Case Digests (Deposit to Security) (2)

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2 batch of Case Digests (Deposit to Security) Credit Transactions Under Atty. Cong Deposit DOCTRINE: Obligation not to make use of a thing deposited unless expressly authorized. When there is permission to make use of the thing, the contract becomes either loan or bailment. ANGEL JAVELLANA, plaintiff-appellee, vs. JOSE LIM, ET AL., defendants-appellants. FACTS: Jose, Ceverino and Domingo Lim, defendants, executed a document in favor of Angel Javellana, plaintiff-appellee, wherein it states that: ―they, defendants, have received, as a deposit, without interest, money from plaintiff-appellee and agreed upon a date when they will return the money. Upon the stipulated due date, defendants asked for an extension to pay and binding themselves to pay 15% interest per annum on the amount of their indebtedness, to which the plaintiff-appellee acceded.‖ The defendants were not able to pay the full amount of their indebtedness notwithstanding the request made by plaintiff-appellee. As they were able to pay P1,000,on May 15, 1900 while the plaintiff incurred damages amounting to P830 since Jaunary 20, 1898. The lower court ruled in favor of plaintiff-appellee for the recovery of the amount of P5,714.44. While a motion for new trial was granted. ISSUE: Whether the agreement entered into by the parties is one of loan or of deposit? HELD: The document executed was a contract of loan. The court affirmed the trial court’s decision and favoredJavellana, and directed the defendants to pay the debt and interest. ―Moreover, for the reason above set forth it may, as a matter of course, be inferred that there was no renewal of the contract deposited converted into a loan, because, as has already been stated, the defendants received said amount by virtue of real loan contract under the name of a deposit, since the so-called bailees were forthwith authorized to dispose of the amount deposited. This they have done, as has been clearly shown.‖ Where money, consisting of coins of legal tender, is deposited with a person and the latter is authorized by the depositor to use and dispose of the same, the agreement is not a contract of deposit, but a loan. A subsequent agreement between the parties as to interest on the amount said to have been deposited, because the same could not be returned at the time fixed therefor, does not constitute a renewal of an agreement of deposit, but it is the best evidence that the original contract entered into between therein was for a loan under the guise of a deposit. In this case, the appleants were lawfully authorized to make use of the amount deposited, which they have done. Jose Lim came to the plaintiff to be able to ask for an extension of payment since he have used the amount deposited to him, with the condition that 15% interest shall we included in the contract. The law provides: Article 1767 of the Civil Code provides that — The depository cannot make use of the thing deposited without the express permission of the depositor. Otherwise he shall be liable for losses and damages. Article 1768 also provides that — When the depository has permission to make use of the thing deposited, the contract loses the character of a deposit and becomes a loan or bailment.

The permission shall not be presumed, and its existence must be proven.

Aniceta Palacio v. DionisioSudario, G.R. No. 2908 Facts: The plaintiff made an arrangement for the pasturing of eighty-one head of cattle, in return for which she has to give one-half of the calves that might be born and was to pay the defendant one-half peso for each calf branded. On demand for the whole, forty-eight head of cattle were afterwards returned to her and this action is brought to recover the remaining thirty-three. It is claimed that the thirty-three cows either died of disease or were drowned in a flood. The defendant's witnesses swore that of the cows that perished, six died from overfeeding, and they failed to make clear the happening of any flood sufficient to destroy the others. Issue: Whether or not defendant should be held liable for the loss of the 33 cows. Held: If we consider the contract as one of deposit, then under article 1183 of the Civil Code, the burden of explanation of the loss rested upon the depositary and under article 1769 the fault is presumed to be his. The defendant has not succeeded in showing that the loss occurred either without fault on his part or by reason of casofortuito. If, however, the contract be not one strictly of deposit but one according to a local custom for the pasturing of cattle, the obligations of the parties remain the same. The judgment of the lower court holding defendant liable was affirmed. Atty. DionisioCalibo v. Court of Appeals, G.R. No. 120528 FACTS: On January 25, 1979, plaintiff-appellee [herein petitioner] Pablo U. Abella purchased an MF 210 agricultural tractor which he used in his farm in Dagohoy, Bohol. Sometimes in October or November 1985, Pablo Abella's son, Mike abella rented for residential purpose the house of defendant-appellant Dionosio R. Calibo, Jr., in Tagbilaran City. In October 1986, Pablo Abella pulled out his aforementioned tractor from his farm in Dagohoy, Bohol, and left it in the safekeeping of his son, Mike Abella, in Tagbilaran City. Mike kept the tractor in the garage of the house he was leasing from Calibo. Since he started renting Calibo's house, Mike had been religiously paying the monthly rentals therefor, but beginning November of 1986, he stopped doing so. The following month, Calibo learned that Mike had never paid the charges for electric and water consumption in the leased premises which the latter was duty-bound to shoulder. Thus, Calibo confronted Mike about his rental arrears and the unpaid electric and water bills. During this confrontation, Mike informed Calibo that he (Mike) would be staying in the leased property only until the end of December 1986. Mike also assured Calibo that he would be settling his account with the latter, offering the tractor as security. Mike even asked Calibo to help him find a buyer for the tractor so he could sooner pay his outstanding obligation. In January 1987 when a new tenant moved into the house formerly leased to Mike, Calibo had the tractor moved to the garage of his father's house, also in Tagbilaran City. Apprehensive over Mike's unsettled account, Calibo visited him in his Cebu City address in January, February and March, 1987 and tried to collect payment. On all three occasions, Calibo was unable to talk to Mike as the latter was reportedly out of town. On his third trip to Cebu City, Calibo left word with the occupants of the Abella residence thereat that there was a prospective buyer for the tractor. The following week, Mike saw Calibo in Tagbilaran City to inquire about the possible tractor buyer. The sale, however, did not push through as the buyer did not come back anymore. When again confronted with his outstanding obligation, Mike reassured Calibo that the tractor would stand as a guarantee for its payment. That was the last time Calibo saw or heard from Mike. After a long while, or on November 22, 1988, Mike's father, Pablo Abella, came to Tagbilaran City to claim and take possession of the tractor. Calibo, however, informed Pablo that Mike left the tractor with him as security for the payment of Mike's obligation to him. Pablo offered to write Mike a check for P2,000.00 in payment of Mike's unpaid lease rentals, in addition to issuing postdated checks to cover the unpaid electric and water bills the correctness of which Pablo said he still had to verify with Mike. Calibo told Pablo that he would accept the P2,000.00-check only if the latter would execute a promissory note in his favor to cover the amount of the unpaid electric and water bills. Pablo was not amenable to this proposal. The two of them having failed to come to an agreement, Pablo left and went back to Cebu City, unsuccessful in his attempt to take possession of the tractor." On November 25, 1988, private respondent instituted an action for replevin, claiming ownership of the tractor and seeking to recover possession thereof from petitioner. As adverted to above, the trial court ruled in favor of private respondent; so did the Court of Appeals when petitioner appealed.

The Court of Appeals sustained the ruling of the trial court that Mike Abella could not have validly pledged the subject tractor to petitioner since he was not the owner thereof, nor was he authorized by its owner to pledge the tractor. ISSUE: Is it a valid deposit? HELD: NO. RATIO Essentially, petitioner claims that the tractor in question was validly pledged to him by private respondent's son Mike Abella to answer for the latter's monetary obligations to petitioner. In the alternative, petitioner asserts that the tractor was left with him, in the concept of an innkeeper, on deposit and that he may validly hold on thereto until Mike Abella pays his obligations. There is likewise no valid deposit in this case. In a contract of deposit, a person receives an object belonging to another with the obligation of safely keeping it and of returning the same.5 Petitioner himself states that he received the tractor not to safely keep it but as a form of security for the payment of Mike Abella's obligations. There is no deposit where the principal purpose for receiving the object is not safekeeping. Consequently, petitioner had no right to refuse delivery of the tractor to its lawful owner. On the other hand, private respondent, as owner, had every right to seek to repossess the tractor, including the institution of the instant action for replevin.

Petitioner maintains that even if Mike Abella were not the owner of the tractor, a principal-agent relationship may be implied between Mike Abella and private respondent. He contends that the latter failed to repudiate the alleged agency, knowing that his son is acting on his behalf without authority when he pledged the tractor to petitioner. Petitioner argues that, under Article 1911 of the Civil Code, private respondent is bound by the pledge, even if it were beyond the authority of his son to pledge the tractor, since he allowed his son to act as though he had full powers. On the other hand, private respondent asserts that respondent court had correctly ruled on the matter. In a contract of pledge, the creditor is given the right to retain his debtor's movable property in his possession, or in that of a third person to whom it has been delivered, until the debt is paid. For the contract to be valid, it is necessary that: (1) the pledge is constituted to secure the fulfillment of a principal obligation; (2) the pledgor be the absolute owner of the thing pledged; and (3) the person constituting the pledge has the free disposal of his property, and in the absence thereof, that he be legally authorized for the purpose.2 As found by the trial court and affirmed by respondent court, the pledgor in this case, Mike Abella, was not the absolute owner of the tractor that was allegedly pledged to petitioner. The tractor was owned by his father, private respondent, who left the equipment with him for safekeeping. Clearly, the second requisite for a valid pledge, that the pledgor be the absolute owner of the property, is absent in this case. Hence, there is no valid pledge. "He who is not the owner or proprietor of the property pledged or mortgaged to guarantee the fulfillment of a principal obligation, cannot legally constitute such a guaranty as may validly bind the property in favor of his creditor, and the pledgee or mortgagee in such a case acquires no right whatsoever in the property pledged or mortgaged."3 There also does not appear to be any agency in this case. We agree with the Court of Appeals that: "As indicated in Article 1869, for an agency relationship to be deemed as implied, the principal must know that another person is acting on his behalf without authority. Here, appellee categorically stated that the only purpose for his leaving the subject tractor in the care and custody of Mike Abella was for safekeeping, and definitely not for him to pledge or alienate the same. If it were true that Mike pledged appeellee's tractor to appellant, then Mike was acting not only without appellee's authority but without the latter's knowledge as well. Article 1911, on the other hand, mandates that the principal is solidarily liable with the agent if the former allowed the latter to act as though he had full powers. Again, in view of appellee's lack of knowledge of Mike's pledging the tractor without any authority from him, it stands to reason that the former could not have allowed the latter to pledge the tractor as if he had full powers to do so."

Bank of the Philippine Islands v. Hon. Court of Appeals and Eastern Plywood and Lim, G.R. No. 104612 / 232 SCRA302, 10 May 1994; Facts Private respondents held at least one ―and/or‖ joint account with CBTC. A joint checking ―and‖ account was opened by Lim and Mariano Velasco in the amount of Php120,000, which funds deposited came from the ―and/or‖ joint account of private respondents. Various amounts were later deposited or withdrawn from the ―and‖ account of Lim & Velasco. Velasco died, and at the time of his death the outstanding balance of the ―and‖ account was Php662,522.87. By virtue of an indemnity undertaking executed by Lim, one-half of this amount was provisionally transferred to one the accounts of Eastern with CBTC.

