Penal Code in
relation to Pres. Dec. No. 115 (The Trust Receipts Law). During the trial of the criminal case, the
VINTOLAS deposited in court the various puka and olive shells. Subsequently, the VINTOLAS were
acquitted for insufficiency of evidence.
35
Thereafter IBAA brought Civil Case No. R-21103, subject of this appeal, to recover from the
VINTOLAS the P35,000.00 plus interest and other charges. On May 13, 1985, the Regional Trial
Court promulgated its decision the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered ordering the defendants to pay the
plaintiff the sum of P62,704.23 which was the outstanding account of the
defendants to the plaintiff as of September 30, 1981 and to pay legal interest on the
amount from October 1, 1981 up to the time this amount shall have been fully paid;
and ordering the defendants further to pay P6,270.00 as attorney's fees and the
costs of this action.
The VINTOLAS appealed to the Court of Appeals but upon motion filed by IBAA, the appellate court
resolved to elevate the case to the Supreme Court considering that purely questions of law are
involved. The parties agree that the sole issue involved in this case is whether or not the lower
court was correct in holding that the VINTOLAS still owe IBAA even though the goods held in trust
were not sold and IBAA never demanded for their return and even if the VINTOLAS deposited them
in court because the bank refused to accept their return.
As stated at the outset, this issue has been squarely met in the case of Vintola v. Insular Bank of Asia
and America [G.R. No. 73271, May 29, 1987, 150 SCRA 578]. In that case, involving the same parties
and essentially the same set of facts, the Supreme Court affirmed the judgment of the lower court
ordering the VINTOLAS to make payment to IBAA In disposing of the arguments raised by the
VINTOLAS, this court said:
xxx xxx xxx
Further, 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.
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 character 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.
xxx xxx xxx
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 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. "
36
Contrary to the allegation of the VINTOLAS, IBAA did not become the real owner of the
goods. It was merely the the holder of appeals 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. 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. ... [At pp. 582, 583-584,
Emphasis supplied.]
This Tribunal adopts and reiterates this ruling considering the facts and circumstances obtaining in
the aforecited and the present cases.
To support their case, the VINTOLAS argue that their return of the goods amounted to recovery by
IBAA and to order them to further make payment would be tantamount to double recovery.
According to them, "the situation is akin to an act or omission constituting both a quasi-delict under
the Civil Code and also criminal negligence under the Revised Penal Code" [Petition, p. 15], hence
they invoke the rule under Art. 2177 of the New Civil Code against double recovery.
The VINTOLAS' reliance on said provision of law is erroneous. As correctly argued by IBAA, there is
no double recovery since the bank has not yet recovered from them, The VINTOLAS' deposit in
court of the puka and olive shells does not amount to recovery by IBAA.
WHEREFORE, the decision of the trial court is AFFIRMED. SO ORDERED.
Fernan (Chairman), Gutierrez, Jr., Feliciano and Bidin, JJ., concur
37
Sia v. People, 121 SCRA 661 (1983)
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-30896 April 28, 1983
JOSE O. SIA, petitioner,
vs.
THE PEOPLE OF THE PHILIPPINES, respondent.
DE CASTRO, J.:
Petition for review of the decision of the Court of Appeals affirming the decision of the Court of First
Instance of Manila convicting the appellant of estafa, under an information which reads:
That in, about or during the period comprised' between July 24, 1963 and December
31, 1963, both dates inclusive, in the City of Manila, Philippines, the said accused did
then and there willfully, unlawfully and feloniously defraud the Continental Bank, a
banking institution duly organized and doing business in the City of Manila, in the
following manner, to wit: the said accused, in his capacity as president and general
manager of the Metal Manufacturing of the Philippines, Inc. (MEMAP) and on behalf
of said company, obtained delivery of 150 M/T Cold Rolled Steel Sheets valued at P
71,023.60 under a trust receipt agreement under L/C No. 63/109, which cold rolled
steel sheets were consigned to the Continental Bank, under the express obligation
on the part of said accused of holding the said steel sheets in trust and selling them
and turning over the proceeds of the sale to the Continental Bank; but the said
accused, once in possession of the said goods, far from complying with his aforesaid
obligation and despite demands made upon him to do so, with intent to defraud,
failed and refused to return the said cold rolled sheets or account for the proceeds
thereof, if sold, which the said accused willfully, unlawfully and feloniously
misappropriated, misapplied and converted to his own personal use and benefit, to
the damage and prejudice of the said Continental Bank in the total amount of
P146,818.68, that is the balance including the interest after deducting the sum of
P28,736.47 deposited by the said accused with the bank as marginal deposit and
forfeited by the said from the value of the said goods, in the said sum of P71,023.60.
(Original Records, p. 1).
In reviewing the evidence, the Court of Appeals came up with the following findings of facts which
the Solicitor General alleges should be conclusive upon this Court:
There is no debate on certain antecedents: Accused Jose 0. Sia sometime prior to 24
May, 1963, was General Manager of the Metal Manufacturing Company of the
38
Philippines, Inc. engaged in the manufacture of steel office equipment; on 31 May,
1963, because his company was in need of raw materials to be imported from
abroad, he applied for a letter of credit to import steel sheets from Mitsui Bussan
Kaisha, Ltd. of Tokyo, Japan, the application being directed to the Continental Bank,
herein complainant, Exhibit B and his application having been approved, the letter
of credit was opened on 5 June, 1963 in the amount of $18,300, Exhibit D; and the
goods arrived sometime in July, 1963 according to accused himself, tsn. II:7; now
from here on there is some debate on the evidence; according to Complainant Bank,
there was permitted delivery of the steel sheets only upon execution of a trust
receipt, Exhibit A; while according to the accused, the goods were delivered to him
sometime before he executed that trust receipt in fact they had already been
converted into steel office equipment by the time he signed said trust receipt, tsn.
