LUZAN SIA, PETITIONER, VS. COURT OF APPEALS AND SECURITY BANK AND TRUST COMPANY, RESPONDENTS.

The Decision of public respondent
Court of Appeals in CA­-G.R. CV No. 26737, promulgated on 21 August 1991,^[1]
reversing and setting aside the
Decision, dated 19 February 1990,^[2] of Branch 47 of the Regional Trial Court
(RTC) of Manila in Civil Case No. 87­42601, entitled “LUZAN SIA vs. SECURITY BANK and TRUST CO.,” is challenged
in this petition for review on certiorari under Rule 45 of the Rules of Court.

Civil Case No. 87-42601
is an action for damages arising out of the destruction or loss of the stamp
collection of the plaintiff (petitioner herein) contained in Safety Deposit Box
No. 54 which had been rented from the defendant pursuant to a contract
denominated as a Lease Agreement.^[3] Judgment therein was rendered in favor of
the plaintiff, the dispositive portion of which reads:

“WHEREFORE, premises considered, judgment is hereby rendered in
favor of the plaintiff and against the defendant, Security Bank & Trust
Company, ordering the defendant bank to pay the plaintiff the sum of -?

a)  Twenty Thousand Pesos (P20,000.00), Philippine
Currency, as actual damages;

b)  One Hundred Thousand Pesos (P100,000.00), Philippine Currency, as
moral damages; and

c)  Five Thousand Pesos (P5,000.00), Philippine
Currency, as attorney’s fees and legal expenses.

The counterclaim[s] set up by the defendant are hereby dismissed
for lack of merit.

No costs.

SO ORDERED.”^[4]

The antecedent facts of
the present controversy are summarized by the public respondent in its
challenged decision as follows:

“The plaintiff rented on March 22, 1985 the Safety Deposit Box No.
54 of the defendant bank at its Binondo Branch located at the Fookien Times
Building, Soler St., Binondo, Manila wherein he placed his collection of
stamps. The said safety deposit box
leased by the plaintiff was at the bottom or at the lowest level of the safety
deposit boxes of the defendant bank at its aforesaid Binondo Branch.

During the floods that took place in 1985 and 1986, floodwater
entered into the defendant bank’s premises, seeped into the safety deposit box
leased by the plaintiff and caused, according to the plaintiff, damage to his
stamps collection. The defendant bank
rejected the plaintiff’s claim for compensation for his damaged stamps
collection, so, the plaintiff instituted an action for damages against the
defendant bank.

The defendant bank denied liability for the damaged stamps
collection of the plaintiff on the basis of the ‘Rules and Regulations
Governing the Lease of Safe Deposit Boxes’ (Exhs. “A-1”, “1-A”), particularly
paragraphs 9 and 13, which reads (sic):

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

x x x

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 its control; and that there was no obligation on
its part to notify the plaintiff about the floodwaters that inundated its
premises at Binondo branch which allegedly seeped into the safety deposit box
leased to the plaintiff.

The trial court then
directed that an ocular inspection on (sic) the contents of the safety deposit
box be conducted, which was done on December 8, 1988 by its clerk of court in
the presence of the parties and their counsels. A report thereon was then submitted on December 12, 1988
(Records, p. 98-A) and confirmed
in open court by both parties thru counsel during the hearing on the same date
(Ibid, p.102) stating:

‘That the Safety Box Deposit No. 54 was opened by both plaintiff
Luzan Sia and the Acting Branch Manager Jimmy B. Ynion in the presence of the
undersigned, plaintiff’s and defendant’s counsel. Said Safety Box when opened contains two albums of different
sizes and thickness, length and width and a tin box with printed word ‘Tai Ping
Shiang Roast Pork in pieces with Chinese designs and character.’

Condition of the
above-stated Items —

‘Both albums are wet, moldy and badly damaged.

1.   The first album measures 10 1/8 inches in
length, 8 inches in width and 3/4 in thick. The leaves of the album are attached to every page and cannot be lifted
without destroying it, hence the stamps contained therein are no longer
visible.