Eastern obtained a loan of Php73,000 from CBTC, for which loan Eastern issued PNs payable on demand at the order of CBTC. Eastern also signed a hold-out agreement which provided that Eastern and Lim conferred upon CBTC sufficient power to retain the account balance of the ―and‖ account (current account of Lim and Velasco) and to apply same for the purpose of liquidating the load of Php73,000 in respect of the principal and/or interest. In the meantime, a case for the settlement of Velasco’s estate was filed in the RTC of Pasig. The RTC granted the claim of the estate from the ―and‖ account of Lim and Velasco and allowed the heirs to withdraw the amount of Php331,261.44. When CBTC merged with BPI, the latter filed a complaint against Lim and Eastern demanding the payment of the loan. Lim and Eastern filed a counterclaim against BPI for the return of the balance in the disputed account subject of the holdout agreement; the balance of which ―and‖ account was permitted by BPI to be withdrawn by the heirs of Velasco. Issue Is BPI still liable to the private respondents on the ―and‖ account subject of the holdout agreement after its withdrawal by the heirs of Velasco? Held Yes. The award of Php331,264.44 in favor of private respondents shall bear interest at the rate of 12% per annum from the filing of the counterclaim. Ratio The counterclaim of private respondents for the return of the Php331,261.44 was equivalent to a demand that they be allowed to withdraw their deposit with the bank. Article 1980 of the Civil Code provides that fixed, savings, current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan.In Serrano v. Central Bank, bank deposits are in the nature of irregular deposits; they are really loans because they earn interest. The relationship then between a depositor and a bank is one of creditor and debtor. The deposit under the questioned ―and‖ account was an ordinary bank deposit; hence, it was payable on demand of the depositor. The account was proven and established to belong to Eastern even it was deposited in the names of Lim and Velasco. As the real creditor of the BPI, Eastern had the right to withdraw it or to demand payment thereof. BPI cannot be relieved of its duty to pay Eastern simply because it already allowed the heirs of Velasco to withdraw the whole balance of the account. The petitioner should have not allowed such withdrawal because it had admitted in the holdout agreement the questioned ownership of the money deposited in the account. As early as May 12 1979, CBTC was notified by the corporate secretary of Eastern that the deposit in the ―and‖ account of Lim and Velasco was being claimed by them and that one-half was being claimed by the heirs of Velasco. Moreover, the order of the RTC of Pasig merely authorized the heirs of Velasco to withdraw the account. BPI was not specifically ordered to release the account to the said heirs; hence, it was under no judicial compulsion to do so. The authorization given to the heirs of Velasco cannot be construed as a final determination or adjudication that the account belonged to Velasco. When the ownership of a particular property is disputed, the determination by a probate court of whether that property is included in the estate of a deceased is merely provisional in character and cannot be the subject of execution. Because the ownership of the deposit remained undetermined, BPI, as the debtor, had no right to pay to persons other than those in whose favor the obligation was constituted or whose right or authority to receive payment is indisputable. The payment of the money deposited with BPI that will extinguish its obligation to the creditor-depositor is payment to the person of the creditor or to one authorized by him or by the law to receive it. The payment of BPI to the heirs of Velasco even if done in good faith did not extinguish its obligation to the true depositor, Eastern.

Bank of the Philippine Islands v. Intermediate Appellate Court, G.R. No. L-66826 Facts:Rizaldy T. Zshornack and his wife maintained in COMTRUST a dollar savings account and a peso current account. An application for a dollar drat was accomplished by Virgillo Garcia branch manager of COMTRUST payable to a certain LeovigildaDizon. In the application, Garcia indicated that the amount was to be charged to the dollar savings account of the Zshornacks. There was no indication of the name of the purchaser of the dollar draft. Comtrust issued a check payable to the order of Dizon. When Zshornack noticed the withdrawal from his account, he demanded an explanation from the bank. In its answer, Comtrust claimed that the peso value of the withdrawal was given to Atty. Ernesto Zshornack, brother of Rizaldy when he encashed with COMTRUST a cashier’s check for P8450 issued by the manila banking corporation payable to Ernesto. Issue: Whether the contract between petitioner and respondent bank is a deposit? Held: The document which embodies the contract states that the US$3,000.00 was received by the bank for safekeeping. The subsequent acts of the parties also show that the intent of the parties was really for the bank to safely keep the dollars and to return it to Zshornack at a later time. Thus, Zshornack demanded the return of the money on May 10, 1976, or over five months later.

The above arrangement is that contract defined under Article 1962, New Civil Code, which reads: Art. 1962. A deposit is constituted from the moment a person receives a thing belonging to another, with the obligation of safely keeping it and of returning the same. If the safekeeping of the thing delivered is not the principal purpose of the contract, there is no deposit but some other contract.

CA Agro-Industrial Development Corporation vs CA GR No. 90027. March 3, 1993 Facts: CA Agro (through its President, Aguirre) and spouses Pugao entered into an agreement whereby the former purchased two parcels of land for P350, 525 with a P75, 725 down payment while the balance was covered by three (3) postdated checks. Among the terms embodied in a Memorandum of True and Actual Agreement of Sale of Land were that 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 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 upon full payment of the purchase price. They then rented Safety Deposit box of private respondent Security Bank and Trust Company (SBTC). For this purpose, both signed a contract of lease which contains the following conditions: 13. The bank is not a depositary of the contents of the safe and it has neither the possession nor control of the same. 14. The bank has no interest whatsoever in said contents, except herein expressly provided, and it assumes absolutely no liability in connection therewith. After the execution of the contract, two (2) renter’s key were given to Aguirre, and Pugaos. A key guard remained with the bank. The safety deposit box has two key holes and can be opened with the use of both keys. Petitioner claims that the CTC were placed inside the said box. Thereafter, a certain Mrs. Ramos offered to buy from the petitioner the two (2) lots at a price of P225 per sqm. Mrs. Ramose demanded the execution of a deed of sale which necessarily entailed the production of the CTC. Aguirre and Pugaos then proceeded to the bank to open the safety deposit box. However, when opened in the presence of bank’s representative, the box yielded no certificates. Because of the delay in reconstitution of title, Mrs. Ramos withdrew her earlier offer and as a consequence petitioner failed to realize the expected profit of P280 , 500. Hence, the latter filed a complaint for damages. RTC: Dismissed the complaint CA: Affirmed Issue: Whether or not the contractual relation between a commercial bank and another party in the contract of rent of a safety deposit box is one of bailor and bailee. Ruling: Yes. 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 Pugaos. American Jurisprudence: 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 bailee, the bailment being for hire and mutual benefit. Our provisions on safety deposit boxes are governed by Section 72 (a) of the General Banking Act, and this primary function is still found within the parameters of a contract of deposit like 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. Thus, depositary’s liability is governed by our civil code rules on obligation and contracts, and thus the SBTC would be liable if, in performing its obligation, it is found guilty of fraud, negligence, delay or contravention of the tenor of the agreement.

-25748 / 63SCRA 46, 10 March 1975; -30896 / 121 SCRA 661, 28 April1983; LUA KIAN V. MANILA RAILROAD COMPANY G.R. No. L-23033 / 19 SCRA 5, 5 January 1967 FACTS: Manila Port Service, the arrastre operator, is a subsidiary of defendant Manila Railroad Company.

MPS received in Jan. 1960 shipments of Carnation evaporated milk for two consignees, Lua Kian and Cebu United. According to their respective bills of lading, Luan Kian was supposed to receive 2,000 cases but only received 1,829 (171 short of 2,000) while Cebu United was supposed to receive 3,000 cases but received 3,171. The excess 171 cases were marked "Cebu United". Accordingly this situation placed the defendant arrastre operator in a dilemma, for should it deliver them to Lua Kian the goods could be claimed by the consignee Cebu United Enterprises whose markings they bore, and should it deliver according to markings, to Cebu United Enterprises, it might be sued by the consignee, Lua Kian whose bill of lading indicated that it should receive 171 cases more. The Management Contract even exempts exempts the arrastre operator from responsibility for misdelivery or non-delivery due to improper or insufficient marking. ISSUE: Is MPS liable for the short-delivery to Lua Kian? HELD: Yes. The legal relationship between an arrastre operator and the consignee is akin to that of a depositor and warehouseman. As custodian of the goods discharged from the vessel, it was defendant arrastre operator's duty, like that of any ordinary depositary, to take good care of the goods and to turn them over to the party entitled to their possession. Under this particular set of circumstances, said defendant should have withheld delivery because of the discrepancy between the bill of lading and the markings and conducted its own investigation, not unlike that under Section 18 of the Warehouse Receipts Law, or called upon the parties, to interplead, such as in a case under Section 17 of the same law, in order to determine the rightful owner of the goods. Notwithstanding Section 12 of the Management Contract exempting the arrastre from liability, the court cannot excuse the defendant from liability because the bill of lading showed that only 3,000 cases were consigned to Cebu United Enterprises. The fact that the excess of 171 cases were marked for Cebu United Enterprises and that the consignment to Lua Kian was 171 cases less than the 2,000 in the bill of lading, should have been sufficient reason for the MPS to withhold the goods pending determination of their rightful ownership.

DOCTRINE: Intention of the Parties in the contract shall prevail MANUEL GARCIA GAVIERES, plaintiff-appellant, vs. T.H. PARDO DE TAVERA, defendant-appellee. FACTS: Don Manuel Gavieres, successor in interest of the deceased Dona Ignacia de Gorricho, and Don Trinidad H. Pardo de Tavera, heirs of Don Felix de Tavera. Ignacia and Felix executed a contract which provides: Received of SeñoritaIgnacia de Gorricho the sum of 3,000 pesos, gold (3,000 pesos), as a deposit payable on two months' notice in advance, with interest at 6 per cent per annum with an hypothecation of the goods now owned by me or which may be owned hereafter, as security of the payment. In witness whereof I sign in Binondo, January 31, 1859.lawphil.net FELIX PARDO DE TAVERA. The plaintiff filed a collection of balance which amounted to P1,434.75 from the original P3,000. The CFI-Tondofavored the defendants. Contention of the Manuel – The contract executed was a contract of deposit as it was provided in the said written agreement of the parties. Contention of Trinidad - (1) The contract was a loan and it is the intention of the parties that should be followed. (2) The prescription applicable to loans has extinguished the right of action. ISSUE: Whether or not the contract executed is a contract of loan or deposit.

RULING: Contract of loan. This is based on the examination of the agreement and intention of the parties. ―The obligation of the depositary to pay interest at the rate of 6 per cent to the depositor suffices to cause the obligation to be considered as a loan and makes it likewise evident that it was the intention of the parties that the depositary should have the right to make use of the amount deposited, since it was stimulated that the amount could be collected after notice of two months in advance. Such being the case, the contract lost the character of a deposit and acquired that of a loan‖. Prescription has extinguished the contract of loan as provided in the old Civil Code. ―All personal actions, such as those which arise from a contract of loan, cease to have legal effect after twenty years according to the former law and after fifteen years according to the Civil Code now in force.‖ ―He who by laches in the exercise of his rights has caused a failure of proof has no right to complain if the court does not apply the strict rules of evidence which are applicable in ordinary cases, and admits to a certain extent the presumption to which the conduct of the interest party himself naturally gives rise.‖ There were absence of lack of evidence to other claims that would favorGavieres. The document dated Jan 8, 1869, executed by Felix Garcia (husband of Ignacia) provides for the acknowledgment for the receipt of 1,224 pesos from Felix de Tavera as balance from the sum of P2,000.

Manuel M. Serrano v. Central Bank of the Philippines, G.R. No. L-30511 Facts: Petitioner made a time deposit, for one year with 6% interest, of One Hundred Fifty Thousand Pesos (P150,000.00) with the respondent Overseas Bank of Manila. Concepcion Maneja also made a time deposit, for one year with 6-½% interest, on March 6, 1967, of Two Hundred Thousand Pesos (P200,000.00) with the same respondent Overseas Bank of Manila. On August 31, 1968, Concepcion Maneja, married to Felixberto M. Serrano, assigned and conveyed to petitioner Manuel M. Serrano, her time deposit of P200,000.00 with respondent Overseas Bank of Manila. Notwithstanding series of demands for encashment of the aforementioned time deposits from the respondent Overseas Bank of Manila, dating from December 6, 1967 up to March 4, 1968, not a single one of the time deposit certificates was honored by respondent Overseas Bank of Manila. In the case of Ramos vs. Central Bank of the Philippines,petitioner Manuel Serrano filed on September 6, 1968, a motion to intervene on the ground that Serrano had a real and legal interest as depositor of the Overseas Bank of Manila in the matter in litigation in that case. This was denied on the ground that his claim as depositor of the Overseas Bank of Manila should properly be ventilated in the Court of First Instance, and if this Court were to allow Serrano to intervene as depositor, thousands of other depositors would follow and thus cause an avalanche of cases in this Court. Issue: Whether or not plaintiff is entitled to the relief sought. Held: This case isfor the recovery of time deposits plus interest from respondent Overseas Bank of Manila, and recovery of damages against respondent Central Bank for its alleged failure to strictly supervise the acts of the other respondent Bank and protect the interests of its depositors by virtue of the constructive trust created when respondent Central Bank required the other respondent to increase its collaterals for its overdrafts said emergency loans, said collaterals allegedly acquired through the use of depositors money. Claims of these nature are not proper in actions for mandamus and prohibition as there is no shown clear abuse of discretion by the Central Bank in its exercise of supervision over the other respondent Overseas Bank of Manila, and if there was, petitioner here is not the proper party to raise that question, but rather the Overseas Bank of Manila. Bank deposits are in the nature of irregular deposits. They are really loans because they earn interest. All kinds of bank deposits, whether fixed, savings, or current are to be treated as loans and are to be covered by the law on loans. 14 Current and savings deposit are loans to a bank because it can use the same. The petitioner here in making time deposits that earn interests with respondent Overseas Bank of Manila was in reality a creditor of the respondent Bank and not a depositor. The respondent Bank was in turn a debtor of petitioner. Failure of he respondent Bank to honor the time deposit is failure to pay s obligation as a debtor and not a breach of trust arising from depositary's failure to return the subject matter of the deposit. Petition is dismissed.