II:8; but there is no question - and this is not debated - that the bill of exchange
issued for the purpose of collecting the unpaid account thereon having fallen due
(see Exh. B) neither accused nor his company having made payment thereon
notwithstanding demands, Exh. C and C-1, dated 17 and 27 December, 1963, and the
accounts having reached the sum in pesos of P46,818.68 after deducting his deposit
valued at P28,736.47; that was the reason why upon complaint by Continental Bank,
the Fiscal filed the information after preliminary investigation as has been said on
22 October, 1964. (Rollo [CA], pp. 103- 104).
The first issue raised, which in effect combines the first three errors assigned, is whether petitioner
Jose O. Sia, having only acted for and in behalf of the Metal Manufacturing Company of the
Philippines (Metal Company, for short) as President thereof in dealing with the complainant, the
Continental Bank, (Bank for short) he may be liable for the crime charged.
In discussing this question, petitioner proceeds, in the meantime, on the assumption that the acts
imputed to him would constitute the crime of estafa, which he also disputes, but seeks to avoid
liability on his theory that the Bank knew all along that petitioner was dealing with him only as an
officer of the Metal Company which was the true and actual applicant for the letter of credit (Exhibit
B) and which, accordingly, assumed sole obligation under the trust receipt (Exhibit A). In disputing
the theory of petitioner, the Solicitor General relies on the general principle that when a
corporation commits an act which would constitute a punishable offense under the law, it is the
responsible officers thereof, acting for the corporation, who would be punished for the crime, The
Court of Appeals has subscribed to this view when it quoted approvingly from the decision of the
trial court the following:
A corporation is an artificial person, an abstract being. If the defense theory is
followed unscrupulously legions would form corporations to commit swindle right
and left where nobody could be convicted, for it would be futile and ridiculous to
convict an abstract being that can not be pinched and confined in jail like a natural,
living person, hence the result of the defense theory would be hopeless chose in
business and finance. It is completely untenable. (Rollo [CA], p. 108.)
The above-quoted observation of the trial court would seem to be merely restating a general
principle that for crimes committed by a corporation, the responsible officers thereof would
personally bear the criminal liability. (People vs. Tan Boon Kong, 54 Phil. 607. See also Tolentino,
Commercial Laws of the Philippines, p. 625, citing cases.)
39
The case cited by the Court of Appeals in support of its stand-Tan Boon Kong case, supra-may
however not be squarely applicable to the instant case in that the corporation was directly required
by law to do an act in a given manner, and the same law makes the person who fails to perform the
act in the prescribed manner expressly liable criminally. The performance of the act is an obligation
directly imposed by the law on the corporation. Since it is a responsible officer or officers of the
corporation who actually perform the act for the corporation, they must of necessity be the ones to
assume the criminal liability; otherwise this liability as created by the law would be illusory, and
the deterrent effect of the law, negated.
In the present case, a distinction is to be found with the Tan Boon Kong case in that 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. The
intention of the parties, therefore, is a factor determinant of whether a crime was committed or
whether a civil obligation alone intended by the parties. With this explanation, the distinction
adverted to between the Tan Boon Kong case and the case at bar should come out clear and
meaningful. 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. The maxim that all doubts must be resolved in favor of the accused is always of compelling
force in the prosecution of offenses. This Court has thus far not ruled on the criminal liability of an
officer of a corporation signing in behalf of said corporation a trust receipt of the same nature as
that involved herein. In the case of Samo vs. People, L-17603-04, May 31, 1962, the accused was not
clearly shown to be acting other than in his own behalf, not in behalf of a corporation.
The next question is whether the violation of a trust receipt constitutes estafa under Art. 315 (1[2]) of the Revised Penal Code, as also raised by the petitioner. We now entertain grave doubts, in
the light of the promulgation of P.D. 115 providing for the regulation of trust receipts transaction,
which is a very comprehensive piece of legislation, and includes an express provision that if the
violation or offense is committed by a corporation, partnership, association or other juridical
entities the penalty provided for in this Decree shall be imposed upon the directors, officers,
employees or other officials or persons therein responsible for the offense, without prejudice to
civil liabilities arising from the criminal offense. The question that suggests itself is, therefore,
whether the provisions of the Revised Penal Code, Article 315, par. 1 (b) are not adequate to justify
the punishment of the act made punishable by P.D. 115, that the necessity was felt for the
promulgation of the decree. To answer this question, it is imperative to make an indepth analysis of
the conditions usually embodied in a trust receipt to best their legal sufficiency to constitute the
basis for holding the violation of said conditions as estafa under Article 315 of the Revised Penal
Code which P.D. 115 now seeks to punish expressly.
As executed, the trust receipt in question reads:
I/WE HEREBY AGREE TO HOLD SAID GOODS IN TRUST FOR THE SAID BANK as its
property with liberty to sell the same for its account but without authority to make
any other disposition whatsoever of the said goods or any part thereof (or the
proceeds thereof) either way of conditional sale, pledge or otherwise;
40
In case of sale I/we further agree to hand the proceeds as soon as received to the
BANK to apply against the relative acceptance (as described above) and for the
payment of any other indebtedness of mine/ours to CONTINENTAL BANK. (Original
Records, p. 108)
One view is to consider the transaction as merely that of a security of a loan, and that the trust
element is but and inherent feature of the security aspect of the arrangement where the goods are
placed in the possession of the "entrustee," to use the term used in P.D. 115, violation of the element
of trust not being intended to be in the same concept as how it is understood in the criminal sense.
The other view is that the bank as the owner and "entrustor" delivers the goods to the "entrustee, "
with the authority to sell the goods, but with the obligation to give the proceeds to the "entrustor"
or return the goods themselves if not sold, a trust being thus created in the full sense as
contemplated by Art. 315, par. 1 (b).
