G.R. No.

88013 March 19, 1990

SIMEX
INTERNATIONAL
(MANILA),
INCORPORATED, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and TRADERS ROYAL BANK, respondents.
Don P. Porcuincula for petitioner.
San Juan, Gonzalez, San Agustin & Sinense for private respondent.

CRUZ, J.:
We are concerned in this case with the question of damages, specifically moral and exemplary damages.
The negligence of the private respondent has already been established. All we have to ascertain is whether
the petitioner is entitled to the said damages and, if so, in what amounts.
The parties agree on the basic facts. The petitioner is a private corporation engaged in the exportation of
food products. It buys these products from various local suppliers and then sells them abroad, particularly
in the United States, Canada and the Middle East. Most of its exports are purchased by the petitioner on
credit.
The petitioner was a depositor of the respondent bank and maintained a checking account in its branch at
Romulo Avenue, Cubao, Quezon City. On May 25, 1981, the petitioner deposited to its account in the said
bank the amount of P100,000.00, thus increasing its balance as of that date to
P190,380.74. 1 Subsequently, the petitioner issued several checks against its deposit but was suprised to
learn later that they had been dishonored for insufficient funds.
The dishonored checks are the following:
1. Check No. 215391 dated May 29, 1981, in favor of California Manufacturing
Company, Inc. for P16,480.00:
2. Check No. 215426 dated May 28, 1981, in favor of the Bureau of Internal
Revenue in the amount of P3,386.73:
3. Check No. 215451 dated June 4, 1981, in favor of Mr. Greg Pedreo in the
amount of P7,080.00;
4. Check No. 215441 dated June 5, 1981, in favor of Malabon Longlife Trading
Corporation in the amount of P42,906.00:
5. Check No. 215474 dated June 10, 1981, in favor of Malabon Longlife Trading
Corporation in the amount of P12,953.00:
6. Check No. 215477 dated June 9, 1981, in favor of Sea-Land Services, Inc. in the
amount of P27,024.45:

7. Check No. 215412 dated June 10, 1981, in favor of Baguio Country Club
Corporation in the amount of P4,385.02: and
8. Check No. 215480 dated June 9, 1981, in favor of Enriqueta Bayla in the amount
of P6,275.00. 2
As a consequence, the California Manufacturing Corporation sent on June 9, 1981, a letter of demand to
the petitioner, threatening prosecution if the dishonored check issued to it was not made good. It also
withheld delivery of the order made by the petitioner. Similar letters were sent to the petitioner by the
Malabon Long Life Trading, on June 15, 1981, and by the G. and U. Enterprises, on June 10, 1981.
Malabon also canceled the petitioner's credit line and demanded that future payments be made by it in
cash or certified check. Meantime, action on the pending orders of the petitioner with the other suppliers
whose checks were dishonored was also deferred.
The petitioner complained to the respondent bank on June 10, 1981. 3 Investigation disclosed that the sum
of P100,000.00 deposited by the petitioner on May 25, 1981, had not been credited to it. The error was
rectified on June 17, 1981, and the dishonored checks were paid after they were re-deposited. 4
In its letter dated June 20, 1981, the petitioner demanded reparation from the respondent bank for its
"gross and wanton negligence." This demand was not met. The petitioner then filed a complaint in the then
Court of First Instance of Rizal claiming from the private respondent moral damages in the sum of
P1,000,000.00 and exemplary damages in the sum of P500,000.00, plus 25% attorney's fees, and costs.
After trial, Judge Johnico G. Serquinia rendered judgment holding that moral and exemplary damages
were not called for under the circumstances. However, observing that the plaintiff's right had been
violated, he ordered the defendant to pay nominal damages in the amount of P20,000.00 plus P5,000.00
attorney's fees and costs. 5 This decision was affirmed in toto by the respondent court. 6
The respondent court found with the trial court that the private respondent was guilty of negligence but
agreed that the petitioner was nevertheless not entitled to moral damages. It said:
The essential ingredient of moral damages is proof of bad faith (De Aparicio vs.
Parogurga, 150 SCRA 280). Indeed, there was the omission by the defendantappellee bank to credit appellant's deposit of P100,000.00 on May 25, 1981. But the
bank rectified its records. It credited the said amount in favor of plaintiff-appellant
in less than a month. The dishonored checks were eventually paid. These
circumstances negate any imputation or insinuation of malicious, fraudulent,
wanton and gross bad faith and negligence on the part of the defendant-appellant.
It is this ruling that is faulted in the petition now before us.
This Court has carefully examined the facts of this case and finds that it cannot share some of the
conclusions of the lower courts. It seems to us that the negligence of the private respondent had been
brushed off rather lightly as if it were a minor infraction requiring no more than a slap on the wrist. We
feel it is not enough to say that the private respondent rectified its records and credited the deposit in less
than a month as if this were sufficient repentance. The error should not have been committed in the first
place. The respondent bank has not even explained why it was committed at all. It is true that the
dishonored checks were, as the Court of Appeals put it, "eventually" paid. However, this took almost a
month when, properly, the checks should have been paid immediately upon presentment.
As the Court sees it, the initial carelessness of the respondent bank, aggravated by the lack of promptitude
in repairing its error, justifies the grant of moral damages. This rather lackadaisical attitude toward the

complaining depositor constituted the gross negligence, if not wanton bad faith, that the respondent court
said had not been established by the petitioner.
We also note that while stressing the rectification made by the respondent bank, the decision practically
ignored the prejudice suffered by the petitioner. This was simply glossed over if not, indeed, disbelieved.
The fact is that the petitioner's credit line was canceled and its orders were not acted upon pending receipt
of actual payment by the suppliers. Its business declined. Its reputation was tarnished. Its standing was
reduced in the business community. All this was due to the fault of the respondent bank which was
undeniably remiss in its duty to the petitioner.
Article 2205 of the Civil Code provides that actual or compensatory damages may be received "(2) for
injury to the plaintiff s business standing or commercial credit." There is no question that the petitioner did
sustain actual injury as a result of the dishonored checks and that the existence of the loss having been
established "absolute certainty as to its amount is not required." 7 Such injury should bolster all the more
the demand of the petitioner for moral damages and justifies the examination by this Court of the validity
and reasonableness of the said claim.
We agree that moral damages are not awarded to penalize the defendant but to compensate the plaintiff for
the injuries he may have suffered. 8 In the case at bar, the petitioner is seeking such damages for the
prejudice sustained by it as a result of the private respondent's fault. The respondent court said that the
claimed losses are purely speculative and are not supported by substantial evidence, but if failed to
consider that the amount of such losses need not be established with exactitude precisely because of their
nature. Moral damages are not susceptible of pecuniary estimation. Article 2216 of the Civil Code
specifically provides that "no proof of pecuniary loss is necessary in order that moral, nominal, temperate,
liquidated or exemplary damages may be adjudicated." That is why the determination of the amount to be
awarded (except liquidated damages) is left to the sound discretion of the court, according to "the
circumstances of each case."
From every viewpoint except that of the petitioner's, its claim of moral damages in the amount of
P1,000,000.00 is nothing short of preposterous. Its business certainly is not that big, or its name that
prestigious, to sustain such an extravagant pretense. Moreover, a corporation is not as a rule entitled to
moral damages because, not being a natural person, it cannot experience physical suffering or such
sentiments as wounded feelings, serious anxiety, mental anguish and moral shock. The only exception to
this rule is where the corporation has a good reputation that is debased, resulting in its social humiliation. 9
We shall recognize that the petitioner did suffer injury because of the private respondent's negligence that
caused the dishonor of the checks issued by it. The immediate consequence was that its prestige was
impaired because of the bouncing checks and confidence in it as a reliable debtor was diminished. The
private respondent makes much of the one instance when the petitioner was sued in a collection case, but
that did not prove that it did not have a good reputation that could not be marred, more so since that case
was ultimately settled. 10 It does not appear that, as the private respondent would portray it, the petitioner
is an unsavory and disreputable entity that has no good name to protect.
Considering all this, we feel that the award of nominal damages in the sum of P20,000.00 was not the
proper relief to which the petitioner was entitled. Under Article 2221 of the Civil Code, "nominal damages
are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant,
may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss
suffered by him." As we have found that the petitioner has indeed incurred loss through the fault of the
private respondent, the proper remedy is the award to it of moral damages, which we impose, in our
discretion, in the same amount of P20,000.00.

Art. 2229. Exemplary or corrective damages are imposed, by way of example or

correction for the public good, in addition to the moral, temperate, liquidated or
compensatory damages.
Art. 2232. In contracts and quasi-contracts, the court may award exemplary
damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or
malevolent manner.
The banking system is an indispensable institution in the modern world and plays a vital role in the
economic life of every civilized nation. Whether as mere passive entities for the safekeeping and saving of
money or as active instruments of business and commerce, banks have become an ubiquitous presence
among the people, who have come to regard them with respect and even gratitude and, most of all,
confidence. Thus, even the humble wage-earner has not hesitated to entrust his life's savings to the bank of
his choice, knowing that they will be safe in its custody and will even earn some interest for him. The
ordinary person, with equal faith, usually maintains a modest checking account for security and
convenience in the settling of his monthly bills and the payment of ordinary expenses. As for business
entities like the petitioner, the bank is a trusted and active associate that can help in the running of their
affairs, not only in the form of loans when needed but more often in the conduct of their day-to-day
transactions like the issuance or encashment of checks.
In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such
account consists only of a few hundred pesos or of millions. The bank must record every single
transaction accurately, down to the last centavo, and as promptly as possible. This has to be done if the
account is to reflect at any given time the amount of money the depositor can dispose of as he sees fit,
confident that the bank will deliver it as and to whomever he directs. A blunder on the part of the bank,
such as the dishonor of a check without good reason, can cause the depositor not a little embarrassment if
not also financial loss and perhaps even civil and criminal litigation.
The point is that as a business affected with public interest and because of the nature of its functions, the
bank is under obligation to treat the accounts of its depositors with meticulous care, always having in
mind the fiduciary nature of their relationship. In the case at bar, it is obvious that the respondent bank
was remiss in that duty and violated that relationship. What is especially deplorable is that, having been
informed of its error in not crediting the deposit in question to the petitioner, the respondent bank did not
immediately correct it but did so only one week later or twenty-three days after the deposit was made. It
bears repeating that the record does not contain any satisfactory explanation of why the error was made in
the first place and why it was not corrected immediately after its discovery. Such ineptness comes under
the concept of the wanton manner contemplated in the Civil Code that calls for the imposition of
exemplary damages.
After deliberating on this particular matter, the Court, in the exercise of its discretion, hereby imposes
upon the respondent bank exemplary damages in the amount of P50,000.00, "by way of example or
correction for the public good," in the words of the law. It is expected that this ruling will serve as a
warning and deterrent against the repetition of the ineptness and indefference that has been displayed here,
lest the confidence of the public in the banking system be further impaired.
ACCORDINGLY, the appealed judgment is hereby MODIFIED and the private respondent is ordered to
pay the petitioner, in lieu of nominal damages, moral damages in the amount of P20,000.00, and
exemplary damages in the amount of P50,000.00 plus the original award of attorney's fees in the amount
of P5,000.00, and costs.
SO ORDERED.

Now for the exemplary damages.

The pertinent provisions of the Civil Code are the following:

account in a manner satisfactory to the bank. In view of her violations of the general terms and conditions
governing the establishment and operation of a current account, Carmens account was recommended for
closure. In any event, the bank claimed good faith in declaring her account closed since one of the clerks,
who substituted for the regular clerk, committed an honest mistake when he thought that the subject
account was already closed when the ledger containing the said account could not be found.

[G.R. No. 152720. February 17, 2005]

SOLIDBANK
CORPORATION, petitioner,
ARRIETA, respondents.

vs. Spouses

TEODULFO

and

CARMEN

PANGANIBAN, J.:

After trial, the lower court rendered its decision holding that Solidbank Corporation was grossly
negligent in failing to check whether or not Carmens account was still open and viable at the time the
transaction in question was made. Hence, the bank was liable to Carmen for moral and exemplary
damages, as well as attorneys fees. It held that the bank was remiss in its duty to treat Carmens account
with the highest degree of care, considering the fiduciary nature of their relationship. The dispositive
portion of the decision reads:

A banks gross negligence in dishonoring a well-funded check, aggravated by its unreasonable

delay in repairing the error, calls for an award of moral and exemplary damages. The resulting injury to
the check writers reputation and peace of mind needs to be recognized and compensated.

WHEREFORE, the Court hereby renders judgment in favor of the plaintiff as against the defendantbank, and defendant-bank is ordered to pay moral damages of P150,000.00; exemplary damages
ofP50,000.00; and attorneys fees of P20,000.00, plus costs.

The Case

SO ORDERED.[5]

DECISION

Before us is a Petition for Review [1] under Rule 45 of the Rules of Court, seeking to reverse and set
aside the March 28, 2001 Decision[2] and the February 5, 2002 Resolution[3] of the Court of Appeals (CA)
in CA-GR CV No. 55002. The assailed Decision disposed as follows:
WHEREFORE, the appeal is DISMISSED, with costs against defendant-appellant.[4]
The CA denied reconsideration in its February 5, 2002 Resolution.
The Facts
The facts are summarized by the CA as follows:
Carmen Arrieta is a bank depositor of Solidbank Corporation under Checking Account No. 123-1996.
On March 1990, Carmen issued SBC Check No. 0293984 (Exh. A) in the amount of P330.00 in the
name of Lopues Department Store in payment of her purchases from said store. When the check was
deposited by the store to its account, the same was dishonored due to Account Closed (Exh. B) despite
the fact that at the time the check was presented for payment, Carmens checking account was still active
and backed up by a deposit of P1,275.20.
As a consequence of the checks dishonor, Lopues Department Store sent a demand letter to Carmen
(Exh. C) threatening her with criminal prosecution unless she redeemed the check within five (5) days.
To avoid criminal prosecution, Carmen paid P330.00 in cash to the store, plus a surcharge of P33.00 for
the bouncing check, or a total of P363.00 (Exh. F).
Thereupon, Carmen filed a complaint against Solidbank Corporation for damages alleging that the bank,
by its carelessness and recklessness in certifying that her account was closed despite the fact that it was
still very much active and sufficiently funded, had destroyed her good name and reputation and prejudiced
not only herself but also her family in the form of mental anguish, sleepless nights, wounded feelings and
social humiliation. She prayed that she be awarded moral and exemplary damages as well as attorneys
fees.
In its answer, the bank claimed that Carmen, contrary to her undertaking as a depositor, failed to maintain
the required balance of at least P1,000.00 on any day of the month. Moreover, she did not handle her

Ruling of the Court of Appeals

The CA debunked the contention of the bank that the latter was not liable. According to petitioner,
the dishonor of the check by reason of Account Closed was an honest mistake of its employee. The
appellate court held that the error committed by the bank employee was imputable to the bank. Banks are
obliged to treat the accounts of their depositors with meticulous care, regardless of the amount of the
deposit. Failing in this duty, petitioner was found grossly negligent. The failure of the bank to
immediately notify Respondent Carmen Arrieta of its unilateral closure of her account manifested bad
faith, added the CA.
The appellate court likewise affirmed the award of moral damages. It held that the banks wrongful
act was the proximate cause of Carmens moral suffering. The CA ruled that the lack of malice and bad
faith on the part of petitioner did not suffice to exculpate the latter from liability; the banks gross
negligence amounted to a wilful act. The trial courts award of exemplary damages and attorneys fees
was sustained in view of respondents entitlement to moral damages.
Hence, this Petition.[6]
Issues
Petitioner raises the following issues for our consideration:
I.
Whether or not x x x respondents are entitled to recovery of moral and exemplary damages and attorneys
fees.
II.
Whether or not the award of moral and exemplary damages and attorneys fees is excessive, arbitrary and
contrary to prevailing jurisprudence.[7]
The Courts Ruling
The Petition is partly meritorious.
Main Issue:
Petitioners Liability for Damages

Petitioner contends that the award of moral damages was erroneous because of the failure of
Respondent Carmen to establish that the dishonor of Check No. 0293984 on March 30, 1990 was the
direct and only cause of the social humiliation, extreme mental anguish, sleepless nights, and wounded
feelings suffered by [her]. It referred to an occasion fifteen days before, on March 15, 1990, during
which another check (Check No. 0293983) she had issued had likewise been dishonored.
According to petitioner, highly illogical was her claim that extreme mental anguish and social
humiliation resulted from the dishonor of Check No. 0293984, as she claimed none from that of her prior
Check No. 0293983, which had allegedly been deposited by mistake by the payees wife. Given the
circumstances, petitioner adds that the dishonor of the check -- subject of the present case -- did not really
cause respondent mental anguish, sleepless nights and besmirched reputation; and that her institution of
this case was clearly motivated by opportunism.
We are not persuaded.
The fact that another check Carmen had issued was previously dishonored does not necessarily
imply that the dishonor of a succeeding check can no longer cause moral injury and personal hurt for
which the aggrieved party may claim damages. Such prior occurrence does not prove that respondent
does not have a good reputation that can be besmirched.[8]
The reasons for and the circumstances surrounding the previous issuance and eventual dishonor of
Check No. 0293983 are totally separate -- the payee of the prior check was different -- from that of Check No.
0293984, subject of present case. Carmen had issued the earlier check to accommodate a relative, [9] and the
succeeding one to pay for goods purchased from Lopues Department Store. That she might not have
suffered damages as a result of the first dishonored check does not necessarily hold true for the second. In
the light of sufficient evidence showing that she indeed suffered damages as a result of the dishonor of
Check No. 0293984, petitioner may not be exonerated from liability.
Case law[10] lays out the following conditions for the award of moral damages: (1) there is an injury
-- whether physical, mental or psychological -- clearly sustained by the claimant; (2) the culpable act or
omission is factually established; (3) the wrongful act or omission of the defendant is the proximate cause
of the injury sustained by the claimant; and (4) the award of damages is predicated on any of the cases
stated in Article 2219[11] of the Civil Code.
In the instant case, all four requisites have been established. First, these were the findings of the
appellate court: Carmen Arrieta is a bank depositor of Solidbank Corporation of long standing. She
works with the Central Negros Electric Cooperative, Inc. (CENECO), as an executive secretary and later
as department secretary. She is a deaconess of the Christian Alliance Church in Bacolod City. These are
positions which no doubt elevate her social standing in the community. Understandably -- and as
sufficiently proven by her testimony -- she suffered mental anguish, serious anxiety, besmirched
reputation, wounded feelings and social humiliation; and she suffered thus when the people she worked
with -- her friends, her family and even her daughters classmates -- learned and talked about her bounced
check.
Second, it is undisputed that the subject check was adequately funded, but that petitioner
wrongfully dishonored it.
Third, Respondent Carmen was able to prove that petitioners wrongful dishonor of her check was
the proximate cause of her embarrassment and humiliation in her workplace, in her own home, and in the
church where she served as deaconess.
Proximate cause has been defined as any cause which, in natural and continuous sequence,
unbroken by any efficient intervening cause, produces the result complained of and without which would
not have occurred x x x.[12] It is determined from the facts of each case upon combined considerations of

logic, common sense, policy and precedent.[13] Clearly, had the bank accepted and honored the check,
Carmen would not have had to face the questions of -- and explain her predicament to -- her office mates,
her daughters, and the leaders and members of her church.
Furthermore, the CA was in agreement with the trial court in ruling that her injury arose from the
gross negligence of petitioner in dishonoring her well-funded check.
Unanimity of the CA and the trial court in their factual ascertainment of this point bars us from
supplanting their finding and substituting it with our own. Settled is the doctrine that the factual
determinations of the lower courts are conclusive and binding upon this Court. [14] Verily, the review of
cases brought before the Supreme Court from the Court of Appeals is limited to errors of law. [15] None of
the recognized exceptions to this principle has been shown to exist.
Fourth, treating Carmens account as closed, merely because the ledger could not be found was a
reckless act that could not simply be brushed off as an honest mistake. We have repeatedly emphasized
that the banking industry is impressed with public interest. Consequently, the highest degree of diligence
is expected, and high standards of integrity and performance are even required of it. By the nature of its
functions, a bank is under obligation to treat the accounts of its depositors with meticulous care and
always to have in mind the fiduciary nature of its relationship with them. [16]
Petitioners negligence here was so gross as to amount to a wilful injury to Respondent Carmen.
Article 21 of the Civil Code states that any person who wilfully causes loss or injury to another in a
manner that is contrary to morals, good customs or public policy shall compensate the latter for the
damage. Further, Article 2219 provides for the recovery of moral damages for acts referred to in the
aforementioned Article 21. Hence, the bank is liable for moral damages to respondent. [17]
The foregoing notwithstanding, we find the sum of P150,000 awarded by the lower courts
excessive. Moral damages are not intended to enrich the complainant at the expense of the defendant.
[18]
Rather, these are awarded only to enable the injured party to obtain means, diversions or amusements
that will serve to alleviate the moral suffering that resulted by reason of the defendants culpable action.
[19]
The purpose of such damages is essentially indemnity or reparation, not punishment or correction. [20] In
other words, the award thereof is aimed at a restoration within the limits of the possible, of the
spiritual status quo ante;[21] therefore, it must always reasonably approximate the extent of injury and be
proportional to the wrong committed.[22]
Accordingly, the award of moral damages must be reduced to P20,000,[23] an amount commensurate
with the alleviation of the suffering caused by the dishonored check that was issued for the amount
of P330.
The law allows the grant of exemplary damages to set an example for the public good. [24] The
business of a bank is affected with public interest; thus, it makes a sworn profession of diligence and
meticulousness in giving irreproachable service. [25] For this reason, the bank should guard against injury
attributable to negligence or bad faith on its part. [26] The banking sector must at all times maintain a high
level of meticulousness. The grant of exemplary damages is justified [27] by the initial carelessness of
petitioner, aggravated by its lack of promptness in repairing its error. It was only on August 30, 1990, or a
period of five months from the erroneous dishonor of the check, when it wrote Lopues Department Store
a letter acknowledging the banks mistake. [28] In our view, however, the award of P50,000 is excessive and
should accordingly be reduced to P20,000.[29]
The award of attorneys fees in the amount of P20,000 is proper, for respondents were compelled to
litigate to protect their rights.[30]

