G.R. No. L-66826 August 19, 1988
Ordering defendant COMTRUST to return to the plaintiff the
BANK OF THE PHILIPPINE ISLANDS, petitioner,
vs.
THE INTERMEDIATE APPELLATE COURT and ZSHORNACK respondents.
Pacis & Reyes Law Office for petitioner.
Ernesto T. Zshornack, Jr. for private respondent.
CORTES, J.:
The original parties to this case were Rizaldy T. Zshornack and the Commercial
Bank and Trust Company of the Philippines [hereafter referred to as "COMTRUST."]
In 1980, the Bank of the Philippine Islands (hereafter referred to as BPI absorbed
COMTRUST through a corporate merger, and was substituted as party to the case.
Rizaldy Zshornack initiated proceedings on June 28,1976 by filing in the Court of
First Instance of Rizal — Caloocan City a complaint against COMTRUST alleging
four causes of action. Except for the third cause of action, the CFI ruled in favor of
Zshornack. The bank appealed to the Intermediate Appellate Court which modified
the CFI decision absolving the bank from liability on the fourth cause of action. The
pertinent portions of the judgment, as modified, read:
IN VIEW OF THE FOREGOING, the Court renders judgment as
follows:
1. Ordering the defendant COMTRUST to restore to the dollar savings
account of plaintiff (No. 25-4109) the amount of U.S $1,000.00 as of
October 27, 1975 to earn interest together with the remaining balance
of the said account at the rate fixed by the bank for dollar deposits
under Central Bank Circular 343;
2.
amount of U.S. $3,000.00 immediately upon the finality of this
decision, without interest for the reason that the said amount was
merely held in custody for safekeeping, but was not actually deposited
with the defendant COMTRUST because being cash currency, it
cannot by law be deposited with plaintiffs dollar account and
defendant's only obligation is to return the same to plaintiff upon
demand;
xxx xxx xxx
5. Ordering defendant COMTRUST to pay plaintiff in the amount of
P8,000.00 as damages in the concept of litigation expenses and
attorney's fees suffered by plaintiff as a result of the failure of the
defendant bank to restore to his (plaintiffs) account the amount of U.S.
$1,000.00 and to return to him (plaintiff) the U.S. $3,000.00 cash left
for safekeeping.
Costs against defendant COMTRUST.
SO ORDERED. [Rollo, pp. 47-48.]
Undaunted, the bank comes to this Court praying that it be totally absolved from any
liability to Zshornack. The latter not having appealed the Court of Appeals decision,
the issues facing this Court are limited to the bank's liability with regard to the first
and second causes of action and its liability for damages.
1. We first consider the first cause of action, On the dates material to this case,
Rizaldy Zshornack and his wife, Shirley Gorospe, maintained in COMTRUST,
Quezon City Branch, a dollar savings account and a peso current account.
On October 27, 1975, an application for a dollar draft was accomplished by Virgilio V.
Garcia, Assistant Branch Manager of COMTRUST Quezon City, payable to a certain
Leovigilda D. Dizon in the amount of $1,000.00. In the application, Garcia indicated
that the amount was to be charged to Dollar Savings Acct. No. 25-4109, the savings
account of the Zshornacks; the charges for commission, documentary stamp tax and
others totalling P17.46 were to be charged to Current Acct. No. 210465-29, again,
the current account of the Zshornacks. There was no indication of the name of the
purchaser of the dollar draft.
On the same date, October 27,1975, COMTRUST, under the signature of Virgilio V.
Garcia, issued a check payable to the order of Leovigilda D. Dizon in the sum of US
$1,000 drawn on the Chase Manhattan Bank, New York, with an indication that it
was to be charged to Dollar Savings Acct. No. 25-4109.
When Zshornack noticed the withdrawal of US$1,000.00 from his account, he
demanded an explanation from the bank. In answer, COMTRUST claimed that the
peso value of the withdrawal was given to Atty. Ernesto Zshornack, Jr., brother of
Rizaldy, on October 27, 1975 when he (Ernesto) encashed with COMTRUST a
cashier's check for P8,450.00 issued by the Manila Banking Corporation payable to
Ernesto.
Upon consideration of the foregoing facts, this Court finds no reason to disturb the
ruling of both the trial court and the Appellate Court on the first cause of action.
Petitioner must be held liable for the unauthorized withdrawal of US$1,000.00 from
private respondent's dollar account.
In its desperate attempt to justify its act of withdrawing from its depositor's savings
account, the bank has adopted inconsistent theories. First, it still maintains that the
peso value of the amount withdrawn was given to Atty. Ernesto Zshornack, Jr. when
the latter encashed the Manilabank Cashier's Check. At the same time, the bank
claims that the withdrawal was made pursuant to an agreement where Zshornack
allegedly authorized the bank to withdraw from his dollar savings account such
amount which, when converted to pesos, would be needed to fund his peso current
account. If indeed the peso equivalent of the amount withdrawn from the dollar
account was credited to the peso current account, why did the bank still have to pay
Ernesto?
At any rate, both explanations are unavailing. With regard to the first explanation,
petitioner bank has not shown how the transaction involving the cashier's check is
related to the transaction involving the dollar draft in favor of Dizon financed by the
withdrawal from Rizaldy's dollar account. The two transactions appear entirely
independent of each other. Moreover, Ernesto Zshornack, Jr., possesses a
personality distinct and separate from Rizaldy Zshornack. Payment made to Ernesto
cannot be considered payment to Rizaldy.
As to the second explanation, even if we assume that there was such an agreement,
the evidence do not show that the withdrawal was made pursuant to it. Instead, the
record reveals that the amount withdrawn was used to finance a dollar draft in favor
of Leovigilda D. Dizon, and not to fund the current account of the Zshornacks. There
is no proof whatsoever that peso Current Account No. 210-465-29 was ever credited
with the peso equivalent of the US$1,000.00 withdrawn on October 27, 1975 from
Dollar Savings Account No. 25-4109.
2. As for the second cause of action, the complaint filed with the trial court alleged
that on December 8, 1975, Zshornack entrusted to COMTRUST, thru Garcia, US
$3,000.00 cash (popularly known as greenbacks) forsafekeeping, and that the
agreement was embodied in a document, a copy of which was attached to and made
part of the complaint. The document reads:
Makati Cable Address:
Philippines "COMTRUST"
COMMERCIAL BANK AND TRUST COMPANY
of the Philippines
Quezon City Branch
MR. RIZALDY T. ZSHORNACK
&/OR MRS SHIRLEY E. ZSHORNACK
Sir/Madam:
We acknowledged (sic) having received from you today the sum of US DOLLARS:
THREE THOUSAND ONLY (US$3,000.00) for safekeeping.
Received by:
(Sgd.) VIRGILIO V. GARCIA
It was also alleged in the complaint that despite demands, the bank refused to return
the money.
In its answer, COMTRUST averred that the US$3,000 was credited to Zshornack's
peso current account at prevailing conversion rates.
It must be emphasized that COMTRUST did not deny specifically under oath the
authenticity and due execution of the above instrument.
During trial, it was established that on December 8, 1975 Zshornack indeed
delivered to the bank US $3,000 for safekeeping. When he requested the return of
the money on May 10, 1976, COMTRUST explained that the sum was disposed of in
this manner: US$2,000.00 was sold on December 29, 1975 and the peso proceeds
amounting to P14,920.00 were deposited to Zshornack's current account per deposit
slip accomplished by Garcia; the remaining US$1,000.00 was sold on February 3,
1976 and the peso proceeds amounting to P8,350.00 were deposited to his current
account per deposit slip also accomplished by Garcia.
Aside from asserting that the US$3,000.00 was properly credited to Zshornack's
current account at prevailing conversion rates, BPI now posits another ground to
defeat private respondent's claim. It now argues that the contract embodied in the
document is the contract of depositum (as defined in Article 1962, New Civil Code),
which banks do not enter into. The bank alleges that Garcia exceeded his powers
when he entered into the transaction. Hence, it is claimed, the bank cannot be liable
under the contract, and the obligation is purely personal to Garcia.
Before we go into the nature of the contract entered into, an important point which
arises on the pleadings, must be considered.
The second cause of action is based on a document purporting to be signed by
COMTRUST, a copy of which document was attached to the complaint. In short, the
second cause of action was based on an actionable document. It was therefore
incumbent upon the bank to specifically deny under oath the due execution of the
document, as prescribed under Rule 8, Section 8, if it desired: (1) to question the
authority of Garcia to bind the corporation; and (2) to deny its capacity to enter into
such contract. [See, E.B. Merchant v. International Banking Corporation, 6 Phil. 314
(1906).] No sworn answer denying the due execution of the document in question, or
questioning the authority of Garcia to bind the bank, or denying the bank's capacity
to enter into the contract, was ever filed. Hence, the bank is deemed to have
admitted not only Garcia's authority, but also the bank's power, to enter into the
contract in question.
In the past, this Court had occasion to explain the reason behind this procedural
requirement.
The reason for the rule enunciated in the foregoing authorities will, we
think, be readily appreciated. In dealing with corporations the public at
large is bound to rely to a large extent upon outward appearances. If a
man is found acting for a corporation with the external indicia of
authority, any person, not having notice of want of authority, may
usually rely upon those appearances; and if it be found that the
directors had permitted the agent to exercise that authority and
thereby held him out as a person competent to bind the corporation,
or had acquiesced in a contract and retained the benefit supposed to
have been conferred by it, the corporation will be bound,
notwithstanding the actual authority may never have been granted
... Whether a particular officer actually possesses the authority which
he assumes to exercise is frequently known to very few, and the proof
of it usually is not readily accessible to the stranger who deals with the
corporation on the faith of the ostensible authority exercised by some
of the corporate officers. It is therefore reasonable, in a case where an
officer of a corporation has made a contract in its name, that the
corporation should be required, if it denies his authority, to state such
defense in its answer. By this means the plaintiff is apprised of the
fact that the agent's authority is contested; and he is given an
opportunity to adduce evidence showing either that the authority
 existed or that the contract was ratified and approved. [Ramirez v.
Orientalist Co. and Fernandez, 38 Phil. 634, 645- 646 (1918).]
Petitioner's argument must also be rejected for another reason. The practical effect
of absolving a corporation from liability every time an officer enters into a contract
which is beyond corporate powers, even without the proper allegation or proof that
the corporation has not authorized nor ratified the officer's act, is to cast corporations
in so perfect a mold that transgressions and wrongs by such artificial beings become
impossible [Bissell v. Michigan Southern and N.I.R. Cos 22 N.Y 258 (1860).] "To say
that a corporation has no right to do unauthorized acts is only to put forth a very plain
truism but to say that such bodies have no power or capacity to err is to impute to
them an excellence which does not belong to any created existence with which we
are acquainted. The distinction between power and right is no more to be lost sight of
in respect to artificial than in respect to natural persons." [Ibid.]
Having determined that Garcia's act of entering into the contract binds the
corporation, we now determine the correct nature of the contract, and its legal
consequences, including its enforceability.
The document which embodies the contract states that the US$3,000.00 was
received by the bank for safekeeping. The subsequent acts of the parties also show
that the intent of the parties was really for the bank to safely keep the dollars and to
return it to Zshornack at a later time, Thus, Zshornack demanded the return of the
money on May 10, 1976, or over five months later.
The above arrangement is that contract defined under Article 1962, New Civil Code,
which reads:
Art. 1962. A deposit is constituted from the moment a person receives
a thing belonging to another, with the obligation of safely keeping it
and of returning the same. If the safekeeping of the thing delivered is
not the principal purpose of the contract, there is no deposit but some
other contract.
Note that the object of the contract between Zshornack and COMTRUST was foreign
exchange. Hence, the transaction was covered by Central Bank Circular No. 20,
Restrictions on Gold and Foreign Exchange Transactions, promulgated on
December 9, 1949, which was in force at the time the parties entered into the
transaction involved in this case. The circular provides:
xxx xxx xxx
2. Transactions in the assets described below and all dealings in them
of whatever nature, including, where applicable their exportation and
importation, shall NOT be effected, except with respect to deposit
accounts included in sub-paragraphs (b) and (c) of this paragraph,
when such deposit accounts are owned by and in the name of, banks.
(a) Any and all assets, provided they are held through,
in, or with banks or banking institutions located in the
Philippines, including money, checks, drafts, bullions
bank drafts, deposit accounts (demand, time and
savings), all debts, indebtedness or obligations,
financial brokers and investment houses, notes,
debentures, stocks, bonds, coupons, bank
acceptances, mortgages, pledges, liens or other rights
in the nature of security, expressed in foreign
currencies, or if payable abroad, irrespective of the
currency in which they are expressed, and belonging to
any person, firm, partnership, association, branch
office, agency, company or other unincorporated body
or corporation residing or located within the Philippines;
(b) Any and all assets of the kinds included and/or
described in subparagraph (a) above, whether or not
held through, in, or with banks or banking institutions,
and existent within the Philippines, which belong to any
person, firm, partnership, association, branch office,
agency, company or other unincorporated body or
corporation not residing or located within the
Philippines;
 (c) Any and all assets existent within the Philippines
including money, checks, drafts, bullions, bank drafts,
all debts, indebtedness or obligations, financial
securities commonly dealt in by bankers, brokers and
investment houses, notes, debentures, stock, bonds,
coupons, bank acceptances, mortgages, pledges, liens
or other rights in the nature of security expressed in
foreign currencies, or if payable abroad, irrespective of
the currency in which they are expressed, and
belonging to any person, firm, partnership, association,
branch office, agency, company or other
unincorporated body or corporation residing or located
within the Philippines.
xxx xxx xxx
4. (a) All receipts of foreign exchange shall be sold daily to the Central
Bank by those authorized to deal in foreign exchange. All receipts of
foreign exchange by any person, firm, partnership, association,
branch office, agency, company or other unincorporated body or
corporation shall be sold to the authorized agents of the Central Bank
by the recipients within one business day following the receipt of such
foreign exchange. Any person, firm, partnership, association, branch
office, agency, company or other unincorporated body or corporation,
residing or located within the Philippines, who acquires on and after
the date of this Circular foreign exchange shall not, unless licensed by
the Central Bank, dispose of such foreign exchange in whole or in
part, nor receive less than its full value, nor delay taking ownership
thereof except as such delay is customary; Provided, further, That
within one day upon taking ownership, or receiving payment, of
foreign exchange the aforementioned persons and entities shall sell
such foreign exchange to designated agents of the Central Bank.
xxx xxx xxx
8. Strict observance of the provisions of this Circular is enjoined; and
any person, firm or corporation, foreign or domestic, who being bound
to the observance thereof, or of such other rules, regulations or
directives as may hereafter be issued in implementation of this
Circular, shall fail or refuse to comply with, or abide by, or shall violate
the same, shall be subject to the penal sanctions provided in the
Central Bank Act.
xxx xxx xxx
Paragraph 4 (a) above was modified by Section 6 of Central Bank Circular No. 281,
Regulations on Foreign Exchange, promulgated on November 26, 1969 by limiting its
coverage to Philippine residents only. Section 6 provides:
SEC. 6. All receipts of foreign exchange by any resident person, firm,
company or corporation shall be sold to authorized agents of the
Central Bank by the recipients within one business day following the
receipt of such foreign exchange. Any resident person, firm, company
or corporation residing or located within the Philippines, who acquires
foreign exchange shall not, unless authorized by the Central Bank,
dispose of such foreign exchange in whole or in part, nor receive less
than its full value, nor delay taking ownership thereof except as such
delay is customary; Provided, That, within one business day upon
taking ownership or receiving payment of foreign exchange the
aforementioned persons and entities shall sell such foreign exchange
to the authorized agents of the Central Bank.
As earlier stated, the document and the subsequent acts of the parties show that
they intended the bank to safekeep the foreign exchange, and return it later to
Zshornack, who alleged in his complaint that he is a Philippine resident. The parties
did not intended to sell the US dollars to the Central Bank within one business day
from receipt. Otherwise, the contract of depositum would never have been entered
into at all.
Since the mere safekeeping of the greenbacks, without selling them to the Central
Bank within one business day from receipt, is a transaction which is not authorized
by CB Circular No. 20, it must be considered as one which falls under the general
class of prohibited transactions. Hence, pursuant to Article 5 of the Civil Code, it is
void, having been executed against the provisions of a mandatory/prohibitory law.
More importantly, it affords neither of the parties a cause of action against the other.
"When the nullity proceeds from the illegality of the cause or object of the contract,
and the act constitutes a criminal offense, both parties being in pari delicto, they shall
have no cause of action against each other. . ." [Art. 1411, New Civil Code.] The only
remedy is one on behalf of the State to prosecute the parties for violating the law.

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

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

WHEREFORE, the decision appealed from is hereby MODIFIED. Petitioner is

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

SO ORDERED.
G.R. No. L-6913 November 21, 1913
THE ROMAN CATHOLIC BISHOP OF JARO, plaintiff-appellee,
vs.
GREGORIO DE LA PEÑA, administrator of the estate of Father Agustin de la
Peña, defendant-appellant.
J. Lopez Vito, for appellant.
Arroyo and Horrilleno, for appellee.
MORELAND, J.:
This is an appeal by the defendant from a judgment of the Court of First Instance of
Iloilo, awarding to the plaintiff the sum of P6,641, with interest at the legal rate from
the beginning of the action.
It is established in this case that the plaintiff is the trustee of a charitable bequest
made for the construction of a leper hospital and that father Agustin de la Peña was
the duly authorized representative of the plaintiff to receive the legacy. The
defendant is the administrator of the estate of Father De la Peña.
In the year 1898 the books Father De la Peña, as trustee, showed that he had on
hand as such trustee the sum of P6,641, collected by him for the charitable purposes
aforesaid. In the same year he deposited in his personal account P19,000 in the
Hongkong and Shanghai Bank at Iloilo. Shortly thereafter and during the war of the
revolution, Father De la Peña was arrested by the military authorities as a political
prisoner, and while thus detained made an order on said bank in favor of the United
States Army officer under whose charge he then was for the sum thus deposited in
said bank. The arrest of Father De la Peña and the confiscation of the funds in the
bank were the result of the claim of the military authorities that he was an insurgent
and that the funds thus deposited had been collected by him for revolutionary
purposes. The money was taken from the bank by the military authorities by virtue of
such order, was confiscated and turned over to the Government.
While there is considerable dispute in the case over the question whether the P6,641
of trust funds was included in the P19,000 deposited as aforesaid, nevertheless, a
careful examination of the case leads us to the conclusion that said trust funds were
a part of the funds deposited and which were removed and confiscated by the
military authorities of the United States.
That branch of the law known in England and America as the law of trusts had no
exact counterpart in the Roman law and has none under the Spanish law. In this
jurisdiction, therefore, Father De la Peña's liability is determined by those portions of
the Civil Code which relate to obligations. (Book 4, Title 1.)
Although the Civil Code states that "a person obliged to give something is also
bound to preserve it with the diligence pertaining to a good father of a family" (art.
1094), it also provides, following the principle of the Roman law, major casus est, cui
humana infirmitas resistere non potest, that "no one shall be liable for events which
could not be foreseen, or which having been foreseen were inevitable, with the
exception of the cases expressly mentioned in the law or those in which the
obligation so declares." (Art. 1105.)
By placing the money in the bank and mixing it with his personal funds De la Peña
did not thereby assume an obligation different from that under which he would have
lain if such deposit had not been made, nor did he thereby make himself liable to
repay the money at all hazards. If the had been forcibly taken from his pocket or from
his house by the military forces of one of the combatants during a state of war, it is
clear that under the provisions of the Civil Code he would have been exempt from
responsibility. The fact that he placed the trust fund in the bank in his personal
account does not add to his responsibility. Such deposit did not make him a debtor
who must respond at all hazards.
We do not enter into a discussion for the purpose of determining whether he acted
more or less negligently by depositing the money in the bank than he would if he had
left it in his home; or whether he was more or less negligent by depositing the money
in his personal account than he would have been if he had deposited it in a separate
account as trustee. We regard such discussion as substantially fruitless, inasmuch
as the precise question is not one of negligence. There was no law prohibiting him
from depositing it as he did and there was no law which changed his responsibility be
reason of the deposit. While it may be true that one who is under obligation to do or
give a thing is in duty bound, when he sees events approaching the results of which
will be dangerous to his trust, to take all reasonable means and measures to escape
or, if unavoidable, to temper the effects of those events, we do not feel constrained
to hold that, in choosing between two means equally legal, he is culpably negligent in
selecting one whereas he would not have been if he had selected the other.

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

The judgment is therefore reversed, and it is decreed that the plaintiff shall take
nothing by his complaint.
G.R. No. 90027 March 3, 1993
CA AGRO-INDUSTRIAL DEVELOPMENT CORP., petitioner,
vs.
THE HONORABLE COURT OF APPEALS and SECURITY BANK AND TRUST
COMPANY, respondents.
Dolorfino & Dominguez Law Offices for petitioner.
Danilo B. Banares for private respondent.
DAVIDE, JR., J.:
Is the contractual relation between a commercial bank and another party in a
contract of rent of a safety deposit box with respect to its contents placed by the
latter one of bailor and bailee or one of lessor and lessee?
This is the crux of the present controversy.
On 3 July 1979, petitioner (through its President, Sergio Aguirre) and the spouses
Ramon and Paula Pugao entered into an agreement whereby the former purchased
from the latter two (2) parcels of land for a consideration of P350,625.00. Of this
amount, P75,725.00 was paid as downpayment while the balance was covered by
three (3) postdated checks. Among the terms and conditions of the agreement
embodied in a Memorandum of True and Actual Agreement of Sale of Land were
that the titles to the lots shall be transferred to the petitioner upon full payment of the
purchase price and that the owner's copies of the certificates of titles thereto,
Transfer Certificates of Title (TCT) Nos. 284655 and 292434, shall be deposited in a
safety deposit box of any bank. The same could be withdrawn only upon the joint
signatures of a representative of the petitioner and the Pugaos upon full payment of
the purchase price. Petitioner, through Sergio Aguirre, and the Pugaos then rented
Safety Deposit Box No. 1448 of private respondent Security Bank and Trust
Company, a domestic banking corporation hereinafter referred to as the respondent
Bank. For this purpose, both signed a contract of lease (Exhibit "2") which
contains, inter alia, the following conditions:
13. The bank is not a depositary of the contents of the safe and it has
neither the possession nor control of the same.
14. The bank has no interest whatsoever in said contents, except
herein expressly provided, and it assumes absolutely no liability in
connection therewith. 1
After the execution of the contract, two (2) renter's keys were given to the renters —
one to Aguirre (for the petitioner) and the other to the Pugaos. A guard key remained
in the possession of the respondent Bank. The safety deposit box has two (2)
keyholes, one for the guard key and the other for the renter's key, and can be
opened only with the use of both keys. Petitioner claims that the certificates of title
were placed inside the said box.
Thereafter, a certain Mrs. Margarita Ramos offered to buy from the petitioner the two
(2) lots at a price of P225.00 per square meter which, as petitioner alleged in its
complaint, translates to a profit of P100.00 per square meter or a total of
P280,500.00 for the entire property. Mrs. Ramos demanded the execution of a deed
of sale which necessarily entailed the production of the certificates of title. In view
thereof, Aguirre, accompanied by the Pugaos, then proceeded to the respondent
Bank on 4 October 1979 to open the safety deposit box and get the certificates of
title. However, when opened in the presence of the Bank's representative, the box
yielded no such certificates. Because of the delay in the reconstitution of the title,
Mrs. Ramos withdrew her earlier offer to purchase the lots; as a consequence
thereof, the petitioner allegedly failed to realize the expected profit of P280,500.00.
Hence, the latter filed on 1 September 1980 a complaint 2 for damages against the
respondent Bank with the Court of First Instance (now Regional Trial Court) of Pasig,
Metro Manila which docketed the same as Civil Case No. 38382.
In its Answer with Counterclaim, 3 respondent Bank alleged that the petitioner has no
cause of action because of paragraphs 13 and 14 of the contract of lease (Exhibit
"2"); corollarily, loss of any of the items or articles contained in the box could not give
rise to an action against it. It then interposed a counterclaim for exemplary damages
as well as attorney's fees in the amount of P20,000.00. Petitioner subsequently filed
an answer to the counterclaim. 4
In due course, the trial court, now designated as Branch 161 of the Regional Trial
Court (RTC) of Pasig, Metro Manila, rendered a decision 5 adverse to the petitioner
on 8 December 1986, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered
dismissing plaintiff's complaint.
On defendant's counterclaim, judgment is hereby rendered ordering
plaintiff to pay defendant the amount of FIVE THOUSAND
(P5,000.00) PESOS as attorney's fees.
With costs against plaintiff. 6
The unfavorable verdict is based on the trial court's conclusion that under
paragraphs 13 and 14 of the contract of lease, the Bank has no liability for the loss of
the certificates of title. The court declared that the said provisions are binding on the
parties.
Its motion for reconsideration 7 having been denied, petitioner appealed from the
adverse decision to the respondent Court of Appeals which docketed the appeal as
CA-G.R. CV No. 15150. Petitioner urged the respondent Court to reverse the
challenged decision because the trial court erred in (a) absolving the respondent
Bank from liability from the loss, (b) not declaring as null and void, for being contrary
to law, public order and public policy, the provisions in the contract for lease of the
safety deposit box absolving the Bank from any liability for loss, (c) not concluding
that in this jurisdiction, as well as under American jurisprudence, the liability of the
Bank is settled and (d) awarding attorney's fees to the Bank and denying the
petitioner's prayer for nominal and exemplary damages and attorney's fees. 8
In its Decision promulgated on 4 July 1989, 9 respondent Court affirmed the appealed
decision principally on the theory that the contract (Exhibit "2") executed by the
petitioner and respondent Bank is in the nature of a contract of lease by virtue of
which the petitioner and its co-renter were given control over the safety deposit box
and its contents while the Bank retained no right to open the said box because it had
neither the possession nor control over it and its contents. As such, the contract is
governed by Article 1643 of the Civil Code 10 which provides:
Art. 1643. In the lease of things, one of the parties binds himself to
give to another the enjoyment or use of a thing for a price certain, and
for a period which may be definite or indefinite. However, no lease for
more than ninety-nine years shall be valid.
It invoked Tolentino vs. Gonzales 11 — which held that the owner of the
property loses his control over the property leased during the period of the
contract — and Article 1975 of the Civil Code which provides:
Art. 1975. The depositary holding certificates, bonds, securities or
instruments which earn interest shall be bound to collect the latter
when it becomes due, and to take such steps as may be necessary in
order that the securities may preserve their value and the rights
corresponding to them according to law.
The above provision shall not apply to contracts for the rent of safety
deposit boxes.
and then concluded that "[c]learly, the defendant-appellee is not under any
duty to maintain the contents of the box. The stipulation absolving the
defendant-appellee from liability is in accordance with the nature of the
contract of lease and cannot be regarded as contrary to law, public order and
public policy." 12 The appellate court was quick to add, however, that under
the contract of lease of the safety deposit box, respondent Bank is not
completely free from liability as it may still be made answerable in case
unauthorized persons enter into the vault area or when the rented box is
forced open. Thus, as expressly provided for in stipulation number 8 of the
contract in question:
8. The Bank shall use due diligence that no unauthorized person shall
be admitted to any rented safe and beyond this, the Bank will not be
responsible for the contents of any safe rented from it. 13
Its motion for reconsideration 14 having been denied in the respondent Court's
Resolution of 28 August 1989, 15petitioner took this recourse under Rule 45 of the
Rules of Court and urges Us to review and set aside the respondent Court's ruling.
Petitioner avers that both the respondent Court and the trial court (a) did not properly
and legally apply the correct law in this case, (b) acted with grave abuse of discretion
or in excess of jurisdiction amounting to lack thereof and (c) set a precedent that is
contrary to, or is a departure from precedents adhered to and affirmed by decisions
of this Court and precepts in American jurisprudence adopted in the Philippines. It
reiterates the arguments it had raised in its motion to reconsider the trial court's
decision, the brief submitted to the respondent Court and the motion to reconsider
the latter's decision. In a nutshell, petitioner maintains that regardless of
nomenclature, the contract for the rent of the safety deposit box (Exhibit "2") is
actually a contract of deposit governed by Title XII, Book IV of the Civil Code of the
Philippines. 16 Accordingly, it is claimed that the respondent Bank is liable for the loss
of the certificates of title pursuant to Article 1972 of the said Code which provides:
Art. 1972. The depositary is obliged to keep the thing safely and to
return it, when required, to the depositor, or to his heirs and
successors, or to the person who may have been designated in the
contract. His responsibility, with regard to the safekeeping and the
loss of the thing, shall be governed by the provisions of Title I of this
Book.
If the deposit is gratuitous, this fact shall be taken into account in
determining the degree of care that the depositary must observe.
Petitioner then quotes a passage from American Jurisprudence 17 which is
supposed to expound on the prevailing rule in the United States, to wit:
The prevailing rule appears to be that where a safe-deposit company
leases a safe-deposit box or safe and the lessee takes possession of
the box or safe and places therein his securities or other valuables,
the relation of bailee and bail or is created between the parties to the
transaction as to such securities or other valuables; the fact that the
safe-deposit company does not know, and that it is not expected that
it shall know, the character or description of the property which is
deposited in such safe-deposit box or safe does not change that
relation. That access to the contents of the safe-deposit box can be
had only by the use of a key retained by the lessee ( whether it is the
sole key or one to be used in connection with one retained by the
lessor) does not operate to alter the foregoing rule. The argument that
there is not, in such a case, a delivery of exclusive possession and
control to the deposit company, and that therefore the situation is
entirely different from that of ordinary bailment, has been generally
rejected by the courts, usually on the ground that as possession must
be either in the depositor or in the company, it should reasonably be
considered as in the latter rather than in the former, since the
company is, by the nature of the contract, given absolute control of
access to the property, and the depositor cannot gain access thereto
without the consent and active participation of the company. . . .
(citations omitted).
and a segment from Words and Phrases 18 which states that a contract for
the rental of a bank safety deposit box in consideration of a fixed amount at
stated periods is a bailment for hire.
Petitioner further argues that conditions 13 and 14 of the questioned contract are
contrary to law and public policy and should be declared null and void. In support
thereof, it cites Article 1306 of the Civil Code which provides that parties to a contract
may establish such stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good customs, public
order or public policy.
After the respondent Bank filed its comment, this Court gave due course to the
petition and required the parties to simultaneously submit their respective
Memoranda.
The petition is partly meritorious.
We agree with the petitioner's contention that the contract for the rent of the safety
deposit box is not an ordinary contract of lease as defined in Article 1643 of the Civil
Code. However, We do not fully subscribe to its view that the same is a contract of
deposit that is to be strictly governed by the provisions in the Civil Code on
deposit; 19the contract in the case at bar is a special kind of deposit. It cannot be
characterized as an ordinary contract of lease under Article 1643 because the full
and absolute possession and control of the safety deposit box was not given to the
joint renters — the petitioner and the Pugaos. The guard key of the box remained
with the respondent Bank; without this key, neither of the renters could open the box.
On the other hand, the respondent Bank could not likewise open the box without the
renter's key. In this case, the said key had a duplicate which was made so that both
renters could have access to the box.
Hence, the authorities cited by the respondent Court 20 on this point do not apply.
Neither could Article 1975, also relied upon by the respondent Court, be invoked as
an argument against the deposit theory. Obviously, the first paragraph of such
provision cannot apply to a depositary of certificates, bonds, securities or instruments
which earn interest if such documents are kept in a rented safety deposit box. It is
clear that the depositary cannot open the box without the renter being present.
We observe, however, that the deposit theory itself does not altogether find
unanimous support even in American jurisprudence. We agree with the petitioner
that under the latter, the prevailing rule is that the relation between a bank renting out
safe-deposit boxes and its customer with respect to the contents of the box is that of
a bail or and bailee, the bailment being for hire and mutual benefit. 21 This is just the
prevailing view because:
There is, however, some support for the view that the relationship in
question might be more properly characterized as that of landlord and
tenant, or lessor and lessee. It has also been suggested that it should
be characterized as that of licensor and licensee. The relation
between a bank, safe-deposit company, or storage company, and the
renter of a safe-deposit box therein, is often described as contractual,
express or implied, oral or written, in whole or in part. But there is
apparently no jurisdiction in which any rule other than that applicable
to bailments governs questions of the liability and rights of the parties
in respect of loss of the contents of safe-deposit boxes. 22 (citations
omitted)
In the context of our laws which authorize banking institutions to rent out safety
deposit boxes, it is clear that in this jurisdiction, the prevailing rule in the United
States has been adopted. Section 72 of the General Banking Act23 pertinently
provides:
Sec. 72. In addition to the operations specifically authorized
elsewhere in this Act, banking institutions other than building and loan
associations may perform the following services:
(a) Receive in custody funds, documents, and valuable
objects, and rent safety deposit boxes for the
safeguarding of such effects.
xxx xxx xxx
The banks shall perform the services permitted under subsections (a),
(b) and (c) of this section asdepositories or as agents. . .
. 24 (emphasis supplied)
Note that the primary function is still found within the parameters of a contract
of deposit, i.e., the receiving in custody of funds, documents and other valuable
objects for safekeeping. The renting out of the safety deposit boxes is not
independent from, but related to or in conjunction with, this principal function. A
contract of deposit may be entered into orally or in writing 25 and, pursuant to Article
1306 of the Civil Code, the parties thereto may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not contrary
to law, morals, good customs, public order or public policy. The depositary's
responsibility for the safekeeping of the objects deposited in the case at bar is
governed by Title I, Book IV of the Civil Code. Accordingly, the depositary would be
liable if, in performing its obligation, it is found guilty of fraud, negligence, delay or
contravention of the tenor of the agreement. 26 In the absence of any stipulation
prescribing the degree of diligence required, that of a good father of a family is to be
observed. 27 Hence, any stipulation exempting the depositary from any liability arising
from the loss of the thing deposited on account of fraud, negligence or delay would
be void for being contrary to law and public policy. In the instant case, petitioner
maintains that conditions 13 and 14 of the questioned contract of lease of the safety
deposit box, which read:
13. The bank is not a depositary of the contents of the safe and it has
neither the possession nor control of the same.
14. The bank has no interest whatsoever in said contents, except
herein expressly provided, and it assumes absolutely no liability in
connection therewith. 28
are void as they are contrary to law and public policy. We find Ourselves in
agreement with this proposition for indeed, said provisions are inconsistent
with the respondent Bank's responsibility as a depositary under Section 72(a)
of the General Banking Act. Both exempt the latter from any liability except as
contemplated in condition 8 thereof which limits its duty to exercise
reasonable diligence only with respect to who shall be admitted to any rented
safe, to wit:
8. The Bank shall use due diligence that no unauthorized person shall
be admitted to any rented safe and beyond this, the Bank will not be
responsible for the contents of any safe rented from it. 29
Furthermore, condition 13 stands on a wrong premise and is contrary to the
actual practice of the Bank. It is not correct to assert that the Bank has
neither the possession nor control of the contents of the box since in fact, the
safety deposit box itself is located in its premises and is under its absolute
control; moreover, the respondent Bank keeps the guard key to the said box.
As stated earlier, renters cannot open their respective boxes unless the Bank
cooperates by presenting and using this guard key. Clearly then, to the extent
above stated, the foregoing conditions in the contract in question are void and
ineffective. It has been said:
With respect to property deposited in a safe-deposit box by a
customer of a safe-deposit company, the parties, since the relation is
a contractual one, may by special contract define their respective
duties or provide for increasing or limiting the liability of the deposit
company, provided such contract is not in violation of law or public
policy. It must clearly appear that there actually was such a special
contract, however, in order to vary the ordinary obligations implied by
law from the relationship of the parties; liability of the deposit company
will not be enlarged or restricted by words of doubtful meaning. The
company, in renting
safe-deposit boxes, cannot exempt itself from liability for loss of the
contents by its own fraud or negligence or that of its agents or
servants, and if a provision of the contract may be construed as an
attempt to do so, it will be held ineffective for the purpose. Although it
has been held that the lessor of a safe-deposit box cannot limit its
liability for loss of the contents thereof through its own negligence, the
view has been taken that such a lessor may limits its liability to some
extent by agreement or stipulation. 30 (citations omitted)
Thus, we reach the same conclusion which the Court of Appeals arrived at, that is,
that the petition should be dismissed, but on grounds quite different from those relied
upon by the Court of Appeals. In the instant case, the respondent Bank's exoneration
cannot, contrary to the holding of the Court of Appeals, be based on or proceed from
a characterization of the impugned contract as a contract of lease, but rather on the
fact that no competent proof was presented to show that respondent Bank was
aware of the agreement between the petitioner and the Pugaos to the effect that the
certificates of title were withdrawable from the safety deposit box only upon both
parties' joint signatures, and that no evidence was submitted to reveal that the loss of
the certificates of title was due to the fraud or negligence of the respondent Bank.
This in turn flows from this Court's determination that the contract involved was one
of deposit. Since both the petitioner and the Pugaos agreed that each should have
one (1) renter's key, it was obvious that either of them could ask the Bank for access
to the safety deposit box and, with the use of such key and the Bank's own guard
key, could open the said box, without the other renter being present.
Since, however, the petitioner cannot be blamed for the filing of the complaint and no
bad faith on its part had been established, the trial court erred in condemning the
petitioner to pay the respondent Bank attorney's fees. To this extent, the Decision
(dispositive portion) of public respondent Court of Appeals must be modified.
WHEREFORE, the Petition for Review is partially GRANTED by deleting the award
for attorney's fees from the 4 July 1989 Decision of the respondent Court of Appeals
in CA-G.R. CV No. 15150. As modified, and subject to the pronouncement We made
above on the nature of the relationship between the parties in a contract of lease of
safety deposit boxes, the dispositive portion of the said Decision is hereby
AFFIRMED and the instant Petition for Review is otherwise DENIED for lack of merit.

