1. Spouses Palada v. Solidbank Corp. (Digest)GR No. 172227 June 29, 2011

Facts: Spouses Palada applied for a 3M loan with the respondent Solidbank. Petitioners received the amount of 1M and secured the same with a deed of real estate mortgage of several properties in favor of the respondent. Due to failure of the petitioners to pay their obligation, Solidbank foreclosed said properties covered by the mortgage and sold the same. Petitioners filed for declaration of nullity of the mortgage upon the ground, among others, that the loan contract was not perfected because the bank delivered only 1M instead of the whole loan amount of 3M.

Issue: Was the contract of loan perfected?

Held: Yes, the loan contract was perfected. Under Article 1934 of the Civil Code, a loan contract is perfected only upon the delivery of the object of the contract. In this case, although petitioners applied for a P3 million loan, only the amount of P1 million was approved by the bank because petitioners became collaterally deficient when they failed to purchase TCT No. T-227331 which had an appraised value of P1,944,000.00. Hence, on March 17, 1997, only the amount of P1 million was released by the bank to petitioners.

2. Chee Kiong Yam v. Malik (Digest)GR No-50550-52 October 31, 1979

Facts: Petitioners filed a petition for certiorari, prohibition and mandamus with preliminary injunction against the respondent Judge Malik who ruled that several cases of estafa filed against the petitioners should be admitted for trial in his sala. It must be noted that all complainants admitted that the money which the petitioners did not return were obtained from them by the latter in a form of loans.

Issue: Can there be a crime of estafa for non-payment of a loan?

Held: No. In order that a person be convicted of Swindling (Estafa) under Art. 315 of the Revised Penal Code, it must be proven that he has the obligation to deliver or return the same money, goods or personal property that he received. Petitioners had no such obligation to return the same money, i.e., the bills or coins, which they received from private respondents. This is so because as clearly stated in criminal complaints, the related civil complaints and the supporting sworn statements, the sums of money that petitioners received were loans. In U.S. vs. Ibañez, 19 Phil. 559, 560 (1911), the Supreme Court held that it is not estafa for a person to refuse to pay his debt or to deny its existence.

It is the opinion of the Court that when the relation is purely that of debtor and creditor, the debtor cannot be held liable for the crime of estafa, under said article, by merely refusing to pay or by denying the indebtedness.

It appeared that respondent judge failed to appreciate the distinction between the two types of loan, mutuum and commodatum, when he performed the questioned acts. He mistook the transaction between petitioners and private respondents to be commodatum wherein the borrower does not acquire ownership over the thing borrowed and has the duty to return the same thing to the lender.

3. Francisco v. Gregorio (Digest)GR No. L-59519 July 20, 1982

Facts: Petitioner Francisco, through her daughter, agreed to lease a piece of land where a building should be constructed by the former. The contract provided, among others: the deposit to the account of the lessor-petitioner the amount of 150k representing 30K goodwill money and 120K advanced rental and a stipulation that in case the parties will not agree as to the terms and conditions of the final contract of lease, the pre-lease contract shall be declared null and void and the petitioner shall return the deposit plus legal interest. Before final occupancy, the petitioner declared the pre-lease contract null and void, leased the premises to another lessee and offered to return the 150K deposit. Private respondents refused to accept so that petitioner was prompted to make a consignation of the money with the Court. Private respondents then filed a complaint, hence respondent judge ruled in their favor with an order to pay the amount of deposit plus compensatory interests.

Issue: Is the petitioner liable for payment of interest despite tender of payment before demand?

Held: No. The award for interests in an action for the recovery of a sum of money partakes of a nature of an award for damages. Thus, Article 2209 of the Civil Code provides: “Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six percent per annum.” Clearly, the indemnity for interest on a monetary obligation attaches only when the obligor incurs delay, that is, when he is in default, it being a fundamental principle of law that: “Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. (Art. 1169, Civil Code.) “

In the case at bar, it is not disputed that no demands, judicial or extrajudicial, were made by private respondents on defendant Boiser (Francisco) for the return of the amount of P150,000.00. There could not have been any because of the nature of the action filed by private respondents, which is for specific performance. Hence, there is no delay of the latter's obligation, assuming that she be eventually required in the decision of the Court to return the same. Thus, no interest is due where there was tender of payment prior to any demand to pay or perform the agreed act.

4. Tio Khe Chio v. CA (Digest)GR No. 76101-02 September 30, 1991

Facts: Petitioner shipped bags of imported fishmeals and insured the same with respondent insurance company Eastern Assurance & Surety Corp (EASCO). During transit, the bags were found out to be damaged thus rendering the fishmeals useless. Petitioner filed a claim before the EASCO which denied the same, prompting the former to

sue the latter at CFI Cebu who ordered EASCO to pay the petitioner's claim for insurance with damages. Upon execution, respondent filed a petition for certiorari with the CA who set aside the lower court's decision arguing that the latter has erred in fixing the legal interest on 12% per annum rather than the mandated 6%.

Issue: What should the legal interest be for damages arising from loss of property?

Held: The applicable law is Article 2209 of the Civil Code which reads that if the obligation consists in the payment of a sum of money and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of interest agreed upon, and in the absence of stipulation, the legal interest which is 6% per annum.

The adjusted rate mentioned in the Circular No. 416, from which the CFI based its decision, refers only to loans or forbearances of money, goods or credits and court judgments thereon but not to court judgments for damages arising from injury to persons and loss of property which does not involve a loan.

5. PNB v. CA (Digest)GR No. 107569 November 8, 1994

Facts: Private respondents, who are owners of a NACIDA-registered enterprise, obtained from petitioner PNB a loan initially pegged at 12% per annum interest. The contract agreement includes, among others, a clause which allows PNB to raise the rate of interest depending onn the bank's future policies. During the term of the agreement, PNB on several occasions imposed subsequent raises to the applicable rate ranging from the original 12% up to 42%, imposing also a 6% penalty per annum.

Issue: Can a creditor raise the rate of interest based solely on a certain clause in the contract and without consent from the debtor as to the amount and rate of increase?Held: No. It is basic that there can be no contract in the true sense in the absence of the element of agreement, or of mutual assent of the parties. If this assent is wanting on the part of the one who contracts, his act has no more efficacy than if it had been done under duress or by a person of unsound mind.

Similarly, contract changes must be made with the consent of the contracting parties. The minds of all the parties must meet as to the proposed modification, especially when it affects an important aspect of the agreement. In the case of loan contracts, it cannot be gainsaid that the rate of interest is always a vital component, for it can make or break a capital venture. Thus, any change must be mutuallya greed upon, otherwise, it is bereft of any binding effect. The Court cannot countenance petitioner bank's posturing that the escalation clause at bench gives it unbridled right tounilaterally upwardly adjust the interest on private respondents' loan. That would completely take away from private respondents the right to assent to an important modification in their agreement, and would negate the element of mutuality in contracts.

6. Ruiz v. Caneba (Digest)GR No. 84884 December 3, 1990

Facts: Petitioners spouses Ruiz, leased the premises of common-law-spouses Sangalang and Cruz. Later on, the co-owners decided to sell the leased promises to the lessees for and in consideration of 175K payable in installments subject to such conditions as the continuation of payment of monthly rentals by the lessee-buyers until the full amount is paid, and an stipulation that the contracts would be subject to rescision in the event the lessee-buyers would default in the payment of the agreed price—upon rescision, the supposed lessee-buyers should return the amount advanced to the lessor-sellers while the former vacates the property. The petitioners defaulted payments so the parties rescinded the contract but could not however agree as to the amount. The lessee-buyers asked for 24% per annum interests on the amount advanced by them to the co-owners, while the latter, on the other hand, asked for the additional rentals for another portion of the property which the petitioner had already been using since the execution of the contract, these issues was however raised after judgment had been entered and writ of execution issued.

Issue: Should awards by courts be subject to legal interests however the judgment did not provide for such?

Held: No. Anent the Ruizes' claim of interest as aforementioned, it has been held in the case of Santulan v. Fule, 133 SCRA 762 (1984) that where the court judgment which did not provide for interest is already final, there is no reason to add interest in the judgment. Interest was not demanded by the Ruizes when the case was pending before the lower court, hence, there is no reason for Supreme Court to grant such claim. As ruled by the Court, such claim is groundless since the decision and orders sought to be enforced do not direct the payment of interest and have long become final (Canonizado v. Ordoñez-Benitez, 149 SCRA 555 [1987]).

Finally, as to Sangalang's claim for P1,500.00 as monthly rental for Door No. 2, the records show that such claim was never raised in the trial court. The issue of additional rentals was brought up by Sangalang only when the motion for execution of par. 3 of the dispositive portion of the decision was filed by the Ruiz spouses (Rollo, p. 189). It is a basic rule that an issue which was not raised in the court below cannot be raised for the first time on appeal as it would be offensive to the basic rules of fair play, justice and due process.

9. CARPO v.  CHUA                           

TINGA, J.:

 Before this Court are two consolidated petitions for review.  The first, docketed as G.R. No. 150773, assails the Decision[1] of the Regional Trial Court (RTC), Branch 26 of Naga City dated 26 October 2001 in Civil Case No. 99-4376.  RTC Judge Filemon B. Montenegro dismissed the complaint[2] for annulment of real estate mortgage and consequent foreclosure proceedings filed by the spouses David B. Carpo and Rechilda S. Carpo (petitioners).

The second, docketed as G.R. No. 153599, seeks to annul the Court of Appeals’ Decision[3] dated 30 April 2002 in CA-G.R. SP No. 57297.  The Court of Appeals Third Division annulled and set aside the orders of Judge Corazon A. Tordilla to suspend the sheriff’s enforcement of the writ of possession. 

  The cases stemmed from a loan contracted by petitioners.  On 18 July 1995, they borrowed from Eleanor Chua and Elma Dy Ng (respondents) the amount of One Hundred Seventy-Five Thousand Pesos (P175,000.00), payable within six (6) months with an interest rate of six percent (6%) per month.  To secure the payment of the loan, petitioners mortgaged their residential house and lot situated at San Francisco, Magarao, Camarines Sur, which lot is covered by Transfer Certificate of Title (TCT) No. 23180.  Petitioners failed to pay the loan upon demand.  Consequently, the real estate mortgage was extrajudicially foreclosed and the mortgaged property sold at a public auction on 8 July 1996.  The house and lot was awarded to respondents, who were the only bidders, for the amount of Three Hundred Sixty-Seven Thousand Four Hundred Fifty-Seven Pesos and Eighty Centavos (P367,457.80).