We consider the view that the trust receipt arrangement gives rise only to civil liability as the more
feasible, before the promulgation of P.D. 115. The transaction being contractual, the intent of the
parties should govern. Since the trust receipt has, by its nature, to be executed upon the arrival of
the goods imported, and acquires legal standing as such receipt only upon acceptance by the
"entrustee," the trust receipt transaction itself, the antecedent acts consisting of the application of
the L/C, the approval of the L/C and the making of the marginal deposit and the effective
importation of the goods, all through the efforts of the importer who has to find his supplier,
arrange for the payment and shipment of the imported goods-all these circumstances would negate
any intent of subjecting the importer to criminal prosecution, which could possibly give rise to a
case of imprisonment for non-payment of a debt. The parties, therefore, are deemed to have
consciously entered into a purely commercial transaction that could give rise only to civil liability,
never to subject the "entrustee" to criminal prosecution. Unlike, for instance, when several pieces of
jewelry are received by a person from the owner for sale on commission, and the former
misappropriates for his personal use and benefit, either the jewelries or the proceeds of the sale,
instead of returning them to the owner as is his obligation, the bank is not in the same concept as
the jewelry owner with full power of disposition of the goods, which the bank does not have, 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
really 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, a feature totally absent in the case of the transaction
between the jewel-owner and his agent.
Consequently, if only from the fact that the trust receipt transaction is susceptible to two
reasonable interpretation, one as giving rise only to civil liability for the violation of the condition
thereof, and the other, as generating also criminal liability, the former should be adopted as more
favorable to the supposed offender. (Duran vs. CA, L-39758, May 7, 1976, 71 SCRA 68; People vs.
Parayno, L-24804, July 5, 1968, 24 SCRA 3; People vs. Abendan, L-1481, January 28,1949,82 Phil.
711; People vs. Bautista, L-1502, May 24, 1948, 81 Phil. 78; People vs. Abana, L-39, February 1,
1946, 76 Phil. 1.)
There is, moreover, one circumstance appearing on record, the significance of which should be
properly evaluated. As stated in petitioner's brief (page 2), not denied by the People, "before the
41
Continental Bank approved the application for a letter of credit (Exhibit 'D'), subsequently covered
by the trust receipt, the Continental Bank examined the financial capabilities of the applicant, Metal
Manufacturing Company of the Philippines because that was the bank's standard procedure
(Testimony of Mr. Ernesto Garlit, Asst. Manager of the Foreign Department, Continental Bank, t.s.n.,
August 30, 1965). The Continental Bank did not examine the financial capabilities of herein
petitioner, Jose O. Sia, in connection with the same letter of credit. (Ibid). " From this fact, it would
appear as positively established that the intention of the parties in entering into the "trust receipt"
agreement is merely to afford a stronger security for the loan evidenced by the letter of credit, may
be not as an ordinary pledge as observed in P.N.B. vs. Viuda e Hijos de Angel Jose, et al., 63 Phil. 814,
citing In re Dunlap C (206 Fed. 726) but neither as a transaction falling under Article 315-1 (b) of
the Revised Penal Code giving rise to criminal liability, as previously explained and demonstrated.
It is worthy of note that the civil liability imposed by the trust receipt is exclusively on the Metal
Company. Speaking of such liability alone, as one arising from the contract, as distinguished from
the civil liability arising out of a crime, 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. This is made clearly so
upon consideration of the fact that in the violation of the trust agreement and in the absence of
positive evidence to the contrary, only the corporation benefited, not the petitioner personally, yet,
the allegation of the information is to effect that the misappropriation or conversion was for the
personal use and benefit of the petitioner, with respect to which there is variance between the
allegation and the evidence.
It is also worthy of note that while the trust receipt speaks of authority to sell, the fact is undisputed
that the imported goods were to be manufactured into finished products first before they could be
sold, as the Bank had full knowledge of. This fact is, however, not embodied in the trust agreement,
thus impressing on the trust receipt vagueness and ambiguity which should not be the basis for
criminal prosecution, in the event of a violation of the terms of the trust receipt. Again, P.D. 115 has
express provision relative to the "manufacture or process of the good with the purpose of ultimate
sale," as a distinct condition from that of "to sell the goods or procure their sale" (Section 4, (1).
Note that what is embodied in the receipt in question is the sale of imported goods, the manufacture
thereof not having been mentioned. The requirement in criminal prosecution, that there must be
strict harmony, not variance, between the allegation and the evidence, may therefore, not be said to
have been satisfied in the instance case.
FOR ALL THE FOREGOING, We reverse the decision of the Court of Appeals and hereby acquit the
petitioner, with costs de oficio.
SO ORDERED.
Concepcion, Jr., Guerrero, Vasquez, Relova and Gutierrez, JJ., concur.
Fernando, CJ., Escolin, Plana, Abad Santos, JJ., concur in the result.
42
Separate Opinions
TEEHANKEE, J., concurring:
In concur. Petitioner personally cannot be charged and convicted for the crime of estafa for failure
of the corporation(MEMAP) represented by him as president and general manager to pay "the
balance of P46,818.68 .... including the interest after deducting the sum of P28,736.47" which sum,
according to the very information, it was "deposited by the said accused with the [Continental] bank
as marginal deposit and forfeited by the said bank from the value of said goods, in the said sum of P
71,023.60" representing the value of the cold rolled steel sheets imported by the corporation with
the bank's financing under its letter of credit and released to the importer corporation under trust
receipt in favor of the bank.
All these acts were corporate acts with the accused duly representing the corporation as its
president and general manager: the application for bank financing, the deposit (which was
from corporate funds, and not a deposit made by the petitioner, as wrongly alleged in the
information), the receipt of the steel sheets, then manufactured into finished products (which could
not technically be done under the terms of the trust receipt required by the bank, under which the
very sheets were supposed to be sold by the corporation) and the non-payment of the credit
extended by the bank. There is not the slightest evidence nor intimation that these corporate acts
were unauthorized or that petitioner personally had committed any fraud or deceit in connection
therewith or that he had personallybeen responsible for or benefited from the corporation's failure
to pay the bank the balance due under the trust receipt.