WHEREFORE,
the
Petition
is PARTLY
GRANTED and
the
assailed
Decision MODIFIED. Petitioners are ORDERED to pay respondents P20,000 as moral damages, P20,000
as exemplary damages, and P20,000 as attorneys fees.

passbook, Teller No. 6 told Macaraya that someone got the passbook but she could not remember to whom
she gave the passbook. When Macaraya asked Teller No. 6 if Calapre got the passbook, Teller No. 6
answered that someone shorter than Calapre got the passbook. Calapre was then standing beside
Macaraya.

SO ORDERED.
[G.R. No. 138569. September 11, 2003]
THE CONSOLIDATED BANK and TRUST CORPORATION, petitioner, vs. COURT OF
APPEALS and L.C. DIAZ and COMPANY, CPAs, respondents.
DECISION
CARPIO, J.:
The Case
Before us is a petition for review of the Decision [1] of the Court of Appeals dated 27 October 1998
and its Resolution dated 11 May 1999. The assailed decision reversed the Decision [2]of the Regional Trial
Court of Manila, Branch 8, absolving petitioner Consolidated Bank and Trust Corporation, now known as
Solidbank Corporation (Solidbank), of any liability. The questioned resolution of the appellate court
denied the motion for reconsideration of Solidbank but modified the decision by deleting the award of
exemplary damages, attorneys fees, expenses of litigation and cost of suit.

Teller No. 6 handed to Macaraya a deposit slip dated 14 August 1991 for the deposit of a check
for P90,000 drawn on Philippine Banking Corporation (PBC). This PBC check of L.C. Diaz was a
check that it had long closed. [4] PBC subsequently dishonored the check because of insufficient funds
and because the signature in the check differed from PBCs specimen signature. Failing to get back the
passbook, Macaraya went back to her office and reported the matter to the Personnel Manager of L.C.
Diaz, Emmanuel Alvarez.
The following day, 15 August 1991, L.C. Diaz through its Chief Executive Officer, Luis C. Diaz
(Diaz), called up Solidbank to stop any transaction using the same passbook until L.C. Diaz could open
a new account.[5] On the same day, Diaz formally wrote Solidbank to make the same request. It was also
on the same day that L.C. Diaz learned of the unauthorized withdrawal the day before, 14 August 1991,
of P300,000 from its savings account. The withdrawal slip for the P300,000 bore the signatures of the
authorized signatories of L.C. Diaz, namely Diaz and Rustico L. Murillo. The signatories, however, denied
signing the withdrawal slip. A certain Noel Tamayo received the P300,000.
In an Information [6] dated 5 September 1991, L.C. Diaz charged its messenger, Emerano Ilagan
(Ilagan) and one Roscon Verdazola with Estafa through Falsification of Commercial Document. The
Regional Trial Court of Manila dismissed the criminal case after the City Prosecutor filed a Motion to
Dismiss on 4 August 1992.

The Facts

On 24 August 1992, L.C. Diaz through its counsel demanded from Solidbank the return of its
money. Solidbank refused.

Solidbank is a domestic banking corporation organized and existing under Philippine laws. Private
respondent L.C. Diaz and Company, CPAs (L.C. Diaz), is a professional partnership engaged in the
practice of accounting.

On 25 August 1992, L.C. Diaz filed a Complaint [7] for Recovery of a Sum of Money against
Solidbank with the Regional Trial Court of Manila, Branch 8. After trial, the trial court rendered on 28
December 1994 a decision absolving Solidbank and dismissing the complaint.

Sometime in March 1976, L.C. Diaz opened a savings account with Solidbank, designated as
Savings Account No. S/A 200-16872-6.

L.C. Diaz then appealed[8] to the Court of Appeals. On 27 October 1998, the Court of Appeals
issued its Decision reversing the decision of the trial court.

On 14 August 1991, L.C. Diaz through its cashier, Mercedes Macaraya (Macaraya), filled up a
savings (cash) deposit slip for P990 and a savings (checks) deposit slip for P50. Macaraya instructed the
messenger of L.C. Diaz, Ismael Calapre (Calapre), to deposit the money with Solidbank. Macaraya also
gave Calapre the Solidbank passbook.

On 11 May 1999, the Court of Appeals issued its Resolution denying the motion for reconsideration
of Solidbank. The appellate court, however, modified its decision by deleting the award of exemplary
damages and attorneys fees.
The Ruling of the Trial Court

Calapre went to Solidbank and presented to Teller No. 6 the two deposit slips and the
passbook. The teller acknowledged receipt of the deposit by returning to Calapre the duplicate copies of
the two deposit slips. Teller No. 6 stamped the deposit slips with the words DUPLICATE and
SAVING TELLER 6 SOLIDBANK HEAD OFFICE. Since the transaction took time and Calapre had
to make another deposit for L.C. Diaz with Allied Bank, he left the passbook with Solidbank. Calapre
then went to Allied Bank. When Calapre returned to Solidbank to retrieve the passbook, Teller No. 6
informed him that somebody got the passbook. [3] Calapre went back to L.C. Diaz and reported the
incident to Macaraya.
Macaraya immediately prepared a deposit slip in duplicate copies with a check
of P200,000. Macaraya, together with Calapre, went to Solidbank and presented to Teller No. 6 the
deposit slip and check. The teller stamped the words DUPLICATE and SAVING TELLER 6
SOLIDBANK HEAD OFFICE on the duplicate copy of the deposit slip. When Macaraya asked for the

In absolving Solidbank, the trial court applied the rules on savings account written on the passbook.
The rules state that possession of this book shall raise the presumption of ownership and any payment or
payments made by the bank upon the production of the said book and entry therein of the withdrawal shall
have the same effect as if made to the depositor personally. [9]
At the time of the withdrawal, a certain Noel Tamayo was not only in possession of the passbook,
he also presented a withdrawal slip with the signatures of the authorized signatories of L.C. Diaz. The
specimen signatures of these persons were in the signature cards. The teller stamped the withdrawal slip
with the words Saving Teller No. 5. The teller then passed on the withdrawal slip to Genere Manuel
(Manuel) for authentication. Manuel verified the signatures on the withdrawal slip. The withdrawal slip
was then given to another officer who compared the signatures on the withdrawal slip with the specimen

on the signature cards. The trial court concluded that Solidbank acted with care and observed the rules on
savings account when it allowed the withdrawal of P300,000 from the savings account of L.C. Diaz.
The trial court pointed out that the burden of proof now shifted to L.C. Diaz to prove that the
signatures on the withdrawal slip were forged. The trial court admonished L.C. Diaz for not offering in
evidence the National Bureau of Investigation (NBI) report on the authenticity of the signatures on the
withdrawal slip for P300,000. The trial court believed that L.C. Diaz did not offer this evidence because it
is derogatory to its action.
Another provision of the rules on savings account states that the depositor must keep the passbook
under lock and key. [10] When another person presents the passbook for withdrawal prior to Solidbanks
receipt of the notice of loss of the passbook, that person is considered as the owner of the passbook. The
trial court ruled that the passbook presented during the questioned transaction was now out of the lock
and key and presumptively ready for a business transaction. [11]
Solidbank did not have any participation in the custody and care of the passbook. The trial court
believed that Solidbanks act of allowing the withdrawal of P300,000 was not the direct and proximate
cause of the loss. The trial court held that L.C. Diazs negligence caused the unauthorized
withdrawal. Three facts establish L.C. Diazs negligence: (1) the possession of the passbook by a person
other than the depositor L.C. Diaz; (2) the presentation of a signed withdrawal receipt by an unauthorized
person; and (3) the possession by an unauthorized person of a PBC check long closed by L.C. Diaz,
which check was deposited on the day of the fraudulent withdrawal.
The trial court debunked L.C. Diazs contention that Solidbank did not follow the precautionary
procedures observed by the two parties whenever L.C. Diaz withdrew significant amounts from its
account. L.C. Diaz claimed that a letter must accompany withdrawals of more than P20,000. The letter
must request Solidbank to allow the withdrawal and convert the amount to a managers check. The bearer
must also have a letter authorizing him to withdraw the same amount. Another person driving a car must
accompany the bearer so that he would not walk from Solidbank to the office in making the
withdrawal. The trial court pointed out that L.C. Diaz disregarded these precautions in its past
withdrawal. On 16 July 1991, L.C. Diaz withdrewP82,554 without any separate letter of authorization or
any communication with Solidbank that the money be converted into a managers check.
The trial court further justified the dismissal of the complaint by holding that the case was a last
ditch effort of L.C. Diaz to recover P300,000 after the dismissal of the criminal case against Ilagan.

Article 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual
relation between the parties, is called a quasi-delict and is governed by the provisions of this chapter.
The appellate court held that the three elements of a quasi-delict are present in this case, namely: (a)
damages suffered by the plaintiff; (b) fault or negligence of the defendant, or some other person for whose
acts he must respond; and (c) the connection of cause and effect between the fault or negligence of the
defendant and the damage incurred by the plaintiff.
The Court of Appeals pointed out that the teller of Solidbank who received the withdrawal slip
for P300,000 allowed the withdrawal without making the necessary inquiry. The appellate court stated
that the teller, who was not presented by Solidbank during trial, should have called up the depositor
because the money to be withdrawn was a significant amount. Had the teller called up L.C. Diaz,
Solidbank would have known that the withdrawal was unauthorized. The teller did not even verify the
identity of the impostor who made the withdrawal. Thus, the appellate court found Solidbank liable for its
negligence in the selection and supervision of its employees.
The appellate court ruled that while L.C. Diaz was also negligent in entrusting its deposits to its
messenger and its messenger in leaving the passbook with the teller, Solidbank could not escape liability
because of the doctrine of last clear chance. Solidbank could have averted the injury suffered by L.C.
Diaz had it called up L.C. Diaz to verify the withdrawal.
The appellate court ruled that the degree of diligence required from Solidbank is more than that of a
good father of a family. The business and functions of banks are affected with public interest. Banks are
obligated to treat the accounts of their depositors with meticulous care, always having in mind the
fiduciary nature of their relationship with their clients. The Court of Appeals found Solidbank remiss in its
duty, violating its fiduciary relationship with L.C. Diaz.
The dispositive portion of the decision of the Court of Appeals reads:
WHEREFORE, premises considered, the decision appealed from is hereby REVERSED and a new one
entered.
1.

Ordering defendant-appellee Consolidated Bank and Trust Corporation to pay

plaintiff-appellant the sum of Three Hundred Thousand Pesos (P300,000.00), with
interest thereon at the rate of 12% per annum from the date of filing of the
complaint until paid, the sum of P20,000.00 as exemplary damages, and P20,000.00
as attorneys fees and expenses of litigation as well as the cost of suit; and

2.

Ordering the dismissal of defendant-appellees counterclaim in the amount

of P30,000.00 as attorneys fees.

The dispositive portion of the decision of the trial court reads:

IN VIEW OF THE FOREGOING, judgment is hereby rendered DISMISSING the complaint.
The Court further renders judgment in favor of defendant bank pursuant to its counterclaim the amount of
Thirty Thousand Pesos (P30,000.00) as attorneys fees.
SO ORDERED.[13]
With costs against plaintiff.
SO ORDERED.[12]
The Ruling of the Court of Appeals
The Court of Appeals ruled that Solidbanks negligence was the proximate cause of the
unauthorized withdrawal of P300,000 from the savings account of L.C. Diaz. The appellate court reached
this conclusion after applying the provision of the Civil Code on quasi-delict, to wit:

Acting on the motion for reconsideration of Solidbank, the appellate court affirmed its decision but
modified the award of damages. The appellate court deleted the award of exemplary damages and
attorneys fees. Invoking Article 2231 [14] of the Civil Code, the appellate court ruled that exemplary
damages could be granted if the defendant acted with gross negligence. Since Solidbank was guilty of
simple negligence only, the award of exemplary damages was not justified. Consequently, the award of
attorneys fees was also disallowed pursuant to Article 2208 of the Civil Code. The expenses of litigation
and cost of suit were also not imposed on Solidbank.

The dispositive portion of the Resolution reads as follows:

WHEREFORE, foregoing considered, our decision dated October 27, 1998 is affirmed with modification
by deleting the award of exemplary damages and attorneys fees, expenses of litigation and cost of suit.

We hold that Solidbank is liable for breach of contract due to negligence, or culpa contractual.

SO ORDERED.[15]
Hence, this petition.
The Issues
Solidbank seeks the review of the decision and resolution of the Court of Appeals on these grounds:
I.

recognition of the contractual relationship between Solidbank and L.C. Diaz, the latter being a depositor
of the former. On the other hand, the Court of Appeals applied the law on quasi-delict to determine who
between the two parties was ultimately negligent. The law on quasi-delict or culpa aquiliana is generally
applicable when there is no pre-existing contractual relationship between the parties.

THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER BANK

SHOULD SUFFER THE LOSS BECAUSE ITS TELLER SHOULD HAVE FIRST
CALLED PRIVATE RESPONDENT BY TELEPHONE BEFORE IT ALLOWED
THE WITHDRAWAL OF P300,000.00 TO RESPONDENTS MESSENGER
EMERANO ILAGAN, SINCE THERE IS NO AGREEMENT BETWEEN THE
PARTIES IN THE OPERATION OF THE SAVINGS ACCOUNT, NOR IS THERE
ANY BANKING LAW, WHICH MANDATES THAT A BANK TELLER
SHOULD FIRST CALL UP THE DEPOSITOR BEFORE ALLOWING A
WITHDRAWAL OF A BIG AMOUNT IN A SAVINGS ACCOUNT.

II.

THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF LAST

CLEAR CHANCE AND IN HOLDING THAT PETITIONER BANKS TELLER
HAD THE LAST OPPORTUNITY TO WITHHOLD THE WITHDRAWAL WHEN
IT IS UNDISPUTED THAT THE TWO SIGNATURES OF RESPONDENT ON
THE WITHDRAWAL SLIP ARE GENUINE AND PRIVATE RESPONDENTS
PASSBOOK WAS DULY PRESENTED, AND CONTRARIWISE RESPONDENT
WAS NEGLIGENT IN THE SELECTION AND SUPERVISION OF ITS
MESSENGER EMERANO ILAGAN, AND IN THE SAFEKEEPING OF ITS
CHECKS AND OTHER FINANCIAL DOCUMENTS.

III.

THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE INSTANT

CASE IS A LAST DITCH EFFORT OF PRIVATE RESPONDENT TO RECOVER
ITS P300,000.00 AFTER FAILING IN ITS EFFORTS TO RECOVER THE SAME
FROM ITS EMPLOYEE EMERANO ILAGAN.

IV.

THE COURT OF APPEALS ERRED IN NOT MITIGATING THE DAMAGES

AWARDED AGAINST PETITIONER UNDER ARTICLE 2197 OF THE CIVIL
CODE, NOTWITHSTANDING ITS FINDING THAT PETITIONER BANKS
NEGLIGENCE WAS ONLY CONTRIBUTORY.[16]

The Ruling of the Court

The petition is partly meritorious.
Solidbanks Fiduciary Duty under the Law
The rulings of the trial court and the Court of Appeals conflict on the application of the law. The
trial court pinned the liability on L.C. Diaz based on the provisions of the rules on savings account, a

The contract between the bank and its depositor is governed by the provisions of the Civil Code on
simple loan.[17] Article 1980 of the Civil Code expressly provides that x x x savings x x x deposits of
money in banks and similar institutions shall be governed by the provisions concerning simple
loan. There is a debtor-creditor relationship between the bank and its depositor. The bank is the debtor
and the depositor is the creditor. The depositor lends the bank money and the bank agrees to pay the
depositor on demand. The savings deposit agreement between the bank and the depositor is the contract
that determines the rights and obligations of the parties.
The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2 of
Republic Act No. 8791 (RA 8791),[18] which took effect on 13 June 2000, declares that the State
recognizes the fiduciary nature of banking that requires high standards of integrity and
performance.[19] This new provision in the general banking law, introduced in 2000, is a statutory
affirmation of Supreme Court decisions, starting with the 1990 case of Simex International v. Court of
Appeals,[20] holding that the bank is under obligation to treat the accounts of its depositors
with meticulous care, always having in mind the fiduciary nature of their relationship. [21]
This fiduciary relationship means that the banks obligation to observe high standards of integrity
and performance is deemed written into every deposit agreement between a bank and its depositor. The
fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good
father of a family. Article 1172 of the Civil Code states that the degree of diligence required of an obligor
is that prescribed by law or contract, and absent such stipulation then the diligence of a good father of a
family.[22] Section 2 of RA 8791 prescribes the statutory diligence required from banks that banks must
observe high standards of integrity and performance in servicing their depositors. Although RA 8791
took effect almost nine years after the unauthorized withdrawal of the P300,000 from L.C. Diazs savings
account, jurisprudence[23] at the time of the withdrawal already imposed on banks the same high standard
of diligence required under RA No. 8791.
However, the fiduciary nature of a bank-depositor relationship does not convert the contract
between the bank and its depositors from a simple loan to a trust agreement, whether express or
implied. Failure by the bank to pay the depositor is failure to pay a simple loan, and not a breach of trust.
[24]
The law simply imposes on the bank a higher standard of integrity and performance in complying with
its obligations under the contract of simple loan, beyond those required of non-bank debtors under a
similar contract of simple loan.
The fiduciary nature of banking does not convert a simple loan into a trust agreement because
banks do not accept deposits to enrich depositors but to earn money for themselves. The law allows banks
to offer the lowest possible interest rate to depositors while charging the highest possible interest rate on
their own borrowers. The interest spread or differential belongs to the bank and not to the depositors who
are not cestui que trust of banks. If depositors are cestui que trust of banks, then the interest spread or
income belongs to the depositors, a situation that Congress certainly did not intend in enacting Section 2
of RA 8791.
Solidbanks Breach of its Contractual Obligation
Article 1172 of the Civil Code provides that responsibility arising from negligence in the
performance of every kind of obligation is demandable. For breach of the savings deposit agreement due
to negligence, or culpa contractual, the bank is liable to its depositor.

