[G.R. No. 103576.

August 22, 1996]

ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC, petitioners,
vs. HON. COURT OF APPEALS, PRODUCERS BANK OF THE PHILIPPINES and
REGIONAL SHERIFF OF CALOOCAN CITY, respondents.
D E C I S I O N

VITUG, J.:
Would it be valid and effective to have a clause in a chattel
mortgage that purports to likewise extend its coverage to
obligations yet to be contracted or incurred? This question is the
core issue in the instant petition for review on certiorari.
Petitioner Chua Pac, the president and general manager of co-
petitioner "Acme Shoe, Rubber & Plastic Corporation," executed on
27 June 1978, for and in behalf of the company, a chattel mortgage
in favor of private respondent Producers Bank of the
Philippines. The mortgage stood by way of security for
petitioner's corporate loan of three million pesos
(P3,000,000.00). A provision in the chattel mortgage agreement was
to this effect -
"(c) If the MORTGAGOR, his heirs, executors or administrators shall
well and truly perform the full obligation or obligations above-
stated according to the terms thereof, then this mortgage shall be
null and void. x x x.
"In case the MORTGAGOR executes subsequent promissory note or notes
either as a renewal of the former note, as an extension thereof,
or as a new loan, or is given any other kind of accommodations
such as overdrafts, letters of credit, acceptances and bills of
exchange, releases of import shipments on Trust Receipts, etc.,
this mortgage shall also stand as security for the payment of the
said promissory note or notes and/or accommodations without the
necessity of executing a new contract and this mortgage shall have
the same force and effect as if the said promissory note or notes
and/or accommodations were existing on the date thereof. This
mortgage shall also stand as security for said obligations and any
and all other obligations of the MORTGAGOR to the MORTGAGEE of
whatever kind and nature, whether such obligations have been
contracted before, during or after the constitution of this
mortgage."[1]
In due time, the loan of P3,000,000.00 was paid by petitioner
corporation. Subsequently, in 1981, it obtained from respondent
bank additional financial accommodations totalling
P2,700,000.00.[2] These borrowings were on due date also fully
paid.
On 10 and 11 January 1984, the bank yet again extended to
petitioner corporation a loan of one million pesos (P1,000,000.00)
covered by four promissory notes for P250,000.00 each. Due to
financial constraints, the loan was not settled at
maturity.[3] Respondent bank thereupon applied for an extrajudicial
foreclosure of the chattel mortgage, hereinbefore cited, with the
Sheriff of Caloocan City, prompting petitioner corporation to
forthwith file an action for injunction, with damages and a prayer
for a writ of preliminary injunction, before the Regional Trial
Court of Caloocan City (Civil Case No. C-12081). Ultimately, the
court dismissed the complaint and ordered the foreclosure of the
chattel mortgage. It held petitioner corporation bound by the
stipulations, aforequoted, of the chattel mortgage.
Petitioner corporation appealed to the Court of
Appeals[4] which, on 14 August 1991, affirmed, "in all respects,"
the decision of the court a quo. The motion for reconsideration
was denied on 24 January 1992.
The instant petition interposed by petitioner corporation was
initially denied on 04 March 1992 by this Court for having been
insufficient in form and substance. Private respondent filed a
motion to dismiss the petition while petitioner corporation filed
a compliance and an opposition to private respondent's motion to
dismiss. The Court denied petitioner's first motion for
reconsideration but granted a second motion for reconsideration,
thereby reinstating the petition and requiring private respondent
to comment thereon.[5]
Except in criminal cases where the penalty of reclusion
perpetua or death is imposed[6] which the Court so reviews as a
matter of course, an appeal from judgments of lower courts is not
a matter of right but of sound judicial discretion. The circulars
of the Court prescribing technical and other procedural
requirements are meant to weed out unmeritorious petitions that
can unnecessarily clog the docket and needlessly consume the time
of the Court. These technical and procedural rules, however, are
intended to help secure, not suppress, substantial justice. A
deviation from the rigid enforcement of the rules may thus be
allowed to attain the prime objective for, after all, the
dispensation of justice is the core reason for the existence of
courts. In this instance, once again, the Court is constrained to
relax the rules in order to give way to and uphold the paramount
and overriding interest of justice.
Contracts of security are either personal or real. In contracts
of personal security, such as a guaranty or a suretyship, the
faithful performance of the obligation by the principal debtor is
secured by the personal commitment of another (the guarantor or
surety). In contracts of real security, such as a pledge, a
mortgage or an antichresis, that fulfillment is secured by
an encumbrance of property- in pledge, the placing of movable
property in the possession of the creditor; in chattel mortgage,
by the execution of the corresponding deed substantially in the
form prescribed by law; in real estate mortgage, by the execution
of a public instrument encumbering the real property covered
thereby; and in antichresis, by a written instrument granting to
the creditor the right to receive the fruits of an immovable
property with the obligation to apply such fruits to the payment
of interest, if owing, and thereafter to the principal of his
credit - upon the essential condition that if the principal
obligation becomes due and the debtor defaults, then the property
encumbered can be alienated for the payment of the
obligation,[7] but that should the obligation be duly paid, then
the contract is automatically extinguished proceeding from the
accessory character[8] of the agreement. As the law so puts it,
once the obligation is complied with, then the contract of security
becomes, ipso facto, null and void.[9]
While a pledge, real estate mortgage, or antichresis may
exceptionally secure after-incurred obligations so long as these
future debts are accurately described,[10] a chattel mortgage,
however, can only cover obligations existing at the time the
mortgage is constituted. Although a promise expressed in a chattel
mortgage to include debts that are yet to be contracted can be a
binding commitment that can be compelled upon, the security itself,
however, does not come into existence or arise until after a
chattel mortgage agreement covering the newly contracted debt is
executed either by concluding a fresh chattel mortgage or by
amending the old contract conformably with the form prescribed by
the Chattel Mortgage Law.[11] Refusal on the part of the borrower
to execute the agreement so as to cover the after-incurred
obligation can constitute an act of default on the part of the
borrower of the financing agreement whereon the promise is written
but, of course, the remedy of foreclosure can only cover the debts
extant at the time of constitution and during the life of the
chattel mortgage sought to be foreclosed.
A chattel mortgage, as hereinbefore so intimated, must comply
substantially with the form prescribed by the Chattel Mortgage Law
itself. One of the requisites, under Section 5 thereof, is an
affidavit of good faith. While it is not doubted that if such an
affidavit is not appended to the agreement, the chattel mortgage
would still be valid between the parties (not against third persons
acting in good faith[12]), the fact, however, that the statute has
provided that the parties to the contract must execute an oath
that -
"x x x (the) mortgage is made for the purpose of securing the
obligation specified in the conditions thereof, and for no other
purpose, and that the same is a just and valid obligation, and one
not entered into for the purpose of fraud."[13]
makes it obvious that the debt referred to in the law is a current,
not an obligation that is yet merely contemplated. In the chattel
mortgage here involved, the only obligation specified in the
chattel mortgage contract was the P3,000,000.00 loan which
petitioner corporation later fully paid. By virtue of Section 3 of
the Chattel Mortgage Law, the payment of the obligation
automatically rendered the chattel mortgage void or
terminated. In Belgian Catholic Missionaries, Inc., vs. Magallanes
Press, Inc., et al.,[14] the Court said -
"x x x A mortgage that contains a stipulation in regard to future
advances in the credit will take effect only from the date the
same are made and not from the date of the mortgage."[15]
The significance of the ruling to the instant problem would be
that since the 1978 chattel mortgage had ceased to exist
coincidentally with the full payment of the P3,000,000.00
loan,[16] there no longer was any chattel mortgage that could cover
the new loans that were concluded thereafter.
We find no merit in petitioner corporation's other prayer that
the case should be remanded to the trial court for a specific
finding on the amount of damages it has sustained "as a result of
the unlawful action taken by respondent bank against it."[17] This
prayer is not reflected in its complaint which has merely asked
for the amount of P3,000,000.00 by way of moral damages.[18] In LBC
Express, Inc. vs. Court of Appeals,[19] we have said:
"Moral damages are granted in recompense for physical suffering,
mental anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation, and similar
injury. A corporation, being an artificial person and having
existence only in legal contemplation, has no feelings, no
emotions, no senses; therefore, it cannot experience physical
suffering and mental anguish. Mental suffering can be experienced
only by one having a nervous system and it flows from real ills,
sorrows, and griefs of life - all of which cannot be suffered by
respondent bank as an artificial person."[20]
While Chua Pac is included in the case, the complaint, however,
clearly states that he has merely been so named as a party
in representation of petitioner corporation.
Petitioner corporation's counsel could be commended for his
zeal in pursuing his client's cause.It instead turned out to be,
however, a source of disappointment for this Court to read in
petitioner's reply to private respondent's comment on the petition
his so-called "One Final Word;" viz:
"In simply quoting in toto the patently erroneous decision of the
trial court, respondent Court of Appeals should be required to
justify its decision which completely disregarded the basic laws
on obligations and contracts, as well as the clear provisions of
the Chattel Mortgage Law and well-settled jurisprudence of this
Honorable Court; that in the event that its explanation is wholly
unacceptable, this Honorable Court should impose appropriate
sanctions on the erring justices. This is one positive step in
ridding our courts of law of incompetent and dishonest magistrates
especially members of a superior court of appellate
jurisdiction."[21] (Italics supplied.)
The statement is not called for. The Court invites counsel's
attention to the admonition in Guerrero vs. Villamor;[22] thus:
"(L)awyers x x x should bear in mind their basic duty `to observe
and maintain the respect due to the courts of justice and judicial
officers and x x x (to) insist on similar conduct by others.' This
respectful attitude towards the court is to be observed, `not for
the sake of the temporary incumbent of the judicial office, but
for the maintenance of its supreme importance.' And it is `through
a scrupulous preference for respectful language that a lawyer best
demonstrates his observance of the respect due to the courts and
judicial officers x x x.'"[23]
The virtues of humility and of respect and concern for others must
still live on even in an age of materialism.
WHEREFORE, the questioned decisions of the appellate court and
the lower court are set aside without prejudice to the appropriate
legal recourse by private respondent as may still be warranted as
an unsecured creditor. No costs.
Atty. Francisco R. Sotto, counsel for petitioners, is
admonished to be circumspect in dealing with the courts.
SO ORDERED.
Kapunan and Hermosisima, Jr., JJ., concur.
Padilla, J., took no part in view of lessor-lessee relationship
with respondent bank.
Bellosillo, J., on leave.
FIRST DIVISION
[G.R. No. 146364. June 3, 2004]

