Name: SALVACION, ALESSANDRA MAE C.

Year & Sec: JD 2B Score: _____

Answer each of the following questions concisely. Email all answers in a word file tonight,
March 24, not later than 11:00 P.M. at christelletio@gmail.com.

BANK OF THE PHILIPPINE ISLANDS vs. THE INTERMEDIATE APPELLATE COURT and
ZSHORNACK

1. Describe the nature of the contract entered into by Zshornack and ComTrust?
Ans: The contract entered into by Zshornack and ComTrust was a contract of deposit.
2. Explain why the contract was a contract of deposit.
Ans: The document which embodies the contract states that the US$3,000.00 was
received by the bank for safekeeping. The subsequent acts of the parties also show
that the intent of the parties was really for the bank to safely keep the dollars and to
return it to Zshornack at a later time. The above arrangement is that contract
defined under Article 1962, which is a contract of deposit, which reads:
Art. 1962. A deposit is constituted from the moment a person receives a thing
belonging to another, with the obligation of safely keeping it and of returning the
same.
3. What is the stand of ComTrust regarding the contract of deposit entered into by its
employee – Virgilio Garcia?
Ans: ComTrust argues that the contract embodied in the document is the contract of
depositum (as defined in Article 1962, New Civil Code), which banks do not enter
into. The bank alleges that Garcia exceeded his powers when he entered into the
transaction. Hence, it is claimed, the bank cannot be liable under the contract, and
the obligation is purely personal to Garcia.
4. Why did the Supreme Court declared both parties – Zshornack and ComTrust – in Pari
Delicto?
Ans: The object of the contract between Zshornack and COMTRUST was foreign
exchange. Hence, the transaction was covered by Central Bank Circular No. 20,
Restrictions on Gold and Foreign Exchange Transactions. Under the said Circular,
safekeeping of the greenbacks without selling them to the Central Bank within 1
business day from receipt, is a transaction which is not authorized.
Since the mere safekeeping of the greenbacks, without selling them to the Central
Bank within one business day from receipt, is a transaction which is not authorized
by CB Circular No. 20, it must be considered as one which falls under the general
class of prohibited transactions. Hence, pursuant to Article 5 of the Civil Code, it is
void, having been executed against the provisions of a mandatory/prohibitory law.
More importantly, it affords neither of the parties a cause of action against the

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 other. "When the nullity proceeds from the illegality of the cause or object of the
contract, and the act constitutes a criminal offense, both parties being in pari delicto,
they shall have no cause of action against each other. . ." [Art. 1411, New Civil Code.]
5. Did Zshornack obtain a relief? Why?
Ans: Both parties being in pari delicto, Zshornack cannot recover under the second cause
of action. However, the petitioner was ordered to restore to the dollar savings
account of Zshornack the amount of US$1,000.00 as of October 27, 1975 to earn
interest at the rate fixed by the bank for dollar savings deposits. Petitioner was
further ordered to pay Zschornack the amount of P8,000.00 as damages. The other
causes of action of Zschornack were ordered dismissed by the Court.
DIONISIO CALIBO, JR., petitioner, vs. COURT OF APPEALS and DR. PABLO U. ABELLA
6. What action was filed by Pablo Abella against Dionisio Calibo? Why did Pablo file such
action?
Ans: Abella instituted an action for replevin, claiming ownership of the tractor and
seeking recovery of possession of the tractor from Calibo. Calibo told Abella that the
tractor was offered by Mike Abella (Pablo Abella’s son) as security for the payment
of Mike’s obligation to him. Pablo offered to write a check to cover the obligation
but Calibo told him that he would accept the check only if Pablo would execute a
Promissory Note in his favor. Pablo was not amenable to his proposal and they failed
to come to an agreement.
7. What was the issue in this case when it reached the Supreme Court? And what was held?
Ans: The issue in this case is whether or not the contract entered into by the parties is of
pledge or of deposit. The SC held that No. There is no contract of pledge. It was
proven in court that Pablo only left the tractor in his son’s possession only for the
purpose of safekeeping. Pablo was not aware that his son pledged it to Calibo and he
never authorized his son to do so. There is no contract of deposit between Mike and
Calibo. There is no deposit where the principal purpose for receiving the object is not
safekeeping. In this case, Calibo himself admitted in court that Mike delivered the
tractor to him as security for Mike’s debts.
The judgment ordering Calibo to return the tractor to Pablo was affirmed by the
Supreme Court.
JOSEPH CHAN, WILSON CHAN and LILY CHAN v. BONIFACIO S. MACEDA, JR.,
8. What was the action filed by Bonifacio Maceda against the Chans? What is the basis of
Bonifacio for filing this damages case?
Ans: Respondent Maceda filed with the Regional Trial Court, Branch 160, Pasig City, an
action for damages with an application for a writ of preliminary attachment against
petitioners Chan. The basis of Bonifacio for filing this damages case is that when he
ordered petitioners to return to him the construction materials and equipment