Calapre left the passbook with Solidbank because the transaction took time and he had to go to
Allied Bank for another transaction. The passbook was still in the hands of the employees of Solidbank
for the processing of the deposit when Calapre left Solidbank. Solidbanks rules on savings account
require that the deposit book should be carefully guarded by the depositor and kept under lock and key, if
possible. When the passbook is in the possession of Solidbanks tellers during withdrawals, the law
imposes on Solidbank and its tellers an even higher degree of diligence in safeguarding the passbook.
Likewise, Solidbanks tellers must exercise a high degree of diligence in insuring that they return
the passbook only to the depositor or his authorized representative. The tellers know, or should know, that
the rules on savings account provide that any person in possession of the passbook is presumptively its
owner. If the tellers give the passbook to the wrong person, they would be clothing that person
presumptive ownership of the passbook, facilitating unauthorized withdrawals by that person. For failing
to return the passbook to Calapre, the authorized representative of L.C. Diaz, Solidbank and Teller No. 6
presumptively failed to observe such high degree of diligence in safeguarding the passbook, and in
insuring its return to the party authorized to receive the same.
In culpa contractual, once the plaintiff proves a breach of contract, there is a presumption that the
defendant was at fault or negligent. The burden is on the defendant to prove that he was not at fault or
negligent. In contrast, in culpa aquiliana the plaintiff has the burden of proving that the defendant was
negligent. In the present case, L.C. Diaz has established that Solidbank breached its contractual obligation
to return the passbook only to the authorized representative of L.C. Diaz. There is thus a presumption that
Solidbank was at fault and its teller was negligent in not returning the passbook to Calapre. The burden
was on Solidbank to prove that there was no negligence on its part or its employees.
Solidbank failed to discharge its burden. Solidbank did not present to the trial court Teller No. 6,
the teller with whom Calapre left the passbook and who was supposed to return the passbook to him. The
record does not indicate that Teller No. 6 verified the identity of the person who retrieved the
passbook. Solidbank also failed to adduce in evidence its standard procedure in verifying the identity of
the person retrieving the passbook, if there is such a procedure, and that Teller No. 6 implemented this
procedure in the present case.
Solidbank is bound by the negligence of its employees under the principle of respondeat
superior or command responsibility. The defense of exercising the required diligence in the selection and
supervision of employees is not a complete defense in culpa contractual, unlike in culpa aquiliana.[25]
The bank must not only exercise high standards of integrity and performance, it must also insure
that its employees do likewise because this is the only way to insure that the bank will comply with its
fiduciary duty. Solidbank failed to present the teller who had the duty to return to Calapre the passbook,
and thus failed to prove that this teller exercised the high standards of integrity and performance
required of Solidbanks employees.
Proximate Cause of the Unauthorized Withdrawal
Another point of disagreement between the trial and appellate courts is the proximate cause of the
unauthorized withdrawal. The trial court believed that L.C. Diazs negligence in not securing its passbook
under lock and key was the proximate cause that allowed the impostor to withdraw the P300,000. For the
appellate court, the proximate cause was the tellers negligence in processing the withdrawal without first
verifying with L.C. Diaz. We do not agree with either court.
Proximate cause is that cause which, in natural and continuous sequence, unbroken by any efficient
intervening cause, produces the injury and without which the result would not have occurred. [26] Proximate
cause is determined by the facts of each case upon mixed considerations of logic, common sense, policy
and precedent.[27]

L.C. Diaz was not at fault that the passbook landed in the hands of the impostor. Solidbank was in
possession of the passbook while it was processing the deposit. After completion of the transaction,
Solidbank had the contractual obligation to return the passbook only to Calapre, the authorized
representative of L.C. Diaz. Solidbank failed to fulfill its contractual obligation because it gave the
passbook to another person.
Solidbanks failure to return the passbook to Calapre made possible the withdrawal of the P300,000
by the impostor who took possession of the passbook. Under Solidbanks rules on savings account, mere
possession of the passbook raises the presumption of ownership. It was the negligent act of Solidbanks
Teller No. 6 that gave the impostor presumptive ownership of the passbook. Had the passbook not fallen
into the hands of the impostor, the loss of P300,000 would not have happened. Thus, the proximate cause
of the unauthorized withdrawal was Solidbanks negligence in not returning the passbook to Calapre.
We do not subscribe to the appellate courts theory that the proximate cause of the unauthorized
withdrawal was the tellers failure to call up L.C. Diaz to verify the withdrawal. Solidbank did not have
the duty to call up L.C. Diaz to confirm the withdrawal. There is no arrangement between Solidbank and
L.C. Diaz to this effect. Even the agreement between Solidbank and L.C. Diaz pertaining to measures that
the parties must observe whenever withdrawals of large amounts are made does not direct Solidbank to
call up L.C. Diaz.
There is no law mandating banks to call up their clients whenever their representatives withdraw
significant amounts from their accounts. L.C. Diaz therefore had the burden to prove that it is the usual
practice of Solidbank to call up its clients to verify a withdrawal of a large amount of money. L.C. Diaz
failed to do so.
Teller No. 5 who processed the withdrawal could not have been put on guard to verify the
withdrawal. Prior to the withdrawal of P300,000, the impostor deposited with Teller No. 6 the P90,000
PBC check, which later bounced. The impostor apparently deposited a large amount of money to deflect
suspicion from the withdrawal of a much bigger amount of money. The appellate court thus erred when it
imposed on Solidbank the duty to call up L.C. Diaz to confirm the withdrawal when no law requires this
from banks and when the teller had no reason to be suspicious of the transaction.
Solidbank continues to foist the defense that Ilagan made the withdrawal. Solidbank claims that
since Ilagan was also a messenger of L.C. Diaz, he was familiar with its teller so that there was no more
need for the teller to verify the withdrawal. Solidbank relies on the following statements in the Booking
and Information Sheet of Emerano Ilagan:
xxx Ilagan also had with him (before the withdrawal) a forged check of PBC and indicated the amount of
P90,000 which he deposited in favor of L.C. Diaz and Company. After successfully withdrawing this
large sum of money, accused Ilagan gave alias Rey (Noel Tamayo) his share of the loot. Ilagan then hired
a taxicab in the amount of P1,000 to transport him (Ilagan) to his home province at Bauan,
Batangas. Ilagan extravagantly and lavishly spent his money but a big part of his loot was wasted in
cockfight and horse racing. Ilagan was apprehended and meekly admitted his guilt. [28] (Emphasis
supplied.)
L.C. Diaz refutes Solidbanks contention by pointing out that the person who withdrew
the P300,000 was a certain Noel Tamayo. Both the trial and appellate courts stated that this Noel Tamayo
presented the passbook with the withdrawal slip.
We uphold the finding of the trial and appellate courts that a certain Noel Tamayo withdrew
the P300,000. The Court is not a trier of facts. We find no justifiable reason to reverse the factual finding
of the trial court and the Court of Appeals. The tellers who processed the deposit of the P90,000 check
and the withdrawal of the P300,000 were not presented during trial to substantiate Solidbanks claim that

Ilagan deposited the check and made the questioned withdrawal. Moreover, the entry quoted by
Solidbank does not categorically state that Ilagan presented the withdrawal slip and the passbook.
Doctrine of Last Clear Chance
The doctrine of last clear chance states that where both parties are negligent but the negligent act of
one is appreciably later than that of the other, or where it is impossible to determine whose fault or
negligence caused the loss, the one who had the last clear opportunity to avoid the loss but failed to do so,
is chargeable with the loss.[29] Stated differently, the antecedent negligence of the plaintiff does not
preclude him from recovering damages caused by the supervening negligence of the defendant, who had
the last fair chance to prevent the impending harm by the exercise of due diligence.[30]
We do not apply the doctrine of last clear chance to the present case. Solidbank is liable for breach
of contract due to negligence in the performance of its contractual obligation to L.C. Diaz. This is a case
of culpa contractual, where neither the contributory negligence of the plaintiff nor his last clear chance to
avoid the loss, would exonerate the defendant from liability.[31]Such contributory negligence or last clear
chance by the plaintiff merely serves to reduce the recovery of damages by the plaintiff but does not
exculpate the defendant from his breach of contract.[32]
Mitigated Damages
Under Article 1172, liability (for culpa contractual) may be regulated by the courts, according to
the circumstances. This means that if the defendant exercised the proper diligence in the selection and
supervision of its employee, or if the plaintiff was guilty of contributory negligence, then the courts may
reduce the award of damages. In this case, L.C. Diaz was guilty of contributory negligence in allowing a
withdrawal slip signed by its authorized signatories to fall into the hands of an impostor. Thus, the
liability of Solidbank should be reduced.
In Philippine Bank of Commerce v. Court of Appeals,[33] where the Court held the depositor guilty
of contributory negligence, we allocated the damages between the depositor and the bank on a 40-60
ratio. Applying the same ruling to this case, we hold that L.C. Diaz must shoulder 40% of the actual
damages awarded by the appellate court. Solidbank must pay the other 60% of the actual damages.
WHEREFORE,
the
decision
of
the
Court
of
Appeals
is AFFIRMED with MODIFICATION. Petitioner Solidbank Corporation shall pay private respondent
L.C. Diaz and Company, CPAs only 60% of the actual damages awarded by the Court of Appeals. The
remaining 40% of the actual damages shall be borne by private respondent L.C. Diaz and Company,
CPAs. Proportionate costs.
SO ORDERED.

On May 18, 1921, Chua Soco executed a promissory note in favor of the plaintiff Fua Cun for the sum of
P25,000 payable in ninety days and drawing interest at the rate of 1 per cent per month, securing the note
with a chattel mortgage on the shares of stock subscribed for by Chua Soco, who also endorsed the receipt
above mentioned and delivered it to the mortgagee. The plaintiff thereupon took the receipt to the manager
of the defendant Bank and informed him of the transaction with Chua Soco, but was told to await action
upon the matter by the Board of Directors.chanroblesvirtualawlibrary chanrobles virtual law library
In the meantime Chua Soco appears to have become indebted to the China Banking Corporation in the
sum of P37,731.68 for dishonored acceptances of commercial paper and in an action brought against him
to recover this amount, Chua Soco's interest in the five hundred shares subscribed for was attached and the
receipt seized by the sheriff. The attachment was levied after the defendant bank had received notice of the
facts that the receipt had been endorsed over to the plaintiff.chanroblesvirtualawlibrary chanrobles virtual
law library
G.R. No. L-19441 March 27, 1923
FUA CUN ( alias Tua Cun), Plaintiff-Appellee, vs. RICARDO SUMMERS, in his capacity as Sheriff
ex-oficio of the City of Manila, and the CHINA BANKING CORPORATION,Defendants-Appellants.
Araneta
and
Canillas and Cardenas for appellee.

Zaragoza

for

appellants.

OSTRAND, J.:
It appears from the evidence that on August 26, 1920, one Chua Soco subscribed for five hundred shares
of stock of the defendant Banking Corporation at a par value of P100 per share, paying the sum of
P25,000, one-half of the subscription price, in cash, for which a receipt was issued in the following terms:
This is to certify, That Chua Soco, a subscriber for five hundred shares of the capital stock of the China
Banking Corporation at its par value of P100 per share, has paid into the Treasury of the Corporation, on
account of said subscription and in accordance with its terms, the sum of twenty-five thousand pesos
(P25,000), Philippine currency.chanroblesvirtualawlibrary chanrobles virtual law library
Upon receipt of the balance of said subscription in accordance with the terms of the calls of the Board of
Directors, and surrender of this certificate, duly executed certificates for said five hundred shares of stock
will be issued to the order of the subscriber.chanroblesvirtualawlibrary chanrobles virtual law library
It is expressly understood that the total number of shares specified in this receipt is subject to sale by
the China Banking Corporation for the payment of any unpaid subscriptions, should the subscriber fail to
pay the whole or any part of the balance of his subscription upon 30 days' notice issued therefor by the
Board of Directors.chanroblesvirtualawlibrary chanrobles virtual law library
Witness our official signatures at Manila, P.
1920.chanroblesvirtualawlibrarychanrobles virtual law library
(Sgd.)
Cashier chanrobles virtual law library
(Sgd.)
President

DEE

I.,

this

MERVIN

25th

day

of

August,

WEBSTER

C.

Fua Cun thereupon brought the present action maintaining that by virtue of the payment of the one-half of
the subscription price of five hundred shares Chua Soco in effect became the owner of two hundred and
fifty shares and praying that his, the plaintiff's, lien on said shares, by virtue of the chattel mortgage, be
declared to hold priority over the claim of the defendant Banking Corporation; that the defendants be
ordered to deliver the receipt in question to him; and that he be awarded the sum of P5,000 in damages for
wrongful attachment.chanroblesvirtualawlibrary chanrobles virtual law library

CHUAN

The trial court rendered judgment in favor of the plaintiff declaring that Chua Soco, through the payment
of the P25,000, acquired the right to two hundred and fifty shares fully paid up, upon which shares the
plaintiff holds a lien superior to that of the defendant Banking Corporation and ordering that the receipt be
returned to said plaintiff. From this judgment the defendants appeal.chanroblesvirtualawlibrary chanrobles
virtual law library
Though the court below erred in holding that Chua Soco, by paying one-half of the subscription price of
five hundred shares, in effect became the owner of two hundred and fifty shares, the judgment appealed
from is in the main correct.chanroblesvirtualawlibrary chanrobles virtual law library
The claim of the defendant Banking Corporation upon which it brought the action in which the writ of
attachment was issued, was for the non-payment of drafts accepted by Chua Soco and had no direct
connection with the shares of stock in question. At common law a corporation has no lien upon the shares
of stockholders for any indebtedness to the corporation (Jones on Liens, 3d ed., sec. 375) and our attention
has not been called to any statute creating such lien here. On the contrary, section 120 of the Corporation
Act provides that "no bank organized under this Act shall make any loan or discount on the security of the
shares of its own capital stock, nor be the purchaser or holder of any such shares, unless such security or
purchase shall be necessary to prevent loss upon a debt previously contracted in good faith, and stock so
purchased or acquired shall, within six months from the time of its purchase, be sold or disposed of at
public or private sale, or, in default thereof, a receiver may be appointed to close up the business of the
bank in accordance with law." chanrobles virtual law library
Section 35 of the United States National Banking Act of 1864 contains a similar provision and it has been
held in various decisions of the United States Supreme Court that a bank organized under that Act can
have no lien on its own stock for the indebtedness of the stockholders even when the by-laws provide that
the shares shall be transferable only on the books of the corporation and that no such transfer shall be
made if the holder of the shares is indebted to the corporation. (Jones on Liens, 3d ed., sec. 384; First
National Bank of South Bend vs. Lanier and Handy, 11 Wall., 369; Bullard vs. National Eagle Bank, 18
Wall., 589; First National Bank of Xenia vs. Stewart and McMillan, 107 U.S., 676.) The reasons for this
doctrine are obvious; if banking corporations were given a lien on their own stock for the indebtedness of
the stockholders, the prohibition against granting loans or discounts upon the security of the stock would
become largely ineffective.chanroblesvirtualawlibrary chanrobles virtual law library

Turning now to the rights of the plaintiff in the stock in question, it is argued that the interest held by Chua
Soco was merely an equity which could not be made the subject of a chattel mortgage. Though the courts
have uniformly held that chattel mortgages on shares of stock and other choses in action are valid as
between the parties, there is still much to be said in favor of the defendants' contention that the chattel
mortgage here in question would not prevail over liens of third parties without notice; an equity in shares
of stock is of such an intangible character that it is somewhat difficult to see how it can be treated as a
chattel and mortgaged in such a manner that the recording of the mortgage will furnish constructive notice
to third parties. As said by the court in the case of Spalding vs. Paine's Adm'r. (81 Ky., 416), in regard to a
chattel mortgage of shares of stock:
These certificates of stock are in the pockets of the owner, and go with him where he may happen to
locate, as choses in action, or evidence of his right, without any means on the part of those with whom he
proposes to deal on the faith of such a security of ascertaining whether or not this stock is in pledge or
mortgaged to others. He finds the name of the owner on the books of the company as a subscriber of paidup stock, amounting to 180 shares, with the certificates in his possession, pays for these certificates their
full value, and has the transfer to him made on the books of the company, thereby obtaining a perfect title.
What other inquiry is he to make, so as to make his investment certain and secure? Where is he to look, in
order to ascertain whether or not this stock has been mortgaged? The chief office of the company may be
at one place to-day and at another tomorrow. The owner may have no fixed or permanent abode, and with
his notes in one pocket and his certificates of stock in the other - the one evidencing the extent of his
interest in the stock of the corporation, the other his right to money owing him by his debtor, we are asked
to say that the mortgage is effectual as to the one and inoperative as to the other.
But a determination of this question is not essential in the present case. There can be no doubt that an
equity in shares of stock may be assigned and that the assignment is valid as between the parties and as to
persons to whom notice is brought home. Such an assignment exists here, though it was made for the
purpose of securing a debt. The endorsement to the plaintiff of the receipt above mentioned reads:
For value received, I assign all my rights in these
Cun.chanroblesvirtualawlibrary chanrobles virtual law library

shares

in

favor

of

Mr.

Tua

Manila, P. I., May 18, 1921.chanroblesvirtualawlibrary chanrobles virtual law library

(Sgd.) CHUA SOCO
This endorsement was accompanied by the delivery of the receipt to the plaintiff and further strengthened
by the execution of the chattel mortgage, which mortgage, at least, operated as a conditional equitable
assignment.chanroblesvirtualawlibrary chanrobles virtual law library
As against the rights of the plaintiff the defendant bank had, as we have seen, no lien unless by virtue of
the attachment. But the attachment was levied after the bank had received notice of the assignment of
Chua Soco's interests to the plaintiff and was therefore subject to the rights of the latter. It follows that as
against these rights the defendant bank holds no lien whatever.chanroblesvirtualawlibrary chanrobles
virtual law library
As we have already stated, the court erred in holding the plaintiff as the owner of two hundred and fifty
shares of stock; "the plaintiff's rights consist in an equity in five hundred shares and upon payment of the
unpaid portion of the subscription price he becomes entitled to the issuance of certificate for said five
hundred shares in his favor." chanrobles virtual law library
The judgment appealed from is modified accordingly, and in all other respects it is affirmed, with the costs
against the appellants Banking Corporation. So ordered.

Vito Tanjutco Jr.

G.R. No. L-20583

January 23, 1967

REPUBLIC
OF
THE
PHILIPPINES, petitioner,
vs.
SECURITY CREDIT AND ACCEPTANCE CORPORATION, ROSENDO T. RESUELLO, PABLO
TANJUTCO, ARTURO SORIANO, RUBEN BELTRAN, BIENVENIDO V. ZAPA, PILAR G.
RESUELLO, RICARDO D. BALATBAT, JOSE SEBASTIAN and VITO TANJUTCO
JR., respondents.
Office of the Solicitor General Arturo A. Alafriz and Solicitor E. M. Salva for petitioner.
Sycip,
Salazar,
Luna,
Manalo
&
Feliciano
for
respondents.
Natalio M. Balboa and F. E. Evangelista for the receiver.