COLITO T. PAJUYO, petitioner, vs. COURT OF APPEALS and EDDIE

GUEVARRA, respondents.
D E C I S I O N
CARPIO, J.:

The Case

Before us is a petition for review[1] of the 21 June 2000

Decision[2] and 14 December 2000 Resolution of the Court of Appeals
in CA-G.R. SP No. 43129. The Court of Appeals set aside the 11
November 1996 decision[3] of the Regional Trial Court of Quezon
City, Branch 81,[4] affirming the 15 December 1995 decision[5] of
the Metropolitan Trial Court of Quezon City, Branch 31.[6]

The Antecedents

In June 1979, petitioner Colito T. Pajuyo (Pajuyo) paid P400 to a

certain Pedro Perez for the rights over a 250-square meter lot in
Barrio Payatas, Quezon City. Pajuyo then constructed a house made
of light materials on the lot. Pajuyo and his family lived in the
house from 1979 to 7 December 1985.

On 8 December 1985, Pajuyo and private respondent Eddie Guevarra

(Guevarra) executed a Kasunduan or agreement. Pajuyo, as owner of
the house, allowed Guevarra to live in the house for free provided
Guevarra would maintain the cleanliness and orderliness of the
house. Guevarra promised that he would voluntarily vacate the
premises on Pajuyos demand.

In September 1994, Pajuyo informed Guevarra of his need of the

house and demanded that Guevarra vacate the house. Guevarra
refused.

Pajuyo filed an ejectment case against Guevarra with the

Metropolitan Trial Court of Quezon City, Branch 31 (MTC).

In his Answer, Guevarra claimed that Pajuyo had no valid title or

right of possession over the lot where the house stands because
the lot is within the 150 hectares set aside by Proclamation No.
137 for socialized housing. Guevarra pointed out that from December
1985 to September 1994, Pajuyo did not show up or communicate with
him. Guevarra insisted that neither he nor Pajuyo has valid title
to the lot.
On 15 December 1995, the MTC rendered its decision in favor of
Pajuyo. The dispositive portion of the MTC decision reads:

WHEREFORE, premises considered, judgment is hereby rendered for

the plaintiff and against defendant, ordering the latter to:

A) vacate the house and lot occupied by the defendant or any other
person or persons claiming any right under him;

B) pay unto plaintiff the sum of THREE HUNDRED PESOS (P300.00)

monthly as reasonable compensation for the use of the premises
starting from the last demand;

C) pay plaintiff the sum of P3,000.00 as and by way of attorneys

fees; and

D) pay the cost of suit.

