EN BANC

G.R. No. L-19190             November 29, 1922

THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellee, vs. VENANCIO CONCEPCION, defendant-appellant.

MALCOLM, J.:

By telegrams and a letter of confirmation to the manager of the Aparri branch of the Philippine National Bank, Venancio
Concepcion, President of the Philippine National Bank, between April 10, 1919, and May 7, 1919, authorized an extension
of credit in favor of "Puno y Concepcion, S. en C." in the amount of P300,000. This special authorization was essential in
view of the memorandum order of President Concepcion dated May 17, 1918, limiting the discretional power of the local
manager at Aparri, Cagayan, to grant loans and discount negotiable documents to P5,000, which, in certain cases, could
be increased to P10,000. Pursuant to this authorization, credit aggregating P300,000, was granted the firm of "Puno y
Concepcion, S. en C.," the only security required consisting of six demand notes. The notes, together with the interest,
were taken up and paid by July 17, 1919.

"Puno y Concepcion, S. en C." was a copartnership capitalized at P100,000. Anacleto Concepcion contributed P5,000;
Clara Vda. de Concepcion, P5,000; Miguel S. Concepcion, P20,000; Clemente Puno, P20,000; and Rosario San Agustin,
"casada con Gral. Venancio Concepcion," P50,000. Member Miguel S. Concepcion was the administrator of the company.

On the facts recounted, Venancio Concepcion, as President of the Philippine National Bank and as member of the board
of directors of this bank, was charged in the Court of First Instance of Cagayan with a violation of section 35 of Act No.
2747. He was found guilty by the Honorable Enrique V. Filamor, Judge of First Instance, and was sentenced to
imprisonment for one year and six months, to pay a fine of P3,000, with subsidiary imprisonment in case of insolvency,
and the costs.

Section 35 of Act No. 2747, effective on February 20, 1918, just mentioned, to which reference must hereafter repeatedly
be made, reads as follows: "The National Bank shall not, directly or indirectly, grant loans to any of the members of the
board of directors of the bank nor to agents of the branch banks." Section 49 of the same Act provides: "Any person who
shall violate any of the provisions of this Act shall be punished by a fine not to exceed ten thousand pesos, or by
imprisonment not to exceed five years, or by both such fine and imprisonment." These two sections were in effect in 1919
when the alleged unlawful acts took place, but were repealed by Act No. 2938, approved on January 30, 1921.

Counsel for the defense assign ten errors as having been committed by the trial court. These errors they have argued
adroitly and exhaustively in their printed brief, and again in oral argument. Attorney-General Villa-Real, in an exceptionally
accurate and comprehensive brief, answers the proposition of appellant one by one.

The question presented are reduced to their simplest elements in the opinion which follows:

I. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." by Venancio Concepcion,
President of the Philippine National Bank, a "loan" within the meaning of section 35 of Act No. 2747?

Counsel argue that the documents of record do not prove that authority to make a loan was given, but only show the
concession of a credit. In this statement of fact, counsel is correct, for the exhibits in question speak of a "credito" (credit)
and not of a " prestamo" (loan).

The "credit" of an individual means his ability to borrow money by virtue of the confidence or trust reposed by a lender that
he will pay what he may promise. (Donnell vs. Jones [1848], 13 Ala., 490; Bouvier's Law Dictionary.) A "loan" means the
delivery by one party and the receipt by the other party of a given sum of money, upon an agreement, express or implied,
to repay the sum loaned, with or without interest. (Payne vs. Gardiner [1864], 29 N. Y., 146, 167.) The concession of a
"credit" necessarily involves the granting of "loans" up to the limit of the amount fixed in the "credit,"

II. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C.," by Venancio Concepcion,
President of the Philippine National Bank, a "loan" or a "discount"?

Counsel argue that while section 35 of Act No. 2747 prohibits the granting of a "loan," it does not prohibit what is
commonly known as a "discount."
In a letter dated August 7, 1916, H. Parker Willis, then President of the National Bank, inquired of the Insular Auditor
whether section 37 of Act No. 2612 was intended to apply to discounts as well as to loans. The ruling of the Acting Insular
Auditor, dated August 11, 1916, was to the effect that said section referred to loans alone, and placed no restriction upon
discount transactions. It becomes material, therefore, to discover the distinction between a "loan" and a "discount," and to
ascertain if the instant transaction comes under the first or the latter denomination.

Discounts are favored by bankers because of their liquid nature, growing, as they do, out of an actual, live, transaction.
But in its last analysis, to discount a paper is only a mode of loaning money, with, however, these distinctions: (1) In a
discount, interest is deducted in advance, while in a loan, interest is taken at the expiration of a credit; (2) a discount is
always on double-name paper; a loan is generally on single-name paper.

Conceding, without deciding, that, as ruled by the Insular Auditor, the law covers loans and not discounts, yet the
conclusion is inevitable that the demand notes signed by the firm "Puno y Concepcion, S. en C." were not discount paper
but were mere evidences of indebtedness, because (1) interest was not deducted from the face of the notes, but was paid
when the notes fell due; and (2) they were single-name and not double-name paper.

The facts of the instant case having relation to this phase of the argument are not essentially different from the facts in the
Binalbagan Estate case. Just as there it was declared that the operations constituted a loan and not a discount, so should
we here lay down the same ruling.

III. Was the granting of a credit of P300,000 to the copartnership, "Puno y Concepcion, S. en C." by Venancio
Concepcion, President of the Philippine National Bank, an "indirect loan" within the meaning of section 35 of Act No.
2747?

Counsel argue that a loan to the partnership "Puno y Concepcion, S. en C." was not an "indirect loan." In this connection,
it should be recalled that the wife of the defendant held one-half of the capital of this partnership.

In the interpretation and construction of statutes, the primary rule is to ascertain and give effect to the intention of the
Legislature. In this instance, the purpose of the Legislature is plainly to erect a wall of safety against temptation for a
director of the bank. The prohibition against indirect loans is a recognition of the familiar maxim that no man may serve
two masters — that where personal interest clashes with fidelity to duty the latter almost always suffers. If, therefore, it is
shown that the husband is financially interested in the success or failure of his wife's business venture, a loan to
partnership of which the wife of a director is a member, falls within the prohibition.

Various provisions of the Civil serve to establish the familiar relationship called a conjugal partnership. (Articles 1315,
1393, 1401, 1407, 1408, and 1412 can be specially noted.) A loan, therefore, to a partnership of which the wife of a
director of a bank is a member, is an indirect loan to such director.

That it was the intention of the Legislature to prohibit exactly such an occurrence is shown by the acknowledged fact that
in this instance the defendant was tempted to mingle his personal and family affairs with his official duties, and to permit
the loan P300,000 to a partnership of no established reputation and without asking for collateral security.

In the case of Lester and Wife vs. Howard Bank ([1870], 33 Md., 558; 3 Am. Rep., 211), the Supreme Court of Maryland
said:

What then was the purpose of the law when it declared that no director or officer should borrow of the bank, and "if any
director," etc., "shall be convicted," etc., "of directly or indirectly violating this section he shall be punished by fine and
imprisonment?" We say to protect the stockholders, depositors and creditors of the bank, against the temptation to which
the directors and officers might be exposed, and the power which as such they must necessarily possess in the control
and management of the bank, and the legislature unwilling to rely upon the implied understanding that in assuming this
relation they would not acquire any interest hostile or adverse to the most exact and faithful discharge of duty, declared in
express terms that they should not borrow, etc., of the bank.

In the case of People vs. Knapp ([1912], 206 N. Y., 373), relied upon in the Binalbagan Estate decision, it was said:

We are of opinion the statute forbade the loan to his copartnership firm as well as to himself directly. The loan was made
indirectly to him through his firm.
IV. Could Venancio Concepcion, President of the Philippine National Bank, be convicted of a violation of section 35 of Act
No. 2747 in relation with section 49 of the same Act, when these portions of Act No. 2747 were repealed by Act No. 2938,
prior to the finding of the information and the rendition of the judgment?

As noted along toward the beginning of this opinion, section 49 of Act No. 2747, in relation to section 35 of the same Act,
provides a punishment for any person who shall violate any of the provisions of the Act. It is contended, however, by the
appellant, that the repeal of these sections of Act No. 2747 by Act No. 2938 has served to take away the basis for criminal
prosecution.

This same question has been previously submitted and has received an answer adverse to such contention in the cases
of United Stated vs. Cuna ([1908], 12 Phil., 241); People vs. Concepcion ([1922], 43 Phil., 653); and Ong Chang Wing and
Kwong Fok vs. United States ([1910], 218 U. S., 272; 40 Phil., 1046). In other words, it has been the holding, and it must
again be the holding, that where an Act of the Legislature which penalizes an offense, such repeals a former Act which
penalized the same offense, such repeal does not have the effect of thereafter depriving the courts of jurisdiction to try,
convict, and sentenced offenders charged with violations of the old law.

V. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C." by Venancio Concepcion,
President of the Philippine National Bank, in violation of section 35 of Act No. 2747, penalized by this law?

Counsel argue that since the prohibition contained in section 35 of Act No. 2747 is on the bank, and since section 49 of
said Act provides a punishment not on the bank when it violates any provisions of the law, but on a person violating any
provisions of the same, and imposing imprisonment as a part of the penalty, the prohibition contained in said section 35 is
without penal sanction.

The answer is that when the corporation itself is forbidden to do an act, the prohibition extends to the board of directors,
and to each director separately and individually. (People vs. Concepcion, supra.)

VI. Does the alleged good faith of Venancio Concepcion, President of the Philippine National Bank, in extending the credit
of P300,000 to the copartnership "Puno y Concepcion, S. en C." constitute a legal defense?

Counsel argue that if defendant committed the acts of which he was convicted, it was because he was misled by rulings
coming from the Insular Auditor. It is furthermore stated that since the loans made to the copartnership "Puno y
Concepcion, S. en C." have been paid, no loss has been suffered by the Philippine National Bank.

Neither argument, even if conceded to be true, is conclusive. Under the statute which the defendant has violated, criminal
intent is not necessarily material. The doing of the inhibited act, inhibited on account of public policy and public interest,
constitutes the crime. And, in this instance, as previously demonstrated, the acts of the President of the Philippine
National Bank do not fall within the purview of the rulings of the Insular Auditor, even conceding that such rulings have
controlling effect.

Morse, in his work, Banks and Banking, section 125, says:

It is fraud for directors to secure by means of their trust, and advantage not common to the other stockholders. The law
will not allow private profit from a trust, and will not listen to any proof of honest intent.

JUDGMENT

On a review of the evidence of record, with reference to the decision of the trial court, and the errors assigned by the
appellant, and with reference to previous decisions of this court on the same subject, we are irresistibly led to the
conclusion that no reversible error was committed in the trial of this case, and that the defendant has been proved guilty
beyond a reasonable doubt of the crime charged in the information. The penalty imposed by the trial judge falls within the
limits of the punitive provisions of the law.

Judgment is affirmed, with the costs of this instance against the appellant. So ordered.

FIRST DIVISION

G.R. No. L-48349 December 29, 1986

FRANCISCO HERRERA, plaintiff-appellant, vs. PETROPHIL CORPORATION, defendant-appellee.

CRUZ, J.:

This is an appeal by the plaintiff-appellant from a decision rendered by the then Court of First Instance of Rizal on a pure
question of law. 1

The judgment appealed from was rendered on the pleadings, the parties having agreed during the pretrial conference on
the factual antecedents.