No pronouncement as to costs.

SO ORDERED.
G.R. No. 102970 May 13, 1993
LUZAN SIA, petitioner,
vs.
COURT OF APPEALS and SECURITY BANK and TRUST
COMPANY, respondents.
Asuncion Law Offices for petitioner.
Cauton, Banares, Carpio & Associates for private respondent.
DAVIDE, JR., J.:
The Decision of public respondent Court of Appeals in CA-G.R. CV No. 26737,
promulgated on 21 August 1991, 1reversing and setting aside the Decision, dated 19
February 1990, 2 of Branch 47 of the Regional Trial Court (RTC) of Manila in Civil
Case No. 87-42601, entitled "LUZAN SIA vs. SECURITY BANK and TRUST CO.," is
challenged in this petition for review on certiorari under Rule 45 of the Rules Court.
Civil Case No. 87-42601 is an action for damages arising out of the destruction or
loss of the stamp collection of the plaintiff (petitioner herein) contained in Safety
Deposit Box No. 54 which had been rented from the defendant pursuant to a contract
denominated as a Lease Agreement. 3 Judgment therein was rendered in favor of
the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in
favor of the plaintiff and against the defendant, Security Bank & Trust
Company, ordering the defendant bank to pay the plaintiff the sum of
—
a) Twenty Thousand Pesos (P20,000.00), Philippine Currency, as
actual damages;
b) One Hundred Thousand Pesos (P100,000.00), Philippine Currency,
as moral damages; and
c) Five Thousand Pesos (P5,000.00), Philippine Currency, as
attorney's fees and legal expenses.
The counterclaim set up by the defendant are hereby dismissed for
lack of merit.
No costs.
SO ORDERED. 4
The antecedent facts of the present controversy are summarized by the public
respondent in its challenged decision as follows:
The plaintiff rented on March 22, 1985 the Safety Deposit Box No. 54
of the defendant bank at its Binondo Branch located at the Fookien
Times Building, Soler St., Binondo, Manila wherein he placed his
collection of stamps. The said safety deposit box leased by the
plaintiff was at the bottom or at the lowest level of the safety deposit
boxes of the defendant bank at its aforesaid Binondo Branch.
During the floods that took place in 1985 and 1986, floodwater
entered into the defendant bank's premises, seeped into the safety
deposit box leased by the plaintiff and caused, according to the
plaintiff, damage to his stamps collection. The defendant bank
rejected the plaintiff's claim for compensation for his damaged stamps
collection, so, the plaintiff instituted an action for damages against the
defendant bank.
The defendant bank denied liability for the damaged stamps collection
of the plaintiff on the basis of the "Rules and Regulations Governing
the Lease of Safe Deposit Boxes" (Exhs. "A-1", "1-A"), particularly
paragraphs 9 and 13, which reads (sic):
"9. The liability of the Bank by reason of the lease, is limited to the
exercise of the diligence to prevent the opening of the safe by any
person other than the Renter, his authorized agent or legal
representative;
xxx xxx xxx
"13. The Bank is not a depository of the contents of the safe and it
has neither the possession nor the control of the same. The Bank has
no interest whatsoever in said contents, except as herein provided,
and it assumes absolutely no liability in connection therewith."
The defendant bank also contended that its contract with the plaintiff
over safety deposit box No. 54 was one of lease and not of deposit
and, therefore, governed by the lease agreement (Exhs. "A", "L")
which should be the applicable law; that the destruction of the
plaintiff's stamps collection was due to a calamity beyond obligation
on its part to notify the plaintiff about the floodwaters that inundated its
premises at Binondo branch which allegedly seeped into the safety
deposit box leased to the plaintiff.
The trial court then directed that an ocular inspection on (sic) the
contents of the safety deposit box be conducted, which was done on
December 8, 1988 by its clerk of court in the presence of the parties
and their counsels. A report thereon was then submitted on December
12, 1988 (Records, p. 98-A) and confirmed in open court by both
parties thru counsel during the hearing on the same date (Ibid., p.
102) stating:
"That the Safety Box Deposit No. 54 was opened by
both plaintiff Luzan Sia and the Acting Branch Manager
Jimmy B. Ynion in the presence of the undersigned,
plaintiff's and defendant's counsel. Said Safety Box
when opened contains two albums of different sizes
and thickness, length and width and a tin box with
printed word 'Tai Ping Shiang Roast Pork in pieces with
Chinese designs and character."
Condition of the above-stated Items —
"Both albums are wet, moldy and badly damaged.
1. The first album measures 10 1/8 inches in length, 8 inches in width
and 3/4 in thick. The leaves of the album are attached to every page
and cannot be lifted without destroying it, hence the stamps contained
therein are no longer visible.
2. The second album measure 12 1/2 inches in length, 9 3/4 in width 1
inch thick. Some of its pages can still be lifted. The stamps therein
can still be distinguished but beyond restoration. Others have lost its
original form.
3. The tin box is rusty inside. It contains an album with several pieces
of papers stuck up to the cover of the box. The condition of the album
is the second abovementioned album." 5
The SECURITY BANK AND TRUST COMPANY, hereinafter referred to as SBTC,
appealed the trial court's decision to the public respondent Court of Appeals. The
appeal was docketed as CA-G.R. CV No. 26737.
In urging the public respondent to reverse the decision of the trial court, SBTC
contended that the latter erred in (a) holding that the lease agreement is a contract of
adhesion; (b) finding that the defendant had failed to exercise the required diligence
expected of a bank in maintaining the safety deposit box; (c) awarding to the plaintiff
actual damages in the amount of P20,000.00, moral damages in the amount of
P100,000.00 and attorney's fees and legal expenses in the amount of P5,000.00;
and (d) dismissing the counterclaim.
On 21 August 1991, the respondent promulgated its decision the dispositive portion
of which reads:
 WHEREFORE, the decision appealed from is hereby REVERSED
and instead the appellee's complaint is hereby DISMISSED. The
appellant bank's counterclaim is likewise DISMISSED. No costs. 6
In reversing the trial court's decision and absolving SBTC from liability, the public
respondent found and ruled that:
a) the fine print in the "Lease Agreement " (Exhibits "A" and "1" ) constitutes the
terms and conditions of the contract of lease which the appellee (now petitioner) had
voluntarily and knowingly executed with SBTC;
b) the contract entered into by the parties regarding Safe Deposit Box No. 54 was
not a contract of deposit wherein the bank became a depositary of the subject stamp
collection; hence, as contended by SBTC, the provisions of Book IV, Title XII of the
Civil Code on deposits do not apply;
c) The following provisions of the questioned lease agreement of the safety deposit
box limiting SBTC's liability:
9. The liability of the bank by reason of the lease, is limited to the
exercise of the diligence to prevent the opening of the Safe by any
person other than the Renter, his authorized agent or legal
representative.
xxx xxx xxx
13. The bank is not a depository of the contents of the Safe and it has
neither the possession nor the control of the same. The Bank has no
interest whatsoever in said contents, except as herein provided, and it
assumes absolutely no liability in connection therewith.
are valid since said stipulations are not contrary to law, morals, good customs, public
order or public policy; and
d) there is no concrete evidence to show that SBTC failed to exercise the required
diligence in maintaining the safety deposit box; what was proven was that the floods
of 1985 and 1986, which were beyond the control of SBTC, caused the damage to
the stamp collection; said floods were fortuitous events which SBTC should not be
held liable for since it was not shown to have participated in the aggravation of the
damage to the stamp collection; on the contrary, it offered its services to secure the
assistance of an expert in order to save most of the stamps, but the appellee
refused; appellee must then bear the lose under the principle of "res perit domino."
Unsuccessful in his bid to have the above decision reconsidered by the public
respondent, 7 petitioner filed the instant petition wherein he contends that:
I
IT WAS A GRAVE ERROR OR AN ABUSE OF DISCRETION ON
THE PART OF THE RESPONDENT COURT WHEN IT RULED THAT
RESPONDENT SBTC DID NOT FAIL TO EXERCISE THE
REQUIRED DILIGENCE IN MAINTAINING THE SAFETY DEPOSIT
BOX OF THE PETITIONER CONSIDERING THAT SUBSTANTIAL
EVIDENCE EXIST (sic) PROVING THE CONTRARY.
II
THE RESPONDENT COURT SERIOUSLY ERRED IN
EXCULPATING PRIVATE RESPONDENT FROM ANY LIABILITY
WHATSOEVER BY REASON OF THE PROVISIONS OF
PARAGRAPHS 9 AND 13 OF THE AGREEMENT (EXHS. "A" AND
"A-1").
III
THE RESPONDENT COURT SERIOUSLY ERRED IN NOT
UPHOLDING THE AWARDS OF THE TRIAL COURT FOR ACTUAL
AND MORAL DAMAGES, INCLUDING ATTORNEY'S FEES AND
LEGAL EXPENSES, IN FAVOR OF THE PETITIONER. 8
We subsequently gave due course the petition and required both parties to submit
their respective memoranda, which they complied with. 9
Petitioner insists that the trial court correctly ruled that SBTC had failed "to exercise
the required diligence expected of a bank maintaining such safety deposit box . . . in
the light of the environmental circumstance of said safety deposit box after the floods
of 1985 and 1986." He argues that such a conclusion is supported by the evidence
on record, to wit: SBTC was fully cognizant of the exact location of the safety deposit
box in question; it knew that the premises were inundated by floodwaters in 1985
and 1986 and considering that the bank is guarded twenty-four (24) hours a day , it is
safe to conclude that it was also aware of the inundation of the premises where the
safety deposit box was located; despite such knowledge, however, it never bothered
to inform the petitioner of the flooding or take any appropriate measures to insure the
safety and good maintenance of the safety deposit box in question.
SBTC does not squarely dispute these facts; rather, it relies on the rule that findings
of facts of the Court of Appeals, when supported by substantial exidence, are not
reviewable on appeal by certiorari. 10
The foregoing rule is, of course, subject to certain exceptions such as when there
exists a disparity between the factual findings and conclusions of the Court of
Appeals and the trial court. 11 Such a disparity obtains in the present case.
As We see it, SBTC's theory, which was upheld by the public respondent, is that the
"Lease Agreement " covering Safe Deposit Box No. 54 (Exhibit "A and "1") is just
that — a contract of lease — and not a contract of deposit, and that paragraphs 9
and 13 thereof, which expressly limit the bank's liability as follows:
9. The liability of the bank by reason of the lease, is limited to the
exercise of the diligence to prevent the opening of the Safe by any
person other than the Renter, his autliorized agent or legal
representative;
xxx xxx xxx
13. The bank is not a depository of the contents of the Safe and it has
neither the possession nor the control of the same. The Bank has no
interest whatsoever said contents, except as herein provided, and it
assumes absolutely no liability in connection therewith. 12
are valid and binding upon the parties. In the challenged decision, the public
respondent further avers that even without such a limitation of liability, SBTC should
still be absolved from any responsibility for the damage sustained by the petitioner as
it appears that such damage was occasioned by a fortuitous event and that the
respondent bank was free from any participation in the aggravation of the injury.
We cannot accept this theory and ratiocination. Consequently, this Court finds the
petition to be impressed with merit.
In the recent case CA Agro-Industrial Development Corp. vs. Court of
Appeals, 13 this Court explicitly rejected the contention that a contract for the use of a
safety deposit box is a contract of lease governed by Title VII, Book IV of the Civil
Code. Nor did We fully subscribe to the view that it is a contract of deposit to be
strictly governed by the Civil Code provision on deposit; 14 it is, as We declared, a
special kind of deposit. The prevailing rule in American jurisprudence — that the
relation between a bank renting out safe deposit boxes and its customer with respect
to the contents of the box is that of a bailor and bailee, the bailment for hire and
mutual benefit 15 — has been adopted in this jurisdiction, thus:
In the context of our laws which authorize banking institutions to rent
out safety deposit boxes, it is clear that in this jurisdiction, the
prevailing rule in the United States has been adopted. Section 72 of
the General Banking Act [R.A. 337, as amended] pertinently provides:
"Sec. 72. In addition to the operations specifically authorized
elsewhere in this Act, banking institutions other than building and loan
associations may perform the following services:
(a) Receive in custody funds, documents, and valuable
objects, and rent safety deposit boxes for the
safequarding of such effects.
xxx xxx xxx
The banks shall perform the services permitted under subsections (a),
(b) and (c) of this section asdepositories or as agents. . . ."(emphasis
supplied)
Note that the primary function is still found within the parameters of a
contract of deposit, i.e., the receiving in custody of funds, documents
and other valuable objects for safekeeping. The renting out of the
safety deposit boxes is not independent from, but related to or in
conjunction with, this principal function. A contract of deposit may be
entered into orally or in writing (Art. 1969, Civil Code] and, pursuant to
Article 1306 of the Civil Code, the parties thereto may establish such
stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good
customs, public order or public policy. The depositary's responsibility
for the safekeeping of the objects deposited in the case at bar is
governed by Title I, Book IV of the Civil Code. Accordingly, the
depositary would be liable if, in performing its obligation, it is found
guilty of fraud, negligence, delay or contravention of the tenor of the
agreement [Art. 1170, id.]. In the absence of any stipulation
prescribing the degree of diligence required, that of a good father of a
family is to be observed [Art. 1173, id.]. Hence, any stipulation
exempting the depositary from any liability arising from the loss of the
thing deposited on account of fraud, negligence or delay would be
void for being contrary to law and public policy. In the instant case,
petitioner maintains that conditions 13 and l4 of the questioned
contract of lease of the safety deposit box, which read:
"13. The bank is a depositary of the contents of the safe and it has
neither the possession nor control of the same.
"14. The bank has no interest whatsoever in said contents, except as
herein expressly provided, and it assumes absolutely no liability in
connection therewith."
are void as they are contrary to law and public policy. We find
Ourselves in agreement with this proposition for indeed, said
provisions are inconsistent with the respondent Bank's responsibility
as a depositary under Section 72 (a) of the General Banking Act. Both
exempt the latter from any liability except as contemplated in condition
8 thereof which limits its duty to exercise reasonable diligence only
with respect to who shall be admitted to any rented safe, to wit:
"8. The Bank shall use due diligence that no
unauthorized person shall be admitted to any rented
safe and beyond this, the Bank will not be responsible
for the contents of any safe rented from it."
Furthermore condition 13 stands on a wrong premise and is contrary
to the actual practice of the Bank. It is not correct to assert that the
Bank has neither the possession nor control of the contents of the box
since in fact, the safety deposit box itself is located in its premises and
is under its absolute control; moreover, the respondent Bank keeps
the guard key to the said box. As stated earlier, renters cannot open
their respective boxes unless the Bank cooperates by presenting and
using this guard key. Clearly then, to the extent above stated, the
foregoing conditions in the contract in question are void and
ineffective. It has been said:
"With respect to property deposited in a safe-deposit
box by a customer of a safe-deposit company, the
parties, since the relation is a contractual one, may by
special contract define their respective duties or
provide for increasing or limiting the liability of the
deposit company, provided such contract is not in
violation of law or public policy. It must clearly appear
that there actually was such a special contract,
however, in order to vary the ordinary obligations
implied by law from the relationship of the parties;
liability of the deposit company will not be enlarged or
restricted by words of doubtful meaning. The company,
in renting safe-deposit boxes, cannot exempt itself from
liability for loss of the contents by its own fraud or
 negligence or that, of its agents or servants, and if a
provision of the contract may be construed as an
attempt to do so, it will be held ineffective for the
purpose. Although it has been held that the lessor of a
safe-deposit box cannot limit its liability for loss of the
contents thereof through its own negligence, the view
has been taken that such a lessor may limit its liability
to some extent by agreement or stipulation ."[10 AM
JUR 2d., 466]. (citations omitted) 16
It must be noted that conditions No. 13 and No. 14 in the Contract of Lease of Safety
Deposit Box in CA Agro-Industrial Development Corp. are strikingly similar to
condition No. 13 in the instant case. On the other hand, both condition No. 8 in CA
Agro-Industrial Development Corp. and condition No. 9 in the present case limit the
scope of the exercise of due diligence by the banks involved to merely seeing to it
that only the renter, his authorized agent or his legal representative should open or
have access to the safety deposit box. In short, in all other situations, it would seem
that SBTC is not bound to exercise diligence of any kind at all. Assayed in the light of
Our aforementioned pronouncements in CA Agro-lndustrial Development Corp., it is
not at all difficult to conclude that both conditions No. 9 and No. 13 of the "Lease
Agreement" covering the safety deposit box in question (Exhibits "A" and "1") must
be stricken down for being contrary to law and public policy as they are meant to
exempt SBTC from any liability for damage, loss or destruction of the contents of the
safety deposit box which may arise from its own or its agents' fraud, negligence or
delay. Accordingly, SBTC cannot take refuge under the said conditions.
Public respondent further postulates that SBTC cannot be held responsible for the
destruction or loss of the stamp collection because the flooding was a fortuitous
event and there was no showing of SBTC's participation in the aggravation of the
loss or injury. It states:
Article 1174 of the Civil Code provides:
"Except in cases expressly specified by the law, or
when it is otherwise declared by stipulation, or when
the nature of the obligation requires the assumption of
risk, no person shall be responsible for those events
which could not be foreseen, or which, though
foreseen, were inevitable.'
In its dissertation of the phrase "caso fortuito" the Enciclopedia
Jurisdicada Española 17 says: "In a legal sense and, consequently,
also in relation to contracts, a "caso fortuito" prevents (sic) 18 the
following essential characteristics: (1) the cause of the unforeseen
ands unexpected occurrence, or of the failure of the debtor to comply
with his obligation, must be independent of the human will; (2) it must
be impossible to foresee the event which constitutes the "caso
fortuito," or if it can be foreseen, it must be impossible to avoid; (3) the
occurrence must be such as to render it impossible for one debtor to
fulfill his obligation in a normal manner; and (4) the obligor must be
free from any participation in the aggravation of the injury resulting to
the creditor." (cited in Servando vs. Phil., Steam Navigation
Co., supra). 19
Here, the unforeseen or unexpected inundating floods were
independent of the will of the appellant bank and the latter was not
shown to have participated in aggravating damage (sic) to the stamps
collection of the appellee. In fact, the appellant bank offered its
services to secure the assistance of an expert to save most of the
then good stamps but the appelle refused and let (sic) these
recoverable stamps inside the safety deposit box until they were
ruined. 20
Both the law and authority cited are clear enough and require no further elucidation.
Unfortunately, however, the public respondent failed to consider that in the instant
case, as correctly held by the trial court, SBTC was guilty of negligence. The facts
constituting negligence are enumerated in the petition and have been summarized in
this ponencia. SBTC's negligence aggravated the injury or damage to the stamp
collection. SBTC was aware of the floods of 1985 and 1986; it also knew that the
floodwaters inundated the room where Safe Deposit Box No. 54 was located. In view
thereof, it should have lost no time in notifying the petitioner in order that the box
could have been opened to retrieve the stamps, thus saving the same from further
deterioration and loss. In this respect, it failed to exercise the reasonable care and
prudence expected of a good father of a family, thereby becoming a party to the
aggravation of the injury or loss. Accordingly, the aforementioned fourth
characteristic of a fortuitous event is absent Article 1170 of the Civil Code, which
reads:

Those who in the performance of their obligation are guilty of fraud,

negligence, or delay, and those who in any manner contravene the
tenor thereof, are liable for damages,

thus comes to the succor of the petitioner. The destruction or loss of the stamp
collection which was, in the language of the trial court, the "product of 27 years of
patience and diligence" 21 caused the petitioner pecuniary loss; hence, he must be
compensated therefor.

We cannot, however, place Our imprimatur on the trial court's award of moral
damages. Since the relationship between the petitioner and SBTC is based on a
contract, either of them may be held liable for moral damages for breach thereof only
if said party had acted fraudulently or in bad faith. 22 There is here no proof of fraud
or bad faith on the part of SBTC.

WHEREFORE, the instant petition is hereby GRANTED. The challenged Decision

and Resolution of the public respondent Court of Appeals of 21 August 1991 and 21
November 1991, respectively, in CA-G.R. CV No. 26737, are hereby SET ASIDE
and the Decision of 19 February 1990 of Branch 47 of the Regional Trial Court of
Manila in Civil Case No. 87-42601 is hereby REINSTATED in full, except as to the
award of moral damages which is hereby set aside.

Costs against the private respondent.