PaulinoGullas v. Philippine National Bank, G.R. No. L-43191 FACTS: The parties to the case are PaulinoGullas and the Philippine National Bank. The first named is a member of the Philippine Bar, resident in the City of Cebu. The second named is a banking corporation with a branch in the same city. Attorney Gullas has had a current account with the bank. It appears from the record that on August 2, 1933, the Treasurer of the United States for the United States Veterans Bureau issued a Warrant in the amount of $361, payable to the order of Francisco SabectoriaBacos. PaulinoGullas and Pedro Lopez signed as endorsers of this check. Thereupon it was cashed by the Philippine National Bank. Subsequently the treasury warrant was dishonored by the Insular Treasurer. At that time the outstanding balance of Attorney Gullas on the books of the bank was P509. Against this balance he had issued certain cheeks which could not be paid when the money was sequestered by the On August 20, 1933, Attorney Gullas left his residence for Manila. The bank on learning of the dishonor of the treasury warrant sent notices by mail to Mr. Gullas which could not be delivered to him at that time because he was in Manila. In the bank's letter of August 21, 1933, addressed to Messrs. PaulinoGulla and Pedro Lopez, they were informed that the United States Treasury warrant No. 20175 in the name of Francisco SabectoriaBacos for $361 or P722, the payment for which had been received has been returned by our Manila office with the notation that the payment of his check has been stopped by the Insular Treasurer. "In view of this therefore we have applied the outstanding balances of your current accounts with us to the part payment of the foregoing check", namely, Mr. PaulinoGullas P509. On the return of Attorney Gullas to Cebu on August 31, 1933, notice of dishonor was received and the unpaid balance of the United States Treasury warrant was immediately paid by him. As a consequence of these happenings, two occurrences transpired which inconvenienced Attorney Gullas. In the first place, as above indicated, checks including one for his insurance were not paid because of the lack of funds standing to his credit in the bank. In the second place, periodicals in the vicinity gave prominence to the news to the great mortification of Gullas. A variety of incidental questions have been suggested on the record which it can be taken for granted as having been adversely disposed of in this opinion. ISSUE: Does the Philippine National Bank have the right to apply a deposit to the debt of depositor to the bank? HELD: Generally YES. However, in this case, NO. RATIO The Civil Code contains provisions regarding compensation (set off) and deposit. (Articles 1195 et seq., 1758 et seq. The portions of Philippine law provide that compensation shall take place when two persons are reciprocally creditor and debtor of each other (Civil Code, article 1195). In his connection, it has been held that the relation existing between a depositor and a bank is that of creditor and debtor. (Fulton Iron Works Co. vs. China Banking Corporation [1933], 59 Phil., 59.) As a general rule, a bank has a right of set off of the deposits in its hands for the payment of any indebtedness to it on the part of a depositor. In Louisiana, however, a civil law jurisdiction, the rule is denied, and it is held that a bank has no right, without an order from or special assent of the depositor to retain out of his deposit an amount sufficient to meet his indebtedness. The basis of the Louisiana doctrine is the theory of confidential contracts arising from irregular deposits, e. g., the deposit of money with a banker. With freedom of selection and after full preference to the minority rule as more in harmony with modern banking practice. Starting, therefore, from the premise that the Philippine National Bank had with respect to the deposit of Gullas a right of set off, we next consider if that remedy was enforced properly. The fact we believe is undeniable that prior to the mailing of notice of dishonor, and without waiting for any action by Gullas, the bank made use of the money standing in his account to make good for the treasury warrant. At this point recall that Gullas was merely an indorser and had issued in good faith. As to a depositor who has funds sufficient to meet payment of a check drawn by him in favor of a third party, it has been held that he has a right of action against the bank for its refusal to pay such a check in the absence of notice to him that the bank has applied the funds so deposited in extinguishment of past due claims held against him. (Callahan vs. Bank of Anderson [1904], 2 Ann. Cas., 203.) The decision cited represents the minority doctrine, for on principle it would seem that notice is not necessary to a maker because the right is based on the doctrine that the relationship is that of creditor and debtor. However this may be, as to an indorser the situation is different, and notice should actually have been given him in order that he might protect his interests.

Agreeable to the foregoing, the errors assigned by the parties will in the main be overruled, with the result that the judgment of the trial court will be modified by sentencing the defendant to pay the plaintiff the sum of P250, and the costs of both instances.

Ramon Aboitiz v. Oquinena& Co. and Oquinena&Co.Ltd. - G.R. No. 12407 / 39 Phil 926, 22 July 1919 Facts Juan de Aldecoa maintained mercantile relations with Oquiñena. When Aldecoa died, Anastacio de Aldecoa was appointed administrator of the former’s estate. At that time Anastacio was also the Cebu manager of Oquiñena. Anastacio committed suicide, thus Aboitiz was appointed as administrator of Juan’s estate in place of Anastacio. For the first cause of action, plaintiff sought to recover from defendants the sum of Php9,011.58 with interest at the rate 8% per annum beginning on Feb. 13, 1913; and for the second cause of action, the sum of Php5,000 with legal interest from Feb. 5, 1915, the time the complaint was filed. At the death of Juan, Anastacio collected from the New York Life Insurance the sum of Php9,011.58 which Anastacio deposited with, and was receipted by, Oquiñena& Co. . After the death of Juan I. de Aldecoa, his business employees in Surigao continued said commercial relations with the Oquiñena& Co. in Cebu, whereby there resulted a balance, in favor of Jose I. de Aldecoa, of P2,312.79, and not P5,000 as is alleged in the complaint. The court rendered a judgment against defendant Oquiñena& Co. in favor of the petitioner, and absolved defendant Oquiñena& Co. Ltd. Both defendants appealed the decision of the trial court. Issue Did the trial court err when it - overruled the demurrer interposed to the amended complaint? - pronounced judgment against Oquiñena& Co., a company already dissolved, and absolved Oquiñena& Co. Ltd., the successor and assignee of the former? Held No/Yes. Ratio The demurrer was based on the ground that the facts alleged in the complaint did not constitute a cause of action in regard to the payment of the sum of Php9,011.58. It is said that, if this was in the hands of the defendants as a deposit, the plaintiff cannot withdraw it without a judicial order, inasmuch as in the receipt no fixed time was given. The document was in fact embodying a deposit, according to its terms, without a fixed time. But exactly for being such, the sum deposited may be withdrawn at any time. According to its by-laws, Oquiñena& Co. ought to have bee dissolved ob July 30, 1912. However, in accordance with the said by-laws this date was extended to July 1, 1913. On April 14, 1914, the creditors and shareholders of the Oquiñena& Co. began to organize a company called Oquiñena& Co. Ltd. and was transferred with all the assets and business of Oquiñena& Co. In the articles of co-partnership, it was made to appear that Oquiñena& Co. Ltd. had assumed all the obligations of Oquiñena& Co.; and that it appeared at its own request as defendant in this case and appealed in order to assume all the obligations of Oquiñena& Co. In fact and in law, Oquiñena& Co. had not existed since the organization of Oquiñena& Co. Ltd. and there was no reason why the former should be declared liable instead of Oquiñena& Co. Ltd. to which had passed all said obligations and rights and by which all were assumed in good faith.

Ramon Gonzales v. Go Tiong, G.R. No. L-11776

FACTS: Go Tiong owned a rice mill and warehouse, located at Mabini, Urdaneta, Pangasinan. He obtained a license of a bonded businessman with Luzon Surety Co., with conditions he failed to fulfill. The warehouse and palay deposited therein were insured with the Alliance Surety and Insurance Company. Ramon Gonzales deposited palay to Go Tiong even before he got the license who later demanded the value of his deposits. But Go Tiong failed to give

him his value until fire burned down the warehouse, with sacks in excess of that was authorized under his license. The receipts issued to Gonzales were ordinary receipts and not the warehouse receipts as defined by Warehouse receipts act. Plaintiff filed their claims with the Bureau of Commerce and with the proceeds of the insurance policy, BOC paid off some claims. Plaintiff’s counsel withdrew the claims, because according to court nothing came from plaintiff's efforts to have his claim paid, inconsistent with what Go Tiong claimed that it was denied. Gonzales filed claims both against Gonzales and Luzon Surety, and renewed his claim with BOC. Gonzales and Go Tiong entered into a contract of amicable settlement to the effect that upon the settlement of all accounts, but upon failure to comply, Gonzales prosecuted his court action. Court ruled in favor of Gonzales. Hence, this appeal. ISSUE: Is the plaintiff’s claim covered by the Civil Law, and not Bonded Warehouse Act for the reason that, Go Tiong issued to plaintiff were ordinary receipts, not the warehouse receipts contemplated by the Warehouse Receipts Law, and because the deposits of palay of plaintiff were gratuitous? RULING: Consequently, any deposit made with him as a bonded warehouseman must necessarily be governed by the provisions of Act No. 3893. Though it is desirable that receipts issued by a bonded warehouseman should conform to the provisions of the Warehouse Receipts Law, said provisions are not mandatory and indispensable in the sense that if they fell short of the requirements of the Warehouse Receipts Act, then the commodities delivered for storage become ordinary deposits and will not be governed by the provisions of the Bonded Warehouse Act. As the trial court well observed, as far as Go Tiong was concerned, the fact that the receipts issued by him were not "quedans" is no valid ground for defense because he was the principal obligor. Furthermore, as found by the trial court, Go Tiong had repeatedly promised plaintiff to issue to him "quedans" and had assured him that he should not worry; and that Go Tiong was in the habit of issuing ordinary receipts (not "quedans") to his depositors. Considering the fact, as already stated, that prior to the burning of the warehouse, plaintiff demanded the payment of the value of his palay from Go Tiong on two occasions but was put off without any valid reason, it is illogical and unreasonable to hold that the presumption of negligence in case of this kind is rebutted by the bailee by simply proving that the property bailed was destroyed by an ordinary fire which broke out on the bailee's own premises, without regard to the care exercised by the latter to prevent the fire, or to save the property after the commencement of the fire. Besides, as observed by the trial court, the defendant violated the terms of his license by accepting for deposit palay in excess of the limit authorized by his license, which fact must have increased the risk. Appealed decision affirmed.

Sesbreno vs CA GR No. 89252. May 24, 1993 Facts: Raul Sesbreno made a money market placement in the amount of P300, 000 with the Philippine Underwriters Finance Corporation (Philfinance), with a term of 32 days. Philfinance issued to Sesbreno the Certificate of Confirmation of Sale of a Delta Motor Corporation Promissory Note, the Certificate of Securities Delivery Receipt indicating the sale of the note with notation that said security was in the custody of Pilipinas Bank, and postdated checks drawn against the Insular bank of Asia and America for P305, 533.33 payable on March 31, 1981. The checks were dishonored for having been drawn against insufficient funds. Pilipinas Bank never released the note, nor any instrument related thereto, to Sesbreno but Sesbreno learned that the security was issued April 10, 1980, maturing on April 6, 1981, has the face value of P2, 300, 833.33 with Philfinance as payee and Delta Motors as maker, and was stamped ―non-negotiable‖ on its face. As Sesbreno was unable to collect his investment and interest thereon, he filed an action for damages against Delta Motors and Pilipinas Bank. RTC: Dismissed the complaint CA: Affirmed Issue: Whether or not Philfinance remains liable to petitioner under the terms of assignment made by Philfinance to petitioner. Ruling: Yes. Petitioner notified Delta of his rights as assignee after compensation had taken place by operation of law because the offsetting instruments had both reached maturity. It is firmly settled doctrine that the rights of an assignee are not only greater than the rights of the assignor, since the assignee is merely substituted in the place of the assignor and that the assignee acquires right subject to equities.