2.   The second album measures 12½ inches in
length, 9¼ in width and 1 inch thick. Some of its pages can still be lifted. The stamps therein can still be distinguished
but beyond restoration. Others have
lost its original form.

3.   The
tin box is rusty inside. It contains an
album with several pieces of papers stuck up to the cover of the
box. The condition of the album is the
same as described in the second above-mentioned album.’”^[5]

The SECURITY BANK AND TRUST COMPANY, hereinafter referred to as
SBTC, appealed the trial court’s decision to the public respondent Court of
Appeals. The appeal was docketed as
CA-G.R. CV No. 26737.

In urging the public respondent to reverse the decision of the
trial court, SBTC contended that the latter erred in (a) holding that the lease agreement is a
contract of adhesion; (b) finding that the defendant had failed to exercise the
required diligence expected of a bank in maintaining the safety deposit box;
(c) awarding to the plaintiff actual damages in the amount of P20,000.00,
moral damages in the amount of P100,000.00
and attorney’s fees and legal expenses
in the amount of P5,000.00; and (d) dismissing the counterclaim.

On 21 August 1991, the
public respondent promulgated its decision the dispositive portion of which
reads:

“WHEREFORE, the decision appealed from is hereby REVERSED and
instead the appellee’s complaint is hereby DISMISSED. The appellant bank’s counterclaim is likewise DISMISSED. No costs.”^[6]

In reversing the trial court’s decision and absolving SBTC from
liability, the public respondent found and ruled that:

a) the fine print in the
“Lease Agreement” (Exhibits “A” and “1”) constitutes the terms and conditions
of the contract of lease which the appellee (now petitioner) had voluntarily
and knowingly executed with SBTC;

b) the contract entered into
by the parties regarding Safe Deposit Box No. 54 was not a contract of deposit
wherein the bank became a depositary of the subject stamp collection; hence, as
contended by SBTC, the provisions of Book IV, Title XII of the Civil Code on
deposits do not apply;

c) The following provisions of the questioned lease agreement of
the safety deposit box limiting SBTC’s liability:

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

x x x

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

are
valid since said stipulations are not contrary to law, morals, good customs,
public order or public policy; and

d)  there is no concrete
evidence to show that SBTC failed to exercise
the required diligence in maintaining the safety deposit box; what was
proven was that the floods of 1985 and 1986, which were beyond the control of
SBTC, caused the damage to the stamp collection; said floods were fortuitous
events which SBTC should not be held liable for since it was not shown to have
participated in the aggravation of the damage to the stamp collection; on the
contrary, it offered its services to secure the assistance of an expert in
order to save most of the stamps, but
the appellee refused; appellee must then bear the loss under the principle of “res perit domino.”

Unsuccessful in his bid
to have the above decision reconsidered by the public respondent,^[7] petitioner filed the instant petition
wherein he contends that:

“I

IT WAS A GRAVE ERROR OR AN ABUSE OF DISCRETION ON THE PART OF THE
RESPONDENT COURT WHEN IT RULED THAT RESPONDENT SBTC DID NOT FAIL TO EXERCISE
THE REQUIRED DILIGENCE IN MAINTAINING THE SAFETY DEPOSIT BOX OF THE PETITIONER
CONSIDERING THAT SUBSTANTIAL EVIDENCE EXIST (sic) PROVING THE CONTRARY.

II

THE RESPONDENT COURT SERIOUSLY ERRED IN EXCULPATING PRIVATE
RESPONDENT FROM ANY LIABILITY WHATSOEVER BY REASON OF THE PROVISIONS OF
PARAGRAPHS 9 AND 13 OF THE AGREEMENT (EXHS. “A” AND “A-1”).