SO ORDERED.[7]

Aggrieved, Guevarra appealed to the Regional Trial Court of Quezon

City, Branch 81 (RTC).

On 11 November 1996, the RTC affirmed the MTC decision. The

dispositive portion of the RTC decision reads:

WHEREFORE, premises considered, the Court finds no reversible

error in the decision appealed from, being in accord with the law
and evidence presented, and the same is hereby affirmed en toto.

SO ORDERED.[8]

Guevarra received the RTC decision on 29 November 1996. Guevarra

had only until 14 December 1996 to file his appeal with the Court
of Appeals. Instead of filing his appeal with the Court of Appeals,
Guevarra filed with the Supreme Court a Motion for Extension of
Time to File Appeal by Certiorari Based on Rule 42 (motion for
extension). Guevarra theorized that his appeal raised pure
questions of law. The Receiving Clerk of the Supreme Court received
the motion for extension on 13 December 1996 or one day before the
right to appeal expired.

On 3 January 1997, Guevarra filed his petition for review with the
Supreme Court.
On 8 January 1997, the First Division of the Supreme Court issued
a Resolution[9] referring the motion for extension to the Court of
Appeals which has concurrent jurisdiction over the case. The case
presented no special and important matter for the Supreme Court to
take cognizance of at the first instance.

On 28 January 1997, the Thirteenth Division of the Court of Appeals

issued a Resolution[10] granting the motion for extension
conditioned on the timeliness of the filing of the motion.

On 27 February 1997, the Court of Appeals ordered Pajuyo to comment

on Guevaras petition for review. On 11 April 1997, Pajuyo filed
his Comment.

On 21 June 2000, the Court of Appeals issued its decision reversing

the RTC decision. The dispositive portion of the decision reads:

WHEREFORE, premises considered, the assailed Decision of the court

a quo in Civil Case No. Q-96-26943 is REVERSED and SET ASIDE; and
it is hereby declared that the ejectment case filed against
defendant-appellant is without factual and legal basis.

SO ORDERED.[11]

Pajuyo filed a motion for reconsideration of the decision. Pajuyo

pointed out that the Court of Appeals should have dismissed
outright Guevarras petition for review because it was filed out of
time. Moreover, it was Guevarras counsel and not Guevarra who
signed the certification against forum-shopping.

On 14 December 2000, the Court of Appeals issued a resolution

denying Pajuyos motion for reconsideration. The dispositive
portion of the resolution reads:

WHEREFORE, for lack of merit, the motion for reconsideration is

hereby DENIED. No costs.

SO ORDERED.[12]

The Ruling of the MTC

The MTC ruled that the subject of the agreement between Pajuyo and
Guevarra is the house and not the lot. Pajuyo is the owner of the
house, and he allowed Guevarra to use the house only by tolerance.
Thus, Guevarras refusal to vacate the house on Pajuyos demand made
Guevarras continued possession of the house illegal.
The Ruling of the RTC

The RTC upheld the Kasunduan, which established the landlord and
tenant relationship between Pajuyo and Guevarra. The terms of the
Kasunduan bound Guevarra to return possession of the house on
demand.

The RTC rejected Guevarras claim of a better right under

Proclamation No. 137, the Revised National Government Center
Housing Project Code of Policies and other pertinent laws. In an
ejectment suit, the RTC has no power to decide Guevarras rights
under these laws. The RTC declared that in an ejectment case, the
only issue for resolution is material or physical possession, not
ownership.

The Ruling of the Court of Appeals

The Court of Appeals declared that Pajuyo and Guevarra are

squatters. Pajuyo and Guevarra illegally occupied the contested
lot which the government owned.

Perez, the person from whom Pajuyo acquired his rights, was also
a squatter. Perez had no right or title over the lot because it is
public land. The assignment of rights between Perez and Pajuyo,
and the Kasunduan between Pajuyo and Guevarra, did not have any
legal effect. Pajuyo and Guevarra are in pari delicto or in equal
fault. The court will leave them where they are.

The Court of Appeals reversed the MTC and RTC rulings, which held
that the Kasunduan between Pajuyo and Guevarra created a legal tie
akin to that of a landlord and tenant relationship. The Court of
Appeals ruled that the Kasunduan is not a lease contract but a
commodatum because the agreement is not for a price certain.

Since Pajuyo admitted that he resurfaced only in 1994 to claim the

property, the appellate court held that Guevarra has a better right
over the property under Proclamation No. 137. President Corazon C.
Aquino (President Aquino) issued Proclamation No. 137 on 7
September 1987. At that time, Guevarra was in physical possession
of the property. Under Article VI of the Code of Policies
Beneficiary Selection and Disposition of Homelots and Structures
in the National Housing Project (the Code), the actual occupant or
caretaker of the lot shall have first priority as beneficiary of
the project. The Court of Appeals concluded that Guevarra is first
in the hierarchy of priority.
In denying Pajuyos motion for reconsideration, the appellate court
debunked Pajuyos claim that Guevarra filed his motion for extension
beyond the period to appeal.

The Court of Appeals pointed out that Guevarras motion for

extension filed before the Supreme Court was stamped 13 December
1996 at 4:09 PM by the Supreme Courts Receiving Clerk. The Court
of Appeals concluded that the motion for extension bore a date,
contrary to Pajuyos claim that the motion for extension was
undated. Guevarra filed the motion for extension on time on 13
December 1996 since he filed the motion one day before the
expiration of the reglementary period on 14 December 1996. Thus,
the motion for extension properly complied with the condition
imposed by the Court of Appeals in its 28 January 1997 Resolution.
The Court of Appeals explained that the thirty-day extension to
file the petition for review was deemed granted because of such
compliance.

The Court of Appeals rejected Pajuyos argument that the appellate

court should have dismissed the petition for review because it was
Guevarras counsel and not Guevarra who signed the certification
against forum-shopping. The Court of Appeals pointed out that
Pajuyo did not raise this issue in his Comment. The Court of
Appeals held that Pajuyo could not now seek the dismissal of the
case after he had extensively argued on the merits of the case.
This technicality, the appellate court opined, was clearly an
afterthought.

