December 03, 2014 !Alright so we continue our discussions regarding bank deposits so remember Article 1980. Fixed, savings and current deposits i banks and similar institutions shall be governed by the provisions concerning simple loan. This is again the kind of deposits in banks are really loans, although as we have learned in the cases we have discussed last night, we are aware that this kind of relation is also known as an irregular deposit. and in fact, we have already noh… in the case that we have discussed last night in compania agricola we also discuss the distinctions between a simple loan and an irregular deposit, again what are these distinctions? !Student A: in irregular deposit ma’am, the only benefit is that which accrues to the depositor, while in a loan, the essential cause for the transaction is the necessity of the borrower. In irregular deposits ma’am the may demand the thing deposited at will whereas in a simple loan ma’am the one who loaned the amount is bound by the provisions of the contract and cannot seek restitution until the time for payment, as provided in the contract. !SUMMARY: !DISTINCTIONS BETWEEN A SIMPLE LOAN AND IRREGULAR DEPOSIT !1.) CONSUMABLE WILL DEMANDABLE AT WILL BY DEPOSITOR: ! Irregular deposit= consumable thing demandable at will by the irregular depositor for whose benefit of the deposit has been constituted ! Simple loan= the lender cannot demand restitution until the time for payment and is bound by the provisions of the contract. !2.) BENEFIT ACCRUES TO THE DEPOSITOR ONLY: ! Irregular deposit = the only benefit is that which accrues to the depositor. ! Simple Loan= the essential cause for the transaction is the necessity of the borrower. AND a loan with a stipulation to pay interest is for the benefit of both parties.

!3.) DEPOSITOR HAS PREFERENCE OVER OTHER CREDITORS: ! Irregular deposit= the depositor has preference over other creditors with respect to the thing deposited. ! Simple loan= common creditors enjoy no preference in the distribution of the debtor’s property. !!!Atty. JS: So what happened in the case of Rogers vs Smith? !Student: In the case of Rogers vs Smith Ma’am !Plaintiff Rogers deposited to respondent Smith 12,000 in gold. It was agreed that the same amount shall bear 8% interest and shall be demandable after six months after notice to rogers. So Rogers here ma’am delivered the amount to smith in gold ma’am so Smith… !Atty. JS: What was the value of this gold? These were actually gold coins. Alright coninue… !Syudent: So smith began to remit the interest to rogers every three months at the interest rate of 8% until January 1988, when they notified Rogers that thereafter the interest rate will be reduced to 6%. Rogers agreed to the reduction and accepted the remittances. But in 1904, Rogers learned about the law passed by the congress that all transactions shall be in accordance with the Gold standard ma’am so therefore Rogers claims that the amount should be in gold because smith here ma’am paid the interest in silver coins. So the issue in this case ma’am is whether or not rogers is entitled to payment in gold? !The SC held no, smith can pay Rogers in silver because the contract in this case ma’am is not one of an irregular deposit but rather one of a loan. (inaudible). The first difference which, he points out consists in the fact that in an irregular deposit the only benefit is that which accrues to the depositor, while in a loan the essential cause for the transaction is the necessity of the borrower. The contract in question does not fulfill this requirement of an irregular deposit. It is very apparent that it was not for the

sole benefit of Rogers. it, like any other loan of money, was for the benefit of both parties. The benefit which Smith, Bell & Co. received was the use of the money; the benefit which Rogers received was the interest on his money. In the letter in which Smith, Bell & Co. on the 30th of June, 1888, notified the plaintiff of the reduction of the interest, they said: "We call your attention to this matter in order that you may if you think best employ your money other place. !Nor does the contract in question fulfill the third requisite indicated by Manresa, which is, that in an irregular deposit, the depositor can demand the return of the article at any time, while a lender is bound by the provisions of the contract and can not seek restitution until the time for payment, as provided in the contract, has arisen. It is apparent from the terms of this document that the plaintiff could not demand his money at any time. He was bound to give notice of his desire for its return and then to wait for six months before he could insist upon payment. !Atty. JS: So what is the obligation here of the debtor really? !Student: To pay ma’am. Because ma’am if its a depositary ma’am Rogers delivered it in gold smith must also deliver it in gold. However, in this case it is not one of a deposit ma’am so you can pay it in its equivalent. !Atty. JS: Alright. Thank you. So the distinctions that were discussed in the case in company agricola are the same distinctions mentioned in this case. Again, in an irregular deposit the only benefit accrues to the debtor. But, in a loan the essential cause of the transaction is the necessity of the borrower. He borrowed money because the debtor needs the money. Now, also in an irregular deposit, the depositor can demand the article at anytime but, in a contract of loan the debtor is bound by there agreement insomuch as he cannot seek restitution. He cannot collect payment until the for payment that they have agreed upon. Also, with regard to an irregular deposit it considered as a preferred claim as compared to a contract of loan. Notice that the parties here kept referring to the agreement as a deposit. in the document that they executed, deposited the sum and the obligation to pay after six months. But again, always go back to the intention of the parties which in this case is clearly is one of a loan. !Atty. JS: What is a nature of a bank deposit? !