  Upon failure of petitioners to exercise their right of redemption, a certificate of sale was issued on 5 September 1997 by Sheriff Rolando A. Borja.  TCT No. 23180 was cancelled and in its stead, TCT No. 29338 was issued in the name of respondents. 

 Despite the issuance of the TCT, petitioners continued to occupy the said house and lot, prompting respondents to file a petition for writ of possession with the RTC docketed as Special Proceedings (SP) No. 98-1665.  On 23 March 1999, RTC Judge Ernesto A. Miguel issued an Order[4] for the issuance of a writ of possession.

 On 23 July 1999, petitioners filed a complaint for annulment of real estate mortgage and the consequent foreclosure proceedings, docketed as Civil Case No. 99-4376 of the RTC.  Petitioners consigned the amount of Two Hundred Fifty-Seven Thousand One Hundred Ninety-Seven Pesos and Twenty-Six Centavos (P257,197.26) with the RTC.

 Meanwhile, in SP No. 98-1665, a temporary restraining order was issued upon motion on 3 August 1999, enjoining the enforcement of the writ of possession.  In an Order[5] dated 6 January 2000, the RTC suspended the enforcement of the writ of possession pending the final disposition of Civil Case No. 99-4376.  Against this Order, respondents filed a petition for certiorari and mandamus before the Court of Appeals, docketed as CA-G.R. SP No. 57297. 

 During the pendency of the case before the Court of Appeals, RTC Judge Filemon B. Montenegro dismissed the complaint in Civil Case No. 99-4376  on the ground that it was filed out of time and barred by laches.  The RTC proceeded from the premise that the complaint was one for annulment of a voidable contract and thus barred by the four-year prescriptive period. Hence, the first petition for review now under consideration was filed with this Court, assailing the dismissal of the complaint.

 The second petition for review was filed with the Court after the Court of Appeals on 30 April 2002 annulled and set aside the RTC orders in SP No. 98-1665 on the ground that it was the ministerial duty of the lower court to issue the writ of possession when title over the mortgaged property had been consolidated in the mortgagee. 

  This Court ordered the consolidation of the two cases, on motion of petitioners. 

  In G.R. No. 150773, petitioners claim that following the Court’s ruling in Medel v. Court of Appeals[6] the rate of interest stipulated in the principal loan agreement is clearly null and void. Consequently, they also argue that the nullity of the agreed interest rate affects the validity of the real estate mortgage. Notably, while petitioners were silent in their petition on the issues of prescription and laches on which the RTC grounded the dismissal of the complaint, they belatedly raised the matters in their Memorandum. Nonetheless, these points warrant brief comment.

  On the other hand, petitioners argue in G.R. No.  153599 that the RTC did not commit any grave abuse of discretion when it issued the orders dated 3 August 1999 and 6 January 2000, and that these orders could not have been “the proper subjects of a petition for certiorari and mandamus”. More accurately, the justiciable issues before us are whether the Court of Appeals could properly entertain the petition for certiorari from the timeliness aspect, and whether the appellate court correctly concluded that the writ of possession could no longer be stayed.

We first resolve the petition in G.R. No.  150773. 

 Petitioners contend that the agreed rate of interest of 6% per month or 72% per annum is so excessive, iniquitous, unconscionable and exorbitant that it should have been declared null and void.  Instead of dismissing their complaint, they aver that the lower court should have declared them liable to respondents for the original amount of the loan plus 12% interest per annum and 1% monthly penalty charge as liquidated damages, [7] in view of the ruling in Medel v. Court of Appeals.[8] 

 In Medel, the Court found that the interest stipulated at 5.5% per month or 66% per annum was so iniquitous or unconscionable as to render the stipulation void.

 Nevertheless, we find the interest at 5.5% per month, or 66% per annum, stipulated upon by the parties in the promissory note iniquitous or unconscionable, and, hence, contrary to morals (“contra bonos mores”), if not against the law.  The stipulation is void.  The Court shall reduce equitably liquidated damages, whether intended as an indemnity or a penalty if they are iniquitous or unconscionable.[9]

 

In a long line of cases, this Court has invalidated  similar stipulations on interest rates for being excessive, iniquitous, unconscionable and exorbitant.  In Solangon v. Salazar,[10] we annulled the stipulation of 6% per month or 72% per annum interest on a P60,000.00 loan.  In Imperial v. Jaucian,[11] we reduced the interest rate from 16% to 1.167% per month or 14% per annum. In Ruiz v. Court of Appeals,[12] we equitably reduced the agreed 3% per month or 36% per annum interest to 1% per month or 12% per annum interest.  The 10% and 8% interest rates per month on a P1,000,000.00 loan were reduced to 12% per annum in Cuaton v. Salud.[13] Recently, this Court, in Arrofo v. Quino,[14] reduced the 7% interest per month on a P15,000.00 loan amounting to 84% interest per annum to 18% per annum. 

 There is no need to unsettle the principle affirmed in Medel and like cases.  From that perspective, it is apparent that the stipulated interest in the subject loan is excessive, iniquitous, unconscionable and exorbitant.  Pursuant to the freedom of contract principle embodied in Article 1306 of the Civil Code, contracting parties 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.  In the ordinary course, the codal provision may be invoked to annul the excessive stipulated interest.

  In the case at bar, the stipulated interest rate is 6% per month, or 72% per annum. By the standards set in the above-cited cases, this stipulation is similarly invalid. However, the RTC refused to apply the principle cited and employed in Medel on the ground that Medel did not pertain to the annulment of a real estate mortgage,[15] as it was a case for annulment of the loan contract itself.  The question thus sensibly arises whether the invalidity of the stipulation on interest carries with it the invalidity of the principal obligation.

 The question is crucial to the present petition even if the subject thereof is not the annulment of the loan contract but that of the mortgage contract. The consideration of the mortgage contract is the same as that of the principal contract from which it receives life, and without which it cannot exist as an independent contract. Being a mere accessory contract, the validity of the mortgage contract would depend on the validity of the loan secured by it.[16]

  Notably in Medel, the Court did not invalidate the entire loan obligation despite the inequitability of the stipulated interest, but instead reduced the rate of interest to the more reasonable rate of 12% per annum. The same remedial approach to the wrongful interest rates involved was employed or affirmed by the Court in Solangon, Imperial, Ruiz, Cuaton, and Arrofo.

  The Court’s ultimate affirmation in the cases cited  of the validity of the principal loan obligation side by side with the invalidation of the interest rates thereupon is congruent with the rule that a usurious loan transaction is not a complete nullity but defective only with respect to the agreed interest.

  We are aware that the Court of Appeals, on certain occasions, had ruled that a usurious loan is wholly null and void both as to the loan and as to the usurious interest.[17] However, this Court adopted the contrary rule, as comprehensively discussed in Briones v. Cammayo:[18]

 

In Gui Jong & Co. vs. Rivera, et al., 45 Phil. 778, this Court likewise declared that, in any event, the debtor in a usurious contract of loan should pay the creditor the amount which he justly owes him, citing in support of this ruling its previous decisions in Go Chioco, Supra, Aguilar vs. Rubiato, et al., 40 Phil. 570, and Delgado vs. Duque Valgona, 44 Phil. 739.

                 . . . .   Then in Lopez and Javelona vs. El Hogar Filipino, 47 Phil. 249, We also held that the standing

jurisprudence of this Court on the question under consideration was clearly to the effect that the Usury Law, by its letter and spirit, did not deprive the lender of his right to recover from the borrower the money actually loaned to and enjoyed by the latter. This Court went further to say that the Usury Law did not provide for the forfeiture of the capital in favor of the debtor in usurious contracts, and that while the forfeiture might appear to be convenient as a drastic measure to eradicate the evil of usury, the legal question involved should not be resolved on the basis of convenience.

 Other cases upholding the same principle are Palileo vs. Cosio, 97 Phil. 919 and Pascua vs.

Perez, L-19554, January 31, 1964, 10 SCRA 199, 200-202. In the latter We expressly held that when a contract is found to be tainted with usury "the only right of the respondent (creditor) . . . was merely to collect the amount of the loan, plus interest due thereon."

 The view has been expressed, however, that the ruling thus consistently adhered to should

now be abandoned because Article 1957 of the new Civil Code — a subsequent law — provides that contracts and stipulations, under any cloak or device whatever, intended to circumvent the laws against usury, shall be void, and that in such cases "the borrower may recover in accordance with the laws on usury." From this the conclusion is drawn that the whole contract is void and that, therefore, the creditor has no right to recover — not even his capital.

 The meaning and scope of our ruling in the cases mentioned heretofore is clearly stated, and

the view referred to in the preceding paragraph is adequately answered, in Angel Jose, etc. vs. Chelda Enterprises, et al. (L-25704, April 24, 1968). On the question of whether a creditor in a usurious contract may or may not recover the principal of the loan, and, in the affirmative, whether or not he may also recover interest thereon at the legal rate, We said the following:

 “. . . .  Appealing directly to Us, defendants raise two questions of law: (1) In a loan

with usurious interest, may the creditor recover the principal of the loan? (2) Should attorney's fees be awarded in plaintiff's favor?"

 Great reliance is made by appellants on Art. 1411 of the New Civil Code . . . . 

Since, according to the appellants, a usurious loan is void due to illegality of cause or object, the rule of pari delicto expressed in Article 1411, supra, applies, so that neither party can bring action against each other. Said rule, however, appellants add, is modified as to the borrower, by express provision of the law (Art. 1413, New Civil Code), allowing the borrower to recover interest paid in excess of the interest allowed by the Usury Law. As to the lender, no exception is made to the rule; hence, he cannot recover on the contract. So — they continue — the New Civil Code provisions must be upheld as against the Usury Law, under which a loan with usurious interest is not totally void, because of Article 1961 of the New Civil Code, that: "Usurious contracts shall be governed by the Usury Law and other special laws, so far as they are not inconsistent with this Code."

 We do not agree with such reasoning. Article 1411 of the New Civil Code is

not new; it is the same as Article 1305 of the Old Civil Code. Therefore, said provision is no warrant for departing from previous interpretation that, as provided in the Usury Law (Act No. 2655, as amended), a loan with usurious interest is not totally void only as to the interest.

  . . . [a]ppellants fail to consider that a contract of loan with

usurious interest consists of principal and accessory stipulations; the principal one is to pay the debt; the accessory stipulation is to pay interest thereon.