The facts are as follows: On December 5, 1969, the plaintiff-appellant and ESSO Standard Eastern. Inc., (later substituted
by Petrophil Corporation) entered into a "Lease Agreement" whereby the former leased to the latter a portion of his
property for a period of twenty (20) years from said date, subject inter alia to the following conditions:

3. Rental: The LESSEE shall pay the LESSOR a rental of Pl.40 sqm. per month on 400 sqm. and are to be expropriated
later on (sic) or P560 per month and Fl.40 per sqm. per month on 1,693 sqm. or P2,370.21 per month or a total of
P2,930.20 per month 2,093 sqm. more or less, payable yearly in advance within the 1st twenty days of each year;
provided, a financial aid in the sum of P15,000 to clear the leased premises of existing improvements thereon is paid in
this manner; P10,000 upon execution of this lease and P5,000 upon delivery of leased premises free and clear of
improvements thereon within 30 days from the date of execution of this agreement. The portion on the side of the leased
premises with an area of 365 sqrm. more or less, will be occupied by LESSEE without rental during the lifetime of this
lease. PROVIDED FINALLY, that the Lessor is paid 8 years advance rental based on P2,930.70 per month discounted at
12% interest per annum or a total net amount of P130,288.47 before registration of lease. Leased premises shall be
delivered within 30 days after 1st partial payment of financial aid. 2

On December 31, 1969, pursuant to the said contract, the defendant-appellee paid to the plaintfff-appellant advance
rentals for the first eight years, subtracting therefrom the amount of P101,010.73, the amount it computed as constituting
the interest or discount for the first eight years, in the total sum P180,288.47. On August 20, 1970, the defendant-
appellee, explaining that there had been a mistake in computation, paid to the appellant the additional sum of P2,182.70,
thereby reducing the deducted amount to only P98,828.03. 3

On October 14, 1974, the plaintiff-appellant sued the defendant-appellee for the sum of P98,828.03, with interest, claiming
this had been illegally deducted from him in violation of the Usury Law. 4 He also prayed for moral damages and attorney's
fees. In its answer, the defendant-appellee admitted the factual allegations of the complaint but argued that the amount
deducted was not usurious interest but a given to it for paying the rentals in advance for eight years. 5 Judgment on the
pleadings was rendered for the defendant. 6

Plaintiff-appellant now prays for a reversal of that judgment, insisting that the lower court erred in the computation of the
interest collected out of the rentals paid for the first eight years; that such interest was excessive and violative of the Usury
Law; and that he had neither agreed to nor accepted the defendant-appellant's computation of the total amount to be
deducted for the eight years advance rentals. 7

The thrust of the plaintiff-appellant's position is set forth in paragraph 6 of his complaint, which read:

6. The interest collected by defendant out of the rentals for the first eight years was excessive and beyond that allowable
by law, because the total interest on the said amount is only P33,755.90 at P4,219.4880 per yearly rental; and considering
that the interest should be computed excluding the first year rental because at the time the amount of P281, 199.20 was
paid it was already due under the lease contract hence no interest should be collected from the rental for the first year, the
amount of P29,536.42 only as the total interest should have been deducted by defendant from the sum of P281,299.20.

The defendant maintains that the correct amount of the discount is P98,828.03 and that the same is not excessive and
above that allowed by law.

As its title plainly indicates, the contract between the parties is one of lease and not of loan. It is clearly denominated a
"LEASE AGREEMENT." Nowhere in the contract is there any showing that the parties intended a loan rather than a lease.
The provision for the payment of rentals in advance cannot be construed as a repayment of a loan because there was no
grant or forbearance of money as to constitute an indebtedness on the part of the lessor. On the contrary, the defendant-
appellee was discharging its obligation in advance by paying the eight years rentals, and it was for this advance payment
that it was getting a rebate or discount.

The provision for a discount is not unusual in lease contracts. As to its validity, it is settled that the parties may establish
such stipulations, clauses, terms and condition as they may want to include; and as long as such agreements are not
contrary to law, morals, good customs, public policy or public order, they shall have the force of law between them. 8

There is no usury in this case because no money was given by the defendant-appellee to the plaintiff-appellant, nor did it
allow him to use its money already in his possession. 9 There was neither loan nor forbearance but a mere discount which
the plaintiff-appellant allowed the defendant-appellee to deduct from the total payments because they were being made in
advance for eight years. The discount was in effect a reduction of the rentals which the lessor had the right to determine,
and any reduction thereof, by any amount, would not contravene the Usury Law.

The difference between a discount and a loan or forbearance is that the former does not have to be repaid. The loan or
forbearance is subject to repayment and is therefore governed by the laws on usury. 10

To constitute usury, "there must be loan or forbearance; the loan must be of money or something circulating as money; it
must be repayable absolutely and in all events; and something must be exacted for the use of the money in excess of and
in addition to interest allowed by law." 11

It has been held that the elements of usury are (1) a loan, express or implied; (2) an understanding between the parties
that the money lent shall or may be returned; that for such loan a greater rate or interest that is allowed by law shall be
paid, or agreed to be paid, as the case may be; and (4) a corrupt intent to take more than the legal rate for the use of
money loaned. Unless these four things concur in every transaction, it is safe to affirm that no case of usury can be
declared. 12

Concerning the computation of the deductible discount, the trial court declared:

As above-quoted, the 'Lease Agreement' expressly provides that the lessee (defendant) shag pay the lessor (plaintiff)
eight (8) years in advance rentals based on P2,930.20 per month discounted at 12% interest per annum. Thus, the total
rental for one-year period is P35,162.40 (P2,930.20 multiplied by 12 months) and that the interest therefrom is
P4,219.4880 (P35,162.40 multiplied by 12%). So, therefore, the total interest for the first eight (8) years should be only
P33,755.90 (P4,129.4880 multiplied by eight (8) years and not P98,828.03 as the defendant claimed it to be.

The afore-quoted manner of computation made by plaintiff is patently erroneous. It is most seriously misleading. He just
computed the annual discount to be at P4,129.4880 and then simply multiplied it by eight (8) years. He did not take into
consideration the naked fact that the rentals due on the eight year were paid in advance by seven (7) years, the rentals
due on the seventh year were paid in advance by six (6) years, those due on the sixth year by five (5) years, those due on
the fifth year by four (4) years, those due on the fourth year by three (3) years, those due on the third year by two (2)
years, and those due on the second year by one (1) year, so much so that the total number of years by which the annual
rental of P4,129.4880 was paid in advance is twenty-eight (28), resulting in a total amount of P118,145.44 (P4,129.48
multiplied by 28 years) as the discount. However, defendant was most fair to plaintiff. It did not simply multiply the annual
rental discount by 28 years. It computed the total discount with the principal diminishing month to month as shown by
Annex 'A' of its memorandum. This is why the total discount amount to only P 8,828.03.

The allegation of plaintiff that defendant made the computation in a compounded manner is erroneous. Also after making
its own computations and after examining closely defendant's Annex 'A' of its memorandum, the court finds that defendant
did not charge 12% discount on the rentals due for the first year so much so that the computation conforms with the
provision of the Lease Agreement to the effect that the rentals shall be 'payable yearly in advance within the 1st 20 days
of each year. '

We do not agree. The above computation appears to be too much technical mumbo-jumbo and could not have been the
intention of the parties to the transaction. Had it been so, then it should have been clearly stipulated in the contract.
Contracts should be interpreted according to their literal meaning and should not be interpreted beyond their obvious
intendment. 13
The plaintfff-appellant simply understood that for every year of advance payment there would be a deduction of 12% and
this amount would be the same for each of the eight years. There is no showing that the intricate computation applied by
the trial court was explained to him by the defendant-appellee or that he knowingly accepted it.

The lower court, following the defendant-appellee's formula, declared that the plaintiff-appellant had actually agreed to a
12% reduction for advance rentals for all of twenty eight years. That is absurd. It is not normal for a person to agree to a
reduction corresponding to twenty eight years advance rentals when all he is receiving in advance rentals is for only eight
years.

The deduction shall be for only eight years because that was plainly what the parties intended at the time they signed the
lease agreement. "Simplistic" it may be, as the Solicitor General describes it, but that is how the lessor understood the
arrangement. In fact, the Court will reject his subsequent modification that the interest should be limited to only seven
years because the first year rental was not being paid in advance. The agreement was for a uniform deduction for the
advance rentals for each of the eight years, and neither of the parties can deviate from it now.

On the annual rental of P35,168.40, the deducted 12% discount was P4,220.21; and for eight years, the total rental was
P281,347.20 from which was deducted the total discount of P33,761.68, leaving a difference of P247,585.52. Subtracting
from this amount, the sum of P182,471.17 already paid will leave a balance of P65,114.35 still due the plaintiff-appellant.

The above computation is based on the more reasonable interpretation of the contract as a whole rather on the single
stipulation invoked by the respondent for the flat reduction of P130,288.47.

WHEREFORE, the decision of the trial court is hereby modified, and the defendant-appellee Petrophil Corporation is
ordered to pay plaintiff-appellant the amount of Sixty Five Thousand One Hundred Fourteen pesos and Thirty-Five
Centavos (P65,114.35), with interest at the legal rate until fully paid, plus Ten Thousand Pesos (P10,000.00) as attorney's
fees. Costs against the defendant-appellee.

SO ORDERED.

EN BANC

G.R. No. 189871               August 13, 2013

DARIO NACAR, PETITIONER, vs. GALLERY FRAMES AND/OR FELIPE BORDEY, JR., RESPONDENTS.

DECISION

PERALTA, J.:

This is a petition for review on certiorari assailing the Decision 1 dated September 23, 2008 of the Court of Appeals (CA) in
CA-G.R. SP No. 98591, and the Resolution2 dated October 9, 2009 denying petitioner’s motion for reconsideration.

The factual antecedents are undisputed.

Petitioner Dario Nacar filed a complaint for constructive dismissal before the Arbitration Branch of the National Labor
Relations Commission (NLRC) against respondents Gallery Frames (GF) and/or Felipe Bordey, Jr., docketed as NLRC
NCR Case No. 01-00519-97.

On October 15, 1998, the Labor Arbiter rendered a Decision 3 in favor of petitioner and found that he was dismissed from
employment without a valid or just cause. Thus, petitioner was awarded backwages and separation pay in lieu of
reinstatement in the amount of ₱158,919.92. The dispositive portion of the decision, reads:

With the foregoing, we find and so rule that respondents failed to discharge the burden of showing that complainant was
dismissed from employment for a just or valid cause. All the more, it is clear from the records that complainant was never
afforded due process before he was terminated. As such, we are perforce constrained to grant complainant’s prayer for
the payments of separation pay in lieu of reinstatement to his former position, considering the strained relationship
between the parties, and his apparent reluctance to be reinstated, computed only up to promulgation of this decision as
follows:

SEPARATION PAY
Date Hired = August 1990
Rate = ₱198/day
Date of Decision = Aug. 18, 1998
Length of Service = 8 yrs. & 1 month
₱198.00 x 26 days x 8 months = ₱41,184.00
BACKWAGES
Date Dismissed = January 24, 1997
Rate per day = ₱196.00
Date of Decisions = Aug. 18, 1998
a) 1/24/97 to 2/5/98 = 12.36 mos.
₱196.00/day x 12.36 mos. = ₱62,986.56
b) 2/6/98 to 8/18/98 = 6.4 months
Prevailing Rate per day = ₱62,986.00
₱198.00 x 26 days x 6.4 mos. = ₱32,947.20
TOTAL = ₱95.933.76
WHEREFORE, premises considered, judgment is hereby rendered finding respondents guilty of constructive dismissal
and are therefore, ordered:

To pay jointly and severally the complainant the amount of sixty-two thousand nine hundred eighty-six pesos and 56/100
(₱62,986.56) Pesos representing his separation pay;

To pay jointly and severally the complainant the amount of nine (sic) five thousand nine hundred thirty-three and 36/100
(₱95,933.36) representing his backwages; and
All other claims are hereby dismissed for lack of merit.