The Issues

Pajuyo raises the following issues for resolution:

WHETHER THE COURT OF APPEALS ERRED OR ABUSED ITS AUTHORITY AND

DISCRETION TANTAMOUNT TO LACK OF JURISDICTION:

1) in GRANTING, instead of denying, Private Respondents Motion for

an Extension of thirty days to file petition for review at the
time when there was no more period to extend as the decision of
the Regional Trial Court had already become final and executory.

2) in giving due course, instead of dismissing, private respondents

Petition for Review even though the certification against forum-
shopping was signed only by counsel instead of by petitioner
himself.

3) in ruling that the Kasunduan voluntarily entered into by the

parties was in fact a commodatum, instead of a Contract of Lease
as found by the Metropolitan Trial Court and in holding that the
ejectment case filed against defendant-appellant is without legal
and factual basis.

4) in reversing and setting aside the Decision of the Regional

Trial Court in Civil Case No. Q-96-26943 and in holding that the
parties are in pari delicto being both squatters, therefore,
illegal occupants of the contested parcel of land.

5) in deciding the unlawful detainer case based on the so-called

Code of Policies of the National Government Center Housing Project
instead of deciding the same under the Kasunduan voluntarily
executed by the parties, the terms and conditions of which are the
laws between themselves.[13]

The Ruling of the Court

The procedural issues Pajuyo is raising are baseless. However, we

find merit in the substantive issues Pajuyo is submitting for
resolution.

Procedural Issues

Pajuyo insists that the Court of Appeals should have dismissed

outright Guevarras petition for review because the RTC decision
had already become final and executory when the appellate court
acted on Guevarras motion for extension to file the petition.
Pajuyo points out that Guevarra had only one day before the expiry
of his period to appeal the RTC decision. Instead of filing the
petition for review with the Court of Appeals, Guevarra filed with
this Court an undated motion for extension of 30 days to file a
petition for review. This Court merely referred the motion to the
Court of Appeals. Pajuyo believes that the filing of the motion
for extension with this Court did not toll the running of the
period to perfect the appeal. Hence, when the Court of Appeals
received the motion, the period to appeal had already expired.

We are not persuaded.

Decisions of the regional trial courts in the exercise of their

appellate jurisdiction are appealable to the Court of Appeals by
petition for review in cases involving questions of fact or mixed
questions of fact and law.[14] Decisions of the regional trial
courts involving pure questions of law are appealable directly to
this Court by petition for review.[15] These modes of appeal are
now embodied in Section 2, Rule 41 of the 1997 Rules of Civil
Procedure.
Guevarra believed that his appeal of the RTC decision involved
only questions of law. Guevarra thus filed his motion for extension
to file petition for review before this Court on 14 December 1996.
On 3 January 1997, Guevarra then filed his petition for review
with this Court. A perusal of Guevarras petition for review gives
the impression that the issues he raised were pure questions of
law. There is a question of law when the doubt or difference is on
what the law is on a certain state of facts.[16] There is a question
of fact when the doubt or difference is on the truth or falsity of
the facts alleged.[17]

In his petition for review before this Court, Guevarra no longer

disputed the facts. Guevarras petition for review raised these
questions: (1) Do ejectment cases pertain only to possession of a
structure, and not the lot on which the structure stands? (2) Does
a suit by a squatter against a fellow squatter constitute a valid
case for ejectment? (3) Should a Presidential Proclamation
governing the lot on which a squatters structure stands be
considered in an ejectment suit filed by the owner of the
structure?

These questions call for the evaluation of the rights of the

parties under the law on ejectment and the Presidential
Proclamation. At first glance, the questions Guevarra raised
appeared purely legal. However, some factual questions still have
to be resolved because they have a bearing on the legal questions
raised in the petition for review. These factual matters refer to
the metes and bounds of the disputed property and the application
of Guevarra as beneficiary of Proclamation No. 137.

The Court of Appeals has the power to grant an extension of time

to file a petition for review. In Lacsamana v. Second Special Cases
Division of the Intermediate Appellate Court,[18] we declared that
the Court of Appeals could grant extension of time in appeals by
petition for review. In Liboro v. Court of Appeals,[19] we
clarified that the prohibition against granting an extension of
time applies only in a case where ordinary appeal is perfected by
a mere notice of appeal. The prohibition does not apply in a
petition for review where the pleading needs verification. A
petition for review, unlike an ordinary appeal, requires
preparation and research to present a persuasive position.[20] The
drafting of the petition for review entails more time and effort
than filing a notice of appeal.[21] Hence, the Court of Appeals
may allow an extension of time to file a petition for review.
In the more recent case of Commissioner of Internal Revenue v.
Court of Appeals,[22] we held that Liboros clarification of
Lacsamana is consistent with the Revised Internal Rules of the
Court of Appeals and Supreme Court Circular No. 1-91. They all
allow an extension of time for filing petitions for review with
the Court of Appeals. The extension, however, should be limited to
only fifteen days save in exceptionally meritorious cases where
the Court of Appeals may grant a longer period.

A judgment becomes final and executory by operation of law.

Finality of judgment becomes a fact on the lapse of the
reglementary period to appeal if no appeal is perfected.[23] The
RTC decision could not have gained finality because the Court of
Appeals granted the 30-day extension to Guevarra.

The Court of Appeals did not commit grave abuse of discretion when
it approved Guevarras motion for extension. The Court of Appeals
gave due course to the motion for extension because it complied
with the condition set by the appellate court in its resolution
dated 28 January 1997. The resolution stated that the Court of
Appeals would only give due course to the motion for extension if
filed on time. The motion for extension met this condition.

The material dates to consider in determining the timeliness of

the filing of the motion for extension are (1) the date of receipt
of the judgment or final order or resolution subject of the
petition, and (2) the date of filing of the motion for
extension.[24] It is the date of the filing of the motion or
pleading, and not the date of execution, that determines the
timeliness of the filing of that motion or pleading. Thus, even if
the motion for extension bears no date, the date of filing stamped
on it is the reckoning point for determining the timeliness of its
filing.