SO ORDERED.
G.R. No. 4015 August 24, 1908
ANGEL JAVELLANA, plaintiff-appellee,
vs.
JOSE LIM, ET AL., defendants-appellants.
R. Zaldarriaga for appellants.
B. Montinola for appellee.
TORRES, J.:
The attorney for the plaintiff, Angel Javellana, file a complaint on the 30th of October,
1906, with the Court of First Instance of Iloilo, praying that the defendants, Jose Lim
and Ceferino Domingo Lim, he sentenced to jointly and severally pay the sum of
P2,686.58, with interest thereon at the rate of 15 per cent per annum from the 20th of
January, 1898, until full payment should be made, deducting from the amount of
interest due the sum of P1,102.16, and to pay the costs of the proceedings.
Authority from the court having been previously obtained, the complaint was
amended on the 10th of January, 1907; it was then alleged, on the 26th of May,
1897, the defendants executed and subscribed a document in favor of the plaintiff
reading as follows:
We have received from Angel Javellana, as a deposit without interest, the sum of two
thousand six hundred and eighty-six cents of pesos fuertes, which we will return to
the said gentleman, jointly and severally, on the 20th of January, 1898. — Jaro, 26th
of May, 1897. — Signed Jose Lim. — Signed: Ceferino Domingo Lim.
That, when the obligation became due, the defendants begged the plaintiff for an
extension of time for the payment thereof, building themselves to pay interest at the
rate of 15 per cent on the amount of their indebtedness, to which the plaintiff
acceded; that on the 15th of May, 1902, the debtors paid on account of interest due
the sum of P1,000 pesos, with the exception of either capital or interest, had thereby
been subjected to loss and damages.
A demurrer to the original complaint was overruled, and on the 4th of January, 1907,
the defendants answered the original complaint before its amendment, setting forth
that they acknowledged the facts stated in Nos. 1 and 2 of the complaint; that they
admitted the statements of the plaintiff relative to the payment of 1,102.16 pesos
made on the 15th of November, 1902, not, however, as payment of interest on the
amount stated in the foregoing document, but on account of the principal, and denied
that there had been any agreement as to an extension of the time for payment and
the payment of interest at the rate of 15 per cent per annum as alleged in paragraph
3 of the complaint, and also denied all the other statements contained therein.
As a counterclaim, the defendants alleged that they had paid to the plaintiff sums
which, together with the P1,102.16 acknowledged in the complaint, aggregated the
total sum of P5,602.16, and that, deducting therefrom the total sum of P2,686.58
stated in the document transcribed in the complaint, the plaintiff still owed the
defendants P2,915.58; therefore, they asked that judgment be entered absolving
them, and sentencing the plaintiff to pay them the sum of P2,915.58 with the costs.
Evidence was adduced by both parties and, upon their exhibits, together with an
account book having been made of record, the court below rendered judgment on
the 15th of January, 1907, in favor of the plaintiff for the recovery of the sum of
P5,714.44 and costs.
The defendants excepted to the above decision and moved for a new trial. This
motion was overruled and was also excepted to by them; the bill of exceptions
presented by the appellants having been approved, the same was in due course
submitted to this court.
The document of indebtedness inserted in the complaint states that the plaintiff left
on deposit with the defendants a given sum of money which they were jointly and
severally obliged to return on a certain date fixed in the document; but that,
nevertheless, when the document appearing as Exhibits 2, written in the Visayan
dialect and followed by a translation into Spanish was executed, it was
acknowledged, at the date thereof, the 15th of November, 1902, that the amount
deposited had not yet been returned to the creditor, whereby he was subjected to
losses and damages amounting to 830 pesos since the 20th of January, 1898, when
the return was again stipulated with the further agreement that the amount deposited
should bear interest at the rate of 15 per cent per annum, from the aforesaid date of
January 20, and that the 1,000 pesos paid to the depositor on the 15th of May, 1900,
according to the receipt issued by him to the debtors, would be included, and that the
said rate of interest would obtain until the debtors on the 20th of May, 1897, it is
called a deposit consisted, and they could have accomplished the return agreed
upon by the delivery of a sum equal to the one received by them. For this reason it
must be understood that the debtors were lawfully authorized to make use of the
amount deposited, which they have done, as subsequent shown when asking for an
extension of the time for the return thereof, inasmuch as, acknowledging that they
have subjected the letter, their creditor, to losses and damages for not complying
with what had been stipulated, and being conscious that they had used, for their own
profit and gain, the money that they received apparently as a deposit, they engaged
to pay interest to the creditor from the date named until the time when the refund
should be made. Such conduct on the part of the debtors is unquestionable evidence
that the transaction entered into between the interested parties was not a deposit,
but a real contract of loan.
Article 1767 of the Civil Code provides that —
The depository can not make use of the thing deposited without the express
permission of the depositor.
Otherwise he shall be liable for losses and damages.
Article 1768 also provides that —
When the depository has permission to make use of the thing deposited, the
contract loses the character of a deposit and becomes a loan or bailment.
The permission shall not be presumed, and its existence must be proven.
When on one of the latter days of January, 1898, Jose Lim went to the office of the
creditor asking for an extension of one year, in view of the fact the money was scare,
and because neither himself nor the other defendant were able to return the amount
deposited, for which reason he agreed to pay interest at the rate of 15 per cent per
annum, it was because, as a matter of fact, he did not have in his possession the
amount deposited, he having made use of the same in his business and for his own
profit; and the creditor, by granting them the extension, evidently confirmed the
express permission previously given to use and dispose of the amount stated as
having bee deposited, which, in accordance with the loan, to all intents and purposes
gratuitously, until the 20th of January, 1898, and from that dated with interest at 15
per cent per annum until its full payment, deducting from the total amount of interest
the sum of 1,000 pesos, in accordance with the provisions of article 1173 of the Civil
Code.
Notwithstanding that it does not appear that Jose Lim signed the document (Exhibit
2) executed in the presence of three witnesses on the 15th of November, 1902, by
Ceferino Domingo Lim on behalf of himself and the former, nevertheless, the said
document has not been contested as false, either by a criminal or by a civil
proceeding, nor has any doubt been cast upon the authenticity of the signatures of
the witnesses who attested the execution of the same; and from the evidence in the
case one is sufficiently convinced that the said Jose Lim was perfectly aware of and
authorized his joint codebtor to liquidate the interest, to pay the sum of 1,000 pesos,
on account thereof, and to execute the aforesaid document No. 2. A true ratification
of the original document of deposit was thus made, and not the least proof is shown
in the record that Jose Lim had ever paid the whole or any part of the capital stated
in the original document, Exhibit 1.
If the amount, together with interest claimed in the complaint, less 1,000 pesos
appears as fully established, such is not the case with the defendant's counterclaim
for P5,602.16, because the existence and certainty of said indebtedness imputed to
the plaintiff has not been proven, and the defendants, who call themselves creditors
for the said amount have not proven in a satisfactory manner that the plaintiff had
received partial payments on account of the same; the latter alleges with good
reason, that they should produce the receipts which he may have issued, and which
he did issue whenever they paid him any money on account. The plaintiffs allegation
that the two amounts of 400 and 1,200 pesos, referred to in documents marked "C"
and "D" offered in evidence by the defendants, had been received from Ceferino
Domingo Lim on account of other debts of his, has not been contradicted, and the
fact that in the original complaint the sum of 1,102.16 pesos, was expressed in lieu of
1,000 pesos, the only payment made on account of interest on the amount deposited
according to documents No. 2 and letter "B" above referred to, was due to a mistake.
Moreover, for the reason above set forth it may, as a matter of course, be inferred
that there was no renewal of the contract deposited converted into a loan, because,
as has already been stated, the defendants received said amount by virtue of real
loan contract under the name of a deposit, since the so-called bailees were forthwith
authorized to dispose of the amount deposited. This they have done, as has been
clearly shown.

The original joint obligation contracted by the defendant debtor still exists, and it has
not been shown or proven in the proceedings that the creditor had released Joe Lim
from complying with his obligation in order that he should not be sued for or
sentenced to pay the amount of capital and interest together with his codebtor,
Ceferino Domingo Lim, because the record offers satisfactory evidence against the
pretension of Jose Lim, and it further appears that document No. 2 was executed by
the other debtor, Ceferino Domingo Lim, for himself and on behalf of Jose Lim; and it
has also been proven that Jose Lim, being fully aware that his debt had not yet been
settled, took steps to secure an extension of the time for payment, and consented to
pay interest in return for the concession requested from the creditor.

In view of the foregoing, and adopting the findings in the judgment appealed from, it
is our opinion that the same should be and is hereby affirmed with the costs of this
instance against the appellant, provided that the interest agreed upon shall be paid
until the complete liquidation of the debt. So ordered.
JOSEPH CHAN, WILSON CHAN and LILY CHAN, petitioners, vs. BONIFACIO S.
MACEDA, JR., respondent.
DECISION
SANDOVAL-GUTIERREZ, J.:
A judgment of default does not automatically imply admission by the defendant
of the facts and causes of action of the plaintiff. The Rules of Court require the latter
to adduce evidence in support of his allegations as an indispensable condition before
final judgment could be given in his favor.[1] The trial judge has to evaluate the
allegations with the highest degree of objectivity and certainty. He may sustain an
allegation for which the plaintiff has adduced sufficient evidence, otherwise, he has
to reject it. In the case at bar, judicial review is imperative to avert the award of
damages that is unreasonable and without evidentiary support.
Assailed in this petition for review under Rule 45 of the 1997 Rules of Civil
Procedure, as amended, is the Decision[2] dated June 17, 1999 of the Court of
Appeals in CA-G.R. CV No. 57323, entitled Bonifacio S. Maceda, Jr. versus Joseph
Chan, et. al., affirming in toto the Decision[3] dated December 26, 1996 of the
Regional Trial Court, Branch 160, Pasig City, in Civil Case No. 53044.
The essential antecedents are as follows:
On July 28, 1976, Bonifacio S. Maceda, Jr., herein respondent, obtained a P7.3
million loan from the Development Bank of the Philippines for the construction of his
New Gran Hotel Project in Tacloban City.
Thereafter, on September 29, 1976, respondent entered into a building
construction contract with Moreman Builders Co., Inc., (Moreman). They agreed that
the construction would be finished not later than December 22, 1977.
Respondent purchased various construction materials and equipment in
Manila. Moreman, in turn, deposited them in the warehouse of Wilson and Lily Chan,
herein petitioners. The deposit was free of charge.
Unfortunately, Moreman failed to finish the construction of the hotel at the
stipulated time. Hence, on February 1, 1978, respondent filed with the then Court of
First Instance (CFI, now Regional Trial Court), Branch 39, Manila, an action for
rescission and damages against Moreman, docketed as Civil Case No. 113498.
On November 28, 1978, the CFI rendered its Decision[4] rescinding the contract
between Moreman and respondent and awarding to the latter P 445,000.00 as
actual, moral and liquidated damages; P20,000.00 representing the increase in
the construction materials; and P35,000.00 as attorneys fees. Moreman
interposed an appeal to the Court of Appeals but the same was dismissed on March
7, 1989 for being dilatory. He elevated the case to this Court via a petition for review
on certiorari. In a Decision[5] dated February 21, 1990, we denied the petition. On
April 23, 1990,[6] an Entry of Judgment was issued.
Meanwhile, during the pendency of the case, respondent ordered petitioners to
return to him the construction materials and equipment which Moreman deposited in
their warehouse. Petitioners, however, told them that Moreman withdrew those
construction materials in 1977.
Hence, on December 11, 1985, respondent filed with the Regional Trial Court,
Branch 160, Pasig City, an action for damages with an application for a writ of
preliminary attachment against petitioners,[7] docketed as Civil Case No. 53044.
In the meantime, on October 30, 1986, respondent was appointed Judge of the
Regional Trial Court, Branch 12, San Jose Antique.[8]
On August 25, 1989, or after almost four (4) years, the trial court dismissed
respondents complaint for his failure to prosecute and for lack of interest. [9] On
September 6, 1994, or five years thereafter, respondent filed a motion for
reconsideration, but the same was denied in the Order dated September 9, 1994
because of the failure of respondent and his counsel to appear on the scheduled
hearing.[10]
On October 14, 1994, respondent filed a second motion for
reconsideration. This time, the motion was granted and the case was ordered
reinstated on January 10, 1995, or ten (10) years from the time the action was
originally filed.[11] Thereafter, summons, together with the copies of the complaint
and its annexes, were served on petitioners.
 On March 2, 1995, counsel for petitioners filed a motion to dismiss on several
grounds.[12] Respondent, on the other hand, moved to declare petitioners in default
on the ground that their motion to dismiss was filed out of time and that it did not
contain any notice of hearing.[13]
On April 27, 1995, the trial court issued an order declaring petitioners in
default.[14]
[15]
Petitioners filed with the Court of Appeals a petition for certiorari to annul the
trial courts order of default, but the same was dismissed in its Order [16] dated August
31, 1995. The case reached this Court, and in a Resolution dated October 25,
1995,[17] we affirmed the assailed order of the Court of Appeals. On November 29,
1995,[18] the corresponding Entry of Judgment was issued.
Thus, upon the return of the records to the RTC, Branch 160, Pasig City,
respondent was allowed to present his evidence ex-parte.
Upon motion of respondent, which was granted by the trial court in its Order
dated April 29, 1996,[19] the depositions of his witnesses, namely, Leonardo Conge,
Alfredo Maceda and Engr. Damiano Nadera were taken in the Metropolitan Trial
Court in Cities, Branch 2, Tacloban City.[20] Deponent Leonardo Conge, a labor
contractor, testified that on December 14 up to December 24, 1977, he was
contracted by petitioner Lily Chan to get bags of cement from the New Gran Hotel
construction site and to store the same into the latters warehouse in Tacloban
City. Aside from those bags of cement, deponent also hauled about 400 bundles of
steel bars from the same construction site, upon order of petitioners. Corresponding
delivery receipts were presented and marked as Exhibits A, A-1,A-2,A-3 and A-4.[21]
Deponent Alfredo Maceda testified that he was respondents Disbursement and
Payroll Officer who supervised the construction and kept inventory of the properties
of the New Gran Hotel. While conducting the inventory on November 23, 1977, he
found that the approximate total value of the materials stored in petitioners
warehouse wasP214,310.00. This amount was accordingly reflected in the
certification signed by Mario Ramos, store clerk and representative of Moreman who
was present during the inventory.[22]
Deponent Damiano Nadera testified on the current cost of the architectural and
structural requirements needed to complete the construction of the New Gran
Hotel.[23]
On December 26, 1996, the trial court rendered a decision in favor of
respondent, thus:
WHEREFORE, foregoing considered, judgment is hereby rendered ordering
defendants to jointly and severally pay plaintiff:
1) P1,930,000.00 as actual damages;
2) P2,549,000.00 as actual damages;
3) Moral damages of P150,000.00; exemplary damages of P50,000.00 and attorneys
fees of P50,000.00 and to pay the costs.
SO ORDERED.
The trial court ratiocinated as follows:
The inventory of other materials, aside from the steel bars and cement is found
highly reliable based on first, the affidavit of Arthur Edralin dated September 15,
1979, personnel officer of Moreman Builders that he was assigned with others to
guard the warehouse; (Exhs. M & O); secondly, the inventory (Exh. C) dated
November 23, 1977 shows (sic) deposit of assorted materials; thirdly, that there were
items in the warehouse as of February 3, 1978 as shown in the balance sheet of
Moremans stock clerk Jose Cedilla.
Plaintiff is entitled to payment of damages for the overhauling of materials from the
construction site by Lily Chan without the knowledge and consent of its owner. Article
20 of the Civil Code provides:
Art. 20. Every person who contrary to law, willfully or negligently caused damage to
another, shall indemnify the latter for the same.
As to the materials stored inside the bodega of defendant Wilson Chan, the inventory
(Exh. C) show (sic), that the same were owned by the New Gran Hotel. Said
materials were stored by Moreman Builders Co., Inc. since it was attested to by the
warehouseman as without any lien or encumbrances, the defendants are duty bound
to release it. Article 21 of the Civil Code provides:
Art. 21. Any person who willfully caused loss or injury to another in a manner that is
contrary to morals, good customs or public policy shall compensate the latter for the
damage.
Plaintiff is entitled to payment of actual damages based on the inventory as of
November 23, 1977 amounting to P1,930,080.00 (Exhs. Q & Q-1). The inventory
was signed by the agent Moreman Builders Corporation and defendants.
Plaintiff is likewise entitled to payment of 12,500 bags of cement and 400 bundles of
steel bars totaling P2,549,000.00 (Exhs. S & S-1; Exhs. B & B-3).
Defendants should pay plaintiff moral damages of P150,000.00; exemplary damages
of P50,000.00 and attorneys fees of P50,000.00 and to pay the costs.
The claim of defendant for payment of damages with respect to the materials
appearing in the balance sheets as of February 3, 1978 in the amount
of P3,286,690.00, not having been established with enough preponderance of
evidence cannot be given weight.[24]
Petitioners then elevated the case to the Court of Appeals, docketed as CA-G.R.
CV No. 57323. On June 17, 1999, the Appellate Court rendered the assailed
Decision[25]affirming in toto the trial courts judgment, ratiocinating as follows:
Moreover, although the prayer in the complaint did not specify the amount of
damages sought, the same was satisfactorily proved during the trial. For damages to
be awarded, it is essential that the claimant satisfactorily prove during the trial the
existence of the factual basis thereof and its causal connection with the adverse
partys act (PAL, Inc. vs. NLRC, 259 SCRA 459. In sustaining appellees claim for
damages, the court a quo held as follows:
The Court finds the contention of plaintiff that materials and equipment of plaintiff
were stored in the warehouse of defendants and admitted by defendants in the
certification issued to Sheriff Borja. x x x
Evidence further revealed that assorted materials owned by the New Gran
Hotel (Exh. C) were deposited in the bodega of defendant Wilson Chan with a total
market value of P1,930,000.00, current price.
The inventory of other materials, aside from the steel bars and cement, is highly
reliable based on first, the affidavit of Arthur Edralin dated September 15, 1979,
personnel officer of Moreman Builders; that he was assigned, with others to guard
the warehouse (Exhs. M & O); secondly, the inventory (Exh. C) November 23, 1977
shows deposit of assorted materials; thirdly, that there were items in the warehouse
as of February 3, 1978, as shown in the balance sheet of Moremans stock clerk,
Jose Cedilla (pp. 60-61, Rollo).
The Court affirms the above findings.
Well settled is the rule that absent any proper reason to depart from the rule, factual
conclusions reached by the trial court are not to be disturbed (People vs. Dupali, 230
SCRA 62). Hence, in the absence of any showing that serious and substantial errors
were committed by the lower court in the appraisal of the evidence, the trial judges
assessment of the credibility of the witnesses is accorded great weight and respect
(People vs. Jain, 254 SCRA 686). And, there being absolutely nothing on record to
show that the court a quo overlooked, disregarded, or misinterpreted facts of weight
and significance, its factual findings and conclusions must be given great weight and
should not be disturbed on appeal.
WHEREFORE, being in accord with law and evidence, the appealed decision is
hereby AFFIRMED in toto.
Hence, this petition for review on certiorari anchored on the following grounds:
I
The Court of Appeals acted with grave abuse of discretion and under a
misapprehension of the law and the facts when it affirmed in toto the award of
actual damages made by the trial court in favor of respondent in this case.
II
 The awards of moral and exemplary damages of the trial court to respondent Obviously, petitioners assigned errors call for a review of the lower courts
in this case and affirmed in toto by the Court of Appeals are unwarranted by findings of fact.
the evidence presented by respondent at the ex parte hearing of this case and
Succinct is the rule that this Court is not a trier of facts and does not normally
should, therefore, be eliminated or at least reduced.
undertake the re-examination of the evidence submitted by the contending parties
during the trial of the case considering that findings of fact of the Court of Appeals
III
are generally binding and conclusive on this Court.[34] The jurisdiction of this Court in
a petition for review on certiorari is limited to reviewing only errors of law,[35] not of
The award of attorneys fees by the trial court to respondent in this case and
fact, unless it is shown, inter alia, that: (1) the conclusion is a finding grounded on
affirmed by the Court of Appeals should be deleted because of the failure of
speculations, surmises or conjectures; (2) the inference is manifestly mistaken,
the trial court to state the legal and factual basis of such award.
absurd and impossible; (3) there is grave abuse of discretion; (4) the judgment is
based on misapprehension of facts; (5)the findings of fact are conflicting; and (6) the
Petitioners contend inter alia that the actual damages claimed by respondent in
Court of Appeals, in making its findings went beyond the issues of the case and the
the present case were already awarded to him in Civil Case No. 113498[26] and
same is contrary to the admission of both parties.[36]
hence, cannot be recovered by him again. Even assuming that respondent is entitled
to damages, he can not recover P4,479,000.00 which is eleven (11) times more than Petitioners submit that this case is an exception to the general rule since both
the total actual damages of P365,000.00 awarded to him in Civil Case No. the trial court and the Court of Appeals based their judgments on misapprehension of
113498.[27] facts.
In his comment on the petition, respondent maintains that petitioners, as We agree.
depositaries under the law, have both the fiduciary and extraordinary obligations not
At the outset, the case should have been dismissed outright by the trial court
only to safely keep the construction material deposited, but also to return them with
because of patent procedural infirmities. It bears stressing that the case was
all their products, accessories and accessions, pursuant to Articles
originally filed on December 11, 1985. Four (4) years thereafter, or on August 25,
1972,[28] 1979,[29] 1983,[30] and 1988[31]of the Civil Code. Considering that petitioners
1989, the case was dismissed for respondents failure to prosecute. Five (5) years
duty to return the construction materials in question has already become impossible,
after, or on September 6, 1994, respondent filed his motion for reconsideration. From
it is only proper that the prices of those construction materials in 1996 should be the
here, the trial court already erred in its ruling because it should have dismissed the
basis of the award of actual damages. This is the only way to fulfill the duty to
motion for reconsideration outright as it was filed far beyond the fifteen-day
return contemplated in the applicable laws.[32]Respondent further claims that
reglementary period.[37] Worse, when respondent filed his second motion for
petitioners must bear the increase in market prices from 1977 to 1996 because
reconsideration on October 14, 1994, a prohibited pleading,[38] the trial court still
liability for fraud includes all damages which may be reasonably attributed to the
granted the same and reinstated the case on January 10, 1995. This is a glaring
non-performance of the obligation. Lastly, respondent insists that there can be no
gross procedural error committed by both the trial court and the Court of Appeals.
double recovery because in Civil Case No. 113498,[33] the parties were respondent
himself and Moreman and the cause of action was the rescission of their building Even without such serious procedural flaw, the case should also be dismissed
contract. In the present case, however, the parties are respondent and petitioners for utter lack of merit.
and the cause of action between them is for recovery of damages arising from
petitioners failure to return the construction materials and equipment.
 It must be stressed that respondents claim for damages is based on petitioners favor, and (2) that there were construction materials in petitioners warehouse at the
failure to return or to release to him the construction materials and equipment time of respondents demand to return the same, we hold that petitioners have no
deposited by Moreman to their warehouse. Hence, the essential issues to be corresponding obligation or liability to respondent with respect to those construction
resolved are: (1) Has respondent presented proof that the construction materials and materials.
equipment were actually in petitioners warehouse when he asked that the same be
Anent the issue of damages, petitioners are still not liable because, as expressly
turned over to him? (2) If so, does respondent have the right to demand the release
provided for in Article 2199 of the Civil Code,[43] actual or compensatory damages
of the said materials and equipment or claim for damages?
cannot be presumed, but must be proved with reasonable degree of certainty. A
Under Article 1311 of the Civil Code, contracts are binding upon the parties (and court cannot rely on speculations, conjectures, or guesswork as to the fact and
their assigns and heirs) who execute them. When there is no privity of contract, there amount of damages, but must depend upon competent proof that they have been
is likewise no obligation or liability to speak about and thus no cause of action suffered by the injured party and on the best obtainable evidence of the actual
arises. Specifically, in an action against the depositary, the burden is on the plaintiff amount thereof. It must point out specific facts which could afford a basis for
to prove the bailment or deposit and the performance of conditions precedent to the measuring whatever compensatory or actual damages are borne.[44]
right of action.[39] A depositary is obliged to return the thing to the depositor, or to his
Considering our findings that there was no contract of deposit between
heirs or successors, or to the person who may have been designated in the
petitioners and respondent or Moreman and that actually there were no more
contract. [40]
construction materials or equipment in petitioners warehouse when respondent
In the present case, the record is bereft of any contract of deposit, oral or made a demand for their return, we hold that he has no right whatsoever to claim for
written, between petitioners and respondent. If at all, it was only between petitioners damages.
and Moreman. And granting arguendo that there was indeed a contract of deposit
As we stressed in the beginning, a judgment of default does not automatically
between petitioners and Moreman, it is still incumbent upon respondent to prove its
imply admission by the defendant of plaintiffs causes of action. Here, the trial court
existence and that it was executed in his favor. However, respondent miserably
merely adopted respondents allegations in his complaint and evidence without
failed to do so. The only pieces of evidence respondent presented to prove the
evaluating them with the highest degree of objectivity and certainty.
contract of deposit were thedelivery receipts.[41] Significantly, they are unsigned
and not duly received or authenticated by either Moreman, petitioners or WHEREFORE, the petition is GRANTED. The challenged Decision of the Court
respondent or any of their authorized representatives. Hence, those delivery of Appeals dated June 17, 1999 is REVERSED and SET ASIDE. Costs against
receipts have no probative value at all. While our laws grant a person the remedial respondent.
right to prosecute or institute a civil action against another for the enforcement or
SO ORDERED.
protection of a right, or the prevention or redress of a wrong,[42] every cause of
action ex-contractu must be founded upon a contract, oral or written, express or
implied.
Moreover, respondent also failed to prove that there were construction materials
and equipment in petitioners warehouse at the time he made a demand for their
return.
Considering that respondent failed to prove (1) the existence of any contract of
deposit between him and petitioners, nor between the latter and Moreman in his
G.R. No. L-30511 February 14, 1980
MANUEL M. SERRANO, petitioner,
vs.
CENTRAL BANK OF THE PHILIPPINES; OVERSEAS BANK OF MANILA;
EMERITO M. RAMOS, SUSANA B. RAMOS, EMERITO B. RAMOS, JR., JOSEFA
RAMOS DELA RAMA, HORACIO DELA RAMA, ANTONIO B. RAMOS,
FILOMENA RAMOS LEDESMA, RODOLFO LEDESMA, VICTORIA RAMOS
TANJUATCO, and TEOFILO TANJUATCO, respondents.
Rene Diokno for petitioner.
F.E. Evangelista & Glecerio T. Orsolino for respondent Central Bank of the
Philippines.
Feliciano C. Tumale, Pacifico T. Torres and Antonio B. Periquet for respondent
Overseas Bank of Manila.
Josefina G. Salonga for all other respondents.
CONCEPCION, JR., J.:
Petition for mandamus and prohibition, with preliminary injunction, that seeks the
establishment of joint and solidary liability to the amount of Three Hundred Fifty
Thousand Pesos, with interest, against respondent Central Bank of the Philippines
and Overseas Bank of Manila and its stockholders, on the alleged failure of the
Overseas Bank of Manila to return the time deposits made by petitioner and
assigned to him, on the ground that respondent Central Bank failed in its duty to
exercise strict supervision over respondent Overseas Bank of Manila to protect
depositors and the general public. 1 Petitioner also prays that both respondent banks
be ordered to execute the proper and necessary documents to constitute all
properties fisted in Annex "7" of the Answer of respondent Central Bank of the
Philippines in G.R. No. L-29352, entitled "Emerita M. Ramos, et al vs. Central Bank
of the Philippines," into a trust fund in favor of petitioner and all other depositors of
respondent Overseas Bank of Manila. It is also prayed that the respondents be
prohibited permanently from honoring, implementing, or doing any act predicated
upon the validity or efficacy of the deeds of mortgage, assignment. and/or
conveyance or transfer of whatever nature of the properties listed in Annex "7" of the
Answer of respondent Central Bank in G.R. No. 29352. 2
A sought for ex-parte preliminary injunction against both respondent banks was not
given by this Court.
Undisputed pertinent facts are:
On October 13, 1966 and December 12, 1966, petitioner made a time deposit, for
one year with 6% interest, of One Hundred Fifty Thousand Pesos (P150,000.00) with
the respondent Overseas Bank of Manila. 3 Concepcion Maneja also made a time
deposit, for one year with 6-½% interest, on March 6, 1967, of Two Hundred
Thousand Pesos (P200,000.00) with the same respondent Overseas Bank of
Manila. 4
On August 31, 1968, Concepcion Maneja, married to Felixberto M. Serrano,
assigned and conveyed to petitioner Manuel M. Serrano, her time deposit of
P200,000.00 with respondent Overseas Bank of Manila. 5
Notwithstanding series of demands for encashment of the aforementioned time
deposits from the respondent Overseas Bank of Manila, dating from December 6,
1967 up to March 4, 1968, not a single one of the time deposit certificates was
honored by respondent Overseas Bank of Manila. 6
Respondent Central Bank admits that it is charged with the duty of administering the
banking system of the Republic and it exercises supervision over all doing business
in the Philippines, but denies the petitioner's allegation that the Central Bank has the
duty to exercise a most rigid and stringent supervision of banks, implying that
respondent Central Bank has to watch every move or activity of all banks, including
respondent Overseas Bank of Manila. Respondent Central Bank claims that as of
March 12, 1965, the Overseas Bank of Manila, while operating, was only on a limited
degree of banking operations since the Monetary Board decided in its Resolution No.
322, dated March 12, 1965, to prohibit the Overseas Bank of Manila from making
new loans and investments in view of its chronic reserve deficiencies against its
deposit liabilities. This limited operation of respondent Overseas Bank of Manila
continued up to 1968. 7
Respondent Central Bank also denied that it is guarantor of the permanent solvency
of any banking institution as claimed by petitioner. It claims that neither the law nor
sound banking supervision requires respondent Central Bank to advertise or
represent to the public any remedial measures it may impose upon chronic
delinquent banks as such action may inevitably result to panic or bank "runs". In the
years 1966-1967, there were no findings to declare the respondent Overseas Bank
of Manila as insolvent. 8
Respondent Central Bank likewise denied that a constructive trust was created in
favor of petitioner and his predecessor in interest Concepcion Maneja when their
time deposits were made in 1966 and 1967 with the respondent Overseas Bank of
Manila as during that time the latter was not an insolvent bank and its operation as a
banking institution was being salvaged by the respondent Central Bank. 9
Respondent Central Bank avers no knowledge of petitioner's claim that the
properties given by respondent Overseas Bank of Manila as additional collaterals to
respondent Central Bank of the Philippines for the former's overdrafts and
emergency loans were acquired through the use of depositors' money, including that
of the petitioner and Concepcion Maneja. 10
In G.R. No. L-29362, entitled "Emerita M. Ramos, et al. vs. Central Bank of the
Philippines," a case was filed by the petitioner Ramos, wherein respondent Overseas
Bank of Manila sought to prevent respondent Central Bank from closing, declaring
the former insolvent, and liquidating its assets. Petitioner Manuel Serrano in this
case, filed on September 6, 1968, a motion to intervene in G.R. No. L-29352, on the
ground that Serrano had a real and legal interest as depositor of the Overseas Bank
of Manila in the matter in litigation in that case. Respondent Central Bank in G.R. No.
L-29352 opposed petitioner Manuel Serrano's motion to intervene in that case, on
the ground that his claim as depositor of the Overseas Bank of Manila should
properly be ventilated in the Court of First Instance, and if this Court were to allow
Serrano to intervene as depositor in G.R. No. L-29352, thousands of other
depositors would follow and thus cause an avalanche of cases in this Court. In the
resolution dated October 4, 1968, this Court denied Serrano's, motion to intervene.
The contents of said motion to intervene are substantially the same as those of the
present petition. 11
This Court rendered decision in G.R. No. L-29352 on October 4, 1971, which
became final and executory on March 3, 1972, favorable to the respondent Overseas
Bank of Manila, with the dispositive portion to wit:
WHEREFORE, the writs prayed for in the petition are hereby granted
and respondent Central Bank's resolution Nos. 1263, 1290 and 1333
(that prohibit the Overseas Bank of Manila to participate in clearing,
direct the suspension of its operation, and ordering the liquidation of
said bank) are hereby annulled and set aside; and said respondent
Central Bank of the Philippines is directed to comply with its
obligations under the Voting Trust Agreement, and to desist from
taking action in violation therefor. Costs against respondent Central
Bank of the Philippines. 12
Because of the above decision, petitioner in this case filed a motion for judgment in
this case, praying for a decision on the merits, adjudging respondent Central Bank
jointly and severally liable with respondent Overseas Bank of Manila to the petitioner
for the P350,000 time deposit made with the latter bank, with all interests due
therein; and declaring all assets assigned or mortgaged by the respondents
Overseas Bank of Manila and the Ramos groups in favor of the Central Bank as trust
funds for the benefit of petitioner and other depositors. 13
By the very nature of the claims and causes of action against respondents, they in
reality are recovery of time deposits plus interest from respondent Overseas Bank of
Manila, and recovery of damages against respondent Central Bank for its alleged
failure to strictly supervise the acts of the other respondent Bank and protect the
interests of its depositors by virtue of the constructive trust created when respondent
Central Bank required the other respondent to increase its collaterals for its
overdrafts said emergency loans, said collaterals allegedly acquired through the use
of depositors money. These claims shoud be ventilated in the Court of First Instance
of proper jurisdiction as We already pointed out when this Court denied petitioner's
motion to intervene in G.R. No. L-29352. Claims of these nature are not proper in
actions for mandamus and prohibition as there is no shown clear abuse of discretion
by the Central Bank in its exercise of supervision over the other respondent
Overseas Bank of Manila, and if there was, petitioner here is not the proper party to
raise that question, but rather the Overseas Bank of Manila, as it did in G.R. No. L-
29352. Neither is there anything to prohibit in this case, since the questioned acts of
the respondent Central Bank (the acts of dissolving and liquidating the Overseas
Bank of Manila), which petitioner here intends to use as his basis for claims of
damages against respondent Central Bank, had been accomplished a long time ago.