The record is bare of any indication that Philfinance had itself notified Delta of assignment to petitioner, the court is compelled to uphold the defense of compensation raised by private respondent Delta. Philfinance remains liable to petitioner under the terms of the assignment made by Philfinance to petitioner. Notes: Money market - It is a market dealing in standardized short-term credit instruments (involving large amounts) where lenders and borrowers do not deal directly with each other by through a middle man or dealer in open market – in a money transaction, the investor is a lender who loans his money to a borrower through a middleman or dealer.

atholic Bishop of Jaro v. Gregorio De La Pena, G.R. No. L-6913 / 26 Phil 144,21 November 1913; -R / 58 OG 7693, 30 July 1962; SILVESTRA BARON V. PABLO DAVID G.R. Nos. L-26948 and L-26949 October 8, 1927 FACTS: The defendant owns a rice mill, which was well patronized by the rice growers of the vicinity. On January 17, 1921, a fire occurred that destroyed the mill and its contents, and it was some time before the mill could be rebuilt and put in operation again. Silvestra Baron (P1) and Guillermo Baron (P2) each filed an action for the recovery of the value of their palay (P5,238 and P5,734, respectively) from the defendant, and alleged that: the cavans of palay have been sold by both plaintiffs to the David in the year 1920 and the palay was delivered to him at his special request, with a promise of compensation at the highest price per cavan. David claims that the palay was deposited subject to future withdrawal by the depositors or to some future sale, which was never effected. He also contended that in order for the plaintiffs to recover, it is necessary that they should be able to establish that the plaintiffs' palay was delivered in the character of a sale, and that if, on the contrary, the defendant should prove that the delivery was made in the character of deposit, the defendant should be absolved. ISSUE: WON there was deposit. HELD: NO. Art. 1978 states that when the depositary has permission to use the thing deposited, the contract loses the concept of a deposit and becomes a loan or commodatum, except where safekeeping is still the principal purpose of the contract. The permission shall not be presumed, and its existence must be proved. When the palay in question was placed by the plaintiffs in the defendant's mill there was the understanding that the defendant was at liberty to convert it into rice and dispose of it at his pleasure. The mill was actively running during the entire season, and as palay was daily coming in from many customers and as rice was being constantly shipped by the defendant to Manila, or other rice markets, it was impossible to keep the plaintiffs' palay segregated. In fact the defendant admits that the plaintiffs' palay was mixed with that of others. It is quite certain that all of the plaintiffs' palay, which was put in before June 1, 1920, been milled and disposed of long prior to the fire of January 17, 1921. Furthermore, the proof shows that when the fire occurred there could not have been more than about 360 cavans of palay in the mill, none of which by any reasonable probability could have been any part of the palay delivered by the plaintiffs. The defendant then is bound to account for the value of the subject palay, and his liability was not extinguished by the occurence of the fire.

Dissenting: Johns dissented to the weight given by the court on the perjured statements of David than those against the proofs of two elderly individuals as to the price of the palay and who reposed their trust and confidence to their nephew.

DOCTRINE: General concept of letters of credit – trust receipt. A contract of security and that the lender is only the lender of a security title from advances made by the borrower. SPOUSES TIRSO I. VINTOLA and LORETO DY VINTOLA, defendants-appellants, vs. INSULAR BANK OF ASIA AND AMERICA, plaintiff-appellee. FACTS: Spouses Vintola (VINTOLAS) applied for and were granted a domestic letter of credit by the Insular Bank of Asia and America (IBAA). The Letter of Credit authorized the bank to negotiate for their account drafts drawn by their supplier, one Stalin Tan, on Dax Kin International for the purchase of puka and olive seashells. VINTOLAS received from Stalin Tan the puka and olive shells and executed a Trust Receipt agreement with IBAA. Under that Agreement, the VINTOLAS agreed to hold the goods in trust for IBAA as the "latter's property with liberty to sell the same for its account, and "incase of sale" to turn over the proceeds. Having defaulted on their obligation, IBAA demanded payment from the VINTOLAS. The VINTOLAS, who were unable to dispose of the shells, responded by offering to return the goods. IBAA refused to accept the merchandise, and due to the continued refusal of the VINTOLAS to make good their undertaking, IBAA charged them with Estafa for having misappropriated, misapplied and converted for their own personal use and benefit the aforesaid goods. The trial court acquitted the VINTOLAS of the offense charged as they turned over the seashells to the custody of the trial court to disproved the claim of misappropriation. IBAA commenced a civil action to recover the value of the goods. At first court dismissed the case holding that the complaint was barred by the judgment of acquittal in the criminal but was granted through reconsideration. The CFI-Cebu certified the case to the SC as the issue involves a question of law. Contention of Vintolas: (1) The obligation to IBAA has been extinguished since they were unable to dispose the seashells and they have relinguished possession thereof to IBAA, as owner of the goods, by depositing them to court. (2) The acquittal from the estafa case, also extinguishes civil liability since the IBAA did not reserved their right to enforce a separate civil action. ISSUE : Whether or not the Vintolas can return the goods/ merchandise to IBAA as payment for the trust receipt? RULINGS : NO. The return or non disposal of the thing secured by the letter of credit dies not extinguish the liability of the borrower to pay. The court affirmed the ruling of CFI-Cebu that favored the payment of 72,982.27 plus 14% interest. A letter of credit-trust receipt arrangement is endowed with its own distinctive features and characteristics. Under that set-up, a bank extends a loan covered by the Letter of Credit, with the trust receipt as a security for the loan. In other words, the transaction involves a loan feature represented by the letter of credit, and a security feature which is in the covering trust receipt. ―A trust receipt, therefore, is a security agreement, pursuant to which a bank acquires a "security interest" in the goods. "It secures an indebtedness and there can be no such thing as security interest that secures no obligation.‖ DEFINITION: "Security Interest" means a property interest in goods, documents or instruments to secure performance of some obligations of the entrustee or of some third persons to the entruster and includes title, whether or not expressed to be absolute, whenever such title is in substance taken or retained for security only. As elucidated in Samo vs. People "a trust receipt is considered as a security transaction intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to acquire credit except through utilization, as collateral of the merchandise imported or purchased." The trust receipt arrangement did not convert the IBAA into an investor; the latter remained a lender and creditor. IBAA was merely the holder of a security title for the advances in made to Vintolas. The property acquired shall remain to be owned by the Vintolas and should be disposed on their own risk. ―The IBAA is not the factual owner of the

goods, the VINTOLAS cannot justifiably claim that because they have surrendered the goods to IBAA and subsequently deposited them in the custody of the court, they are absolutely relieved of their obligation to pay their loan because of their inability to dispose of the goods. The fact that they were unable to sell the seashells in question does not affect IBAA's right to recover the advances it had made under the Letter of Credit.‖

Triple-V Food Services, Inc. v. Filipino Merchants Insurance Company, Inc., G.R. No.160544 Facts: 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. 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. The RTC issued its judgment in favor of the plaintiff (FMICI) and against the defendant Triple V (herein petitioner). On appeal, petitioner contended 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. The Court of Appeals dismissed petitioner's appeal and affirmed the appealed decision of the trial court. Issue: Whether or not petitioner should be held liable for the loss of De Asis' car. Held: 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.alaw 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. 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. 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. United States v. Jose M. Igpuara, G.R. No. L-7593 FACTS: That the defendant received P2,498 is a fact proven. The defendant drew up a document declaring that they remained in his possession, which he could not have said had he not received them. They remained in his possession, surely in no other sense than to take care of them, for they remained has no other purpose. They

remained in the defendant's possession at the disposal of Veraguth; but on August 23 of the same year Veraguth demanded for him through a notarial instrument restitution of them, and to date he has not restored them. The defendant therein is charged with the crime of estafa, for having swindled Juana Montilla and Eugenio Veraguth out of P2,498 Philippine currency, which he had take on deposit from the former to be at the latter's disposal. The document setting forth the obligation reads: We hold at the disposal of Eugenio Veraguth the sum of two thousand four hundred and ninety-eight pesos (P2,498), the balance from Juana Montilla's sugar. — Iloilo, June 26, 1911, — Jose Igpuara, for Ramirez and Co. The Court of First Instance of Iloilo sentenced the defendant to two years of presidio correccional, to pay Juana Montilla P2,498 Philippine currency, and in case of insolvency to subsidiary imprisonment at P2.50 per day, not to exceed one-third of the principal penalty, and the costs. The defendant appealed, alleging as errors: (1) Holding that the document executed by him was a certificate of deposit; (2) holding the existence of a deposit, without precedent transfer or delivery of the P2,498; and (3) classifying the facts in the case as the crime of estafa. ISSUE: May he use the thing deposited? HELD: NO. RATIO The appellant says: "Juana Montilla's agent voluntarily accepted the sum of P2,498 in an instrument payable on demand, and as no attempt was made to cash it until August 23, 1911, he could indorse and negotiate it like any other commercial instrument. There is no doubt that if Veraguth accepted the receipt for P2,498 it was because at that time he agreed with the defendant to consider the operation of sale on commission closed, leaving the collection of said sum until later, which sum remained as a loan payable upon presentation of the receipt." Then, after averring the true facts: (1) that a sales commission was precedent; (2) that this commission was settled with a balance of P2,498 in favor of the principal, Juana Montilla; and (3) that this balance remained in the possession of the defendant, who drew up an instrument payable on demand, he has drawn two conclusions, both erroneous: One, that the instrument drawn up in the form of a deposit certificate could be indorsed or negotiated like any other commercial instrument; and the other, that the sum of P2,498 remained in defendant's possession as a loan. It is also erroneous to assert that sum of money set forth in said certificate is, according to it, in the defendant's possession as a loan. In a loan the lender transmits to the borrower the use of the thing lent, while in a deposit the use of the thing is not transmitted, but merely possession for its custody or safe-keeping. In order that the depositary may use or dispose of the things deposited, the depositor's consent is required, and then: The rights and obligations of the depositary and of the depositor shall cease, and the rules and provisions applicable to commercial loans, commission, or contract which took the place of the deposit shall be observed. (Art. 309, Code of Commerce.) The defendant has shown no authorization whatsoever or the consent of the depositary for using or disposing of the P2,498, which the certificate acknowledges, or any contract entered into with the depositor to convert the deposit into a loan, commission, or other contract. That demand was not made for restitution of the sum deposited, which could have been claimed on the same or the next day after the certificate was signed, does not operate against the depositor, or signify anything except the intention not to press it. Failure to claim at once or delay for sometime in demanding restitution of the things deposited, which was immediately due, does not imply such permission to use the thing deposited as would convert the deposit into a loan. Article 408 of the Code of Commerce of 1829, previous to the one now in force, provided: The depositary of an amount of money cannot use the amount, and if he makes use of it, he shall be responsible for all damages that may accrue and shall respond to the depositor for the legal interest on the amount. Whereupon the commentators say: In this case the deposit becomes in fact a loan, as a just punishment imposed upon him who abuses the sacred nature of a deposit and as a means of preventing the desire of gain from leading him into speculations that may be disastrous to the depositor, who is much better secured while the deposit exists when he only has a personal action for recovery.