SO ORDERED.4

Respondents appealed to the NLRC, but it was dismissed for lack of merit in the Resolution 5 dated February 29, 2000.
Accordingly, the NLRC sustained the decision of the Labor Arbiter. Respondents filed a motion for reconsideration, but it
was denied.6

Dissatisfied, respondents filed a Petition for Review on Certiorari before the CA. On August 24, 2000, the CA issued a
Resolution dismissing the petition. Respondents filed a Motion for Reconsideration, but it was likewise denied in a
Resolution dated May 8, 2001.7

Respondents then sought relief before the Supreme Court, docketed as G.R. No. 151332. Finding no reversible error on
the part of the CA, this Court denied the petition in the Resolution dated April 17, 2002. 8

An Entry of Judgment was later issued certifying that the resolution became final and executory on May 27, 2002. 9 The
case was, thereafter, referred back to the Labor Arbiter. A pre-execution conference was consequently scheduled, but
respondents failed to appear.10

On November 5, 2002, petitioner filed a Motion for Correct Computation, praying that his backwages be computed from
the date of his dismissal on January 24, 1997 up to the finality of the Resolution of the Supreme Court on May 27,
2002.11 Upon recomputation, the Computation and Examination Unit of the NLRC arrived at an updated amount in the
sum of ₱471,320.31.12

On December 2, 2002, a Writ of Execution13 was issued by the Labor Arbiter ordering the Sheriff to collect from
respondents the total amount of ₱471,320.31. Respondents filed a Motion to Quash Writ of Execution, arguing, among
other things, that since the Labor Arbiter awarded separation pay of ₱62,986.56 and limited backwages of ₱95,933.36, no
more recomputation is required to be made of the said awards. They claimed that after the decision becomes final and
executory, the same cannot be altered or amended anymore. 14 On January 13, 2003, the Labor Arbiter issued an
Order15 denying the motion. Thus, an Alias Writ of Execution 16 was issued on January 14, 2003.

Respondents again appealed before the NLRC, which on June 30, 2003 issued a Resolution 17 granting the appeal in favor
of the respondents and ordered the recomputation of the judgment award.

On August 20, 2003, an Entry of Judgment was issued declaring the Resolution of the NLRC to be final and executory.
Consequently, another pre-execution conference was held, but respondents failed to appear on time. Meanwhile,
petitioner moved that an Alias Writ of Execution be issued to enforce the earlier recomputed judgment award in the sum of
₱471,320.31.18

The records of the case were again forwarded to the Computation and Examination Unit for recomputation, where the
judgment award of petitioner was reassessed to be in the total amount of only ₱147,560.19.

Petitioner then moved that a writ of execution be issued ordering respondents to pay him the original amount as
determined by the Labor Arbiter in his Decision dated October 15, 1998, pending the final computation of his backwages
and separation pay.

On January 14, 2003, the Labor Arbiter issued an Alias Writ of Execution to satisfy the judgment award that was due to
petitioner in the amount of ₱147,560.19, which petitioner eventually received.

Petitioner then filed a Manifestation and Motion praying for the re-computation of the monetary award to include the
appropriate interests.19

On May 10, 2005, the Labor Arbiter issued an Order20 granting the motion, but only up to the amount of ₱11,459.73. The
Labor Arbiter reasoned that it is the October 15, 1998 Decision that should be enforced considering that it was the one
that became final and executory. However, the Labor Arbiter reasoned that since the decision states that the separation
pay and backwages are computed only up to the promulgation of the said decision, it is the amount of ₱158,919.92 that
should be executed. Thus, since petitioner already received ₱147,560.19, he is only entitled to the balance of ₱11,459.73.
Petitioner then appealed before the NLRC, 21 which appeal was denied by the NLRC in its Resolution 22 dated September
27, 2006. Petitioner filed a Motion for Reconsideration, but it was likewise denied in the Resolution 23 dated January 31,
2007.

Aggrieved, petitioner then sought recourse before the CA, docketed as CA-G.R. SP No. 98591.

On September 23, 2008, the CA rendered a Decision 24 denying the petition. The CA opined that since petitioner no longer
appealed the October 15, 1998 Decision of the Labor Arbiter, which already became final and executory, a belated
correction thereof is no longer allowed. The CA stated that there is nothing left to be done except to enforce the said
judgment. Consequently, it can no longer be modified in any respect, except to correct clerical errors or mistakes.

Petitioner filed a Motion for Reconsideration, but it was denied in the Resolution 25 dated October 9, 2009.

Hence, the petition assigning the lone error:

WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED, COMMITTED GRAVE ABUSE
OF DISCRETION AND DECIDED CONTRARY TO LAW IN UPHOLDING THE QUESTIONED RESOLUTIONS OF THE
NLRC WHICH, IN TURN, SUSTAINED THE MAY 10, 2005 ORDER OF LABOR ARBITER MAGAT MAKING THE
DISPOSITIVE PORTION OF THE OCTOBER 15, 1998 DECISION OF LABOR ARBITER LUSTRIA SUBSERVIENT TO
AN OPINION EXPRESSED IN THE BODY OF THE SAME DECISION. 26

Petitioner argues that notwithstanding the fact that there was a computation of backwages in the Labor Arbiter’s decision,
the same is not final until reinstatement is made or until finality of the decision, in case of an award of separation pay.
Petitioner maintains that considering that the October 15, 1998 decision of the Labor Arbiter did not become final and
executory until the April 17, 2002 Resolution of the Supreme Court in G.R. No. 151332 was entered in the Book of Entries
on May 27, 2002, the reckoning point for the computation of the backwages and separation pay should be on May 27,
2002 and not when the decision of the Labor Arbiter was rendered on October 15, 1998. Further, petitioner posits that he
is also entitled to the payment of interest from the finality of the decision until full payment by the respondents.

On their part, respondents assert that since only separation pay and limited backwages were awarded to petitioner by the
October 15, 1998 decision of the Labor Arbiter, no more recomputation is required to be made of said awards.
Respondents insist that since the decision clearly stated that the separation pay and backwages are "computed only up to
[the] promulgation of this decision," and considering that petitioner no longer appealed the decision, petitioner is only
entitled to the award as computed by the Labor Arbiter in the total amount of ₱158,919.92. Respondents added that it was
only during the execution proceedings that the petitioner questioned the award, long after the decision had become final
and executory. Respondents contend that to allow the further recomputation of the backwages to be awarded to petitioner
at this point of the proceedings would substantially vary the decision of the Labor Arbiter as it violates the rule on
immutability of judgments.

The petition is meritorious.

The instant case is similar to the case of Session Delights Ice Cream and Fast Foods v. Court of Appeals (Sixth
Division),27 wherein the issue submitted to the Court for resolution was the propriety of the computation of the awards
made, and whether this violated the principle of immutability of judgment. Like in the present case, it was a distinct feature
of the judgment of the Labor Arbiter in the above-cited case that the decision already provided for the computation of the
payable separation pay and backwages due and did not further order the computation of the monetary awards up to the
time of the finality of the judgment. Also in Session Delights, the dismissed employee failed to appeal the decision of the
labor arbiter. The Court clarified, thus:

In concrete terms, the question is whether a re-computation in the course of execution of the labor arbiter's original
computation of the awards made, pegged as of the time the decision was rendered and confirmed with modification by a
final CA decision, is legally proper. The question is posed, given that the petitioner did not immediately pay the awards
stated in the original labor arbiter's decision; it delayed payment because it continued with the litigation until final judgment
at the CA level.
A source of misunderstanding in implementing the final decision in this case proceeds from the way the original labor
arbiter framed his decision. The decision consists essentially of two parts.

The first is that part of the decision that cannot now be disputed because it has been confirmed with finality. This is the
finding of the illegality of the dismissal and the awards of separation pay in lieu of reinstatement, backwages, attorney's
fees, and legal interests.

The second part is the computation of the awards made. On its face, the computation the labor arbiter made shows that it
was time-bound as can be seen from the figures used in the computation. This part, being merely a computation of what
the first part of the decision established and declared, can, by its nature, be re-computed. This is the part, too, that the
petitioner now posits should no longer be re-computed because the computation is already in the labor arbiter's decision
that the CA had affirmed. The public and private respondents, on the other hand, posit that a re-computation is necessary
because the relief in an illegal dismissal decision goes all the way up to reinstatement if reinstatement is to be made, or
up to the finality of the decision, if separation pay is to be given in lieu reinstatement.

That the labor arbiter's decision, at the same time that it found that an illegal dismissal had taken place, also made a
computation of the award, is understandable in light of Section 3, Rule VIII of the then NLRC Rules of Procedure which
requires that a computation be made. This Section in part states:

[T]he Labor Arbiter of origin, in cases involving monetary awards and at all events, as far as practicable, shall embody in
any such decision or order the detailed and full amount awarded.

Clearly implied from this original computation is its currency up to the finality of the labor arbiter's decision. As we noted
above, this implication is apparent from the terms of the computation itself, and no question would have arisen had the
parties terminated the case and implemented the decision at that point.

However, the petitioner disagreed with the labor arbiter's findings on all counts - i.e., on the finding of illegality as well as
on all the consequent awards made. Hence, the petitioner appealed the case to the NLRC which, in turn, affirmed the
labor arbiter's decision. By law, the NLRC decision is final, reviewable only by the CA on jurisdictional grounds.

The petitioner appropriately sought to nullify the NLRC decision on jurisdictional grounds through a timely filed Rule 65
petition for certiorari. The CA decision, finding that NLRC exceeded its authority in affirming the payment of 13th month
pay and indemnity, lapsed to finality and was subsequently returned to the labor arbiter of origin for execution.

It was at this point that the present case arose. Focusing on the core illegal dismissal portion of the original labor arbiter's
decision, the implementing labor arbiter ordered the award re-computed; he apparently read the figures originally ordered to be
paid to be the computation due had the case been terminated and implemented at the labor arbiter's level. Thus, the labor
arbiter re-computed the award to include the separation pay and the backwages due up to the finality of the CA decision that
fully terminated the case on the merits. Unfortunately, the labor arbiter's approved computation went beyond the finality of the
CA decision (July 29, 2003) and included as well the payment for awards the final CA decision had deleted - specifically, the
proportionate 13th month pay and the indemnity awards. Hence, the CA issued the decision now questioned in the present
petition.

We see no error in the CA decision confirming that a re-computation is necessary as it essentially considered the labor arbiter's
original decision in accordance with its basic component parts as we discussed above. To reiterate, the first part contains the
finding of illegality and its monetary consequences; the second part is the computation of the awards or monetary consequences
of the illegal dismissal, computed as of the time of the labor arbiter's original decision. 28

Consequently, from the above disquisitions, under the terms of the decision which is sought to be executed by the petitioner, no
essential change is made by a recomputation as this step is a necessary consequence that flows from the nature of the illegality
of dismissal declared by the Labor Arbiter in that decision. 29 A recomputation (or an original computation, if no previous
computation has been made) is a part of the law – specifically, Article 279 of the Labor Code and the established jurisprudence
on this provision – that is read into the decision. By the nature of an illegal dismissal case, the reliefs continue to add up until full
satisfaction, as expressed under Article 279 of the Labor Code. The recomputation of the consequences of illegal dismissal
upon execution of the decision does not constitute an alteration or amendment of the final decision being implemented. The
illegal dismissal ruling stands; only the computation of monetary consequences of this dismissal is affected, and this is not a
violation of the principle of immutability of final judgments.30
That the amount respondents shall now pay has greatly increased is a consequence that it cannot avoid as it is the risk that it
ran when it continued to seek recourses against the Labor Arbiter's decision. Article 279 provides for the consequences of illegal
dismissal in no uncertain terms, qualified only by jurisprudence in its interpretation of when separation pay in lieu of
reinstatement is allowed. When that happens, the finality of the illegal dismissal decision becomes the reckoning point instead of
the reinstatement that the law decrees. In allowing separation pay, the final decision effectively declares that the employment
relationship ended so that separation pay and backwages are to be computed up to that point. 31

Finally, anent the payment of legal interest. In the landmark case of Eastern Shipping Lines, Inc. v. Court of Appeals, 32 the Court
laid down the guidelines regarding the manner of computing legal interest, to wit:

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as
well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the
interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly,
where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the
demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal
interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the
case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim
period being deemed to be by then an equivalent to a forbearance of credit. 33

Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution No. 796 dated May 16, 2013,
approved the amendment of Section 234 of Circular No. 905, Series of 1982 and, accordingly, issued Circular No. 799, 35 Series
of 2013, effective July 1, 2013, the pertinent portion of which reads:

The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following revisions governing the rate of
interest in the absence of stipulation in loan contracts, thereby amending Section 2 of Circular No. 905, Series of 1982:

Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in judgments, in
the absence of an express contract as to such rate of interest, shall be six percent (6%) per annum.