Furthermore, both parties overlooked one fundamental principle in the nature of bank
deposits when the petitioner claimed that there should be created a constructive trust
in his favor when the respondent Overseas Bank of Manila increased its collaterals in
favor of respondent Central Bank for the former's overdrafts and emergency loans,
since these collaterals were acquired by the use of depositors' money.

Bank deposits are in the nature of irregular deposits. They are really loans because
they earn interest. All kinds of bank deposits, whether fixed, savings, or current are
to be treated as loans and are to be covered by the law on loans. 14 Current and
savings deposit are loans to a bank because it can use the same. The petitioner here
in making time deposits that earn interests with respondent Overseas Bank of Manila
was in reality a creditor of the respondent Bank and not a depositor. The respondent
Bank was in turn a debtor of petitioner. Failure of he respondent Bank to honor the
time deposit is failure to pay s obligation as a debtor and not a breach of trust arising
from depositary's failure to return the subject matter of the deposit

WHEREFORE, the petition is dismissed for lack of merit, with costs against
petitioner.

SO ORDERED.
DURBAN APARTMENTS CORPORATION, doing G.R. No. 179419 City] a Complaint for Recovery of Damages against [petitioner]
business under the name and style of City Durban Apartments Corporation, doing business under the name and
Garden Hotel, Present: style of City Garden Hotel, and [defendant before the RTC] Vicente
Petitioner, Justimbaste x x x. [Respondent averred] that: it is the insurer for loss
CARPIO, J., and damage of Jeffrey S. Sees [the insureds] 2001 Suzuki Grand
Chairperson, Vitara x x x with Plate No. XBH-510 under Policy No. MC-CV-HO-01-
NACHURA, 0003846-00-D in the amount of P1,175,000.00; on April 30, 2002, See
PERALTA, arrived and checked in at the City Garden Hotel in Makati corner
- versus - ABAD, and Kalayaan Avenues, Makati City before midnight, and its parking
MENDOZA, JJ. attendant, defendant x x x Justimbaste got the key to said Vitara from
See to park it[. O]n May 1, 2002, at about 1:00 oclock in the morning,
See was awakened in his room by [a] telephone call from the Hotel
Chief Security Officer who informed him that his Vitara was carnapped
PIONEER INSURANCE AND SURETY Promulgated: while it was parked unattended at the parking area of Equitable PCI
CORPORATION, Bank along Makati Avenue between the hours of 12:00 [a.m.] and
Respondent. January 12, 2011 1:00 [a.m.]; See went to see the Hotel Chief Security Officer,
thereafter reported the incident to the Operations Division of the
Makati City Police Anti-Carnapping Unit, and a flash alarm was
x------------------------------------------------------------------------------------x issued; the Makati City Police Anti-Carnapping Unit investigated Hotel
Security Officer, Ernesto T. Horlador, Jr. x x x and defendant x x x
Justimbaste; See gave his Sinumpaang Salaysay to the police
DECISION investigator, and filed a Complaint Sheet with the PNP Traffic
Management Group in Camp Crame, Quezon City; the Vitara has not
NACHURA, J.: yet been recovered since July 23, 2002 as evidenced by a
Certification of Non- Recovery issued by the PNP TMG; it paid
the P1,163,250.00 money claim of See and mortgagee ABN AMRO
For review is the Decision[1] of the Court of Appeals (CA) in CA-G.R. CV No. 86869, Savings Bank, Inc. as indemnity for the loss of the Vitara; the Vitara
which affirmed the decision[2] of the Regional Trial Court (RTC), Branch 66, Makati was lost due to the negligence of [petitioner] Durban Apartments and
City, in Civil Case No. 03-857, holding petitioner Durban Apartments Corporation [defendant] Justimbaste because it was discovered during the
solely liable to respondent Pioneer Insurance and Surety Corporation for the loss of investigation that this was the second time that a similar incident of
Jeffrey Sees (Sees) vehicle. carnapping happened in the valet parking service of [petitioner]
Durban Apartments and no necessary precautions were taken to
The facts, as found by the CA, are simple. prevent its repetition; [petitioner] Durban Apartments was wanting in
due diligence in the selection and supervision of its employees
On July 22, 2003, [respondent] Pioneer Insurance and Surety particularly defendant x x x Justimbaste; and defendant x x x
Corporation x x x, by right of subrogation, filed [with the RTC of Makati
Justimbaste and [petitioner] Durban Apartments failed and refused to
pay its valid, just, and lawful claim despite written demands.
Upon service of Summons, [petitioner] Durban Apartments and
[defendant] Justimbaste filed their Answer with Compulsory
Counterclaim alleging that: See did not check in at its hotel, on the
contrary, he was a guest of a certain Ching Montero x x x; defendant x
x x Justimbaste did not get the ignition key of Sees Vitara, on the
contrary, it was See who requested a parking attendant to park the
Vitara at any available parking space, and it was parked at the
Equitable Bank parking area, which was within Sees view, while he
and Montero were waiting in front of the hotel; they made a written
denial of the demand of [respondent] Pioneer Insurance for want of
legal basis; valet parking services are provided by the hotel for the
convenience of its customers looking for a parking space near the
hotel premises; it is a special privilege that it gave to Montero and
See; it does not include responsibility for any losses or damages to
motor vehicles and its accessories in the parking area; and the same
holds true even if it was See himself who parked his Vitara within the
premises of the hotel as evidenced by the valet parking customers
claim stub issued to him; the carnapper was able to open the Vitara
without using the key given earlier to the parking attendant and
subsequently turned over to See after the Vitara was stolen;
defendant x x x Justimbaste saw the Vitara speeding away from the
place where it was parked; he tried to run after it, and blocked its
possible path but to no avail; and See was duly and immediately
informed of the carnapping of his Vitara; the matter was reported to
the nearest police precinct; and defendant x x x Justimbaste, and
Horlador submitted themselves to police investigation.
During the pre-trial conference on November 28, 2003, counsel for
[respondent] Pioneer Insurance was present. Atty. Monina Lee x x x,
counsel of record of [petitioner] Durban Apartments and Justimbaste
was absent, instead, a certain Atty. Nestor Mejia appeared for
[petitioner] Durban Apartments and Justimbaste, but did not file their
pre-trial brief.
On November 5, 2004, the lower court granted the motion of
[respondent] Pioneer Insurance, despite the opposition of [petitioner]
Durban Apartments and Justimbaste, and allowed [respondent]
Pioneer Insurance to present its evidence ex parte before the Branch
Clerk of Court.
See testified that: on April 30, 2002, at about 11:30 in the evening, he
drove his Vitara and stopped in front of City Garden Hotel in Makati
Avenue, Makati City; a parking attendant, whom he had later known to
be defendant x x x Justimbaste, approached and asked for his ignition
key, told him that the latter would park the Vitara for him in front of the
hotel, and issued him a valet parking customers claim stub; he and
Montero, thereafter, checked in at the said hotel; on May 1, 2002, at
around 1:00 in the morning, the Hotel Security Officer whom he later
knew to be Horlador called his attention to the fact that his Vitara was
carnapped while it was parked at the parking lot of Equitable PCI
Bank which is in front of the hotel; his Vitara was insured with
[respondent] Pioneer Insurance; he together with Horlador and
defendant x x x Justimbaste went to Precinct 19 of the Makati City
Police to report the carnapping incident, and a police officer came
accompanied them to the Anti-Carnapping Unit of the said station for
investigation, taking of their sworn statements, and flashing of a voice
alarm; he likewise reported the said incident in PNP TMG in Camp
Crame where another alarm was issued; he filed his claim with
[respondent] Pioneer Insurance, and a representative of the latter,
who is also an adjuster of Vesper Insurance Adjusters-Appraisers
[Vesper], investigated the incident; and [respondent] Pioneer
Insurance required him to sign a Release of Claim and Subrogation
Receipt, and finally paid him the sum of P1,163,250.00 for his claim.
Ricardo F. Red testified that: he is a claims evaluator of [petitioner]
Pioneer Insurance tasked, among others, with the receipt of claims
and documents from the insured, investigation of the said claim,
inspection of damages, taking of pictures of insured unit, and
monitoring of the processing of the claim until its payment; he
monitored the processing of Sees claim when the latter reported the
incident to [respondent] Pioneer Insurance; [respondent] Pioneer
Insurance assigned the case to Vesper who verified Sees report,
conducted an investigation, obtained the necessary documents for the
processing of the claim, and tendered a settlement check to See; they
evaluated the case upon receipt of the subrogation documents and
the adjusters report, and eventually recommended for its settlement
for the sum of P1,163,250.00 which was accepted by See; the matter
was referred and forwarded to their counsel, R.B. Sarajan &
Associates, who prepared and sent demand letters to [petitioner]
Durban Apartments and [defendant] Justimbaste, who did not pay
[respondent] Pioneer Insurance notwithstanding their receipt of the
demand letters; and the services of R.B. Sarajan & Associates were
engaged, for P100,000.00 as attorneys fees plus P3,000.00 per court
appearance, to prosecute the claims of [respondent] Pioneer
Insurance against [petitioner] Durban Apartments and Justimbaste
before the lower court.
Ferdinand Cacnio testified that: he is an adjuster of Vesper;
[respondent] Pioneer Insurance assigned to Vesper the investigation
of Sees case, and he was the one actually assigned to investigate it;
he conducted his investigation of the matter by interviewing See,
going to the City Garden Hotel, required subrogation documents from
See, and verified the authenticity of the same; he learned that it is the
standard procedure of the said hotel as regards its valet parking
service to assist their guests as soon as they get to the lobby
entrance, park the cars for their guests, and place the ignition keys in
their safety key box; considering that the hotel has only twelve (12)
available parking slots, it has an agreement with Equitable PCI Bank
permitting the hotel to use the parking space of the bank at night; he
also learned that a Hyundai Starex van was carnapped at the said
place barely a month before the occurrence of this incident because
Liberty Insurance assigned the said incident to Vespers, and Horlador
and defendant x x x Justimbaste admitted the occurrence of the same
in their sworn statements before the Anti-Carnapping Unit of the
Makati City Police; upon verification with the PNP TMG [Unit] in Camp
Crame, he learned that Sees Vitara has not yet been recovered; upon
evaluation, Vesper recommended to [respondent] Pioneer Insurance
to settle Sees claim for P1,045,750.00; See contested the
recommendation of Vesper by reasoning out that the 10%
depreciation should not be applied in this case considering the fact
that the Vitara was used for barely eight (8) months prior to its loss;
and [respondent] Pioneer Insurance acceded to Sees contention,
tendered the sum of P1,163,250.00 as settlement, the former
accepted it, and signed a release of claim and subrogation receipt.
The lower court denied the Motion to Admit Pre-Trial Brief and Motion
for Reconsideration field by [petitioner] Durban Apartments and
Justimbaste in its Orders dated May 4, 2005 and October 20, 2005,
respectively, for being devoid of merit.[3]
Thereafter, on January 27, 2006, the RTC rendered a decision, disposing, as follows:
WHEREFORE, judgment is hereby rendered ordering [petitioner
Durban Apartments Corporation] to pay [respondent Pioneer
Insurance and Surety Corporation] the sum ofP1,163,250.00 with
legal interest thereon from July 22, 2003 until the obligation is fully
paid and attorneys fees and litigation expenses amounting
to P120,000.00.
SO ORDERED.[4]
On appeal, the appellate court affirmed the decision of the trial court, viz.:
WHEREFORE, premises considered, the Decision dated January 27,
2006 of the RTC, Branch 66, Makati City in Civil Case No. 03-857 is
hereby AFFIRMED insofar as it holds [petitioner] Durban Apartments
Corporation solely liable to [respondent] Pioneer Insurance and
Surety Corporation for the loss of Jeffrey Sees Suzuki Grand Vitara.
SO ORDERED.[5]

Hence, this recourse by petitioner.
The issues for our resolution are:
1. Whether the lower courts erred in declaring petitioner as in default for failure to
appear at the pre-trial conference and to file a pre-trial brief;
2. Corollary thereto, whether the trial court correctly allowed respondent to present
evidence ex-parte;
3. Whether petitioner is liable to respondent for attorneys fees in the amount
of P120,000.00; and
4. Ultimately, whether petitioner is liable to respondent for the loss of Sees vehicle.
The petition must fail.
We are in complete accord with the common ruling of the lower courts that petitioner
was in default for failure to appear at the pre-trial conference and to file a pre-trial
brief, and thus, correctly allowed respondent to present evidence ex-parte. Likewise,
the lower courts did not err in holding petitioner liable for the loss of Sees vehicle.
Well-entrenched in jurisprudence is the rule that factual findings of the trial court,
especially when affirmed by the appellate court, are accorded the highest degree of
respect and are considered conclusive between the parties.[6] A review of such
findings by this Court is not warranted except upon a showing of highly meritorious
circumstances, such as: (1) when the findings of a trial court are grounded entirely
on speculation, surmises, or conjectures; (2) when a lower courts inference from its
factual findings is manifestly mistaken, absurd, or impossible; (3) when there is grave
abuse of discretion in the appreciation of facts; (4) when the findings of the appellate
court go beyond the issues of the case, or fail to notice certain relevant facts which, if
properly considered, will justify a different conclusion; (5) when there is a
misappreciation of facts; (6) when the findings of fact are conclusions without
mention of the specific evidence on which they are based, are premised on the
absence of evidence, or are contradicted by evidence on record.[7] None of the
foregoing exceptions permitting a reversal of the assailed decision exists in this
instance.
Petitioner urges us, however, that strong [and] compelling reason[s] such as the
prevention of miscarriage of justice warrant a suspension of the rules and excuse its
and its counsels non-appearance during the pre-trial conference and their failure to
file a pre-trial brief.
We are not persuaded.
Rule 18 of the Rules of Court leaves no room for equivocation; appearance of parties
and their counsel at the pre-trial conference, along with the filing of a corresponding
pre-trial brief, is mandatory, nay, their duty. Thus, Section 4 and Section 6 thereof
provide:
SEC. 4. Appearance of parties.It shall be the duty of the parties and
their counsel to appear at the pre-trial. The non-appearance of a party
may be excused only if a valid cause is shown therefor or if a
representative shall appear in his behalf fully authorized in writing to
enter into an amicable settlement, to submit to alternative modes of
dispute resolution, and to enter into stipulations or admissions of facts
and documents.
SEC. 6. Pre-trial brief.The parties shall file with the court and serve on
the adverse party, in such manner as shall ensure their receipt thereof
at least three (3) days before the date of the pre-trial, their respective
pre-trial briefs which shall contain, among others:
xxxx
Failure to file the pre-trial brief shall have the same effect as failure to
appear at the pre-trial.
Contrary to the foregoing rules, petitioner and its counsel of record were not present
at the scheduled pre-trial conference. Worse, they did not file a pre-trial brief. Their
non-appearance cannot be excused as Section 4, in relation to Section 6, allows only
two exceptions: (1) a valid excuse; and (2) appearance of a representative on behalf
of a party who is fully authorized in writing to enter into an amicable settlement, to
submit to alternative modes of dispute resolution, and to enter into stipulations or
admissions of facts and documents.
Petitioner is adamant and harps on the fact that November 28, 2003 was merely the
first scheduled date for the pre-trial conference, and a certain Atty. Mejia appeared
on its behalf. However, its assertion is belied by its own admission that, on said date,
this Atty. Mejia did not have in his possession the Special Power of Attorney issued
by petitioners Board of Directors.
As pointed out by the CA, petitioner, through Atty. Lee, received the notice of pre-trial
on October 27, 2003, thirty-two (32) days prior to the scheduled conference. In that
span of time, Atty. Lee, who was charged with the duty of notifying petitioner of the
scheduled pre-trial conference,[8] petitioner, and Atty. Mejia should have discussed
which lawyer would appear at the pre-trial conference with petitioner, armed with the
appropriate authority therefor. Sadly, petitioner failed to comply with not just one rule;
it also did not proffer a reason why it likewise failed to file a pre-trial brief. In all,
petitioner has not shown any persuasive reason why it should be exempt from
abiding by the rules.
The appearance of Atty. Mejia at the pre-trial conference, without a pre-trial brief and
with only his bare allegation that he is counsel for petitioner, was correctly rejected
by the trial court. Accordingly, the trial court, as affirmed by the appellate court, did
not err in allowing respondent to present evidence ex-parte.
Former Chief Justice Andres R. Narvasas words continue to resonate, thus:
Everyone knows that a pre-trial in civil actions is mandatory, and has
been so since January 1, 1964. Yet to this day its place in the scheme
of things is not fully appreciated, and it receives but perfunctory
treatment in many courts. Some courts consider it a mere technicality,
serving no useful purpose save perhaps, occasionally to furnish
ground for non-suiting the plaintiff, or declaring a defendant in default,
or, wistfully, to bring about a compromise. The pre-trial device is not
thus put to full use. Hence, it has failed in the main to accomplish the
chief objective for it: the simplification, abbreviation and expedition of
the trial, if not indeed its dispensation. This is a great pity, because
the objective is attainable, and with not much difficulty, if the device
were more intelligently and extensively handled.
xxxx
Consistently with the mandatory character of the pre-trial, the
Rules oblige not only the lawyers but the parties as well to appear for
this purpose before the Court, and when a party fails to appear at a
pre-trial conference (he) may be non-suited or considered as in
default. The obligation to appear denotes not simply the personal
appearance, or the mere physical presentation by a party of ones self,
but connotes as importantly, preparedness to go into the different
subject assigned by law to a pre-trial. And in those instances where a
party may not himself be present at the pre-trial, and another person
substitutes for him, or his lawyer undertakes to appear not only as an
attorney but in substitution of the clients person, it is imperative for
that representative of the lawyer to have special authority to make
such substantive agreements as only the client otherwise has
capacity to make. That special authority should ordinarily be in writing
or at the very least be duly established by evidence other than the
self-serving assertion of counsel (or the proclaimed representative)
himself. Without that special authority, the lawyer or representative
cannot be deemed capacitated to appear in place of the party; hence,
it will be considered that the latter has failed to put in an appearance
at all, and he [must] therefore be non-suited or considered as in
default, notwithstanding his lawyers or delegates presence.[9]
We are not unmindful that defendants (petitioners) preclusion from presenting
evidence during trial does not automatically result in a judgment in favor of plaintiff
(respondent). The plaintiff must still substantiate the allegations in its
complaint.[10] Otherwise, it would be inutile to continue with the plaintiffs presentation
of evidence each time the defendant is declared in default.

In this case, respondent substantiated the allegations in its complaint, i.e., a contract
of necessary deposit existed between the insured See and petitioner. On this score,
we find no error in the following disquisition of the appellate court:
[The] records also reveal that upon arrival at the City Garden Hotel,
See gave notice to the doorman and parking attendant of the said
hotel, x x x Justimbaste, about his Vitara when he entrusted its
ignition key to the latter. x x x Justimbaste issued a valet parking
customer claim stub to See, parked the Vitara at the Equitable PCI
Bank parking area, and placed the ignition key inside a safety key box
while See proceeded to the hotel lobby to check in. The Equitable PCI
Bank parking area became an annex of City Garden Hotel when the
management of the said bank allowed the parking of the vehicles of
hotel guests thereat in the evening after banking hours.[11]
Article 1962, in relation to Article 1998, of the Civil Code defines a contract of deposit
and a necessary deposit made by persons in hotels or inns:
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 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.
Art. 1998. The deposit of effects made by travelers in hotels or inns
shall also be regarded as necessary. The keepers of hotels or inns
shall be responsible for them as depositaries, provided that notice
was given to them, or to their employees, of the effects brought by the
guests and that, on the part of the latter, they take the precautions
which said hotel-keepers or their substitutes advised relative to the
care and vigilance of their effects.
perfected from Sees delivery, when he handed over to Justimbaste the keys to his
vehicle, which Justimbaste received with the obligation of safely keeping and
returning it. Ultimately, petitioner is liable for the loss of Sees vehicle.
Lastly, petitioner assails the lower courts award of attorneys fees to
respondent in the amount of P120,000.00. Petitioner claims that the award is not
substantiated by the evidence on record.
We disagree.
While it is a sound policy not to set a premium on the right to litigate,[12] we
find that respondent is entitled to reasonable attorneys fees. Attorneys fees may be
awarded when a party is compelled to litigate or incur expenses to protect its
interest,[13] or when the court deems it just and equitable.[14] In this case, petitioner
refused to answer for the loss of Sees vehicle, which was deposited with it for
safekeeping. This refusal constrained respondent, the insurer of See, and
subrogated to the latters right, to litigate and incur expenses. However, we reduce
the award of P120,000.00 to P60,000.00 in view of the simplicity of the issues
involved in this case.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals
in CA-G.R. CV No. 86869 is AFFIRMED with the MODIFICATION that the award of
attorneys fees is reduced to P60,000.00. Costs against petitioner.
SO ORDERED.