 And said two stipulations are divisible in the sense that the former

can still stand without the latter. Article 1273, Civil Code, attests to this: "The renunciation of the principal debt shall extinguish the accessory obligations; but the waiver of the latter shall leave the former in force."

 The question therefore to resolve is whether the illegal terms as to

payment of interest likewise renders a nullity the legal terms as to payments of the principal debt. Article 1420 of the New Civil Code provides in this regard: "In case of a divisible contract, if the illegal terms can be separated from the legal ones, the latter may be enforced."

 In simple loan with stipulation of usurious interest, the prestation

of the debtor to pay the principal debt, which is the cause of the contract (Article 1350, Civil Code), is not illegal. The illegality lies only as to the prestation to pay the stipulated interest; hence, being separable, the latter only should be deemed void, since it is the only one that is illegal.

 . . . . The principal debt remaining without stipulation for payment of interest can

thus be recovered by judicial action. And in case of such demand, and the debtor incurs in delay, the debt earns interest from the date of the demand (in this case from the filing of the complaint). Such interest is not due to stipulation, for there was none, the same being void. Rather, it is due to the general provision of law that in obligations to pay money, where the debtor incurs in delay, he has to pay interest by

way of damages (Art. 2209, Civil Code). The court a quo therefore, did not err in ordering defendants to pay the principal debt with interest thereon at the legal rate, from the date of filing of the complaint."[19]

  The Court’s wholehearted affirmation of the rule that the principal obligation subsists despite the nullity of the stipulated interest is evinced by its subsequent rulings, cited above, in all of which the main obligation was upheld and the offending interest rate merely corrected. Hence, it is clear and settled that the principal loan obligation still stands and remains valid. By the same token, since the mortgage contract derives its vitality from the validity of the principal obligation, the invalid stipulation on interest rate is similarly insufficient to render void the ancillary mortgage contract.

  It should be noted that had the Court declared the loan and mortgage agreements void for being contrary to public policy, no prescriptive period could have run.[20] Such benefit is obviously not available to petitioners.

  Yet the RTC pronounced that the complaint was barred by the four-year prescriptive period provided in Article 1391 of the Civil Code, which governs voidable contracts. This conclusion was derived from the allegation in the complaint that the consent of petitioners was vitiated through undue influence. While the RTC correctly acknowledged the rule of prescription for voidable contracts, it erred in applying the rule in this case. We are hard put to conclude in this case that there was any undue influence in the first place.

 There is ultimately no showing that petitioners’ consent to the loan and mortgage agreements was vitiated by undue influence. The financial condition of petitioners may have motivated them to contract with respondents, but undue influence cannot be attributed to respondents simply because they had lent money.  Article 1391, in relation to Article 1390 of the Civil Code, grants the aggrieved party the right to obtain the annulment of contract on account of factors which vitiate consent. Article 1337 defines the concept of undue influence, as follows:

 There is undue influence when a person takes improper advantage of his power over the will of another, depriving the latter of a reasonable freedom of choice.  The following circumstances shall be considered: the confidential, family, spiritual and other relations between the parties or the fact that the person alleged to have been unduly influenced was suffering from mental weakness, or was ignorant or in financial distress.

  While petitioners were allegedly financially distressed, it must be proven that there is deprivation of their free agency.  In other words, for undue influence to be present, the influence exerted must have so overpowered or subjugated the mind of a contracting party as to destroy his free agency, making him express the will of another rather than his own.[21] The alleged lingering financial woes of petitioners per se cannot be equated with the presence of undue influence.

 The RTC had likewise concluded that petitioners were barred by laches from assailing the validity of the real estate mortgage. We wholeheartedly agree. If indeed petitioners unwillingly gave their consent to the agreement, they should have raised this issue as early as in the foreclosure proceedings. It was only when the writ of possession was issued did petitioners challenge the stipulations in the loan contract in their action for annulment of mortgage.  Evidently, petitioners slept on their rights. The Court of Appeals succinctly made the following observations:

 In all these proceedings starting from the foreclosure, followed by the issuance of a provisional certificate of sale; then the definite certificate of sale; then the issuance of TCT No. 29338 in favor of the defendants and finally the petition for the issuance of the writ of possession in favor of the defendants, there is no showing that plaintiffs questioned the validity of these proceedings.  It was only after the issuance of the writ of possession in favor of the defendants, that plaintiffs allegedly tendered to the defendants the amount of P260,000.00 which the defendants refused.  In all these proceedings, why did plaintiffs sleep on their rights?[22]

        Clearly then, with the absence of undue influence, petitioners have no cause of action. Even assuming undue influence vitiated their consent to the loan contract, their action would already be barred by prescription when they filed it. Moreover, petitioners had clearly slept on their rights as they failed to timely assail the validity of the mortgage agreement. The denial of the petition in G.R. No. 150773 is warranted.

  We now resolve the petition in G.R. No.  153599.

        Petitioners claim that the assailed RTC orders dated 3 August 1999 and 6 January 2000 could no longer   be questioned in a special civil action for certiorari and mandamus as the reglementary period for such action had already elapsed.

It must be noted that the Order dated 3 August 1999 suspending the enforcement of the writ of possession had a period of effectivity of only twenty (20) days from 3 August 1999, or until 23 August 1999. Thus, upon the expiration of the twenty (20)-day period, the said Order became functus officio. Thus, there is really no sense in assailing the validity of this Order, mooted as it was.  For the same reason, the validity of the order need not have been assailed by respondents in their special civil action before the Court of Appeals.

On the other hand, the Order dated 6 January 2000 is in the nature of a writ of injunction whose period of efficacy is indefinite. It may be properly assailed by way of the special civil action for certiorari, as it is interlocutory in nature.

        As a rule, the special civil action for certiorari under Rule 65 must be filed not later than sixty (60) days from notice of the judgment or order.[23] Petitioners argue that the 3 August 1999 Order could no longer be assailed by respondents in a special civil action for certiorari before the Court of Appeals, as the petition was filed beyond sixty (60) days following respondents’ receipt of the Order. Considering that the 3 August 1999 Order had become functus officio in the first place, this argument deserves scant consideration.

  Petitioners further claim that the 6 January 2000 Order could not have likewise been the subject of a special civil action for certiorari, as it is according to them a final order, as opposed to an interlocutory order. That the 6 January 2000 Order is interlocutory in nature should be beyond doubt. An order is interlocutory if its effects would only be provisional in character and would still leave substantial proceedings to be further had by the issuing court in order to put the controversy to rest.[24] The injunctive relief granted by the order is definitely final, but merely provisional, its effectivity hinging on the ultimate outcome of the then pending action for annulment of real estate mortgage. Indeed, an interlocutory order hardly puts to a close, or disposes of, a case or a disputed issue leaving nothing else to be done by the court in respect thereto, as is characteristic of a final order.

  Since the 6 January 2000 Order is not a final order, but rather interlocutory in nature, we cannot agree with petitioners who insist that it may be assailed only through an appeal perfected within fifteen (15) days from receipt thereof by respondents. It is axiomatic that an interlocutory  order  cannot  be  challenged by an appeal, but is susceptible to review only through the special civil action of certiorari.[25]  The sixty (60)-day reglementary period for special civil actions under Rule 65 applies, and respondents’ petition was filed with the Court of Appeals well within the period.

                Accordingly, no error can be attributed to the Court of Appeals in granting the petition for certiorari and mandamus. As pointed out by respondents, the remedy of mandamus lies to compel the performance of a ministerial duty.    The issuance of a writ of possession to a purchaser in an extrajudicial foreclosure is merely a ministerial function.[26] 

Thus, we also affirm the Court of Appeals’ ruling  to set aside the RTC orders enjoining the enforcement of the writ of possession.[27] The purchaser in a foreclosure sale is entitled as a matter of right to a writ of possession, regardless of whether or not there is a pending suit for annulment of the mortgage or the foreclosure proceedings.   An injunction to prohibit the issuance or enforcement of the writ is entirely out of place.[28]

One final note.  The issue on the validity of the stipulated interest rates, regrettably for petitioners, was not raised at the earliest possible opportunity. It should be pointed out though that since an excessive stipulated interest rate may be void for being contrary to public policy, an action to annul said interest rate does not prescribe. Such indeed is the remedy; it is not the action for annulment of the ancillary real estate mortgage.  Despite the nullity of the stipulated interest rate, the principal loan obligation subsists, and along with it the mortgage that serves as collateral security for it.  

WHEREFORE, in view of all the foregoing, the petitions are DENIED.  Costs against petitioners.

SO ORDERED.

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

10. BPI v. IAC

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

Rizaldy Zshornack initiated proceedings on June 28,1976 by filing in the Court of First Instance of Rizal — Caloocan City a complaint against COMTRUST alleging four causes of action. Except for the third cause of action, the CFI ruled in favor of Zshornack. The bank appealed to the Intermediate Appellate Court which modified the CFI decision absolving the bank from liability on the fourth cause of action. The pertinent portions of the judgment, as modified, read:

IN VIEW OF THE FOREGOING, the Court renders judgment as follows:

1. Ordering the defendant COMTRUST to restore to the dollar savings account of plaintiff (No. 25-4109) the amount of U.S $1,000.00 as of October 27, 1975 to earn interest together with the remaining balance of the said account at the rate fixed by the bank for dollar deposits under Central Bank Circular 343;

2. Ordering defendant COMTRUST to return to the plaintiff the amount of U.S. $3,000.00 immediately upon the finality of this decision, without interest for the reason that the said amount was merely held in custody for safekeeping, but was not actually deposited with the defendant COMTRUST because being cash currency, it cannot by law be deposited with plaintiffs dollar account and defendant's only obligation is to return the same to plaintiff upon demand;

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5. Ordering defendant COMTRUST to pay plaintiff in the amount of P8,000.00 as damages in the concept of litigation expenses and attorney's fees suffered by plaintiff as a result of the failure of the defendant bank to restore to his (plaintiffs) account the amount of U.S. $1,000.00 and to return to him (plaintiff) the U.S. $3,000.00 cash left for safekeeping.

Costs against defendant COMTRUST.

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

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

1. We first consider the first cause of action, On the dates material to this case, Rizaldy Zshornack and his wife, Shirley Gorospe, maintained in COMTRUST, Quezon City Branch, a dollar savings account and a peso current account.