According to article 548, No. 5, of the Penal Code, those who to the prejudice of another appropriate or abstract for their own use money, goods, or other personal property which they may have received as a deposit, on commission,

or for administration, or for any other purpose which produces the obligation of delivering it or returning it, and deny having received it, shall suffer the penalty of the preceding article," which punishes such act as the crime of estafa. The corresponding article of the Penal Code of the Philippines in 535, No. 5. In a decision of an appeal, September 28, 1895, the principle was laid down that: "Since he commits the crime of estafa under article 548 of the Penal Code of Spain who to another's detriment appropriates to himself or abstracts money or goods received on commission for delivery, the court rightly applied this article to the appellant, who, to the manifest detriment of the owner or owners of the securities, since he has not restored them, willfully and wrongfully disposed of them by appropriating them to himself or at least diverting them from the purpose to which he was charged to devote them." It is unquestionable that in no sense did the P2,498 which he willfully and wrongfully disposed of to the detriments of his principal, Juana Montilla, and of the depositor, Eugenio Veraguth, belong to the defendant. Likewise erroneous is the construction apparently at tempted to be given to two decisions of this Supreme Court (U. S. vs. Dominguez, 2 Phil. Rep., 580, and U. S. vs. Morales and Morco, 15 Phil. Rep., 236) as implying that what constitutes estafa is not the disposal of money deposited, but denial of having received same. In the first of said cases there was no evidence that the defendant had appropriated the grain deposited in his possession. On the contrary, it is entirely probable that, after the departure of the defendant from Libmanan on September 20, 1898, two days after the uprising of the civil guard in Nueva Caceres, the rice was seized by the revolutionalists and appropriated to their own uses. In this connection it was held that failure to return the thing deposited was not sufficient, but that it was necessary to prove that the depositary had appropriated it to himself or diverted the deposit to his own or another's benefit. He was accused or refusing to restore, and it was held that the code does not penalize refusal to restore but denial of having received. So much for the crime of omission; now with reference to the crime of commission, it was not held in that decision that appropriation or diversion of the thing deposited would not constitute the crime of estafa. In the second of said decisions, the accused "kept none of the proceeds of the sales. Those, such as they were, he turned over to the owner;" and there being no proof of the appropriation, the agent could not be found guilty of the crime of estafa.

YHT Realty Corporation v. Court of Appeals, G.R. No. 126780 - 451 SCRA 638, 17February 2005 Facts McLoughlin was an Australian businessman-philanthropist who met a certain Bhrunilda Mata – Tan and befriended him. Tan convinced McLoughlin to transfer from Sheraton Hotel and stay at Tropicana Hotel during trips to the Philippines. Petitioners Lainez, as manager, Payam and Danilo Lopez, had the custody of the keys for the safety deposit boxes, were all employees at Tropicana. McLoughlin started staying at said Tropicana Hotel and registered therein from December 1984 to 1987. On October 30, 1987, McLoughlin arrived from Australia and registered with Tropicana. He rented a safety deposit box which could only be opened through the use of 2 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. When McLoughlin went for a trip in Hong Kong and without checking out the hotel, he left some US and Australian dollars in the safety deposit box. Upon his return, he went back to Australia; there he noticed that some USD5000 and jewelry he bought from Hong Kong were missing. When he came back to the Philippines, again registered and rented a safety deposit box with Tropicana, placing therein some USD15000, AUD10000 and some important documents. He requested to open the safety deposit box, but he found out that USD2000, and AUD4500 were missing. He confronted Lainez and Payam; they told him that Tan was able to open the safety deposit box. Tan admitted to the said actuation and added that she was assisted by Lainez, Lopez and Payam. Lopez wrote a PN and requested Tan to sign it, which the latter did. Despite the execution of the PN, 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 deposit box, which held free and blameless Tropicana for any loss in the contents of the safety deposit box. Issue May a hotel 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? Held

No. Petitioners were directed, jointly and severally, to pay private respondent. Ratio For the main issue: Article 2003 provides that the hotel-keeper cannot free himself from responsibility by posting notices to the effect that he is not liable for the articles brought by the guest. Any stipulation between the hotel-keeper and the guest whereby the reasonability of the former as set for the in articles 1998 to 2001 is suppressed or diminished shall be void. 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, to hold hotel-keepers or innkeepers 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. 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. The undertaking manifestly contravened Article 2003 of the Civil Code it allowed Tropicana to be released from liability arising from any loss in the contents of the safety deposit box for any cause whatsoever. 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. 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 _________________________________________________________ (for the benefit of all - Supplemental reasoning of the Court) 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. 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. 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.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. Petitioners likewise anchor their defense on Article 2002 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.

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.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.

General Bonded Warehouse and Warehouse Receipts Alfredo N. Cruz v. Jose M. Valero, G.R. No. L-2826 / 89 Phil 260, 11 June 1951; American Foreign Banking Corporation vs J.R. Herridge GR No. 21005. December 20, 1924 Facts: The debtor, U. de Poli, a licensed public warehouseman, issued warehouse receipt No. A-48 commonly known as a quedan, for the 560 bales of tobacco, which was particularly described as ―Cagayan tabaco en rama‖ with specified marks thereon. The receipt was indorsed in blank by the person in whose favor it was issued and delivered to a bank as security for an overdraft. The indorser became insolvent and the bank presented its claim for the delivery of the tobacco called for in the warehouse receipt. It was then found that the tobacco had come from Isabella and not from Cagayan, and the bank’s claim was disputed by the other creditors of the insolvent on the ground, among others, that the tobacco claimed, being Isabella tobacco, was not correctly described in the warehouse receipt and that therefore, the receipt was ineffective as against the general creditors. Issue: Whether the use of the word ―Cagayan‖ instead of ―Isabella‖ in describing the tobacco in the quedan renders it null and void. Ruling: No. The identity of the tobacco was fully established by the evidence. The intention of the parties to the transaction must prevail against the relatively unimportant technical objection to the sufficiency of the description of the tobacco, and that the warehouse receipt in question, with its indorsement and delivery, constitute a sufficient transfer of the title to the tobacco in favor or the bank.

-21000, 21002-04 and21006 / 47 Phil 57, 20 December 1924; v. Hawaiian-Philippines Company, G.R. No. L-16315/ 11 SCRA 256, 30 May 1964;

CONSOLIDATED TERMINALS, INC. v. ARTEX DEVELOPMENT CO., INC. G.R. No. L-25748. March 10, 1975 Synopsis As operator of a customs bonded warehouse at Port Area, Manila, plaintiff-appellant received on deposit in behalf of the consignee 193 bales of cotton. Subsequently, defendant-appellee obtained delivery of the bales allegedly by virtue of a forged permit to deliver imported goods issued by the Bureau of Customs. Plaintiff-defendant then commenced a replevin suit against defendant-appellee, which was later amended into an action for damages. Defendant-appellee moved for dismissal and the lower court dismissed the complainant for lack of cause of action. Forthwith, plaintiffappellant appealed to the Supreme Court, contending that as warehouseman it was entitled to the repossession of the merchandise and that defendant-appellee acted wrongfully in depriving it of possession by presenting a falsified delivery permit

FACTS: CTI was the operator of a customs bonded warehouse located at Port Area, Manila. It received on deposit one hundred ninety-three (193) bales of high density compressed raw cotton valued at P99,609.76. It was understood that CTI would keep the cotton in behalf of Luzon Brokerage Corporation until the consignee thereof, Paramount Textile Mills, Inc., had opened the corresponding letter of credit in favor of shipper, Adolph Hanslik Cotton of Corpus Christi, Texas. Allegedly by virtue of a forged permit to deliver imported goods, purportedly issued by the Bureau of Customs, Artex was able to obtain delivery of the bales of cotton on November 5 and 6, 1964 after paying CTI P15,000 as storage and handling charges. At the time the merchandise was released to Artex, the letter of credit had not yet been opened and the customs duties and taxes due on the shipment had not been paid. CTI in this appeal contends that, as warehouseman, it was entitled to the possession of the bales of cotton; that Artex acted wrongfully in depriving CTI of the possession of the merchandise because Artex presented a falsified delivery permit, and that Artex should pay damages to CTI. ISSUE: Can CTI recover from Artex? HELD: No. CTI was only a WHman. He was already paid by Artex of its handling and warehousing services. It was not the owner of the cotton so it could not be entitled to claim the value of the shipment. In other words, on the basis of the allegations of the amended complaint, the lower court could not render a valid judgment in accordance with the prayer thereof. It could not render such valid judgment because the amended complaint did not unequivocally allege what right of CTI was violated by Artex, or, to use the familiar language of adjective law, what delict or wrong was committed by Artex against CTI which would justify the latter in recovering the value of bales of cotton even if it was not the owner thereof.

-R / 8 CA Rep. 678,30 October 1965; -17825 / 46 Phil 705, 26 June1922; -4080 / 93 Phil 756, 21September 1953;

Liberata Antonio Estrada v. Court of Agrarian Relations - G.R. Nos. L-17481 and L-17537-59 / 2 SCRA 986, 15 August 1961 (Full case – maiksilang) These cases are now before this Court on the petition flied by the petitioners under date of June 10, 1961, asking that the manager of the Moncada Bonded Warehouse and respondent Faustino F. Galvan be declared in contempt of court and punished accordingly. It appears that, upon motion, this Court, on January 6, 1961, issued a resolution of the following tenor: In cases L-17481 and L-17537 to 17559 (Liberata Antonio Estrada, et al. vs. Court of Agrarian Relations and Faustino Galvan), considering the motion, and opposition thereto, that the owner or manager of the Moncada Bonded Warehouse be ordered to release and give to petitioners-appellants the remaining deposits — 10% of the net produce of the first crop minus P300.00 and 15% of the net produce of the second crop minus P200.00, the COURT RESOLVED to grant the motion without prejudice to subsequent accounting. That on April 12, 1961, this Court, passing upon motion filed by the petitioners in which they alleged that the manager of the Moncada Bonded Warehouse had refused to comply with the above resolution unless "the original of the receipts of palay deposits be presented and surrendered to him," issued another resolution which provides: In cases L-17537 to 17559 (Liberata Antonio Estrada, et al. vs. Court of Agrarian Relations, et al.), considering the petitioner's motion dated March 18, 1961, and the respondents' opposition thereto, THE COURT RESOLVED to order respondent Faustino Galvan to surrender the original of the receipts of the palay deposits to the manager or owner of the Moncada Bonded Warehouse, MoncadaTarlac.

That the manager of the Moncada Bonded Warehouse and respondent Faustino F. Galvan were duly served with notice of the above resolutions, and that notwithstanding such service of notice and in spite of repeated demands, the manager of the Moncada Bonded Warehouse and respondent Faustino F. Galvan refused and still refuse to comply with the above orders of this Court, the former, for the reason that petitioners could not surrender to him the original of the warehouse receipts issued for the palay in question, and the latter, because, as he alleged in his answer to the motion for contempt, he could not locate any more said receipts "as they were scattered, misplaced, destroyed or lost when the contents of the Office of said respondent-appellee, Faustino F. Galvan, in the Galvan-Cabrera Building in Ylaya Street, Manila, were being desperately evacuated therefrom during the fire which burned the Divisoria market and said Galvan-Cabrera Building in Ylaya Street, Manila, in the latter part of May, 1961." The excuses respectively offered by the manager of the Moncada Bonded Warehouse and respondent Faustino F. Galvan are not without some merits. The former unquestionably had the right to protect the interest of the bonded warehouse of which he was manager, as the warehouse receipts issued for the palay in question might have been for the value in favor of innocent third parties; and the latter, or Faustino F. Galvan, might have in fact lost said warehouse receipts in the manner above stated, for his allegation to the effect in his answer to petitioners' motion for contempt until now has not been contradicted. Such incidents, however, do not constitute a valid excuse to evade compliance with the order of this Court that the palay in question be delivered to the petitioners, and, considering that the petitioners, according to the manifestation filed by their counsel under date of August 3, 1961, are in dire need of said palay for their subsistence, our order must be carried out in the meantime that this cases have not been finally decided in order to ameliorate the precarious situation in which said petitioners find themselves. WHEREFORE, it is hereby ordered that the manager or the owner of the Moncada Bonded Warehouse in Moncada, Tarlac, and respondent Faustino F. Galvan release and deliver to the petitioners the portion still remaining to be delivered to them or their shares in the palay involved in these cases, i.e., (a) 10% of the net produce of the first crops minus P300.00; and (b) 15% of the net produce of the second crops minus P200.00; which was ordered deposited in said warehouse by the trial court, upon the issuance by said petitioners, or their duly authorized representative, of the corresponding receipts, without the necessity of producing and surrendering the original of the warehouse receipts issued therefore. It is so ordered. la Railroad Company, G.R. No. L-23033 / 19 SCRA 5, 5 January 1967; ly 1998; -6342 / 94 Phil 255, 26January 1954; PNB V. NOAH’S ARK SUGAR REFINERY G.R. No. 107243 / 226 SCRA 36. 1 September 1993 FACTS: Present case is on the disposition of the Trial judge who did not put into effect the notice to the final and executory judgment of the CA, to wit: ―...that a summary judgment be rendered forthwith in favor of the PNB against Noah's Ark Sugar Refinery, et al., as prayed for in petitioner's Motion for Summary Judgment.‖ Instead he proceeded to render judgment in favor of Noah’s Ark. That judgment has been appealed by PNB to this Court "on pure questions of law." No dispute exists about the facts (as FOLLOWS) which gave rise to the controversy at bar. --Noah's Ark Sugar Refinery issued on several dates warehouse receipts (quedans) on different dates during the early half of 1989 deposited by Rosa Sy or RNS Merchandising (4) and St. Therese Merchandising (1). The receipts are substantially in the form, and contain the terms, prescribed for negotiable warehouse receipts by Section 2 of the law. Subsequently, of said warehouse receipts, two were negotiated and indorsed to Luis T. Ramos and to three were negotiated and indorsed to Cresencia K. Zoleta. Zoleta and Ramos then used the quedans as security for loans which they obtained from the Philippine National Bank (PNB) in the amounts of P23.5 million and P15.6 million, respectively. These quedans they indorsed to the bank. Both Zoleta and Ramos failed to pay their loans. PNB demanded delivery of the sugar covered by the subject quedans but Noah's Ark refused. PNB commenced an action with the Regional Trial Court of Manila, a verified complaint for "Specific Performance with Damages and Application for Writ of Attachment" against Noah's Ark, Alberto T. Looyuko, Jimmy T. Go, and Wilson T. Go, the last three being identified as "the Sole Proprietor, Managing Partner and Executive Vice President of Noah's Ark, respectively." It will later be found out, from the answer of Rosa Ng Sy and Teresita Ng to the third party complaint against them filed by the owners of Noah’s Ark, was essentially to the effect that the transaction between them and Jimmy T. Go concerning the quedans and the sugar thereby covered was "bogus and simulated (being part of the latter's) complex banking schemes and financial maneuvers;" that the simulated transaction "was just a tolling scheme to