III

THE RESPONDENT COURT SERIOUSLY ERRED IN NOT UPHOLDING THE AWARDS OF
THE TRIAL COURT FOR ACTUAL AND MORAL DAMAGES, INCLUDING ATTORNEY’S FEES AND
LEGAL EXPENSES, IN FAVOR OF THE PETITIONER.”^[8]

We subsequently gave due
course to the petition and required both parties to submit their respective
memoranda, which they complied with.^[9]

Petitioner insists that
the trial court correctly ruled that SBTC had failed “to exercise the required
diligence expected of a bank maintaining such safety deposit box … in the
light of the environmental circumstances of said safety deposit box after the
floods of 1985 and 1986.” He argues that such a conclusion is supported by the
evidence on record, to wit: SBTC was
fully cognizant of the exact location of the safety deposit box in question; it
knew that the premises were inundated by floodwaters in 1985 and 1986 and
considering that the bank is guarded
twenty-four (24) hours a day, it is safe to conclude that it was also aware of
the inundation of the premises where the safety deposit box was located;
despite such knowledge, however, it never bothered to inform the petitioner of
the flooding or take any appropriate measures to insure the safety and good
maintenance of the safety deposit box in question.

SBTC does not squarely dispute these facts; rather, it relies on
the rule that findings of fact of the Court of Appeals, when supported by
substantial evidence, are not reviewable on appeal by certiorari.^[10]

The foregoing rule is, of
course, subject to certain exceptions such as when there exists a disparity between
the factual findings and conclusions of the Court of Appeals and the trial
court.^[11]
Such a disparity obtains in the present case.

As We see it, SBTC’s theory, which was upheld by the
public respondent, is that the
“Lease Agreement” covering Safe Deposit Box No. 54 (Exhibits “A” and “1”) is
just that — a contract of lease — and not a contract of deposit, and that
paragraphs 9 and 13 thereof, which expressly limit the bank’s liability as
follows:

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

x x x

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,”^[12]

are
valid and binding upon the parties. In
the challenged decision, the public respondent further avers that even without
such a limitation of liability, SBTC should still be absolved from any
responsibility for the damage sustained by the petitioner as it appears that
such damage was occasioned by a fortuitous event and that the respondent bank
was free from any participation in the aggravation of the injury.

We cannot accept this
theory and ratiocination. Consequently,
this Court finds the petition to be impressed with merit.

In the recent case of CA Agro-Industrial Development Corp. vs. Court of Appeals,^[13] this
Court explicitly rejected the contention that a contract for the use of a
safety deposit box is a contract of lease governed by Title VII, Book IV of the
Civil Code. Nor did We fully subscribe
to the view that it is a contract of deposit to be strictly governed by the
Civil Code provision on deposit;^[14] it is, as We declared, a special kind of
deposit. The prevailing rule in
American jurisprudence — that the relation between a bank renting out safe
deposit boxes and its customer with respect to the contents of the box is that of a bailor and bailee, the bailment being for hire and mutual
benefit^[15] — has been adopted in this jurisdiction,
thus:

“In the context of our laws which authorize banking institutions to
rent out safety deposit boxes, it is clear that in this jurisdiction, the
prevailing rule in the United States has been adopted. Section 72 of the General Banking Act [R.A.
337, as amended] pertinently provides:

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

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

x x x

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

Note that the primary function is still found within the parameters
of a contract of deposit, i.e., the receiving in custody of
funds, documents and other valuable objects for safekeeping. The renting out of the safety deposit boxes
is not independent from, but related to or in conjunction with, this principal function. A contract of deposit may be entered into
orally or in writing [Art. 1969, Civil Code] and, pursuant to Article 1306 of
the Civil Code, the parties thereto may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order or public policy. The depositary’s responsibility for the
safekeeping of the objects deposited in the case at bar is governed by Title I,
Book IV of the Civil Code. Accordingly,
the depositary would be liable if, in performing its obligation, it is found
guilty of fraud, negligence, delay or contravention of the tenor of the
agreement [Art. 1170, id.]. In the
absence of any stipulation prescribing the degree of diligence required, that
of a good father of a family is to be observed [Art. 1173, id.]. Hence, any stipulation exempting the
depositary from any liability arising from the loss of the thing deposited on
account of fraud, negligence or delay would be void for being contrary to law
and public policy. In the instant case,
petitioner maintains that conditions 13 and 14 of the questioned contract of
lease of the safety deposit box, which read:

‘13.  The bank is not a depositary of the contents
of the safe and it has neither the possession nor control of the same.