Section 2. In view of the above, Subsection X305.1 36 of the Manual of Regulations for Banks and Sections
4305Q.1,37 4305S.338 and 4303P.139 of the Manual of Regulations for Non-Bank Financial Institutions are hereby amended
accordingly.

This Circular shall take effect on 1 July 2013.

Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that would govern the parties, the
rate of legal interest for loans or forbearance of any money, goods or credits and the rate allowed in judgments shall no longer
be twelve percent (12%) per annum - as reflected in the case of Eastern Shipping Lines 40 and Subsection X305.1 of the Manual
of Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial
Institutions, before its amendment by BSP-MB Circular No. 799 - but will now be six percent (6%) per annum effective July 1,
2013. It should be noted, nonetheless, that the new rate could only be applied prospectively and not retroactively. Consequently,
the twelve percent (12%) per annum legal interest shall apply only until June 30, 2013. Come July 1, 2013 the new rate of six
percent (6%) per annum shall be the prevailing rate of interest when applicable.

Corollarily, in the recent case of Advocates for Truth in Lending, Inc. and Eduardo B. Olaguer v. Bangko Sentral Monetary
Board,41 this Court affirmed the authority of the BSP-MB to set interest rates and to issue and enforce Circulars when it ruled
that "the BSP-MB may prescribe the maximum rate or rates of interest for all loans or renewals thereof or the forbearance of any
money, goods or credits, including those for loans of low priority such as consumer loans, as well as such loans made by
pawnshops, finance companies and similar credit institutions. It even authorizes the BSP-MB to prescribe different maximum
rate or rates for different types of borrowings, including deposits and deposit substitutes, or loans of financial intermediaries."

Nonetheless, with regard to those judgments that have become final and executory prior to July 1, 2013, said judgments shall
not be disturbed and shall continue to be implemented applying the rate of interest fixed therein.1awp++i1

To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping Lines 42 are accordingly
modified to embody BSP-MB Circular No. 799, as follows:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the
contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in
determining the measure of recoverable damages.1âwphi1

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as
well as the accrual thereof, is imposed, as follows:

When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the
interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 6% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code.

When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages, except when or until the demand can be established with reasonable certainty. Accordingly,
where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be so reasonably established at the time the
demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal
interest shall, in any case, be on the amount finally adjudged.

When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the
case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such finality until its satisfaction, this interim
period being deemed to be by then an equivalent to a forbearance of credit.

And, in addition to the above, judgments that have become final and executory prior to July 1, 2013, shall not be disturbed and
shall continue to be implemented applying the rate of interest fixed therein.

WHEREFORE, premises considered, the Decision dated September 23, 2008 of the Court of Appeals in CA-G.R. SP No.
98591, and the Resolution dated October 9, 2009 are REVERSED and SET ASIDE. Respondents are Ordered to Pay petitioner:

(1) backwages computed from the time petitioner was illegally dismissed on January 24, 1997 up to May 27, 2002, when the
Resolution of this Court in G.R. No. 151332 became final and executory;

(2) separation pay computed from August 1990 up to May 27, 2002 at the rate of one month pay per year of service; and

(3) interest of twelve percent (12%) per annum of the total monetary awards, computed from May 27, 2002 to June 30, 2013 and
six percent (6%) per annum from July 1, 2013 until their full satisfaction.

The Labor Arbiter is hereby ORDERED to make another recomputation of the total monetary benefits awarded and due to
petitioner in accordance with this Decision. SO ORDERED.

FIRST DIVISION

[G.R. No. 7097. October 23, 1912. ]

VICENTE DELGADO, defendant-appellee, v. PEDRO BONNEVIE and FRANCISCO ARANDEZ, plaintiffs-appellants.

DECISION
ARELLANO, C.J. :

When Pedro Bonnevie and Francisco Arandez formed in Nueva Caceres, Ambos Camarines, a regular general
partnership for engaging in the business of threshing paddy, Vicente Delgado undertook to deliver to them paddy for this
purpose to be cleaned and returned to him as rice, with the agreement of paying them 10 centimos for each cavan and to
have returned in rice one-half the amount received as paddy. The paddy received for this purpose was credited by
receipts made out in this way: "Receipt for (number) cavanes of paddy in favor of (owner of the paddy), Nueva Caceres,
(day) of (month), 1898." And they issued to Vicente Delgado receipt Nos. 86-99 for a total of 2,003 cavanes and a half of
paddy, from April 9 to June 8, 1898.

On February 6, 1909, Vicente Delgado appeared in the Court of First Instance of Ambos Camarines with said receipts,
demanding return of the said 2,003 and a half cavanes of paddy, or in the absence thereof, of the price of said article at
the rate of 3 persons the cavan or 6,009 pesos and 50 centimos, with interest thereon at 6 per cent a year reckoning from
November 21, 1905, until complete payment, and the costs. The plaintiff asked that the interest run from November 21,
1905, because on the date his counsel demanded of the defendants, Bonnevie and Arandez, their partnership having
been dissolved, that they settle the accounts in this matter.

The court decided the case by sentencing the defendants, Pedro Bonnevie and Francisco Arandez, to pay to Vicente
Delgado two thousand seven hundred and fifty-four pesos and 81 centimos (P2,754.81), the value of 2,003 1/2 cavanes
of paddy at the rate of 11 reales the cavan and 6 per cent interest on said sum reckoned from November 21, 1905, and
the costs.

On appeal to this Supreme Court, the only grounds of error assigned are: (1) Violation of articles 532 and 950 of the Code
of Commerce; (2) violation of articles 309 of the Code of Commerce and 1955 and 1962 of the Civil Code; and (3)
violation of section 296 of the Code of Civil Procedure.

With reference to the first assignment of error it is alleged that the receipts in question, the form whereof has been set
forth, were all issued before July 11, 1898, and being credit paper as defined in paragraph 2 of article 532 of the Code of
Commerce, the night of action arising therefrom prescribed before July 11, 1901, in accordance with article 950 of the
Code of Commerce.

This conclusion is not admissible. It is true that, according to article 950 of the Code of Commerce, actions arising from
bills of exchange, drafts, notes, checks, securities, dividends, coupons, and the amounts of the amortization of obligations
issued in accordance with said code, shall extinguish three years after they have fallen due; but it is also true that as the
receipts in question are not documents of any of the kinds enumerated in said article, the actions arising therefrom do not
extinguish three years from their date (that, after all, they do not fall due). It is true that paragraph 2 of article 950 also
mentions, besides those already stated, "other instruments of draft or exchange;" but it is also true that the receipts in this
case are not documents of draft or exchange, they are not drafts payable to order, but they are, as the appellants
acknowledge, simple promises to pay, or rather mere documents evidencing the receipt of some cavanes of paddy for the
purpose already stated, which is nothing more than purely for industrial, and not for mercantile exchange. They are
documents such as would be issued by the thousand so-called rice-mills scattered throughout the Islands, wherein a few
poor women of the people in like manner clean the paddy by pounding it with a pestle and return hulled rice. The contract
whereby one person receives from another a quantity of unhulled rice to return it hulled, for a fixed compensation or
remuneration, is an industrial, not a commercial act; it is, as the appellants say, a hire of services without mercantile
character, for there is nothing mercantile about it, just as there is nothing mercantile about the operation of washing
clothes. Articles 532 and 950 of the Code of Commerce have not, therefore, been violated, for they are not applicable to
the case at bar.

Neither are articles 309 of the Code of Commerce and 1955 and 1962 of the Civil Code applicable. The first of these
articles reads thus:

"Whenever, with the consent of the depositor, the depositary disposes of the articles on deposit either for himself or for his
business, or for transactions intrusted to him by the former, the rights and obligations of the depositary and of the
depositor shall cease, and the rules and provisions applicable to the commercial loans, commission, or contract which
took the place of the deposit shall be observed.

The appellants say that, in accordance with this legal provisions, the paddy received on deposit ceased to continue under
such character in order to remain in their possession under the contract of hire of services, in virtue whereof they could
change it by returning rice instead of paddy and a half less than the quantity received. They further say that the ownership
of personal property, according to article 1955 of the Civil, prescribes by uninterrupted possession for six years, without
the necessity of any other condition, and in accordance with article 1962 of the same Code real actions, with regard to
personal property, prescribe after the lapse of six years from the loss of possession.

Two question are presented in these allegations: One regarding the nature of the obligation contracted by the appellants;
and the other regarding prescription, not for a period of three years, but of six years.

With reference to the first, it is acknowledged that the obligation of the appellants arose primarily out of the contract of
deposit, but this deposit was later converted into a contract of hire of services, and this is true. But it is also true that, after
the object of the hire of services had been fulfilled, the rice in every way remained as a deposit in the possession of the
appellants for them to return to the depositor at any time they might be required to do so, and nothing has relieved them of
this obligation; neither the dissolution of the partnership that united them, nor the revolutionary movement of a political
character that seems to have occurred in 1898, nor the fact that they may at some time have lost possession of the rice.

With reference to the second question, or under title of deposit or hire of services, the possession of the appellants can in
no way amount to prescription, for the thing received on deposit or for hire of services could not prescribe, since for every
prescription of ownership the possession must be in the capacity of an owner, public, peaceful, and uninterrupted (Civil
Code, 1941); and the appellants could not possess the rice in the capacity of owners, taking for granted that the depositor
or lessor never could have believed that he had transferred to them ownership of the thing deposited or leased, but
merely the care of the thing on deposit and the use or profit thereof; which is expressed in legal terms by saying that the
possession of the depositary or of the lessee is not adverse to that of the depositor or lessor, who continues to be the
owner of the thing which is merely held in trust by the depositary or lessee.

In strict law, the deposit, when it is of fungible goods received by weight, number, or measurement, becomes a mutual
loan, by reason of the authorization which the depositary may have from the depositor to make use of the goods
deposited. (Civil Code, 1768, and Code of Commerce, 309.)

But in the present case neither was there authorization of the depositor nor did the depositaries intend to make use of the
rice for their own consumption or profit; they were merely released from the obligation of returning the same thing and
contracted in lieu thereof the obligation of delivering something similar to the half of it, being bound by no fixed terms, the
opposite of what happens in a mutual loan, to make the delivery or return when and how it might please the depositor.

In fact, it has happened that the depositaries have, with the consent of the depositor, as provided in article 309 of the
Code of Commerce, disposed of the paddy "for transactions he intrusted to them," and that in lieu of the deposit there has
been a hire of services, which is the one entered into between the parties to the end that one should return in rice half of
the quantity of paddy delivered by the other, with the obligation on the latter’s part of paying 10 centimos for each cavan of
hulled rice. The consequence of this is that the rules and regulations for contract of hire of services must be applied to the
case, one of which is that the thing must be returned after the operation entrusted and payment of compensation, and the
other that the action for claiming the thing leased, being personal, does not prescribe for fifteen years under article 1964
of the Civil Code.