On October 27, 1975, an application for a dollar draft was accomplished by Virgilio V. Garcia, Assistant Branch Manager of COMTRUST Quezon City, payable to a certain Leovigilda D. Dizon in the amount of $1,000.00. In the application, Garcia indicated that the amount was to be charged to Dollar Savings Acct. No. 25-4109, the savings account of the Zshornacks; the charges for commission, documentary stamp tax and others totalling P17.46 were to be charged to Current Acct. No. 210465-29, again, the current account of the Zshornacks. There was no indication of the name of the purchaser of the dollar draft.

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

When Zshornack noticed the withdrawal of US$1,000.00 from his account, he demanded an explanation from the bank. In answer, COMTRUST claimed that the peso value of the withdrawal was given to Atty. Ernesto Zshornack, Jr., brother of Rizaldy, on October 27, 1975 when he (Ernesto) encashed with COMTRUST a cashier's check for P8,450.00 issued by the Manila Banking Corporation payable to Ernesto.

Upon consideration of the foregoing facts, this Court finds no reason to disturb the ruling of both the trial court and the Appellate Court on the first cause of action. Petitioner must be held liable for the unauthorized withdrawal of US$1,000.00 from private respondent's dollar account.

In its desperate attempt to justify its act of withdrawing from its depositor's savings account, the bank has adopted inconsistent theories. First, it still maintains that the peso value of the amount withdrawn was given to Atty. Ernesto Zshornack, Jr. when the latter encashed the Manilabank Cashier's Check. At the same time, the bank claims that the withdrawal was made pursuant to an agreement where Zshornack allegedly authorized the bank to withdraw from his dollar savings account such amount which, when converted to pesos, would be needed to fund his peso current account. If indeed the peso equivalent of the amount withdrawn from the dollar account was credited to the peso current account, why did the bank still have to pay Ernesto?

At any rate, both explanations are unavailing. With regard to the first explanation, petitioner bank has not shown how the transaction involving the cashier's check is related to the transaction involving the dollar draft in favor of Dizon financed by the withdrawal from Rizaldy's dollar account. The two transactions appear entirely independent of each other. Moreover, Ernesto Zshornack, Jr., possesses a personality distinct and separate from Rizaldy Zshornack. Payment made to Ernesto cannot be considered payment to Rizaldy.

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

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

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

Makati Cable Address:

Philippines "COMTRUST"

COMMERCIAL BANK AND TRUST COMPANY

of the Philippines

Quezon City Branch

December 8, 1975

MR. RIZALDY T. ZSHORNACK

&/OR MRS SHIRLEY E. ZSHORNACK

Sir/Madam:

We acknowledged (sic) having received from you today the sum of US DOLLARS: THREE THOUSAND ONLY (US$3,000.00) for safekeeping.

Received by:

(Sgd.) VIRGILIO V. GARCIA

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

In its answer, COMTRUST averred that the US$3,000 was credited to Zshornack's peso current account at prevailing conversion rates.

It must be emphasized that COMTRUST did not deny specifically under oath the authenticity and due execution of the above instrument.

During trial, it was established that on December 8, 1975 Zshornack indeed delivered to the bank US $3,000 for safekeeping. When he requested the return of the money on May 10, 1976, COMTRUST explained that the sum was disposed of in this manner: US$2,000.00 was sold on December 29, 1975 and the peso proceeds amounting to P14,920.00 were deposited to Zshornack's current account per deposit slip accomplished by Garcia; the remaining US$1,000.00 was sold on February 3, 1976 and the peso proceeds amounting to P8,350.00 were deposited to his current account per deposit slip also accomplished by Garcia.

Aside from asserting that the US$3,000.00 was properly credited to Zshornack's current account at prevailing conversion rates, BPI now posits another ground to defeat private respondent's claim. It now argues that the contract embodied in the document is the contract of depositum (as defined in Article 1962, New Civil Code), which banks do not enter into. The bank alleges that Garcia exceeded his powers when he entered into the transaction. Hence, it is claimed, the bank cannot be liable under the contract, and the obligation is purely personal to Garcia.

Before we go into the nature of the contract entered into, an important point which arises on the pleadings, must be considered.

The second cause of action is based on a document purporting to be signed by COMTRUST, a copy of which document was attached to the complaint. In short, the second cause of action was based on an actionable document. It was therefore incumbent upon the bank to specifically deny under oath the due execution of the document, as prescribed under Rule 8, Section 8, if it desired: (1) to question the authority of Garcia to bind the corporation; and (2) to deny its capacity to enter into such contract. [See, E.B. Merchant v. International Banking Corporation, 6 Phil. 314 (1906).] No sworn answer denying the due execution of the document in question, or questioning the authority of Garcia to bind the bank, or denying the bank's capacity to enter into the contract, was ever filed. Hence, the bank is deemed to have admitted not only Garcia's authority, but also the bank's power, to enter into the contract in question.

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

The reason for the rule enunciated in the foregoing authorities will, we think, be readily appreciated. In dealing with corporations the public at large is bound to rely to a large extent upon outward appearances. If a man is found acting for a corporation with the external indicia of authority, any person, not having notice of want of authority, may usually rely upon those appearances; and if it be found that the directors had permitted the agent to exercise that authority and thereby held him out as a person competent to bind the corporation, or had acquiesced in a contract and retained the benefit supposed to have been conferred by it, the corporation will be bound, notwithstanding the actual authority may never have been granted

... Whether a particular officer actually possesses the authority which he assumes to exercise is frequently known to very few, and the proof of it usually is not readily accessible to the stranger who deals with the corporation on the faith of the ostensible authority exercised by some of the corporate officers. It is therefore reasonable, in a case where an officer of a corporation has made a contract in its name, that the corporation should be required, if it denies his authority, to state

such defense in its answer. By this means the plaintiff is apprised of the fact that the agent's authority is contested; and he is given an opportunity to adduce evidence showing either that the authority existed or that the contract was ratified and approved. [Ramirez v. Orientalist Co. and Fernandez, 38 Phil. 634, 645- 646 (1918).]

Petitioner's argument must also be rejected for another reason. The practical effect of absolving a corporation from liability every time an officer enters into a contract which is beyond corporate powers, even without the proper allegation or proof that the corporation has not authorized nor ratified the officer's act, is to cast corporations in so perfect a mold that transgressions and wrongs by such artificial beings become impossible [Bissell v. Michigan Southern and N.I.R. Cos 22 N.Y 258 (1860).] "To say that a corporation has no right to do unauthorized acts is only to put forth a very plain truism but to say that such bodies have no power or capacity to err is to impute to them an excellence which does not belong to any created existence with which we are acquainted. The distinction between power and right is no more to be lost sight of in respect to artificial than in respect to natural persons." [Ibid.]

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

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

The above arrangement is that contract defined under Article 1962, New Civil Code, which reads:

Art. 1962. A deposit is constituted from the moment a person receives a thing belonging to another, with the obligation of safely keeping it and of returning the same. If the safekeeping of the thing delivered is not the principal purpose of the contract, there is no deposit but some other contract.

Note that the object of the contract between Zshornack and COMTRUST was foreign exchange. Hence, the transaction was covered by Central Bank Circular No. 20, Restrictions on Gold and Foreign Exchange Transactions, promulgated on December 9, 1949, which was in force at the time the parties entered into the transaction involved in this case. The circular provides:

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

(a) Any and all assets, provided they are held through, in, or with banks or banking institutions located in the Philippines, including money, checks, drafts, bullions bank drafts, deposit accounts (demand, time and savings), all debts, indebtedness or obligations, financial brokers and investment houses, notes, debentures, stocks, bonds, coupons, bank acceptances, mortgages, pledges, liens or other rights in the nature of security, expressed in foreign currencies, or if payable abroad, irrespective of the currency in which they are expressed, and belonging to any person, firm, partnership, association, branch office, agency, company or other unincorporated body or corporation residing or located within the Philippines;

(b) Any and all assets of the kinds included and/or described in subparagraph (a) above, whether or not held through, in, or with banks or banking institutions, and existent within the Philippines, which belong to any person, firm, partnership, association, branch office, agency, company or other unincorporated body or corporation not residing or located within the Philippines;

(c) Any and all assets existent within the Philippines including money, checks, drafts, bullions, bank drafts, all debts, indebtedness or obligations, financial securities commonly dealt in by bankers, brokers and investment houses, notes, debentures, stock, bonds, coupons, bank acceptances, mortgages, pledges, liens or other rights in the nature of security expressed in foreign currencies, or if payable abroad, irrespective of the currency in which they are expressed, and belonging to any person, firm, partnership, association, branch office, agency, company or other unincorporated body or corporation residing or located within the Philippines.

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4. (a) All receipts of foreign exchange shall be sold daily to the Central Bank by those authorized to deal in foreign exchange. All receipts of foreign exchange by any person, firm, partnership, association, branch office, agency, company or other unincorporated body or corporation shall be sold to the authorized agents of the Central Bank by the recipients within one business day following the receipt of such foreign exchange. Any person, firm, partnership, association, branch office, agency, company or other unincorporated body or corporation, residing or located within the Philippines, who acquires on and after the date of this Circular foreign exchange shall not, unless licensed by the Central Bank, dispose of such foreign exchange in whole or in part, nor receive less than its full value, nor delay taking ownership thereof except as such delay is customary; Provided, further, That within one day upon taking ownership, or receiving payment, of foreign exchange the aforementioned persons and entities shall sell such foreign exchange to designated agents of the Central Bank.

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8. Strict observance of the provisions of this Circular is enjoined; and any person, firm or corporation, foreign or domestic, who being bound to the observance thereof, or of such other rules, regulations or directives as may hereafter be issued in implementation of this Circular, shall fail or refuse to comply with, or abide by, or shall violate the same, shall be subject to the penal sanctions provided in the Central Bank Act.

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Paragraph 4 (a) above was modified by Section 6 of Central Bank Circular No. 281, Regulations on Foreign Exchange, promulgated on November 26, 1969 by limiting its coverage to Philippine residents only. Section 6 provides:

SEC. 6. All receipts of foreign exchange by any resident person, firm, company or corporation shall be sold to authorized agents of the Central Bank by the recipients within one business day following the receipt of such foreign exchange. Any resident person, firm, company or corporation residing or located within the Philippines, who acquires foreign exchange shall not, unless authorized by the Central Bank, dispose of such foreign exchange in whole or in part, nor receive less than its full value, nor delay taking ownership thereof except as such delay is customary; Provided, That, within one business day upon taking ownership or receiving payment of foreign exchange the aforementioned persons and entities shall sell such foreign exchange to the authorized agents of the Central Bank.