Student: It is a loan ma’am. !Atty. JS: A bank deposit is strictly a simple loan? !Student: No ma’am. !Atty. JS: So what happened in the case of BPI vs. CA? !Student: In the case of BPI vs. CA. Herein private respondents Eastern Plywood Corp. and Benigno Lim had a joint bank account with Commercial bank which is the predecessor of BPI. So somewhere in March 1975 ma’am a joint checking account was opened by a certain Mariano Velasco and the funds were withdrawn of Eastern and Mr. Benigno Lim. Now, later when Velasco died there was an outstanding balance of 600,000. So when this happened by virtue of an indemnity undertaking executed by Lim for himself and as President and General Manager of Eastern, one-half of this amount was provisionally released and transferred to one of the bank accounts of Eastern with CBTC. While this was also happening, another loan was obtained by Lim an even in the said loan, it was fully and partly secured by the old account which was referred to the joint account of Velasco and Lim. At the same time there was also a settlement in the estate of Velasco wherein the Court ruled that the certain balance which was the 330,000 pesos shall be given to the Velasco Heirs. And now when BPI took over CBTC it now filed a case demanding the payment of the 75,000 of the loan obtained by Eastern and Lim. However, Eastern and Lim claimed that they must set off the 300,000 from the said 75,000. So in this case the RTC cad dismissed the complaint and the CA affirmed the RTC decision. So the contention of the petitioner ma’am, it alleged that… But first, the RTC ruled that it is the duty of BPI to actually set off the said loan. So they must set off the 75,000 loan from the 300,000 loan from the joint account of Velasco and Lim. So that was the contention of the bank, and at the same time, there was also a counterclaim from the petitioner that they contended that there must be payment of the 300,000 in the part of Lim. So the issue n this case ma’am is whether or not BPI can…there are actually two issues in this case… !Atty. JS: With regard to our topic, what is the main issue? !Student: Whether or not…. !

Atty. JS: What happened to the money in the joint account of Lim and Velasco? !Student: It was withdrawn or given ma’am to the heirs of Velasco based on the settlement of the estate of Velasco. !Atty. JS: Was the release of the bank of 1/2 of that account in favor of the Heirs of Velasco, was it proper? !Student: According to the SC ma’am it was not proper ma’am/ It was not proper ma’am because according to the court clearly ma’am, the said account was also of eastern and not just of Velasco. !Atty. JS: What rule was taken into consideration that the account really belongs to Eastern and not to Lim and velasco? Because again, the account name is under the name of Lim and Velasco so if you take a look at it the Heirs of Velasco would have a right over it. What was the basis of the court in saying that the Heirs of Velasco does not have the right over it and tha it is actually eastern who owns it? What was the basis? You have to consider the basis otherwise you cannot determine the liability on the part of the bank in releasing the money in favor of the heirs. !Atty. JS: Is the bank liable in releasing the amount to the Heirs of Velasco? !Student: Yes ma’am. They are liable ma’am. !Atty. JS: Why? !Student: Because of the hold-out agreement. !Atty. JS: Okay, what is there in the hold-out agreement? !Student: In the said agreement ma’am the bank cannot be compelled to retain or apply the deposit to the joint account of Lim and Velasco ma’am. !Atty. JS: SO do we have a bank deposit here? Who is the depositor? !Student: The depositor is Eastern ma’am. !Atty. JS: What is the obligation of the bank, BPI to Eastern as a depositor?