If the action arising from the receipts in question does not prescribe in three years, as does that from bills of exchange,
because they are not drafts payable to order or anything but receipts that any warehouseman would sign; if the
possession of the paddy on the part of those who received it for threshing is not in the capacity of owner but only in that of
depositary or lessor of services and under such character ownership thereof could not prescribe in six years, or at any
time, because adverse possession and not mere holding in trust is required for prescription; if the action to recover the
paddy so delivered is not real with regard to personal property, possession whereof has been lost, but a personal
obligation arising from the contract of lease for recovery of possession that has not been lost but maintained in the lessee
in the name of the lessor; if prescription of any kind can in no way be held, only because there could not have been either
beginning or end of a fixed period for the prescription, it is useless to talk of interruption of the period for the prescription,
to which tends the third assignment of error, wherein it is said that the court violated article 296 of the Code of Civil
Procedure in admitting as proven facts not alleged in the complaint, just as if by admitting them there would have been a
finding with regard to the computation of the period for timely exercise of the action, taking into consideration the legal
interruptions of the running of the period of prescription. The court has made no finding in the sense that this or that period
of time during which these or those facts occurred must be counted out, and therefore the action has not prescribed,
because by eliminating such period of time and comparing such date the action has been brought in due time.
Prescription of three or six years cannot be presupposed in the terms alleged, but only of fifteen years, which is what is
proper to oppose to the exercise of a right of action arising from hire of services and even of deposit or mutual loan,
whether common or mercantile; and such is the prescription considered possible by the trial court, in conformity with
articles 943 of the Code of Commerce and 1964 of the Civil Code.

The trial judge confined himself to sentencing the defendants to payment of the price of the paddy, ignoring the thing
itself, return whereof ought to have been the subject of judgment in the first place, because the thing itself appears to
have been extinguished and its price has taken its place. But the assigning of legal interest from November 21, 1905, can
have no other ground than the demand made by plaintiff’s counsel upon the defendants to settle this matter. Legal interest
on delinquent debts can only be owed from the time the principal amount constitutes a clear and certain debt, and in the
present case the principal debt has only been clear and certain since the date of the judgment of the lower court; so the
legal interest can be owed only since then.

The judgment appealed from is affirmed, except that the legal interest shall be understood to be owed from the date
thereof; with the costs of this instance against the appellants.

EN BANC

G.R. Nos. L-26948 and L-26949             October 8, 1927

SILVESTRA BARON, plaintiff-appellant, vs. PABLO DAVID, defendant-appellant.

GUILLERMO BARON, plaintiff-appellant, vs. PABLO DAVID, defendant-appellant.

STREET, J.:

These two actions were instituted in the Court of First Instance of the Province of Pampanga by the respective plaintiffs,
Silvestra Baron and Guillermo Baron, for the purpose of recovering from the defendant, Pablo David, the value of palay
alleged to have been sold by the plaintiffs to the defendant in the year 1920. Owing to the fact that the defendant is the
same in both cases and that the two cases depend in part upon the same facts, the cases were heard together in the trial
court and determined in a single opinion. The same course will accordingly be followed here.

In the first case, i. e., that which Silvestra Baron is plaintiff, the court gave judgment for her to recover of the defendant the
sum of P5,238.51, with costs. From this judgment both the plaintiff and the defendant appealed.

In the second case, i. e., that in which Guillermo Baron, is plaintiff, the court gave judgment for him to recover of the
defendant the sum of P5,734.60, with costs, from which judgment both the plaintiff and the defendant also appealed. In
the same case the defendant interposed a counterclaim in which he asked credit for the sum of P2,800 which he had
advanced to the plaintiff Guillermo Baron on various occasions. This credit was admitted by the plaintiff and allowed by
the trial court. But the defendant also interposed a cross-action against Guillermo Baron in which the defendant claimed
compensation for damages alleged to have Ben suffered by him by reason of the alleged malicious and false statements
made by the plaintiff against the defendant in suing out an attachment against the defendant's property soon after the
institution of the action. In the same cross-action the defendant also sought compensation for damages incident to the
shutting down of the defendant's rice mill for the period of one hundred seventy days during which the above-mentioned
attachment was in force. The trial judge disallowed these claims for damages, and from this feature of the decision the
defendant appealed. We are therefore confronted with five distinct appeals in this record.

Prior to January 17, 1921, the defendant Pablo David has been engaged in running a rice mill in the municipality of
Magalang, in the Province of Pampanga, a mill which was well patronized by the rice growers of the vicinity and almost
constantly running. On the date stated a fire occurred that destroyed the mill and its contents, and it was some time before
the mill could be rebuilt and put in operation again. Silvestra Baron, the plaintiff in the first of the actions before us, is an
aunt of the defendant; while Guillermo Baron, the plaintiff in the other action; is his uncle. In the months of March, April,
and May, 1920, Silvestra Baron placed a quantity of palay in the defendant's mill; and this, in connection with some that
she took over from Guillermo Baron, amounted to 1,012 cavans and 24 kilos. During approximately the same period
Guillermo Baron placed other 1,865 cavans and 43 kilos of palay in the mill. No compensation has ever been received by
Silvestra Baron upon account of the palay delivered by Guillermo Baron, he has received from the defendant
advancements amounting to P2,800; but apart from this he has not been compensated. Both the plaintiffs claim that the
palay which was delivered by them to the defendant was sold to the defendant; while the defendant, on the other hand,
claims that the palay was deposited subject to future withdrawal by the depositors or subject to some future sale which
was never effected. He therefore supposes himself to be relieved from all responsibility by virtue of the fire of January 17,
1921, already mentioned.

The plaintiff further say that their palay was delivered to the defendant at his special request, coupled with a promise on
his part to pay for the same at the highest price per cavan at which palay would sell during the year 1920; and they say
that in August of that year the defendant promised to pay them severally the price of P8.40 per cavan, which was about
the top of the market for the season, provided they would wait for payment until December. The trial judge found that no
such promise had been given; and the incredulity of the court upon this point seems to us to be justified. A careful
examination of the proof, however, leads us to the conclusion that the plaintiffs did, some time in the early part of August,
1920, make demand upon the defendant for a settlement, which he evaded or postponed leaving the exact amount due to
the plaintiffs undetermined.

It should be stated that the palay in question was place by the plaintiffs in the defendant's mill with the understanding that
the defendant was at liberty to convert it into rice and dispose of it at his pleasure. The mill was actively running during the
entire season, and as palay was daily coming in from many customers and as rice was being constantly shipped by the
defendant to Manila, or other rice markets, it was impossible to keep the plaintiffs' palay segregated. In fact the defendant
admits that the plaintiffs' palay was mixed with that of others. In view of the nature of the defendant's activities and the
way in which the palay was handled in the defendant's mill, it is quite certain that all of the plaintiffs' palay, which was put
in before June 1, 1920, been milled and disposed of long prior to the fire of January 17, 1921. Furthermore, the proof
shows that when the fire occurred there could not have been more than about 360 cavans of palay in the mill, none of
which by any reasonable probability could have been any part of the palay delivered by the plaintiffs. Considering the fact
that the defendant had thus milled and doubtless sold the plaintiffs' palay prior to the date of the fire, it result that he is
bound to account for its value, and his liability was not extinguished by the occurence of the fire. In the briefs before us it
seems to have been assumed by the opposing attorneys that in order for the plaintiffs to recover, it is necessary that they
should be able to establish that the plaintiffs' palay was delivered in the character of a sale, and that if, on the contrary, the
defendant should prove that the delivery was made in the character of deposit, the defendant should be absolved. But the
case does not depend precisely upon this explicit alternative; for even supposing that the palay may have been delivered
in the character of deposit, subject to future sale or withdrawal at plaintiffs' election, nevertheless if it was understood that
the defendant might mill the palay and he has in fact appropriated it to his own use, he is of course bound to account for
its value. Under article 1768 of the Civil Code, when the depository has permission to make use of the thing deposited,
the contract loses the character of mere deposit and becomes a loan or a commodatum; and of course by appropriating
the thing, the bailee becomes responsible for its value. In this connection we wholly reject the defendant's pretense that
the palay delivered by the plaintiffs or any part of it was actually consumed in the fire of January, 1921. Nor is the liability
of the defendant in any wise affected by the circumstance that, by a custom prevailing among rice millers in this country,
persons placing palay with them without special agreement as to price are at liberty to withdraw it later, proper allowance
being made for storage and shrinkage, a thing that is sometimes done, though rarely.

In view of what has been said it becomes necessary to discover the price which the defendant should be required to pay
for the plaintiffs' palay. Upon this point the trial judge fixed upon P6.15 per cavan; and although we are not exactly in
agreement with him as to the propriety of the method by which he arrived at this figure, we are nevertheless of the opinion
that, all things considered, the result is approximately correct. It appears that the price of palay during the months of April,
May, and June, 1920, had been excessively high in the Philippine Islands and even prior to that period the Government of
the Philippine Islands had been attempting to hold the price in check by executive regulation. The highest point was
touched in this season was apparently about P8.50 per cavan, but the market began to sag in May or June and presently
entered upon a precipitate decline. As we have already stated, the plaintiffs made demand upon the defendant for
settlement in the early part of August; and, so far as we are able to judge from the proof, the price of P6.15 per cavan,
fixed by the trial court, is about the price at which the defendant should be required to settle as of that date. It was the
date of the demand of the plaintiffs for settlement that determined the price to be paid by the defendant, and this is true
whether the palay was delivered in the character of sale with price undetermined or in the character of deposit subject to
use by the defendant. It results that the plaintiffs are respectively entitle to recover the value of the palay which they had
placed with the defendant during the period referred to, with interest from the date of the filing of their several complaints.

As already stated, the trial court found that at the time of the fire there were about 360 cavans of palay in the mill and that
this palay was destroyed. His Honor assumed that this was part of the palay delivered by the plaintiffs, and he held that
the defendant should be credited with said amount. His Honor therefore deducted from the claims of the plaintiffs their
respective proportionate shares of this amount of palay. We are unable to see the propriety of this feature of the decision.
There were many customers of the defendant's rice mill who had placed their palay with the defendant under the same
conditions as the plaintiffs, and nothing can be more certain than that the palay which was burned did not belong to the
plaintiffs. That palay without a doubt had long been sold and marketed. The assignments of error of each of the plaintiffs-
appellants in which this feature of the decision is attacked are therefore well taken; and the appealed judgments must be
modified by eliminating the deductions which the trial court allowed from the plaintiffs' claims.

The trial judge also allowed a deduction from the claim of the plaintiff Guillermo Baron of 167 cavans of palay, as
indicated in Exhibit 12, 13, 14, and 16. This was also erroneous. These exhibits relate to transactions that occurred nearly
two years after the transactions with which we are here concerned, and they were offered in evidence merely to show the
character of subsequent transactions between the parties, it appearing that at the time said exhibits came into existence
the defendant had reconstructed his mill and that business relations with Guillermo Baron had been resumed. The
transactions shown by these exhibits (which relate to palay withdrawn by the plaintiff from the defendant's mill) were not
made the subject of controversy in either the complaint or the cross-complaint of the defendant in the second case. They
therefore should not have been taken into account as a credit in favor of the defendant. Said credit must therefore be
likewise of course be without prejudice to any proper adjustment of the rights of the parties with respect to these
subsequent transactions that they have heretofore or may hereafter effect.