As earlier stated, the document and the subsequent acts of the parties show that they intended the bank to safekeep the foreign exchange, and return it later to Zshornack, who alleged in his complaint that he is a Philippine resident. The parties did not intended to sell the US dollars to the Central Bank within one business day from receipt. Otherwise, the contract of depositum would never have been entered into at all.

Since the mere safekeeping of the greenbacks, without selling them to the Central Bank within one business day from receipt, is a transaction which is not authorized by CB Circular No. 20, it must be considered as one which falls under the general class of prohibited transactions. Hence, pursuant to Article 5 of the Civil Code, it is void, having been executed against the provisions of a mandatory/prohibitory law. More importantly, it affords neither of the parties a cause of action against the other. "When the nullity proceeds from the illegality of the cause or object of the contract, and the act constitutes a criminal offense, both parties being in pari delicto, they shall have no cause of action against each other. . ." [Art. 1411, New Civil Code.] The only remedy is one on behalf of the State to prosecute the parties for violating the law.

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

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

WHEREFORE, the decision appealed from is hereby MODIFIED. Petitioner is ordered to restore to the dollar savings account of private respondent the amount of US$1,000.00 as of October 27, 1975 to earn interest at the rate fixed by the bank for dollar savings deposits. Petitioner is further ordered to pay private respondent the amount of P8,000.00 as damages. The other causes of action of private respondent are ordered dismissed.

SO ORDERED.

G.R. No. L-6913            November 21, 1913

11. THE ROMAN CATHOLIC BISHOP OF JARO, v. DE LA PEÑA,

MORELAND, J.:

This is an appeal by the defendant from a judgment of the Court of First Instance of Iloilo, awarding to the plaintiff the sum of P6,641, with interest at the legal rate from the beginning of the action.

It is established in this case that the plaintiff is the trustee of a charitable bequest made for the construction of a leper hospital and that father Agustin de la Peña was the duly authorized representative of the plaintiff to receive the legacy. The defendant is the administrator of the estate of Father De la Peña.

In the year 1898 the books Father De la Peña, as trustee, showed that he had on hand as such trustee the sum of P6,641, collected by him for the charitable purposes aforesaid. In the same year he deposited in his personal account P19,000 in the Hongkong and Shanghai Bank at Iloilo. Shortly thereafter and during the war of the revolution, Father De la Peña was arrested by the military authorities as a political prisoner, and while thus detained made an order on said bank in favor of the United States Army officer under whose charge he then was for the sum thus deposited in said bank. The arrest of Father De la Peña and the confiscation of the funds in the bank were the result of the claim of the military authorities that he was an insurgent and that the funds thus deposited had been collected by him for revolutionary purposes. The money was taken from the bank by the military authorities by virtue of such order, was confiscated and turned over to the Government.

While there is considerable dispute in the case over the question whether the P6,641 of trust funds was included in the P19,000 deposited as aforesaid, nevertheless, a careful examination of the case leads us to the conclusion that said trust funds were a part of the funds deposited and which were removed and confiscated by the military authorities of the United States.

That branch of the law known in England and America as the law of trusts had no exact counterpart in the Roman law and has none under the Spanish law. In this jurisdiction, therefore, Father De la Peña's liability is determined by those portions of the Civil Code which relate to obligations. (Book 4, Title 1.)

Although the Civil Code states that "a person obliged to give something is also bound to preserve it with the diligence pertaining to a good father of a family" (art. 1094), it also provides, following the principle of the Roman law, major casus est, cui humana infirmitas resistere non potest, that "no one shall be liable for events which could not be foreseen, or which having been foreseen were inevitable, with the exception of the cases expressly mentioned in the law or those in which the obligation so declares." (Art. 1105.)

By placing the money in the bank and mixing it with his personal funds De la Peña did not thereby assume an obligation different from that under which he would have lain if such deposit had not been made, nor did he thereby make himself liable to repay the money at all hazards. If the had been forcibly taken from his pocket or from his house by the military forces of one of the combatants during a state of war, it is clear that under the provisions of the Civil Code he would have been exempt from responsibility. The fact that he placed the trust fund in the bank in his personal account does not add to his responsibility. Such deposit did not make him a debtor who must respond at all hazards.

We do not enter into a discussion for the purpose of determining whether he acted more or less negligently by depositing the money in the bank than he would if he had left it in his home; or whether he was more or less negligent by depositing the money in his personal account than he would have been if he had deposited it in a separate account as trustee. We regard such discussion as substantially fruitless, inasmuch as the precise question is not one of negligence. There was no law prohibiting him from depositing it as he did and there was no law which changed his responsibility be reason of the deposit. While it may be true that one who is under obligation to do or give a thing is in duty bound, when he sees events approaching the results of which will be dangerous to his trust, to take all reasonable means and measures to escape or, if unavoidable, to temper the effects of those events, we do not feel constrained to hold that, in choosing between two means equally legal, he is culpably negligent in selecting one whereas he would not have been if he had selected the other.

The court, therefore, finds and declares that the money which is the subject matter of this action was deposited by Father De la Peña in the Hongkong and Shanghai Banking Corporation of Iloilo; that said money was forcibly taken from the bank by the armed forces of the United States during the war of the insurrection; and that said Father De la Peña was not responsible for its loss.

The judgment is therefore reversed, and it is decreed that the plaintiff shall take nothing by his complaint.

G.R. No. 90027 March 3, 1993

12. CA AGRO-INDUSTRIAL DEVELOPMENT CORP., petitioner, vs.THE HONORABLE COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.

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.

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, 15

petitioner 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 thePhilippines. 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 safe-deposit 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 thesafe-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 safe-deposit 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).

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.

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; 19 the contract in the case at bar is a special kind of deposit. It cannot be characterized as an ordinary contract of lease under Article 1643 because the full and absolute possession and control of the safety deposit box was not given to the joint renters — the petitioner and the Pugaos. The guard key of the box remained with the respondent Bank; without this key, neither of the renters could open the box. On the other hand, the respondent Bank could not likewise open the box without the renter's key. In this case, the said key had a duplicate which was made so that both renters could have access to the box.

Hence, the authorities cited by the respondent Court 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 Act 23

pertinently provides:

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

(a) Receive in custody funds, documents, and valuable objects, and rent safety deposit boxes for the safeguarding of such effects.

xxx xxx xxx

The banks shall perform the services permitted under subsections (a), (b) and (c) of this section as depositories or as agents. . . . 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 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 rentingsafe-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.

[G.R. No. 160544.  February 21, 2005]

13. TRIPLE-V vs. FILIPINO MERCHANTS

THIRD DIVISION

Gentlemen:

Quoted hereunder, for your information, is a resolution of this Court dated FEB 21 2005.

G.R. No. 160544 (Triple-V Food Services, Inc. vs. Filipino Merchants Insurance Company, Inc.)

Assailed in this petition for review on certiorari is the decision [1]cralaw dated October 21, 2003 of the Court of Appeals in CA-G.R. CV No. 71223, affirming an earlier decision of the Regional Trial Court at Makati City, Branch 148, in its Civil Case No. 98-838, an action for damages thereat filed by respondent Filipino Merchants Insurance, Company, Inc., against the herein petitioner, Triple-V Food Services, Inc.

On March 2, 1997, at around 2:15 o'clock in the afternoon, a certain Mary Jo-Anne De Asis (De Asis) dined at petitioner's Kamayan Restaurant at 15 West Avenue, Quezon City. De Asis was using a Mitsubishi Galant Super Saloon Model 1995 with plate number UBU 955, assigned to her by her employer Crispa Textile Inc. (Crispa). On said date, De Asis availed of the valet parking service of petitioner and entrusted her car key to petitioner's valet counter. A corresponding parking ticket was issued as receipt for the car. The car was then parked by petitioner's valet attendant, a certain Madridano, at the designated parking area. Few minutes later, Madridano noticed that the car was not in its parking slot and its key no longer in the box where valet attendants usually keep the keys of cars entrusted to them. The car was never recovered. Thereafter, Crispa filed a claim against its insurer, herein respondent Filipino Merchants Insurance Company, Inc. (FMICI). Having indemnified Crispa in the amount of P669.500 for the loss of the subject vehicle, FMICI, as subrogee to Crispa's rights, filed with the RTC at Makati City an action for damages against petitioner Triple-V Food Services, Inc., thereat docketed as Civil Case No. 98-838 which was raffled to Branch 148.

In its answer, petitioner argued that the complaint failed to aver facts to support the allegations of recklessness and negligence committed in the safekeeping and custody of the subject vehicle, claiming that it and its employees wasted no time in ascertaining the loss of the car and in informing De Asis of the discovery of the loss. Petitioner further argued that in accepting the complimentary valet parking service, De Asis received a parking ticket whereunder it is so provided that "[Management and staff will not be responsible for any loss of or damage incurred on the vehicle nor of valuables contained therein", a provision which, to petitioner's mind, is an explicit waiver of any right to claim indemnity for the loss of the car; and that De Asis knowingly assumed the risk of loss when she allowed petitioner to park her vehicle, adding that its valet parking service did not include extending a contract of insurance or warranty for the loss of the vehicle.

During trial, petitioner challenged FMICI's subrogation to Crispa's right to file a claim for the loss of the car, arguing that theft is not a risk insured against under FMICI's Insurance Policy No. PC-5975 for the subject vehicle.

In a decision dated June 22, 2001, the trial court rendered judgment for respondent FMICI, thus:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff (FMICI) and against the defendant Triple V (herein petitioner) and the latter is hereby ordered to pay plaintiff the following:

1.  The amount of P669,500.00, representing actual damages plus compounded (sic);

2.  The amount of P30,000.00 as acceptance fee plus the amount equal to 25% of the total amount due as attorney's fees;

3.  The amount of P50,000.00 as exemplary damages;

4.  Plus, cost of suit.

Defendant Triple V is not therefore precluded from taking appropriate action against defendant Armando Madridano.

SO ORDERED.

Obviously displeased, petitioner appealed to the Court of Appeals reiterating its argument that it was not a depositary of the subject car and that it exercised due diligence and prudence in the safe keeping of the vehicle, in handling the car-napping incident and in the supervision of its employees. It further argued that there was no valid subrogation of rights between Crispa and respondent FMICI.