In the recent case of People vs. Cuevo, G. R. No. L-27607, decided by the Court on May 7, 1981, the
Court, for lack of necessary votes, affirmed the dismissal of the same charge of estafa, for nonpayment of the debt evidenced by the trust receipt, by the trial court presided by Judge Ruperto
Kapunan, Jr. who ruled that "the holder of a trust receipt who disposed of the goods covered
thereby and in violation of its terms, failed to deliver to the bank the proceeds of the sale as
payment of the debt secured by the trust receipt" incurs only civil and not criminal liability for nonpayment of the debt thus incurred. I reiterate my separate opinion therein supporting the more
liberal interpretation that the trust receipt transaction "gives rise only to civil liability on the part of
the offender" and holding that the very definition of a trust receipt, to wit," ' (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' (53 Am. Jr. 961, cited in Samo vs. People, 115 Phil. 346, 349), sustains the
lower court's rationale in dismissing the information that the contract covered by a trust receipt
is merely a secured loan. The goods imported by the small importer and retail dealer through the
bank's financing remain of their own property and risk and the old capitalist orientation of putting
them in jail for estafa for non-payment of the secured loan (granted after they had been fully
investigated by the bank as good credit risks) through the fiction of the trust receipt device should
no longer be permitted in this day and age." **
The charge in the case at bar against petitioner-accused must accordingly be dismissed.
MELENCIO-HERRERA, J., concurring and dissenting:
43
I dissent in so far as the Decision states that violation of the terms of a trust receipt does not
constitute Estafa under Art. 315, par. 1 (b) of the Revised Penal Code, for being contrary to the
rulings in People vs. Yu Chai Ho, 53 Phil. 874 (1928); PNB vs. Arrozal, 103 Phil. 213 (1958),
and Samo vs. People, 5 SCRA 355 (1962).
I concur in so far as the Decision holds that petitioner should not be held liable for the crime of
Estafa considering that in the cases above enumerated, the persons who executed the trust receipts
acted in their own individual capacities unlike in this case where petitioner acted for and on behalf
of the Metal Manufacturing Company, as its General Manager, and was presumably authorized to do
so. This Court has not as yet laid down a ruling on the criminal liability of a corporation officer
signing a trust receipt on behalf of the corporation, a trust receipt being essentially a financing
transaction. It was only upon the promulgation of PD 115 on January 29, 1973 that responsible
directors, officers, employees or other officials of a corporation, partnership, associations or other
juridical entities are made expressly responsible for violation of the terms of a trust receipt
agreement committed by said corporation, partnership, association or other juridical entities.
Makasiar, J., dissent. The C.A. decision should be affirmed.
Aquino, J., dissent. I vote for the affirmance of the judgement of the C.A.
Separate Opinions
TEEHANKEE, J., concurring:
In concur. Petitioner personally cannot be charged and convicted for the crime of estafa for failure
of the corporation(MEMAP) represented by him as president and general manager to pay "the
balance of P 46,818.68 .... including the interest after deducting the sum of P 28,736.47" which sum,
according to the very information, it was "deposited by the said accused with the [Continental] bank
as marginal deposit and forfeited by the said bank from the value of said goods, in the said sum of P
71,023.60" representing the value of the cold rolled steel sheets imported by the corporation with
the bank's financing under its letter of credit and released to the importer corporation under trust
receipt in favor of the bank.
All these acts were corporate acts with the accused duly representing the corporation as its
president and general manager: the application for bank financing, the deposit (which was
from corporate funds, and not a deposit made by the petitioner, as wrongly alleged in the
information), the receipt of the steel sheets, then manufactured into finished products (which could
not technically be done under the terms of the trust receipt required by the bank, under which the
very sheets were supposed to be sold by the corporation) and the non-payment of the credit
extended by the bank. There is not the slightest evidence nor intimation that these corporate acts
were unauthorized or that petitioner personally had committed any fraud or deceit in connection
44
therewith or that he had personallybeen responsible for or benefited from the corporation's failure
to pay the bank the balance due under the trust receipt.
In the recent case of People vs. Cuevo, G. R. No. L-27607, decided by the Court on May 7, 1981, the
Court, for lack of necessary votes, affirmed the dismissal of the same charge of estafa, for nonpayment of the debt evidenced by the trust receipt, by the trial court presided by Judge Ruperto
Kapunan, Jr. who ruled that "the holder of a trust receipt who disposed of the goods covered
thereby and in violation of its terms, failed to deliver to the bank the proceeds of the sale as
payment of the debt secured by the trust receipt" incurs only civil and not criminal liability for nonpayment of the debt thus incurred. I reiterate my separate opinion therein supporting the more
liberal interpretation that the trust receipt transaction "gives rise only to civil liability on the part of
the offender" and holding that the very definition of a trust receipt, to wit," ' (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' (53 Am. Jr. 961, cited in Samo vs. People, 115 Phil. 346, 349), sustains the
lower court's rationale in dismissing the information that the contract covered by a trust receipt
is merely a secured loan. The goods imported by the small importer and retail dealer through the
bank's financing remain of their own property and risk and the old capitalist orientation of putting
them in jail for estafa for non-payment of the secured loan (granted after they had been fully
investigated by the bank as good credit risks) through the fiction of the trust receipt device should
no longer be permitted in this day and age."*
The charge in the case at bar against petitioner-accused must accordingly be dismissed.
MELENCIO-HERRERA, J., concurring and dissenting:
I dissent in so far as the Decision states that violation of the terms of a trust receipt does not
constitute Estafa under Art. 315, par. 1 (b) of the Revised Penal Code, for being contrary to the
rulings in People vs. Yu Chai Ho, 53 Phil. 874 (1928); PNB vs. Arrozal, 103 Phil. 213 (1958), and
Samo vs. People, 5 SCRA 355 (1962).