14.  The
bank has no interest whatsoever in said contents, except as herein expressly provided, and it assumes absolutely no
liability in connection therewith.’

are void as they are contrary to law and
public policy. We find Ourselves in agreement
with this proposition for indeed, said provisions are inconsistent with the
respondent Bank’s responsibility as a depositary under Section 72(a) of the
General Banking Act. Both exempt the
latter from any liability except as contemplated in condition 8 thereof which
limits its duty to exercise reasonable diligence only with respect to who shall
be admitted to any rented safe, to wit:

‘8.  The Bank shall use due diligence that no unauthorized
person shall be admitted to any rented safe and beyond this, the Bank will not
be responsible for the contents of any safe rented from it.’

Furthermore, condition 13 stands on a wrong
premise and is contrary to the actual practice of the Bank. It is not correct to assert that the Bank
has neither the possession nor control of the contents of the box since in
fact, the safety deposit box itself is located in its premises and is under its
absolute control; moreover, the respondent Bank keeps the guard key to the said
box. As stated earlier, renters cannot
open their respective boxes unless the Bank cooperates by presenting and using
this guard key. Clearly then, to the
extent above stated, the foregoing conditions in the contract in question are
void and ineffective. It has been said:

‘With respect to property deposited in a safe-deposit box by a
customer of a safe-deposit company, the parties, since the relation is a
contractual one, may by special contract define their respective duties or provide
for increasing or limiting the liability of the deposit company, provided such
contract is not in violation of law or public policy. It must clearly appear that there actually was such a special
contract, however, in order to vary the ordinary obligations implied by law
from the relationship of the parties; liability of the deposit company will not
be enlarged or restricted by words of doubtful meaning. The company, in
renting safe-deposit boxes, cannot exempt itself from liability for loss of the
contents by its own fraud or negligence or that of its agents or
servants, and if a provision of the contract may be construed as an attempt to
do so, it will be held ineffective for the purpose. Although it has been held that the lessor of a safe-deposit box
cannot limit its liability for loss of the contents thereof through its own
negligence, the view has been taken that such a lessor may limit its liability
to some extent by agreement or stipulation.’ [10 AM JUR 2d., 446].” (citations
omitted)^[16]

It must be noted that conditions No. 13 and No. 14 in the
Contract of Lease of Safety Deposit Box in CA Agro-Industrial Development
Corp. are strikingly similar to condition No. 13 in the instant case. On the other hand, both condition No. 8 in CA Agro-Industrial Development
Corp. and condition No. 9 in the present case limit the scope of the
exercise of due diligence by the banks involved to merely seeing to it that
only the renter, his authorized agent or his legal representative should open
or have access to the safety deposit box. In short, in all other situations, it would seem that SBTC is not bound
to exercise diligence of any kind at all. Assayed in the light of Our aforementioned pronouncements in CA
Agro-Industrial Development Corp., it is not at all difficult to conclude
that both conditions No. 9 and No. 13 of the “Lease Agreement” covering the
safety deposit box in question (Exhibits “A” and “1”) must be stricken down for
being contrary to law and public policy as they are meant to exempt SBTC from any
liability for damage, loss or destruction of the contents of the safety deposit
box which may arise from its own or its agents’ fraud, negligence or
delay. Accordingly, SBTC cannot take
refuge under the said conditions.

Public respondent further
postulates that SBTC cannot be held responsible for the destruction or loss of
the stamp collection because the flooding was a fortuitous event and there was
no showing of SBTC’s participation in the aggravation of the loss or injury. It states:

“Article 1174 of the Civil Code provides:

‘Except in cases expressly specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall be responsible for those
events which could not be foreseen, or which, though foreseen, were
inevitable.’