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 which Moreman deposited in their warehouse, petitioners, however, told them that
Moreman withdrew those construction materials in 1977.
9. Is Bonifacio Maceda entitled to claim for damages? Why or why not?
Ans: No. Respondent Maceda failed to prove (1) the existence of any contract of deposit
between him and petitioners, nor between the latter and Moreman in his favor, and
(2) that there were construction materials in petitioners warehouse at the time of
respondent's demand to return the same. Thus, the Court held that petitioners have
no corresponding obligation or liability to respondent with respect to those
construction materials, and that he has no right whatsoever to claim for damages.

LUZAN SIA vs. COURT OF APPEALS and SECURITY BANK and TRUST COMPANY
10. Why did Luzan Sia file a case for damages against Security Bank and Trust Company?
Ans: Luzan Sia and SBTC entered into a contract denominated as a Lease Agreement
whereby the former rented a safety deposit box owned by the latter. Sia placed in
the deposit box her stamp collection which was subsequently lost and damaged due
to a flood that took place in 1985 and 1986.
The defendant bank rejected the petitioner’ s claim for compensation for his
damaged stamps collection, so, Luzan Sia filed an action for damages arising out of
the destruction or loss of the stamp collection of the contained in Safety Deposit Box
No. 54 which had been rented from the SBTC pursuant to a contract denominated as
a Lease Agreement.

11. What were the defenses raised by SBTC?

Ans: The defendant bank denied liability for the damaged stamps collection of the
plaintiff on the basis of the "Rules and Regulations Governing the Lease of Safe
Deposit Boxes”, particularly paragraphs 9 and 13, which reads (sic):

"9. The liability of the Bank by reason of the lease, is limited to the exercise of the
diligence to prevent the opening of the safe by any person other than the Renter, his
authorized agent or legal representative;

"13. The Bank is not a depository of the contents of the safe and it has neither the
possession nor the control of the same. The Bank has no interest whatsoever in said
contents, except as herein provided, and it assumes absolutely no liability in
connection therewith."

The defendant bank also contended that its contract with the plaintiff over safety
deposit box No. 54 was one of lease and not of deposit and, therefore, governed by
the lease agreement (Exhs. "A", "L") which should be the applicable law; that the
destruction of the plaintiff's stamps collection was due to a calamity beyond

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 obligation on its part to notify the plaintiff about the floodwaters that inundated its
premises at Binondo branch which allegedly seeped into the safety deposit box
leased to the plaintiff.

12. What is the nature of the contract between Sia and SBTC? What is the legal basis?
Ans: The Supreme Court held that the contract between Sia and SBTC was a special kind
of deposit.

In the recent case CA Agro-Industrial Development Corp. vs. Court of Appeals, the
Court held that the use of a safety deposit box is not a contract of lease and that it is
actually a special kind of deposit.