CONCEPCION, C.J.:
This is an original quo warranto proceeding, initiated by the Solicitor General, to dissolve the Security
and Acceptance Corporation for allegedly engaging in banking operations without the authority required
therefor by the General Banking Act (Republic Act No. 337). Named as respondents in the petition are, in
addition to said corporation, the following, as alleged members of its Board of Directors and/or Executive
Officers, namely:
NAME

POSITION

Rosendo T. Resuello

President & Chairman of the Board

Pablo Tanjutco

Director

Arturo Soriano

Director

Ruben Beltran

Director

Bienvenido V. Zapa

Director & Vice-President

Pilar G. Resuello

Director & Secretary-Treasurer

Ricardo D. Balatbat

Director & Auditor

Jose R. Sebastian

Director & Legal Counsel

Director & Personnel Manager

The record shows that the Articles of Incorporation of defendant corporation 1 were registered with the
Securities and Exchange Commission on March 27, 1961; that the next day, the Board of Directors of the
corporation adopted a set of by-laws, 2 which were filed with said Commission on April 5, 1961; that on
September 19, 1961, the Superintendent of Banks of the Central Bank of the Philippines asked its legal
counsel an opinion on whether or not said corporation is a banking institution, within the purview of
Republic Act No. 337; that, acting upon this request, on October 11, 1961, said legal counsel rendered an
opinion resolving the query in the affirmative; that in a letter, dated January 15, 1962, addressed to said
Superintendent of Banks, the corporation through its president, Rosendo T. Resuello, one of defendants
herein, sought a reconsideration of the aforementioned opinion, which reconsideration was denied on
March 16, 1962; that, prior thereto, or on March 9, 1961, the corporation had applied with the Securities
and Exchange Commission for the registration and licensing of its securities under the Securities Act; that,
before acting on this application, the Commission referred it to the Central Bank, which, in turn, gave the
former a copy of the above-mentioned opinion, in line with which, the Commission advised the
corporation on December 5, 1961, to comply with the requirements of the General Banking Act; that, upon
application of members of the Manila Police Department and an agent of the Central Bank, on May 18,
1962, the Municipal Court of Manila issued Search Warrant No. A-1019; that, pursuant thereto, members
of the intelligence division of the Central Bank and of the Manila Police Department searched the
premises of the corporation and seized documents and records thereof relative to its business operations;
that, upon the return of said warrant, the seized documents and records were, with the authority of the
court, placed under the custody of the Central Bank of the Philippines; that, upon examination and
evaluation of said documents and records, the intelligence division of the Central Bank submitted, to the
Acting Deputy Governor thereof, a memorandum dated September 10, 1962, finding that the corporation
is:
1. Performing banking functions, without requisite certificate of authority from the Monetary
Board of the Central Bank, in violation of Secs. 2 and 6 of Republic Act 337, in that it is
soliciting and accepting deposit from the public and lending out the funds so received;
2. Soliciting and accepting savings deposits from the general public when the company's
articles of incorporation authorize it only to engage primarily in financing agricultural,
commercial and industrial projects, and secondarily, in buying and selling stocks and bonds of
any corporation, thereby exceeding the scope of its powers and authority as granted under its
charter; consequently such acts are ultra-vires:
3. Soliciting subscriptions to the corporate shares of stock and accepting deposits on account
thereof, without prior registration and/or licensing of such shares or securing exemption
therefor, in violation of the Securities Act; and
4. That being a private credit and financial institution, it should come under the supervision of
the Monetary Board of the Central Bank, by virtue of the transfer of the authority, power,
duties and functions of the Secretary of Finance, Bank Commissioner and the defunct Bureau
of Banking, to the said Board, pursuant to Secs. 139 and 140 of Republic Act 265 and Secs. 88
and 89 of Republic Act 337." (Emphasis Supplied.) that upon examination and evaluation of
the same records of the corporation, as well as of other documents and pertinent pipers
obtained elsewhere, the Superintendent of Banks, submitted to the Monetary Board of the
Central Bank a memorandum dated August 28, 1962, stating inter alia.
11. Pursuant to the request for assistance by the Chief, Intelligence Division, contained in his
Memorandum to the Governor dated May 23, 1962 and in accordance with the written
instructions of Governor Castillo dated May 31, 1962, an examination of the books and records
of the Security Credit and Loans Organizations, Inc. seized by the combined MPD-CB team
was conducted by this Department. The examination disclosed the following findings:

a. Considering the extent of its operations, the Security Credit and Acceptance
Corporation, Inc.,receives deposits from the public regularly. Such deposits are
treated in the Corporation's financial statements as conditional subscription to
capital stock. Accumulated deposits of P5,000 of an individual depositor may be
converted into stock subscription to the capital stock of the Security Credit and
Acceptance Corporation at the option of the depositor. Sale of its shares of stock or
subscriptions to its capital stock are offered to the public as part of its regular
operations.
b. That out of the funds obtained from the public through the receipt of deposits
and/or the sale of securities, loans are made regularly to any person by the Security
Credit and Acceptance Corporation.
A copy of the Memorandum Report dated July 30, 1962 of the examination made by
Examiners of this Department of the seized books and records of the Corporation is attached
hereto.
12. Section 2 of Republic Act No. 337, otherwise known as the General Banking Act, defines
the term, "banking institution" as follows:
Sec. 2. Only duly authorized persons and entities may engage in the lending of
funds obtained from the public through the receipts of deposits or the sale of bonds,
securities, or obligations of any kind and all entities regularly conducting operations
shall be considered as banking institutions and shall be subject to the provisions of
this Act, of the Central Bank Act, and of other pertinent laws. ...
13. Premises considered, the examination disclosed that the Security Credit and Acceptance
Corporation isregularly lending funds obtained from the receipt of deposits and/or the sale of
securities. The Corporation therefore is performing 'banking functions' as contemplated in
Republic Act No. 337, without having first complied with the provisions of said Act.
Recommendations:
In view of all the foregoing, it is recommended that the Monetary Board decide and declare:
1. That the Security Credit and Acceptance Corporation is performing banking functions
without having first complied with the provisions of Republic Act No. 337, otherwise known
as the General Banking Act, in violation of Sections 2 and 6 thereof; and
2. That this case be referred to the Special Assistant to the Governor (Legal Counsel) for
whatever legal actions are warranted, including, if warranted criminal action against the
Persons criminally liable and/orquo warranto proceedings with preliminary injunction against
the Corporation for its dissolution. (Emphasis supplied.)
that, acting upon said memorandum of the Superintendent of Banks, on September 14, 1962,
the Monetary Board promulgated its Resolution No. 1095, declaring that the corporation is
performing banking operations, without having first complied with the provisions of Sections 2
and 6 of Republic Act No. 337; 3that on September 25, 1962, the corporation was advised of the
aforementioned resolution, but, this notwithstanding, the corporation, as well as the members
of its Board of Directors and the officers of the corporation, have been and still are performing
the functions and activities which had been declared to constitute illegal banking operations;
that during the period from March 27, 1961 to May 18, 1962, the corporation had established
74 branches in principal cities and towns throughout the Philippines; that through a systematic

and vigorous campaign undertaken by the corporation, the same had managed to induce the
public to open 59,463 savings deposit accounts with an aggregate deposit of P1,689,136.74;
that, in consequence of the foregoing deposits with the corporation, its original capital stock of
P500,000, divided into 20,000 founders' shares of stock and 80,000 preferred shares of stock,
both of which had a par value of P5.00 each, was increased, in less than one (1) year, to
P3,000,000 divided into 130,000 founders' shares and 470,000 preferred shares, both with a par
value of P5.00 each; and that, according to its statement of assets and liabilities, as of
December 31, 1961, the corporation had a capital stock aggregating P1,273,265.98 and
suffered, during the year 1961, a loss of P96,685.29. Accordingly, on December 6, 1962, the
Solicitor General commenced this quo warranto proceedings for the dissolution of the
corporation, with a prayer that, meanwhile, a writ of preliminary injunction be issued ex parte,
enjoining the corporation and its branches, as well as its officers and agents, from performing
the banking operations complained of, and that a receiver be appointed pendente lite.
Upon joint motion of both parties, on August 20, 1963, the Superintendent of Banks of the Central Bank
of the Philippines was appointed by this Court receiver pendente lite of defendant corporation, and upon
the filing of the requisite bond, said officer assumed his functions as such receiver on September 16, 1963.
In their answer, defendants admitted practically all of the allegations of fact made in the petition. They,
however, denied that defendants Tanjutco (Pablo and Vito, Jr.), Soriano, Beltran, Zapa, Balatbat and
Sebastian, are directors of the corporation, as well as the validity of the opinion, ruling, evaluation and
conclusions, rendered, made and/or reached by the legal counsel and the intelligence division of the
Central Bank, the Securities and Exchange Commission, and the Superintendent of Banks of the
Philippines, or in Resolution No. 1095 of the Monetary Board, or of Search Warrant No. A-1019 of the
Municipal Court of Manila, and of the search and seizure made thereunder. By way of affirmative
allegations, defendants averred that, as of July 7, 1961, the Board of Directors of the corporation was
composed of defendants Rosendo T. Resuello, Aquilino L. Illera and Pilar G. Resuello; that on July 11,
1962, the corporation had filed with the Superintendent of Banks an application for conversion into a
Security Savings and Mortgage Bank, with defendants Zapa, Balatbat, Tanjutco (Pablo and Vito, Jr.),
Soriano, Beltran and Sebastian as proposed directors, in addition to the defendants first named above, with
defendants Rosendo T. Resullo, Zapa, Pilar G. Resuello, Balatbat and Sebastian as proposed president,
vice-president, secretary-treasurer, auditor and legal counsel, respectively; that said additional officers had
never assumed their respective offices because of the pendency of the approval of said application for
conversion; that defendants Soriano, Beltran, Sebastian, Vito Tanjutco Jr. and Pablo Tanjutco had
subsequently withdrawn from the proposed mortgage and savings bank; that on November 29, 1962 or
before the commencement of the present proceedings the corporation and defendants Rosendo T.
Resuello and Pilar G. Resuello had instituted Civil Case No. 52342 of the Court of First Instance of
Manila against Purificacion Santos and other members of the savings plan of the corporation and the City
Fiscal for a declaratory relief and an injunction; that on December 3, 1962, Judge Gaudencio Cloribel of
said court issued a writ directing the defendants in said case No. 52342 and their representatives or agents
to refrain from prosecuting the plaintiff spouses and other officers of the corporation by reason of or in
connection with the acceptance by the same of deposits under its savings plan; that acting upon a petition
filed by plaintiffs in said case No. 52342, on December 6, 1962, the Court of First Instance of Manila had
appointed Jose Ma. Ramirez as receiver of the corporation; that, on December 12, 1962, said Ramirez
qualified as such receiver, after filing the requisite bond; that, except as to one of the defendants in said
case No. 52342, the issues therein have already been joined; that the failure of the corporation to honor the
demands for withdrawal of its depositors or members of its savings plan and its former employees was
due, not to mismanagement or misappropriation of corporate funds, but to an abnormal situation created
by the mass demand for withdrawal of deposits, by the attachment of property of the corporation by its
creditors, by the suspension by debtors of the corporation of the payment of their debts thereto and by an
order of the Securities and Exchange Commission dated September 26, 1962, to the corporation to stop
soliciting and receiving deposits; and that the withdrawal of deposits of members of the savings plan of
the corporation was understood to be subject, as to time and amounts, to the financial condition of the
corporation as an investment firm.
In its reply, plaintiff alleged that a photostat copy, attached to said pleading, of the anniversary publication
of defendant corporation showed that defendants Pablo Tanjutco, Arturo Soriano, Ruben Beltran,

Bienvenido V. Zapa, Ricardo D. Balatbat, Jose R. Sebastian and Vito Tanjutco Jr. are officers and/or
directors thereof; that this is confirmed by the minutes of a meeting of stockholders of the corporation,
held on September 27, 1962, showing that said defendants had been elected officers thereof; that the views
of the legal counsel of the Central Bank, of the Securities and Exchange Commission, the Intelligence
Division, the Superintendent of Banks and the Monetary Board above referred to have been expressed in
the lawful performance of their respective duties and have not been assailed or impugned in accordance
with law; that neither has the validity of Search Warrant No. A-1019 been contested as provided by law;
that the only assets of the corporation now consist of accounts receivable amounting approximately to
P500,000, and its office equipment and appliances, despite its increased capitalization of P3,000,000 and
its deposits amounting to not less than P1,689,136.74; and that the aforementioned petition of the
corporation, in Civil Case No. 52342 of the Court of First Instance of Manila, for a declaratory relief is
now highly improper, the defendants having already committed infractions and violations of the law
justifying the dissolution of the corporation.
Although, admittedly, defendant corporation has not secured the requisite authority to engage in banking,
defendants deny that its transactions partake of the nature of banking operations. It is conceded, however,
that, in consequence of a propaganda campaign therefor, a total of 59,463 savings account deposits have
been made by the public with the corporation and its 74 branches, with an aggregate deposit of
P1,689,136.74, which has been lent out to such persons as the corporation deemed suitable therefor. It is
clear that these transactions partake of the nature of banking, as the term is used in Section 2 of the
General Banking Act. Indeed, a bank has been defined as:
... a moneyed institute [Talmage vs. Pell 7 N.Y. (3 Seld. ) 328, 347, 348] founded to facilitate
the borrowing, lending and safe-keeping of money (Smith vs. Kansas City Title & Trust Co.,
41 S. Ct. 243, 255 U.S. 180, 210, 65 L. Ed. 577) and to deal, in notes, bills of exchange, and
credits (State vs. Cornings Sav. Bank, 115 N.W. 937, 139 Iowa 338). (Banks & Banking, by
Zellmann Vol. 1, p. 46).
Moreover, it has been held that:
An investment company which loans out the money of its customers, collects the interest and
charges a commission to both lender and borrower, is a bank. (Western Investment Banking
Co. vs. Murray, 56 P. 728, 730, 731; 6 Ariz 215.)
... any person engaged in the business carried on by banks of deposit, of discount, or of
circulation is doing a banking business, although but one of these functions is exercised.
(MacLaren vs. State, 124 N.W. 667, 141 Wis. 577, 135 Am. S.R. 55, 18 Ann. Cas. 826; 9 C.J.S.
30.)
Accordingly, defendant corporation has violated the law by engaging in banking without
securing the administrative authority required in Republic Act No. 337.
That the illegal transactions thus undertaken by defendant corporation warrant its dissolution is apparent
from the fact that the foregoing misuser of the corporate funds and franchise affects the essence of its
business, that it is willful and has been repeated 59,463 times, and that its continuance inflicts injury upon
the public, owing to the number of persons affected thereby.
It is urged, however, that this case should be remanded to the Court of First Instance of Manila upon the
authority of Veraguth vs. Isabela Sugar Co. (57 Phil. 266). In this connection, it should be noted that this
Court is vested with original jurisdiction, concurrently with courts of first instance, to hear and decide quo
warranto cases and, that, consequently, it is discretionary for us to entertain the present case or to require
that the issues therein be taken up in said Civil Case No. 52342. The Veraguth case cited by herein
defendants, in support of the second alternative, is not in point, because in said case there were issues of
fact which required the presentation of evidence, and courts of first instance are, in general, better

equipped than appellate courts for the taking of testimony and the determination of questions of fact. In
the case at bar, there is, however, no dispute as to the principal facts or acts performed by the corporation
in the conduct of its business. The main issue here is one of law, namely, the legal nature of said facts or of
the aforementioned acts of the corporation. For this reason, and because public interest demands an early
disposition of the case, we have deemed it best to determine the merits thereof.
Wherefore, the writ prayed for should be, as it is hereby granted and defendant corporation is, accordingly,
ordered dissolved. The appointment of receiver herein issued pendente lite is hereby made permanent, and
the receiver is, accordingly, directed to administer the properties, deposits, and other assets of defendant
corporation and wind up the affairs thereof conformably to Rules 59 and 66 of the Rules of Court. It is so
ordered.

laws, with its main branch located at C.M. Recto Avenue, this City, and taking
advantage of his position as such officer/director of the said bank, did then and
there wilfully, unlawfully and knowingly borrow, either directly or indirectly,
for himself or as the representative of his other related companies, the deposits
or funds of the said banking institution and/or become a guarantor, indorser or
obligor for loans from the said bank to others, by then and there using said
borrowed deposits/funds of the said bank in facilitating and granting and/or
caused the facilitating and granting of credit lines/loans and, among others, to
the New Zealand Accounts loans in the total amount of TWO BILLION AND
SEVEN
HUNDRED
FIFTY-FOUR
MILLION
NINE
HUNDRED
FIVE THOUSAND AND EIGHT HUNDRED FIFTY-SEVEN AND 0/100
PESOS, Philippine Currency, said accused knowing fully well that the same has
been done by him without the written approval of the majority of the Board of
Directors of said Orient Bank and which approval the said accused deliberately
failed to obtain and enter the same upon the records of said banking institution and
to transmit a copy of which to the supervising department of the said bank, as
required by the General Banking Act.

SECOND DIVISION
JOSE C. GO,

G.R. No. 178429

Petitioner,
Present:

versus

QUISUMBING, J., Chairperson,

*
CARPIO,
CARPIO MORALES,
BRION, and
ABAD, JJ.

BANGKO SENTRAL NG PILIPINAS,

Respondent.

Promulgated:

October 23, 2009

x ------------------------------------------------------------------------------------------x
DECISION
BRION, J.:
Through the present petition for review on certiorari,[1] petitioner Jose C. Go (Go) assails
the October 26, 2006 decision[2] of the Court of Appeals (CA) in CA-G.R. SP No. 79149, as well as
its June 4, 2007 resolution.[3] The CA decision and resolution annulled and set aside the May 20,
2003[4] and June 30, 2003[5] orders of the Regional Trial Court (RTC), Branch 26, Manila which granted
Gos motion to quash the Information filed against him.
THE FACTS
On August 20, 1999, an Information [6] for violation of Section 83 of Republic Act No. 337 (RA 337)
or the General Banking Act, as amended by Presidential Decree No. 1795, was filed against Go before the
RTC. The charge reads:
That on or about and during the period comprised between June 27,
1996 and September 15, 1997, inclusive, in the City of Manila, Philippines, the
said accused, being then the Director and the President and Chief Executive
Officer of the Orient Commercial Banking Corporation (Orient Bank), a
commercial banking institution created, organized and existing under Philippines

CONTRARY TO LAW. [Emphasis supplied.]