I concur in so far as the Decision holds that petitioner should not be held liable for the crime of
Estafa considering that in the cases above enumerated, the persons who executed the trust receipts
acted in their own individual capacities unlike in this case where petitioner acted for and on behalf
of the Metal Manufacturing Company, as its General Manager, and was presumably authorized to do
so. This Court has not as yet laid down a ruling on the criminal liability of a corporation officer
signing a trust receipt on behalf of the corporation, a trust receipt being essentially a financing
transaction. It was only upon the promulgation of PD 115 on January 29, 1973 that responsible
directors, officers, employees or other officials of a corporation, partnership, associations or other
juridical entities are made expressly responsible for violation of the terms of a trust receipt
agreement committed by said corporation, partnership, association or other juridical entities.
Makasiar, J., dissent.
Aquino, J., dissent.
45
Separate Opinions
TEEHANKEE, J., concurring:
In concur. Petitioner personally cannot be charged and convicted for the crime of estafa for failure
of the corporation(MEMAP) represented by him as president and general manager to pay "the
balance of P 46,818.68 .... including the interest after deducting the sum of P 28,736.47" which sum,
according to the very information, it was "deposited by the said accused with the [Continental] bank
as marginal deposit and forfeited by the said bank from the value of said goods, in the said sum of P
71,023.60" representing the value of the cold rolled steel sheets imported by the corporation with
the bank's financing under its letter of credit and released to the importer corporation under trust
receipt in favor of the bank.
All these acts were corporate acts with the accused duly representing the corporation as its
president and general manager: the application for bank financing, the deposit (which was
from corporate funds, and not a deposit made by the petitioner, as wrongly alleged in the
information), the receipt of the steel sheets, then manufactured into finished products (which could
not technically be done under the terms of the trust receipt required by the bank, under which the
very sheets were supposed to be sold by the corporation) and the non-payment of the credit
extended by the bank. There is not the slightest evidence nor intimation that these corporate acts
were unauthorized or that petitioner personally had committed any fraud or deceit in connection
therewith or that he had personallybeen responsible for or benefited from the corporation's failure
to pay the bank the balance due under the trust receipt.
In the recent case of People vs. Cuevo, G. R. No. L-27607, decided by the Court on May 7, 1981, the
Court, for lack of necessary votes, affirmed the dismissal of the same charge of estafa, for nonpayment of the debt evidenced by the trust receipt, by the trial court presided by Judge Ruperto
Kapunan, Jr. who ruled that "the holder of a trust receipt who disposed of the goods covered
thereby and in violation of its terms, failed to deliver to the bank the proceeds of the sale as
payment of the debt secured by the trust receipt" incurs only civil and not criminal liability for nonpayment of the debt thus incurred. I reiterate my separate opinion therein supporting the more
liberal interpretation that the trust receipt transaction "gives rise only to civil liability on the part of
the offender" and holding that the very definition of a trust receipt, to wit," ' (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' (53 Am. Jr. 961, cited in Samo vs. People, 115 Phil. 346, 349), sustains the
lower court's rationale in dismissing the information that the contract covered by a trust receipt
is merely a secured loan. The goods imported by the small importer and retail dealer through the
bank's financing remain of their own property and risk and the old capitalist orientation of putting
them in jail for estafa for non-payment of the secured loan (granted after they had been fully
investigated by the bank as good credit risks) through the fiction of the trust receipt device should
no longer be permitted in this day and age."*
The charge in the case at bar against petitioner-accused must accordingly be dismissed.
MELENCIO-HERRERA, J., concurring and dissenting:
46
I dissent in so far as the Decision states that violation of the terms of a trust receipt does not
constitute Estafa under Art. 315, par. 1 (b) of the Revised Penal Code, for being contrary to the
rulings in People vs. Yu Chai Ho, 53 Phil. 874 (1928); PNB vs. Arrozal, 103 Phil. 213 (1958), and
Samo vs. People, 5 SCRA 355 (1962).
I concur in so far as the Decision holds that petitioner should not be held liable for the crime of
Estafa considering that in the cases above enumerated, the persons who executed the trust receipts
acted in their own individual capacities unlike in this case where petitioner acted for and on behalf
of the Metal Manufacturing Company, as its General Manager, and was presumably authorized to do
so. This Court has not as yet laid down a ruling on the criminal liability of a corporation officer
signing a trust receipt on behalf of the corporation, a trust receipt being essentially a financing
transaction. It was only upon the promulgation of PD 115 on January 29, 1973 that responsible
directors, officers, employees or other officials of a corporation, partnership, associations or other
juridical entities are made expressly responsible for violation of the terms of a trust receipt
agreement committed by said corporation, partnership, association or other juridical entities.
Makasiar, J., dissent.
Aquino, J., dissent.
47
Gonzales v. Go Tiong and Luzon Surety, 104 Phil 492 (1958)
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-11776
August 30, 1958
RAMON GONZALES, plaintiff-appellee,
vs.
GO TIONG and LUZON SURETY CO., INC., defendants-appellants.
Rustico V. Nazareno for appellee.
David, Abel and Ysip for appellant Go Tiong.
Tolentino, Garcia and D. R. Cruz for appellant Luzon Surety Co., Inc.
MONTEMAYOR, J.:
Defendants Go Tiong and Luzon Surety Co. are appealing from the decision of the Court of First
Instance of Manila, Judge Magno S. Gatmaitan presiding, the dispositive part of which reads as
follows:
In view whereof, judgment is rendered condemning defendant Go Tiong and Luzon Surety
Co., jointly and severally, to pay plaintiff the sum of P4,920 with legal interest from the date
of the filing of the complaint until fully paid; judgment is also rendered against Go Tiong to
pay the sum of P3,680 unto plaintiff, also with legal interest from the date of the filing of the
complaint until fully paid. Go Tiong is also condemned to pay the sum of P1,000 as
attorney's fees, plus costs.
The appeal was first taken to the Court of Appeals, the latter indorsing the case to us later under the
provisions of Section 17 (6) of Republic Act No. 296, on the ground that the issues raised were
purely questions of law.