avoid VAT payment and other BIR assessments (considering that) as . . . confidentially intimated (by said Jimmy Go) . . . Noah's Ark is under sequestration by the PCGG," and that the quedans "were in fact used by Noah's Ark Executive Director, Luis T. Ramos, and one Cresenciana K. Zoleta as security for their loans from the bank . . . . (in the aggregate amount) of P39.1 million pesos." The PNB filed a Motion for Summary Judgment asserting that there is ―no genuine issue as to a material fact proper for trial and that plaintiff is entitled as a matter of law ... (to) a summary judgment...‖ to which the CA agreed: What is determinative of the propriety of summary judgment is not the existence of conflicting claims for prior parties but ... the defenses as to the main issue do not tender material questions of fact ... or the issues thus tendered are in fact sham, fictitious, contrived, set up in bad faith or so unsubstantial as not to constitute genuine issues for trial... The questioned Orders themselves do not specify what material facts are in issue. The case was remanded to the Trial Court whose judge decided against the CA ruling. ISSUE: WON the Trial judge committed grave abuse of discretion. HELD: Yes. The dispositive portion of the Court’s decision follows: WHEREFORE, the Trial Judge's Decision in Civil Case No. 90-53023 dated June 18, 1992 is REVERSED and SET ASIDE and a new one rendered conformably with the final and executory Decision of the Court of Appeals in CA-G.R. SP No. 25938, ordering the private respondents, Noah's Ark Sugar Refinery, Alberto T. Looyuko, Jimmy T. Go and William T. Go, jointly and severally: a) to deliver to the petitioner Philippine National Bank, "the sugar stocks covered by the Warehouse Receipts/Quedans which are now in the latter's possession as holder for value and in due course; or alternatively, to pay (said) plaintiff actual damages in the amount of P39.1 Million," with legal interest thereon from the filing of the complaint until full payment; and b) to pay plaintiff Philippine National Bank attorney's fees, litigation expenses and judicial costs hereby fixed at the amount of one hundred fifty thousand pesos (150,000.00), as well as the costs.

-16510 / 42Phil 608, 9 January 1922; -11776 / 164 Phil 492, 30 August 1958; -34655 / 56 Phil 598, 5 March 1932;

Security Transactions Aleida Saavedra v. W.S. Price, G.R. No. L-46702 / 68 Phil 699, 6 October 1939; Insurance & Surety Co., Inc. v. Bacolod-Murcia Milling Co., Inc., G.R. No. L-12333 / 105 Phil 246, 28 February 1959;

Autocorp Group vs Intra Strata Assurance Corporation Article 2067 - The benefit of subrogation, an extinctive subjective novation by a change of creditor, which “transfers to the person subrogated, the credit and all the rights thereto appertaining, either against the debtor or against third persons,” is granted by Article 2067 of the Civil Code only to the “guarantor (or surety) who pays.” Article 2071 - The guarantor may proceed against the principal debtor the moment the debt becomes due and demandable. - It merely grants the guarantor or surety an action to obtain release from the guaranty, or to demand a security that shall protect him from any proceedings by the creditor and from the danger of insolvency of the debtor. Article 2079 - The provisions of the Civil Code on Guarantee, other than benefit of excussion, are applicable and available to surety. The court finds no reason why the provisions of Article 2079 would not apply to a surety.

Facts:

Petitioner Autocorp Group, represented by its President, petitioner Peter Y. Rodriguez, secured an ordinary re-export bond, Instrata Bond No. 5770, from private respondent Intra Strata Assurance Corporation (ISAC) in favor of public respondent Bureau of Customs (BOC), in the amount of P327, 040. 00, to guarantee the re-export of one unit of Hundai Excel 4-door 1.5 LS and/or to pay taxes and duties thereon. Petitioners obtained another ordinary re-export bond, Instrata Bond No. 7154, from ISAC in favor of BOC, in the amount of P447, 671. 00, which was eventually increased to P707, 609. 00 per Bond Endorsement dated January 10, 1991, to guarantee the re-export of one unit of Hyundai Sonata 2.4 GLS and/or to pay the taxes and duties thereon. Petitioner executed and signed two Indemnity Agreements with Identical stipulations in favor of ISAC, agreeing to act as surety of the subject bonds. Petitioner Rodriguez signed the Indemnity Agreements both as President of Autocorp Group and in his personal capacity. In sum, ISAC issued the subject bonds to guarantee compliance by petitioners with their undertaking with the BOC to re-export the imported vehicles within the given period and pay the taxes and/or duties due thereon. In turn, petitioners agreed, as surety, to indemnify ISAC for the liability the latter may incur on the said bonds. Petitioner Autocorp Group failed to re-export the items guaranteed by the bonds and/or liquidate the entries or cancel the bonds, and pay the taxes and duties pertaining to the said items despite repeated demands made by the BOC, as well as by ISAC. By reason thereof, the BOC considered the two bonds, with a total face value of P1, 034, 649. 00, forfeited, Failing to secure from petitioners, despite several demands sent to each of them as surety under the Indemnity Agreements, ISAC filed with RTC an action against petitioner to recover the sum of money, plus 25% Attorney’s fees. Issue:

1. Whether or not Rodriguez is a surety. 2. Whether or not Rodriguez is liable.

Ruling: 1. No. The use of the term guarantee in a contract does not ipso facto mean that the contract is one of guaranty. Even if the petitioner was a surety, the provisions on guarantee, other than the benefit of excussion, are applicable and available. 2. Yes. Granting arguendo that there was a modification as to the effectivity of the bonds, petitioners would still not absolved from liability since they had authorized ISAC to consent to the granting of any extension, modification, alteration and/or renewal of the subject bonds, as expressly set out in the Indemnity Agreements. The court held that an agreement whereby the sureties bound themselves to be liable in case of an extension or renewal of the bond, without the necessity of executing another indemnity agreement for the purpose and without the necessity of being notified of such extension or renewal, is valid; and that there is nothing in it that militates against the law, good customs, good morals, public order or public policy.

2008; -158025 / 41 Phil 142, 5November 1920;

Central Surety and Insurance Company, Inc. v. Hon. Alberto Q. Ubay G.R. No. L-40334 / 135 SCRA 58, 28 February 1985 1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; SURETY; STIPULATION IN THE COUNTERBOND, CONTROLLING LAW. — The stipulation in the counterbond executed by the petitioner is the law between the parties in this case and not the provisions of the Rules of Court. Under the counterbond, the petitioner surety company bound itself solidarily with the principal obligor "in

the sum of P6,465.00 under the condition that in case the plaintiff recovers judgment in the action, the defendant will, on demand, redeliver the attached property so released to the officer of the court to be applied to the payment of the judgment or in default thereof that the defendant and surety will, on demand, pay to the plaintiff the full value of the property released." The main obligation of the surety was to redeliver the jeep so that it could be sold in case execution was issued against the principal obligor. The amount of P6,465.00 was merely to fix the limit of the surety’s liability in case the jeep could not be reached. In the instant case, the jeep was made available for execution of the judgment by the surety. The surety had done its part; the obligation of the bond had been discharged; the bond should be cancelled. 2. ID.; ID.; ID.; OBLIGATIONS OF SURETY; LIMITED BY WHAT IS STIPULATED. — The impropriety of the orders of the respondent judge is made more manifest by still another circumstance. The petitioner’s surety bond was for the amount of P6,465.00. So even on the assumption that the bond was not discharged, since the sale of the jeep yielded P4,000.00, the surety can be held liable at most for P2,465.00. But the respondent judge ordered the surety to pay P5,730.00 which is the entire deficiency and is in excess of P2,465.00. It is axiomatic that the obligation of a surety cannot extend beyond what is stipulated.

Facts: For the amount of P6400, Ong Chi sued Reyes and also applied for a writ of attachement on the latter’s jeep. Reyes executed a counterbond with petitioner as surety with the amount to cover his liability. The trial court ruled in favor of Ong and ordered Reyes to pay the amount plus attorney’s fee. The jeep was sold in a public auction at P4000. Central surety filed for the cancellation of the counterbond to which Ong objected saying that Central pay the deficiency on the judgment in the amount of P5,700 to cover the cost of litigation less the amount of the jeep. The motion for a deficiency judgment was opposed by the surety on the ground that it had fulfilled the condition of the counterbond. Despite the opposition, the court ordered the surety to pay. Issue:WON the petitioner is liable for the deficiency Held: No. The stipulation in the counterbond executed by the petitioner is the law between the parties in this case and not the provisions of the Rules of Court. ." The main obligation of the surety was to redeliver the jeep so that it could be sold in case execution was issued against the principal obligor. The amount of P6,465.00 was merely to fix the limit of the surety’s liability in case the jeep could not be reached. In the instant case, the jeep was made available for execution of the judgment by the surety. The surety had done its part; the obligation of the bond had been discharged; the bond should be cancelled.

-4 / 375 SCRA 579, 1 February 2002; orazon Vizconde v. Intermediate Appellate Court, G.R. No. 74231 / 149 SCRA 226,10 April 1987; 058 /520 SCRA 313, 4 April 2007; -8437 / 100 Phil 388, 28November 1956; rino, G.R. No. 34642 / 56 Phil 187, 24 September 1931;

Doctrine: Guaranty and Suretyship Florentina De Guzman v. Anastacio R. Santos G.R. No. L-45571 / 68 Phil 371, 30 June 1939 1. ATTACHMENT; BOND TO DISCHARGE ATTACHMENT; DEBTOR’S OBLIGATION To PAY GUARANTOR WHAT THE LATTER HAS ADVANCED TO CREDITOR. — Under article 1822 of the Civil Code, by guaranty one person binds himself to pay or perform for a third person in case the latter should fail to do so; and article 1838 provides that any guarantor who pays for the debtor shall be indemnified by the latter even should the guaranty have been undertaken without the knowledge of the debtor. In the present case, the guarantor was the deceased S. L., now represented by the plaintiff in her capacity as judicial administratrix, and the debtor is the defendant-appellant. Applying the provision of the last cited article, it is obvious that the appellant is legally bound to pay what the plaintiff had advanced to the creditor upon the judgment, notwithstanding the fact that the bond had been given without his knowledge. 2. ID.; ID.; ID. — The obligation of the appellant to pay the plaintiff what the latter had advanced is further sanctioned by the

general provisions of the Civil Code regarding obligations. Article 1158 provides that "payment may be made by any person, whether he has an interest in the performance of the obligation or not, and whether the payment is known and approved by the debtor or whether he is unaware of it. Any person who makes a payment for the account of another may recover from the debtor the amount of the payment, unless it was made against the express will of the latter. In the latter case he can only recover from the debtor in so far as the payment has been beneficial to the latter." According to this legal provision, it is evident that the plaintiff-appellant is bound to pay to the plaintiff what the latter had advanced to the creditor upon the judgment, and this is the more so because it appears, that although L. executed the bond without his knowledge, nevertheless he did not object thereto or repudiate the same at any time. From the proven facts it cannot logically be deduced that the appellant did not have knowledge of the bond, first, because his properties were attached and the attachment could not have been levied without his knowledge, and, secondly, because the said properties were returned to him and in receiving them he was necessarily apprized of the fact that a bond had been filed to discharge the attachment.

