FACTS:

In this case, the petitioner filed an action for damages against the respondent bank due to the destruction or loss of his stamp collection stored in a safety deposit box rented from the bank. The lease agreement between the petitioner and the bank contained provisions limiting the bank's liability for the contents of the safety deposit box.

The petitioner claimed that the bank failed to exercise the necessary diligence in maintaining the safety deposit box. He argued that the bank was aware of the flooding but did not inform him or take appropriate measures to ensure the safety and maintenance of the box.

The trial court ruled in favor of the petitioner, finding that the bank did not exercise the required diligence. However, the Court of Appeals overturned the trial court's decision, stating that the stipulations in the lease agreement limiting the bank's liability were valid. The Court of Appeals also found no concrete evidence to prove that the bank failed to exercise the necessary diligence.

Not satisfied with the ruling of the Court of Appeals, the petitioner filed a petition disputing the court's findings regarding the bank's failure to exercise diligence and its absolution of the bank from any liability.

ISSUES:

1. Whether the "Lease Agreement" covering the safety deposit box is a contract of lease or a contract of deposit.

2. Whether the bank could be held liable for the damage sustained by the petitioner.

3. Whether the provisions in the Lease Agreement of the safety deposit box exempting SBTC from liability are valid.

4. Whether SBTC can be held liable for the destruction or loss of the stamp collection.

5. Whether SBTC was guilty of negligence in handling the safe deposit box.

6. Whether SBTC can be held liable for damages due to the loss or destruction of the stamp collection.

7. Whether the award of moral damages is proper.

RULING:

1. The "Lease Agreement" covering the safety deposit box is not a contract of lease but a special kind of deposit. It is a bailment for hire and mutual benefit between the bank and its customer.

2. The bank could be held liable for the damage sustained by the petitioner if it is found guilty of fraud, negligence, delay, or contravention of the tenor of the agreement. Any stipulation exempting the bank from liability arising from the loss of the contents of the safety deposit box on account of fraud, negligence, or delay is void for being contrary to law and public policy.

3. The provisions in the Lease Agreement of the safety deposit box exempting SBTC from liability are invalid. The conditions in the contract that seek to exempt SBTC from any liability for damage, loss, or destruction of the contents of the safety deposit box are contrary to law and public policy. SBTC cannot rely on these conditions to avoid liability.

4. SBTC can be held liable for the destruction or loss of the stamp collection. Although the flooding that caused the damage was a fortuitous event, SBTC was found guilty of negligence. SBTC failed to consider that it was negligent in the instant case, as correctly held by the trial court.

5. Yes, SBTC was found guilty of negligence in handling the safe deposit box. They failed to exercise reasonable care and prudence expected of a good father of a family by not notifying the petitioner immediately after they became aware of the floods and the inundation of the room where the safe deposit box was located.

6. SBTC can be held liable for damages due to the loss or destruction of the stamp collection. Article 1170 of the Civil Code provides that those who are guilty of negligence in the performance of their obligations are liable for damages. The loss of the stamp collection caused pecuniary loss to the petitioner and therefore, he must be compensated.

7. The award of moral damages is not proper because there is no proof of fraud or bad faith on the part of SBTC. Since the relationship between the petitioner and SBTC is based on a contract, moral damages can only be awarded for breach of contract if there is fraud or bad faith.

PRINCIPLES:

• A contract for the use of a safety deposit box is a special kind of deposit, not a contract of lease.

• 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 primary function of a bank renting out safety deposit boxes is the receiving in custody of funds, documents, and other valuable objects for safekeeping.

• In the absence of any stipulation prescribing the degree of diligence required, the bank is expected to exercise the diligence of a good father of a family in safeguarding the objects deposited.

• Any stipulation exempting the bank from liability arising from the loss of the contents of the safety deposit box on account of fraud, negligence, or delay is void for being contrary to law and public policy.

• Special contracts between the parties may modify the obligations implied by law, but they cannot exempt a deposit company from liability for its own fraud or negligence.

• The lessor of a safe-deposit box may limit its liability for loss of the contents through an agreement or stipulation, but such limitation must not be in violation of law or public policy.

• A fortuitous event prevents liability if it meets certain characteristics, including being independent of human will, impossible to foresee or avoid, rendering it impossible for the debtor to fulfill their obligation, and the debtor being free from any participation in the aggravation of the injury. However, if the debtor is found to be negligent, they can still be held liable.

• The party who is guilty of negligence in the performance of their obligations can be held liable for damages under Article 1170 of the Civil Code.

• Moral damages can only be awarded for breach of contract if there is proof of fraud or bad faith.