On May 28, 2001, Go pleaded not guilty to the offense charged.
After the arraignment, both the prosecution and accused Go took part in the pre-trial
conference where the marking of the voluminous evidence for the parties was accomplished. After the
completion of the marking, the trial court ordered the parties to proceed to trial on the merits.
Before the trial could commence, however, Go filed on February 26, 2003[7] a motion to quash the
Information, which motion Go amended on March 1, 2003.[8] Go claimed that the Information was
defective, as the facts charged therein do not constitute an offense under Section 83 of RA 337 which
states:
No director or officer of any banking institution shall either directly or
indirectly, for himself or as the representative or agent of another, borrow any of the
deposits of funds of such banks, nor shall he become a guarantor, indorser, or surety
for loans from such bank, to others, or in any manner be an obligor for money
borrowed from the bank or loaned by it, except with the written approval of the
majority of the directors of the bank, excluding the director concerned. Any such
approval shall be entered upon the records of the corporation and a copy of such
entry shall be transmitted forthwith to the appropriate supervising department. The
office of any director or officer of a bank who violates the provisions of this section
shall immediately become vacant and the director or officer shall be punished by
imprisonment of not less than one year nor more than ten years and by a fine of not
less than one thousand nor more than ten thousand pesos.
The Monetary Board may regulate the amount of credit accommodations
that may be extended, directly or indirectly, by banking institutions to their
directors, officers, or stockholders. However, the outstanding credit
accommodations which a bank may extend to each of its stockholders owning two
percent (2%) or more of the subscribed capital stock, its directors, or its officers,
shall be limited to an amount equivalent to the respective outstanding deposits and
book value of the paid-in capital contribution in the bank. Provided, however, that
loans and advances to officers in the form of fringe benefits granted in accordance
with rules and regulations as may be prescribed by Monetary Board shall not be
subject to the preceding limitation. (As amended by PD 1795)
In addition to the conditions established in the preceding paragraph, no
director or a building and loan association shall engage in any of the operations
mentioned in said paragraphs, except upon the pledge of shares of the association

having a total withdrawal value greater than the amount borrowed. (As amended by
PD 1795)

of. To petitioner Go, the prosecutions approach was a clear violation of his constitutional right to be
informed of the nature and cause of the accusation against him.

In support of his motion to quash, Go averred that based on the facts alleged in the
Information, he was being prosecuted for borrowing the deposits or funds of the Orient
Bank and/or acting as a guarantor, indorser or obligor for the banks loans to other persons. The use of
the word and/or meant that he was charged for being either a borrower or a guarantor, or for being both
a borrower and guarantor. Go claimed that the charge was not only vague, but also did not constitute an
offense. He posited that Section 83 of RA 337 penalized only directors and officers of banking
institutions who acted either as borrower or as guarantor, but not as both.

Additionally, Go reiterates his claim that credit accommodations by banks to their directors and
officers are legal and valid, provided that these are limited to their outstanding deposits and book value of
the paid-in capital contribution in the bank. The failure to state that he borrowed deposits and/or
guaranteed loans beyond this limit rendered the Information defective. He thus asks the Court to reverse
the CA decision to reinstate the criminal charge.

Go further pointed out that the Information failed to state that his alleged act of borrowing
and/or guarantying was not among the exceptions provided for in the law. According to Go, the second
paragraph of Section 83 allowed banks to extend credit accommodations to their directors, officers, and
stockholders, provided it is limited to an amount equivalent to the respective outstanding deposits and
book value of the paid-in capital contribution in the bank. Extending credit accommodations to bank
directors, officers, and stockholders is not per se prohibited, unless the amount exceeds the legal
limit. Since the Information failed to state that the amount he purportedly borrowed and/or guarantied
was beyond the limit set by law, Go insisted that the acts so charged did not constitute an offense.
Finding Gos contentions persuasive, the RTC granted Gos motion to quash the Information
on May 20, 2003. It denied on June 30, 2003 the motion for reconsideration filed by the prosecution.
The prosecution did not accept the RTC ruling and filed a petition for certiorari to question it
before the CA. The Information, the prosecution claimed, was sufficient. The word and/or did not
materially affect the validity of the Information, as it merely stated a mode of committing the crime
penalized under Section 83 of RA 337. Moreover, the prosecution asserted that the second paragraph of
Section 83 (referring to the credit accommodation limit) cannot be interpreted as an exception to what the
first paragraph provided. The second paragraph only sets borrowing limits that, if violated, render the
bank, not the director-borrower, liable. A violation of the second paragraph of Section 83 under which
Go is being prosecuted is therefore separate and distinct from a violation of the first paragraph. Thus,
the prosecution prayed that the orders of the RTC quashing the Information be set aside and the criminal
case against Go be reinstated.
On October 26, 2006, the CA rendered the assailed decision granting the prosecutions petition
for certiorari.[9] The CA declared that the RTC misread the law when it decided to quash the Information
against Go. It explained that the allegation that Go acted either as a borrower or a guarantor or as both
borrower and guarantor merely set forth the different modes by which the offense was committed. It did
not necessarily mean that Go acted both as borrower and guarantor for the same loan at the same time. It
agreed with the prosecutions stand that the second paragraph of Section 83 of RA 337 is not an exception
to the first paragraph. Thus, the failure of the Information to state that the amount of the loan Go
borrowed or guaranteed exceeded the legal limits was, to the CA, an irrelevant issue. For these reasons,
the CA annulled and set aside the RTCs orders and ordered the reinstatement of the criminal charge
against Go. After the CAs denial of his motion for reconsideration, [10] Go filed the present appeal
by certiorari.
THE PETITION
In his petition, Go alleges that the appellate court legally erred in overturning the trial courts
orders. He insists that the Information failed to allege the acts or omissions complained of with sufficient
particularity to enable him to know the offense being charged; to allow him to properly prepare his
defense; and likewise to allow the court to render proper judgment.
Repeating his arguments in his motion to quash, Go reads Section 83 of RA 337 as penalizing a
director or officer of a banking institution for either borrowing the deposits or funds of the bank,
or guaranteeing or indorsing loans to others, but not for assuming both capacities. He claimed that the
prosecutions shotgun approach in alleging that he acted as borrower and/or guarantor rendered the
Information highly defective for failure to specify with certainty the specific act or omission complained

In its Comment, [11] the prosecution raises the same defenses against Gos contentions. It insists
on the sufficiency of the allegations in the Information and prays for the denial of Gos petition.
THE COURTS RULING
The Court does not find the petition meritorious and accordingly denies it.
The Accuseds Right to be Informed
Under the Constitution, a person who stands charged of a criminal offense has the right to be
informed of the nature and cause of the accusation against him. [12] The Rules of Court, in implementing
the right, specifically require that the acts or omissions complained of as constituting the offense,
including the qualifying and aggravating circumstances, must be stated in ordinary and concise language,
not necessarily in the language used in the statute, but in terms sufficient to enable a person of common
understanding to know what offense is being charged and the attendant qualifying and aggravating
circumstances present, so that the accused can properly defend himself and the court can pronounce
judgment.[13] To broaden the scope of the right, the Rules authorize the quashal, upon motion of the
accused, of an Information that fails to allege the acts constituting the offense. [14] Jurisprudence has laid
down the fundamental test in appreciating a motion to quash an Information grounded on the insufficiency
of the facts alleged therein. We stated in People v. Romualdez[15] that:
The determinative test in appreciating a motion to quash xxx is the sufficiency of
the averments in the information, that is, whether the facts alleged, if hypothetically
admitted, would establish the essential elements of the offense as defined by law
without considering matters aliunde. As Section 6, Rule 110 of the Rules of
Criminal Procedure requires, the information only needs to state the ultimate
facts; the evidentiary and other details can be provided during the trial.
To restate the rule, an Information only needs to state the ultimate facts
constituting the offense, not the finer details of why and how the illegal acts
alleged amounted to undue injury or damage matters that are appropriate for
the trial. [Emphasis supplied]
The facts and circumstances necessary to be included in the Information are determined by reference to
the definition and elements of the specific crimes. The Information must allege clearly and accurately
the elements of the crime charged.[16]
Elements of Violation of
Section 83 of RA 337
Under Section 83, RA 337, the following elements must be present to constitute a violation of its
first paragraph:
1.
2.

the offender is a director or officer of any banking institution;

the offender, either directly or indirectly, for himself or as representative or agent of another,
performs any of the following acts:

a.
b.
c.

3.

he borrows any of the deposits or funds of such bank; or

he becomes a guarantor, indorser, or surety for loans from such bank to others, or
he becomes in any manner an obligor for money borrowed from bank or
loaned by it;
the offender has performed any of such acts without the written approval of the majority of the
directors of the bank, excluding the offender, as the director concerned.

A simple reading of the above elements easily rejects Gos contention that the law penalizes a
bank director or officer only either for borrowing the banks deposits or funds or for guarantying loans by
the bank, but not for acting in both capacities. The essence of the crime is becoming an obligor of the
bank without securing the necessary written approval of the majority of the banks directors.
The second element merely lists down the various modes of committing the offense. The third
mode, by declaring that [no director or officer of any banking institution shall xxx] in any manner be an
obligor for money borrowed from the bank or loaned by it, in fact serves a catch-all phrase that covers
any situation when a director or officer of the bank becomes its obligor. The prohibition is directed
against a bank director or officer who becomes in any manner an obligor for money borrowed from
or loaned by the bank without the written approval of the majority of the banks board of
directors. To make a distinction between the act of borrowing and guarantying is therefore unnecessary
because in either situation, the director or officer concerned becomes an obligor of the bank against whom
the obligation is juridically demandable.
The language of the law is broad enough to encompass either act of borrowing or guaranteeing,
or both. While the first paragraph of Section 83 is penal in nature, and by principle should be strictly
construed in favor of the accused, the Court is unwilling to adopt a liberal construction that would defeat
the legislatures intent in enacting the statute. The objective of the law should allow for a reasonable
flexibility in its construction. Section 83 of RA 337, as well as other banking laws adopting the same
prohibition,[17] was enacted to ensure that loans by banks and similar financial institutions to their own
directors, officers, and stockholders are above board. [18] Banks were not created for the benefit of their
directors and officers; they cannot use the assets of the bank for their own benefit, except as may be
permitted by law. Congress has thus deemed it essential to impose restrictions on borrowings by bank
directors and officers in order to protect the public, especially the depositors. [19] Hence, when the law
prohibits directors and officers of banking institutions from becoming in any manner an obligor of the
bank (unless with the approval of the board), the terms of the prohibition shall be the standards to be
applied to directors transactions such as those involved in the present case.
Credit accommodation limit is not an
exception nor is it an element of the
offense
Contrary to Gos claims, the second paragraph of Section 83, RA 337 does not provide for an
exception to a violation of the first paragraph thereof, nor does it constitute as an element of the offense
charged. Section 83 of RA 337 actually imposes three restrictions: approval, reportorial, and ceiling
requirements.
The approval requirement (found in the first sentence of the first paragraph of the law) refers
to the written approval of the majority of the banks board of directors required before bank directors and
officers can in any manner be an obligor for money borrowed from or loaned by the bank. Failure to
secure the approval renders the bank director or officer concerned liable for prosecution and, upon
conviction, subjects him to the penalty provided in the third sentence of first paragraph of Section 83.
The reportorial requirement, on the other hand, mandates that any such approval should be
entered upon the records of the corporation, and a copy of the entry be transmitted to the appropriate
supervising department. The reportorial requirement is addressed to the bank itself, which, upon its
failure to do so, subjects it to quo warrantoproceedings under Section 87 of RA 337.[20]

The ceiling requirement under the second paragraph of Section 83 regulates the amount of
credit accommodations that banks may extend to their directors or officers by limiting these to an amount
equivalent to the respective outstanding deposits and book value of the paid-in capital contribution in the
bank. Again, this is a requirement directed at the bank. In this light, a prosecution for violation of the
first paragraph of Section 83, such as the one involved here, does not require an allegation that the loan
exceeded the legal limit. Even if the loan involved is below the legal limit, a written approval by the
majority of the banks directors is still required; otherwise, the bank director or officer who becomes an
obligor of the bank is liable. Compliance with the ceiling requirement does not dispense with the approval
requirement.
Evidently, the failure to observe the three requirements under Section 83 paves the way for the
prosecution of three different offenses, each with its own set of elements. A successful indictment for
failing to comply with the approval requirement will not necessitate proof that the other two were likewise
not observed.
Rules of Court allow amendment of
insufficient Information
Assuming that the facts charged in the Information do not constitute an offense, we find it erroneous
for the RTC to immediately order the dismissal of the Information, without giving the prosecution a
chance to amend it. Section 4 of Rule 117 states:
SEC. 4. Amendment of complaint or information.If the motion to quash is
based on an alleged defect of the complaint or information which can be cured by
amendment, the court shall order that an amendment be made.
If it is based on the ground that the facts charged do not constitute an
offense, the prosecution shall be given by the court an opportunity to correct the
defect by amendment. The motion shall be granted if the prosecution fails to make
the amendment, or the complaint or information still suffers from the same defect
despite the amendment. [Emphasis supplied]
Although an Information may be defective because the facts charged do not constitute an offense,
the dismissal of the case will not necessarily follow. The Rules specifically require that the prosecution
should be given a chance to correct the defect; the court can order the dismissal only upon the
prosecutions failure to do so. The RTCs failure to provide the prosecution this
opportunity twice[21] constitutes an arbitrary exercise of power that was correctly addressed by the CA
through the certiorari petition. This defect in the RTCs action on the case, while not central to the issue
before us, strengthens our conclusion that this criminal case should be resolved through full-blown trial on
the merits.
WHEREFORE, we DENY the petitioners petition for review on certiorari and AFFIRM the
decision of the Court of Appeals in CA-G.R. SP No. 79149, promulgated onOctober 26, 2006, as well as
its resolution of June 4, 2007. The Regional Trial Court, Branch 26, Manila is directed
to PROCEED with the hearing of Criminal Case No. 99-178551. Costs against the petitioner.
SO ORDERED.

and received the proceeds of the loan; and that the P8 million loan had never been authorized by RBSM's Board of
Directors and no report thereof had ever been submitted to the Department of Rural Banks, Supervision and Examination
Sector of the BSP. The letter of the OSI, which was not subscribed under oath, ended with a request that a preliminary
investigation be conducted and the corresponding criminal charges be filed against petitioner at his last known address.
Acting on the letter-request and its annexes, State Prosecutor Albert R. Fonacier proceeded with the preliminary
investigation. He issued a subpoena with the witnesses affidavits and supporting documents attached, and required
petitioner to file his counter-affidavit. In due course, the investigating officer issued a Resolution finding probable cause
and correspondingly filed two separate informations against petitioner before the Regional Trial Court (RTC) of Malolos,
Bulacan.[13]
The first Information, [14] dated November 14, 2000 and docketed as Criminal Case No. 237-M-2001, was for
estafa through falsification of commercial documents, under Article 315, paragraph 1(b), of the Revised Penal Code
(RPC), in relation to Article 172 of the RPC and PD 1689. It basically alleged that petitioner and his co-accused, in
abuse of the confidence reposed in them as RBSM officers, caused the falsification of a number of loan documents,
making it appear that one Enrico Carlos filled up the same, and thereby succeeded in securing a loan and converting the
loan proceeds for their personal gain and benefit.[15] The information reads:

HILARIO P. SORIANO,
Petitioner,

G.R. No. 162336

- versus -

Present:

PEOPLE OF THE PHILIPPINES,

CARPIO, J., Chairperson,
BANGKO SENTRAL NG
CORONA,*
PILIPINAS (BSP), PHILIPPINE
BRION,
DEPOSIT INSURANCE
DEL CASTILLO, and
CORPORATION (PDIC), PUBLIC
PEREZ, JJ.
PROSECUTOR ANTONIO C.
BUAN, and STATE
PROSECUTOR ALBERTO R.
Promulgated:
FONACIER,
Respondents. [1]
February 1, 2010
x-------------------------------------------------------------------x
A bank officer violates the DOSRI [2] law when he acquires bank funds for his personal benefit, even if such
acquisition was facilitated by a fraudulent loan application. Directors, officers, stockholders, and their related interests
cannot be allowed to interpose the fraudulent nature of the loan as a defense to escape culpability for their circumvention
of Section 83 of Republic Act (RA) No. 337.[3]
Before us is a Petition for Review on Certiorari[4] under Rule 45 of the Rules of Court, assailing
the September 26, 2003 Decision[5] and the February 5, 2004 Resolution[6] of the Court of Appeals (CA) in CA-G.R. SP
No. 67657. The challenged Decision disposed as follows:
WHEREFORE, premises considered, the instant petition for certiorari is
hereby DENIED.[7]
Factual Antecedents
Sometime in 2000, the Office of Special Investigation (OSI) of the Bangko Sentral ng Pilipinas (BSP), through
its officers,[8] transmitted a letter[9] dated March 27, 2000 to Jovencito Zuo, Chief State Prosecutor of the Department of
Justice (DOJ). The letter attached as annexes five affidavits, [10] which would allegedly serve as bases for filing criminal
charges for Estafa thru Falsification of Commercial Documents, in relation to Presidential Decree (PD) No. 1689, [11] and
for Violation of Section 83 of RA 337, as amended by PD 1795, [12] against, inter alia,petitioner herein Hilario P.
Soriano. These five affidavits, along with other documents, stated that spouses Enrico and Amalia Carlos appeared to
have an outstanding loan of P8 million with the Rural Bank of San Miguel (Bulacan), Inc. (RBSM), but had never
applied for nor received such loan; that it was petitioner, who was then president of RBSM, who had ordered, facilitated,

That in or about the month of April, 1997, and thereafter, in San Miguel, Bulacan,
and within the jurisdiction of this Honorable Court, the said accused HILARIO P.
SORIANO and ROSALINDA ILAGAN, as principals by direct participation, with
unfaithfulness or abuse of confidence and taking advantage of their position as President of the
Rural Bank of San Miguel (Bulacan), Inc. and Branch Manager of the Rural Bank of San
Miguel San Miguel Branch [sic], a duly organized banking institution under Philippine Laws,
conspiring, confederating and mutually helping one another, did then and there, willfully and
feloniously falsify loan documents consisting of undated loan application/information sheet,
credit proposal dated April 14, 1997, credit proposal dated April 22, 1997, credit investigation
report dated April 15, 1997, promissory note dated April 23, 1997, disclosure statement on
loan/credit transaction dated April 23, 1997, and other related documents, by making it appear
that one Enrico Carlos filled up the application/information sheet and filed the aforementioned
loan documents when in truth and in fact Enrico Carlos did not participate in the execution of
said loan documents and that by virtue of said falsification and with deceit and intent to cause
damage, the accused succeeded in securing a loan in the amount of eight million pesos
(PhP8,000,000.00) from the Rural Bank of San Miguel San Ildefonso branch in the name of
Enrico Carlos which amount of PhP8 million representing the loan proceeds the accused
thereafter converted the same amount to their own personal gain and benefit, to the damage and
prejudice of the Rural Bank of San Miguel San Ildefonso branch, its creditors, the Bangko
Sentral ng Pilipinas, and the Philippine Deposit Insurance Corporation.
CONTRARY TO LAW.[16]
The other Information[17] dated November 10, 2000 and docketed as Criminal Case No. 238-M-2001, was for
violation of Section 83 of RA 337, as amended by PD 1795. The said provision refers to the prohibition against the socalled DOSRI loans. The information alleged that, in his capacity as President of RBSM, petitioner indirectly secured
an P8 million loan with RBSM, for his personal use and benefit, without the written consent and approval of the bank's
Board of Directors, without entering the said transaction in the bank's records, and without transmitting a copy of the
transaction to the supervising department of the bank. His ruse was facilitated by placing the loan in the name of an
unsuspecting RBSM depositor, one Enrico Carlos. [18] The information reads:
That in or about the month of April, 1997, and thereafter, and within the
jurisdiction of this Honorable Court, the said accused, in his capacity as President of the Rural
Bank of San Miguel (Bulacan), Inc., did then and there, willfully and feloniously indirectly
borrow or secure a loan with the Rural Bank of San Miguel San Ildefonso branch, a domestic
rural banking institution created, organized and existing under Philippine laws, amounting to
eight million pesos (PhP8,000,000.00), knowing fully well that the same has been done by him
without the written consent and approval of the majority of the board of directors of the said
bank, and which consent and approval the said accused deliberately failed to obtain and enter
the same upon the records of said banking institution and to transmit a copy thereof to the

supervising department of the said bank, as required by the General Banking Act, by using the
name of one depositor Enrico Carlos of San Miguel, Bulacan, the latter having no knowledge
of the said loan, and one in possession of the said amount of eight million pesos
(PhP8,000,000.00), accused converted the same to his own personal use and benefit, in flagrant
violation of the said law.