In a decision dated October 21, 2003,[2]the Court of Appeals dismissed petitioner's appeal and affirmed the appealed decision of the trial court, thus:

WHEREFORE, based on the foregoing premises, the instant appeal is hereby DISMISSED. Accordingly, the assailed June 22, 2001 Decision of the RTC of Makati City - Branch 148 in Civil Case No. 98-838 is AFFIRMED.

SO ORDERED.

In so dismissing the appeal and affirming the appealed decision, the appellate court agreed with the findings and conclusions of the trial court that: (a) petitioner was a depositary of the subject vehicle; (b) petitioner was negligent in its duties as a depositary thereof and as an employer of the valet attendant; and (c) there was a valid subrogation of rights between Crispa and respondent FMICI.

Hence, petitioner's present recourse.

We agree with the two (2) courts below.

When De Asis entrusted the car in question to petitioners valet attendant while eating at petitioner's Kamayan Restaurant, the former expected the car's safe return at the end of her meal. Thus, petitioner was constituted as a depositary of the same car. Petitioner cannot evade liability by arguing that neither a contract of deposit nor that of insurance, guaranty or surety for the loss of the car was constituted when De Asis availed of its free valet parking service.

In a contract of deposit, a person receives an object belonging to another with the obligation of safely keeping it and returning the same.[3]cralaw A deposit may be constituted even without any consideration. It is not necessary

that the depositary receives a fee before it becomes obligated to keep the item entrusted for safekeeping and to return it later to the depositor.

Specious is petitioner's insistence that the valet parking claim stub it issued to De Asis contains a clear exclusion of its liability and operates as an explicit waiver by the customer of any right to claim indemnity for any loss of or damage to the vehicle.

The parking claim stub embodying the terms and conditions of the parking, including that of relieving petitioner from any loss or damage to the car, is essentially a contract of adhesion, drafted and prepared as it is by the petitioner alone with no participation whatsoever on the part of the customers, like De Asis, who merely adheres to the printed stipulations therein appearing. While contracts of adhesion are not void in themselves, yet this Court will not hesitate to rule out blind adherence thereto if they prove to be one-sided under the attendant facts and circumstances.[4]cralaw

Hence, and as aptly pointed out by the Court of Appeals, petitioner must not be allowed to use its parking claim stub's exclusionary stipulation as a shield from any responsibility for any loss or damage to vehicles or to the valuables contained therein. Here, it is evident that De Asis deposited the car in question with the petitioner as part of the latter's enticement for customers by providing them a safe parking space within the vicinity of its restaurant. In a very real sense, a safe parking space is an added attraction to petitioner's restaurant business because customers are thereby somehow assured that their vehicle are safely kept, rather than parking them elsewhere at their own risk. Having entrusted the subject car to petitioner's valet attendant, customer De Asis, like all of petitioner's customers, fully expects the security of her car while at petitioner's premises/designated parking areas and its safe return at the end of her visit at petitioner's restaurant.

Petitioner's argument that there was no valid subrogation of rights between Crispa and FMICI because theft was not a risk insured against under FMICI's Insurance Policy No. PC-5975 holds no water.

Insurance Policy No. PC-5975 which respondent FMICI issued to Crispa contains, among others things, the following item: "Insured's Estimate of Value of Scheduled Vehicle- P800.000".[5]cralaw On the basis of such item, the trial court concluded that the coverage includes a full comprehensive insurance of the vehicle in case of damage or loss. Besides, Crispa paid a premium of P10,304 to cover theft. This is clearly shown in the breakdown of premiums in the same policy.[6]cralaw Thus, having indemnified CRISPA for the stolen car, FMICI, as correctly ruled by the trial court and the Court of Appeals, was properly subrogated to Crispa's rights against petitioner, pursuant to Article 2207 of the New Civil Code[7].

Anent the trial court's findings of negligence on the part of the petitioner, which findings were affirmed by the appellate court, we have consistently ruled that findings of facts of trial courts, more so when affirmed, as here, by the Court of Appeals, are conclusive on this Court unless the trial court itself ignored, overlooked or misconstrued facts and circumstances which, if considered, warrant a reversal of the outcome of the case. [8]cralaw This is not so in the case at bar. For, we have ourselves reviewed the records and find no justification to deviate from the trial court's findings.

WHEREFORE, petition is hereby DENIED DUE COURSE.

SO ORDERED.

[G.R. No. 126780.  February 17, 2005]

14. YHT REALTY CORPORATION, ERLINDA LAINEZ and ANICIA PAYAM, petitioners, vs. THE COURT OF APPEALS

D E C I S I O N

TINGA, J.:

The primary question of interest before this Court is the only legal issue in the case:   It is whether a hotel may evade liability for the loss of items left with it for safekeeping by its guests, by having these guests execute written waivers holding the establishment or its employees free from blame for such loss in light of Article 2003 of the Civil Code which voids such waivers.

Before this Court is a Rule 45 petition for review of the Decision[1] dated 19 October 1995 of the Court of Appeals which affirmed the Decision[2] dated 16 December 1991 of the Regional Trial Court (RTC), Branch 13, of Manila, finding YHT Realty Corporation, Brunhilda Mata-Tan (Tan), Erlinda Lainez (Lainez) and Anicia Payam (Payam) jointly and solidarily liable for damages in an action filed by Maurice McLoughlin (McLoughlin) for the loss of his American and Australian dollars deposited in the safety deposit box of Tropicana Copacabana Apartment Hotel, owned and operated by YHT Realty Corporation.

The factual backdrop of the case follow.

Private respondent McLoughlin, an Australian businessman-philanthropist, used to stay at Sheraton Hotel during his trips to the Philippines prior to 1984 when he met Tan.  Tan befriended McLoughlin by showing him around, introducing him to important people, accompanying him in visiting impoverished street children and assisting him in buying gifts for the children and in distributing the same to charitable institutions for poor children.  Tan convinced McLoughlin to transfer from Sheraton Hotel to Tropicana where Lainez, Payam and Danilo Lopez were employed.  Lopez served as manager of the hotel while Lainez and Payam had custody of the keys for the safety deposit boxes of Tropicana.  Tan took care of McLoughlin’s booking at the Tropicana where he started staying during his trips to the Philippines from December 1984 to September 1987.[3]

On 30 October 1987, McLoughlin arrived from Australia and registered with Tropicana.  He rented a safety deposit box as it was his practice to rent a safety deposit box every time he registered at Tropicana in previous trips.  As a tourist, McLoughlin was aware of the procedure observed by Tropicana relative to its safety deposit boxes.  The

safety deposit box could only be opened through the use of two keys, one of which is given to the registered guest, and the other remaining in the possession of the management of the hotel.  When a registered guest wished to open his safety deposit box, he alone could personally request the management who then would assign one of its employees to accompany the guest and assist him in opening the safety deposit box with the two keys.[4]

McLoughlin allegedly placed the following in his safety deposit box: Fifteen Thousand US Dollars (US$15,000.00) which he placed in two envelopes, one envelope containing Ten Thousand US Dollars (US$10,000.00) and the other envelope Five Thousand US Dollars (US$5,000.00); Ten Thousand Australian Dollars (AUS$10,000.00) which he also placed in another envelope; two (2) other envelopes containing letters and credit cards; two (2) bankbooks; and a checkbook, arranged side by side inside the safety deposit box.[5]

On 12 December 1987, before leaving for a brief trip to Hongkong, McLoughlin opened his safety deposit box with his key and with the key of the management and took therefrom the envelope containing Five Thousand US Dollars (US$5,000.00), the envelope containing Ten Thousand Australian Dollars (AUS$10,000.00), his passports and his credit cards.[6] McLoughlin left the other items in the box as he did not check out of his room at the Tropicana during his short visit to Hongkong. When he arrived in Hongkong, he opened the envelope which contained Five Thousand US Dollars (US$5,000.00) and discovered upon counting that only Three Thousand US Dollars (US$3,000.00) were enclosed therein.[7] Since he had no idea whether somebody else had tampered with his safety deposit box, he thought that it was just a result of bad accounting since he did not spend anything from that envelope.[8]

After returning to Manila, he checked out of Tropicana on 18 December 1987 and left for Australia.   When he arrived in Australia, he discovered that the envelope with Ten Thousand US Dollars (US$10,000.00) was short of Five Thousand US Dollars (US$5,000).  He also noticed that the jewelry which he bought in Hongkong and stored in the safety deposit box upon his return to Tropicana was likewise missing, except for a diamond bracelet.[9]

When McLoughlin came back to the Philippines on 4 April 1988, he asked Lainez if some money and/or jewelry which he had lost were found and returned to her or to the management.  However, Lainez told him that no one in the hotel found such things and none were turned over to the management.  He again registered at Tropicana and rented a safety deposit box.  He placed therein one (1) envelope containing Fifteen Thousand US Dollars (US$15,000.00), another envelope containing Ten Thousand Australian Dollars (AUS$10,000.00) and other envelopes containing his traveling papers/documents.  On 16 April 1988, McLoughlin requested Lainez and Payam to open his safety deposit box.  He noticed that in the envelope containing Fifteen Thousand US Dollars (US$15,000.00), Two Thousand US Dollars (US$2,000.00) were missing and in the envelope previously containing Ten Thousand Australian Dollars (AUS$10,000.00), Four Thousand Five Hundred Australian Dollars (AUS$4,500.00) were missing.[10]

When McLoughlin discovered the loss, he immediately confronted Lainez and Payam who admitted that Tan opened the safety deposit box with the key assigned to him.[11] McLoughlin went up to his room where Tan was staying and confronted her.  Tan admitted that she had stolen McLoughlin’s key and was able to open the safety deposit box with the assistance of Lopez, Payam and Lainez.[12] Lopez also told McLoughlin that Tan stole the key assigned to McLoughlin while the latter was asleep.[13]

McLoughlin requested the management for an investigation of the incident.  Lopez got in touch with Tan and arranged for a meeting with the police and McLoughlin.  When the police did not arrive, Lopez and Tan went to the room of McLoughlin at Tropicana and thereat, Lopez wrote on a piece of paper a promissory note dated 21 April 1988.  The promissory note reads as follows:

I promise to pay Mr. Maurice McLoughlin the amount of AUS$4,000.00 and US$2,000.00 or its equivalent in Philippine currency on or before May 5, 1988.[14]

Lopez requested Tan to sign the promissory note which the latter did and Lopez also signed as a witness.   Despite the execution of promissory note by Tan, McLoughlin insisted that it must be the hotel who must assume responsibility for the loss he suffered. However, Lopez refused to accept the responsibility relying on the conditions for renting the safety deposit box entitled “Undertaking For the Use Of Safety Deposit Box,”[15] specifically paragraphs (2) and (4) thereof, to wit:

2.       To release and hold free and blameless TROPICANA APARTMENT HOTEL from any liability arising from any loss in the contents and/or use of the said deposit box for any cause whatsoever, including but not limited to the presentation or use thereof by any other person should the key be lost;

.  .  .