Plainly, from the facts found by the lower courts, the insured See deposited his
vehicle for safekeeping with petitioner, through the latters employee, Justimbaste. In
turn, Justimbaste issued a claim stub to See. Thus, the contract of deposit was
YHT REALTY CORPORATION, ERLINDA LAINEZ and ANICIA
PAYAM, petitioners, vs. THE COURT OF APPEALS and MAURICE
McLOUGHLIN, respondents.
DECISION
TINGA, J.:
The primary question of interest before this Court is the only legal issue in the
case: It is whether a hotel may evade liability for the loss of items left with it for
safekeeping by its guests, by having these guests execute written waivers holding
the establishment or its employees free from blame for such loss in light of Article
2003 of the Civil Code which voids such waivers.
Before this Court is a Rule 45 petition for review of the Decision[1] dated 19
October 1995 of the Court of Appeals which affirmed the Decision[2] dated 16
December 1991 of the Regional Trial Court (RTC), Branch 13, of Manila, finding YHT
Realty Corporation, Brunhilda Mata-Tan (Tan), Erlinda Lainez (Lainez) and Anicia
Payam (Payam) jointly and solidarily liable for damages in an action filed by Maurice
McLoughlin (McLoughlin) for the loss of his American and Australian dollars
deposited in the safety deposit box of Tropicana Copacabana Apartment Hotel,
owned and operated by YHT Realty Corporation.
The factual backdrop of the case follow.
Private respondent McLoughlin, an Australian businessman-philanthropist, used
to stay at Sheraton Hotel during his trips to the Philippines prior to 1984 when he met
Tan. Tan befriended McLoughlin by showing him around, introducing him to
important people, accompanying him in visiting impoverished street children and
assisting him in buying gifts for the children and in distributing the same to charitable
institutions for poor children. Tan convinced McLoughlin to transfer from Sheraton
Hotel to Tropicana where Lainez, Payam and Danilo Lopez were employed. Lopez
served as manager of the hotel while Lainez and Payam had custody of the keys for
the safety deposit boxes of Tropicana. Tan took care of McLoughlins booking at the
Tropicana where he started staying during his trips to the Philippines from December
1984 to September 1987.[3]
On 30 October 1987, McLoughlin arrived from Australia and registered with
Tropicana. He rented a safety deposit box as it was his practice to rent a safety
deposit box every time he registered at Tropicana in previous trips. As a tourist,
McLoughlin was aware of the procedure observed by Tropicana relative to its safety
deposit boxes. The safety deposit box could only be opened through the use of two
keys, one of which is given to the registered guest, and the other remaining in the
possession of the management of the hotel. When a registered guest wished to open
his safety deposit box, he alone could personally request the management who then
would assign one of its employees to accompany the guest and assist him in
opening the safety deposit box with the two keys.[4]
McLoughlin allegedly placed the following in his safety deposit box: Fifteen
Thousand US Dollars (US$15,000.00) which he placed in two envelopes, one
envelope containing Ten Thousand US Dollars (US$10,000.00) and the other
envelope Five Thousand US Dollars (US$5,000.00); Ten Thousand Australian
Dollars (AUS$10,000.00) which he also placed in another envelope; two (2) other
envelopes containing letters and credit cards; two (2) bankbooks; and a checkbook,
arranged side by side inside the safety deposit box.[5]
On 12 December 1987, before leaving for a brief trip to Hongkong, McLoughlin
opened his safety deposit box with his key and with the key of the management and
took therefrom the envelope containing Five Thousand US Dollars (US$5,000.00),
the envelope containing Ten Thousand Australian Dollars (AUS$10,000.00), his
passports and his credit cards.[6] McLoughlin left the other items in the box as he did
not check out of his room at the Tropicana during his short visit to Hongkong. When
he arrived in Hongkong, he opened the envelope which contained Five Thousand US
Dollars (US$5,000.00) and discovered upon counting that only Three Thousand US
Dollars (US$3,000.00) were enclosed therein.[7] Since he had no idea whether
somebody else had tampered with his safety deposit box, he thought that it was just
a result of bad accounting since he did not spend anything from that envelope.[8]
After returning to Manila, he checked out of Tropicana on 18 December 1987
and left for Australia. When he arrived in Australia, he discovered that the envelope
with Ten Thousand US Dollars (US$10,000.00) was short of Five Thousand US
Dollars (US$5,000). He also noticed that the jewelry which he bought in Hongkong
and stored in the safety deposit box upon his return to Tropicana was likewise
missing, except for a diamond bracelet.[9]
 When McLoughlin came back to the Philippines on 4 April 1988, he asked
Lainez if some money and/or jewelry which he had lost were found and returned to
her or to the management. However, Lainez told him that no one in the hotel found
such things and none were turned over to the management. He again registered at
Tropicana and rented a safety deposit box. He placed therein one (1) envelope
containing Fifteen Thousand US Dollars (US$15,000.00), another envelope
containing Ten Thousand Australian Dollars (AUS$10,000.00) and other envelopes
containing his traveling papers/documents. On 16 April 1988, McLoughlin requested
Lainez and Payam to open his safety deposit box. He noticed that in the envelope
containing Fifteen Thousand US Dollars (US$15,000.00), Two Thousand US Dollars
(US$2,000.00) were missing and in the envelope previously containing Ten
Thousand Australian Dollars (AUS$10,000.00), Four Thousand Five Hundred
Australian Dollars (AUS$4,500.00) were missing.[10]
When McLoughlin discovered the loss, he immediately confronted Lainez and
Payam who admitted that Tan opened the safety deposit box with the key assigned
to him.[11]McLoughlin went up to his room where Tan was staying and confronted
her. Tan admitted that she had stolen McLoughlins key and was able to open the
safety deposit box with the assistance of Lopez, Payam and Lainez.[12] Lopez also
told McLoughlin that Tan stole the key assigned to McLoughlin while the latter was
asleep.[13]
McLoughlin requested the management for an investigation of the incident.
Lopez got in touch with Tan and arranged for a meeting with the police and
McLoughlin. When the police did not arrive, Lopez and Tan went to the room of
McLoughlin at Tropicana and thereat, Lopez wrote on a piece of paper a promissory
note dated 21 April 1988. The promissory note reads as follows:
I promise to pay Mr. Maurice McLoughlin the amount of AUS$4,000.00 and
US$2,000.00 or its equivalent in Philippine currency on or before May 5, 1988.[14]
Lopez requested Tan to sign the promissory note which the latter did and Lopez
also signed as a witness. Despite the execution of promissory note by Tan,
McLoughlin insisted that it must be the hotel who must assume responsibility for the
loss he suffered. However, Lopez refused to accept the responsibility relying on the
conditions for renting the safety deposit box entitled Undertaking For the Use Of
Safety Deposit Box,[15] specifically paragraphs (2) and (4) thereof, to wit:
2. To release and hold free and blameless TROPICANA APARTMENT
HOTEL from any liability arising from any loss in the contents and/or use of
the said deposit box for any cause whatsoever, including but not limited to
the presentation or use thereof by any other person should the key be lost;
...
4. To return the key and execute the RELEASE in favor of TROPICANA
APARTMENT HOTEL upon giving up the use of the box.[16]
On 17 May 1988, McLoughlin went back to Australia and he consulted his
lawyers as to the validity of the abovementioned stipulations. They opined that the
stipulations are void for being violative of universal hotel practices and customs. His
lawyers prepared a letter dated 30 May 1988 which was signed by McLoughlin and
sent to President Corazon Aquino.[17] The Office of the President referred the letter to
the Department of Justice (DOJ) which forwarded the same to the Western Police
District (WPD).[18]
After receiving a copy of the indorsement in Australia, McLoughlin came to the
Philippines and registered again as a hotel guest of Tropicana. McLoughlin went to
Malacaňang to follow up on his letter but he was instructed to go to the DOJ. The
DOJ directed him to proceed to the WPD for documentation. But McLoughlin went
back to Australia as he had an urgent business matter to attend to.
For several times, McLoughlin left for Australia to attend to his business and
came back to the Philippines to follow up on his letter to the President but he failed to
obtain any concrete assistance.[19]
McLoughlin left again for Australia and upon his return to the Philippines on 25
August 1989 to pursue his claims against petitioners, the WPD conducted an
investigation which resulted in the preparation of an affidavit which was forwarded to
the Manila City Fiscals Office. Said affidavit became the basis of preliminary
investigation. However, McLoughlin left again for Australia without receiving the
notice of the hearing on 24 November 1989. Thus, the case at the Fiscals Office was
dismissed for failure to prosecute. Mcloughlin requested the reinstatement of the
criminal charge for theft. In the meantime, McLoughlin and his lawyers wrote letters
of demand to those having responsibility to pay the damage. Then he left again for
Australia.
 Upon his return on 22 October 1990, he registered at the Echelon Towers at
Malate, Manila. Meetings were held between McLoughlin and his lawyer which
resulted to the filing of a complaint for damages on 3 December 1990 against YHT
Realty Corporation, Lopez, Lainez, Payam and Tan (defendants) for the loss of
McLoughlins money which was discovered on 16 April 1988. After filing the
complaint, McLoughlin left again for Australia to attend to an urgent business matter.
Tan and Lopez, however, were not served with summons, and trial proceeded with
only Lainez, Payam and YHT Realty Corporation as defendants.
After defendants had filed their Pre-Trial Brief admitting that they had previously
allowed and assisted Tan to open the safety deposit box, McLoughlin filed
anAmended/Supplemental Complaint[20] dated 10 June 1991 which included another
incident of loss of money and jewelry in the safety deposit box rented by McLoughlin
in the same hotel which took place prior to 16 April 1988.[21] The trial court admitted
the Amended/Supplemental Complaint.
During the trial of the case, McLoughlin had been in and out of the country to
attend to urgent business in Australia, and while staying in the Philippines to attend
the hearing, he incurred expenses for hotel bills, airfare and other transportation
expenses, long distance calls to Australia, Meralco power expenses, and expenses
for food and maintenance, among others.[22]
After trial, the RTC of Manila rendered judgment in favor of McLoughlin, the
dispositive portion of which reads:
WHEREFORE, above premises considered, judgment is hereby rendered by this
Court in favor of plaintiff and against the defendants, to wit:
1. Ordering defendants, jointly and severally, to pay plaintiff the sum of
US$11,400.00 or its equivalent in Philippine Currency of P342,000.00,
more or less, and the sum of AUS$4,500.00 or its equivalent in
Philippine Currency of P99,000.00, or a total of P441,000.00, more or
less, with 12% interest from April 16 1988 until said amount has been
paid to plaintiff (Item 1, Exhibit CC);
2. Ordering defendants, jointly and severally to pay plaintiff the sum
of P3,674,238.00 as actual and consequential damages arising from the
loss of his Australian and American dollars and jewelries complained
against and in prosecuting his claim and rights administratively and
judicially (Items II, III, IV, V, VI, VII, VIII, and IX, Exh. CC);
3. Ordering defendants, jointly and severally, to pay plaintiff the sum
of P500,000.00 as moral damages (Item X, Exh. CC);
4. Ordering defendants, jointly and severally, to pay plaintiff the sum
of P350,000.00 as exemplary damages (Item XI, Exh. CC);
5. And ordering defendants, jointly and severally, to pay litigation expenses
in the sum of P200,000.00 (Item XII, Exh. CC);
6. Ordering defendants, jointly and severally, to pay plaintiff the sum
of P200,000.00 as attorneys fees, and a fee of P3,000.00 for every
appearance; and
7. Plus costs of suit.
SO ORDERED.[23]
The trial court found that McLoughlins allegations as to the fact of loss and as to
the amount of money he lost were sufficiently shown by his direct and straightforward
manner of testifying in court and found him to be credible and worthy of belief as it
was established that McLoughlins money, kept in Tropicanas safety deposit box, was
taken by Tan without McLoughlins consent. The taking was effected through the use
of the master key which was in the possession of the management. Payam and
Lainez allowed Tan to use the master key without authority from McLoughlin. The
trial court added that if McLoughlin had not lost his dollars, he would not have gone
through the trouble and personal inconvenience of seeking aid and assistance from
the Office of the President, DOJ, police authorities and the City Fiscals Office in his
desire to recover his losses from the hotel management and Tan.[24]
As regards the loss of Seven Thousand US Dollars (US$7,000.00) and jewelry
worth approximately One Thousand Two Hundred US Dollars (US$1,200.00) which
allegedly occurred during his stay at Tropicana previous to 4 April 1988, no claim
was made by McLoughlin for such losses in his complaint dated 21 November 1990
because he was not sure how they were lost and who the responsible persons were.
But considering the admission of the defendants in their pre-trial brief that on three
previous occasions they allowed Tan to open the box, the trial court opined that it
was logical and reasonable to presume that his personal assets consisting of Seven
Thousand US Dollars (US$7,000.00) and jewelry were taken by Tan from the safety
deposit box without McLoughlins consent through the cooperation of Payam and
Lainez.[25]
The trial court also found that defendants acted with gross negligence in the
performance and exercise of their duties and obligations as innkeepers and were
therefore liable to answer for the losses incurred by McLoughlin.[26]
Moreover, the trial court ruled that paragraphs (2) and (4) of the Undertaking For
The Use Of Safety Deposit Box are not valid for being contrary to the express
mandate of Article 2003 of the New Civil Code and against public policy.[27] Thus,
there being fraud or wanton conduct on the part of defendants, they should be
responsible for all damages which may be attributed to the non-performance of their
contractual obligations.[28]
The Court of Appeals affirmed the disquisitions made by the lower court except
as to the amount of damages awarded. The decretal text of the appellate courts
decision reads:
THE FOREGOING CONSIDERED, the appealed Decision is hereby AFFIRMED but
modified as follows:
The appellants are directed jointly and severally to pay the plaintiff/appellee the
following amounts:
1) P153,200.00 representing the peso equivalent of US$2,000.00 and
AUS$4,500.00;
2) P308,880.80, representing the peso value for the air fares from Sidney
[sic] to Manila and back for a total of eleven (11) trips;
3) One-half of P336,207.05 or P168,103.52 representing payment to
Tropicana Apartment Hotel;
4) One-half of P152,683.57 or P76,341.785 representing payment to
Echelon Tower;
5) One-half of P179,863.20 or P89,931.60 for the taxi xxx transportation
from the residence to Sidney [sic] Airport and from MIA to the hotel
here in Manila, for the eleven (11) trips;
6) One-half of P7,801.94 or P3,900.97 representing Meralco power
expenses;
7) One-half of P356,400.00 or P178,000.00 representing expenses for food
and maintenance;
8) P50,000.00 for moral damages;
9) P10,000.00 as exemplary damages; and
10) P200,000 representing attorneys fees.
With costs.
SO ORDERED.[29]
Unperturbed, YHT Realty Corporation, Lainez and Payam went to this Court in
this appeal by certiorari.
Petitioners submit for resolution by this Court the following issues: (a) whether
the appellate courts conclusion on the alleged prior existence and subsequent loss of
the subject money and jewelry is supported by the evidence on record; (b) whether
the finding of gross negligence on the part of petitioners in the performance of their
duties as innkeepers is supported by the evidence on record; (c) whether the
Undertaking For The Use of Safety Deposit Box admittedly executed by private
respondent is null and void; and (d) whether the damages awarded to private
respondent, as well as the amounts thereof, are proper under the circumstances.[30]
The petition is devoid of merit.
It is worthy of note that the thrust of Rule 45 is the resolution only of questions of
law and any peripheral factual question addressed to this Court is beyond the
bounds of this mode of review.
 Petitioners point out that the evidence on record is insufficient to prove the fact
of prior existence of the dollars and the jewelry which had been lost while deposited
in the safety deposit boxes of Tropicana, the basis of the trial court and the appellate
court being the sole testimony of McLoughlin as to the contents thereof. Likewise,
petitioners dispute the finding of gross negligence on their part as not supported by
the evidence on record.
We are not persuaded. We adhere to the findings of the trial court as affirmed by
the appellate court that the fact of loss was established by the credible testimony in
open court by McLoughlin. Such findings are factual and therefore beyond the ambit
of the present petition.
The trial court had the occasion to observe the demeanor of McLoughlin while
testifying which reflected the veracity of the facts testified to by him. On this score,
we give full credence to the appreciation of testimonial evidence by the trial court
especially if what is at issue is the credibility of the witness. The oft-repeated
principle is that where the credibility of a witness is an issue, the established rule is
that great respect is accorded to the evaluation of the credibility of witnesses by the
trial court.[31] The trial court is in the best position to assess the credibility of
witnesses and their testimonies because of its unique opportunity to observe the
witnesses firsthand and note their demeanor, conduct and attitude under grilling
examination.[32]
We are also not impressed by petitioners argument that the finding of gross
negligence by the lower court as affirmed by the appellate court is not supported by
evidence. The evidence reveals that two keys are required to open the safety deposit
boxes of Tropicana. One key is assigned to the guest while the other remains in the
possession of the management. If the guest desires to open his safety deposit box,
he must request the management for the other key to open the same. In other words,
the guest alone cannot open the safety deposit box without the assistance of the
management or its employees. With more reason that access to the safety deposit
box should be denied if the one requesting for the opening of the safety deposit box
is a stranger. Thus, in case of loss of any item deposited in the safety deposit box, it
is inevitable to conclude that the management had at least a hand in the
consummation of the taking, unless the reason for the loss is force majeure.
Noteworthy is the fact that Payam and Lainez, who were employees of
Tropicana, had custody of the master key of the management when the loss took
place. In fact, they even admitted that they assisted Tan on three separate occasions
in opening McLoughlins safety deposit box.[33] This only proves that Tropicana had
prior knowledge that a person aside from the registered guest had access to the
safety deposit box. Yet the management failed to notify McLoughlin of the incident
and waited for him to discover the taking before it disclosed the matter to him.
Therefore, Tropicana should be held responsible for the damage suffered by
McLoughlin by reason of the negligence of its employees.
The management should have guarded against the occurrence of this incident
considering that Payam admitted in open court that she assisted Tan three times in
opening the safety deposit box of McLoughlin at around 6:30 A.M. to 7:30 A.M. while
the latter was still asleep.[34] In light of the circumstances surrounding this case, it is
undeniable that without the acquiescence of the employees of Tropicana to the
opening of the safety deposit box, the loss of McLoughlins 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 McLoughlins deposit. If only petitioners
exercised due diligence in taking care of McLoughlins safety deposit box, they
should have confronted him as to his relationship with Tan considering that the latter
had been observed opening McLoughlins safety deposit box a number of times at
the early hours of the morning. Tans 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 be enforced when the missing items are taken without the guests knowledge and
responsible for damages caused by their employees in the service of the branches in consent from a safety deposit box provided by the hotel itself, as in this case.
which the latter are employed or on the occasion of their functions. Also, this Court
Paragraphs (2) and (4) of the undertaking manifestly contravene Article 2003 of
has ruled that if an employee is found negligent, it is presumed that the employer
the New Civil Code for they allow Tropicana to be released from liability arising from
was negligent in selecting and/or supervising him for it is hard for the victim to prove
any loss in the contents and/or use of the safety deposit box for any cause
the negligence of such employer.[35] Thus, given the fact that the loss of McLoughlins
whatsoever.[40] Evidently, the undertaking was intended to bar any claim against
money was consummated through the negligence of Tropicanas employees in
Tropicana for any loss of the contents of the safety deposit box whether or not
allowing Tan to open the safety deposit box without the guests consent, both the
negligence was incurred by Tropicana or its employees. The New Civil Code is
assisting employees and YHT Realty Corporation itself, as owner and operator of
explicit that the responsibility of the hotel-keeper shall extend to loss of, or injury to,
Tropicana, should be held solidarily liable pursuant to Article 2193.[36]
the personal property of the guests even if caused by servants or employees of the
The issue of whether the Undertaking For The Use of Safety Deposit keepers of hotels or inns as well as by strangers, except as it may proceed from
Box executed by McLoughlin is tainted with nullity presents a legal question any force majeure.[41] It is the loss through force majeure that may spare the hotel-
appropriate for resolution in this petition. Notably, both the trial court and the keeper from liability. In the case at bar, there is no showing that the act of the thief or
appellate court found the same to be null and void. We find no reason to reverse robber was done with the use of arms or through an irresistible force to qualify the
their common conclusion. Article 2003 is controlling, thus: same as force majeure.[42]
Petitioners likewise anchor their defense on Article 2002[43] which exempts the
Art. 2003. The hotel-keeper cannot free himself from responsibility by posting notices
hotel-keeper from liability if the loss is due to the acts of his guest, his family, or
to the effect that he is not liable for the articles brought by the guest. Any stipulation
visitors. Even a cursory reading of the provision would lead us to reject petitioners
between the hotel-keeper and the guest whereby the responsibility of the former as
contention. The justification they raise would render nugatory the public interest
set forth in Articles 1998 to 2001[37] is suppressed or diminished shall be void.
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
Article 2003 was incorporated in the New Civil Code as an expression of public
guests relatives or visitor? Should the law exculpate the hotel from liability since the
policy precisely to apply to situations such as that presented in this case. The hotel
loss was due to the act of the visitor of the registered guest of the hotel? Hence, this
business like the common carriers business is imbued with public interest. Catering
provision presupposes that the hotel-keeper is not guilty of concurrent negligence or
to the public, hotelkeepers are bound to provide not only lodging for hotel guests and
has not contributed in any degree to the occurrence of the loss. A depositary is not
security to their persons and belongings. The twin duty constitutes the essence of
responsible for the loss of goods by theft, unless his actionable negligence
the business. The law in turn does not allow such duty to the public to be negated or
contributes to the loss.[44]
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 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
In an early case,[38] the Court of Appeals through its then Presiding Justice (later
necessary to open the safety deposit box. Without the assistance of hotel
Associate Justice of the Court) Jose P. Bengzon, ruled that to hold hotelkeepers or
employees, the loss would not have occurred. Thus, Tropicana was guilty of
innkeeper liable for the effects of their guests, it is not necessary that they be actually
concurrent negligence in allowing Tan, who was not the registered guest, to open the
delivered to the innkeepers or their employees. It is enough that such effects are
safety deposit box of McLoughlin, even assuming that the latter was also guilty of
within the hotel or inn.[39] With greater reason should the liability of the hotelkeeper
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 guests relatives and visitors.
Petitioners contend that McLoughlins case was mounted on the theory of
contract, but the trial court and the appellate court upheld the grant of the claims of
the latter on the basis of tort.[45] There is nothing anomalous in how the lower courts
decided the controversy for this Court has pronounced a jurisprudential rule that tort
liability can exist even if there are already contractual relations. The act that breaks
the contract may also be tort.[46]
As to damages awarded to McLoughlin, we see no reason to modify the
amounts awarded by the appellate court for the same were based on facts and law.
It is within the province of lower courts to settle factual issues such as the proper
amount of damages awarded and such finding is binding upon this Court especially if
sufficiently proven by evidence and not unconscionable or excessive. Thus, the
appellate court correctly awarded McLoughlin Two Thousand US Dollars
(US$2,000.00) and Four Thousand Five Hundred Australian dollars (AUS$4,500.00)
or their peso equivalent at the time of payment,[47] being the amounts duly proven by
evidence.[48] The alleged loss that took place prior to 16 April 1988 was not
considered since the amounts alleged to have been taken were not sufficiently
established by evidence. The appellate court also correctly awarded the sum
of P308,880.80, representing the peso value for the air fares from Sydney to Manila
and back for a total of eleven (11) trips;[49] one-half of P336,207.05 orP168,103.52
representing payment to Tropicana;[50] one-half of P152,683.57 or P76,341.785
representing payment to Echelon Tower;[51] one-half of P179,863.20 or P89,931.60
for the taxi or transportation expenses from McLoughlins residence to Sydney Airport
and from MIA to the hotel here in Manila, for the eleven (11) trips;[52] one-half
of P7,801.94 or P3,900.97 representing Meralco power expenses;[53] one-half
of P356,400.00 or P178,000.00 representing expenses for food and maintenance.[54]
The amount of P50,000.00 for moral damages is reasonable. Although trial
courts are given discretion to determine the amount of moral damages, the appellate
court may modify or change the amount awarded when it is palpably and
scandalously excessive. Moral damages are not intended to enrich a complainant at
the expense of a defendant. They are awarded only to enable the injured party to
obtain means, diversion or amusements that will serve to alleviate the moral
suffering he has undergone, by reason of defendants culpable action.[55]
The awards of P10,000.00 as exemplary damages and P200,000.00
representing attorneys fees are likewise sustained.
WHEREFORE, foregoing premises considered, the Decision of the Court of
Appeals dated 19 October 1995 is hereby AFFIRMED. Petitioners are directed,
jointly and severally, to pay private respondent the following amounts:
(1) US$2,000.00 and AUS$4,500.00 or their peso equivalent at the time of
payment;
(2) P308,880.80, representing the peso value for the air fares from Sydney to
Manila and back for a total of eleven (11) trips;
(3) One-half of P336,207.05 or P168,103.52 representing payment to
Tropicana Copacabana Apartment Hotel;
(4) One-half of P152,683.57 or P76,341.785 representing payment to Echelon
Tower;
(5) One-half of P179,863.20 or P89,931.60 for the taxi or transportation
expense from McLoughlins residence to Sydney Airport and from MIA to
the hotel here in Manila, for the eleven (11) trips;
(6) One-half of P7,801.94 or P3,900.97 representing Meralco power expenses;
(7) One-half of P356,400.00 or P178,200.00 representing expenses for food
and maintenance;(8) P50,000.00 for moral damages;(9) P10,000.00 as
exemplary damages; and
(10) P200,000 representing attorneys fees.
With costs.SO ORDERED.
 TRIPLE-V vs. FILIPINO MERCHANTS
THIRD DIVISION
Gentlemen:
Quoted hereunder, for your information, is a resolution of this Court dated FEB 21
2005.
G.R. No. 160544 (Triple-V Food Services, Inc. vs. Filipino Merchants Insurance
Company, Inc.)
Assailed in this petition for review on certiorari is the decision[1]cralaw dated October
21, 2003 of the Court of Appeals in CA-G.R. CV No. 71223, affirming an earlier
decision of the Regional Trial Court at Makati City, Branch 148, in its Civil Case No.
98-838, an action for damages thereat filed by respondent Filipino Merchants
Insurance, Company, Inc., against the herein petitioner, Triple-V Food Services, Inc.
On March 2, 1997, at around 2:15 o'clock in the afternoon, a certain Mary Jo-Anne
De Asis (De Asis) dined at petitioner's Kamayan Restaurant at 15 West Avenue,
Quezon City. De Asis was using a Mitsubishi Galant Super Saloon Model 1995 with
plate number UBU 955, assigned to her by her employer Crispa Textile Inc. (Crispa).
On said date, De Asis availed of the valet parking service of petitioner and entrusted
her car key to petitioner's valet counter. A corresponding parking ticket was issued
as receipt for the car. The car was then parked by petitioner's valet attendant, a
certain Madridano, at the designated parking area. Few minutes later, Madridano
noticed that the car was not in its parking slot and its key no longer in the box where
valet attendants usually keep the keys of cars entrusted to them. The car was never
recovered. Thereafter, Crispa filed a claim against its insurer, herein respondent
Filipino Merchants Insurance Company, Inc. (FMICI). Having indemnified Crispa in
the amount of P669.500 for the loss of the subject vehicle, FMICI, as subrogee to
Crispa's rights, filed with the RTC at Makati City an action for damages against
petitioner Triple-V Food Services, Inc., thereat docketed as Civil Case No. 98-838
which was raffled to Branch 148.
In its answer, petitioner argued that the complaint failed to aver facts to support the
allegations of recklessness and negligence committed in the safekeeping and
custody of the subject vehicle, claiming that it and its employees wasted no time in
ascertaining the loss of the car and in informing De Asis of the discovery of the loss.
Petitioner further argued that in accepting the complimentary valet parking service,
De Asis received a parking ticket whereunder it is so provided that "[Management
and staff will not be responsible for any loss of or damage incurred on the vehicle nor
of valuables contained therein", a provision which, to petitioner's mind, is an explicit
waiver of any right to claim indemnity for the loss of the car; and that De Asis
knowingly assumed the risk of loss when she allowed petitioner to park her vehicle,
adding that its valet parking service did not include extending a contract of insurance
or warranty for the loss of the vehicle.
During trial, petitioner challenged FMICI's subrogation to Crispa's right to file a claim
for the loss of the car, arguing that theft is not a risk insured against under FMICI's
Insurance Policy No. PC-5975 for the subject vehicle.
In a decision dated June 22, 2001, the trial court rendered judgment for respondent
FMICI, thus:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
plaintiff (FMICI) and against the defendant Triple V (herein petitioner) and the latter is
hereby ordered to pay plaintiff the following:
1. The amount of P669,500.00, representing actual damages plus compounded
(sic);
2. The amount of P30,000.00 as acceptance fee plus the amount equal to 25% of
the total amount due as attorney's fees;
3. The amount of P50,000.00 as exemplary damages;
4. Plus, cost of suit.
Defendant Triple V is not therefore precluded from taking appropriate action against
defendant Armando Madridano.
SO ORDERED.
Obviously displeased, petitioner appealed to the Court of Appeals reiterating its
argument that it was not a depositary of the subject car and that it exercised due
diligence and prudence in the safe keeping of the vehicle, in handling the car-
napping incident and in the supervision of its employees. It further argued that there
was no valid subrogation of rights between Crispa and respondent FMICI.
In a decision dated October 21, 2003,[2]cralaw the Court of Appeals dismissed
petitioner's appeal and affirmed the appealed decision of the trial court, thus:
WHEREFORE, based on the foregoing premises, the instant appeal is hereby
DISMISSED. Accordingly, the assailed June 22, 2001 Decision of the RTC of Makati
City - Branch 148 in Civil Case No. 98-838 is AFFIRMED.
SO ORDERED.
In so dismissing the appeal and affirming the appealed decision, the appellate court
agreed with the findings and conclusions of the trial court that: (a) petitioner was a
depositary of the subject vehicle; (b) petitioner was negligent in its duties as a
depositary thereof and as an employer of the valet attendant; and (c) there was a
valid subrogation of rights between Crispa and respondent FMICI.
Hence, petitioner's present recourse.
We agree with the two (2) courts below.
When De Asis entrusted the car in question to petitioners valet attendant while eating
at petitioner'sKamayan Restaurant, the former expected the car's safe return at the
end of her meal. Thus, petitioner was constituted as a depositary of the same car.
Petitioner cannot evade liability by arguing that neither a contract of deposit nor that
of insurance, guaranty or surety for the loss of the car was constituted when De Asis
availed of its free valet parking service.
In a contract of deposit, a person receives an object belonging to another with the
obligation of safely keeping it and returning the same.[3]cralaw A deposit may be
constituted even without any consideration. It is not necessary that the depositary
receives a fee before it becomes obligated to keep the item entrusted for
safekeeping and to return it later to the depositor.
Specious is petitioner's insistence that the valet parking claim stub it issued to De
Asis contains a clear exclusion of its liability and operates as an explicit waiver by the
customer of any right to claim indemnity for any loss of or damage to the vehicle.
The parking claim stub embodying the terms and conditions of the parking, including
that of relieving petitioner from any loss or damage to the car, is essentially a
contract of adhesion, drafted and prepared as it is by the petitioner alone with no
participation whatsoever on the part of the customers, like De Asis, who merely
adheres to the printed stipulations therein appearing. While contracts of adhesion are
not void in themselves, yet this Court will not hesitate to rule out blind adherence
thereto if they prove to be one-sided under the attendant facts and
circumstances.[4]cralaw
Hence, and as aptly pointed out by the Court of Appeals, petitioner must not be
allowed to use its parking claim stub's exclusionary stipulation as a shield from any
responsibility for any loss or damage to vehicles or to the valuables contained
therein. Here, it is evident that De Asis deposited the car in question with the
petitioner as part of the latter's enticement for customers by providing them a safe
parking space within the vicinity of its restaurant. In a very real sense, a safe parking
space is an added attraction to petitioner's restaurant business because customers
are thereby somehow assured that their vehicle are safely kept, rather than parking
them elsewhere at their own risk. Having entrusted the subject car to petitioner's
valet attendant, customer De Asis, like all of petitioner's customers, fully expects the
security of her car while at petitioner's premises/designated parking areas and its
safe return at the end of her visit at petitioner's restaurant.
Petitioner's argument that there was no valid subrogation of rights between Crispa
and FMICI because theft was not a risk insured against under FMICI's Insurance
Policy No. PC-5975 holds no water.
Insurance Policy No. PC-5975 which respondent FMICI issued to Crispa contains,
among others things, the following item: "Insured's Estimate of Value of Scheduled
Vehicle- P800.000".[5]cralaw On the basis of such item, the trial court concluded that
the coverage includes a full comprehensive insurance of the vehicle in case of
damage or loss. Besides, Crispa paid a premium of P10,304 to cover theft. This is
clearly shown in the breakdown of premiums in the same policy.[6]cralaw Thus,
having indemnified CRISPA for the stolen car, FMICI, as correctly ruled by the trial
court and the Court of Appeals, was properly subrogated to Crispa's rights against
petitioner, pursuant to Article 2207 of the New Civil Code[7].

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

WHEREFORE, petition is hereby DENIED DUE COURSE.