Go Tiong owned a rice mill and warehouse, located at Mabini, Urdaneta, Pangasinan. On February 4,
1953, he obtained a license to engage in the business of a bonded warehouseman (Exhibit N). To
secure the performance of his obligations as such bonded warehouseman, the Luzon Surety Co.
executed Guaranty Bond No. 294 in the sum of P18,334 (Exhibit O), conditioned particularly on the
fulfillment by Go Tiong of his duty or obligation to deliver to the depositors in his storage
warehouse, the palay received by him for storage, at any time demand is made, or to pay the market
value thereof, in case he was unable to return the same. The bond was executed on January 26,
1953. Go 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 Go Tiong to operate as bonded warehouseman, he had on
several occasions received palay for deposit from plaintiff Gonzales, totaling 368 sacks, for which he
issued receipts, Exhibits A, B, C, and D. After he was licensed as bonded warehouseman, Go Tiong
48
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.
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.
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).
After the burning of the warehouse, the depositors of palay, including plaintiff, filed their claims
with the Bureau of Commerce, and it would appear that with the proceeds of the insurance policy,
the Bureau of Commerce paid off some of the claim. Plaintiff's counsel later withdrew his claim with
the Bureau of Commerce, according to Go Tiong, because his claim was denied by the Bureau, but
according to the decision of the trial court, because 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. Gonzales later renewed his claim with the Bureau of Commerce (Exhibit
S).
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. Inasmuch as Go Tiong failed
to settle the accounts, Gonzales prosecuted his court action..
For purposes of reference, we reproduce the assignment of errors of Go Tiong, as well as the
assignment of errors of the Luzon Surety, all reading thus:
I. The trial court erred in finding that plaintiff-appellee's claim is covered by the Bonded
Warehouse Law, Act 3893, as amended, and not by the Civil Code.
II. The trial court erred in not exempting defendant-appellant Go Tiong for the loss of the
palay deposited, pursuant to the provisions of the New Civil Code.".
xxx
xxx
xxx
I. The trial court erred in not declaring that the amicable settlement by and between
plaintiff-appellee and defendant Go Tiong constituted a material alteration of the surety
bond of appellant Luzon Surety which extinguished and discharged its liability.
II. The trial court erred in bolding that the receipts for the palay received by Go Tiong,
though not in the form of "quedans" or warehouse receipts are chargeable against the
surety bond filed under the provisions of the General Bonded Warehouse Act (Act No. 3893
as amended by Republic Act No. 247) as a result of a loss.
III. The trial court erred in not holding that the plaintiff had renounced and abandoned his
rights under the Bonded Warehouse Act by the withdrawal of his claim from the Bureau of
Commerce and the execution of the "amicable settlement".
49
IV. The trial court erred in not holding that the palay delivered to Go Tiong constitutes
gratuitous deposit which was extinguished upon the loss and destruction of the subject
matter.
V. The trial court erred in not declaring that the transaction between defendant Go Tiong
and plaintiff was more of a sale rather than a deposit.
VI. The trial court erred in declaring that the Luzon Surety Co., Inc., had not complied with
its undertaking despite the liquidation of all the claims by the Bureau of Commerce.
VII. The lower court erred in adjudging the herein surety liable under the terms of the Bond.
We shall discuss the assigned errors at the same time, considering the close relation between them,
although we do not propose to discuss and rule upon all of them. Both appellants urge that
plaintiff's claim is governed by the Civil Code and not by the Bonded Warehouse Act (Act No. 3893,
as amended by Republic Act No. 247), for the reason that, as already stated, what Go Tiong issued to
plaintiff were ordinary receipts, not the warehouse receipts contemplated by the Warehouse
Receipts Law, and because the deposits of palay of plaintiff were gratuitous.
Act No. 3893 as amended is a special law regulating the business of receiving commodities for
storage and defining the rights and obligations of a bonded warehouseman and those transacting
business with him. Consequently, any deposit made with him 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. Though it is desirable that receipts
issued by a bonded warehouseman should conform to the provisions of the Warehouse Receipts
Law, said provisions in our opinion are not mandatory and indispensable in the sense that if they
fell short of the requirements of the Warehouse Receipts Act, then the commodities delivered for
storage become ordinary deposits and will not be governed by the provisions of the Bonded
Warehouse Act. Under Section 1 of the Warehouse Receipts Act, one would gather the impression
that the issuance of a warehouse receipt in the form provided by it is merely permissive and
directory and not obligatory:
SECTION 1. Persons who may issue receipts. — Warehouse receipts may be issued by any
warehouseman.,
and the Bonded Warebouse Act as amended permits the warehouseman to issue any receipt, thus:
. . . . "receipt" 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.
As to the contention that the deposits made by the plaintiff were free because he paid no fees
therefor, it would appear that Go Tiong induced plaintiff to deposit his palay in the warehouse free
of charge in order to promote his business and to attract other depositors, it being understood that
50
because of this accommodation, plaintiff would convince other palay owners to deposit with Go
Tiong.
Appellants contend that the burning of the warehouse was a fortuitous event and not due to any
fault of Go Tiong and that consequently, he should not be held liable, appellants supporting the
contention with the ruling in the case of La Sociedad Dalisay vs. De los Reyes, 55 Phil. 452, reading as
follows:
Inasmuch as the fire, according to the judgment appealed from, was neither intentional nor
due to the negligence of the appellant company or its officials; and it appearing from the
evidence that the then manager attempted to save the palay, the appellant company should
not be held responsible for damages resulting from said fire. . . . .
The trial court correctly disposed of this same contention, thus:
The defense that the palay was destroyed by fire neither does the Court consider to be good
for while the contract was in the nature of a deposit and the loss of the thing would exempt
the obligor in a contract of deposit to return the goods, this exemption from the
responsibility for the damages must be conditioned in his proof that the loss was by force
majeure, and without his fault. The Court does not see from the evidence that the proof is
clear on the legal exemption. On the contrary, the fact that he exceeded the limit of the
authorized deposit must have increased the risk and would militate against his defense of
non-liability. For this reason, the Court does not follow La Sociedad vs. De Los Santos, 55
Phil. 42 quoted by Go Tiong. (p. 3, Decision).