Guevarra had until 14 December 1996 to file an appeal from the RTC
decision. Guevarra filed his motion for extension before this Court
on 13 December 1996, the date stamped by this Courts Receiving
Clerk on the motion for extension. Clearly, Guevarra filed the
motion for extension exactly one day before the lapse of the
reglementary period to appeal.

Assuming that the Court of Appeals should have dismissed Guevarras

appeal on technical grounds, Pajuyo did not ask the appellate court
to deny the motion for extension and dismiss the petition for
review at the earliest opportunity. Instead, Pajuyo vigorously
discussed the merits of the case. It was only when the Court of
Appeals ruled in Guevarras favor that Pajuyo raised the procedural
issues against Guevarras petition for review.

A party who, after voluntarily submitting a dispute for resolution,

receives an adverse decision on the merits, is estopped from
attacking the jurisdiction of the court.[25] Estoppel sets in not
because the judgment of the court is a valid and conclusive
adjudication, but because the practice of attacking the courts
jurisdiction after voluntarily submitting to it is against public
policy.[26]

In his Comment before the Court of Appeals, Pajuyo also failed to

discuss Guevarras failure to sign the certification against forum
shopping. Instead, Pajuyo harped on Guevarras counsel signing the
verification, claiming that the counsels verification is
insufficient since it is based only on mere information.

A partys failure to sign the certification against forum shopping

is different from the partys failure to sign personally the
verification. The certificate of non-forum shopping must be signed
by the party, and not by counsel.[27] The certification of counsel
renders the petition defective.[28]

On the other hand, the requirement on verification of a pleading

is a formal and not a jurisdictional requisite.[29] It is intended
simply to secure an assurance that what are alleged in the pleading
are true and correct and not the product of the imagination or a
matter of speculation, and that the pleading is filed in good
faith.[30] The party need not sign the verification. A partys
representative, lawyer or any person who personally knows the truth
of the facts alleged in the pleading may sign the verification.[31]

We agree with the Court of Appeals that the issue on the

certificate against forum shopping was merely an afterthought.
Pajuyo did not call the Court of Appeals attention to this defect
at the early stage of the proceedings. Pajuyo raised this
procedural issue too late in the proceedings.

Absence of Title over the Disputed Property will not Divest the
Courts of Jurisdiction to Resolve the Issue of Possession

Settled is the rule that the defendants claim of ownership of the

disputed property will not divest the inferior court of its
jurisdiction over the ejectment case.[32] Even if the pleadings
raise the issue of ownership, the court may pass on such issue to
determine only the question of possession, especially if the
ownership is inseparably linked with the possession.[33] The
adjudication on the issue of ownership is only provisional and
will not bar an action between the same parties involving title to
the land.[34] This doctrine is a necessary consequence of the
nature of the two summary actions of ejectment, forcible entry and
unlawful detainer, where the only issue for adjudication is the
physical or material possession over the real property.[35]

In this case, what Guevarra raised before the courts was that he
and Pajuyo are not the owners of the contested property and that
they are mere squatters. Will the defense that the parties to the
ejectment case are not the owners of the disputed lot allow the
courts to renounce their jurisdiction over the case? The Court of
Appeals believed so and held that it would just leave the parties
where they are since they are in pari delicto.

We do not agree with the Court of Appeals.

Ownership or the right to possess arising from ownership is not at

issue in an action for recovery of possession. The parties cannot
present evidence to prove ownership or right to legal possession
except to prove the nature of the possession when necessary to
resolve the issue of physical possession.[36] The same is true
when the defendant asserts the absence of title over the property.
The absence of title over the contested lot is not a ground for
the courts to withhold relief from the parties in an ejectment
case.

The only question that the courts must resolve in ejectment

proceedings is - who is entitled to the physical possession of the
premises, that is, to the possession de facto and not to the
possession de jure.[37] It does not even matter if a partys title
to the property is questionable,[38] or when both parties intruded
into public land and their applications to own the land have yet
to be approved by the proper government agency.[39] Regardless of
the actual condition of the title to the property, the party in
peaceable quiet possession shall not be thrown out by a strong
hand, violence or terror.[40] Neither is the unlawful withholding
of property allowed. Courts will always uphold respect for prior
possession.

Thus, a party who can prove prior possession can recover such
possession even against the owner himself.[41] Whatever may be the
character of his possession, if he has in his favor prior
possession in time, he has the security that entitles him to remain
on the property until a person with a better right lawfully ejects
him.[42] To repeat, the only issue that the court has to settle in
an ejectment suit is the right to physical possession.
In Pitargue v. Sorilla,[43] the government owned the land in
dispute. The government did not authorize either the plaintiff or
the defendant in the case of forcible entry case to occupy the
land. The plaintiff had prior possession and had already introduced
improvements on the public land. The plaintiff had a pending
application for the land with the Bureau of Lands when the
defendant ousted him from possession. The plaintiff filed the
action of forcible entry against the defendant. The government was
not a party in the case of forcible entry.

The defendant questioned the jurisdiction of the courts to settle

the issue of possession because while the application of the
plaintiff was still pending, title remained with the government,
and the Bureau of Public Lands had jurisdiction over the case. We
disagreed with the defendant. We ruled that courts have
jurisdiction to entertain ejectment suits even before the
resolution of the application. The plaintiff, by priority of his
application and of his entry, acquired prior physical possession
over the public land applied for as against other private
claimants. That prior physical possession enjoys legal protection
against other private claimants because only a court can take away
such physical possession in an ejectment case.

While the Court did not brand the plaintiff and the defendant in
Pitargue[44] as squatters, strictly speaking, their entry into the
disputed land was illegal. Both the plaintiff and defendant entered
the public land without the owners permission. Title to the land
remained with the government because it had not awarded to anyone
ownership of the contested public land. Both the plaintiff and the
defendant were in effect squatting on government property. Yet, we
upheld the courts jurisdiction to resolve the issue of possession
even if the plaintiff and the defendant in the ejectment case did
not have any title over the contested land.