The prevailing rule in American jurisprudence — that the relation between a bank
renting out safe deposit boxes and its customer with respect to the contents of the
box is that of a bailor and bailee, the bailment for hire and mutual benefit — has
been adopted in this jurisdiction, thus: In the context of our laws which authorize
banking institutions to rent out safety deposit boxes, it is clear that in this
jurisdiction, the prevailing rule in the United States has been adopted. Section 72 of
the General Banking Act [R.A. 337, as amended] pertinently provides: "Sec. 72. In
addition to the operations specifically authorized elsewhere in this Act, banking
institutions other than building and loan associations may perform the following
services: (a) Receive in custody funds, documents, and valuable objects, and rent
safety deposit boxes for the safeguarding of such effects. xxx xxx xxx The banks shall
perform the services permitted under subsections (a), (b) and (c) of this section as
depositories or as agents.

13. According to the Supreme Court, what is the governing rule regarding the depositary’s
liability?
Ans: The Supreme Court stated that the depositary's responsibility for the safekeeping of
the objects deposited in the case at bar is governed by Title I, Book IV of the Civil
Code. Accordingly, the depositary would be liable if, in performing its obligation, it is
found guilty of fraud, negligence, delay or contravention of the tenor of the
agreement [Art. 1170]. In the absence of any stipulation prescribing the degree of
diligence required, that of a good father of a family is to be observed [Art. 1173].
Hence, any stipulation exempting the depositary from any liability arising from the
loss of the thing deposited on account of fraud, negligence or delay would be void
for being contrary to law and public policy.
14. What kind of diligence is required by law of the depositaries?
Ans: In the absence of any stipulation prescribing the degree of diligence required, that of
a good father of a family is to be observed [Art. 1173, Civil Code]

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15. What did the SC say about paragraph 13 and 14 of the Contract of Lease between Sia
and SBTC?
The SC ruled that such provisions are void as they are contrary to law and public
policy and are inconsistent with the respondent Bank's responsibility as a depositary
under Section 72 (a) of the General Banking Act.

CA AGRO-INDUSTRIAL DEVELOPMENT CORP. vs. THE HONORABLE COURT OF APPEALS and

SECURITY BANK AND TRUST COMPANY
16. Why did CA Agro-Industrial Development Corp. file a case against SBTC?
Ans: CA Agro Industrial Development Corp. suffered losses when a certain Mrs. Margarita
Ramos withdrew her offer to purchase two parcels of land from the former, when
the certificates of title got lost while under SBTC’s safety deposit box.
17. How did the RTC and CA decide the case?
Ans: The Court of First Instance (Regional Trial Court) decided in favor of respondent bank
citing paragraph 13 and 14 of the contract of lease which exonerates the bank from
any liability.
The Court of Appeals in turn affirmed the decision of the trial court on the theory
that the contract executed between petitioner and respondent bank is a contract of
lease (Article 1643) by virtue of which respondent bank was divested of any
possession nor control over the safety deposit box.
18. What was the issue when it reached the Supreme Court? What was held?
Ans: Whether or not the contract between petitioner and bank is a contract of lease or
contract of deposit. The court held that the contract was a special kind of deposit
although it is not strictly govern by the provisions in the Civil Code on deposits. It
cannot be a contract of lease as the full and absolute possession and control of the
safety deposit box was not given to the joint renters and likewise, it is not purely a
deposit as the Bank even with the guard key cannot open the box without the
renter’s key.
19. What is the legal basis of that decision?
Ans: A contract of deposit may be entered into orally or in writing and, pursuant to Article
1306 of the Civil Code, the parties thereto may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not contrary
to law, morals, good customs, public order or public policy. The depositary's
responsibility for the safekeeping of the objects deposited in the case at bar is
governed by Title I, Book IV of the Civil Code. Additionally, the Supreme Court stated
that in the context of our laws which authorize banking institutions to rent out safety
deposit boxes, it is clear that in this jurisdiction, the prevailing rule in the United
States has been adopted. Section 72 of the General Banking Act pertinently