The preceding discussion disposes of all vital contentions relative to the liability of the defendant upon the causes of
action stated in the complaints. We proceed therefore now to consider the question of the liability of the plaintiff Guillermo
Baron upon the cross-complaint of Pablo David in case R. G. No. 26949. In this cross-action the defendant seek, as the
stated in the third paragraph of this opinion, to recover damages for the wrongful suing out of an attachment by the
plaintiff and the levy of the same upon the defendant's rice mill. It appears that about two and one-half months after said
action was begun, the plaintiff, Guillermo Baron, asked for an attachment to be issued against the property of the
defendant; and to procure the issuance of said writ the plaintiff made affidavit to the effect that the defendant was
disposing, or attempting the plaintiff. Upon this affidavit an attachment was issued as prayed, and on March 27, 1924, it
was levied upon the defendant's rice mill, and other property, real and personal. 1awph!l.net

Upon attaching the property the sheriff closed the mill and placed it in the care of a deputy. Operations were not resumed
until September 13, 1924, when the attachment was dissolved by an order of the court and the defendant was permitted
to resume control. At the time the attachment was levied there were, in the bodega, more than 20,000 cavans of palay
belonging to persons who held receipts therefor; and in order to get this grain away from the sheriff, twenty-four of the
depositors found it necessary to submit third-party claims to the sheriff. When these claims were put in the sheriff notified
the plaintiff that a bond in the amount of P50,000 must be given, otherwise the grain would be released. The plaintiff,
being unable or unwilling to give this bond, the sheriff surrendered the palay to the claimants; but the attachment on the
rice mill was maintained until September 13, as above stated, covering a period of one hundred seventy days during
which the mill was idle. The ground upon which the attachment was based, as set forth in the plaintiff's affidavit was that
the defendant was disposing or attempting to dispose of his property for the purpose of defrauding the plaintiff. That this
allegation was false is clearly apparent, and not a word of proof has been submitted in support of the assertion. On the
contrary, the defendant testified that at the time this attachment was secured he was solvent and could have paid his
indebtedness to the plaintiff if judgment had been rendered against him in ordinary course. His financial conditions was of
course well known to the plaintiff, who is his uncle. The defendant also states that he had not conveyed away any of his
property, nor had intended to do so, for the purpose of defrauding the plaintiff. We have before us therefore a case of a
baseless attachment, recklessly sued out upon a false affidavit and levied upon the defendant's property to his great and
needless damage. That the act of the plaintiff in suing out the writ was wholly unjustifiable is perhaps also indicated in the
circumstance that the attachment was finally dissolved upon the motion of the plaintiff himself.

The defendant testified that his mill was accustomed to clean from 400 to 450 cavans of palay per day, producing 225
cavans of rice of 57 kilos each. The price charged for cleaning each cavan rice was 30 centavos. The defendant also
stated that the expense of running the mill per day was from P18 to P25, and that the net profit per day on the mill was
more than P40. As the mill was not accustomed to run on Sundays and holiday, we estimate that the defendant lost the
profit that would have been earned on not less than one hundred forty work days. Figuring his profits at P40 per day,
which would appear to be a conservative estimate, the actual net loss resulting from his failure to operate the mill during
the time stated could not have been less than P5,600. The reasonableness of these figures is also indicated in the fact
that the twenty-four customers who intervened with third-party claims took out of the camarin 20,000 cavans of palay,
practically all of which, in the ordinary course of events, would have been milled in this plant by the defendant. And of
course other grain would have found its way to this mill if it had remained open during the one hundred forty days when it
was closed.

But this is not all. When the attachment was dissolved and the mill again opened, the defendant found that his customers
had become scattered and could not be easily gotten back. So slow, indeed, was his patronage in returning that during
the remainder of the year 1924 the defendant was able to mill scarcely more than the grain belonging to himself and his
brothers; and even after the next season opened many of his old customers did not return. Several of these individuals,
testifying as witnesses in this case, stated that, owing to the unpleasant experience which they had in getting back their
grain from the sheriff to the mill of the defendant, though they had previously had much confidence in him.

As against the defendant's proof showing the facts above stated the plaintiff submitted no evidence whatever. We are
therefore constrained to hold that the defendant was damaged by the attachment to the extent of P5,600, in profits lost by
the closure of the mill, and to the extent of P1,400 for injury to the good-will of his business, making a total of P7,000. For
this amount the defendant must recover judgment on his cross-complaint.

The trial court, in dismissing the defendant's cross-complaint for damages resulting from the wrongful suing out of the
attachment, suggested that the closure of the rice mill was a mere act of the sheriff for which the plaintiff was not
responsible and that the defendant might have been permitted by the sheriff to continue running the mill if he had applied
to the sheriff for permission to operate it. This singular suggestion will not bear a moment's criticism. It was of course the
duty of the sheriff, in levying the attachment, to take the attached property into his possession, and the closure of the mill
was a natural, and even necessary, consequence of the attachment. For the damage thus inflicted upon the defendant the
plaintiff is undoubtedly responsible.

One feature of the cross-complaint consist in the claim of the defendant (cross-complaint) for the sum of P20,000 as
damages caused to the defendant by the false and alleged malicious statements contained in the affidavit upon which the
attachment was procured. The additional sum of P5,000 is also claimed as exemplary damages. It is clear that with
respect to these damages the cross-action cannot be maintained, for the reason that the affidavit in question was used in
course of a legal proceeding for the purpose of obtaining a legal remedy, and it is therefore privileged. But though the
affidavit is not actionable as a libelous publication, this fact in no obstacle to the maintenance of an action to recover the
damage resulting from the levy of the attachment.

Before closing this opinion a word should be said upon the point raised in the first assignment of error of Pablo David as
defendant in case R. G. No. 26949. In this connection it appears that the deposition of Guillermo Baron was presented in
court as evidence and was admitted as an exhibit, without being actually read to the court. It is supposed in the
assignment of error now under consideration that the deposition is not available as evidence to the plaintiff because it was
not actually read out in court. This connection is not well founded. It is true that in section 364 of the Code of Civil
Procedure it is said that a deposition, once taken, may be read by either party and will then be deemed the evidence of
the party reading it. The use of the word "read" in this section finds its explanation of course in the American practice of
trying cases for the most part before juries. When a case is thus tried the actual reading of the deposition is necessary in
order that the jurymen may become acquainted with its contents. But in courts of equity, and in all courts where judges
have the evidence before them for perusal at their pleasure, it is not necessary that the deposition should be actually read
when presented as evidence.

From what has been said it result that judgment of the court below must be modified with respect to the amounts
recoverable by the respective plaintiffs in the two actions R. G. Nos. 26948 and 26949 and must be reversed in respect to
the disposition of the cross-complaint interposed by the defendant in case R. G. No. 26949, with the following result: In
case R. G. No. 26948 the plaintiff Silvestra Baron will recover of the Pablo David the sum of P6,227.24, with interest from
November 21, 1923, the date of the filing of her complaint, and with costs. In case R. G. No. 26949 the plaintiff Guillermo
Baron will recover of the defendant Pablo David the sum of P8,669.75, with interest from January 9, 1924. In the same
case the defendant Pablo David, as plaintiff in the cross-complaint, will recover of Guillermo Baron the sum of P7,000,
without costs.

So ordered.

SECOND DIVISION

[G.R. NO. 126780 : February 17, 2005]

YHT REALTY CORPORATION, ERLINDA LAINEZ and ANICIA PAYAM, Petitioners, v. 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 Decision1 dated 19 October 1995 of the Court of Appeals which
affirmed the Decision2 dated 16 December 1991 of the Regional Trial Court (RTC), Branch 13, of Manila, finding YHT
Realty Corporation, Brunhilda Mata-Tan (Tan), Erlinda Lainez (Lainez) and Anicia Payam (Payam) jointly and solidarily
liable for damages in an action filed by Maurice McLoughlin (McLoughlin) for the loss of his American and Australian
dollars deposited in the safety deposit box of Tropicana Copacabana Apartment Hotel, owned and operated by YHT
Realty Corporation.

The factual backdrop of the case follow.

Private respondent McLoughlin, an Australian businessman-philanthropist, used to stay at Sheraton Hotel during his trips
to the Philippines prior to 1984 when he met Tan. Tan befriended McLoughlin by showing him around, introducing him to
important people, accompanying him in visiting impoverished street children and assisting him in buying gifts for the
children and in distributing the same to charitable institutions for poor children. Tan convinced McLoughlin to transfer from
Sheraton Hotel to Tropicana where Lainez, Payam and Danilo Lopez were employed. Lopez served as manager of the
hotel while Lainez and Payam had custody of the keys for the safety deposit boxes of Tropicana. Tan took care of
McLoughlin's booking at the Tropicana where he started staying during his trips to the Philippines from December 1984 to
September 1987.3

On 30 October 1987, McLoughlin arrived from Australia and registered with Tropicana. He rented a safety deposit box as
it was his practice to rent a safety deposit box every time he registered at Tropicana in previous trips. As a tourist,
McLoughlin was aware of the procedure observed by Tropicana relative to its safety deposit boxes. The safety deposit
box could only be opened through the use of two keys, one of which is given to the registered guest, and the other
remaining in the possession of the management of the hotel. When a registered guest wished to open his safety deposit
box, he alone could personally request the management who then would assign one of its employees to accompany the
guest and assist him in opening the safety deposit box with the two keys. 4

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

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

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

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

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

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

I promise to pay Mr. Maurice McLoughlin the amount of AUS$4,000.00 and US$2,000.00 or its equivalent in Philippine
currency on or before May 5, 1988.14

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

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

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

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

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

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

McLoughlin left again for Australia and upon his return to the Philippines on 25 August 1989 to pursue his claims against
petitioners, the WPD conducted an investigation which resulted in the preparation of an affidavit which was forwarded to
the Manila City Fiscal's Office. Said affidavit became the basis of preliminary investigation. However, McLoughlin left
again for Australia without receiving the notice of the hearing on 24 November 1989. Thus, the case at the Fiscal's Office
was dismissed for failure to prosecute. Mcloughlin requested the reinstatement of the criminal charge for theft. In the
meantime, McLoughlin and his lawyers wrote letters of demand to those having responsibility to pay the damage. Then he
left again for Australia.

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

After defendants had filed their Pre-Trial Brief admitting that they had previously allowed and assisted Tan to open the
safety deposit box, McLoughlin filed an Amended/Supplemental Complaint20 dated 10 June 1991 which included another
incident of loss of money and jewelry in the safety deposit box rented by McLoughlin in the same hotel which took place
prior to 16 April 1988.21 The trial court admitted the Amended/Supplemental Complaint.

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

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

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

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

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

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

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

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

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

7. Plus costs of suit.

SO ORDERED.23

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

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

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

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

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

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

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

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

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

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

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

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

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

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

8) P50,000.00 for moral damages;

9) P10,000.00 as exemplary damages; andcralawlibrary

10) P200,000 representing attorney's fees.

With costs.

SO ORDERED.29

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

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

The petition is devoid of merit.

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

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

We are not persuaded.

We adhere to the findings of the trial court as affirmed by the appellate court that the fact of loss was established by the
credible testimony in open court by McLoughlin. Such findings are factual and therefore beyond the ambit of the present
petition.

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

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

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

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

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

Under Article 1170 of the New Civil Code, those who, in the performance of their obligations, are guilty of negligence, are liable
for damages. As to who shall bear the burden of paying damages, Article 2180, paragraph (4) of the same Code provides that
the owners and managers of an establishment or enterprise are likewise responsible for damages caused by their employees
in the service of the branches in which the latter are employed or on the occasion of their functions. Also, this Court has ruled
that if an employee is found negligent, it is presumed that the employer was negligent in selecting and/or supervising him for it is
hard for the victim to prove the negligence of such employer.35 Thus, given the fact that the loss of McLoughlin's money was
consummated through the negligence of Tropicana's employees in allowing Tan to open the safety deposit box without the
guest's consent, both the assisting employees and YHT Realty Corporation itself, as owner and operator of Tropicana, should be
held solidarily liable pursuant to Article 2193.36

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

Art. 2003. The hotel-keeper cannot free himself from responsibility by posting notices to the effect that he is not liable for the
articles brought by the guest. Any stipulation between the hotel-keeper and the guest whereby the responsibility of the former as
set forth in Articles 1998 to 200137 is suppressed or diminished shall be void.