!Student: It has the obligation to return the amount upon demand ma’am. !Atty. JS: Alright, Thank you. Now, remember the nature of bank deposits are irregular deposits, they are still deposits in a sense that the depositor put the money in the bank for safekeeping. But, notice that what is to be returned upon demand is not the exact thing itself but actually the value thereof. And, what happens to the money deposited here by the depositor , Because it was acknowledged here in the bank, they know that the amount therein did not really pertain to Velasco but in fact remains to be with Eastern. With that hold-up agreement there is an acknowledgement that they know they are aware that the owner or depositor thereof is actually Lim and Eastern therefore having knowledge who are the rightful owners thereto then the petitioner BPI should not have allowed such withdrawal in favor of the heirs because it was already admitted in the hold-up agreement the question to ownership in the money deposited in the account. !Atty. JS: Student 3, what happened in the case of metro bank? Student 3: In the case of Metrobank vs BA Finance ma’am, Bitanga here loaned from BA Finance PHP 329,280.00 and was secured by his car. The car was insured with Malayan Insurance however the car was lost ma’am. So Bitanga here asked Malayan Insurance for the amount of the insured car. Malayan through its bank paid Bitanga’s account with BA Finance as co payee. However Bitanga deposited the check to Asian Corporation and although in the check both bitangga and BA Finance were payees, Bitangga deposited in Metrobank and withdrawn the same without the knowledge of BA Finance. Atty. JS: What happened to the proceeds of the check? Deposited to Bitangga diva? What Happened after? Student 3: Later on ma’am BA Finance learned that the car was stolen therefore it asked for the claim against Malayan Insurance. However, Malayan said that they had already paid or released the amount as per the insurance. So BA Finance proceeded to Metrobank to claim but again the bank said that the check has already been withdrawn by Bitangga. Atty. JS: So what is the issue here? Student 3: The issue in this case ma’am, is whether or not Metrobank is liable to pay BA Finance? Atty. JS: What is the basis here for the liability of Metrobank to BA Finance? Student 3: The basis here ma’am is that Metrobank as a banking institution holds a fiduciary nature whereas that before it released the proceeds of the

check to Bitangga it should have first checked with BA Finance if Bitangga alone had the authority to withdraw the proceeds of the check. Atty. JS: Now what is the required diligence of a bank? Student 3: Highest form of diligence ma’am. Atty. JS: Alright, highest form of diligence because it is imbued with public interest. So considering that the bank was not diligent in releasing the check to Bitangga, the Bank is liable. Now, what is the relationship here between Metrobank and BA Finance? Student 3: It is a contract of agency ma’am. Atty. JS: Why Agency? Student 3: Because…. Atty. JS: Who is the principal and who is the agent? Student 3: The Principal ma’am is BA Finance and Metrobank as the agent because through Metrobank ma’am BA Finance can collect the amount of the insured car with Malaya Insurance. Atty. JS: So the basis of the liability here on the part of the bank is from the fact that the bank is an agent of BA Finance. So what is the relevance here with regard to the liability, why do we have to determine the relationship between BA Finance and the Bank? Student 3: For the liability on the part of the bank to exist ma’am there must be trust ma’am between BA Finance and the bank ma’am to which the bank negligently allowed to withdraw the full amount of the check, without verifying with BA Finance if Bitangga was authorized to do so ma’am. Atty. JS: Is the bank here liable for interest? Student 3: Yes ma’am. 6% percent ma’am because it was not a loan ma’am and ….(inaudibe) Atty. JS: Take note class that this case was decided in 2009. So 6% from demand and 12% from the finality of judgment. Alright, Thank you. SO what do we have here? In relation to negotiable instrument we have here the concept of a cross check. A check with two parallel lines found at the upper left corner of the check. There are three effects of such cross check: 1.) that it was issued for a specific purpose 2.) it cannot be encashed but only be deposited to the payee’s account 3.) limited negotiation of the cross check. So the liability here of the bank is it allowed the proceeds of the check to be deposited to Bitangga even though there were two payees therein. In other words for it to be deposited in favor of the account of Bitangga dapat dalawa young endorsement from a rep. of BA Finance and Bitangga, Pwede si Bitangga lang as long as he is also authorized by BA Finance