Courts must not abdicate their jurisdiction to resolve the issue

of physical possession because of the public need to preserve the
basic policy behind the summary actions of forcible entry and
unlawful detainer. The underlying philosophy behind ejectment
suits is to prevent breach of the peace and criminal disorder and
to compel the party out of possession to respect and resort to the
law alone to obtain what he claims is his.[45] The party deprived
of possession must not take the law into his own hands.[46]
Ejectment proceedings are summary in nature so the authorities can
settle speedily actions to recover possession because of the
overriding need to quell social disturbances.[47]
We further explained in Pitargue the greater interest that is at
stake in actions for recovery of possession. We made the following
pronouncements in Pitargue:

The question that is before this Court is: Are courts without
jurisdiction to take cognizance of possessory actions involving
these public lands before final award is made by the Lands
Department, and before title is given any of the conflicting
claimants? It is one of utmost importance, as there are public
lands everywhere and there are thousands of settlers, especially
in newly opened regions. It also involves a matter of policy, as
it requires the determination of the respective authorities and
functions of two coordinate branches of the Government in
connection with public land conflicts.

Our problem is made simple by the fact that under the Civil Code,
either in the old, which was in force in this country before the
American occupation, or in the new, we have a possessory action,
the aim and purpose of which is the recovery of the physical
possession of real property, irrespective of the question as to
who has the title thereto. Under the Spanish Civil Code we had the
accion interdictal, a summary proceeding which could be brought
within one year from dispossession (Roman Catholic Bishop of Cebu
vs. Mangaron, 6 Phil. 286, 291); and as early as October 1, 1901,
upon the enactment of the Code of Civil Procedure (Act No. 190 of
the Philippine Commission) we implanted the common law action of
forcible entry (section 80 of Act No. 190), the object of which
has been stated by this Court to be to prevent breaches of the
peace and criminal disorder which would ensue from the withdrawal
of the remedy, and the reasonable hope such withdrawal would create
that some advantage must accrue to those persons who, believing
themselves entitled to the possession of property, resort to force
to gain possession rather than to some appropriate action in the
court to assert their claims. (Supia and Batioco vs. Quintero and
Ayala, 59 Phil. 312, 314.) So before the enactment of the first
Public Land Act (Act No. 926) the action of forcible entry was
already available in the courts of the country. So the question to
be resolved is, Did the Legislature intend, when it vested the
power and authority to alienate and dispose of the public lands in
the Lands Department, to exclude the courts from entertaining the
possessory action of forcible entry between rival claimants or
occupants of any land before award thereof to any of the parties?
Did Congress intend that the lands applied for, or all public lands
for that matter, be removed from the jurisdiction of the judicial
Branch of the Government, so that any troubles arising therefrom,
or any breaches of the peace or disorders caused by rival
claimants, could be inquired into only by the Lands Department to
the exclusion of the courts? The answer to this question seems to
us evident. The Lands Department does not have the means to police
public lands; neither does it have the means to prevent disorders
arising therefrom, or contain breaches of the peace among settlers;
or to pass promptly upon conflicts of possession. Then its power
is clearly limited to disposition and alienation, and while it may
decide conflicts of possession in order to make proper award, the
settlement of conflicts of possession which is recognized in the
court herein has another ultimate purpose, i.e., the protection of
actual possessors and occupants with a view to the prevention of
breaches of the peace. The power to dispose and alienate could not
have been intended to include the power to prevent or settle
disorders or breaches of the peace among rival settlers or
claimants prior to the final award. As to this, therefore, the
corresponding branches of the Government must continue to exercise
power and jurisdiction within the limits of their respective
functions. The vesting of the Lands Department with authority to
administer, dispose, and alienate public lands, therefore, must
not be understood as depriving the other branches of the Government
of the exercise of the respective functions or powers thereon,
such as the authority to stop disorders and quell breaches of the
peace by the police, the authority on the part of the courts to
take jurisdiction over possessory actions arising therefrom not
involving, directly or indirectly, alienation and disposition.

Our attention has been called to a principle enunciated in American

courts to the effect that courts have no jurisdiction to determine
the rights of claimants to public lands, and that until the
disposition of the land has passed from the control of the Federal
Government, the courts will not interfere with the administration
of matters concerning the same. (50 C. J. 1093-1094.) We have no
quarrel with this principle. The determination of the respective
rights of rival claimants to public lands is different from the
determination of who has the actual physical possession or
occupation with a view to protecting the same and preventing
disorder and breaches of the peace. A judgment of the court
ordering restitution of the possession of a parcel of land to the
actual occupant, who has been deprived thereof by another through
the use of force or in any other illegal manner, can never be
prejudicial interference with the disposition or alienation of
public lands. On the other hand, if courts were deprived of
jurisdiction of cases involving conflicts of possession, that
threat of judicial action against breaches of the peace committed
on public lands would be eliminated, and a state of lawlessness
would probably be produced between applicants, occupants or
squatters, where force or might, not right or justice, would rule.
It must be borne in mind that the action that would be used to
solve conflicts of possession between rivals or conflicting
applicants or claimants would be no other than that of forcible
entry. This action, both in England and the United States and in
our jurisdiction, is a summary and expeditious remedy whereby one
in peaceful and quiet possession may recover the possession of
which he has been deprived by a stronger hand, by violence or
terror; its ultimate object being to prevent breach of the peace
and criminal disorder. (Supia and Batioco vs. Quintero and Ayala,
59 Phil. 312, 314.) The basis of the remedy is mere possession as
a fact, of physical possession, not a legal possession. (Mediran
vs. Villanueva, 37 Phil. 752.) The title or right to possession is
never in issue in an action of forcible entry; as a matter of fact,
evidence thereof is expressly banned, except to prove the nature
of the possession. (Second 4, Rule 72, Rules of Court.) With this
nature of the action in mind, by no stretch of the imagination can
conclusion be arrived at that the use of the remedy in the courts
of justice would constitute an interference with the alienation,
disposition, and control of public lands. To limit ourselves to
the case at bar can it be pretended at all that its result would
in any way interfere with the manner of the alienation or
disposition of the land contested? On the contrary, it would
facilitate adjudication, for the question of priority of
possession having been decided in a final manner by the courts,
said question need no longer waste the time of the land officers
making the adjudication or award. (Emphasis ours)

The Principle of Pari Delicto is not Applicable to Ejectment Cases

The Court of Appeals erroneously applied the principle of pari

delicto to this case.