Considering the fact, as already stated, that prior to the burning of the warehouse, plaintiff
demanded the payment of the value of his palay from Go Tiong on two occasions but was put off
without any valid reason, under the circumstances, the better rule which we accept is the following:
. . . . This rule proceeds upon the theory that the facts surrounding the care of the property
by a bailee are peculiarly within his knowledge and power to prove, and that the
enforcement of any other rule would impose great difficulties upon the bailors. ... It is
illogical and unreasonable to hold that the presumption of negligence in case of this kind is
rebutted by the bailee by simply proving that the property bailed was destroyed by an
ordinary fire which broke out on the bailee's own premises, without regard to the care
exercised by the latter to prevent the fire, or to save the property after the commencement
of the fire. All the authorities seem to agree that the rule that there shall be a presumption
of negligence in bailment cases like the present one, where there is default in delivery or
accounting, for the goods is just a necessary one. . . . (9 A.L.R. 566; see also Hanes vs. Shapiro,
84 S.E. 33; J. Russel Mfg. Co. vs. New Haven, S.B. Co., 50 N.Y. 211; Beck vs.Wilkins-Ricks Co.,
102 S.E. 313, Fleishman vs. Southern R. Co., 56 S.E. 974).
Besides, as observed by the trial court, the defendant violated the terms of his license by accepting
for deposit palay in excess of the limit authorized by his license, which fact must have increased the
risk.
The Luzon Surety claims that the amicable settlement by and between Gonzales and Go Tiong
constituted a material alteration of its bond, thereby extinguishing and discharging its liability. It is
evident, however, that while there was an attempt to settle the case amicably, the settlement was
51
never consummated because Go Tiong failed to settle the accounts of Gonzales to the latter's
satisfaction. Consequently, said non-consummated compromise settlement does not discharge the
surety:
A compromise or settlement between the creditor or obligee and the principal, by which the
latter is discharged from liability, discharges the surety, . . . . But an unconsummated . . .
agreement to compromise, falling short of an effective settlement, will not discharge the
surety. (50 C. J. 185)
In relation to the failure of Go Tiong to issue the warehouse receipts contemplated by the
Warehouse Receipts Act, which failure, according to appellants, precluded plaintiff from suing on
the bond, reference may be made to Section 2 of Act No. 3893, defining receipt as any receipt issued
by a warehouseman for commodity delivered to him, showing that the law does not require as
indispensable that a warehouse receipt be issued. 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. In
the case of Andreson vs. Krueger, 212 N.W. 198, 199, it was held:
The surety company concedes that the bond which it gave contains the statutory conditions.
The statute . . . requires that the bond — shall be conditioned upon the faithful performance
of the public local grain warehouseman of all the provisions of law relating to the storage of
grain by such warehouseman.
The surety company thereby made itself responsible for the performance by the
warehouseman of all the duties and obligations imposed upon him by the statute; and, if he
failed to perform any such duty to the loss or detriment of those who delivered grain for
storage, the surety company became liable therefor. Where the warehouseman receives
grain for storage and refuses to return or pay it, the fact that he failed to issue the receipt,
when the statute required him to issue on receiving it, is not available to the surety as a
defense against an action on the bond. The obligation of the surety covers the duty of the
warehouseman to issue the prescribed receipt, as well as the other duties imposed upon
him by the statute.
We deem it unnecessary to discuss and rule upon the other questions raised in the appeal.
In view of the foregoing, the appealed decision is hereby affirmed, with costs.
Paras, C. J., Padilla, Reyes, A., Bautista Angelo, Concepcion, Endencia, Reyes, J.B.L., and Felix, JJ., concur.
Bengzon, J., concurs in the result.
52
Consolidated Terminals v. Artex Dev’t. Co., 63 SCRA 46 (1975)
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-25748 March 10, 1975
CONSOLIDATED TERMINALS, INC., plaintiff-appellant,
vs.
ARTEX DEVELOPMENT CO., INC., defendant-appellee.
Pelaez, Jalandoni and Jamir for plaintiff-appellant.
Norberto J. Quisumbing and Humberto V. Quisumbing for defendant-appellee.
AQUINO, J.:ñé+.£ªwph!1
Consolidated Terminals, Inc. (CTI) appealed from the order of Judge Jesus Y. Perez of the Court of
First Instance of Manila, dismissing its amended complaint for damages against Artex Development
Co., Inc. (Artex for short). The dismissal was predicated on lack of cause of action.
The following ultimate facts, which were hypothetically admitted in the motion to dismiss, were
alleged in the amended complaint:
CTI was the operator of a customs bonded warehouse located at Port Area, Manila. It received on
deposit one hundred ninety-three (193) bales of high density compressed raw cotton valued at
P99,609.76. 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, Adolph Hanslik Cotton of Corpus Christi, Texas.
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 November 5 and 6, 1964
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. (That delivery permit, Annex A of the complaint, was not
included by CTI in its record on appeal).
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.
53
It should be clarified that CTI in its affidavit for manual delivery of personal property (Annex B of
its complaint not included in its record on appeal) and in paragraph 7 of its original complaint
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 (14-15, Record on Appeal). No
copy of the rescissory agreement was attached to Artex's motion to dismiss.
In sustaining Artex's motion to dismiss, which CTI did not oppose in writing, Judge Perez
said:têñ.£îhqwâ£
Since the plaintiff (CTI) is only a warehouseman and according to the amended
complaint, plaintiff was already paid the warehousing and handling charges of the
193 bales of high density compressed raw cotton mentioned in the complaint, the
plaintiff can no longer recover for its services as warehouseman.