where such authority s clearly absent in this case. TAKE NOTE that the banking business is very much imbued with public interest therefore it must observe the highest form of diligence and highest standard of integrity and performance. These are required of a bank to maintain the trust and confidence of the public. Do take not that Article 1980 is NOT applicable here because we are not taling about a bank deposit. BA Finance is not a depositor of Metrobank and therefore their relationship cannot be considered as that of a contract of loan but rather an agency wherein the bank is considered a collecting bank an agent of BA Finance with the obligation to collect from BA Finance the corresponding proceeds of the check. And its relevance since it is an agency it is not a forbearance of money the interest rate applicable is 6% from extrajudicial demand until finality of the judgment and 12% from finality and payment. Again, this is promulgated in 2009. What Happened in the case of Reyes vs. CA? Student 4: In the case of Reyes vs. CA, the facts are as follows, Philippine Racing Club Inc. sent 4 delegates to Sydney, AUS for the Asian Racing Conference. Petitioner Gregorio H. Reyes, as vice-president for finance, racing manager, treasurer, and director of PRCI, ordered Godofredo Reyes, the club’s chief cashier, to the respondent bank to apply for a foreign exchange demand draft in Australian dollars. So Godofredo approached Far East Bank and initially Far East Bank denied its application because Reyes had no foreign acct. but after due consideration they established an agreement wherein Far East would draw a demand draft against Westpac Bank in Sydney which again would be reimbursed by Westpac Bank in NY. So understanding that they had already had an agreement when Godofredo Reyes went to Sydney he presented the demand draft but said draft was rejected by Westpac saying that the individual does not have an account in their bank. SO Far East contacted Westpac saying that they were to suppose to issue the demand draft which will be reimbursed by Westpac bank New York branch. However, despite of such notice, the petitioner trying again to withdraw from Westpac, he was again rejected so when they went to the Conference when Godofredo Reyes was denied admission because apparently he had not yet paid their admission fee to the said event. Afterwards, Consuelo Reyes, his wife, was also denied admission but Godofredo came in to an agreement that he would just pay the amount in cash. so ager the event, Godofredo and Consuelo Reyes filed a case against Far East Bank for the failure of Far East to uphold the agreement which was the demand draft with Westpac Bank Aus.

So the issue in this case ma’am, whether or not Far East Bank can be held liable for negligence ma’am. In this case the SC held that Far East. cannot be held liable nor negligent especially through the bank’s efforts, it tried its best to make contact with Westpac. And furthermore, it was discovered that the Westpac AUS. did not that there was indeed a demand draft by Far East to Westpac but the same was dishonored because Westpac NY was not able to communicate the same to AUS. So the source of the miscommunication was not in fact Far East Bank but Westpac Bank NY ma’am. Atty. JS: What is the standard of diligence required here? Student 4: In this case ma’am the general rule is that a bank s required tp exercise extraordinary diligence but in this case since it is not wherein the bank was supposed to act under in fiduciary capacity it does not apply in this case ma’am. What applies in this case is that… Atty. JS: What kind of diligence is required under the facts of this case?] Student 4: Diligence of a good father of family ma’am. Atty. JS: Because what is the nature of the contract here between the spouses Reyes and Far East? Student 4: Uhm it is merely a contract of sale an not one of a deposit ma’am. Atty. JS: What is the required diligence from the bank here? Only Diligence of a good father of a family. As I mentioned earlier what is involved is an irregular deposit. What is required from the bank is the highest degree of diligence because it involves a banking transaction imbued with public interest. In this case, what is involved is not a contract of deposit or irregular deposit but rather a contract of sale. You pay to the bank and the bank will issue a draft and you will have a demand draft and transmit it to in this case to Australia. The bank exercised ordinary diligence of a good father of a family and that is enough for them to be not held liable for damages because they need not require the highest degree of care, only ordinary diligence under the circumstances. Because the contractual relation between Spouses Reyes and Far East is really that of a contract of sale. So the employees of the bank did everything they could under the circumstances and actually the error was not on their part but rather on the employee of West-Pac Sydney in Australia by having made the SWIFT CODE erroneously transmitted. So here, what is involve is a contract of sale or contract or purchase, respondent bank is not required to exert the diligence more than that of a good father of a family. This case does not involve of the handling of the petitioners deposit as what is involve is that of a buyer and a seller.