Articles 1411 and 1412 of the Civil Code[48] embody the principle
of pari delicto. We explained the principle of pari delicto in
these words:

The rule of pari delicto is expressed in the maxims ex dolo malo

non eritur actio and in pari delicto potior est conditio
defedentis. The law will not aid either party to an illegal
agreement. It leaves the parties where it finds them.[49]

The application of the pari delicto principle is not absolute, as

there are exceptions to its application. One of these exceptions
is where the application of the pari delicto rule would violate
well-established public policy.[50]
In Drilon v. Gaurana,[51] we reiterated the basic policy behind
the summary actions of forcible entry and unlawful detainer. We
held that:

It must be stated that the purpose of an action of forcible entry

and detainer is that, regardless of the actual condition of the
title to the property, the party in peaceable quiet possession
shall not be turned out by strong hand, violence or terror. In
affording this remedy of restitution the object of the statute is
to prevent breaches of the peace and criminal disorder which would
ensue from the withdrawal of the remedy, and the reasonable hope
such withdrawal would create that some advantage must accrue to
those persons who, believing themselves entitled to the possession
of property, resort to force to gain possession rather than to
some appropriate action in the courts to assert their claims. This
is the philosophy at the foundation of all these actions of
forcible entry and detainer which are designed to compel the party
out of possession to respect and resort to the law alone to obtain
what he claims is his.[52]

Clearly, the application of the principle of pari delicto to a

case of ejectment between squatters is fraught with danger. To
shut out relief to squatters on the ground of pari delicto would
openly invite mayhem and lawlessness. A squatter would oust another
squatter from possession of the lot that the latter had illegally
occupied, emboldened by the knowledge that the courts would leave
them where they are. Nothing would then stand in the way of the
ousted squatter from re-claiming his prior possession at all cost.

Petty warfare over possession of properties is precisely what

ejectment cases or actions for recovery of possession seek to
prevent.[53] Even the owner who has title over the disputed
property cannot take the law into his own hands to regain
possession of his property. The owner must go to court.

Courts must resolve the issue of possession even if the parties to

the ejectment suit are squatters. The determination of priority
and superiority of possession is a serious and urgent matter that
cannot be left to the squatters to decide. To do so would make
squatters receive better treatment under the law. The law restrains
property owners from taking the law into their own hands. However,
the principle of pari delicto as applied by the Court of Appeals
would give squatters free rein to dispossess fellow squatters or
violently retake possession of properties usurped from them.
Courts should not leave squatters to their own devices in cases
involving recovery of possession.
Possession is the only Issue for Resolution in an Ejectment Case

The case for review before the Court of Appeals was a simple case
of ejectment. The Court of Appeals refused to rule on the issue of
physical possession. Nevertheless, the appellate court held that
the pivotal issue in this case is who between Pajuyo and Guevarra
has the priority right as beneficiary of the contested land under
Proclamation No. 137.[54] According to the Court of Appeals,
Guevarra enjoys preferential right under Proclamation No. 137
because Article VI of the Code declares that the actual occupant
or caretaker is the one qualified to apply for socialized housing.

The ruling of the Court of Appeals has no factual and legal basis.

First. Guevarra did not present evidence to show that the contested
lot is part of a relocation site under Proclamation No. 137.
Proclamation No. 137 laid down the metes and bounds of the land
that it declared open for disposition to bona fide residents.

The records do not show that the contested lot is within the land
specified by Proclamation No. 137. Guevarra had the burden to prove
that the disputed lot is within the coverage of Proclamation No.
137. He failed to do so.

Second. The Court of Appeals should not have given credence to

Guevarras unsubstantiated claim that he is the beneficiary of
Proclamation No. 137. Guevarra merely alleged that in the survey
the project administrator conducted, he and not Pajuyo appeared as
the actual occupant of the lot.

There is no proof that Guevarra actually availed of the benefits

of Proclamation No. 137. Pajuyo allowed Guevarra to occupy the
disputed property in 1985. President Aquino signed Proclamation
No. 137 into law on 11 March 1986. Pajuyo made his earliest demand
for Guevarra to vacate the property in September 1994.

During the time that Guevarra temporarily held the property up to

the time that Proclamation No. 137 allegedly segregated the
disputed lot, Guevarra never applied as beneficiary of
Proclamation No. 137. Even when Guevarra already knew that Pajuyo
was reclaiming possession of the property, Guevarra did not take
any step to comply with the requirements of Proclamation No. 137.

Third. Even assuming that the disputed lot is within the coverage
of Proclamation No. 137 and Guevarra has a pending application
over the lot, courts should still assume jurisdiction and resolve
the issue of possession. However, the jurisdiction of the courts
would be limited to the issue of physical possession only.

In Pitargue,[55] we ruled that courts have jurisdiction over

possessory actions involving public land to determine the issue of
physical possession. The determination of the respective rights of
rival claimants to public land is, however, distinct from the
determination of who has the actual physical possession or who has
a better right of physical possession.[56] The administrative
disposition and alienation of public lands should be threshed out
in the proper government agency.[57]

The Court of Appeals determination of Pajuyo and Guevarras rights

under Proclamation No. 137 was premature. Pajuyo and Guevarra were
at most merely potential beneficiaries of the law. Courts should
not preempt the decision of the administrative agency mandated by
law to determine the qualifications of applicants for the
acquisition of public lands. Instead, courts should expeditiously
resolve the issue of physical possession in ejectment cases to
prevent disorder and breaches of peace.[58]

Pajuyo is Entitled to Physical Possession of the Disputed Property

Guevarra does not dispute Pajuyos prior possession of the lot and
ownership of the house built on it. Guevarra expressly admitted
the existence and due execution of the Kasunduan. The Kasunduan
reads:

Ako, si COL[I]TO PAJUYO, may-ari ng bahay at lote sa Bo. Payatas,

Quezon City, ay nagbibigay pahintulot kay G. Eddie Guevarra, na
pansamantalang manirahan sa nasabing bahay at lote ng walang bayad.
Kaugnay nito, kailangang panatilihin nila ang kalinisan at
kaayusan ng bahay at lote.

Sa sandaling kailangan na namin ang bahay at lote, silay kusang

aalis ng walang reklamo.

Based on the Kasunduan, Pajuyo permitted Guevarra to reside in the

house and lot free of rent, but Guevarra was under obligation to
maintain the premises in good condition. Guevarra promised to
vacate the premises on Pajuyos demand but Guevarra broke his
promise and refused to heed Pajuyos demand to vacate.