SO ORDERED.
 1. The Heirs of Aurelio Reyes vs. Hon. Ernesto D. On September 21, 1988, emancipation patents were issued to respondents
as farmer-beneficiaries over the entire landholding in question.[7]
Garilao, et al.; G.R. No. 136466, November 25, 2009
On August 2, 1993, petitioners lodged a petition for the cancellation of the
Before this Court is a Petition for Review on Certiorari,[1] under Rule 45 of the
emancipation patents issued to the respondents before the Department of Agrarian
Rules of Court, assailing the April 16, 1997 Decision[2] and December 2, 1998
Reform Adjudication Board San Fernando, Pampanga, which is now pending and
Resolution[3] of the Court of Appeals (CA) in CA-G.R. SP 42847.
docketed as DARAB Case No. 118-BAT-93.[8]

The facts of the case:

Earlier, however, on July 15, 1993, petitioners filed with the Department of
Agrarian Reform (DAR), Region III, San Fernando, Pampanga, their respective
Petitioners are the registered co-owners of a parcel of land known as Lot No. 166 of
applications for retention[9] over Lot No. 166, at five (5) hectares each, pursuant to
the Cadastral survey of Orani, Bataan, consisting of an area of 99.1085 hectares and
Section 6[10] of Republic Act No. 6657, or the Comprehensive Agrarian Reform Law
covered under Transfer Certificate of Title No. T-91171 of the Registry of Deeds
of 1988 (RA No. 6657).[11]
of Bataan.[4] Particularly, the individual shares of petitioners are hereunder
On October 25, 1994, the OIC-Regional Director issued an Order[12] granting
enumerated, thus:
petitioners applications for retention, the dispositive portion of which reads:

WHEREFORE, premises considered, an Order is hereby

1. Antonia Reyes (widow) 55.0602 has.
issued:
2. Cesar H. Reyes 5.5060 has.
3. Aurelio H. Reyes 5.5060 has.
1. GRANTING the Application for individual retention of the heirs of
4. Lourdes R. Mateo 5.5060 has.
Aurelio P. Reyes with each heir to retain not more than five (5)
5. Teresita H. Reyes 5.5060 has.
hectares of their landholding at Barangay Mulawin, Orani, Bataan,
6. Gregorio H. Reyes 5.5060 has.
which must be compact and contiguous;
7. Carlos H. Reyes 5.5060 has.
2. DIRECTING the said heirs to make the segregation of their
8. Manuel H. Reyes 5.5060 has.
retainable area at their own expense and to submit the result
9. Maria Rosario R. Bartolome 5.5060 has.
thereof to this Office;
--------------
3. DIRECTING the parties concerned to initiate the cancellation of
99.1082 has.[5]
emancipation patent(s), if any has (have) been issued over the
retained landholding before the proper forum; and
4. DIRECTING the DAR personnel concerned to make provisions
Said property was originally owned by the spouses Antonia Reyes and the
for the welfare of the affected farmer-beneficiaries, if any.
late Aurelio Reyes (Aurelio), who died in January 21, 1972 (before the effectivity of
Presidential Decree No 27).[6] Upon the death of Aurelio, said property passed by
SO ORDERED.[13]
succession to petitioners, who divided the same as shown above.
 On July 31, 1995, respondents appealed the October 25, 1994 Order of the
OIC-Regional Director to the DAR Secretary. On November 30, 1996, the DAR
Secretary issued an Order[14] setting aside the Order of the Regional Director, the
dispositive portion of which reads:
WHEREFORE, premises considered, Order is hereby issued
setting aside the Order dated October 25, 1994. Consequently, the
granting of applicants-appellees individual retention rights is hereby
revoked.
SO ORDERED.[15]
The DAR Secretary found that each compulsory heir owns, aside from the 5.5060
has. representing their 1/9 share of the property in dispute, other landholdings
presumably used either as residential, commercial, industrial or for other urban
purposes located in Makati and Manila.[16] The DAR Secretary further held that
landowners who own lands devoted to non-agricultural purposes are presumed to
derive adequate income therefrom to support themselves and their
families.[17]Accordingly, the DAR Secretary denied the applications for exemption of
petitioners pursuant to DAR Administrative Order No. 4, series of 1991.[18]
Aggrieved by the Order of the DAR Secretary, petitioners sought to assail the
same via a petition for review before the CA. On April 16, 1997, the CA rendered a
Decision[19] ruling in favor of respondents, the dispositive portion of which reads:
WHEREFORE, the petition for review is DISMISSED for lack of merit.
SO ORDERED.[20]
The CA ruled that Administrative Order No. 4, series of 1991, and Letter of
Instruction (LOI) No. 474 restricts the right of retention of landowners, in the wise:
Petitioners land has been subjected to land reform under P.D. No. 27.
On September 21, 1988, emancipation patents were issued over the
subject land in favor of farmer-beneficiaries. Petitioners filed their
individual applications for retention of their share in the subject land
only on July 15, 1993, after the effectivity of R.A. No. 6657. Thus, the
provisions of R.A. No. 6657 shall govern petitioners exercise of their
right of retention. Section 6 of R.A. No. 6657 provides that landowners
whose lands have been covered by P.D. No. 27 shall be allowed to
keep the area originally retained by them thereunder. Since
petitioners did not exercise their right of retention under P.D. No. 27,
the provisions of R.A. No. 6657 on retention limit shall
govern. However, since LOI No. 474 and Administrative Order No.
4, series of 1991, restricts the right of retention of landowners, in
the sense that those who own other non-agricultural lands and
derive adequate income therefrom have no right of retention, the
said restriction should be applied to herein petitioner.[21]
Moreover, the CA upheld the finding of the DAR Secretary, that in addition to the
share of petitioners in the land subject of herein petition, petitioners have other
landholdings presumably used either as residential, commercial, industrial, or for
other urban purposes located in Makati and Manila.[22] Hence, the CA concluded that
petitioners were not entitled to exercise their retention rights as a result of the
restrictions contained in Administrative Order No. 4, series of 1991, as well as LOI
No. 474.
Petitioners then filed a Motion for Reconsideration, which was, however, denied by
the CA in a Resolution[23] dated December 2, 1998.
Hence, herein petition, with petitioners raising the following grounds in support of the
petition, to wit:
A.
PETITIONERS RIGHT TO RETENTION OF PORTIONS OF
THEIR LANDHOLDINGS IS NOT FORECLOSED BY ANY
 VESTED RIGHT THAT PRIVATE RESPONDENTS MAY
CLAIM.
B.
LOI NO. 474 DATED OCTOBER 21, 1976 HAS BEEN
REPEALED BY REP. ACT NO. 6657, HENCE, THE
RESTRICTIVE CONDITIONS IN THE EARLIER LAW
SHOULD NOT BE APPLIED TO PETITIONERS EXERCISE
OF THEIR RETENTION RIGHTS UNDER THE LATTER LAW.
C.
DEPARTMENT OF AGRARIAN REFORM ADMINISTRATIVE
ORDER NO. 04, SERIES OF 1991, HAS THEREFORE NO
STATUTORY BASIS INSOFAR AS RETENTION RIGHTS
UNDER REPUBLIC ACT NO. 6657 ARE CONCERNED. SAID
ISSUANCE APPLIES ONLY TO RETENTION RIGHTS OF (7)
HECTARES UNDER PRESIDENTIAL DECREE NO. 27.[24]
The petition is not meritorious.
At the crux of the controversy is the determination of the applicability of the restrictive
conditions found in LOI No. 474 to RA No. 6657.
In order to understand the case at bar, this Court shall hereunder discuss the various
laws and administrative order pertinent to herein petition and their relation to one
another.
Presidential Decree No. 27 (PD No. 27),[25] issued on October 21, 1972 by
then President Ferdinand E. Marcos, proclaimed the entire country as a land reform
area and decreed the emancipation of tenants from the bondage of the soil,
transferring to them the ownership of the land they till. To achieve its purpose,
the decree laid down a system for the purchase by tenant-farmers, long recognized
as the backbone of the economy, of the lands they were tilling. Owners of rice and
corn lands that exceeded the minimum retention area were bound to sell their lands
to qualified farmers at liberal terms and subject to conditions.[26]
More importantly, PD No. 27 also provides that, in all cases, the landowner
may retain an area not more than seven (7) hectares if such landowner is cultivating
such area or will now cultivate it.
Meanwhile, on October 21, 1976, then President Marcos, issued LOI No.
474, addressed to the Secretary of Agrarian Reform, the pertinent portions of which
read:
To: The Secretary of Agrarian Reform.
WHEREAS, last year I ordered that small landowners of
tenanted rice/corn lands with areas of less than twenty-four hectares
but above seven hectares shall retain not more than seven hectares
of such lands except when they own other agricultural lands
containing more than seven hectares or land used for residential,
commercial, industrial or other urban purposes from which they derive
adequate income to support themselves and their families;
WHEREAS, the Department of Agrarian Reform found that in
the course of implementing my directive there are many landowners
of tenanted rice/corn lands with areas of seven hectares or less who
also own other agricultural lands containing more than seven hectares
or lands used for residential, commercial, industrial or other urban
purposes where they derive adequate income to support themselves
and their families;
WHEREAS, it is therefore necessary to cover said lands under
the Land Transfer Program of the government to emancipate the
tenant-farmers therein.
NOW, THEREFORE, I, PRESIDENT FERDINAND E.
MARCOS, President of the Philippines, do hereby order the following:
1. You shall undertake to place under the Land Transfer Program
of the government pursuant to Presidential Decree No. 27, all
tenanted rice/corn lands with areas of seven hectares or less
belonging to landowners who own other agricultural lands of
more than seven hectares in aggregate areas or lands used for
 residential, commercial, industrial or other urban purposes from
which they derive adequate income to support themselves and
their families.[27]
LOI No. 474, thus, amended PD No. 27 by removing any right of retention
from persons who own other agricultural lands of more than 7 hectares, or lands
used for residential, commercial, industrial or other purposes from which they derive
adequate income to support themselves and their families.[28]
After Martial Law, on June 10, 1988, Congress, under the leadership of then
President Corazon Aquino passed RA No. 6657[29] or the Comprehensive Agrarian
Reform Law. Of importance is Section 6 which provides for the right of retention of
landowners, to wit:
SEC. 6. Retention Limits. - Except as otherwise provided in
this Act, no person may own or retain, directly, any public or private
agricultural land, the size of which shall vary according to factors
governing a viable family-sized farm, such as commodity produced,
terrain, infrastructure, and soil fertility as determined by the
Presidential Agrarian Reform Council (PARC) created hereunder, but
in no case shall the retention by the landowner exceed five (5)
hectares. Three (3) hectares may be awarded to each child of the
landowner, subject to the following qualifications: (1) that he is at least
fifteen (15) years of age; and (2) that he is actually tilling the land or
directly managing the farm:Provided, That landowners whose lands
have been covered by Presidential Decree No. 27 shall be allowed to
keep the area originally retained by them thereunder; Provided,
further, That original homestead grantees or direct compulsory heirs
who still own the original homestead at the time of the approval of this
Act shall retain the same areas as long as they continue to cultivate
said homestead.
The right to choose the area to be retained, which shall be
compact or contiguous, shall pertain, to the landowner: Provided,
however, That in case the area selected for retention by the
landowner is tenanted, the tenant shall have the option to choose
whether to remain therein or be a beneficiary in the same or another
agricultural land with similar or comparable features. In case the
tenant chooses to remain in the retained area, he shall be considered
a leaseholder and shall lose his right to be a beneficiary under this
Act. In case the tenant chooses to be a beneficiary in another
agricultural land, he loses his right as a leaseholder to the land
retained by the landowner. The tenant must exercise this option within
a period of one (1) year from the time the landowner manifests his
choice of the area for retention.
In all cases, the security of tenure of the farmers or farm
workers on the land prior to the approval of this Act shall be
respected.
Upon the effectivity of this Act, any sale, disposition, lease,
management contract or transfer of possession of private lands
executed by the original landowner in violation of this Act shall be null
and void: Provided, however, That those executed prior to this Act
shall be valid only when registered with the Register of Deeds within a
period of three (3) months after the effectivity of this Act . Thereafter,
all Registers of Deeds shall inform the DAR within thirty (30) days of
any transaction involving agricultural lands in excess of five (5)
hectares.[30]
As can be observed, Section 6 of RA No. 6657, while providing for a right of retention
of five hectares, does not prescribe the limitation or conditions provided for in LOI
No. 474.
Soon after, Administrative Order No. 4, series of 1991, was issued by the
Secretary of the Department of Agrarian Reform, the pertinent portions of which
read:
B. Policy Statements.
1. Landowners covered by P.D. 27 are entitled to retain seven
hectares, except those whose entire tenanted rice and corn lands are
 subject of acquisition and distribution under Operation Land Transfer
(OLT). An owner of tenanted rice and corn lands may not retain
these lands under the following cases:
a. If he, as of 21 October 1972, owned more than 24 hectares
of tenanted rice and corn lands; or by virtue of LOI 474,
if he, as of 21 October 1976, owned less than 24
hectares of tenanted rice or corn lands, but additionally
owned the following:
- Other agricultural lands of more than seven hectares,
whether tenanted or not, whether
cultivated or not, and regardless of the
income derived therefrom; or
- Lands used for residential,
commercial, industrial, or other
urban purposes, from which he
derives adequate income to support
himself and his family.[31]
Based on the foregoing, petitioners anchor herein petition on their
observation that Section 6 of RA No. 6657 does not provide for the limitation or
exception to the exercise of retention rights previously found in LOI No.
474. Petitioners, thus, posit that those parts of the section amended, which are
omitted in the amendments, are deemed repealed.[32] Likewise, petitioners contend
that LOI No. 474 is inconsistent with the provisions of RA No. 6657 and was
therefore repealed by the latter.[33]
After a judicious examination of the laws and relevant jurisprudence to the
case at bar, this Court holds that petitioners positions are without merit.
LOI No. 474 provides for a restrictive condition on the exercise of the right of
retention, specifically disqualifying landowners who own other agricultural lands of
more than seven hectares in aggregate areas, or lands used for residential,
commercial, industrial or other urban purposes from which they derive adequate
income to support themselves and their families. Said condition is essentially the
same one contained in Administrative Order No. 4, series of 1991.
In Association of Small Landowners in the Philippines, Inc. v. Secretary of
Agrarian Reform,[34] this Court upheld the validity of LOI No. 474, in the wise:
The Court wryly observes that during the past dictatorship, every
presidential issuance, by whatever name it was called, had the force
and effect of law because it came from President Marcos. Such are
the ways of despots. Hence, it is futile to argue, as petitioners do in
G.R. No. 79744, that LOI 474 could not have repealed P.D. No. 27
because the former was only a letter of instruction. The important
thing is that it was issued by President Marcos, whose word was law
during the time.
Petitioners, however, argue that RA No. 6657 has impliedly repealed LOI No. 474 on
the theory that the latter is inconsistent with the former. Consequently, petitioners
contend that Administrative Order No. 4, series of 1991 has no statutory basis.
This Court cannot subscribe to petitioners view. This Court is guided by Social
Justice Society v. Atienza Jr.,[35] wherein the operation of implied repeals was
extensively discussed, to wit:
Repeal by implication proceeds on the premise that where a
statute of later date clearly reveals the intention of the legislature to
abrogate a prior act on the subject, that intention must be given effect.
There are two kinds of implied repeal. The first is: where the
provisions in the two acts on the same subject matter are
irreconcilably contradictory, the latter act, to the extent of the conflict,
constitutes an implied repeal of the earlier one. The second is: if the
later act covers the whole subject of the earlier one and is clearly
intended as a substitute, it will operate to repeal the earlier law. The
oil companies argue that the situation here falls under the first
category.
Implied repeals are not favored and will not be so declared
unless the intent of the legislators is manifest. As statutes and
 ordinances are presumed to be passed only after careful deliberation
and with knowledge of all existing ones on the subject, it follows that,
in passing a law, the legislature did not intend to interfere with or
abrogate a former law relating to the same subject matter. If the intent
to repeal is not clear, the later act should be construed as a
continuation of, and not a substitute for, the earlier act.[36]
Based on the foregoing, this Court disagrees with the theory advanced by petitioners
that RA No. 6657 has impliedly repealed LOI No. 474. The congressional
deliberations[37] cited by petitioners are insufficient to indicate an intent to repeal LOI
No. 474. A perusal thereof shows that said deliberations were confined only to the
matter of retention limits (i.e., 3, 5 or 7 hectares), and no mention was made of the
restrictive conditions found in LOI No. 474. As a matter of fact, what is clear from
said deliberations is that the framers of RA No. 6657 had intended to distribute more
lands.[38]
While both laws may have the same subject matter, i.e. agrarian reform and its
mechanism, if there is no intent to repeal the earlier enactment, every effort at a
reasonable construction must be made to reconcile the statutes, so that both can be
given effect.[39]
To stress, RA No. 6657 is a social justice and poverty alleviation program which
seeks to empower the lives of agrarian reform beneficiaries through equitable
distribution and ownership of the land based on the principle of land to the tiller. RA
No.6657, however, allows landowners to retain five hectares of their landholding. LOI
No. 474, on the other hand, imposes restrictive conditions on the exercise of the right
of retention by mandating that landowners who possess other lands used for
residential, commercial, industrial, or other urban purposes, from which they derive
adequate income to support themselves and their families are disqualified from
exercising their right of retention.
Respondents, in their Comment,[40] argue that LOI No. 474 partakes of a special law,
while RA No. 6657 is a general law, to wit:
It will be noted that LOI No. 474, as implemented by Administrative
Order No. 04, Series of 1991, partakes of a special law specifically
governing the acquisition of all tenanted rice/corn lands with [an] area
of seven hectares or less belonging to landowners who own other
agricultural lands of more than seven hectares in aggregate areas or
lands used for residential, commercial, industrial or other urban
purposes from which they derive adequate income to support
themselves and their families under the Land Transfer Program of the
government pursuant to Presidential Decree No. 27. x x x
On the other hand, Section 6 of R.A. No. 6657, otherwise known as
the Comprehensive Agrarian Reform Law of 1988, merely provides, in
relations to lands retained by the landowners under P.D. No. 27, that
landowners whose lands have been covered by Presidential Decree
No. 27 shall be allowed to keep the area originally retained by them
thereunder. R.A. No. 6657 does not govern nor provide for the
manner and conditions by which the right of retention of landowners of
rice/corn lands may be exercised. It is, therefore, a general law
covering all public and private agricultural lands as provided in
Proclamation No. 131 and Executive Order No. 229, including other
lands of the public domain suitable for agriculture. x x x[41]
Respondents also contend that both laws are complementary to each other
such that while RA No. 6657 does not provide for the mechanism for the exercise of
the right of retention of landowners under PD No. 27, LOI No. 474, as implemented
by DAR Administrative Order No. 4, series of 1991, supplies that
mechanism.[42] Lastly, respondents argue that as between a general law (R.A. No.
6657) and a special law (LOI No. 474), there is no dispute that the latter shall
prevail.[43]
The position of respondents is well-taken. It is a well-settled rule in statutory
construction that a subsequent general law does not repeal a prior special law
on the same subject matter unless it clearly appears that the legislature has
intended by the latter general act to modify or repeal the earlier special
law.[44]Generalia specialibus non derogant (a general law does not nullify a specific
or special law).[45] This is so even if the provisions of the general law are sufficiently
comprehensive to include what was set forth in the special act.[46] Moreover, the
special act and the general law must stand together, one as the law of the particular
subject and the other as the law of general application.[47]
 There is no conflict between RA No. 6675 and LOI No. 474 as both can be
given a reasonable construction so as to give them effect. The suppletory application
of laws is sanctioned under Section 75 of RA No. 6675, to wit:
SEC. 75. Suppletory Application of Existing Legislation. - The
provisions of Republic Act Number 3844, as amended, Presidential
Decree Numbers 27 and 266 as amended, Executive Order Numbers
228 and 229, both Series of 1987, and other laws not inconsistent
with this Act shall have suppletory effect.
Withal, this Court concludes that while RA No. 6675 is the law of general
application, LOI No. 474 may still be applied to the latter. Hence, landowners under
RA No. 6675 are entitled to retain five hectares of their landholding; however, if they
too own other lands used for residential, commercial, industrial or other urban
purposes from which they derive adequate income to support themselves and their
families, they are disqualified from exercising their right of retention.
For the same reasons previously discussed, this Court cannot subscribe to
petitioners view that Section 76,[48] or the Repealing Clause of RA No. 6675, has
repealed LOI No. 474.
Anent petitioners claim that Administrative Order No. 4, series of 1991, has no
statutory basis, the same is without merit.
It is a general rule that the power of administrative officials to promulgate
rules and regulations in the implementation of a statute is
necessarily limited only tocarrying into effect what is provided in the legislative enact
ment.[49] Furthermore, it is an elementary rule in administrative law that administrative
regulations and policies enacted by administrative bodies to interpret the law which
they are entrusted to enforce, have the force of law, and are entitled to great weight
and respect.[50] Since the validity of LOI No. 474 and its suppletory application to RA
No. 6675 has been settled, it is clear that Administrative Order No. 4, series of 1991,
is valid as it is merely a reiteration of LOI No. 474.
Lastly, petitioners contend that even on the assumption that Administrative Order No.
4 or even LOI No. 474, may be applied to the retention rights under RA No. 6657,
still there is no substantial evidence to support the finding of respondent Secretary
that petitioners own other lands devoted to non-agricultural uses from which they
derived adequate income to support their family.[51]
On this point, the DAR Secretary made the following findings, to wit:
Be that as it may, records however disclosed that Antonia
Reyes, the surviving spouse, owned 55.0602 has. tenanted riceland
as of October 21, 1972 representing her and 1/9 shares of the
landholding in question. Records further show that each compulsory
heir owns, aside from the 5.5060 has. representing their 1/9 share of
the said property, other landholdings presumably used either as
residential, commercial, industrial, or for other urban purposes located
at Makati and Manila (See: Petition for Approval of Amended Project
of Partition dated July 9, 1975).[52]
Said findings were also made by the CA as its basis in affirming the decision of the
DAR Secretary. The same is a question of fact which cannot be the subject of herein
petition.[53] More importantly, the findings of the DAR are accorded not only respect
but even finality by this Court, because it has acquired the necessary expertise on
the matter.[54] Said findings appear to be supported by substantial evidence which is
all that is required in agrarian cases.[55] Hence, this Court finds no reason to disturb
said findings of the Secretary.
Given the foregoing, it would be unnecessary to discuss the first issue raised
by petitioners as the same is immaterial, considering this Courts ruling that LOI No.
474 applies suppletorily to RA No. 6675.
WHEREFORE, premises considered, the petition is DENIED. The April 16,
1997 Decision and December 2, 1998 Resolution of the Court of Appeals in CA-G.R.
SP No. 42847 are hereby AFFIRMED.
SO ORDERED.
ROMAN CATHOLIC G.R. No. 139285
ARCHBISHOP OF CACERES, In 1985, Archbishop filed with the Municipal Agrarian Reform District Office No.
Petitioner, Present: 19, Naga City, Camarines Sur several petitions for exemption of certain properties
QUISUMBING, J., Chairperson, located in various towns of Camarines Sur from the coverage of Operation Land
- versus - CARPIO, Transfer (OLT) under Presidential Decree No. (PD) 27.[2] Two of these petitions were
CARPIO MORALES, denied in an Order dated November 6, 1986, issued by the Regional Director of
TINGA, and DAR, Region V, Juanito L. Lorena.[3]
VELASCO, JR., JJ.
SECRETARY OF AGRARIAN Archbishop appealed from the order of the Regional Director, and sought exemption
REFORM and DAR REGIONAL Promulgated: from OLT coverage of all lands planted with rice and corn which were registered in
DIRECTOR (Region V), the name of the Roman Catholic Archdiocese of Caceres. In his appeal, Archbishop
Respondents. December 21, 2007 cited the following grounds:
x-----------------------------------------------------------------------------------------x
a) That said properties are all covered by conditional donations
DECISION subject to the prohibitions of the donors to SELL, EXCHANGE,
LEASE, TRANSFER, ENCUMBER OR MORTGAGE the
VELASCO, JR., J.: properties;
b) That they are used for charitable and religious purposes;
The Comprehensive Agrarian Reform Law (CARL) has truly noble goals, and c) That the parishes located in depressed areas badly need them for
these noble goals should not be stymied by the creation of exemptions or exceptions the furtherance of their mission work, propagation of the faith,
not contemplated by the law. maintenance and support of their chapels, churches and
educational religious institutions like the Holy Rosary Major
The Case and Minor Seminaries for the promotion of the priesthood
vocation;
In this Petition for Review on Certiorari under Rule 45, petitioner Roman d) For the preservation of good relationship between church and state
Catholic Archbishop of Caceres (Archbishop) questions the February 4, 1999 thru non-infringement of the right to exercise religious
Decision[1] of the Court of Appeals (CA) in CA-G.R. SP No. 48282, which upheld the profession and worship;
December 8, 1997 and June 10, 1998 Orders of the Department of Agrarian Reform e) For the maintenance of the Cathedral and Peafrancia Shrine, which
(DAR). now include the Basilica Minore Housing our venerable image
of Our Lady of Peafrancia and the venerable portrait of Divine
Rostro;
The Facts f) That the petitioner (church) is amenable to continue the leasehold
system with the present cultivators or tenants.[4]
Archbishop is the registered owner of several properties in Camarines Sur, with a
total area of 268.5668 hectares. Of that land, 249.0236 hectares are planted with rice
and corn, while the remaining 19.5432 hectares are planted with coconut trees.
 This appeal was denied by then DAR Secretary Ernesto D. Garilao in an
Order dated December 8, 1997.[5] A subsequent motion for reconsideration was
denied in an Order dated June 10, 1998.[6]
The matter was then raised to the CA via Petition for Review on Certiorari.
Archbishop argued that even if the lands in question are registered in his name, he
holds the lands in trust for the benefit of his followers as cestui que trust. Archbishop
further argued that the deeds of donation by which the lands were transferred to him
imposed numerous fiduciary obligations, such that he cannot sell, exchange, lease,
transfer, encumber, or mortgage the subject lands. By this reasoning, Archbishop
concluded that he is not the landowner contemplated by PD 27 and Republic Act No.
(RA) 6657, the CARL of 1988. He then prayed that the assailed orders of the DAR
be reversed, or in the alternative, that the alleged beneficiaries of the trust be each
allowed to exercise rights of retention over the landholdings.[7]
The petition was dismissed by the CA in its February 4,
1999 Decision.[8] Archbishop filed a motion for reconsideration, but was denied in
the June 18, 1999CA Resolution.[9]
Archbishop now brings the matter before us through this petition.
The Issues
Archbishop raises issues he had raised previously, which, he contends, the CA failed
to properly address. He claims that the CA erred in holding that he is only entitled to
assert one right of retention as the subject properties are registered in his name. He
further claims that an express trust had been created wherein he only held naked
title to the subject properties on behalf of the beneficiaries. He argues that it is not
the landowner contemplated by the law, but merely a trustee, and as such is entitled
to as many rights of retention on behalf of the beneficiaries of each particular
property. He then raises the question of the applicability of the ruling inThe Roman
Catholic Apostolic Administrator of Davao, Inc. v. The Land Registration Commission
and the Register of Deeds of Davao City,[10] which, he cites, ruled that properties
held by the Church are held by it as a mere administrator for the benefit of the
members of that particular religion. As Archbishop claims to be merely an
administrator of the subject properties, he argues that these subject properties
should have been exempt from the OLT.
The Courts Ruling
The petition has no merit.
Archbishops arguments, while novel, must fail in the face of the law and the dictates
of the 1987 Constitution.
The laws simply speak of the landowner without qualification as to under what title
the land is held or what rights to the land the landowner may exercise. There is no
distinction made whether the landowner holds naked title only or can exercise all the
rights of ownership. Archbishop would have us read deeper into the law, to create
exceptions that are not stated in PD 27 and RA 6657, and to do so would be to
frustrate the revolutionary intent of the law, which is the redistribution of agricultural
land for the benefit of landless farmers and farmworkers.
Archbishop was found to be the registered owner of the lands in question, and does
not contest that fact. For the purposes of the law, this makes him the landowner,
without the necessity of going beyond the registered titles. He cannot demand a
deeper examination of the registered titles and demand further that the intent of the
original owners be ascertained and followed. To adopt his reasoning would create
means of sidestepping the law, wherein the mere act of donation places lands
beyond the reach of agrarian reform.
There can be no claim of more than one right of retention per landowner. Neither PD
27 nor RA 6657 has a provision for a landowner to exercise more than one right of
retention. The law is simple and clear as to the retention limits per landowner. PD 27
states, In all cases, the landowner may retain an area of not more than seven (7)
hectares if such landowner is cultivating such area or will now cultivate it; while RA
6657 states:
SEC. 6. Retention Limits.Except as otherwise provided in this Act, no
person may own or retain, directly, any public or private agricultural
 land, the size of which shall vary according to factors governing a
viable family-sized farm, such as commodity produced, terrain,
infrastructure, and soil fertility as determined by the Presidential
Agrarian Reform Council (PARC) created hereunder, but in no case
shall the retention by the landowner exceed five (5) hectares. Three
(3) hectares may be awarded to each child of the landowner, subject
to the following qualifications: (1) that he is at least fifteen (15) years
of age; and (2) that he is actually tilling the land or directly managing
the farm: Provided, That landowners whose lands have been covered
by Presidential Decree No. 27 shall be allowed to keep the area
originally retained by them thereunder; Provided, further, That original
homestead grantees or direct compulsory heirs who still own the
original homestead at the time of the approval of this Act shall retain
the same areas as long as they continue to cultivate said homestead.
Nothing in either law supports Archbishops claim to more than one right of
retention on behalf of each cestui que trust. The provisions of PD 27 and RA 6657
are plain and require no further interpretationthere is only one right of retention per
landowner, and no multiple rights of retention can be held by a single
party.Furthermore, the scheme proposed by Archbishop would create as many rights
of retention as there are beneficiaries, which could in effect protect the entire
available land area from agrarian reform. Under Archbishops reasoning, there is not
even a definite landowner to claim separate rights of retention, and no specific
number of rights of retention to be claimed by the landowners. There is simply no
basis in the law or jurisprudence for his argument that it is the beneficial ownership
that should be used to determine which party would have the right of retention.
Archbishop makes much of the conditional donation, that he does not have
the power to sell, exchange, lease, transfer, encumber or mortgage the transferred
properties. He claims that these conditions do not make him the landowner as
contemplated by the law. This matter has already been answered in Hospicio de San
Jose de Barili, Cebu City (Hospicio) v. Department of Agrarian Reform.[11] In that
case, wherein Act No. 3239 prohibited the sale under any consideration of lands
donated to the Hospicio, a charitable organization, the Court found that the lands of
the Hospicio were not exempt from the coverage of agrarian reform. In characterizing
the sale of land under agrarian reform, we stated:
Generally, sale arises out of contractual obligation. Thus, it
must meet the first essential requisite of every contract that is the
presence of consent. Consent implies an act of volition in entering into
the agreement. The absence or vitiation of consent renders the sale
either void or voidable.
In this case, the deprivation of the Hospicios property did not
arise as a consequence of the Hospicios consent to the
transfer. There was no meeting of minds between the Hospicio, on
one hand, and the DAR or the tenants, on the other, on the properties
and the cause which are to constitute the contract that is to serve
ultimately as the basis for the transfer of ownership of the subject
lands. Instead, the obligation to transfer arises by compulsion of law,
particularly P.D. No. 27.[12]
We discussed further:
The twin process of expropriation under agrarian reform and
the payment of just compensation is akin to a forced sale, which has
been aptly described in common law jurisdictions as sale made under
the process of the court and in the mode prescribed by law, and which
is not the voluntary act of the owner, such as to satisfy a debt,
whether of a mortgage, judgment, tax lien, etc. The term has not been
precisely defined in this jurisdiction, but reference to the phrase itself
is made in Articles 223, 242, 237 and 243 of the Civil Code, which
uniformly exempt the family home from execution, forced sale, or
attachment. Yet a forced sale is clearly different from the sales
described under Book V of the Civil Code which are conventional
sales, as it does not arise from the consensual agreement of the
vendor and vendee, but by compulsion of law. Still, since law is
recognized as one of the sources of obligation, there can be no
dispute on the efficacy of a forced sale, so long as it is authorized by
law.[13]
Archbishops claim that he does not have jus disponendi over the subject properties
is unavailing. The very nature of the compulsory sale under PD 27 and RA 6657
defeats such a claim. Other less scrupulous parties may even attempt creating trusts
to prevent their lands from coming under agrarian reform, and say that the trustee
has no power to dispose of the properties. The disposition under PD 27 and RA 6657
is of a different character than what is contemplated by jus disponendi, wherein
under these laws, voluntariness is not an issue, and the disposition is necessary for
the laws to be effective.
Under PD 27 and RA 6657, Archbishop cannot claim that the alleged
conditions of the donations would have primacy over the application of the law. This
forced sale is not even a violation of the conditions of the donation, since it is by
application of law and beyond Archbishops control. The application of the law cannot
and should not be defeated by the conditions laid down by the donors of the land. If
such were allowed, it would be a simple matter for other landowners to place their
lands without limit under the protection of religious organizations or create trusts by
the mere act of donation, rendering agrarian reform but a pipe dream.
Archbishops contention that he is merely an administrator of the donated properties
will not serve to remove these lands from the coverage of agrarian reform. Under PD
27, the coverage is lands devoted to rice and corn. Section 4 of RA 6657 states, The
Comprehensive Agrarian Reform Law of 1988 shall cover, regardless of tenurial
arrangement and commodity produced, all public and private agricultural lands as
provided in Proclamation No. 131 and Executive Order No. 229, including other
lands of the public domain suitable for agriculture. The lands in Archbishops name
are agricultural lands that fall within the scope of the law, and do not fall under the
exemptions.
The exemptions under RA 6657 form an exclusive list, as follows:
SEC. 10. Exemptions and Exclusions.
(a) Lands actually, directly and exclusively used for parks, wildlife,
forest reserves, reforestation, fish sanctuaries and breeding grounds,
watersheds and mangroves shall be exempt from the coverage of this
Act.
(b) Private lands actually, directly and exclusively used for prawn
farms and fishponds shall be exempt from the coverage of this
Act: Provided, That said prawn farms and fishponds have not been
distributed and Certificate of Land Ownership Award (CLOA) issued
under the Agrarian Reform Program.
In cases where the fishponds or prawn farms have been subjected to
the Comprehensive Agrarian Reform Law, by voluntary offer to sell, or
commercial farms deferment or notices of compulsory acquisition, a
simple and absolute majority of the actual regular workers or tenants
must consent to the exemption within one (1) year from the effectivity
of this Act. When the workers or tenants do not agree to this
exemption, the fishponds or prawn farms shall be distributed
collectively to the worker-beneficiaries or tenants who shall form
cooperative or association to manage the same.
In cases where the fishponds or prawn farms have not been subjected
to the Comprehensive Agrarian Reform Law, the consent of the
farmworkers shall no longer be necessary; however, the provision of
Section 32-A hereof on incentives shall apply.
(c) Lands actually, directly and exclusively used and found to be
necessary for national defense, school sites and campuses, including
experimental farm stations operated by public or private schools for
educational purposes, seeds and seedlings research and pilot
production center, church sites and convents appurtenant thereto,
mosque sites and Islamic centers appurtenant thereto, communal
burial grounds and cemeteries, penal colonies and penal farms
actually worked by the inmates, government and private research and
quarantine centers and all lands with eighteen percent (18%) slope
and over, except those already developed, shall be exempt from the
coverage of this Act. (As amended by R. A. 7881)
Archbishop would claim exemption from the coverage of agrarian reform by stating
that he is a mere administrator, but his position does not appear under the list of
exemptions under RA 6657. His claimed status as administrator does not create
another class of lands exempt from the coverage of PD 27 or RA 6657, and The
Roman Catholic Apostolic Administrator of Davao, Inc.[14] does not create another
definition for the term landowner.
We explained in Hospicio:
 It is axiomatic that where a general rule is established by a
statute with exceptions, the Court will not curtail nor add to the latter
by implication, and it is a rule that an express exception excludes all
others. We cannot simply impute into a statute an exception which the
Congress did not incorporate. Moreover general welfare legislation
such as land reform laws is to be construed in favor of the promotion
of social justice to ensure the well-being and economic security of the
people. Since a broad construction of the provision listing the
properties exempted under the CARL would tend to denigrate the
aims of agrarian reform, a strict application of these exceptions is in
order.[15]
Archbishop cannot claim exemption in behalf of the millions of Filipino faithful,
as the lands are clearly not exempt under the law. He should not fear that his
followers are simply being deprived of land, as under both PD 27 and RA 6657, he is
entitled to just compensation, which he may then use for the benefit of his followers.
His situation is no different from other landowners affected by agrarian reformthey
are somewhat deprived of their land, but it is all for a greater good.