Facts: Jerry O. Toole, Antonio Abad and Anastacio Santos formed a general mercantile partnership – Philippine American Construction Company with a capital of P14k, P10k of which was taken by way of loan from PaulinoCandelaria. The partnership and the partners undertook and bound themselves to pay jointly and severally to the indebtedness. Upon default, Paulino filed civil case against Phil-Am Construction Company and the partners for the recovery of loan. The trial court ordered all Defendants to pay jointly and severally; CA affirmed. Plaintiff, in her capacity as judicial administratrix of the deceased Santiago Lucero, in 1932, paid to the creditor PaulinoCandelaria the sum of P5,665.55 on account of the judgment.Paulino obtained a writ of attachment against Defendants. The Sheriff attached properties of 3 partners. Partnership of P10k. Phil-Am Construction Company as principal then represented by the partner Antonio Abad, Santiago Lucero and Meliton Carlos as guarantors offered to post and executed a bond of P10k in favour of Paulino for the lifting of the attachment.After issuance of writ of execution, Sheriff found no property of the judgment debtors. Paulino moved for the issuance of the writ of execution against the guarantors of Defendants. Guarantor-Plaintiff and co-guarantor Meliton Carlos later paid the creditor and were able to recover from Antonio Abad a sum of P3800, which they divided equally. It appeared that the payment made by the plaintiff to Paulino was reduced to the sum of P3665. Plaintiff now demands from Anastacio Santos the return of the aforesaid sum but Anastacio refused. ISSUE: Whether or not Defendant is bound to pay Plaintiff what he had advanced to Paulino? HELD: YES. Article 1838 provides that any guarantor who pays for the debtor shall be indemnified by the latter even should the guaranty have been undertaken without the knowledge of the debtor. In this case: the guarantor was the deceased Santiago Lucero, represented by the plaintiff in her capacity as judicial administratrix, and the debtor is the defendant-appellant. Applying the provision cited, it is obvious that the Defendant is legally bound to pay what the Plaintiff had advanced to the creditor upon the judgment, notwithstanding the fact that the bond had been given without his knowledge. Any person who makes a payment for the account of another may recover from the debtor the amount of the payment, unless it was made against the express will of the latter. In the latter case, he can only recover from the debtor in so far as the payment has been beneficial to the latter. It is evident that Defendant is bound to pay to the plaintiff what the latter had advanced to the creditor upon the judgment, and this is more so because it appears that although Lucero executed the bond without his knowledge, nevertheless he did not object thereto or repudiate the same at any time. -9434 / 100 Phil 1059, 29March 1957; -30247 / 52 Phil 926, 11 March 1929; -28030 / 111 SCRA 24,18 January 1982; Finance Corporation v. Imperial Textile Mills, Inc., G.R. No. 160324 / 475SCRA 149, 15 November 2005;

-Strata Assurance Corporation v. Republic of the Philippines, G.R. No. 156571 / 557SCRA 363, 9 July 2008; G.R. No. 145578 / 475 SCRA 398, 18 November2005; -10168 / 34 Phil 589, 22 July1916; -19493 / 45 Phil 107 , 27 August 1923; Social Security System, G.R. No. L-33205 / 153 SCRA 338, 31August 1987; -Quico v. Yap Chuan, G.R. No. L-5470 / 16 Phil 76, 22 March1910; -26449 / 28 SCRA 58, 15 May 1969; nila Railroad Company v. Hon. CarmelinoAlvendia, G.R. No. L-22137 / 17 SCRA 154, 19May 1966; -27249 / 34 SCRA 136,31 July 1970; pany, G.R. No. L-9353 / 101Phil 494, 21 May 1957;

Mira Hermanos Inc. vs Manila Tobacconist GR No. 48979. September 29, 1943 Doctrine: When one of the two sureties is exempt from liability upon its additional bond. Plaintiff-appellee: Defendants: Defendant-appellant: Facts: -

Mira HermanosInc Manila Tobacconiststs, Inc., et al Provident Insurance Co.

Mira agreed to deliver to the Manila Tobacconists merchandise for sale on consignment. Manila Tobacconist agreed to pay. Mira required a bond of P3000. Provident executed a bond to secure the fulfillment of the obligation of the Tobacconist under the contract up to the sum of P3000. The volume of the business of the Tobacconist having increased, Mira required an additional bond of P2000. Manila Compania de Seguros, in compliance with the requirement, executed a bond of P2000. A final and complete liquidation was made, as a result of which there was found a balance due of P2272.79, which indebtedness was recognized by Tobacconist but was unable to pay. Provident paid only the sum of P1363.67 (60% of the amount owed).

Issue: Whether or not Provident is entitled to the benefit of division. Ruling: No. Article 1837. Should there be several sureties of only one debtor for the same debt, the liability therefore shall be divided among them all. The creditor can claim from each surety only his proportional part unless liability in solidum has been expressly stipulated. The article refers to several sureties of only one debtor for the same debt. Although the two bonds on their face appear to guarantee the same debt co-extensively up to P2000 – that of the Provident alone extending beyond that sum up to P3000 – it was pleaded conclusively proven that in reality said bonds, or the two sureties, do not guarantee the same debt because Provident guarantees only the first P3000 and the Manila Compania de Seguros, only the excess over the above said amount up to P5000. Article 1837 does not apply to this factual situation. The bond of P3000 filed by Provident responded for the obligation of the Tobacconists up to the sum of P3000, inasmuch as the bond of P2000 filed by the Manila Compania de Seguros responded for the obligation only insofar as it might exceed P3000 up to P5000.

igan, G.R. No. 43486 / 63 Phil 510, 30 September1956; -25553 / 26 SCRA 722, 31January 1969;

Doctrine: Continuing Guaranty or Suretyship PHILIPPINE BLOOMING MILLS, INC., and ALFREDO CHING vs. COURT OF APPEALS and TRADERS ROYAL BANK

G. R. No. 142381 - October 15, 2003 Facts: This case stems from an action to compel Ching to pay TRB the following amounts: 1. P959,611.96 under Letter of Credit No. 479 AD covered by Trust Receipt No. 106;4cräläwvirtualibräry 2. P1,191,137.13 under Letter of Credit No. 563 AD covered by Trust Receipt No. 113;5 and 3. P3,500,000 under the trust loan covered by a notarized Promissory Note.6cräläwvirtualibräry Ching was the Senior Vice President of Philippine Blooming Mills (PBM). In his personal capacity and not as a corporate officer, Ching signed a Deed of Suretyship dated 21 July 1977 binding himself as follows: xxx as primary obligor(s) and not as mere guarantor(s), hereby warrant to the TRADERS ROYAL BANK, its successors and assigns, the due and punctual payment by the following individuals and/or companies/firms, hereinafter called the DEBTOR(S), of such amounts whether due or not, as indicated opposite their respective names, to wit:

Ching further executed an Undertaking for each trust receipt binding himself to the contract and stipulating interests therein. PBM later on obtained a P3,500,000 trust loan from TRB. Ching signed as co-maker in the notarized Promissory Note evidencing this trust loan. PBM defaulted. PBM and Ching filed for a suspension of payment of PBMs obligations before the SEC allow PBM to continue its normal business operations free from the interference of its creditors. The SEC placed in receivership all of PBM’s assets, liabilities and obligations. TRB filed a complaint for collection from PBM and Ching. RTC ruled in favor of TRB and found Ching liable to TRB for P19.3 million under the Deed of Suretyship: [T]he liability of Ching as a surety attaches independently from his capacity as a stockholder of the Philippine Blooming Mills. Indisputably, under the Deed of Suretyship defendant Ching unconditionally agreed to assume PBMs liability to the plaintiff in the event PBM defaulted in the payment of the said obligation in addition to whatever penalties, expenses and bank charges that may occur by reason of default. Clear enough, under the Deed of Suretyship (Exh. J), defendant Ching bound himself jointly and severally with PBM in the payment of the latters obligation to the plaintiff. The obligation being solidary, the plaintiff Bank can hold Ching liable upon default of the principal debtor. This is explicitly provided in Article 1216 of the New Civil Code already quoted above. CA affirmed as Ching did not deny the evidence presented (L/Cs, Trust Receipts, Undertaking, Deed of Surety, and the 3.5 Million Peso Promissory Note upon which TRBs action rested.)but modified it as to the amount of his liability to P15.7 Million. Ching asserts that the Deed of Suretyship dated 21 July 1977 could not answer for obligations not yet in existence at the time of its execution. Specifically, Ching maintained that the Deed of Suretyship could not answer for debts contracted by PBM in 1980 and 1981. Ching contended that no accessory contract of suretyship could arise without an existing principal contract of loan. Ching likewise argued that TRB could no longer claim on the trust receipts because TRB had already taken the properties subject of the trust receipts. Ching likewise maintained that his obligation as surety could not exceed the P1,373,415 apportioned to PBM under the SEC-approved rehabilitation plan. Issue: Is Ching liable as surety? Held: Yes. Ching is liable for credit obligations contracted by PBM against TRB before and after the execution of the 21 July 1977 Deed of Suretyship. This is evident from the tenor of the deed itself, referring to amounts PBM "may now be indebted or may hereafter become indebted" to TRB. The law expressly allows a suretyship for "future debts". Article 2053 provides: A guaranty may also be given as security for future debts, the amount of which is not yet known; there can be no claim against the guarantor until the debt is liquidated. A conditional obligation may also be secured. Furthermore, this Court has ruled in Diño v. Court of Appeals that: Art. 2053 is the basis for contracts denominated as continuing guaranty or suretyship.

A continuing guaranty is one which is not limited to a single transaction, but which contemplates a future course of dealing, covering a series of transactions, generally for an indefinite time or until revoked. It is prospective in its operation and is generally intended to provide security with respect to future transactions within certain limits, and contemplates a succession of liabilities, for which, as they accrue, the guarantor becomes liable. Otherwise stated, a continuing guaranty is one which covers all transactions, including those arising in the future, which are within the description or contemplation of the contract of guaranty, until the expiration or termination thereof. A guaranty shall be construed as continuing when by the terms thereof it is evident that the object is to give a standing credit to the principal debtor to be used from time to time either indefinitely or until a certain period; especially if the right to recall the guaranty is expressly reserved. Hence, where the contract states that the guaranty is to secure advances to be made "from time to time," it will be construed to be a continuing one. In granting the loan to PBM, TRB required Ching’s surety precisely to insure full recovery of the loan in case PBM becomes insolvent or fails to pay in full. This was the very purpose of the surety. Thus, Ching cannot use PBMs failure to pay in full as justification for his own reduced liability to TRB. As surety, Ching agreed to pay in full PBMs loan in case PBM fails to pay in full for any reason, including its insolvency. TRB, as creditor, has the right under the surety to proceed against Ching for the entire amount of PBMs loan. This is clear from Article 1216: The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected. (Emphasis supplied) Thus, the following is the summary of Chings liability under the suretyship as of 13 May 1983, the date of filing of TRBs complaint with the trial court: 1. On Trust Receipt No. 106 (Letter of Credit No. 479 AD) Outstanding Principal P 959,611.96

Accrued Interest (12% per annum) 311,387.51

2. On Trust Receipt No. 113 (Letter of Credit No. 563 AD) Outstanding Principal P 1,191,137.13

Accrued Interest (12% per annum) 338,739.82

3. On the Trust Loan (Promissory Note) Outstanding Principal P 3,500,000.00

Accrued Interest (18% per annum) 1,287,616.44

Accrued Penalty Interest (2% per annum) 137,315.07 WHEREFORE, we AFFIRM the decision of the Court of Appeals with MODIFICATION. Petitioner Alfredo Ching shall pay respondent Traders Royal Bank the following (1) on the credit accommodations under the trust receipts, the total principal amount ofP2,150,749.09 with legal interest at 12% per annum from 14 May 1983 until full payment; (2) on the trust loan evidenced by the Promissory Note, the principal sum of P3,500,000 with 20% interest per annum from 14 May 1983 until full payment; (3) on the total accrued interest as of 13 May 1983, P2,075,058.84 with 12% interest per annum from 14 May 1983 until full payment. Petitioner Alfredo Ching shall also pay attorneys fees to respondent Traders Royal Bank equivalent to 5% of the total principal and interest.