Respondent Bank acted in good faith and therefore it would not be held liable for damages. Student 5, what happened in the case of Guingona? Student 5: In the case of Guingona vs. City Fiscal ma’am, the private respondent here ma’am invested with an Agency (inaudible and name ng agency) the sum of 1,145,446.20 in nine deposits of 13,531 and amount of $10,000 deposits among other things and that David was induced into making the aforestated investments by Robert Marshall an Australian national who was allegedly a close associate of petitioner Guingona Jr., then NSLA President. So NSLA was subsequently was placed as a receivership of the Central Bank and David files his claims against the Bank and along with David, his sister, However, Guingona and Martin here, assumed the Bank’s obligation to David through executing a joint promissory note in favor of David amounting to 1,336,614 and $75,000. One promissory note executed by Guingona and Martin was based on the statement of account issued on June 1981 prepared by respondents. However ma’am, it appears of indebtedness assumed to be bigger than the original (given?) cost with interest and with the inclusion of deposits of private respondent’s sister. However, they agreed to divide the indebtedness and Guingona executed another promissory note antedating a certain amount in favor of private respondent and David subsequently required from Central Bank that 5,000 of those investments be entered into the NSLA. so David filed with the City Fiscal charging the petitioners with Estafa and a violation of Central Bank circular 364. So the petitioner’s here ma’am moved to dismiss the charges filed against them for lack of jurisdiction because David’s claim allegedly complies with (inaudible). However, the motion was dismissed by the City Fiscal. However, after the presentation of David of his first witness for a hearing on the motion for a prohibition and writ of mandatory injunction. However, records show that the contractual relations between David and respondents were that of simple loans. The issue here ma’am is whether the contracts perfected here ma’am were contracts of that of a simple loan? And, the SC said yes. Atty. JS: Why would that be relevant? The determination of what kind of contract? Student 4: It would be relevant ma;am in order to determine the criminal liability of guingona and martin ma’am. Atty. JS: In this case if it was really a loan, what is the effect on the case of estafa? Student 4: If it was a loan ma’am, the respondents would be held liable.

Atty. JS: If it is a loan? Are you sure? What happens in a simple loan? Student 4: Ay, if it is a loan ma’am…ay di papa ma’am. If it is a contract of deposit then the petitioner’s here would be liable for estafa but if it is a loan they would not be held liable because in a contract of loan the obligation is only to return the same amount of the same kind and quality ma’am. Atty. JS: What is the basis of the liability for estafa? Student 4: The basis for the liability of estafa ma’am is the misappropriation of the said amount of ma’am. So in this case ma’am since it was a contact of simple loan and not a deposit, Guingona and Martin are not liable for estafa. Atty. JS: But they do have civil liability right? So what is involved here is a simple loan or an irregular deposit. Again if what is involved is an irregular deposit which is considered as a contract of simple loan because they earn interests. So the relationship is one of debtor creditor, as such a failure of one to fulfill his obligation as a debtor will only give rise to a civil liability and not criminal liability of Estafa. Remember that in a simple loan there is a transfer of ownership. So one can really use what he has received by virtue of that transfer of ownership. So if you’re demanding for payment, you are not demanding for the return of what you have deposited but only the payment of the same amount of the same kind and quality. The bank, the debtor in this case will have its obligation but only civil in nature, there is no estafa because there was no misappropriation where in this case the fiscal has no jurisdiction. However in this case the bank is civilly liable but considering that there was already novation of the contract, it is now Guingona and Martin in their respective personal capacity which should be held civilly liable otherwise if there is no novation the bank will be liable. Why? Because there was a prior agreement execute by Guingona and Martin that they will assume or answer of the obligation. So no breach of trust, no liability for estafa, civil liability is what is present. Student 5: What is escrow? Student 5: Escrow ma’am is (inaudible na dyud siya) Atty. JS: Can money be subject to an agreement of escrow? What happened in the case of Province vs. Villafuerte? Student 5: In this case ma’am, (inaudible siya) i’ll add the digest instead !!Province of Bataan vs. Villafuerte

(G.R. No. 129995, October 19, 2001)

FACTS:

In its order, the lower court directed that petitioner Province of Bataan to remit to said court whatever lease rentals petitioner may receive from lessees 7-R Port and Marina Port Services, and that such lease rentals be placed under a special time deposit with the Land Bank for the account of the RTC-Balanga Branch 4, in escrow, for the person or persons, natural or juridical, who may be adjudged lawfully entitled thereto. The order denied herein petitioner’s motion for reconsideration of the 28 July, 1993 order.