As Association of Small Landowners in the Philippines, Inc. v. Secretary of

Agrarian Reform[16] recognized the revolutionary character of the expropriation under
the agrarian reform law, we follow such lofty ideal for the resolution of this case. This
grand purpose under the CARL must not be hindered by the simple expedient of
appending conditions to a donation of land, or by donating land to a church. This is
not to cast aspersions on religious organizations, but it is not fitting for them to be
used as vehicles for keeping land out of the hands of the landless. The law is
indubitably in line with the charitable ideals of religious organizations to ensure that
the land they own falls into the hands of able caretakers and owners. As a religious
leader, Archbishop can take solace in the fact that his lands are going to be awarded
to those who need and can utilize them to the fullest.

WHEREFORE, we DENY the petition, and AFFIRM the February 4,

1999 Decision in CA-G.R. SP No. 48282.

SO ORDERED.
CELESTINO SANTIAGO substituted by Pursuant to Presidential Decree No. 27 (P.D. No. 27), Decreeing the
LAURO SANTIAGO and ISIDRO G.R. Nos. 186184 & 186988[1] Emancipation of Tenants from the Bondage of the Soil, Transferring to them the
GUTIERREZ substituted by ROGELIO Ownership of the Land they Till and Providing the Instruments and Mechanism
GUTIERREZ, Therefor, which took effect on October 21, 1972, the property was placed under
Present: Operation Land Transfer (OLT).

Petitioners, Despite the inclusion of the property under the OLT, the Spouses Ortiz-Luis, by Deed
CARPIO MORALES, Chairperson, J., of Absolute Sale dated June 16, 1979, transferred it to their children Rosario,
PERALTA,* Teresita, Simplicio and Antonio, all surnamed Ortiz-Luis. The children were able to
versus BERSAMIN, have the property transferred under their names on June 25, 1992.
VILLARAMA, JR., and
SERENO, JJ. The children later filed an Application for Retention under P.D. No. 27 before
the Department of Agrarian Reform Regional Office (DARRO) which was denied by
Order dated February 28, 1997 in this wise:
AMADA R. ORTIZ-LUIS substituted by Promulgated:
JUAN ORTIZ-LUIS, JR. It bears stressing that the Transfer Certificate of Title
September 20, 2010 evidencing the conveyance in favor of herein petitioners-appellants
Respondent. was registered only on 25 June 1992, hence the subject land is still
x - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - -- - - - - - - - -- - - - - - - - x considered under the ownership of Spouses Ortiz Luis (pursuant to
Memorandum dated January 9, 1973 and Department Memorandum
DECISION Circular No. 8, Series of 1974) insofar as coverage under OLT is
concerned.

CARPIO MORALES, J. xxxx

Petitioners Lauro Santiago and Rogelio Gutierrez, in substitution of their now
deceased respective fathers Celestino Santiago and Isidro Gutierrez, challenge the
August 22, 2008 Decision of the Court of Appeals[2] respecting the retention rights
under Republic Act No. 6657[3] (R.A. 6657) of Amada R. Ortiz-Luis (Amada),
substituted by her son-herein respondent Juan, Jr.
Upon conducting a careful investigation of the records
presented, this Office concludes beyond any iota of doubt that the
landholding in issue was indeed conveyed to petitioners-appellants
after October 21, 1972 which is a clear violation of agrarian laws,
rules and regulations.[4] (underscoring supplied)

Juan and Amada Ortiz Luis (Spouses Ortiz Luis)were the owners of 7.1359 hectares
of tenanted riceland situated in Barangay San Fernando Sur, Cabiao, Nueva Ecija In light of the denial of her childrens application for retention, Amada filed on July 14,
and covered by TCT No. NT-10798 (the property). 1999 an Application for Retention over the property under R.A. 6657 before the
DARRO.
 By Decision of November 24, 1999, the Provincial Agrarian Reform
Adjudicator (PARAD), to which the application was referred for determination of the
validity of TCT No. NT-189843 issued to the children, ordered the cancellation of
said title and reinstated the spouses Ortiz-Luis title. Amadas application for retention
was thus given due course by DARRO.
Provincial Agrarian Reform Officer (PARO) Rogelio M. Chavez recommended
the denial of Amadas application upon the ground that an owner of tenanted rice and
corn lands may not retain those lands if he, as of October 21, 1972, owned more
than 24 hectares of tenanted rice or corn lands.[5] It appears that Spouses Ortiz Luis
owned 178.8092 hectares, only 88.4513 of which were placed under OLT.
The PAROs recommendation notwithstanding, DARRO, by Order of May 23,
2000,[6] granted Amadas application for retention, it holding that her failure to
exercise her retention rights under P.D. No. 27 entitled her to the benefit of retention
under R.A. 6657.
Farmer-beneficiaries Celestino (petitioner Lauros father) and Isidro (petitioner
Rogelios father), having been granted on May 20, 1994 emancipation patents
covering 2.9424 hectares and 2.0238 hectares of the property, respectively, moved
for reconsideration of the DARRO May 23, 2000 Order. DARRO denied the motion
by Order of October 4, 2000. On the assumption that no appeal was filed, DARRO
issued a Memorandum dated October 24, 2000 to implement its Orders.
Amada subsequently filed on March 2, 2001 a petition for cancellation of
Celestino and Isidros emancipation patents before the PARAD. The farmer-
beneficiaries did not file their Answer, despite notice, and failed to appear during the
hearings of the petition. After the ex-parte presentation of Amadas evidence,
Adjudicator Napoleon Baguilat, by Decision of April 11, 2001,[7] ordered the
cancellation of Celestino and Isidros Emancipation Patents:
WHEREFORE, premises considered, judgment is hereby
rendered as follows:
1. Declaring the private respondents[-herein petitioners]
as lessees over the retained area of the petitioner;
2. Declaring [herein petitioners] TCT Nos. EP 74278
and 74276 to have lost its force and effect upon the
rendition of this decision;
3. Declaring the Municipal Agrarian Reform Office of
Cabiao, Nueva Ecija to cause the execution of leasehold
contract between the petitioner and the private
respondents[-herein petitioners];
4. Directing the Register of Deeds for
the Province of Nueva Ecija to cancel the TCT Nos. EP
74278 and 74276 registered in the names of Celestino
Santiago and Isidro Gutierrez.[8]
Two (2) days after the issuance of the PARAD April 11, 2001 Decision or on
April 14, 2001, Celestino and Isidro filed their Answer/Motion for Reconsideration
which was denied by Order of June 21, 2001.
On appeal, the Department of Agrarian Reform Adjudication Board (DARAB),
by Decision of April 5, 2005, ruled in favor of petitioners:
Under Administrative Order No. 4, Series of 1991, the
authority to issue a certificate of retention on landholdings covered
under R.A. 6657 lies exclusively with the Regional Director. It likewise
provides that the Order of the Regional Director approving or denying
the application for retention shall become final fifteen (15) days from
receipt of the same, unless appeal is made to the DAR Secretary. In
the case at bar, Private Respondents (petitioners) were able to appeal
the Order of Retention issued by Regional Director Atty. Acosta to the
DAR Secretary. The appeal is still pending before the Office of the
Director of the Bureau of Agrarian Legal Assistance (BALA),
Department of Agrarian Reform, Diliman, Quezon City, as per
certification dated February 21, 2005.
In view thereof, the cancellation of subject EPs is not
warranted on the ground that the Order of Retention has not attained
finality.[9] (emphasis and underscoring supplied)

Juan Ortiz-Luis, Jr. (respondent), who substituted for Amada after she
passed away on December 8, 2001, filed a petition for review before the Court of
Appeals following the denial by the DARAB of his motion for reconsideration of its
April 5, 2005 Decision. The petition was docketed as CA-G.R. SP No. 97071.
In time, Celestino and Isidros appeal to the DAR Secretary respecting the
DARRO Orders which granted retention rights to Amada was denied by DAR
Secretary Roberto Pagdanganan by Order of October 24, 2003 (Pagdanganan
Order).[10] Celestino and Isidro filed a motion for reconsideration. Pending resolution
of the motion, Celestino died[11] and was thereupon substituted by petitioner Lauro.
Secretary Pagdanganans successor-in-interest, Secretary Nasser
Pangandaman, granted Celestino and Isidros Motion for Reconsideration and
accordingly reversed the Pagdanganan Order by Order of October 24, 2005
(Pangandaman Order) in this wise:[12]
It must be stressed that when spouses Juan and Amada Ortiz-
Luis filed an Application for Retention on 14 July 1999, PARO Rogelio
M. Chavez of South Nueva Ecija recommended for the denial of the
said Application for Retention pursuant to M.C. No. 18-81 and A.O.
No. 4, Series of 1991, considering the fact also that the spouses
owned an aggregate landholding of 178.8092 hectares where the
7.1358 hectare subject landholdings from the aggregate 88. 5413
hectares of which are rice and corn land were already covered under
OLT pursuant to P.D. No. 27 and E.O. No. 228.
L.O.I. No. 474 clearly finds application to the present case,
and, having established that applicants-appellees own other
agricultural lands seven (7) hectares or more, there can be no
question that they are not entitled to retention under P.D. No. 27.[13]
His motion for reconsideration having been denied, respondent appealed to
the Office of the President (OP) which, by Decision of May 9, 2007, reversed and set
aside the Pangandaman Order and reinstated the Pagdanganan Order upholding the
grant to Amada of her retention rights.
Petitioners thereupon elevated the matter to the Court of Appeals via petition
for review, docketed as CA-G.R. SP No. 100439. This petition was consolidated with
respondents above-mentioned petition in CA-G.R. SP No. 97071 (assailing the
DARAB Resolution setting aside the cancellation of petitioners E[mancipation]
P[atents].
By the assailed Decision of August 22, 2008, the Court of Appeals, in CA-
G.R. SP No. 100439, upheld the Decision of the OP, clarifying, however, that:
x x x in the implementation of this Decision, the Department of
Agrarian Reform through the Municipal Agrarian Reform Office
(MARO) is hereby ORDERED to fully accord ARBs Celestino
Santiago and Isidro Gutierrez as substituted by Lauro Santiago and
Rogelio Gutierrez, respectively, their rights under Section 6 of
Republic Act No. 6657 and DAR Administrative Order No. 05-00 as
already discussed. [14] (underscoring supplied)
The appellate court dismissed CA-G.R. No. 97071 which respondent did not
challenge.
In the present petition, petitioners assail the appellate courts upholding of
Amadas right of retention in CA-G.R. SP No. 100439 and citing DAR Administrative
Order (AO) No. 05, Series of 2000.[15]
The petition is impressed with merit.
The relevant provision of AO No. 05, Series of 2000 reads:
SEC. 9. Retention Area The area allowed to be retained by the
landowner shall be as follows:
(a) Landowners covered by PD 27 are entitled
to retain seven (7) hectares, except those whose
entire tenanted rice and corn lands are subject of
acquisition and distribution under OLT. An owner of
tenanted rice and corn lands may not retain those
lands under the following cases:
1. If he, as of 21 October 1972, owned more
than twenty-four (24) hectares of tenanted rice and
corn lands; or
2. By virtue of Letter of Instruction (LOI) No.
474, if he, as of 21 October 1972, owned less than
twenty-four (24) hectares of tenanted rice and corn
lands but additionally owned the following:
i. other agricultural lands of more than
seven (7) hectares, whether tenanted or not,
whether cultivated or not, and regardless of the
income derived therefrom; or
ii. lands used for residential, commercial,
industrial or other urban purposes from which
he derives adequate income to support himself
and his family.
xxxx
(d) Landowners who filed their applications after the 27 August
1985 deadline and did not comply with LOI No. 41, 45
and 52 shall only be entitled to a maximum of five (5)
hectares as retention area. Landowners who failed to
qualify to retain under paragraph (a) of this Section
shall also be allowed to retain a maximum of five (5)
hectares in accordance with RA 6657. (underscoring
supplied)
The right of retention, as protected and enshrined in the Constitution,
balances the effect of compulsory land acquisition by granting the landowner the
right to choose the area to be retained subject to legislative standards.[16]
The legislative standards are set forth in Section 6 of R.A. 6657, thus:
Section 6. Retention Limits. Except as otherwise provided in
this Act, no person may own, or retain, directly or indirectly, any public
or private agricultural land, the size of which shall vary according to
factors governing a viable family-size, such as commodity produced,
terrain, infrastructure, and soil fertility as determined by the
Presidential Agrarian Reform Council (PARC) created hereunder,
but in no case shall retention by the landowner exceed five (5)
hectares. Three (3) hectares may be awarded to each child of the
landowner, subject to the following qualifications: (1) that he is at least
fifteen (15) years of age; and (2) that he is actually tilling the land or
directly managing the farm;Provided, That landowners whose land
have been covered by Presidential Decree No. 27 shall be allowed to
keep the area originally retained by them thereunder, Provided
further, That the original homestead grantees or direct compulsory
heirs who still own the original homestead at the time of the approval
of this Act shall retain the same areas as long as they continue to
cultivate said homestead.
The right to choose the area to be retained, which shall be
compact or contiguous, shall pertain to the landowner. Provided,
however, That in case the area selected for retention by the
landowner is tenanted, the tenant shall have the option to choose
whether to remain therein or be a beneficiary in the same or another
agricultural land with similar or comparable features. In case the
tenant chooses to remain in the retained area, he shall be considered
a leaseholder and shall lose his right to be a beneficiary under this
Act. In case the tenant chooses to be a beneficiary in another
agricultural land, he loses his right as a lease-holder to the land
retained by the landowner. The tenant must exercise this option within
 a period of one (1) year from the time the landowner manifests his
choice of the area for retention. (underscoring supplied)
Section 6 implies that the sole requirement in the exercise of retention rights is that
the area chosen by the landowner must be compact or contiguous. In the recent
case of Heirs of Aurelio Reyes v. Garilao,[17] however, the Court held that a
landowners retention rights under R.A. 6657 are restricted by the conditions set forth
in Letter of Instruction (LOI) No. 474 issued on October 21, 1976 which reads:
To: The Secretary of Agrarian Reform.
WHEREAS, last year I ordered that small landowners of tenanted
rice/corn lands with areas of less than twenty-four hectares but above
seven hectares shall retain not more than seven hectares of such
lands except when they own other agricultural lands containing more
than seven hectares or land used for residential, commercial,
industrial or other urban purposes from which they derive adequate
income to support themselves and their families;
WHEREAS, the Department of Agrarian Reform found that in the
course of implementing my directive there are many landowners of
tenanted rice/corn lands with areas of seven hectares or less who
also own other agricultural lands containing more than seven hectares
or lands used for residential, commercial, industrial or other urban
purposes where they derive adequate income to support themselves
and their families;
WHEREAS, it is therefore necessary to cover said lands under the
Land Transfer Program of the government to emancipate the tenant-
farmers therein.
NOW, THEREFORE, I, PRESIDENT FERDINAND E. MARCOS,
President of the Philippines, do hereby order the following:
"1. You shall undertake to place under the Land Transfer Program of
the government pursuant to Presidential Decree No. 27, all tenanted
rice/corn lands with areas of seven hectares or less belonging to
landowners who own other agricultural lands of more than seven
hectares in aggregate areas or lands used for residential, commercial,
industrial or other urban purposes from which they derive adequate
income to support themselves and their families. (underscoring
supplied)
DAR Memorandum Circular No. 11, Series of 1978[18] provided for the
implementing guidelines of LOI No. 474:
Tenanted rice/corn lands with areas of seven hectares or less
shall be covered by Operation Land Transfer if those lands belong to
the following landowners:
a.) Landowners who own other agricultural lands of more
than seven hectares in aggregate areas, whether tenanted
or not, cultivated or not, and regardless of the income
derived therefrom;
b.) Landowners who own lands used for residential,
commercial, industrial or other urban purposes from which
they derive an annual gross income of at least five
thousand (P5,000.00) pesos. (underscoring supplied)
In Association of Small Landowners in the Philippines, Inc. v. Secretary of
Agrarian Reform,[19] the Court held that landowners who have not yet exercised their
retention rights under P.D. No. 27 are entitled to new retention rights provided for
by R.A. No. 6657 . . .[20] In Heirs of Aurelio Reyes v. Garilao, however, the Court held
that the limitations under LOI No. 474 still apply to a landowner who filed an
application under R.A. 6657.
 Amada is thus not entitled to retention rights. As noted by the PARO in
recommending denial of her application which was eventually heeded in the
Pangandaman Order, while Spouses Ortiz Luis owned aggregate landholdings
equivalent to 178.8092 hectares, only a portion thereof ─ 88.5413 hectares ─ were
placed under OLT. A Certification dated May 7, 2001[21] issued by the Municipal
Agrarian Reform Office (MARO) affirms that as of even date, Spouses Ortiz Luis still
owned 162.1584 hectares of land in Cabiao, Nueva Ecija.

Letter of Instruction (LOI) No. 474 amended P.D. No. 27 by removing any
right of retention from persons who own other agricultural lands of more than 7
hectares, or lands used for residential, commercial, industrial or other purpose from
which they derive adequate income to support themselves and their families.[22]

Section 9 (d) of DAR Administrative Order No. 05, on which the Court of
Appeals in part anchored its ruling, is inconsistent with P.D. No. 27, as amended by
LOI No. 474, insofar as it removed the limitations to a landowners retention rights.

It is well-settled that administrative officials are empowered to promulgate

rules and regulations in order to implement a statute. The power, however, is
restricted such that an administrative regulation cannot go beyond what is provided
in the legislative enactment. It must always be in harmony with the provisions of the
law, hence, any resulting discrepancy between the two will always be resolved in
favor of the statute.[23]

WHEREFORE, the challenged Court of Appeals Decision dated August 22,

2008 in C.A.-G.R. S.P. No. 100439 is REVERSED and SET ASIDE. The Order
dated October 24, 2005 of Agrarian Reform Secretary Nasser Pangandaman
is REINSTATED.

SO ORDERED.
HEIRS OF JUAN GRIO, SR. G.R. No. 165073 On October 21, 1972, then President Ferdinand E. Marcos issued Presidential
REPRESENTED BY REMEDIOS C. GRIO, Decree No. 27 (PD 27), DECREEING THE EMANCIPATION OF TENANTS FROM
Petitioners, Present: THE BONDAGE OF THE SOIL TRANSFERRING TO THEM THE OWNERSHIP OF
THE LAND THEY TILL AND PROVIDING THE INSTRUMENTS AND MECHANISM
QUISUMBING, J., Chairperson, THEREFOR.
- versus - CARPIO,
CARPIO MORALES, Grios 9.35 hectare land was placed under the coverage of PD 27 on account of
TINGA, and which Certificates of Land Transfer (CLTs) covering a portion thereof were issued in
DEPARTMENT OF AGRARIAN REFORM, VELASCO, JR., JJ. favor of his tenants Marianito Gulmatico, Ludovico Hubero, Rodolfo Hubero, Placida
Respondent. Promulgated: Catahay and Roberto Gula.
June 30, 2006
Grio later filed in the early 80s a letter-petition for the cancellation of the
x----------------------------------------------x above-said CLTs, contending that they were issued to the tenants without giving him
an opportunity to be heard; the land was the only riceland he had in the Municipality
of Leganes; the area planted with palay was only a little over 6 hectares; the land
DECISION had a very great sentimental value to him; and several of his children and
grandchildren who had no suitable residential lots might need the land to build their
homes.
CARPIO MORALES, J.:
In lieu of the land covered by the CLTs, Grio offered seven hectares for each
of the tenants from his above-said 50-hectare land.[3]
On challenge via petition for certiorari are the October 17, 2003 Decision and the
June 21, 2004 Resolution of the Court of Appeals in CA-GR SP No. 73368, Heirs of Grio, however, later ceded to the DBP his 50-hectare land via dacion en
Juan Grio, Sr. represented by Remedios C. Grio v. Department of Agrarian pago to settle his obligation to it.
Reform.[1]
On July 10, 1985, Grio died.[4] He was survived by his wife and seven
Juan Grio, Sr. (Grio), now deceased, was the owner of a parcel of agricultural children. On June 22, 1988, his wife also passed away.[5]
land, Lot 1505-B, covered by Transfer Certificate of Title (TCT) No. T-53350[2] of the
Register of Deeds of Iloilo containing an area of 9.35 hectares, located in Barangay On June 15, 1988, Republic Act 6657 or the COMPREHENSIVE AGRARIAN
Gua-an, Leganes, Iloilo. REFORM LAW (CARL) took effect.