In its dissertation of the phrase ‘caso
fortuito’ the Enciclopedia Juridicada Española^[17]
says: ‘In a legal sense and,
consequently, also in relation to
contracts, a ‘caso fortuito’ prevents (sic)^[18] the following essential
characteristics: (1) the cause of the
unforeseen and unexpected occurrence, or of the failure of the debtor to comply
with his obligation, must be independent of the human will; (2) it must be
impossible to foresee the event which constitutes the ‘caso fortuito,’
or if it can be foreseen, it must be impossible to avoid; (3) the occurrence
must be such as to render it impossible for one debtor to fulfill his
obligation in a normal manner; and (4) the obligor must be free from any participation
in the aggravation of the injury resulting to the creditor.’ (cited in Servando
vs. Phil. Steam Navigation Co., supra).^[19]

Here, the unforeseen or unexpected inundating floods were
independent of the will of the appellant bank and the latter was not shown to
have participated in aggravating damage (sic) to the stamps collection of the appellee. In fact, the appellant bank offered its services to secure the
assistance of an expert to save most of the then good stamps but the appellee
refused and let (sic) these recoverable stamps inside the safety deposit box
until they were ruined.”^[20]

Both the law and
authority cited are clear enough and require no further elucidation. Unfortunately, however, the public
respondent failed to consider that in the instant case, as correctly held by
the trial court, SBTC was guilty of negligence. The facts constituting negligence are enumerated in the petition
and have been summarized in this ponencia. SBTC’s negligence aggravated
the injury or damage to the petitioner
which resulted from the loss or destruction of the stamp collection. SBTC was aware of the floods of 1985 and
1986; it also knew that the floodwaters inundated the room where Safe Deposit
Box No. 54 was located. In view
thereof, it should have lost no time in notifying the petitioner in order that
the box could have been opened to retrieve the stamps, thus saving the same
from further deterioration and loss. In
this respect, it failed to exercise the reasonable care and prudence expected
of a good father of a family, thereby becoming a
party to the aggravation of the injury or loss. Accordingly, the aforementioned fourth characteristic of a
fortuitous event is absent and Article 1170 of the Civil Code, which reads:

“Those who in the performance of their obligations are guilty of
fraud, negligence, or delay, and
those who in any manner contravene the tenor thereof, are liable for damages,”

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

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

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

Costs against the private
respondent.

SO ORDERED.

Feliciano, (Chairman), Bidin, Romero, and Melo, JJ., concur.

^[1]
Rollo, 34-41. Per Associate Justice Lucio L. Victor, concurred in by Associate
Justices Santiago M. Kapunan and Segundino G. Chua.

^[2]
Id., 52-55.

^[3]
Exhibit “A” and “1”, Original Records
of Civil Case No. 87-42601, 87.

^[4]
Rollo, 55.

^[5]
Rollo, 34-36.

^[6]
Rollo, 41.

^[7]
Rollo, 43-49.

^[8]
Id., 17.

^[9]
Id., 63.

^[10]
Rollo, 61, citing Gonzales vs. Court of
Appeals, 90 SCRA 183 [1979].

^[11]
Sacay vs. Sandiganbayan, 142
SCRA 593 [1986]; Remalante vs. Tibe, 158 SCRA 138 [1988]; Medina vs.
Asistio, 191 SCRA 218 [1990].

^[12]
Exhibit “A-1”, Original Records, dorsal
side of page 87.

^[13]
G.R. No. 90027, 3 March 1993.

^[14]
Title XII, Book IV, Civil Code.

^[15]
10 Am Jur 2d, 440-441.

^[16]
Entries in brackets appear as footnotes
in the decision.

^[17]
5 Enciclopedia Juridicada
Española.

^[18]
Should be presents.

^[19]
117 SCRA 832 [1982].

^[20]
Rollo, 40.

^[21]
Rollo, 54.

^[22]
Article 2220, Civil Code.