Pursuant to Presidential Decree No. 464, otherwise known as the Real Property Tax Code of 1974, the Provincial Treasurer of Bataan advertised for auction sale the BASECO property due to real estate tax delinquency amounting to P7,914,281.72, inclusive of penalties. At the auction sale, no bidder vied for said property as a result of which, the Provincial Treasurer of Bataan adjudged the property to, and acquired the same for, and in the name of herein petitioner Province of Bataan. Upon the expiration of the one-year redemption period, and without the owner exercising its right to redeem the subject property, the Provincial Government of Bataan consolidated its title thereon; the corresponding certificates of title were then issued in the name of herein petitioner Province of Bataan.

Eventually, petitioner, thru then Provincial Governor Enrique T. Garcia, entered into a ten-year contract of lease with 7-R Port Services, Inc., whereby portions of the BASECO property including facilities and improvements thereon, were leased to the latter for a minimum escalating annual rental of P18 million. Petitioner forged another contract of lease with Marina Port Services, over a ten-hectare portion of the BASECO property. Private respondent filed for annulment of sale, principally assailing the validity of the tax delinquency sale of the BASECO property in favor of petitioner Province of Bataan. PCGG filed for writ of preliminary injunction to enjoin herein petitioner “from entering into a lease contract with Marina Port Services, Inc. (Marina), or any other entity, and/or from implementing/enforcing such lease contract, if one has already been executed, and to maintain the status quo until further orders from the Court.”

The lower court denied the motion ratiocinating that the lease contract with Marina was already afait accompli when the motion was filed, and that Marina was not a party to the suit for not having been impleaded as party- defendant.

The PCGG filed with the lower court an “Urgent Motion to Deposit Lease Rentals,” alleging inter alia that the rentals amounting to “Hundreds of Millions of Pesos” are “in danger of being unlawfully spent, squandered and dissipated to the great and irreparable damage of plaintiffs who are the rightful owners of the property leased.”

The lower court granted the PCGG’s urgent motion and ordered the defendant Province of Bataan to remit to the court the lease rentals it may receive from the defendant Port

Services and the Marina Port Services from the receipt of this order. It also ordered the clerk of court to deposit the amount under special time deposit with the Land Bank in the name or account of the Court to be held in trust for the person, natural or juridical, who may lawfully be entitled thereto.

ISSUE: WON the deposit of rentals in escrow was proper. YES

HELD:

In the main, petitioner insists that the issuance of the escrow order by the trial court “was patently irregular, if not downright anomalous”, reasoning that “nowhere in the Revised Rules of Court is the trial court, or any court for that matter, authorized to issue such escrow order, whether as a provisional or permanent remedy.” According to petitioner, “the escrow orders in question are null and void ab initio for having been issued absent any legal basis” and are “merely calculated to prejudice the petitioner province without any practical or worthwhile, much less legal objective.”

The court does not agree. An escrow fills a definite niche in the body of the law; it has a distinct legal character. The usual definition is that an escrow is a written instrument which by its terms imports a legal obligation and which is deposited by the grantor, promisor, or obligor, or his agent with a stranger or third party, to be kept by the depositary until the performance of a condition or the happening of a certain event, and then to be delivered over to the grantee, promisee, or obligee.

While originally, the doctrine of escrow applied only to deeds by way of grant, or as otherwise stated, instruments for the conveyance of land, under modern theories of law, the term escrow is not limited in its application to deeds, but is applied to the deposit of any written instrument with a third person. Particular instruments which have been held to be the subject of an escrow include bonds or covenants, deeds, mortgages, oil and gas leases, contracts for the sale of land or for the purchase of personal property, corporate stocks and stock subscriptions, promissory notes or other commercial paper, insurance applications and policies, contracts for the settlement of will-contest cases, indentures of apprenticeship, receipts assigning concessions and discontinuances and releases of causes of action. Moreover, it is no longer open to question that money may be delivered in escrow.

“ X X X the impugned orders appear to us as a fair response to the exigencies and equities of the situation. Parenthetically, it is not disputed that even before the institution of the case, the Province of Bataan has been utilizing the rental payments on the Baseco Property to meet its financial requirements. To us, this circumstance adds a more compelling dimension for the issuance of the assailed orders. X X X”

Applying the foregoing principles and considering the peculiarities of the instant case, the lower court, in the course of adjudicating and resolving the issues presented in the main suit, is clearly empowered to control the proceedings therein through the adoption, formulation and issuance of orders and other ancillary writs, including the authority to place the properties in custodia legis, for the purpose of effectuating its judgment or decree and protecting further the interests of the rightful claimants of the subject property.