434 SCRA 202, 13 July 2004; -29587 / 68 SCRA 207, 28November 1975; ational Bank v. Manila Surety and Fidelity Co., Inc., G.R. No. L-20567 / 14SCRA 776, 30 July 1965; -9542/ 100 Phil 679, 11 January 1957; Philippines v. Jesus R. Roa, G.R. No. 42829 / 62 Phil 211, 30September 1935;

Republic vs Pal-Fox Lumber Co., Inc. GR No. L-26473. February 29, 1972

Doctrine: Simple or indefinite guarantee Plaintiff-appellee: Defendant-appellant: Third party plaintiff: Third party defendant:

Republic of the Philippines Pal-Fox Lumber Co., Inc Far Eastern Surety Insurance Co., Inc Far Eastern Surety Insurance Co., Inc Palanca and Lee

Facts: Pal-Fox was indebted to the BIR for forest charges and surcharges amounting to P11, 851.56 and Far Eastern Surety Insurance Co., Inc. was jointly and severally liable with the lumber company for the payment of the said forest charges up to P5000. CFI: Republic seeking to recover, jointly and severally, from Pal-Fox and Far Eastern Surety Insurance Co., Inc the sum of P5000 plus interest from the filing of the complaint, and from Pal-Fox alone the balance of P6841.56 plus legal interest. Issue: Whether or not the surety is liable for the said interest. Ruling: Yes. The contract of guaranty executed by the appellant Company nowhere excludes this interest, and Article 2055, paragraph 2 of the Civil Code is clearly applicable. If it (guaranty) be simple or indefinite, it shall comprise not only the principal obligation but also its accessories, including judicial costs incurred after he has been judicially required to pay. -49401 / 115 SCRA777, 30 July 1982; No. L-16666 / 43 Phil 297, 10 April 1922;

Doctrine: Application of Art. 1851 as to Instalments; Acceleration Clauses For Instalments ROSA VILLA MONNA, Plaintiff-Appellee, vs. GUILLERMO GARCIA BOSQUE, ET AL.,defendants. GUILLERMO GARCIA BOSQUE, F. H. GOULETTE, and R. G. FRANCE, appellants. G.R. No. L-24543 July 12, 1926 Facts: Petitioner, widow of Enrique Bota, initiated this case for the recovery the sum of P20,509 (principal of P19,230 plus interest) as payment for the balance of the purchase in 1919 of a printing establishment and bookstore in Escolta owned by petitioner. The defendants Bosque and Ruiz are principal debtors and France and Goulette as sureties. Their contract stipulated that payment of P55,000 is for four instalments, bearing the interest rate of 7% per annum. On the same contract, France and Goulette bound themselves as sureties with the principals and expressly renouncing the benefit of exhaustion of the property of the principals. These were all done through the petitioner’s attorney in fact, Pirretas. Before leaving for a prolonged visit to Spain, Pirretas executed a document in 1920 (partial substitution of agency) transferring to FiguerasHermanos, or its representative to collect from the respondents their dues. Respondents failed on the second instalment and after negotiations executed with the agency’s representative an agreement whereby Figueras accepted P5,800 and 5 promissory notes (3 notes of 1,000s and 2 notes with 2,000 each = P7K) and the interest was also raised to 9% instead of 7%. The notes were not promptly paid but the balance due was finally paid in full by Bosque by 1921. By then, the promissory notes are falling due without being paid. It was by this time, that the partnership established by Bosque took over the printing establishment and conveyed all its assets to the consideration of P15,000. A certain M. T. Figueras, without authority, and in contravention to the instructions, executed an agreement, thereby novating the original agreement and relieving France and Goulette from their liability as sureties. The plaintiff ratified the agreement by accepting part payment of the amount due with full knowledge of its terms.

Issue: Does said novation release the sureties from their liability as such? Held: No. 1. The execution of the new promissory notes undoubtedly constituted and extension of time as to the obligation included therein, such as would release a surety, even though of the solidary type, under article 1851 of the Civil Code. Nevertheless it is to be borne in mind that said extension and novation related ONLY to the second instalment of the original obligation and interest accrued up to that time. Furthermore, the total amount of these notes was afterwards paid in full, and they are not now the subject of controversy. It results that the extension thus effected could not discharge the sureties from their liability as to other instalments upon which alone they have been sued in this action. 2. The rule that an extension of time granted to the debtor by the creditor, without the consent of the sureties, extinguishes the latter's liability is common both to Spanish jurisprudence and the common law; and it is well settled in English and American jurisprudence that where a surety is liable for different payments, such as instalments of rent, or upon a series of promissory notes, an extension of time as to one or more will not affect the liability of the surety for the others. 3. As to acceleration clauses for instalments. If the stipulation had been to the effect that the failure to pay any instalment when due would ipso facto cause other instalments to fall due at once, the act of the creditor in extending the time as to such instalment would interfere with the right of the surety to exercise his legal rights against the debtor, and that the surety would in such case be discharged by the extension of time, in conformity with articles 1851 and 1852 of the Civil Code. In the contract under consideration the stipulation is not that the maturity of the later instalments shall be ipso facto accelerated by default in the payment of a prior instalment, but only that it shall give the creditor a right to treat the subsequent instalments as due, and in this case it does not appear that the creditor has exercised this election. On the contrary, this action was not instituted until after all of the instalments had fallen due in conformity with the original contract. 4. The contention that the sureties were discharged by a fraud practiced by the plaintiff in failing to secure a mortgage for the debt is untenable because neither the plaintiff nor her attorney in fact were parties to such agreement and it was a suggestion that came from the principal debtor, and not from the side of the plaintiff. Escano v. Rafael Ortigas, Jr., G.R. No. 151953 / 526 SCRA 26, 29 June2007; 2 / 42 Phil 733, 1February 1922; -9306 / 99 Phil 263, 25 May 1956; rk v. Cho Siong, G.R. No. L-29588 / 52 Phil 612, 29 December1928; -9073 / 104 Phil 806, 17November 1958; -22177 / 46 Phil 561, 2 December1924;

Doctrine: Continuing Guaranty. Intent of the parties is controlling(as to the prospectivity or retroactivity) Willex Plastic Industries Corporation v. Hon. Court of Appeals, International Corporate Bank G.R. No. 103066 / 256 SCRA 478, 25 April 1996 Facts: Petitioner and Inter-Resin Industrial Corporation (IRIC) were ordered by the RTC, jointly and severally, to pay respondent International Corporate Bank certain sums of money, and the appellate court’s resolution of October 17, 1989 denying petitioner’s motion for reconsideration.

In 1978, IRIC entered opened a Letter of Credit with the Manila Banking Corporation (MBC). To secure payment of the credit accommodation, Inter-Resin Industrial and the Investment and Underwriting Corporation of the Philippines (IUCP) executed two documents of "Continuing Surety Agreement" binding themselves solidarily to pay Manilabank "obligations of every kind, on which the IRIC may now be indebted or hereafter become indebted to the [Manilabank]." The two agreements (Exhs. J and K) are the same in all respects, except as to the limit of liability of the surety, the first surety agreement being limited to US$333,830.00, while the second one is limited to US$334,087.00

In 1979, IRIC, together with petitioner, executed a "Continuing Guaranty" in favor of IUCP to jointly and severally guarantee "the prompt and punctual payment at maturity of the NOTE/S issued by the DEBTOR/S . . . to the extent of the aggregate principal sum of FIVE MILLION PESOS (P5,000,000.00) ..."’

In 1981, IUCP paid MBC P4,334,280.61 representing IRIC’s outstanding obligation. Atrium, which substituted IUCP demanded payment from petitioner and IRIC, and filed a case against them upon their failure to comply.In 1982, Interbank, which succeeded Atrium, received payment from IRIC in the amount of P687,500 representing the proceeds from the fire insurance policy for the destruction of its property. IRIC admitted that the "Continuing Guaranty" was intended to secure payment to Atrium of the amount of P4,334,280.61 which the latter had paid to Manilabank. It claimed, however, that it had already fully paid its obligation to Atrium Capital. Willex argues that the liability has been extinguished due to the accidental fire, its account is now very lesser than those stated in the complaint because of some payments made; that is only a guarantor and thus only secondarily liable; and Atrium/Interbank (substituted later as plaintiff) failed to exhaust the ultimate remedy in pursuing its claim against the principal obligor. Issue: Whether under the "Continuing Guaranty" signed on April 2, 1979 petitioner Willex Plastic may be held jointly and severally liable with Inter-Resin Industrial for the amount by Interbank to Manilabank. Held: Willex Plastic is liable as surety. 1. It has overlooked the fact that the original agreement itself showed the reason the Continuing Guaranty was executed – to actually secure payment to Interbank (formerly IUCP) of amounts paid by the latter to Manilabank. 2. The contention that a "Continuing Guaranty," being an accessory contract, cannot legally exist because of the absence of a valid principal obligation is untenable. Willex’scontention is based on the fact that it is not a party either to the "Continuing Surety Agreement" or to the loan agreement between Manilabank and Inter-Resin Industrial. But the consideration necessary to support a surety obligation need not pass directly to the surety, a consideration moving to the principal alone being sufficient. For a "guarantor or surety is bound by the same consideration that makes the contract effective between the principal parties thereto. . . . It is never necessary that a guarantor or surety should receive any part or benefit, if such there be, accruing to his principal." In an analogous case, this Court held: chanro b1es vi rt ual 1aw li brary

At the time the loan of P100,000.00 was obtained from petitioner by Daicor..., the comprehensive surety agreement was admittedly in full force and effect. The loan was, therefore, covered by the said agreement, and private respondent, even if he did not sign the promissory note, is liable by virtue of the surety agreement...The surety agreement which was earlier signed by Enrique Go, Sr. and private respondent, is an accessory obligation, it being dependent upon a principal one which, in this case is the loan obtained by Daicor as evidenced by a promissory note. 3. A CONTRACT OF SURETY IS ORDINARILY NOT TO BE CONSTRUED AS RETROSPECTIVE, IN THE END THE INTENTION OF THE PARTIES AS REVEALED BY THE EVIDENCE IS CONTROLLING. — Willex Plastic contends that the "Continuing Guaranty" cannot be retroactively applied so as to secure the payments made by Interbank under the two "Continuing Surety Agreements." The cases cited are, however, distinguishable from the present case. In El Vencedor v. Canlas we held that a contract of suretyship "is not retrospective and no liability attaches for defaults occurring before it is entered into unless an intent to be so liable is indicated." There we found nothing in the contract to show that the parties intended the surety bonds to answer for the debts contracted previous to the execution of the bonds. In Diño v. Court of Appeals the issue was whether the sureties could be held liable for an obligation contracted after the execution of the continuing surety agreement. In this case, the parties to the "Continuing Guaranty" clearly provided that the guaranty would cover "sums obtained and/or to be obtained" by Inter-Resin Industrial from Interbank. By its very nature a continuing suretyship contemplates a future course of dealing. "It is prospective in its operation and is generally intended to provide security with respect to future transactions." By no means, however, was it meant in that case that in all instances a contract of guaranty or suretyship should be prospective in application. Indeed, as we also held in Bank of the Philippine Islands v. Foerster, (49 Phil. 843 [1926]) although a contract of suretyship is ordinarily not to be construed as retrospective, in the end the intention of the parties as revealed by the evidence is controlling.

4. Willex solidarily bound itself to the agreement which embodies a stipulation of an express renunciation of the right of excussion. Thus in Art. 2059: Excussion shall not take place: (1) If the guarantor has expressly renounced it; (2) If he has bound himself solidarily with the debtor.

chanro b1es vi rtua l 1aw lib ra ry

-11073 / 37 Phil 696, 21 February 1918; -42518 / 63 Phil 372, 29 August 1936;