The fact that the delivery of the goods was obtained by the defendant without
opening the corresponding letter of credit cannot be the basis of a cause of action of
the plaintiff because such failure of the defendant to open the letter of credit gives
rise to a cause of action in favor of the shipper of the goods and not in favor of the
plaintiff.
With respect to the allegation of the amended complaint that the goods were taken
by the defendant without paying the customs duties and other revenues (sic)
assessed thereon, this does not give rise to a cause of action in favor of the plaintiff
for the party aggrieved is the government.
Likewise, the alleged presentation of a forged permit to deliver imported goods by
the defendant did not give rise to a cause of action in favor of the plaintiff but in
favor of the Bureau of Customs and of the consignee. (18-19, Record on Appeal).
Judge Perez was guided more by logic and common sense than by any specific rule of law or
jurisprudence.
CTI in this appeal contends that, as warehouseman, it was entitled to the possession (should be
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
54
Revenue with 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?
In other words, on the basis of the allegations of the amended complaint, the lower court could not
render a valid judgment in accordance with the prayer thereof. It could not render such valid
judgment because the amended complaint did not unequivocally allege what right of CTI was
violated by Artex, or, to use the familiar language of adjective law, what delict or wrong was
committed by Artex against CTI which would justify the latter in recovering the value of bales of
cotton even if it was not the owner thereof. (See Ma-ao Sugar Central Co., Inc. vs. Barrios, 79 Phil.
666; 1 Moran's Comments on the Rules of Court, 1970 Ed., pp. 259, 495).
WHEREFORE, the order of dismissal is affirmed with costs against the plaintiff-appellant.
SO ORDERED.
Makalintal, C.J., Barredo, Antonio and Fernandez, JJ., concur.1äwphï1.ñët
Fernando, J., took no part.
55
Mode of Extinguishment
Roman Catholic Bishop v. de la Pena, 26 Phil 144 (1913)
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-6913
November 21, 1913
THE ROMAN CATHOLIC BISHOP OF JARO, plaintiff-appellee,
vs.
GREGORIO DE LA PEÑA, administrator of the estate of Father Agustin de la Peña, defendantappellant.
J. Lopez Vito, for appellant.
Arroyo and Horrilleno, for appellee.
MORELAND, J.:
This is an appeal by the defendant from a judgment of the Court of First Instance of Iloilo, 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.
While there is considerable dispute in the case over the question whether the P6,641 of trust funds
was included in the P19,000 deposited as aforesaid, nevertheless, a careful examination of the case
leads us to the conclusion that said trust funds were a part of the funds deposited and which were
removed and confiscated by the military authorities of the United States.
56
That branch of the law known in England and America as the law of trusts had no exact counterpart
in the Roman law and has none under the Spanish law. 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 the 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. 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.
We do not enter into a discussion for the purpose of determining whether he acted more or less
negligently by depositing the money in the bank than he would if he had left it in his home; or
whether he was more or less negligent by depositing the money in his personal account than he
would have been if he had deposited it in a separate account as trustee. We regard such discussion
as substantially fruitless, inasmuch as the precise question is not one of negligence. 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 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.
The judgment is therefore reversed, and it is decreed that the plaintiff shall take nothing by his
complaint.
Arellano, C.J., Torres and Carson, JJ., concur.
Separate Opinions
57
TRENT, J., dissenting:
I dissent. Technically speaking, whether Father De la Peña was a trustee or an agent of the plaintiff
his books showed that in 1898 he had in his possession as trustee or agent the sum of P6,641
belonging to the plaintiff as the head of the church. This money was then clothed with all the
immunities and protection with which the law seeks to invest trust funds. But when De la Peña
mixed this trust fund with his own and deposited the whole in the bank to hispersonal account or
credit, he by this act stamped on the said fund his own private marks and unclothed it of all the
protection it had. If this money had been deposited in the name of De la Peña as trustee or agent of
the plaintiff, I think that it may be presumed that the military authorities would not have
confiscated it for the reason that they were looking for insurgent funds only. Again, the plaintiff had
no reason to suppose that De la Peña would attempt to strip the fund of its identity, nor had he said
or done anything which tended to relieve De la Peña from the legal reponsibility which pertains to
the care and custody of trust funds.
The Supreme Court of the United States in the United State vs. Thomas (82 U. S., 337), at page 343,
said: "Trustees are only bound to exercise the same care and solicitude with regard to the trust
property which they would exercise with regard to their own. Equity will not exact more of them.
They are not liable for a loss by theft without their fault. But this exemption ceases when they mix
the trust-money with their own, whereby it loses its identity, and they become mere debtors."
If this proposition is sound and is applicable to cases arising in this jurisdiction, and I entertain no
doubt on this point, the liability of the estate of De la Peña cannot be doubted. But this court in the
majority opinion says: "The fact that he (Agustin de la Peña) 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, by reason of the deposit."
I assume that the court in using the language which appears in the latter part of the above quotation
meant to say that there was no statutory law regulating the question. Questions of this character
are not usually governed by statutory law. The law is to be found in the very nature of the trust
itself, and, as a general rule, the courts say what facts are necessary to hold the trustee as a debtor.
If De la Peña, after depositing the trust fund in his personal account, had used this money for
speculative purposes, such as the buying and selling of sugar or other products of the country,
thereby becoming a debtor, there would have been no doubt as to the liability of his estate. Whether
he used this money for that purpose the record is silent, but it will be noted that a considerable
length of time intervened from the time of the deposit until the funds were confiscated by the
military authorities. In fact the record shows that De la Peña deposited on June 27, 1898, P5,259, on
June 28 of that year P3,280, and on August 5 of the same year P6,000. The record also shows that
these funds were withdrawn and again deposited all together on the 29th of May, 1900, this last
deposit amounting to P18,970. These facts strongly indicate that De la Peña had as a matter of fact
been using the money in violation of the trust imposed in him. lawph!1.net
If the doctrine announced in the majority opinion be followed in cases hereafter arising in this
jurisdiction trust funds will be placed in precarious condition. The position of the trustee will cease
to be one of trust.
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