4.       To return the key and execute the RELEASE in favor of TROPICANA APARTMENT HOTEL upon giving up the use of the box.[16]

On 17 May 1988, McLoughlin went back to Australia and he consulted his lawyers as to the validity of the abovementioned stipulations.  They opined that the stipulations are void for being violative of universal hotel practices and customs.  His lawyers prepared a letter dated 30 May 1988 which was signed by McLoughlin and sent to President Corazon Aquino.[17] The Office of the President referred the letter to the Department of Justice (DOJ) which forwarded the same to the Western Police District (WPD).[18]

After receiving a copy of the indorsement in Australia, McLoughlin came to the Philippines and registered again as a hotel guest of Tropicana. McLoughlin went to Malacaňang to follow up on his letter but he was instructed to go to the DOJ.  The DOJ directed him to proceed to the WPD for documentation.  But McLoughlin went back to Australia as he had an urgent business matter to attend to.

For several times, McLoughlin left for Australia to attend to his business and came back to the Philippines to follow up on his letter to the President but he failed to obtain any concrete assistance.[19]

McLoughlin left again for Australia and upon his return to the Philippines on 25 August 1989 to pursue his claims against petitioners, the WPD conducted an investigation which resulted in the preparation of an affidavit which was forwarded to the Manila City Fiscal’s Office. Said affidavit became the basis of preliminary investigation. However,

McLoughlin left again for Australia without receiving the notice of the hearing on 24 November 1989.  Thus, the case at the Fiscal’s Office was dismissed for failure to prosecute.  Mcloughlin requested the reinstatement of the criminal charge for theft.  In the meantime, McLoughlin and his lawyers wrote letters of demand to those having responsibility to pay the damage.  Then he left again for Australia.

Upon his return on 22 October 1990, he registered at the Echelon Towers at Malate, Manila.  Meetings were held between McLoughlin and his lawyer which resulted to the filing of a complaint for damages on 3 December 1990 against YHT Realty Corporation, Lopez, Lainez, Payam and Tan (defendants) for the loss of McLoughlin’s money which was discovered on 16 April 1988. After filing the complaint, McLoughlin left again for Australia to attend to an urgent business matter.  Tan and Lopez, however, were not served with summons, and trial proceeded with only Lainez, Payam and YHT Realty Corporation as defendants.

After defendants had filed their Pre-Trial Brief admitting that they had previously allowed and assisted Tan to open the safety deposit box, McLoughlin filed an Amended/Supplemental Complaint[20] dated 10 June 1991 which included another incident of loss of money and jewelry in the safety deposit box rented by McLoughlin in the same hotel which took place prior to 16 April 1988.[21] The trial court admitted the Amended/Supplemental Complaint.

During the trial of the case, McLoughlin had been in and out of the country to attend to urgent business in Australia, and while staying in the Philippines to attend the hearing, he incurred expenses for hotel bills, airfare and other transportation expenses, long distance calls to Australia, Meralco power expenses, and expenses for food and maintenance, among others.[22]

After trial, the RTC of Manila rendered judgment in favor of McLoughlin, the dispositive portion of which reads:

WHEREFORE, above premises considered, judgment is hereby rendered by this Court in favor of plaintiff and against the defendants, to wit:

1.    Ordering defendants, jointly and severally, to pay plaintiff the sum of US$11,400.00 or its equivalent in Philippine Currency of P342,000.00, more or less, and the sum of AUS$4,500.00 or its equivalent in Philippine Currency of P99,000.00, or a total of  P441,000.00, more or less, with 12% interest from April 16 1988 until said amount has been paid to plaintiff (Item 1, Exhibit CC);

2.    Ordering defendants, jointly and severally to pay plaintiff the sum of P3,674,238.00 as actual and consequential damages arising from the loss of his Australian and American dollars and jewelries complained against and in prosecuting his claim and rights administratively and judicially (Items II, III, IV, V, VI, VII, VIII, and IX, Exh. “CC”);

3.    Ordering defendants, jointly and severally, to pay plaintiff the sum of P500,000.00 as moral damages (Item X, Exh. “CC”);

4.    Ordering defendants, jointly and severally, to pay plaintiff the sum of P350,000.00 as exemplary damages (Item XI, Exh. “CC”);

5.    And ordering defendants, jointly and severally, to pay litigation expenses in the sum of P200,000.00 (Item XII, Exh. “CC”);

6.    Ordering defendants, jointly and severally, to pay plaintiff the sum of P200,000.00 as attorney’s fees, and a fee of P3,000.00 for every appearance; and

7.  Plus costs of suit.

SO ORDERED.[23]

The trial court found that McLoughlin’s allegations as to the fact of loss and as to the amount of money he lost were sufficiently shown by his direct and straightforward manner of testifying in court and found him to be credible and worthy of belief as it was established that McLoughlin’s money, kept in Tropicana’s safety deposit box, was taken by Tan without McLoughlin’s consent.  The taking was effected through the use of the master key which was in the possession of the management. Payam and Lainez allowed Tan to use the master key without authority from McLoughlin.  The trial court added that if McLoughlin had not lost his dollars, he would not have gone through the trouble and personal inconvenience of seeking aid and assistance from the Office of the President, DOJ, police authorities and the City Fiscal’s Office in his desire to recover his losses from the hotel management and Tan.[24]

As regards the loss of Seven Thousand US Dollars (US$7,000.00) and jewelry worth approximately One Thousand Two Hundred US Dollars (US$1,200.00) which allegedly occurred during his stay at Tropicana previous to 4 April 1988, no claim was made by McLoughlin for such losses in his complaint dated 21 November 1990 because he was not sure how they were lost and who the responsible persons were.  But considering the admission of the defendants in their pre-trial brief that on three previous occasions they allowed Tan to open the box, the trial court opined that it was logical and reasonable to presume that his personal assets consisting of Seven Thousand US Dollars (US$7,000.00) and jewelry were taken by Tan from the safety deposit box without McLoughlin’s consent through the cooperation of Payam and Lainez.[25]

The trial court also found that defendants acted with gross negligence in the performance and exercise of their duties and obligations as innkeepers and were therefore liable to answer for the losses incurred by McLoughlin.[26]

Moreover, the trial court ruled that paragraphs (2) and (4) of the “Undertaking For The Use Of Safety Deposit Box” are not valid for being contrary to the express mandate of Article 2003 of the New Civil Code and against public policy.[27] Thus, there being fraud or wanton conduct on the part of defendants, they should be responsible for all damages which may be attributed to the non-performance of their contractual obligations.[28]

The Court of Appeals affirmed the disquisitions made by the lower court except as to the amount of damages awarded.  The decretal text of the appellate court’s decision reads:

THE FOREGOING CONSIDERED, the appealed Decision is hereby AFFIRMED but modified as follows:

The appellants are directed jointly and severally to pay the plaintiff/appellee the following amounts:

1)      P153,200.00  representing  the peso equivalent of US$2,000.00 and AUS$4,500.00;

2)      P308,880.80, representing the peso value for the air fares from Sidney [sic] to Manila and back for a total of eleven (11) trips;

3)      One-half of P336,207.05 or P168,103.52 representing payment to Tropicana Apartment Hotel;

4)      One-half of P152,683.57 or P76,341.785 representing payment to Echelon Tower;

5)      One-half of P179,863.20 or P89,931.60 for the taxi xxx transportation from the residence to Sidney [sic] Airport and from MIA to the hotel here in Manila, for the eleven (11) trips;

6)      One-half of P7,801.94 or   P3,900.97 representing Meralco power expenses;

7)      One-half of P356,400.00 or P178,000.00 representing expenses for food and maintenance;

8)      P50,000.00 for moral damages;

9)      P10,000.00 as exemplary damages; and

10)    P200,000 representing attorney’s fees.

With costs.

SO ORDERED.[29]

Unperturbed, YHT Realty Corporation, Lainez and Payam went to this Court in this appeal by certiorari.

Petitioners submit for resolution by this Court the following issues: (a) whether the appellate court’s conclusion on the alleged prior existence and subsequent loss of the subject money and jewelry is supported by the evidence on record; (b) whether the finding of gross negligence on the part of petitioners in the performance of their duties as innkeepers is supported by the evidence on record; (c) whether the “Undertaking For The Use of Safety Deposit Box” admittedly executed by private respondent is null and void; and (d) whether the damages awarded to private respondent, as well as the amounts thereof, are proper under the circumstances.[30]

The petition is devoid of merit.

It is worthy of note that the thrust of Rule 45 is the resolution only of questions of law and any peripheral factual question addressed to this Court is beyond the bounds of this mode of review.

Petitioners point out that the evidence on record is insufficient to prove the fact of prior existence of the dollars and the jewelry which had been lost while deposited in the safety deposit boxes of Tropicana, the basis of the trial court and the appellate court being the sole testimony of McLoughlin as to the contents thereof.   Likewise, petitioners dispute the finding of gross negligence on their part as not supported by the evidence on record.

We are not persuaded.  We adhere to the findings of the trial court as affirmed by the appellate court that the fact of loss was established by the credible testimony in open court by McLoughlin.  Such findings are factual and therefore beyond the ambit of the present petition.

The trial court had the occasion to observe the demeanor of McLoughlin while testifying which reflected the veracity of the facts testified to by him.  On this score, we give full credence to the appreciation of testimonial evidence by the trial court especially if what is at issue is the credibility of the witness.  The oft-repeated principle is that where the credibility of a witness is an issue, the established rule is that great respect is accorded to the evaluation of the credibility of witnesses by the trial court.[31] The trial court is in the best position to assess the credibility of witnesses and their testimonies because of its unique opportunity to observe the witnesses firsthand and note their demeanor, conduct and attitude under grilling examination.[32]

We are also not impressed by petitioners’ argument that the finding of gross negligence by the lower court as affirmed by the appellate court is not supported by evidence.  The evidence reveals that two keys are required to open the safety deposit boxes of Tropicana.  One key is assigned to the guest while the other remains in the possession of the management.  If the guest desires to open his safety deposit box, he must request the management for the other key to open the same.  In other words, the guest alone cannot open the safety deposit box without the assistance of the management or its employees.  With more reason that access to the safety deposit box should be denied if the one requesting for the opening of the safety deposit box is a stranger.  Thus, in case of loss of any item deposited in the safety deposit box, it is inevitable to conclude that the management had at least a hand in the consummation of the taking, unless the reason for the loss is force majeure.