The CA further determined that the five affidavits attached to the transmittal letter should be considered as the
complaint-affidavits that charged petitioner with violation of Section 83 of RA 337 and for Estafa thru Falsification of
Commercial Documents. These complaint-affidavits complied with the mandatory requirements set out in the Rules of
Court they were subscribed and sworn to before a notary public and subsequently certified by State Prosecutor
Fonacier, who personally examined the affiants and was convinced that the affiants fully understood their sworn
statements.[31]

CONTRARY TO LAW.[19]
Both cases were raffled to Branch 79 of the RTC of Malolos, Bulacan.[20]
On June 8, 2001, petitioner moved to quash[21] these informations on two grounds: that the court had no
jurisdiction over the offense charged, and that the facts charged do not constitute an offense.
On the first ground, petitioner argued that the letter transmitted by the BSP to the DOJ constituted the complaint
and hence was defective for failure to comply with the mandatory requirements of Section 3(a), Rule 112 of the Rules of
Court, such as the statement of address of petitioner and oath and subscription. [22] Moreover, petitioner argued that the
officers of OSI,who were the signatories to the letter-complaint, were not authorized by the BSP Governor, much less
by the Monetary Board, to file the complaint. According to petitioner, this alleged fatal oversight violated Section 18,
pars. (c) and (d) of the New Central Bank Act (RA 7653).

Anent the second ground, the CA found no merit in petitioner's argument that the violation of the DOSRI law
and the commission of estafa thru falsification of commercial documents are inherently inconsistent with each other. It
explained that the test in considering a motion to quash on the ground that the facts charged do not constitute an offense,
is whether the facts alleged, when hypothetically admitted, constitute the elements of the offense charged. The appellate
court held that this test was sufficiently met because the allegations in the assailed informations, when hypothetically
admitted, clearly constitute the elements of Estafa thru Falsification of Commercial Documents and Violation of DOSRI
law.[32]
Petitioners Motion for Reconsideration [33] was likewise denied for lack of merit.
Hence, this petition.
Issues

On the second ground, petitioner contended that the commission of estafa under paragraph 1(b) of Article 315 of
the RPC is inherently incompatible with the violation of DOSRI law (as set out in Section 83 [23] of RA 337, as amended
by PD 1795),[24] hence a person cannot be charged for both offenses. He argued that a violation of DOSRI law requires
the offender toobtain a loan from his bank, without complying with procedural, reportorial, or ceiling requirements. On
the other hand, estafa under par. 1(b), Article 315 of the RPC requires the offender to misappropriate or convert
something that he holds in trust, or on commission, or for administration, or under any other obligation involving the
duty to return the same.[25]

Restated, petitioner raises the following issues[34] for our consideration:

I
Whether the complaint complied with the mandatory requirements provided under
Section 3(a), Rule 112 of the Rules of Court and Section 18, paragraphs (c) and (d) of RA 7653.
II

Essentially, the petitioner theorized that the characterization of possession is different in the two offenses. If
petitioner acquired the loan as DOSRI, he owned the loaned money and therefore, cannot misappropriate or convert it as
contemplated in the offense of estafa. Conversely, if petitioner committed estafa, then he merely held the money in trust
for someone else and therefore, did not acquire a loan in violation of DOSRI rules.

Whether a loan transaction within the ambit of the DOSRI law (violation of Section
83 of RA 337, as amended) could also be the subject of Estafa under Article 315 (1) (b) of the
Revised Penal Code.
III

Ruling of the Regional Trial Court

Is a petition for certiorari under Rule 65 the proper remedy against an Order denying
a Motion to Quash?

In an Order[26] dated August 8, 2001, the trial court denied petitioner's Motion to Quash for lack of merit. The
lower court agreed with the prosecution that the assailed OSI letter wasnot the complaint-affidavit itself; thus, it need not
comply with the requirements under the Rules of Court. The trial court held that the affidavits, which were attached to
the OSI letter, comprised the complaint-affidavit in the case. Since these affidavits were duly subscribed and sworn to
before a notary public, there was adequate compliance with the Rules. The trial court further held that the two offenses
were separate and distinct violations, hence the prosecution of one did not pose a bar to the other.[27]
Petitioners Motion for Reconsideration was likewise denied in an Order dated September 5, 2001.[28]
Aggrieved, petitioner filed a Petition for Certiorari[29] with the CA, reiterating his arguments before the trial

IV
Whether petitioner is entitled to a writ of injunction.
Our Ruling
The petition lacks merit.
First Issue:

court.
Ruling of the Court of Appeals

Whether the complaint complied with the mandatory requirements provided under
Section 3(a), Rule 112 of the Rules of Court and Section 18, paragraphs (c) and (d) of
Republic Act No. 7653

The CA denied the petition on both issues presented by petitioner.

On the first issue, the CA determined that the BSP letter, which petitioner characterized to be a fatally infirm
complaint, was not actually a complaint, but a transmittal or cover letter only. This transmittal letter merely contained a
summary of the affidavits which were attached to it. It did not contain any averment of personal knowledge of the events
and transactions that constitute the elements of the offenses charged. Being a mere transmittal letter, it need not comply
with the requirements of Section 3(a) of Rule 112 of the Rules of Court.[30]

Petitioner moved to withdraw

the first issue from the instant
petition
On March 5, 2007, the Court noted [35] petitioner's Manifestation and Motion for Partial Withdrawal of the
Petition[36] dated February 7, 2007. In the said motion, petitioner informed the Court of the promulgation of a Decision

entitled Soriano v. Hon. Casanova,[37] which also involved petitioner and similar BSP letters to the DOJ. According to
petitioner, the said Decision allegedly ruled squarely on the nature of the BSP letters and the validity of the sworn
affidavits attached thereto. For this reason, petitioner moved for the partial withdrawal of the instant petition insofar as it
involved the issue of whether or not a court can legally acquire jurisdiction over a complaint which failed to comply
with the mandatory requirements provided under Section 3(a), Rule 112 of the Rules of Court and Section 18, paragraphs
(c) and (d) of RA 7653.[38]

preclude the attachment of a referral or transmittal letter similar to that of the NBI-NCR. Thus,
in Soriano v. Casanova, the Court held:
A close scrutiny of the letters transmitted by the BSP and
PDIC to the DOJ shows that these were not intended to
be the complaint envisioned under the Rules. It may be clearly
inferred from the tenor of the letters that the officers merely intended
to transmit the affidavits of the bank employees to the DOJ.
Nowhere in the transmittal letters is there any averment on the part of
the BSP and PDIC officers of personal knowledge of the events and
transactions constitutive of the criminal violations alleged to have
been made by the accused. In fact, the letters clearly stated that what
the OSI of the BSP and the LIS of the PDIC did was to respectfully
transmit to the DOJ for preliminary investigation the affidavits and
personal knowledge of the acts of the petitioner. These affidavits were
subscribed under oath by the witnesses who executed them before a
notary public. Since the affidavits, not the letters transmitting
them, were intended to initiate the preliminary investigation, we hold
that Section 3(a), Rule 112 of the Rules of Court was substantially
complied with.

Given that the case had already been submitted for resolution of the Court when petitioner filed his latest motion,
and that all respondents had presented their positions and arguments on the first issue, the Court deems it proper to rule on
the same.
In Soriano v. Hon. Casanova,
the
Court
held
that
the affidavits attached to the
BSP transmittal letter complied
with
the
mandatory
requirements under the Rules
of Court.
To be sure, the BSP letters involved in Soriano v. Hon. Casanova[39] are not the same as the BSP letter involved
in the instant case. However, the BSP letters in Soriano v. Hon. Casanova and the BSP letter subject of this case are
similar in the sense that they are all signed by the OSI officers of the BSP, they were not sworn to by the said officers,
they all contained summaries of their attached affidavits, and they all requested the conduct of a preliminary investigation
and the filing of corresponding criminal charges against petitioner Soriano. Thus, the principle of stare decisis dictates
that the ruling in Soriano v. Hon. Casanova be applied in the instant case once a question of law has been examined
and decided, it should be deemed settled and closed to further argument.[40]
We held in Soriano v. Hon. Casanova, after a close scrutiny of the letters transmitted by the BSP to the DOJ,
that these were not intended to be the complaint, as envisioned under the Rules. They did not contain averments of
personal knowledge of the events and transactions constitutive of any offense. The letters merely transmitted for
preliminary investigation the affidavits of people who had personal knowledge of the acts of petitioner. We ruled that
these affidavits, not the letters transmitting them, initiated the preliminary investigation. Since these affidavits were
subscribed under oath by the witnesses who executed them before a notary public, then there was substantial compliance
with Section 3(a), Rule 112 of the Rules of Court.
Anent the contention that there was no authority from the BSP Governor or the Monetary Board to file a
criminal case against Soriano, we held that the requirements of Section 18, paragraphs (c) and (d) of RA 7653 did not
apply because the BSP did not institute the complaint but merely transmitted the affidavits of the complainants to the
DOJ.
We further held that since the offenses for which Soriano was charged were public crimes, authority holds that it
can be initiated by any competent person with personal knowledge of the acts committed by the offender. Thus, the
witnesses who executed the affidavits clearly fell within the purview of any competent person who may institute the
complaint for a public crime.
The ruling in Soriano v. Hon. Casanova has been adopted and elaborated upon in the recent case of SantosConcio v. Department of Justice.[41] Instead of a transmittal letter from the BSP, the Court in Santos-Concio was faced
with an NBI-NCR Report, likewise with affidavits of witnesses as attachments. Ruling on the validity of the witnesses
sworn affidavits as bases for a preliminary investigation, we held:
The Court is not unaware of the practice of incorporating all allegations in one
document denominated as complaint-affidavit. It does not pronounce strict adherence to only
one approach, however, for there are cases where the extent of ones personal knowledge may
not cover the entire gamut of details material to the alleged offense. The private offended party
or relative of the deceased may not even have witnessed the fatality, in which case the peace
officer or law enforcer has to rely chiefly on affidavits of witnesses. The Rules do not in fact

Citing the ruling of this Court in Ebarle v. Sucaldito, the

Court of Appeals correctly held that a complaint for purposes of
preliminary investigation by the fiscal need not be filed by the
offended party. The rule has been that, unless the offense subject
thereof is one that cannot be prosecuted de oficio, the same may be
filed, for preliminary investigation purposes, by any competent
person. The crime of estafa is a public crime which can be initiated
by any competent person. The witnesses who executed the
affidavits based on their personal knowledge of the acts committed by
the petitioner fall within the purview of any competent person who
may institute the complaint for a public crime. x x x (Emphasis and
italics supplied)
A preliminary investigation can thus validly proceed on the basis of an affidavit of
any competent person, without the referral document, like the NBI-NCR Report, having been
sworn to by the law enforcer as the nominal complainant. To require otherwise is a needless
exercise. The cited case of Oporto, Jr. v. Judge Monserate does not appear to dent this
proposition. After all, what is required is toreduce the evidence into affidavits, for while
reports and even raw information may justify the initiation of an investigation, the preliminary
investigation stage can be held only after sufficient evidence has been gathered and evaluated
which may warrant the eventual prosecution of the case in court.[42]
Following the foregoing rulings in Soriano v. Hon. Casanova and Santos-Concio v. Department of Justice, we
hold that the BSP letter, taken together with the affidavits attached thereto, comply with the requirements provided under
Section 3(a), Rule 112 of the Rules of Court and Section 18, paragraphs (c) and (d) of RA 7653.
Second Issue:
Whether a loan transaction within the ambit of the DOSRI law (violation of Section 83 of
RA 337, as amended) could be the subject of Estafa under Article 315 (1) (b) of the
Revised Penal Code
The second issue was raised by petitioner in the context of his Motion to Quash Information on the ground
that the facts charged do not constitute an offense. [43] It is settled that in considering a motion to quash on such ground,
the test is whether the facts alleged, if hypothetically admitted, would establish the essential elements of the offense
charged as defined by law. The trial court may not consider a situation contrary to that set forth in the criminal complaint
or information. Facts that constitute the defense of the petitioner[s] against the charge under the information must be

proved by [him] during trial. Such facts or circumstances do not constitute proper grounds for a motion to quash the
information on the ground that the material averments do not constitute the offense. [44]
We have examined the two informations against petitioner and we find that they contain allegations which, if
hypothetically admitted, would establish the essential elements of the crime of DOSRI violation and estafa thru
falsification of commercial documents.
In Criminal Case No. 238-M-2001 for violation of DOSRI rules, the information alleged that petitioner Soriano
was the president of RBSM; that he was able to indirectly obtain a loan from RBSM by putting the loan in the name of
depositor Enrico Carlos; and that he did this without complying with the requisite board approval, reportorial, and ceiling
requirements.
In Criminal Case No. 237-M-2001 for estafa thru falsification of commercial documents, the information
alleged that petitioner, by taking advantage of his position as president of RBSM, falsified various loan documents to
make it appear that an Enrico Carlos secured a loan of P8 million from RBSM; that petitioner succeeded in obtaining the
loan proceeds; that he later converted the loan proceeds to his own personal gain and benefit; and that his action caused
damage and prejudice to RBSM, its creditors, the BSP, and the PDIC.
Significantly, this is not the first occasion that we adjudge the sufficiency of similarly worded
informations. In Soriano v. People,[45] involving the same petitioner in this case (but different transactions), we also
reviewed the sufficiency of informations for DOSRI violation and estafa thru falsification of commercial documents,
which were almost identical, mutatis mutandis, with the subject informations herein. We held in Soriano v. People that
there is no basis for the quashal of the informations as they contain material allegations charging Soriano with violation
of DOSRI rules and estafa thru falsification of commercial documents.
Petitioner raises the theory that he could not possibly be held liable for estafa in concurrence with the charge
for DOSRI violation. According to him, the DOSRI charge presupposes that he acquired a loan, which would make the
loan proceeds his own money and which he could neither possibly misappropriate nor convert to the prejudice of
another, as required by the statutory definition of estafa.[46] On the other hand, if petitioner did not acquire any loan, there
can be no DOSRI violation to speak of. Thus, petitioner posits that the two offenses cannot co-exist. This theory does
not persuade us.
Petitioners theory is based on the false premises that the loan was extended to him by the bank in his own
name, and that he became the owner of the loan proceeds. Both premises are wrong.
The bank money (amounting to P8 million) which came to the possession of petitioner was money held in
trust or administration by him for the bank, in his
fiduciary capacity as the President of said bank. [47] It is not accurate to say that petitioner became the owner of the P8
million because it was the proceeds of a loan. That would have been correct if the bank knowingly extended the loan to
petitioner himself. But that is not the case here. According to the information for estafa, the loan was supposed to be for
another person, a certain Enrico Carlos; petitioner, through falsification, made it appear that said Enrico Carlos
applied for the loan when in fact he (Enrico Carlos) did not. Through such fraudulent device, petitioner obtained the
loan proceeds and converted the same. Under these circumstances, it cannot be said that petitioner became
the legal owner of the P8 million. Thus, petitioner remained the banks fiduciary with respect to that money, which
makes it capable of misappropriation or conversion in his hands.
The next question is whether there can also be, at the same time, a charge for DOSRI violation in such a
situation wherein the accused bank officer did not secure a loan in his own name, but was alleged to have used the name
of another person in order to indirectly secure a loan from the bank. We answer this in the affirmative. Section 83 of RA
337 reads:
Section 83. No director or officer of any banking institution shall, either
directly or indirectly, for himself or as the representative or agent of others, borrow any of the
deposits of funds of such bank, nor shall he become a guarantor, indorser, or surety for loans
from such bank to others, or in any manner be an obligor for moneys borrowed from the bank
or loaned by it, except with the written approval of the majority of the directors of the bank,
excluding the director concerned. Any such approval shall be entered upon the records of the

corporation and a copy of such entry shall be transmitted forthwith to the Superintendent of
Banks. The office of any director or officer of a bank who violates the provisions of this
section shall immediately become vacant and the director or officer shall be punished by
imprisonment of not less than one year nor more than ten years and by a fine of not less than
one thousand nor more than ten thousand pesos. x x x
The prohibition in Section 83 is broad enough to cover various modes of borrowing. [48] It covers loans by a bank
director or officer (like herein petitioner) which are made either: (1) directly, (2) indirectly, (3) for himself, (4) or as the
representative or agent of others. It applies even if the director or officer is a mere guarantor, indorser or surety for
someone else's loan or is in any manner an obligor for money borrowed from the bank or loaned by it. The covered
transactions are prohibited unless the approval, reportorial and ceiling requirements under Section 83 are complied
with. The prohibition is intended to protect the public, especially the depositors, [49] from the overborrowing of bank
funds by bank officers, directors, stockholders and related interests, as such overborrowing may lead to bank failures. [50]
It has been said that banking institutions are not created for the benefit of the directors [or officers]. While directors have
great powers as directors, they have no special privileges as individuals. They cannot use the assets of the bank for their
own benefit except as permitted by law. Stringent restrictions are placed about them so that when acting both for the bank
and for one of themselves at the same time, they must keep within certain prescribed lines regarded by the legislature as
essential to safety in the banking business.[51]
A direct borrowing is obviously one that is made in the name of the DOSRI himself or where the DOSRI is
a named party, while an indirect borrowing includes one that is made by a third party, but the DOSRI has a stake in the
transaction.[52] The latter type indirect borrowing applies here. The information in Criminal Case 238-M-2001 alleges
that petitioner in his capacity as President of Rural Bank of San Miguel San Ildefonso branch x x x
indirectly borrow[ed] or secure[d] a loan with [RBSM] x x x knowing fully well that the same has been done by him
without the written consent and approval of the majority of the board of directors x x x, and which consent and approval
the said accused deliberately failed to obtain and enter the same upon the records of said banking institution and to
transmit a copy thereof to the supervising department of the said bank x x x by using the name of one depositor Enrico
Carlos x x x, the latter having no knowledge of the said loan, and once in possession of the said amount of eight million
pesos (P8 million), [petitioner] converted the same to his own personal use and benefit.[53]
The foregoing information describes the manner of securing the loan as indirect; names petitioner as the
benefactor of the indirect loan; and states that the requirements of the law were not complied with. It contains all the
required elements[54] for a violation of Section 83, even if petitioner did not secure the loan in his own name.
The broad interpretation of the prohibition in Section 83 is justified by the fact that it even expressly covers
loans to third parties where the third parties are aware of the transaction (such as principals represented by the DOSRI),
and where the DOSRIs interest does not appear to be beneficial but even burdensome (such as in cases when the DOSRI
acts as a mere guarantor or surety). If the law finds it necessary to protect the bank and the banking system in such
situations, it will surely be illogical for it to exclude a case like this where the DOSRI acted for his own benefit, using
the name of an unsuspecting person. A contrary interpretation will effectively allow a DOSRI to use dummies to
circumvent the requirements of the law.
In sum, the informations filed against petitioner do not negate each other.
Third Issue:
Is a Rule 65 petition for certiorari the proper remedy against
an Order denying a Motion to Quash?
This issue may be speedily resolved by adopting our ruling in Soriano v. People,[55] where we held:
In fine, the Court has consistently held that a special civil action for certiorari is
not the proper remedy to assail the denial of a motion to quash an information. The proper
procedure in such a case is for the accused to enter a plea, go to trial without prejudice on his
part to present the special defenses he had invoked in his motion to quash and if after trial on the
merits, an adverse decision is rendered, to appeal therefrom in the manner authorized by
law. Thus, petitioners should not have forthwith filed a special civil action for certiorari with
the CA and instead, they should have gone to trial and reiterated the special defenses contained
in their motion to quash. There are no special or exceptional circumstances in the present case

that would justify immediate resort to a filing of a petition for certiorari. Clearly, the CA did not
commit any reversible error, much less, grave abuse of discretion in dismissing the petition. [56]
Fourth Issue:
Whether petitioner is entitled to a writ of injunction
The requisites to justify an injunctive relief are: (1) the right of the complainant is clear and unmistakable; (2) the
invasion of the right sought to be protected is material and substantial; and (3) there is an urgent and paramount necessity
for the writ to prevent serious damage. A clear legal right means one clearly founded in or granted by law or is
enforceable as a matter of law. Absent any clear and unquestioned legal right, the issuance of an injunctive writ would
constitute grave abuse of discretion. [57] Caution and prudence must, at all times, attend the issuance of an injunctive writ
because it effectively disposes of the main case without trial and/or due process.[58] In Olalia v. Hizon,[59] the Court held
as follows:
It has been consistently held that there is no power the exercise of which is more
delicate, which requires greater caution, deliberation and sound discretion, or more dangerous
in a doubtful case, than the issuance of an injunction. It is the strong arm of equity that should
never be extended unless to cases of great injury, where courts of law cannot afford an adequate
or commensurate remedy in damages.
Every court should remember that an injunction is a limitation upon the freedom
of action of the [complainant] and should not be granted lightly or precipitately. It should be
granted only when the court is fully satisfied that the law permits it and the emergency demands
it.
Given this Court's findings in the earlier issues of the instant case, we find no compelling reason to grant the
injunctive relief sought by petitioner.
WHEREFORE, the petition is DENIED. The assailed September 26, 2003 Decision as well as the
February 5, 2004 Resolution of the Court of Appeals in CA-G.R. SP No. 67657 are AFFIRMED. Costs against
petitioner.
SO ORDERED.
G.R. No. 102970 May 13, 1993
LUZAN
SIA, petitioner,
vs.
COURT OF APPEALS and SECURITY BANK and TRUST COMPANY, respondents.
Asuncion Law Offices for petitioner.
Cauton, Banares, Carpio & Associates for private respondent.