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

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

xxx xxx xxx

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

20. Why did the SC invalidate the stipulations sec 13 and 14 in the contract of lease between
the petitioner, SBTC and Spouses Pugao?
Ans: The SC found that Sections 13 and 14 of the ‘Lease Agreement’ between the parties
were contrary to law and public policy. It held that any stipulation exempting the
depositary from any liability arising from the loss of the thing deposited on account
of fraud, negligence or delay would be void.
21. According to the SC, what is the rule to be followed if, in the contract, there is no
stipulation as to the degree of care that the depositary must exercise?
Ans: In the absence of any stipulation prescribing the degree of diligence required, the
diligence of a good father of a family is to be observed [Art. 1173, Civil Code].
SILVESTRA BARON vs. PABLO DAVID and GUILLERMO BARON vs. PABLO DAVID,
22. What was Silvestra and Guillermo Baron sought to recover from Pablo David.
Ans: Silvestra and Guillermo Baron seek to recover the value of palays they placed in
Pablo’s Mill. Silvestra, placed a quantity of palay which amounted to 1,012 canvas
and 24 kilos. Guillermo, on the other hand, placed 1,865 cavans and 43 kilos in the
same mill.
23. How did Pablo try to excuse himself from liability?
Ans: Pablo claims that the palays was deposited subject to future withdrawal by the
depositors, in this case Silvestra and Guillermo Baron, or subject to some future sale
which was never effected.
24. What was the issue when it reached to the SC?
Ans: The issue in this case in relation to Credit Transaction is whether or not the nature of
the transaction entered thereto by petitioners to respondent Pablo is one of deposit
as Pablo claims and whether or not Pablo is liable thereof for its loss due to
fortuitous event.

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25. What was held? Explain.
Ans: In the first issue, it was held that the contract entered thereto is one of a
commodatum rather than deposit, as defined in Art. 1768 of the Civil Code as when
the depository, in this case Pablo, has the permission to make use of the thing
deposited, it loses the character of mere deposit and becomes a loan or a
commodatum.
In the second issue, Pablo is indeed liable as in this case he is the bailee and by
appropriating the thing, the bailee becomes responsible for its value. In this case,
Pablo had the liberty to convert the palays into rice and dispose of it at his own
pleasure. Pablo’s mill was running the entire season and it was impossible to keep
the palays segregated. In fact Pablo admits that the plaintiffs’ palay was mixed with
that of others. Considering the fact that Pablo milled and doubtless sold the
plaintiffs’ palay prior to the date of the fire, he is accountable for its value and his
liability is not extinguished by the occurrence of the fortuitous event that happened
after he had benefited from the object of the commodatum.
ANGEL JAVELLANA vs JOSE LIM, ET AL., G.R. No. 4015 (August 24, 1908)
26. In this particular case, why did the SC rule that the contract entered into between
Javellana (the plaintiff) and Jose Lim and Ceferino Lim (defendants) was a contract of loan
and not of deposit?
Ans: By the facts of the case, the SC ruled that the contract entered into between
Javellana (the plaintiff) and Jose Lim and Ceferino Lim (defendants) was a contract of
loan and not of deposit because Article 1767 of the Civil Code provides that —
The depository can not make use of the thing deposited without the express
permission of the depositor.
Otherwise he shall be liable for losses and damages.
Article 1768 also provides that —
When the depository has permission to make use of the thing deposited,
the contract loses the character of a deposit and becomes a loan or
bailment.
The permission shall not be presumed, and its existence must be proven.
The document of indebtedness inserted in the complaint stated that the plaintiff
Javellana left on deposit with the defendants Lim et. al. a given sum of money which
they were jointly and severally obliged to return on a certain date fixed in the
document.
It is understood that the defendants Lim et. al. were lawfully authorized to make
use of the amount deposited, which they have done, as shown when they asked for
an extension of the time to return the amount, inasmuch as they have subjected the
plaintiff Javellana to losses and damages for not complying with what was stipulated