Noteworthy is the fact that Payam and Lainez, who were employees of Tropicana, had custody of the master key of the management when the loss took place.  In fact, they even admitted that they assisted Tan on three separate occasions in opening McLoughlin’s safety deposit box.[33] This only proves that Tropicana had prior knowledge that a person aside from the registered guest had access to the safety deposit box.  Yet the management failed to notify McLoughlin of the incident and waited for him to discover the taking before it disclosed the matter to him.   Therefore, Tropicana should be held responsible for the damage suffered by McLoughlin by reason of the negligence of its employees.

The management should have guarded against the occurrence of this incident considering that Payam admitted in open court that she assisted Tan three times in opening the safety deposit box of McLoughlin at around 6:30 A.M. to 7:30 A.M. while the latter was still asleep.[34] In light of the circumstances surrounding this case, it is undeniable that without the acquiescence of the employees of Tropicana to the opening of the safety deposit box, the loss of McLoughlin’s money could and should have been avoided.

The management contends, however, that McLoughlin, by his act, made its employees believe that Tan was his spouse for she was always with him most of the time.  The evidence on record, however, is bereft of any showing that McLoughlin introduced Tan to the management as his wife.  Such an inference from the act of McLoughlin will not exculpate the petitioners from liability in the absence of any showing that he made the management believe that Tan was his wife or was duly authorized to have access to the safety deposit box. Mere close companionship and intimacy are not enough to warrant such conclusion considering that what is involved in the instant case is the very safety of McLoughlin’s deposit.  If only petitioners exercised due diligence in taking care of McLoughlin’s safety deposit box, they should have confronted him as to his relationship with Tan considering that the latter had been observed opening McLoughlin’s safety deposit box a number of times at the early hours of the morning.  Tan’s acts should have prompted the management to investigate her relationship with McLoughlin.  Then, petitioners would have exercised due diligence required of them. Failure to do so warrants the conclusion that the management had been remiss in complying with the obligations imposed upon hotel-keepers under the law.

Under Article 1170 of the New Civil Code, those who, in the performance of their obligations, are guilty of negligence, are liable for damages. As to who shall bear the burden of paying damages, Article 2180, paragraph (4) of the same Code provides that the owners and managers of an establishment or enterprise are likewise responsible for damages caused by their employees in the service of the branches in which the latter are employed or on the occasion of their functions.  Also, this Court has ruled that if an employee is found negligent, it is presumed that the employer was negligent in selecting and/or supervising him for it is hard for the victim to prove the negligence of such employer.[35] Thus, given the fact that the loss of McLoughlin’s money was consummated through the negligence of Tropicana’s employees in allowing Tan to open the safety deposit box without the guest’s consent, both the assisting employees and YHT Realty Corporation itself, as owner and operator of Tropicana, should be held solidarily liable pursuant to Article 2193.[36]

The issue of whether the “Undertaking For The Use of Safety Deposit Box” executed by McLoughlin is tainted with nullity presents a legal question appropriate for resolution in this petition.  Notably, both the trial court and the appellate court found the same to be null and void.  We find no reason to reverse their common conclusion.  Article 2003 is controlling, thus:

Art. 2003. The hotel-keeper cannot free himself from responsibility by posting notices to the effect that he is not liable for the articles brought by the guest. Any stipulation between the hotel-keeper and the guest whereby the responsibility of the former as set forth in Articles 1998 to 2001[37] is suppressed or diminished shall be void.

Article 2003 was incorporated in the New Civil Code as an expression of public policy precisely to apply to situations such as that presented in this case.  The hotel business like the common carrier’s business is imbued with public interest.  Catering to the public, hotelkeepers are bound to provide not only lodging for hotel guests and security to their persons and belongings.  The twin duty constitutes the essence of the business.  The law in turn does not allow such duty to the public to be negated or diluted by any contrary stipulation in so-called “undertakings” that ordinarily appear in prepared forms imposed by hotel keepers on guests for their signature.

In an early case,[38] the Court of Appeals through its then Presiding Justice (later Associate Justice of the Court) Jose P. Bengzon, ruled that to hold hotelkeepers or innkeeper liable for the effects of their guests, it is not necessary that they be actually delivered to the innkeepers or their employees. It is enough that such effects are within the hotel or inn.[39] With greater reason should the liability of the hotelkeeper be enforced when the missing items are taken without the guest’s knowledge and consent from a safety deposit box provided by the hotel itself, as in this case.

Paragraphs (2) and (4) of the “undertaking” manifestly contravene Article 2003 of the New Civil Code for they allow Tropicana to be released from liability arising from any loss in the contents and/or use of the safety deposit box for any cause whatsoever.[40] Evidently, the undertaking was intended to bar any claim against Tropicana for any loss of the contents of the safety deposit box whether or not negligence was incurred by Tropicana or its employees.   The New Civil Code is explicit that the responsibility of the hotel-keeper shall extend to loss of, or injury to, the personal property of the guests even if caused by servants or employees of the keepers of hotels or inns as well as by strangers, except as it may proceed from any force majeure.[41] It is the loss through force majeure that may spare the hotel-keeper from liability. In the case at bar, there is no showing that the act of the thief or robber was done with the use of arms or through an irresistible force to qualify the same as force majeure.[42]

Petitioners likewise anchor their defense on Article 2002[43] which exempts the hotel-keeper from liability if the loss is due to the acts of his guest, his family, or visitors. Even a cursory reading of the provision would lead us to reject petitioners’ contention.  The justification they raise would render nugatory the public interest sought to be protected by the provision.  What if the negligence of the employer or its employees facilitated the consummation of a crime committed by the registered guest’s relatives or visitor?  Should the law exculpate the hotel from liability since the loss was due to the act of the visitor of the registered guest of the hotel? Hence, this provision presupposes that the hotel-keeper is not guilty of concurrent negligence or has not contributed in any degree to the occurrence of the loss.  A depositary is not responsible for the loss of goods by theft, unless his actionable negligence contributes to the loss.[44]

In the case at bar, the responsibility of securing the safety deposit box was shared not only by the guest himself but also by the management since two keys are necessary to open the safety deposit box.  Without the assistance of hotel employees, the loss would not have occurred.  Thus, Tropicana was guilty of concurrent negligence in allowing Tan, who was not the registered guest, to open the safety deposit box of McLoughlin, even assuming that the latter was also guilty of negligence in allowing another person to use his key. To rule otherwise would result in undermining the safety of the safety deposit boxes in hotels for the management will be given imprimatur to allow any person, under the pretense of being a family member or a visitor of the guest, to have access to the safety deposit box without fear of any liability that will attach thereafter in case such person turns out to be a complete stranger.  This will allow the hotel to evade responsibility for any liability incurred by its employees in conspiracy with the guest’s relatives and visitors.

Petitioners contend that McLoughlin’s case was mounted on the theory of contract, but the trial court and the appellate court upheld the grant of the claims of the latter on the basis of tort.[45] There is nothing anomalous in how the lower courts decided the controversy for this Court has pronounced a jurisprudential rule that tort liability can exist even if there are already contractual relations.  The act that breaks the contract may also be tort.[46]

As to damages awarded to McLoughlin, we see no reason to modify the amounts awarded by the appellate court for the same were based on facts and law.  It is within the province of lower courts to settle factual issues such as the proper amount of damages awarded and such finding is binding upon this Court especially if sufficiently proven by evidence and not unconscionable or excessive. Thus, the appellate court correctly awarded McLoughlin Two Thousand US Dollars (US$2,000.00) and Four Thousand Five Hundred Australian dollars (AUS$4,500.00) or their peso equivalent at the time of payment,[47] being the amounts duly proven by evidence.[48] The alleged loss that took place prior to 16 April 1988 was not considered since the amounts alleged to have been taken were not sufficiently established by evidence. The appellate court also correctly awarded the sum of P308,880.80, representing the peso value for the air fares from Sydney to Manila and back for a total of eleven (11) trips; [49]one-half of P336,207.05 or P168,103.52 representing payment to Tropicana;[50] one-half of P152,683.57 or P76,341.785 representing payment to Echelon Tower;[51] one-half of P179,863.20 or P89,931.60 for the taxi or transportation expenses from McLoughlin’s residence to Sydney Airport and from MIA to the hotel here in Manila, for the eleven (11) trips;[52] one-half of P7,801.94 or P3,900.97 representing Meralco power expenses;[53] one-half of P356,400.00 or P178,000.00 representing expenses for food and maintenance.[54]

The amount of P50,000.00 for moral damages is reasonable. Although trial courts are given discretion to determine the amount of moral damages, the appellate court may modify or change the amount awarded when it is palpably and scandalously excessive.  Moral damages are not intended to enrich a complainant at the expense of a defendant.  They are awarded only to enable the injured party to obtain means, diversion or amusements that will serve to alleviate the moral suffering he has undergone, by reason of defendants’ culpable action.[55]

The awards of P10,000.00 as exemplary damages and P200,000.00 representing attorney’s fees are likewise sustained.

WHEREFORE, foregoing premises considered, the Decision of the Court of Appeals dated 19 October 1995 is hereby AFFIRMED.  Petitioners are directed, jointly and severally, to pay private respondent the following amounts:

(1)      US$2,000.00 and AUS$4,500.00 or their peso equivalent at the time of payment;

(2)      P308,880.80, representing the peso value for the air fares from Sydney to Manila and back for a total of eleven (11) trips;

(3)      One-half of P336,207.05 or P168,103.52 representing payment to Tropicana Copacabana Apartment  Hotel;

(4)      One-half of P152,683.57 or P76,341.785 representing payment to Echelon Tower;

(5)      One-half of P179,863.20 or P89,931.60 for the taxi or transportation expense from McLoughlin’s residence to Sydney Airport and from MIA to the hotel here in Manila, for the eleven (11) trips;

(6)      One-half of P7,801.94 or P3,900.97 representing Meralco power expenses;

(7)      One-half of P356,400.00 or P178,200.00 representing expenses for food and maintenance;

(8)      P50,000.00 for moral damages;

(9)      P10,000.00 as exemplary damages; and

(10)    P200,000 representing attorney’s fees.

With costs.

SO ORDERED.