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

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

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

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

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

Petitioners contend that McLoughlin's case was mounted on the theory of contract, but the trial court and the appellate court
upheld the grant of the claims of the latter on the basis of tort. 45 There is nothing anomalous in how the lower courts decided the
controversy for this Court has pronounced a jurisprudential rule that tort liability can exist even if there are already contractual
relations. The act that breaks the contract may also be tort. 46
As to damages awarded to McLoughlin, we see no reason to modify the amounts awarded by the appellate court for the same
were based on facts and law. It is within the province of lower courts to settle factual issues such as the proper amount of
damages awarded and such finding is binding upon this Court especially if sufficiently proven by evidence and not
unconscionable or excessive. Thus, the appellate court correctly awarded McLoughlin Two Thousand US Dollars (US$2,000.00)
and Four Thousand Five Hundred Australian dollars (AUS$4,500.00) or their peso equivalent at the time of payment, 47 being the
amounts duly proven by evidence.48 The alleged loss that took place prior to 16 April 1988 was not considered since the
amounts alleged to have been taken were not sufficiently established by evidence. The appellate court also correctly awarded
the sum of P308,880.80, representing the peso value for the air fares from Sydney to Manila and back for a total of eleven (11)
trips;49 one-half of P336,207.05 or P168,103.52 representing payment to Tropicana;50 one-half of P152,683.57 or P76,341.785
representing payment to Echelon Tower;51 one-half of P179,863.20 or P89,931.60 for the taxi or transportation expenses from
McLoughlin's residence to Sydney Airport and from MIA to the hotel here in Manila, for the eleven (11) trips; 52 one-half
of P7,801.94 or P3,900.97 representing Meralco power expenses; 53 one-half of P356,400.00 or P178,000.00 representing
expenses for food and maintenance.54

The amount of P50,000.00 for moral damages is reasonable. Although trial courts are given discretion to determine the amount
of moral damages, the appellate court may modify or change the amount awarded when it is palpably and scandalously
excessive.

Moral damages are not intended to enrich a complainant at the expense of a defendant.

They are awarded only to enable the injured party to obtain means, diversion or amusements that will serve to alleviate the
moral suffering he has undergone, by reason of defendants' culpable action. 55

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

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

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

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

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

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

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

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

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

(8) P50,000.00 for moral damages;

(9) P10,000.00 as exemplary damages; and

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

With costs. SO ORDERED.

SECOND DIVISION

G.R. No. 82027 March 29, 1990

ROMARICO G. VITUG, petitioner, vs. THE HONORABLE COURT OF APPEALS and ROWENA FAUSTINO-
CORONA, respondents.

SARMIENTO, J.:
This case is a chapter in an earlier suit decided by this Court 1 involving the probate of the two wills of the late Dolores
Luchangco Vitug, who died in New York, U. S.A., on November 10, 1980, naming private respondent Rowena Faustino-
Corona executrix. In our said decision, we upheld the appointment of Nenita Alonte as co-special administrator of Mrs.
Vitug's estate with her (Mrs. Vitug's) widower, petitioner Romarico G. Vitug, pending probate.

On January 13, 1985, Romarico G. Vitug filed a motion asking for authority from the probate court to sell certain shares of
stock and real properties belonging to the estate to cover allegedly his advances to the estate in the sum of P667,731.66,
plus interests, which he claimed were personal funds. As found by the Court of Appeals, 2 the alleged advances consisted
of P58,147.40 spent for the payment of estate tax, P518,834.27 as deficiency estate tax, and P90,749.99 as "increment
thereto." 3 According to Mr. Vitug, he withdrew the sums of P518,834.27 and P90,749.99 from savings account No.
35342-038 of the Bank of America, Makati, Metro Manila.

On April 12, 1985, Rowena Corona opposed the motion to sell on the ground that the same funds withdrawn from savings
account No. 35342-038 were conjugal partnership properties and part of the estate, and hence, there was allegedly no
ground for reimbursement. She also sought his ouster for failure to include the sums in question for inventory and for
"concealment of funds belonging to the estate." 4

Vitug insists that the said funds are his exclusive property having acquired the same through a survivorship agreement
executed with his late wife and the bank on June 19, 1970. The agreement provides:

We hereby agree with each other and with the BANK OF AMERICAN NATIONAL TRUST AND SAVINGS ASSOCIATION
(hereinafter referred to as the BANK), that all money now or hereafter deposited by us or any or either of us with the
BANK in our joint savings current account shall be the property of all or both of us and shall be payable to and collectible
or withdrawable by either or any of us during our lifetime, and after the death of either or any of us shall belong to and be
the sole property of the survivor or survivors, and shall be payable to and collectible or withdrawable by such survivor or
survivors.

We further agree with each other and the BANK that the receipt or check of either, any or all of us during our lifetime, or
the receipt or check of the survivor or survivors, for any payment or withdrawal made for our above-mentioned account
shall be valid and sufficient release and discharge of the BANK for such payment or withdrawal. 5

The trial courts 6 upheld the validity of this agreement and granted "the motion to sell some of the estate of Dolores L.
Vitug, the proceeds of which shall be used to pay the personal funds of Romarico Vitug in the total sum of
P667,731.66 ... ." 7

On the other hand, the Court of Appeals, in the petition for certiorari filed by the herein private respondent, held that the
above-quoted survivorship agreement constitutes a conveyance mortis causa which "did not comply with the formalities of
a valid will as prescribed by Article 805 of the Civil Code," 8 and secondly, assuming that it is a mere donation inter
vivos, it is a prohibited donation under the provisions of Article 133 of the Civil Code. 9

The dispositive portion of the decision of the Court of Appeals states:

WHEREFORE, the order of respondent Judge dated November 26, 1985 (Annex II, petition) is hereby set aside insofar as
it granted private respondent's motion to sell certain properties of the estate of Dolores L. Vitug for reimbursement of his
alleged advances to the estate, but the same order is sustained in all other respects. In addition, respondent Judge is
directed to include provisionally the deposits in Savings Account No. 35342-038 with the Bank of America, Makati, in the
inventory of actual properties possessed by the spouses at the time of the decedent's death. With costs against private
respondent. 10

In his petition, Vitug, the surviving spouse, assails the appellate court's ruling on the strength of our decisions in Rivera v.
People's Bank and Trust Co. 11 and Macam v. Gatmaitan 12 in which we sustained the validity of "survivorship agreements"
and considering them as aleatory contracts. 13

The petition is meritorious.

The conveyance in question is not, first of all, one of mortis causa, which should be embodied in a will. A will has been
defined as "a personal, solemn, revocable and free act by which a capacitated person disposes of his property and rights
and declares or complies with duties to take effect after his death." 14 In other words, the bequest or device must pertain to
the testator. 15 In this case, the monies subject of savings account No. 35342-038 were in the nature of conjugal funds In
the case relied on, Rivera v. People's Bank and Trust Co., 16 we rejected claims that a survivorship agreement purports to
deliver one party's separate properties in favor of the other, but simply, their joint holdings:

... Such conclusion is evidently predicated on the assumption that Stephenson was the exclusive owner of the funds-
deposited in the bank, which assumption was in turn based on the facts (1) that the account was originally opened in the
name of Stephenson alone and (2) that Ana Rivera "served only as housemaid of the deceased." But it not infrequently
happens that a person deposits money in the bank in the name of another; and in the instant case it also appears that
Ana Rivera served her master for about nineteen years without actually receiving her salary from him. The fact that
subsequently Stephenson transferred the account to the name of himself and/or Ana Rivera and executed with the latter
the survivorship agreement in question although there was no relation of kinship between them but only that of master
and servant, nullifies the assumption that Stephenson was the exclusive owner of the bank account. In the absence, then,
of clear proof to the contrary, we must give full faith and credit to the certificate of deposit which recites in effect that the
funds in question belonged to Edgar Stephenson and Ana Rivera; that they were joint (and several) owners thereof; and
that either of them could withdraw any part or the whole of said account during the lifetime of both, and the balance, if any,
upon the death of either, belonged to the survivor. 17

In Macam v. Gatmaitan, 18 it was held:

This Court is of the opinion that Exhibit C is an aleatory contract whereby, according to article 1790 of the Civil Code, one
of the parties or both reciprocally bind themselves to give or do something as an equivalent for that which the other party
is to give or do in case of the occurrence of an event which is uncertain or will happen at an indeterminate time. As
already stated, Leonarda was the owner of the house and Juana of the Buick automobile and most of the furniture. By
virtue of Exhibit C, Juana would become the owner of the house in case Leonarda died first, and Leonarda would become
the owner of the automobile and the furniture if Juana were to die first. In this manner Leonarda and Juana reciprocally
assigned their respective property to one another conditioned upon who might die first, the time of death determining the
event upon which the acquisition of such right by the one or the other depended. This contract, as any other contract, is
binding upon the parties thereto. Inasmuch as Leonarda had died before Juana, the latter thereupon acquired the
ownership of the house, in the same manner as Leonarda would have acquired the ownership of the automobile and of
the furniture if Juana had died first. 19

There is no showing that the funds exclusively belonged to one party, and hence it must be presumed to be conjugal,
having been acquired during the existence of the marita. relations. 20

Neither is the survivorship agreement a donation inter vivos, for obvious reasons, because it was to take effect after the
death of one party. Secondly, it is not a donation between the spouses because it involved no conveyance of a spouse's
own properties to the other.

It is also our opinion that the agreement involves no modification petition of the conjugal partnership, as held by the Court
of Appeals, 21 by "mere stipulation" 22 and that it is no "cloak" 23 to circumvent the law on conjugal property relations.
Certainly, the spouses are not prohibited by law to invest conjugal property, say, by way of a joint and several bank
account, more commonly denominated in banking parlance as an "and/or" account. In the case at bar, when the spouses
Vitug opened savings account No. 35342-038, they merely put what rightfully belonged to them in a money-making
venture. They did not dispose of it in favor of the other, which would have arguably been sanctionable as a prohibited
donation. And since the funds were conjugal, it can not be said that one spouse could have pressured the other in placing
his or her deposits in the money pool.

The validity of the contract seems debatable by reason of its "survivor-take-all" feature, but in reality, that contract
imposed a mere obligation with a term, the term being death. Such agreements are permitted by the Civil Code. 24

Under Article 2010 of the Code:

ART. 2010. By an aleatory contract, one of the parties or both reciprocally bind themselves to give or to do something in
consideration of what the other shall give or do upon the happening of an event which is uncertain, or which is to occur at
an indeterminate time.
Under the aforequoted provision, the fulfillment of an aleatory contract depends on either the happening of an event which
is (1) "uncertain," (2) "which is to occur at an indeterminate time." A survivorship agreement, the sale of a sweepstake
ticket, a transaction stipulating on the value of currency, and insurance have been held to fall under the first category,
while a contract for life annuity or pension under Article 2021, et sequentia, has been categorized under the second. 25 In
either case, the element of risk is present. In the case at bar, the risk was the death of one party and survivorship of the
other.

However, as we have warned:

But although the survivorship agreement is per se not contrary to law its operation or effect may be violative of the law.
For instance, if it be shown in a given case that such agreement is a mere cloak to hide an inofficious donation, to transfer
property in fraud of creditors, or to defeat the legitime of a forced heir, it may be assailed and annulled upon such
grounds. No such vice has been imputed and established against the agreement involved in this case. 26

There is no demonstration here that the survivorship agreement had been executed for such unlawful purposes, or, as
held by the respondent court, in order to frustrate our laws on wills, donations, and conjugal partnership.

The conclusion is accordingly unavoidable that Mrs. Vitug having predeceased her husband, the latter has acquired upon
her death a vested right over the amounts under savings account No. 35342-038 of the Bank of America. Insofar as the
respondent court ordered their inclusion in the inventory of assets left by Mrs. Vitug, we hold that the court was in error.
Being the separate property of petitioner, it forms no more part of the estate of the deceased.

WHEREFORE, the decision of the respondent appellate court, dated June 29, 1987, and its resolution, dated February 9,
1988, are SET ASIDE.

No costs.

SO ORDERED.

FIRST DIVISION

G.R. No. L-44059 October 28, 1977

THE INSULAR LIFE ASSURANCE COMPANY, LTD., plaintiff-appellee, vs. CARPONIA T. EBRADO and PASCUALA
VDA. DE EBRADO, defendants-appellants.

MARTIN, J.:
This is a novel question in insurance law: Can a common-law wife named as beneficiary in the life insurance policy of a
legally married man claim the proceeds thereof in case of death of the latter?

On September 1, 1968, Buenaventura Cristor Ebrado was issued by The Life Assurance Co., Ltd., Policy No. 009929 on
a whole-life for P5,882.00 with a, rider for Accidental Death for the same amount Buenaventura C. Ebrado designated T.
Ebrado as the revocable beneficiary in his policy. He to her as his wife.