Grio was also the owner of a 50-hectare parcel of land located in Barangay Tad-y, DAR Regional Director Antonio S. Maraya, acting on the petition of Grio for
Sara, Iloilo which he, on February 8, 1972, mortgaged to the Development Bank of the cancellation of the CLTs, dismissed the same by Order[6] of September 25,
the Philippines (DBP) to secure the payment of a loan. 1989 (Maraya Order), citing Letter of Instructions No. 474 (LOI 474),[7] the pertinent
portions of which Order read:
 Based from the foregoing, Atty. Rex Tupas, then Legal Officer III,
Agrarian Reform Team, Leganes, Iloilo recommended in his report
dated April 5, 1982 the dismissal of herein petition of Juan Grio for
lack of merit and the maintenance of the Certificates of Land Transfer
issued in favor of the above enumerated tenants covering the subject
farmholdings,the petitioner, Juan Grio, being an owner of fifty
hectares untenanted other agricultural lands which will not
entitle him for exemption/retention pursuant to LOI 474, as
implemented by MAR Memorandum Circular No. 11 dated April
21, 1978. This recommendation was concurred in by the Regional
Director, Department of Agrarian Reform, Region VI, Iloilo City.
WHEREFORE, premises considered, the instant petition filed by Juan
Grio for the cancellation of the Certificates of Land Transfer issued in
favor of his tenants covering certain parcels of land situated at Brgy.
Gua-an, Leganes, Iloilo, is hereby DISMISSED for lack of merit, and
accordingly, the Certificates of Land Transfer issued shall be
maintained.[8](Emphasis and underscoring supplied)
The Land Bank of the Philippines later advised Grios heirs, herein petitioners,
by letter[9] of June 6, 1996, of the DARs submission of Grios 9.35 hectare land
transfer claim for payment under PD 27, its approval on June 5, 1996, and the
requirements for the proceeds of the claim to be released.
Petitioners later filed with the DAR Regional Office an application for
retention[10] dated March 14, 1997 of the 9.35 hectare land pursuant to Section 6 of
the CARL which reads:
SECTION 6. Retention Limits. Except as otherwise provided in this
Act, no person may own or retain, directly or indirectly, any public or
private agricultural land, the size of which shall vary according to
factors governing a viable family-sized farm, such as commodity
produced, terrain, infrastructure, and soil fertility as determined by the
Presidential Agrarian Reform Council (PARC) created hereunder, but
in no case shall retention by the landowner exceed five (5)
hectares. Three (3) hectares may be awarded to each child of the
landowner, subject to the following qualifications: (1) that he is
at least fifteen (15) years of age; and (2) that he is actually tilling
the land or directly managing the farm: Provided, that
landowners whose lands have been covered by Presidential
Decree No. 27 shall be allowed to keep the area originally
retained by them thereunder, Provided, further, That original
homestead grantees or their direct compulsory heirs who still own the
original homestead at the time of the approval of this Act shall retain
the same areas as long as they continue to cultivate said homestead.
x x x x (Emphasis and underscoring supplied)
Petitioners sought the exemption of the 9.35 hectare land from the coverage of either
PD 27 or the CARL, contending that Grio had seven children and if a landowner is
entitled to five hectares as retention limit, the remaining land of Grio would not be
enough for his children, the 50-hectare land of Grio having already been ceded to
the DBP.[11]
In the meantime or on June 5 and 25, 1997, Emancipation Patents were issued in
favor of Grios above-named tenants.[12]
DAR Regional Director Dominador B. Andres subsequently dismissed
petitioners application for retention, by Order[13] dated April 27, 1998, ratiocinating as
follows:
xxxx
The reckoning date for the application of Operation Land Transfer is
October 21, 1972, the date of effectivity of P.D. 27, which is the law
applicable in this case, and not the date of effectivity of R.A. 6657
(June 15, 1988), which is applicable here only in suppletory manner.
By operation of law, as of October 21, 1972, the subject landholdings
were covered by Operation Land Transfer under Presidential Decree
No. 27 in view of the fact that the landholdings, subject of this case are
tenanted and Juan Grio, Sr. has other landholdings located at
Sara, Iloilo with an area of 50.0000 hectares, more or less. The
conveyance of the 50.0000 hectares landholdings in favor of the
 Development Bank of the Philippines sometime in 1985 has no legal
effect of exempting the tenanted landholdings from Operation Land
Transfer considering that the conveyance happened only in 1985,
several yearsafter the subjecting of the said properties under the
coverage of Operation Land Transfer.
Braganza denied petitioners appeal:
x x x x[14] (Emphasis and underscoring supplied)
Petitioners moved to reconsider[15] the April 27, 1998 Order of the DAR Regional
Director but it was denied by Order[16] of August 18, 1998.
Petitioners appealed to the DAR Secretary, arguing that the Regional Director erred
in:
I. . . . NOT CANCELING RESPONDENTS [CLTs] WHICH
WERE NULL AND VOID FOR HAVING BEEN ISSUED
WITHOUT DUE PROCESS OF LAW AND WITHOUT
PAYMENT OF JUST COMPENSATION.
II. . . . HOLDING THAT GRIO DID NOT HAVE A RIGHT OF
RETENTION/EXEMPTION OVER HIS TENANTED
AGRICULTURAL LAND (LOT 1505-B) BECAUSE HE OWNED
50 HECTARES OF UNTENANTED OTHER AGRICULTURAL
LAND IN SARA WHEN PD NO. 27 TOOK EFFECT.
III. . . . HOLDING THAT THE REVERSION OF THE 50-
HECTARE LAND IN SARA, ILOILO TO THE DBP IN
PAYMENT OF GRIOS MORTGAGE DEBT, WAS
CIRCUMVENTION OF PD 27.
IV. . . . NOT ALLOWING GRIO AND (LATER) HIS HEIRS THE
RIGHT TO CHOOSE TO RETAIN HIS 9-HECTARE- LOT 1505-
B IN LEGANES, ILOILO, IN LIEU OF THE 50-HECTARE LAND
IN SARA, ILOILO, AS PROVIDED IN SECTION 6 O[F] RA
6657 WHICH WAS ALREADY THE LAW WHEN THE
APPEALED ORDERS WERE ISSUED.[17]
By Order[18] dated September 3, 2002, then DAR Secretary Hernani A.
xxxx
The fact that the 50-hectare property was mortgaged to the DBP in
1972 is of no moment in relation to PD 27. The naked title of said
property remained with Juan Grio, Sr. and he was still the owner
thereof when PD 27 took effect.
However, we agree with herein applicants-appellants that the
reversion of the 50-hectare property to the DBP by way of dacion en
pago in 1985 was not done in circumvention of PD 27. Said property
was untenanted coconut land, hence, beyond the coverage of PD 27.
However, said transaction merely confirmed the fact that Juan Grio,
Sr. was the owner of the 50-hectare property when PD 27 took effect
on 21 October 1972.
Since Juan Grio, Sr. cannot retain any portion of his tenanted riceland
in Leganes, Iloilo, herein applicants-appellants, who are his
successors-in-interest, cannot also retain the same property under
PD 27. Herein applicants-appellants merely succeeded to the rights of
their predecessor-in-interest by virtue of the Law on Succession
under the New Civil Code. It should be noted that under DAR AO 4
(1991), no retention rights are granted to the children of landowners.
Applicants-appellants next assert their right of retention and their right
to choose the area to be retained as provided in Section 6 of RA
6657.
The contention is likewise without merit.
 xxx
The . . . statement of the Supreme Court clearly indicates that a
landowner who failed to exercise his retention right of land under PD
27 may do so under RA 6657 provided he is qualified to do so under
the regime of PD 27. Stated differently, where a landowner is not
entitled to retain land under PD 27, he cannot avail of the right of
retention over the same land under RA 6657.
In the case at hand, it is established that Juan Grio, Sr. was not
entitled to exercise his retention right over subject property under PD
27. As such, he is also not entitled to exercise said right under RA
6657. If Juan Grio, Sr. had no retention rights under PD 27 and RA
6657, it follows that his heirs, who are his successors-in-interest,
cannot also exercise the same right under PD 27 and RA 6657.
x x x x (Underscoring supplied)[19]
Before the Court of Appeals to which petitioners elevated the case via petition for
review, it raised the following arguments:
1. Grio had the right to retain subject land, because LOI 474
exempted from OLT landowners of ricelands who owned other
agricultural lands exceeding 7 hectares if they did not derive
sufficient income from the latter.
2. Petitioners had each inherited a 1.33 hectare share of the
subject land as of 1985, which was already way below the
retention limits of PD 27 and RA 6657.[20]
By Decision[21] dated October 17, 2003, the appellate court affirmed
the September 3, 2002 Order of the DAR Secretary, the pertinent portions of which
decision read:
x x x Juan Grios disputed land came within the coverage of P.D. 27
because it is tenanted riceland. Because P.D. 27 initially lacked
implementing rules and regulations, there were a lot of uncertainties
at the start on how the transfer of ownership to tenant-framers would
operate. As the above outline of the major post-P.D. 27 developments
showed, the government started with the landed estates and worked
its way down to seven hectares of tenanted rice and corn land by the
time it came out with LOI 474. What was certain at that point was
that from the combined application of P.D. 27 and LOI 474, Juan
Grio, Sr. had no right of retention because he owned 9 hectares
of tenanted ricelandand 50 hectares of coconut land. Thus, his
tenants were given in 1981, during the lifetime of Juan Grio, Sr. their
Certificates of Land Transfers preparatory to the Emancipation
Patents they would receive if they can perfect their payments of their
portion of the covered riceland. Juan Grio, Sr. objected to the
issuance of the CLTs soon after. This was the status of Juan Grio,
Sr.s retention rights when he died in 1985.
xxxx
While Juan Grio seasonably objected to the CLTs, the objection was
simply a pending remedial action passed on to the heirs. This
remedial action lost its efficacy for the heirs when the DAR
dismissed the petition on September 25, 1989 and their heirs
failed to appeal the dismissal. x x x
xxxx
Additionally, when the heirs of Juan Grio, Sr. filed their
application for retention under RA 6657 in 1997 they had to
contend with an existing adverse ruling by the DAR the order
of September 25, 1989 and the CLTs the ruling confirmed. In
1997, the estate of Juan Grio, Sr. could no longer file a petition
that would question the denial of Juan Grio, Sr.s retention rights
as res adjudicata had then set in. The DAR was the agency
vested by law with the authority to rule on retention issues and
 its ruling lapsed to finality fifteen (15) days after its service. That
the ruling has been duly served and has reached finality appear
to us to be uncontroverted. The DAR ruling is a ruling on the merits
of Juan Grio, Sr.s petition for cancellation of the issued CLTs, and laid
to rest any issue of retention as between Juan Grio, Sr. and his
successors, and the government. Thus, res adjudicata fully applies.
The estate and the individual heirs are likewise estopped by
laches from questioning the denial of Juan Grio, Sr.s claim for
retention. The denial was made on September 25, 1989 and
the heirs present petition, assuming that it can be characterized
as an attack on the denial of Juan Grio, Sr.s retention rights, was
made only on March 17, 1997 or 7 years later. At this point,
laches has set in, laches being the failure or neglect, for an
unreasonable and unexplained length of time, to do that which
by exercising due diligence, could or should have been done
earlier. x x x
xxxx
In our view, allowing the heirs to resurrect the long entombed issue of
retention under the circumstances of this case would not only be a
major setback for the governments agrarian reform program, but
would be unjust as well to the individual tenants-beneficiaries who are
now full-pledged owners of the lands they till. Any adverse ruling
against the new owners would be doubly unjust since they were never
heard in this present petition.
x x x x[22] (Emphasis and underscoring supplied;
citations omitted)
Petitioners moved to reconsider the appellate courts decision upon the following
arguments:
1. The Order of DAR Regional Director Maraya dated September
1989 purportedly denying Juan Grio, Sr.s petition for cancellation
of CLTs appeared only in 1998 6 months after the PARO had
declared in the EPs issued in 1997 that no CLTs had been issued.
Hence, the supposed Maraya Order upholding said CLTs could
not be held against herein Petitioners, as even the PARO did not
know of their existence (assuming they existed at all).
2. There was no substitution of heirs in relation to the supposed
Petition for Cancellations of CLTs, hence herein Petitioners
cannot be held bound by the DAR Regional Directors Order dated
September 1989.
3. Addressing the Order to a dead person, without showing that it
was validly served upon any heir or representative, does not
constitute valid notice upon herein Petitioners.
4. A Petition for Cancellation of CLTs is not tantamount to an
Application for Retention. The issuance of CLTs is not a bar to the
Petitioners exercise of their Constitutionally-guaranteed right of
retention.
5. The case of Daez v. CA which also involves a denial of a
petition for cancellation of CLTs, shows that the right of retention
can still be exercised under RA 6657 after such
denial.[23] (Underscoring supplied)
By Resolution[24] dated June 21, 2004, the appellate court denied petitioners
motion for reconsideration, holding that, among other things, the issues raised therein
were never raised in the proceedings below nor in their petition for review; and that it
is against all rules of procedural orderliness and fair play for the petitioners to claim
that [its] [d]ecision is wrong because the underlying facts stated in the petitioners
Statement of Facts and submissions are incorrect or incomplete and [p]etitioners are
in fact estopped . . . . from making this claim after [it has] relied on their statements
and submissions in rendering [its] Decision.

The appellate court likewise held that the DAR could not be faulted if there
was no substitution of parties, for although the DARAB rules do not contain any
provision bearing on the death of a party, the Rules of Court makes it the duty of
counsel to inform the tribunal the fact of death of the party and the name and address
of his representative.
Furthermore, the appellate court held that even without above-stated rule,
ordinary common sense . . . dictate[s] that the heirs of a deceased litigant cannot
sleep on their duty to attend the estate of the deceased and [s]ince no notification
appears to have been undertaken by the heirs, [it] find[s] no merit in petitioners claim
that there was no substitution of heirs and the denial of Grios petition for cancellation
of CLTs does not bind them.
Hence, the present petition for certiorari, petitioners faulting the appellate court
to have committed grave abuse of discretion:
In refusing to recognize [its] Constitutional right of retention as
embodied in RA 6657 which the Association of Small Landowners
case had already acknowledged by the time the Maraya Order was
supposedly issued[.]
In refusing to recognize these strange discoveries of glaring
irregularities of facts gleaned from the DARs records submitted to the
Court and made available to herein Petitioners only after the Petition
for Review had been filed before the Court of Appeals[.]
In insisting that [they] had already lost [their] right of retention
because the Maraya Order had become final, despite the PAROs
unequivocal certification at the back of each Emancipation Patent that
there were no CLTs issued, and the Maraya Order was conveniently
discovered within the DAR itself only in 1998[.][25]
The proper remedy for petitioners to challenge the appellate courts decision
and resolution was to file a petition for review on certiorari under Rule 45 on or
before July 20, 2004 or 15 days after they received a copy of the appellate courts
resolution on July 5, 2004 denying their motion for reconsideration. They, however,
filed the present petition for certiorari under Rule 65 on September 20, 2004.
It is well settled, however, that certiorari cannot be used as a substitute for lost
appeal. Certiorari lies only when there is no appeal nor any plain, speedy, and
adequate remedy in the ordinary course of law. Why the question being raised by
petitioners, i.e., whether the appellate court committed grave abuse of discretion
could not have been raised on appeal,[26] no reason therefor has been advanced.
While this Court, in accordance with the liberal spirit pervading the Rules of Court and
in the interest of justice, has the discretion to treat a petition for certiorari as having
been filed under Rule 45, especially if filed within the reglementary period under said
Rule, it finds nothing in the present case to warrant a liberal application of the Rules,
no justification having been proffered, as just stated, why the petition was filed
beyond the reglementary period.[27]
Technicality aside, the petition just the same fails.
Petitioners fault the appellate court for ignoring the evidence they discovered when
they had the opportunity to examine the records forwarded by the DAR to the
appellate court that Grio was misled into believing that [the] CLTs had been issued,
when there were none, or that the [September 25, 1989] Maraya Order denying Grios
petition for cancellation of [the] CLTs was without legal effect because the (1) CLTs
were inexistent, (2) he was dead by the time the Order was rendered, and the
property had long passed on to his heirs, and (3) the heirs were never notified of said
order, and there is no showing that it was sent even to Juan Grio, Sr.s address of
record either.
As the appellate court ruled, however, petitioners are guilty of laches in their attempt
to resurrect the retention issue [seven and a half] years after its denial was decreed
and came to finality.
As the appellate court ruled too, the DAR cannot be faulted if no substitution of
parties took place when Grio died, it being the duty of the heirs to attend to the estate
of the deceased, which duty includes notification to adjudicating tribunals the fact of
death of the litigant.
At all events, these issues raised by petitioners, which substantially reiterate those
raised in their motion for reconsideration before the appellate court, were as the
appellate court observed, never raised in the proceedings below nor in petitioners
petition for review before said court.
WHEREFORE, the petition is DISMISSED.

Costs against petitioners.

SO ORDERED
G.R. No. 133507 February 17, 2000
EUDOSIA DAEZ AND/OR HER HEIRS, REP. BY ADRIANO D. DAEZ, petitioners,
vs.
THE HON. COURT OF APPEALS MACARIO SORIENTES, APOLONIO MEDIANA,
ROGELIO MACATULAD and MANUEL UMALI, respondents.
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the Decision1 of the Court of
Appeals2 dated January 28, 1998 which denied the application of petitioner heirs of
Eudosia Daez for the retention of a 4.1685-hectare riceland pursuant to Republic Act
(R.A.) No. 6657, otherwise known as the Comprehensive Agrarian Reform Law3,
thereby reversing the Decision4 of then Executive Secretary Ruben D. Torres and
the Order5 of then Deputy Executive Secretary Renato C. Corona, both of which had
earlier set aside the Resolution6 and Order7 of then Department of Agrarian Reform
(DAR) Secretary Ernesto D. Garilao denying exemption of the same riceland from
coverage under Presidential Decree (P.D.) No. 27.
The pertinent facts are:
Eudosia Daez, now deceased, was the owner of a 4.1685-hectare riceland in
Barangay Lawa, Meycauayan, Bulacan which was being cultivated by respondents
Macario Soriente, Rogelio Macatulad, Apolonio Mediana and Manuel Umali under a
system of share-tenancy. The said land was subjected to the Operation Land
Transfer (OLT) Program under Presidential Decree (P.D.) No. 278 as amended by
Letter of Instruction (LOI) No. 4749. Thus, the then Ministry of Agrarian Reform
acquired the subject land and issued Certificates of Land Transfer (CLT) on
December 9, 1980 to private respondents as beneficiaries.
However, on May 31, 1981, private respondents signed an affidavit, allegedly under
duress, stating that they are not share tenants but hired laborers10. Armed with such
document, Eudosia Daez applied for the exemption of said riceland from coverage of
P.D. No. 27 due to non-tenancy as well as for the cancellation of the CLTs issued to
private respondents.1âwphi1.nêt
In their Affidavit dated October 2, 1983, Eudosia Daez and her husband, Lope,
declared ownership over 41.8064 hectares of agricultural lands located in
Meycauayan, Bulacan and fourteen (14) hectares of riceland, sixteen (16) hectares
of forestland, ten (10) hectares of "batuhan" and 1.8064 hectares of residential
lands11 in Penaranda, Nueva Ecija. Included in their 41.8064-hectare landholding in
Bulacan, was the subject 4,1685-hectare riceland in Meycauayan.
On July 27, 1987, DAR Undersecretary Jose C. Medina issued an Order denying
Eudosia Daez's application for exemption upon finding that her subject land is
covered under LOI No. 474, petitioner being owner of the aforesaid agricultural lands
exceeding seven (7) hectares12.
On June 29, 1989, Eudosia Daez wrote a letter to DAR Secretary Benjamin T. Leong
requesting for reconsideration of Undersecretary Medina's order. But on January 16,
199213 Secretary Leong affirmed the assailed order upon finding private respondents
to be bonafide tenants of the subject land. Secretary Leong disregarded private
respondents' May 31, 1981 affidavit for having been executed under duress because
he found that Eudosia's son, Adriano, who was then the incumbent Vice-Mayor of
Meycauayan, pressured private respondents into signing the same.
Undaunted, Eudosia Daez brought her case on February 20, 1992 to the Court of
Appeals via a petition forcertiorari. The Court of Appeals, however, sustained the
order of Secretary Leong in a decision dated April 29, 1992. Eudosia pursued her
petition before this court but we denied it in a minute resolution dated September 18,
1992. We also denied her motion for reconsideration on November 9, 1992.
Meantime, on August 6 and 12, 1992, the DAR issued Emancipation Patents (EPs)
to private respondents. Thereafter, the Register of Deeds of Bulacan issued the
corresponding Transfer Certificates of Title (TCTs).
Exemption of the 4.1685 riceland from coverage by P.D. No. 27 having been finally
denied her, Eudosia Daez next filed an application for retention of the same riceland,
this time under R.A. No. 6657.
In an order dated March 22, 1994, DAR Region III OIC-Director Eugenio B. Bernardo
allowed Eudosia Daez to retain the subject riceland but he denied the application of
her eight (8) children to retain three (3) hectares each for their failure to prove actual
tillage of the land or direct management thereof as required by law14. Aggrieved, they
appealed to the DAR.
On August 26, 1994, then DAR Secretary Ernesto D. Garilao, set aside the order of
Regional Director Bernardo in a Resolution,15 the decretal portion of which
reads, viz.:
WHEREFORE, premises considered, this Resolution is hereby issued setting
aside with FINALITY the Order dated March 22, 1994 of the Regional
Director of DAR Region III.
The records of this case is remanded to the Regional Office for immediate
implementation of the Order dated January 16, 1992 of this office as affirmed
by the Court of Appeals and the Supreme Court.
SO ORDERED.
Eudosia Daez filed a Motion for Reconsideration but it was denied on January 19,
199516.
She appealed Secretary Garilao's decision to the Office of the President which ruled
in her favor. The dispositive portion of the Decision17 of then Executive Secretary
reads:
WHEREFORE, the resolution and order appealed from are hereby SET
ASIDE and judgment is rendered authorizing the retention by Eudosia Daez
or her heirs of the 4.1685-hectare landholding subject thereof.
SO ORDERED.18
Aggrieved, private respondents sought from the Court of Appeals, a review of the
decision of the Office of the President.
On January 28, 1999, the said Decision of the Office of the President was reversed.
The Court of Appeals ordered, thus:
WHEREFORE, the assailed decision of July 5, 1996 and Order dated
October 23, 1996 of the public respondents are REVERSED AND SET
ASIDE, and the Resolution and Order of DAR Secretary Ernesto D. Garilao
respectively dated August 26, 1994 and January 19, 1995 are REINSTATED.
SO ORDERED.
Hence, this petition which assigns the following errors:
I. THE HONORABLE COURT OF APPEALS ERRED WHEN IT RULED THAT
DISTINCTION BETWEEN EXEMPTION FROM AGRARIAN REFORM COVERAGE
AND THE RIGHT OF RETENTION OF LANDOWNERS IS ONLY A MATTER OF
SEMANTICS THAT AN ADVERSE DECISION IN THE FORMER WILL
FORECLOSE FURTHER ACTION TO ENFORCE THE LATTER CONSIDERING
THAT THEY CONSTITUTE SEPARATE AND DISTINCT CAUSES OF ACTION
AND, THEREFORE, ENFORCEABLE SEPARATELY AND IN SEQUEL.
II. THE HONORABLE COURT OF APPEALS ERRED WHEN IT APPLIED THE
PRINCIPLE OF RES JUDICATA DESPITE THE FACT THAT THE PREVIOUS
CASE CITED (EXEMPTION FROM COVERAGE DUE TO NON-TENANCY) AND
THE PRESENT CASE (RETENTION RIGHT) ARE OF DIFFERENT CAUSES OF
ACTION.
III. THE HONORABLE COURT OF APPEALS ERRED WHEN IT RULED/OPINED
THAT THERE WAS A CUT-OFF DATE (AUGUST 27, 1985) FOR LANDOWNERS
TO APPLY FOR EXEMPTION OR RETENTION UNDER PD 27 AND THOSE WHO
FAILED TO FILE THEIR APPLICATIONS/PETITIONS ARE DEEMED TO HAVE
WAIVED THEIR RIGHTS.
IV. THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT
PETITIONERS (RESPONDENTS THEREIN) ARE GUILTY OF ESTOPPEL.
V. THE HONORABLE COURT OF APPEALS ERRED WHEN IT RULED THAT THE
LAND SUBJECT OF THIS CASE IS NO LONGER OWNED BY PETITIONERS
SINCE PRIVATE RESPONDENTS HAVE ALREADY BEEN ISSUED NOT ONLY
THEIR RESPECTIVE CERTIFICATES OF LAND TRANSFER BUT ALSO THEIR
INDIVIDUAL CERTIFICATES OF TITLE OVER THE DISPUTED AREA.19
We grant the petition.
First. Exemption and retention in agrarian reform are two (2) distinct concepts.
P.D. No. 27, which implemented the Operation Land Transfer (OLT) Program, covers
tenanted rice or corn lands. The requisites for coverage under the OLT program are
the following: (1) the land must be devoted to rice or corn crops; and (2) there must
be a system of share-crop or lease-tenancy obtaining therein. If either requisite is
absent, a landowner may apply for exemption. If either of these requisites is absent,
the land is not covered under OLT. Hence, a landowner need not apply for retention
where his ownership over the entire landholding is intact and undisturbed.
P.D. No. 27 grants each tenant of covered lands a five (5)-hectare lot, or in case the
land is irrigated, a three (3)-hectare lot constituting a family size farm. However, said
law allows a covered landowner to retain not more than seven (7) hectares of his
land if his aggregate landholding does not exceed twenty-four (24) hectares.
Otherwise, his entire landholding is covered without him being entitled to any
retention right20.
Consequently, a landowner may keep his entire covered landholding if its aggregate
size does not exceed the retention limit of seven (7) hectares. In effect, his land will
not be covered at all by the OLT program although all requisites for coverage are
present. LOI No. 474 clarified the effective coverage of OLT to include tenanted rice
or corn lands of seven (7) hectares or less, if the landowner owns other agricultural
lands of more than seven (7) hectares. The term "other agricultural lands" refers to
lands other than tenanted rice or corn lands from which the landowner derives
adequate income to support his family.
Thus, on one hand, exemption from coverage of OLT lies if: (1) the land is not
devoted to rice or corn crops even if it is tenanted; or (2) the land is untenanted even
though it is devoted to rice or corn crops.
On the other hand, the requisites for the exercise by the landowner of his right of
retention are the following: (1) the land must be devoted to rice or corn crops; (2)
there must be a system of share-crop or lease-tenancy obtaining therein; and (3) the
size of the landholding must not exceed twenty-four (24) hectares, or it could be
more than twenty-four (24) hectares provided that at least seven (7) hectares thereof
are covered lands and more than seven (7) hectares of it consist of "other
agricultural lands".
Clearly, then, the requisites for the grant of an application for exemption from
coverage of OLT and those for the grant of an application for the exercise of a
landowner's right of retention, are different.
Hence, it is incorrect to posit that an application for exemption and an application for
retention are one and the same thing. Being distinct remedies, finality of judgment in
one does not preclude the subsequent institution of the other. There was, thus, no
procedural impediment to the application filed by Eudosia Daez for the retention of
the subject 4.1865-hectare riceland, even after her appeal for exemption of the same
land was denied in a decision that became final and executory.
Second. Petitioner heirs of Eudosia Daez may exercise their right of retention over
the subject 4.1685 riceland.
The right of retention is a constitutionally guaranteed right, which is subject to
qualification by the legislature21. It serves to mitigate the effects of compulsory land
acquisition by balancing the rights of the landowner and the tenant and by
implementing the doctrine that social justice was not meant to perpetrate an injustice
against the landowner22. A retained area, as its name denotes, is land which is not
supposed to anymore leave the landowner's dominion, thus sparing the government
from the inconvenience of taking land only to return it to the landowner afterwards,
which would be a pointless process.
In the landmark case of Association of Small Landowners in the
Phil., Inc. v. Secretary of Agrarian Reform23, we held that landowners who have not
yet exercised their retention rights under P.D. No. 27 are entitled to the new retention
rights under R.A. No. 665724. We disregarded the August 27, 1985 deadline imposed
by DAR Administrative Order No. 1, series of 1985 on landowners covered by OLT.
However, if a landowner filed his application for retention after August 27, 1985 but
he had previously filed the sworn statements required by LOI Nos. 41, 45 and 52, he
is still entitled to the retention limit of seven (7) hectares under P.D. No. 2725.
Otherwise, he is only entitled to retain five (5) hectares under R.A. No. 6657.
Sec. 6 of R.A. No. 6657, which provides, viz.:
Sec. 6. Retention Limits — Except as otherwise provided in this Act, no
person may own or retain, directly or indirectly, any public or private
agricultural land, the size of which shall vary according to factors governing a
viable family-size, such as commodity produced, terrain, infrastructure, and
soil fertility as determined by the Presidential Agrarian Reform Council
(PARC) created hereunder, but in no case shall retention by the landowner
exceed five (5) hectares. Three (3) hectares may be awarded to each child of
the landowner, subject to the following qualifications: (1) that he is at least
fifteen (15) years of age; and (2) that he is actually tilling the land or directly
managing the farm; Provided, That landowners whose land have been
covered by Presidential Decree No. 27 shall be allowed to keep the area
originally retained by them thereunder, further, That original homestead
grantees or direct compulsory heirs who still own the original homestead at
the time of the approval of this Act shall retain the same areas as long as
they continue to cultivate said homestead.
The right to choose the area to be retained, which shall be compact or
contiguous, shall pertain to the landowner. Provided, however, That in case
the area selected for retention by the landowner is tenanted, the tenant shall
have the option to choose whether to remain therein or be a beneficiary in the
same or another agricultural land with similar or comparable features. In case
the tenant chooses to remain in the retained area, he shall be considered a
leaseholder and shall lose his right to be a beneficiary under this Act. In case
the tenant chooses to be a beneficiary in another agricultural land, he loses
his right as a lease-holder to the land retained by the landowner. The tenant
must exercise this option within a period of one (1) year from the time the
landowner manifests his choice of the area for retention.
In all cases, the security of tenure of the farmers or farmworkers on the land
prior to the approval of this Act shall be respected.
Upon the effectivity of this Act, any sale, disposition, lease, management
contract or transfer of possession of private lands executed by the original
landowner in violation of this Act shall be null and void; Provided,however,
That those executed prior to this Act shall be valid only when registered with
the Register of Deeds within a period of three (3) months after the effectivity
of this Act. Thereafter, all Register of Deeds shall inform the DAR within thirty
(3) days of any transaction involving agricultural lands in excess of five (5)
hectares26.
defines the nature and incidents of a landowner's right of retention. For as long as
the area to be retained is compact or contiguous and it does not exceed the retention
ceiling of five (5) hectares, a landowner's choice of the area to be retained, must
prevail. Moreover, Administrative Order No. 4, series of 1991,27 which supplies the
details for the exercise of a landowner's retention rights, likewise recognizes no limit
to the prerogative of the landowner, although he is persuaded to retain other lands
instead to avoid dislocation of farmers.
Without doubt, this right of retention may be exercised over tenanted land despite
even the issuance of Certificate of Land Transfer (CLT) to farmer-
beneficiaries.28 What must be protected, however, is the right of the tenants to opt to
either stay on the land chosen to be retained by the landowner or be a beneficiary in
another agricultural land with similar or comparable features.29
Finally. Land awards made pursuant to the government's agrarian reform program
are subject to the exercise by a landowner, who is so qualified, of his right of
retention.
Under P.D. No. 27, beneficiaries are issued CLTs to entitle them to possess lands.
Thereafter, they are issued Emancipation Patents (EPs) after compliance with all
necessary conditions. Such EPs, upon their presentation to the Register of Deeds,
result in the issuance of the corresponding transfer certificates of title (TCT) in favor
of the beneficiaries mentioned therein30.
Under R.A. No. 6657, the procedure has been simplified31. Only Certificates of Land No costs.
Ownership Award (CLOAs) are issued, in lieu of EPs, after compliance with all
prerequisites. Thereafter, upon presentation of the CLOAs to the Register of Deeds, SO ORDERED.
TCTs are issued to the designated beneficiaries. CLTs are no longer issued.

The issuance of EPs or CLOAs to beneficiaries does not absolutely bar the
landowner from retaining the area covered thereby. Under Administrative Order No.
2, series of 199432, an EP or CLOA may be cancelled if the land covered is later
found to be part of the landowner's retained area.

A certificate of title accumulates in one document a comprehensive statement of the

status of the fee held by the owner of a parcel of land.33 As such, it is a mere
evidence of ownership and it does not constitute the title to the land itself. It cannot
confer title where no title has been acquired by any of the means provided by law34.

Thus, we had, in the past, sustained the nullification of a certificate of title issued
pursuant to a homestead patent because the land covered was not part of the public
domain and as a result, the government had no authority to issue such patent in the
first place35. Fraud in the issuance of the patent, is also a ground for impugning the
validity of a certificate of title36. In other words, the invalidity of the patent or title is
sufficient basis for nullifying the certificate of title since the latter is merely an
evidence of the former.

In the instant case, the CLTs of private respondents over the subject 4.1685-hectare
riceland were issued without Eudosia Daez having been accorded her right of choice
as to what to retain among her landholdings. The transfer certificates of title thus
issued on the basis of those CLTs cannot operate to defeat the right of the heirs of
deceased Eudosia Daez to retain the said 4.1685 hectares of riceland.

WHEREFORE, the instant petition is hereby GRANTED. The Decision of the Court
of Appeals, dated January 28, 1998, is REVERSED and SET ASIDE and the
Decision of the Office of the President, dated July 5, 1996, is hereby REINSTATED.
In the implementation of said decision, however, the Department of Agrarian Reform
is hereby ORDERED to fully accord to private respondents their rights under Section
6 of R.A. No. 6657.