DAVIDE, JR., J.:

The Decision of public respondent Court of Appeals in CA-G.R. CV No. 26737, promulgated on 21
August 1991, 1reversing and setting aside the Decision, dated 19 February 1990, 2 of Branch 47 of the
Regional Trial Court (RTC) of Manila in Civil Case No. 87-42601, entitled "LUZAN SIA vs. SECURITY
BANK and TRUST CO.," is challenged in this petition for review on certiorari under Rule 45 of the
Rules Court.

Civil Case No. 87-42601 is an action for damages arising out of the destruction or loss of the stamp
collection of the plaintiff (petitioner herein) contained in Safety Deposit Box No. 54 which had been
rented from the defendant pursuant to a contract denominated as a Lease Agreement. 3 Judgment therein
was rendered in favor of the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
plaintiff and against the defendant, Security Bank & Trust Company, ordering the
defendant bank to pay the plaintiff the sum of
a) Twenty Thousand Pesos (P20,000.00), Philippine Currency, as actual damages;
b) One Hundred Thousand Pesos (P100,000.00), Philippine Currency, as moral
damages; and
c) Five Thousand Pesos (P5,000.00), Philippine Currency, as attorney's fees and
legal expenses.
The counterclaim set up by the defendant are hereby dismissed for lack of merit.
No costs.
SO ORDERED. 4
The antecedent facts of the present controversy are summarized by the public respondent in its challenged
decision as follows:
The plaintiff rented on March 22, 1985 the Safety Deposit Box No. 54 of the
defendant bank at its Binondo Branch located at the Fookien Times Building, Soler
St., Binondo, Manila wherein he placed his collection of stamps. The said safety
deposit box leased by the plaintiff was at the bottom or at the lowest level of the
safety deposit boxes of the defendant bank at its aforesaid Binondo Branch.
During the floods that took place in 1985 and 1986, floodwater entered into the
defendant bank's premises, seeped into the safety deposit box leased by the plaintiff
and caused, according to the plaintiff, damage to his stamps collection. The
defendant bank rejected the plaintiff's claim for compensation for his damaged
stamps collection, so, the plaintiff instituted an action for damages against the
defendant bank.
The defendant bank denied liability for the damaged stamps collection of the
plaintiff on the basis of the "Rules and Regulations Governing the Lease of Safe
Deposit Boxes" (Exhs. "A-1", "1-A"), particularly paragraphs 9 and 13, which reads
(sic):
"9. The liability of the Bank by reason of the lease, is limited to the exercise of the
diligence to prevent the opening of the safe by any person other than the Renter, his
authorized agent or legal representative;
xxx xxx xxx

"13. The Bank is not a depository of the contents of the safe and it has neither the
possession nor the control of the same. The Bank has no interest whatsoever in said
contents, except as herein provided, and it assumes absolutely no liability in
connection therewith."
The defendant bank also contended that its contract with the plaintiff over safety
deposit box No. 54 was one of lease and not of deposit and, therefore, governed by
the lease agreement (Exhs. "A", "L") which should be the applicable law; that the
destruction of the plaintiff's stamps collection was due to a calamity beyond
obligation on its part to notify the plaintiff about the floodwaters that inundated its
premises at Binondo branch which allegedly seeped into the safety deposit box
leased to the plaintiff.
The trial court then directed that an ocular inspection on (sic) the contents of the
safety deposit box be conducted, which was done on December 8, 1988 by its clerk
of court in the presence of the parties and their counsels. A report thereon was then
submitted on December 12, 1988 (Records, p. 98-A) and confirmed in open court
by both parties thru counsel during the hearing on the same date (Ibid., p. 102)
stating:
"That the Safety Box Deposit No. 54 was opened by both
plaintiff Luzan Sia and the Acting Branch Manager Jimmy B.
Ynion in the presence of the undersigned, plaintiff's and
defendant's counsel. Said Safety Box when opened contains
two albums of different sizes and thickness, length and width
and a tin box with printed word 'Tai Ping Shiang Roast Pork
in pieces with Chinese designs and character."

P100,000.00 and attorney's fees and legal expenses in the amount of P5,000.00; and (d) dismissing the
counterclaim.
On 21 August 1991, the respondent promulgated its decision the dispositive portion of which reads:
WHEREFORE, the decision appealed from is hereby REVERSED and instead the
appellee's complaint is hereby DISMISSED. The appellant bank's counterclaim is
likewise DISMISSED. No costs. 6
In reversing the trial court's decision and absolving SBTC from liability, the public respondent found and
ruled that:
a) the fine print in the "Lease Agreement " (Exhibits "A" and "1" ) constitutes the terms and conditions of
the contract of lease which the appellee (now petitioner) had voluntarily and knowingly executed with
SBTC;
b) the contract entered into by the parties regarding Safe Deposit Box No. 54 was not a contract of deposit
wherein the bank became a depositary of the subject stamp collection; hence, as contended by SBTC, the
provisions of Book IV, Title XII of the Civil Code on deposits do not apply;
c) The following provisions of the questioned lease agreement of the safety deposit box limiting SBTC's
liability:
9. The liability of the bank by reason of the lease, is limited to the exercise of the
diligence to prevent the opening of the Safe by any person other than the Renter, his
authorized agent or legal representative.

Condition of the above-stated Items

xxx xxx xxx
"Both albums are wet, moldy and badly damaged.
13. The bank is not a depository of the contents of the Safe and it has neither the
possession nor the control of the same. The Bank has no interest whatsoever in said
contents, except as herein provided, and it assumes absolutely no liability in
connection therewith.

1. The first album measures 10 1/8 inches in length, 8 inches in width and 3/4 in
thick. The leaves of the album are attached to every page and cannot be lifted
without destroying it, hence the stamps contained therein are no longer visible.
2. The second album measure 12 1/2 inches in length, 9 3/4 in width 1 inch thick.
Some of its pages can still be lifted. The stamps therein can still be distinguished
but beyond restoration. Others have lost its original form.
3. The tin box is rusty inside. It contains an album with several pieces of papers
stuck up to the cover of the box. The condition of the album is the second
abovementioned album." 5
The SECURITY BANK AND TRUST COMPANY, hereinafter referred to as SBTC, appealed the trial
court's decision to the public respondent Court of Appeals. The appeal was docketed as CA-G.R. CV No.
26737.
In urging the public respondent to reverse the decision of the trial court, SBTC contended that the latter
erred in (a) holding that the lease agreement is a contract of adhesion; (b) finding that the defendant had
failed to exercise the required diligence expected of a bank in maintaining the safety deposit box; (c)
awarding to the plaintiff actual damages in the amount of P20,000.00, moral damages in the amount of

are valid since said stipulations are not contrary to law, morals, good customs, public order or public
policy; and
d) there is no concrete evidence to show that SBTC failed to exercise the required diligence in maintaining
the safety deposit box; what was proven was that the floods of 1985 and 1986, which were beyond the
control of SBTC, caused the damage to the stamp collection; said floods were fortuitous events which
SBTC should not be held liable for since it was not shown to have participated in the aggravation of the
damage to the stamp collection; on the contrary, it offered its services to secure the assistance of an expert
in order to save most of the stamps, but the appellee refused; appellee must then bear the lose under the
principle of "res perit domino."
Unsuccessful in his bid to have the above decision reconsidered by the public respondent, 7 petitioner filed
the instant petition wherein he contends that:
I

IT WAS A GRAVE ERROR OR AN ABUSE OF DISCRETION ON THE PART

OF THE RESPONDENT COURT WHEN IT RULED THAT RESPONDENT
SBTC DID NOT FAIL TO EXERCISE THE REQUIRED DILIGENCE IN
MAINTAINING THE SAFETY DEPOSIT BOX OF THE PETITIONER
CONSIDERING THAT SUBSTANTIAL EVIDENCE EXIST (sic) PROVING THE
CONTRARY.
II
THE RESPONDENT COURT SERIOUSLY ERRED IN EXCULPATING
PRIVATE RESPONDENT FROM ANY LIABILITY WHATSOEVER BY
REASON OF THE PROVISIONS OF PARAGRAPHS 9 AND 13 OF THE
AGREEMENT (EXHS. "A" AND "A-1").
III
THE RESPONDENT COURT SERIOUSLY ERRED IN NOT UPHOLDING THE
AWARDS OF THE TRIAL COURT FOR ACTUAL AND MORAL DAMAGES,
INCLUDING ATTORNEY'S FEES AND LEGAL EXPENSES, IN FAVOR OF
THE PETITIONER. 8
We subsequently gave due course the petition and required both parties to submit their respective
memoranda, which they complied with. 9
Petitioner insists that the trial court correctly ruled that SBTC had failed "to exercise the required
diligence expected of a bank maintaining such safety deposit box . . . in the light of the environmental
circumstance of said safety deposit box after the floods of 1985 and 1986." He argues that such a
conclusion is supported by the evidence on record, to wit: SBTC was fully cognizant of the exact location
of the safety deposit box in question; it knew that the premises were inundated by floodwaters in 1985 and
1986 and considering that the bank is guarded twenty-four (24) hours a day , it is safe to conclude that it
was also aware of the inundation of the premises where the safety deposit box was located; despite such
knowledge, however, it never bothered to inform the petitioner of the flooding or take any appropriate
measures to insure the safety and good maintenance of the safety deposit box in question.
SBTC does not squarely dispute these facts; rather, it relies on the rule that findings of facts of the Court
of Appeals, when supported by substantial exidence, are not reviewable on appeal by certiorari. 10
The foregoing rule is, of course, subject to certain exceptions such as when there exists a disparity
between the factual findings and conclusions of the Court of Appeals and the trial court. 11 Such a disparity
obtains in the present case.
As We see it, SBTC's theory, which was upheld by the public respondent, is that the "Lease Agreement "
covering Safe Deposit Box No. 54 (Exhibit "A and "1") is just that a contract of lease and not a
contract of deposit, and that paragraphs 9 and 13 thereof, which expressly limit the bank's liability as
follows:
9. The liability of the bank by reason of the lease, is limited to the exercise of the
diligence to prevent the opening of the Safe by any person other than the Renter, his
autliorized agent or legal representative;
xxx xxx xxx

13. The bank is not a depository of the contents of the Safe and it has neither the
possession nor the control of the same. The Bank has no interest whatsoever said
contents, except as herein provided, and it assumes absolutely no liability in
connection therewith. 12
are valid and binding upon the parties. In the challenged decision, the public respondent further avers that
even without such a limitation of liability, SBTC should still be absolved from any responsibility for the
damage sustained by the petitioner as it appears that such damage was occasioned by a fortuitous event
and that the respondent bank was free from any participation in the aggravation of the injury.
We cannot accept this theory and ratiocination. Consequently, this Court finds the petition to be impressed
with merit.
In the recent case CA Agro-Industrial Development Corp. vs. Court of Appeals, 13 this Court explicitly
rejected the contention that a contract for the use of a safety deposit box is a contract of lease governed by
Title VII, Book IV of the Civil Code. Nor did We fully subscribe to the view that it is a contract of deposit
to be strictly governed by the Civil Code provision on deposit; 14 it is, as We declared, a special kind of
deposit. The prevailing rule in American jurisprudence that the relation between a bank renting out safe
deposit boxes and its customer with respect to the contents of the box is that of a bailor and bailee, the
bailment for hire and mutual benefit 15 has been adopted in this jurisdiction, thus:
In the context of our laws which authorize banking institutions to rent out safety
deposit boxes, it is clear that in this jurisdiction, the prevailing rule in the United
States has been adopted. Section 72 of the General Banking Act [R.A. 337, as
amended] pertinently provides:
"Sec. 72. In addition to the operations specifically authorized elsewhere in this Act,
banking institutions other than building and loan associations may perform the
following services:
(a) Receive in custody funds, documents, and valuable
objects, and rent safety deposit boxes for the safequarding of
such effects.
xxx xxx xxx
The banks shall perform the services permitted under subsections (a), (b) and (c) of
this section asdepositories or as agents. . . ."(emphasis supplied)
Note that the primary function is still found within the parameters of a contract
of deposit, i.e., the receiving in custody of funds, documents and other valuable
objects for safekeeping. The renting out of the safety deposit boxes is not
independent from, but related to or in conjunction with, this principal function. A
contract of deposit may be entered into orally or in writing (Art. 1969, Civil Code]
and, pursuant to Article 1306 of the Civil Code, the parties thereto may establish
such stipulations, clauses, terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs, public order or public
policy. The depositary's responsibility for the safekeeping of the objects deposited
in the case at bar is governed by Title I, Book IV of the Civil Code. Accordingly, the
depositary would be liable if, in performing its obligation, it is found guilty of
fraud, negligence, delay or contravention of the tenor of the agreement [Art.
1170, id.]. In the absence of any stipulation prescribing the degree of diligence
required, that of a good father of a family is to be observed [Art. 1173, id.]. Hence,
any stipulation exempting the depositary from any liability arising from the loss of

the thing deposited on account of fraud, negligence or delay would be void for
being contrary to law and public policy. In the instant case, petitioner maintains that
conditions 13 and l4 of the questioned contract of lease of the safety deposit box,
which read:
"13. The bank is a depositary of the contents of the safe and it has neither the
possession nor control of the same.
"14. The bank has no interest whatsoever in said contents, except as herein
expressly provided, and it assumes absolutely no liability in connection therewith."
are void as they are contrary to law and public policy. We find Ourselves in
agreement with this proposition for indeed, said provisions are inconsistent with the
respondent Bank's responsibility as a depositary under Section 72 (a) of the General
Banking Act. Both exempt the latter from any liability except as contemplated in
condition 8 thereof which limits its duty to exercise reasonable diligence only with
respect to who shall be admitted to any rented safe, to wit:

It must be noted that conditions No. 13 and No. 14 in the Contract of Lease of Safety Deposit Box in CA
Agro-Industrial Development Corp. are strikingly similar to condition No. 13 in the instant case. On the
other hand, both condition No. 8 in CA Agro-Industrial Development Corp. and condition No. 9 in the
present case limit the scope of the exercise of due diligence by the banks involved to merely seeing to it
that only the renter, his authorized agent or his legal representative should open or have access to the
safety deposit box. In short, in all other situations, it would seem that SBTC is not bound to exercise
diligence of any kind at all. Assayed in the light of Our aforementioned pronouncements in CA Agrolndustrial Development Corp., it is not at all difficult to conclude that both conditions No. 9 and No. 13 of
the "Lease Agreement" covering the safety deposit box in question (Exhibits "A" and "1") must be
stricken down for being contrary to law and public policy as they are meant to exempt SBTC from any
liability for damage, loss or destruction of the contents of the safety deposit box which may arise from its
own or its agents' fraud, negligence or delay. Accordingly, SBTC cannot take refuge under the said
conditions.
Public respondent further postulates that SBTC cannot be held responsible for the destruction or loss of
the stamp collection because the flooding was a fortuitous event and there was no showing of SBTC's
participation in the aggravation of the loss or injury. It states:
Article 1174 of the Civil Code provides:

"8. The Bank shall use due diligence that no unauthorized

person shall be admitted to any rented safe and beyond this,
the Bank will not be responsible for the contents of any safe
rented from it."
Furthermore condition 13 stands on a wrong premise and is contrary to the actual
practice of the Bank. It is not correct to assert that the Bank has neither the
possession nor control of the contents of the box since in fact, the safety deposit box
itself is located in its premises and is under its absolute control; moreover, the
respondent Bank keeps the guard key to the said box. As stated earlier, renters
cannot open their respective boxes unless the Bank cooperates by presenting and
using this guard key. Clearly then, to the extent above stated, the foregoing
conditions in the contract in question are void and ineffective. It has been said:
"With respect to property deposited in a safe-deposit box by a
customer of a safe-deposit company, the parties, since the
relation is a contractual one, may by special contract define
their respective duties or provide for increasing or limiting
the liability of the deposit company, provided such contract is
not in violation of law or public policy. It must clearly appear
that there actually was such a special contract, however, in
order to vary the ordinary obligations implied by law from
the relationship of the parties; liability of the deposit
company will not be enlarged or restricted by words of
doubtful meaning. The company, in renting safe-deposit
boxes, cannot exempt itself from liability for loss of the
contents by its own fraud or negligence or that, of its agents
or servants, and if a provision of the contract may be
construed as an attempt to do so, it will be held ineffective
for the purpose. Although it has been held that the lessor of a
safe-deposit box cannot limit its liability for loss of the
contents thereof through its own negligence, the view has
been taken that such a lessor may limit its liability to some
extent by agreement or stipulation ."[10 AM JUR 2d., 466].
(citations omitted) 16

"Except in cases expressly specified by the law, or when it is

otherwise declared by stipulation, or when the nature of the
obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen, or
which, though foreseen, were inevitable.'
In its dissertation of the phrase "caso fortuito" the Enciclopedia Jurisdicada
Espaola 17 says: "In a legal sense and, consequently, also in relation to contracts,
a "caso fortuito" prevents (sic) 18 the following essential characteristics: (1) the
cause of the unforeseen ands unexpected occurrence, or of the failure of the debtor
to comply with his obligation, must be independent of the human will; (2) it must
be impossible to foresee the event which constitutes the "caso fortuito," or if it can
be foreseen, it must be impossible to avoid; (3) the occurrence must be such as to
render it impossible for one debtor to fulfill his obligation in a normal manner; and
(4) the obligor must be free from any participation in the aggravation of the injury
resulting to the creditor." (cited in Servando vs. Phil., Steam Navigation
Co., supra). 19
Here, the unforeseen or unexpected inundating floods were independent of the will
of the appellant bank and the latter was not shown to have participated in
aggravating damage (sic) to the stamps collection of the appellee. In fact, the
appellant bank offered its services to secure the assistance of an expert to save most
of the then good stamps but the appelle refused and let (sic) these recoverable
stamps inside the safety deposit box until they were ruined. 20
Both the law and authority cited are clear enough and require no further elucidation. Unfortunately,
however, the public respondent failed to consider that in the instant case, as correctly held by the trial
court, SBTC was guilty of negligence. The facts constituting negligence are enumerated in the petition and
have been summarized in this ponencia. SBTC's negligence aggravated the injury or damage to the stamp
collection. SBTC was aware of the floods of 1985 and 1986; it also knew that the floodwaters inundated
the room where Safe Deposit Box No. 54 was located. In view thereof, it should have lost no time in
notifying the petitioner in order that the box could have been opened to retrieve the stamps, thus saving
the same from further deterioration and loss. In this respect, it failed to exercise the reasonable care and
prudence expected of a good father of a family, thereby becoming a party to the aggravation of the injury

or loss. Accordingly, the aforementioned fourth characteristic of a fortuitous event is absent Article 1170
of the Civil Code, which reads:
Those who in the performance of their obligation are guilty of fraud, negligence, or
delay, and those who in any manner contravene the tenor thereof, are liable for
damages,
thus comes to the succor of the petitioner. The destruction or loss of the stamp collection which was, in the
language of the trial court, the "product of 27 years of patience and diligence" 21 caused the petitioner
pecuniary loss; hence, he must be compensated therefor.
We cannot, however, place Our imprimatur on the trial court's award of moral damages. Since the
relationship between the petitioner and SBTC is based on a contract, either of them may be held liable for
moral damages for breach thereof only if said party had acted fraudulently or in bad faith. 22 There is here
no proof of fraud or bad faith on the part of SBTC.
WHEREFORE, the instant petition is hereby GRANTED. The challenged Decision and Resolution of the
public respondent Court of Appeals of 21 August 1991 and 21 November 1991, respectively, in CA-G.R.
CV No. 26737, are hereby SET ASIDE and the Decision of 19 February 1990 of Branch 47 of the
Regional Trial Court of Manila in Civil Case No. 87-42601 is hereby REINSTATED in full, except as to
the award of moral damages which is hereby set aside.
Costs against the private respondent.
SO ORDERED.