To trace its source, the court’s authority proceeds from its jurisdiction and power to decide, adjudicate and resolve the issues raised in the principal suit. Stated differently, the deposit of the rentals in escrow with the bank, in the name of the lower court,“is only an incident in the main proceeding.” To be sure, placing property in litigation under judicial possession, whether in the hands of a receiver, and administrator, or as in this case, in a government bank is an ancient and accepted procedure. Consequently, we find no cogency to disturb the questioned orders of the lower court and in effect uphold the propriety of the subject escrow orders.

Atty. JS: Why was the action for an escrow here necessary? !Student 5: To avoid the misuse of the rentals ma’am because it was not yet determined who was the owner of the rentals ma’am. !Atty. JS: So essentially escrow here can be considered a deposit diba? And when will the amour subject to the escrow here be released? !Student 5: The amount will be released upon the finality of the judgment as to who the real owners are or who is entitled to such rentals ma’am. !Atty. JS: So you have here the term escrow, a legal instrument which by its terms imports a legal obligation and which is deposited by the grantor, promisor, or his agent to a stranger or third party who is a bank to be kept by the depositary until the performance of the obligation or the happening of a certain event and then deliverd by the grantee or obligee. An escrow is not limited in its application to things, it can be any instrument of any kind deposited to a third person, such as bonds, contracts, commercial paper, insurance, promissory notes and also money as in this case. In this case the happening of the certain event is the determination by the court who has the right over the rents. So pending the determination of who has the rights over the said rentals the same are subject to escrow. Just take note there that the contract is similar to a contract of deposit. ! Now let’s have Article 1981 and 1982.

!Art. 1981. When the thing deposited is delivered closed and sealed, the depositary must return it in the same condition, and he shall be liable for damages should the seal or lock be broken through his fault. Fault on the part of the depositary is presumed, unless there is proof to the contrary. !As regards the value of the depositary is presumed, unless there is proof to the contrary. As regards the value of the thing deposited, the statement of the depositor shall be accepted, when the forcible opening is imputable to the depositary, should there be no proof to the contrary. However, the courts may pass upon the credibility of the depositor with respect to the value claimed by him. When the seal or lock is broken, with or without the depositary's fault, he shall keep the secret of the deposit. (1769a) !Article 1982. When it becomes necessary to open a locked box or receptacle, the depositary is presumed authorized to do so, if the key has been delivered to him; or when the instructions of the depositor as regards the deposit cannot be executed without opening the box or receptacle. (n) !Alright, so here we have the obligation of a depositary when the thing deposited is sealed or locked. So what are they? !1.) Return the thing deposited when delivered closed and sealed in the same condition !2.) Must pay for damages should the seal or lock be broken through his fault (in case it is broken there is a prima facie presumption that it is through his fault and he has the burden of proof to prove otherwise.) 3.) To keep secret of the deposit, when the seal or lock is broken with or without the depositary’s fault. ( when the seal or lock is broken it is not sufficient for the depositary to keep secret the deposit, by exercising the diligence as required from a depositary he must also inform the depositor with regard the condition of the said subject matter.)!These are the obligations of the depositary because based from trust and confidence.

Remember ha the presumption here is that the depositary is at fault if the seal or lock is broken. However, take note if 1982, there is a necessity on the part of the depositor to open it if the key of the lock was delivered to him.

Article 1983. The thing deposited shall be returned with all its products, accessories and accessions.

Should the deposit consist of money, the provisions relative to agents in article 1896 shall be applied to the depositary. !So again there is no transfer of ownership in a contract of deposit. Depositor is still the owner or represent the owner of the thing deposited because again it is not required the the depositor be the owner of the thing deposited. Now on the part of the depositary is to return the thing itself plus the products, the fruits along with all it accessions and accessories which are a consequence of ownership. Also remember as we have discussed before, depositary has no right to make use of the thing, so obligation to deliver. If the depositary is in delay or has used the money, he will be liable for interest as indemnity from the day which he did so and from the day of which he still owes until the extinguishment of the contract of deposit. !!!!!!!!!!! !

!!!