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 and being aware that they had used the money that they received apparently as a
deposit, they promised to pay the interest from the date named until the time when
the refund should be made.
Such conduct on the part of the defendants is unquestionable evidence that the
transaction was not a deposit, but a real contract of loan.
27. What particular facts in the case became the bases of the SC in concluding that it was a
contract of loan and not of deposit?
Ans: January, 1898, Jose Lim went to the office of the plaintiff asking for an extension of
one year, and agreed to pay interest at the rate of 15 per cent per annum, it was
because, as a matter of fact, he did not have in his possession the amount deposited,
he having made use of the same in his business and for his own profit; and the
plaintiff, by granting them the extension, evidently confirmed the express
permission previously given to use and dispose of the amount deposited, which, in
accordance with the loan, to all intents and purposes gratuitously, until the 20th of
January, 1898, and from that dated with interest at 15 per cent per annum until its
full payment, deducting from the total amount of interest the sum of 1,000 pesos, in
accordance with the provisions of article 1173 of the Civil Code.
YHT REALTY CORPORATION, ERLINDA LAINEZ and ANICIA PAYAM vs. THE COURT OF
APPEALS and MAURICE McLOUGHLIN
28. Why did McLoughlin file a complaint for damages against YHT Realty Corporation?
Ans: Private respondent stayed as a guest at Tropicana Hotel, owned and operated by
YHT Realty Corp., and deposited cash, letters, bankbooks, credit cards and a
checkbook in the safety deposit box during his stay. He later discovered that some of
the cash and valuables were missing and that the safety deposit box had been
opened by his friend Tan with the assistance of Lopez (hotel manager), and hotel
employees Lainez and Payam, who have custody of the key. McLoughlin insisted that
Tropicana Hotel be held responsible for the loss.
29. What defenses were raised by YHT Realty or Tropicana Hotel?
Ans: The management contended that Tan made its employees believe that she was
Mcloughlin’s wife which is why they allowed her access to the safety deposit box
several times. Lopez also insisted that the hotel cannot be involved due to the
conditions for renting the safety deposit box which provides that the hotel is free
from any liability arising from loss should the key be lost and to return the key and
execute the release in favor of the hotel upon giving up the use of the box.

30. What did the SC say about these stipulations or conditions? What is the legal basis?
Ans: The SC stated that any stipulation between the hotel-keeper and the guest whereby
the responsibility of the former as set forth in Articles 1998 to 2001 is suppressed or

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 diminished shall be void. The hotel conditions were ruled not valid for being contrary
to Art 2003 of the NCC and public policy.
31. What may excuse a hotel from liability according to the SC?
Ans: It is the loss through force majeure that may spare the hotel-keeper from liability as
the New Civil Code explicitly stated. 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.
32. As explained by the SC, what is the purpose of incorporating Article 2003 in the New Civil
Code?
Ans: 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.
DURBAN APARTMENTS CORPORATION, doing business under the name and style of City
Garden Hotel vs. PIONEER INSURANCE AND SURETY CORPORATION
33. What did Pioneer Insurance and Surety Corporation file against Durban Apartments
Corporation and Vicente Justimbaste?
Ans: Pioneer Insurance and Surety Corporation by right of subrogation filed a Complaint
for Recovery of Damages against Durban Apartments Corporation doing business
under the name and style of City Garden Hotel and Vicente Justimbaste.
34. What was the issue?
Ans: The issue in this case in relation to Credit Transaction is whether or not Durban
Apartments Corporation doing business under the name and style of City Garden
Hotel is liable to Pioneer Insurance and Surety Corporation for the loss of See’s
vehicle.
35. What was held?
Ans: Yes. City Garden Hotel is liable. See deposited his vehicle for safekeeping with City
Garden hotel through its parking attendant, Justimbaste which also issued a claim
stub to See in return. Thus, the contract of deposit was perfected from See’s
delivery, when he handed over the keys to his vehicle, which Justimbaste received
with the obligation of safely keeping it.

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