Danilo B. Banares for private respondent.

DAVIDE, JR., J.:

Is the contractual relation between a commercial bank and another party in a contract of rent of a safety
deposit box with respect to its contents placed by the latter one of bailor and bailee or one of lessor and
lessee?
This is the crux of the present controversy.
On 3 July 1979, petitioner (through its President, Sergio Aguirre) and the spouses Ramon and Paula Pugao
entered into an agreement whereby the former purchased from the latter two (2) parcels of land for a
consideration of P350,625.00. Of this amount, P75,725.00 was paid as downpayment while the balance
was covered by three (3) postdated checks. Among the terms and conditions of the agreement embodied in
a Memorandum of True and Actual Agreement of Sale of Land were that the titles to the lots shall be
transferred to the petitioner upon full payment of the purchase price and that the owner's copies of the
certificates of titles thereto, Transfer Certificates of Title (TCT) Nos. 284655 and 292434, shall be
deposited in a safety deposit box of any bank. The same could be withdrawn only upon the joint signatures
of a representative of the petitioner and the Pugaos upon full payment of the purchase price. Petitioner,
through Sergio Aguirre, and the Pugaos then rented Safety Deposit Box No. 1448 of private respondent
Security Bank and Trust Company, a domestic banking corporation hereinafter referred to as the
respondent Bank. For this purpose, both signed a contract of lease (Exhibit "2") which contains, inter alia,
the following conditions:
13. The bank is not a depositary of the contents of the safe and it has neither the
possession nor control of the same.
14. The bank has no interest whatsoever in said contents, except herein expressly
provided, and it assumes absolutely no liability in connection therewith. 1
After the execution of the contract, two (2) renter's keys were given to the renters one to Aguirre (for
the petitioner) and the other to the Pugaos. A guard key remained in the possession of the respondent
Bank. The safety deposit box has two (2) keyholes, one for the guard key and the other for the renter's key,
and can be opened only with the use of both keys. Petitioner claims that the certificates of title were
placed inside the said box.

G.R. No. 90027 March 3, 1993

CA
AGRO-INDUSTRIAL
vs.
THE HONORABLE COURT OF
COMPANY, respondents.

DEVELOPMENT
APPEALS

Dolorfino & Dominguez Law Offices for petitioner.

and

SECURITY

CORP., petitioner,
BANK

AND

TRUST

Thereafter, a certain Mrs. Margarita Ramos offered to buy from the petitioner the two (2) lots at a price of
P225.00 per square meter which, as petitioner alleged in its complaint, translates to a profit of P100.00 per
square meter or a total of P280,500.00 for the entire property. Mrs. Ramos demanded the execution of a
deed of sale which necessarily entailed the production of the certificates of title. In view thereof, Aguirre,
accompanied by the Pugaos, then proceeded to the respondent Bank on 4 October 1979 to open the safety
deposit box and get the certificates of title. However, when opened in the presence of the Bank's
representative, the box yielded no such certificates. Because of the delay in the reconstitution of the title,
Mrs. Ramos withdrew her earlier offer to purchase the lots; as a consequence thereof, the petitioner
allegedly failed to realize the expected profit of P280,500.00. Hence, the latter filed on 1 September 1980
a complaint 2 for damages against the respondent Bank with the Court of First Instance (now Regional
Trial Court) of Pasig, Metro Manila which docketed the same as Civil Case No. 38382.
In its Answer with Counterclaim, 3 respondent Bank alleged that the petitioner has no cause of action
because of paragraphs 13 and 14 of the contract of lease (Exhibit "2"); corollarily, loss of any of the items
or articles contained in the box could not give rise to an action against it. It then interposed a counterclaim

for exemplary damages as well as attorney's fees in the amount of P20,000.00. Petitioner subsequently
filed an answer to the counterclaim. 4
In due course, the trial court, now designated as Branch 161 of the Regional Trial Court (RTC) of Pasig,
Metro Manila, rendered a decision 5 adverse to the petitioner on 8 December 1986, the dispositive portion
of which reads:
WHEREFORE, premises considered, judgment is hereby rendered dismissing
plaintiff's complaint.
On defendant's counterclaim, judgment is hereby rendered ordering plaintiff to pay
defendant the amount of FIVE THOUSAND (P5,000.00) PESOS as attorney's fees.
With costs against plaintiff. 6
The unfavorable verdict is based on the trial court's conclusion that under paragraphs 13 and 14 of the
contract of lease, the Bank has no liability for the loss of the certificates of title. The court declared that
the said provisions are binding on the parties.
Its motion for reconsideration 7 having been denied, petitioner appealed from the adverse decision to the
respondent Court of Appeals which docketed the appeal as CA-G.R. CV No. 15150. Petitioner urged the
respondent Court to reverse the challenged decision because the trial court erred in (a) absolving the
respondent Bank from liability from the loss, (b) not declaring as null and void, for being contrary to law,
public order and public policy, the provisions in the contract for lease of the safety deposit box absolving
the Bank from any liability for loss, (c) not concluding that in this jurisdiction, as well as under American
jurisprudence, the liability of the Bank is settled and (d) awarding attorney's fees to the Bank and denying
the petitioner's prayer for nominal and exemplary damages and attorney's fees. 8
In its Decision promulgated on 4 July 1989, 9 respondent Court affirmed the appealed decision principally
on the theory that the contract (Exhibit "2") executed by the petitioner and respondent Bank is in the
nature of a contract of lease by virtue of which the petitioner and its co-renter were given control over the
safety deposit box and its contents while the Bank retained no right to open the said box because it had
neither the possession nor control over it and its contents. As such, the contract is governed by Article
1643 of the Civil Code 10 which provides:
Art. 1643. In the lease of things, one of the parties binds himself to give to another
the enjoyment or use of a thing for a price certain, and for a period which may be
definite or indefinite. However, no lease for more than ninety-nine years shall be
valid.
It invoked Tolentino vs. Gonzales 11 which held that the owner of the property loses his
control over the property leased during the period of the contract and Article 1975 of the
Civil Code which provides:
Art. 1975. The depositary holding certificates, bonds, securities or instruments
which earn interest shall be bound to collect the latter when it becomes due, and to
take such steps as may be necessary in order that the securities may preserve their
value and the rights corresponding to them according to law.
The above provision shall not apply to contracts for the rent of safety deposit boxes.

and then concluded that "[c]learly, the defendant-appellee is not under any duty to maintain the
contents of the box. The stipulation absolving the defendant-appellee from liability is in
accordance with the nature of the contract of lease and cannot be regarded as contrary to law,
public order and public policy." 12 The appellate court was quick to add, however, that under
the contract of lease of the safety deposit box, respondent Bank is not completely free from
liability as it may still be made answerable in case unauthorized persons enter into the vault
area or when the rented box is forced open. Thus, as expressly provided for in stipulation
number 8 of the contract in question:
8. The Bank shall use due diligence that no unauthorized person shall be admitted to
any rented safe and beyond this, the Bank will not be responsible for the contents of
any safe rented from it. 13
Its motion for reconsideration 14 having been denied in the respondent Court's Resolution of 28 August
1989, 15petitioner took this recourse under Rule 45 of the Rules of Court and urges Us to review and set
aside the respondent Court's ruling. Petitioner avers that both the respondent Court and the trial court (a)
did not properly and legally apply the correct law in this case, (b) acted with grave abuse of discretion or
in excess of jurisdiction amounting to lack thereof and (c) set a precedent that is contrary to, or is a
departure from precedents adhered to and affirmed by decisions of this Court and precepts in American
jurisprudence adopted in the Philippines. It reiterates the arguments it had raised in its motion to
reconsider the trial court's decision, the brief submitted to the respondent Court and the motion to
reconsider the latter's decision. In a nutshell, petitioner maintains that regardless of nomenclature, the
contract for the rent of the safety deposit box (Exhibit "2") is actually a contract of deposit governed by
Title
XII,
Book
IV
of
the
Civil
Code
of
the
Philippines. 16 Accordingly, it is claimed that the respondent Bank is liable for the loss of the certificates of
title pursuant to Article 1972 of the said Code which provides:
Art. 1972. The depositary is obliged to keep the thing safely and to return it, when
required, to the depositor, or to his heirs and successors, or to the person who may
have been designated in the contract. His responsibility, with regard to the
safekeeping and the loss of the thing, shall be governed by the provisions of Title I
of this Book.
If the deposit is gratuitous, this fact shall be taken into account in determining the
degree of care that the depositary must observe.
Petitioner then quotes a passage from American Jurisprudence 17 which is supposed to expound
on the prevailing rule in the United States, to wit:
The prevailing rule appears to be that where a safe-deposit company leases a safedeposit box or safe and the lessee takes possession of the box or safe and places
therein his securities or other valuables, the relation of bailee and bail or is created
between the parties to the transaction as to such securities or other valuables; the
fact
that
the
safe-deposit company does not know, and that it is not expected that it shall know,
the character or description of the property which is deposited in such safe-deposit
box or safe does not change that relation. That access to the contents of the safedeposit box can be had only by the use of a key retained by the lessee ( whether it is
the sole key or one to be used in connection with one retained by the lessor) does
not operate to alter the foregoing rule. The argument that there is not, in such a case,
a delivery of exclusive possession and control to the deposit company, and that
therefore the situation is entirely different from that of ordinary bailment, has been
generally rejected by the courts, usually on the ground that as possession must be
either in the depositor or in the company, it should reasonably be considered as in
the latter rather than in the former, since the company is, by the nature of the

contract, given absolute control of access to the property, and the depositor cannot
gain access thereto without the consent and active participation of the company. . . .
(citations omitted).

Sec. 72. In addition to the operations specifically authorized elsewhere in this Act,
banking institutions other than building and loan associations may perform the
following services:

and a segment from Words and Phrases 18 which states that a contract for the rental of a bank
safety deposit box in consideration of a fixed amount at stated periods is a bailment for hire.

(a) Receive in custody funds, documents, and valuable

objects, and rent safety deposit boxes for the safeguarding of
such effects.

Petitioner further argues that conditions 13 and 14 of the questioned contract are contrary to law and
public policy and should be declared null and void. In support thereof, it cites Article 1306 of the Civil
Code which provides that parties to a contract may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals, good customs,
public order or public policy.
After the respondent Bank filed its comment, this Court gave due course to the petition and required the
parties to simultaneously submit their respective Memoranda.
The petition is partly meritorious.
We agree with the petitioner's contention that the contract for the rent of the safety deposit box is not an
ordinary contract of lease as defined in Article 1643 of the Civil Code. However, We do not fully
subscribe to its view that the same is a contract of deposit that is to be strictly governed by the provisions
in the Civil Code on deposit; 19the contract in the case at bar is a special kind of deposit. It cannot be
characterized as an ordinary contract of lease under Article 1643 because the full and absolute possession
and control of the safety deposit box was not given to the joint renters the petitioner and the Pugaos.
The guard key of the box remained with the respondent Bank; without this key, neither of the renters could
open the box. On the other hand, the respondent Bank could not likewise open the box without the renter's
key. In this case, the said key had a duplicate which was made so that both renters could have access to the
box.
Hence, the authorities cited by the respondent Court 20 on this point do not apply. Neither could Article
1975, also relied upon by the respondent Court, be invoked as an argument against the deposit theory.
Obviously, the first paragraph of such provision cannot apply to a depositary of certificates, bonds,
securities or instruments which earn interest if such documents are kept in a rented safety deposit box. It is
clear that the depositary cannot open the box without the renter being present.
We observe, however, that the deposit theory itself does not altogether find unanimous support even in
American jurisprudence. We agree with the petitioner that under the latter, the prevailing rule is that the
relation between a bank renting out safe-deposit boxes and its customer with respect to the contents of the
box is that of a bail or and bailee, the bailment being for hire and mutual benefit. 21 This is just the
prevailing view because:
There is, however, some support for the view that the relationship in question might
be more properly characterized as that of landlord and tenant, or lessor and lessee. It
has also been suggested that it should be characterized as that of licensor and
licensee. The relation between a bank, safe-deposit company, or storage company,
and the renter of a safe-deposit box therein, is often described as contractual,
express or implied, oral or written, in whole or in part. But there is apparently no
jurisdiction in which any rule other than that applicable to bailments governs
questions of the liability and rights of the parties in respect of loss of the contents of
safe-deposit boxes. 22 (citations omitted)
In the context of our laws which authorize banking institutions to rent out safety deposit boxes, it is clear
that in this jurisdiction, the prevailing rule in the United States has been adopted. Section 72 of the
General Banking Act23 pertinently provides:

xxx xxx xxx

The banks shall perform the services permitted under subsections (a), (b) and (c) of
this section asdepositories or as agents. . . . 24 (emphasis supplied)
Note that the primary function is still found within the parameters of a contract of deposit, i.e., the
receiving in custody of funds, documents and other valuable objects for safekeeping. The renting out of
the safety deposit boxes is not independent from, but related to or in conjunction with, this principal
function. A contract of deposit may be entered into orally or in writing 25 and, pursuant to Article 1306 of
the Civil Code, the parties thereto may establish such stipulations, clauses, terms and conditions as they
may deem convenient, provided they are not contrary to law, morals, good customs, public order or public
policy. The depositary's responsibility for the safekeeping of the objects deposited in the case at bar is
governed by Title I, Book IV of the Civil Code. Accordingly, the depositary would be liable if, in
performing its obligation, it is found guilty of fraud, negligence, delay or contravention of the tenor of the
agreement. 26 In the absence of any stipulation prescribing the degree of diligence required, that of a good
father of a family is to be observed. 27 Hence, any stipulation exempting the depositary from any liability
arising from the loss of the thing deposited on account of fraud, negligence or delay would be void for
being contrary to law and public policy. In the instant case, petitioner maintains that conditions 13 and 14
of the questioned contract of lease of the safety deposit box, which read:
13. The bank is not a depositary of the contents of the safe and it has neither the
possession nor control of the same.
14. The bank has no interest whatsoever in said contents, except herein expressly
provided, and it assumes absolutely no liability in connection therewith. 28
are void as they are contrary to law and public policy. We find Ourselves in agreement with
this proposition for indeed, said provisions are inconsistent with the respondent Bank's
responsibility as a depositary under Section 72(a) of the General Banking Act. Both exempt the
latter from any liability except as contemplated in condition 8 thereof which limits its duty to
exercise reasonable diligence only with respect to who shall be admitted to any rented safe, to
wit:
8. The Bank shall use due diligence that no unauthorized person shall be admitted to
any rented safe and beyond this, the Bank will not be responsible for the contents of
any safe rented from it. 29
Furthermore, condition 13 stands on a wrong premise and is contrary to the actual practice of
the Bank. It is not correct to assert that the Bank has neither the possession nor control of the
contents of the box since in fact, the safety deposit box itself is located in its premises and is
under its absolute control; moreover, the respondent Bank keeps the guard key to the said box.
As stated earlier, renters cannot open their respective boxes unless the Bank cooperates by
presenting and using this guard key. Clearly then, to the extent above stated, the foregoing
conditions in the contract in question are void and ineffective. It has been said:

With respect to property deposited in a safe-deposit box by a customer of a safedeposit company, the parties, since the relation is a contractual one, may by special
contract define their respective duties or provide for increasing or limiting the
liability of the deposit company, provided such contract is not in violation of law or
public policy. It must clearly appear that there actually was such a special contract,
however, in order to vary the ordinary obligations implied by law from the
relationship of the parties; liability of the deposit company will not be enlarged or
restricted by words of doubtful meaning. The company, in renting
safe-deposit boxes, cannot exempt itself from liability for loss of the contents by its
own fraud or negligence or that of its agents or servants, and if a provision of the
contract may be construed as an attempt to do so, it will be held ineffective for the
purpose. Although it has been held that the lessor of a safe-deposit box cannot limit
its liability for loss of the contents thereof through its own negligence, the view has
been taken that such a lessor may limits its liability to some extent by agreement or
stipulation. 30 (citations omitted)
Thus, we reach the same conclusion which the Court of Appeals arrived at, that is, that the petition should
be dismissed, but on grounds quite different from those relied upon by the Court of Appeals. In the instant
case, the respondent Bank's exoneration cannot, contrary to the holding of the Court of Appeals, be based
on or proceed from a characterization of the impugned contract as a contract of lease, but rather on the fact
that no competent proof was presented to show that respondent Bank was aware of the agreement between
the petitioner and the Pugaos to the effect that the certificates of title were withdrawable from the safety
deposit box only upon both parties' joint signatures, and that no evidence was submitted to reveal that the
loss of the certificates of title was due to the fraud or negligence of the respondent Bank. This in turn
flows from this Court's determination that the contract involved was one of deposit. Since both the
petitioner and the Pugaos agreed that each should have one (1) renter's key, it was obvious that either of
them could ask the Bank for access to the safety deposit box and, with the use of such key and the Bank's
own guard key, could open the said box, without the other renter being present.
Since, however, the petitioner cannot be blamed for the filing of the complaint and no bad faith on its part
had been established, the trial court erred in condemning the petitioner to pay the respondent Bank
attorney's fees. To this extent, the Decision (dispositive portion) of public respondent Court of Appeals
must be modified.
WHEREFORE, the Petition for Review is partially GRANTED by deleting the award for attorney's fees
from the 4 July 1989 Decision of the respondent Court of Appeals in CA-G.R. CV No. 15150. As
modified, and subject to the pronouncement We made above on the nature of the relationship between the
parties in a contract of lease of safety deposit boxes, the dispositive portion of the said Decision is hereby
AFFIRMED and the instant Petition for Review is otherwise DENIED for lack of merit.
No pronouncement as to costs.
SO ORDERED.