On October 21, 1969, Buenaventura C. Ebrado died as a result of an t when he was hit by a failing branch of a tree. As
the policy was in force, The Insular Life Assurance Co., Ltd. liable to pay the coverage in the total amount of P11,745.73,
representing the face value of the policy in the amount of P5,882.00 plus the additional benefits for accidental death also
in the amount of P5,882.00 and the refund of P18.00 paid for the premium due November, 1969, minus the unpaid
premiums and interest thereon due for January and February, 1969, in the sum of P36.27.

Carponia T. Ebrado filed with the insurer a claim for the proceeds of the Policy as the designated beneficiary therein,
although she admits that she and the insured Buenaventura C. Ebrado were merely living as husband and wife without
the benefit of marriage.

Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased insured. She asserts that she is the one
entitled to the insurance proceeds, not the common-law wife, Carponia T. Ebrado.

In doubt as to whom the insurance proceeds shall be paid, the insurer, The Insular Life Assurance Co., Ltd. commenced
an action for Interpleader before the Court of First Instance of Rizal on April 29, 1970.

After the issues have been joined, a pre-trial conference was held on July 8, 1972, after which, a pre-trial order was
entered reading as follows: 

During the pre-trial conference, the parties manifested to the court. that there is no possibility of amicable settlement.
Hence, the Court proceeded to have the parties submit their evidence for the purpose of the pre-trial and make
admissions for the purpose of pretrial. During this conference, parties Carponia T. Ebrado and Pascuala Ebrado agreed
and stipulated: 1) that the deceased Buenaventura Ebrado was married to Pascuala Ebrado with whom she has six —
(legitimate) namely; Hernando, Cresencio, Elsa, Erlinda, Felizardo and Helen, all surnamed Ebrado; 2) that during the
lifetime of the deceased, he was insured with Insular Life Assurance Co. Under Policy No. 009929 whole life plan, dated
September 1, 1968 for the sum of P5,882.00 with the rider for accidental death benefit as evidenced by Exhibits A for
plaintiffs and Exhibit 1 for the defendant Pascuala and Exhibit 7 for Carponia Ebrado; 3) that during the lifetime of
Buenaventura Ebrado, he was living with his common-wife, Carponia Ebrado, with whom she had 2 children although he
was not legally separated from his legal wife; 4) that Buenaventura in accident on October 21, 1969 as evidenced by the
death Exhibit 3 and affidavit of the police report of his death Exhibit 5; 5) that complainant Carponia Ebrado filed claim
with the Insular Life Assurance Co. which was contested by Pascuala Ebrado who also filed claim for the proceeds of said
policy 6) that in view ofthe adverse claims the insurance company filed this action against the two herein claimants
Carponia and Pascuala Ebrado; 7) that there is now due from the Insular Life Assurance Co. as proceeds of the policy
P11,745.73; 8) that the beneficiary designated by the insured in the policy is Carponia Ebrado and the insured made
reservation to change the beneficiary but although the insured made the option to change the beneficiary, same was
never changed up to the time of his death and the wife did not have any opportunity to write the company that there was
reservation to change the designation of the parties agreed that a decision be rendered based on and stipulation of facts
as to who among the two claimants is entitled to the policy.

Upon motion of the parties, they are given ten (10) days to file their simultaneous memoranda from the receipt of this
order.

SO ORDERED.

On September 25, 1972, the trial court rendered judgment declaring among others, Carponia T. Ebrado disqualified from
becoming beneficiary of the insured Buenaventura Cristor Ebrado and directing the payment of the insurance proceeds to the
estate of the deceased insured. The trial court held: ñé+.£ªwph!1

It is patent from the last paragraph of Art. 739 of the Civil Code that a criminal conviction for adultery or concubinage is not
essential in order to establish the disqualification mentioned therein. Neither is it also necessary that a finding of such guilt or
commission of those acts be made in a separate independent action brought for the purpose. The guilt of the donee
(beneficiary) may be proved by preponderance of evidence in the same proceeding (the action brought to declare the nullity of
the donation).

It is, however, essential that such adultery or concubinage exists at the time defendant Carponia T. Ebrado was made
beneficiary in the policy in question for the disqualification and incapacity to exist and that it is only necessary that such fact be
established by preponderance of evidence in the trial. Since it is agreed in their stipulation above-quoted that the deceased
insured and defendant Carponia T. Ebrado were living together as husband and wife without being legally married and that the
marriage of the insured with the other defendant Pascuala Vda. de Ebrado was valid and still existing at the time the insurance
in question was purchased there is no question that defendant Carponia T. Ebrado is disqualified from becoming the beneficiary
of the policy in question and as such she is not entitled to the proceeds of the insurance upon the death of the insured.

From this judgment, Carponia T. Ebrado appealed to the Court of Appeals, but on July 11, 1976, the Appellate Court certified
the case to Us as involving only questions of law.

We affirm the judgment of the lower court.

1. It is quite unfortunate that the Insurance Act (RA 2327, as amended) or even the new Insurance Code (PD No. 612, as
amended) does not contain any specific provision grossly resolutory of the prime question at hand. Section 50 of the Insurance
Act which provides that "(t)he insurance shag be applied exclusively to the proper interest of the person in whose name it is
made" 1 cannot be validly seized upon to hold that the mm includes the beneficiary. The word "interest" highly suggests that the
provision refers only to the "insured" and not to the beneficiary, since a contract of insurance is personal in
character. 2 Otherwise, the prohibitory laws against illicit relationships especially on property and descent will be rendered
nugatory, as the same could easily be circumvented by modes of insurance. Rather, the general rules of civil law should be
applied to resolve this void in the Insurance Law. Article 2011 of the New Civil Code states: "The contract of insurance is
governed by special laws. Matters not expressly provided for in such special laws shall be regulated by this Code." When not
otherwise specifically provided for by the Insurance Law, the contract of life insurance is governed by the general rules of the
civil law regulating contracts. 3 And under Article 2012 of the same Code, "any person who is forbidden from receiving any
donation under Article 739 cannot be named beneficiary of a fife insurance policy by the person who cannot make a donation to
him. 4 Common-law spouses are, definitely, barred from receiving donations from each other. Article 739 of the new Civil Code
provides: 

The following donations shall be void:

1. Those made between persons who were guilty of adultery or concubinage at the time of donation;

Those made between persons found guilty of the same criminal offense, in consideration thereof;

3. Those made to a public officer or his wife, descendants or ascendants by reason of his office.

In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the donor or donee; and the
guilt of the donee may be proved by preponderance of evidence in the same action.

2. In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is concerned. Both are
founded upon the same consideration: liberality. A beneficiary is like a donee, because from the premiums of the policy which
the insured pays out of liberality, the beneficiary will receive the proceeds or profits of said insurance. As a consequence, the
proscription in Article 739 of the new Civil Code should equally operate in life insurance contracts. The mandate of Article 2012
cannot be laid aside: any person who cannot receive a donation cannot be named as beneficiary in the life insurance policy of
the person who cannot make the donation. 5 Under American law, a policy of life insurance is considered as a testament and in
construing it, the courts will, so far as possible treat it as a will and determine the effect of a clause designating the beneficiary
by rules under which wins are interpreted. 6

3. Policy considerations and dictates of morality rightly justify the institution of a barrier between common law spouses in record
to Property relations since such hip ultimately encroaches upon the nuptial and filial rights of the legitimate family There is every
reason to hold that the bar in donations between legitimate spouses and those between illegitimate ones should be enforced in
life insurance policies since the same are based on similar consideration As above pointed out, a beneficiary in a fife insurance
policy is no different from a donee. Both are recipients of pure beneficence. So long as manage remains the threshold of family
laws, reason and morality dictate that the impediments imposed upon married couple should likewise be imposed upon extra-
marital relationship. If legitimate relationship is circumscribed by these legal disabilities, with more reason should an illicit
relationship be restricted by these disabilities. Thus, in Matabuena v. Cervantes, 7 this Court, through Justice Fernando, said: 

If the policy of the law is, in the language of the opinion of the then Justice J.B.L. Reyes of that court (Court of Appeals), 'to
prohibit donations in favor of the other consort and his descendants because of and undue and improper pressure and influence
upon the donor, a prejudice deeply rooted in our ancient law;" por-que no se enganen desponjandose el uno al otro por amor
que han de consuno' (According to) the Partidas (Part IV, Tit. XI, LAW IV), reiterating the rationale 'No Mutuato amore invicem
spoliarentur' the Pandects (Bk, 24, Titl. 1, De donat, inter virum et uxorem); then there is very reason to apply the same
prohibitive policy to persons living together as husband and wife without the benefit of nuptials. For it is not to be doubted that
assent to such irregular connection for thirty years bespeaks greater influence of one party over the other, so that the danger
that the law seeks to avoid is correspondingly increased. Moreover, as already pointed out by Ulpian (in his lib. 32 ad Sabinum,
fr. 1), 'it would not be just that such donations should subsist, lest the condition 6f those who incurred guilt should turn out to be
better.' So long as marriage remains the cornerstone of our family law, reason and morality alike demand that the disabilities
attached to marriage should likewise attach to concubinage.

It is hardly necessary to add that even in the absence of the above pronouncement, any other conclusion cannot stand the test
of scrutiny. It would be to indict the frame of the Civil Code for a failure to apply a laudable rule to a situation which in its
essentials cannot be distinguished. Moreover, if it is at all to be differentiated the policy of the law which embodies a deeply
rooted notion of what is just and what is right would be nullified if such irregular relationship instead of being visited with
disabilities would be attended with benefits. Certainly a legal norm should not be susceptible to such a reproach. If there is every
any occasion where the principle of statutory construction that what is within the spirit of the law is as much a part of it as what is
written, this is it. Otherwise the basic purpose discernible in such codal provision would not be attained. Whatever omission may
be apparent in an interpretation purely literal of the language used must be remedied by an adherence to its avowed objective.

4. We do not think that a conviction for adultery or concubinage is exacted before the disabilities mentioned in Article 739 may
effectuate. More specifically, with record to the disability on "persons who were guilty of adultery or concubinage at the time of
the donation," Article 739 itself provides: 

In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the donor or donee; and the
guilty of the donee may be proved by preponderance of evidence in the same action.

The underscored clause neatly conveys that no criminal conviction for the offense is a condition precedent. In fact, it cannot
even be from the aforequoted provision that a prosecution is needed. On the contrary, the law plainly states that the guilt of the
party may be proved "in the same acting for declaration of nullity of donation. And, it would be sufficient if evidence
preponderates upon the guilt of the consort for the offense indicated. The quantum of proof in criminal cases is not demanded.

In the caw before Us, the requisite proof of common-law relationship between the insured and the beneficiary has been
conveniently supplied by the stipulations between the parties in the pre-trial conference of the case. It case agreed upon and
stipulated therein that the deceased insured Buenaventura C. Ebrado was married to Pascuala Ebrado with whom she has six
legitimate children; that during his lifetime, the deceased insured was living with his common-law wife, Carponia Ebrado, with
whom he has two children. These stipulations are nothing less than judicial admissions which, as a consequence, no longer
require proof and cannot be contradicted. 8 A fortiori, on the basis of these admissions, a judgment may be validly rendered
without going through the rigors of a trial for the sole purpose of proving the illicit liaison between the insured and the
beneficiary. In fact, in that pretrial, the parties even agreed "that a decision be rendered based on this agreement and stipulation
of facts as to who among the two claimants is entitled to the policy."

ACCORDINGLY, the appealed judgment of the lower court is hereby affirmed. Carponia T. Ebrado is hereby declared
disqualified to be the beneficiary of the late Buenaventura C. Ebrado in his life insurance policy. As a consequence, the
proceeds of the policy are hereby held payable to the estate of the deceased insured. Costs against Carponia T. Ebrado.

SO ORDERED.