These facts make out a case for unlawful detainer. Unlawful

detainer involves the withholding by a person from another of the
possession of real property to which the latter is entitled after
the expiration or termination of the formers right to hold
possession under a contract, express or implied.[59]

Where the plaintiff allows the defendant to use his property by

tolerance without any contract, the defendant is necessarily bound
by an implied promise that he will vacate on demand, failing which,
an action for unlawful detainer will lie.[60] The defendants
refusal to comply with the demand makes his continued possession
of the property unlawful.[61] The status of the defendant in such
a case is similar to that of a lessee or tenant whose term of lease
has expired but whose occupancy continues by tolerance of the
owner.[62]

This principle should apply with greater force in cases where a

contract embodies the permission or tolerance to use the property.
The Kasunduan expressly articulated Pajuyos forbearance. Pajuyo
did not require Guevarra to pay any rent but only to maintain the
house and lot in good condition. Guevarra expressly vowed in the
Kasunduan that he would vacate the property on demand. Guevarras
refusal to comply with Pajuyos demand to vacate made Guevarras
continued possession of the property unlawful.

We do not subscribe to the Court of Appeals theory that the

Kasunduan is one of commodatum.

In a contract of commodatum, one of the parties delivers to another

something not consumable so that the latter may use the same for
a certain time and return it.[63] An essential feature of
commodatum is that it is gratuitous. Another feature of commodatum
is that the use of the thing belonging to another is for a certain
period.[64] Thus, the bailor cannot demand the return of the thing
loaned until after expiration of the period stipulated, or after
accomplishment of the use for which the commodatum is
constituted.[65] If the bailor should have urgent need of the
thing, he may demand its return for temporary use.[66] If the use
of the thing is merely tolerated by the bailor, he can demand the
return of the thing at will, in which case the contractual relation
is called a precarium.[67] Under the Civil Code, precarium is a
kind of commodatum.[68]

The Kasunduan reveals that the accommodation accorded by Pajuyo to

Guevarra was not essentially gratuitous. While the Kasunduan did
not require Guevarra to pay rent, it obligated him to maintain the
property in good condition. The imposition of this obligation makes
the Kasunduan a contract different from a commodatum. The effects
of the Kasunduan are also different from that of a commodatum.
Case law on ejectment has treated relationship based on tolerance
as one that is akin to a landlord-tenant relationship where the
withdrawal of permission would result in the termination of the
lease.[69] The tenants withholding of the property would then be
unlawful. This is settled jurisprudence.

Even assuming that the relationship between Pajuyo and Guevarra is

one of commodatum, Guevarra as bailee would still have the duty to
turn over possession of the property to Pajuyo, the bailor. The
obligation to deliver or to return the thing received attaches to
contracts for safekeeping, or contracts of commission,
administration and commodatum.[70] These contracts certainly
involve the obligation to deliver or return the thing received.[71]

Guevarra turned his back on the Kasunduan on the sole ground that
like him, Pajuyo is also a squatter. Squatters, Guevarra pointed
out, cannot enter into a contract involving the land they illegally
occupy. Guevarra insists that the contract is void.

Guevarra should know that there must be honor even between

squatters. Guevarra freely entered into the Kasunduan. Guevarra
cannot now impugn the Kasunduan after he had benefited from it.
The Kasunduan binds Guevarra.

The Kasunduan is not void for purposes of determining who between

Pajuyo and Guevarra has a right to physical possession of the
contested property. The Kasunduan is the undeniable evidence of
Guevarras recognition of Pajuyos better right of physical
possession. Guevarra is clearly a possessor in bad faith. The
absence of a contract would not yield a different result, as there
would still be an implied promise to vacate.

Guevarra contends that there is a pernicious evil that is sought

to be avoided, and that is allowing an absentee squatter who (sic)
makes (sic) a profit out of his illegal act.[72] Guevarra bases
his argument on the preferential right given to the actual occupant
or caretaker under Proclamation No. 137 on socialized housing.

We are not convinced.

Pajuyo did not profit from his arrangement with Guevarra because
Guevarra stayed in the property without paying any rent. There is
also no proof that Pajuyo is a professional squatter who rents out
usurped properties to other squatters. Moreover, it is for the
proper government agency to decide who between Pajuyo and Guevarra
qualifies for socialized housing. The only issue that we are
addressing is physical possession.
Prior possession is not always a condition sine qua non in
ejectment.[73] This is one of the distinctions between forcible
entry and unlawful detainer.[74] In forcible entry, the plaintiff
is deprived of physical possession of his land or building by means
of force, intimidation, threat, strategy or stealth. Thus, he must
allege and prove prior possession.[75] But in unlawful detainer,
the defendant unlawfully withholds possession after the expiration
or termination of his right to possess under any contract, express
or implied. In such a case, prior physical possession is not
required.[76]

Pajuyos withdrawal of his permission to Guevarra terminated the

Kasunduan. Guevarras transient right to possess the property ended
as well. Moreover, it was Pajuyo who was in actual possession of
the property because Guevarra had to seek Pajuyos permission to
temporarily hold the property and Guevarra had to follow the
conditions set by Pajuyo in the Kasunduan. Control over the
property still rested with Pajuyo and this is evidence of actual
possession.

Pajuyos absence did not affect his actual possession of the

disputed property. Possession in the eyes of the law does not mean
that a man has to have his feet on every square meter of the ground
before he is deemed in possession.[77] One may acquire possession
not only by physical occupation, but also by the fact that a thing
is subject to the action of ones will.[78] Actual or physical
occupation is not always necessary.[79]

Ruling on Possession Does not Bind Title to the Land in Dispute

We are aware of our pronouncement in cases where we declared that

squatters and intruders who clandestinely enter into titled
government property cannot, by such act, acquire any legal right
to said property.[80] We made this declaration because the person
who had title or who had the right to legal possession over the
disputed property was a party in the ejectment suit and that party
instituted the case against squatters or usurpers.

In this case, the owner of the land, which is the government, is

not a party to the ejectment case. This case is between squatters.
Had the government participated in this case, the courts could
have evicted the contending squatters, Pajuyo and Guevarra.

Since the party that has title or a better right over the property
is not impleaded in this case, we cannot evict on our own the
parties. Such a ruling would discourage squatters from seeking the
aid of the courts in settling the issue of physical possession.
Stripping both the plaintiff and the defendant of possession just
because they are squatters would have the same dangerous
implications as the application of the principle of pari delicto.
Squatters would then rather settle the issue of physical possession
among themselves than seek relief from the courts if the plaintiff
and defendant in the ejectment case would both stand to lose
possession of the disputed property. This would subvert the policy
underlying actions for recovery of possession.

Since Pajuyo has in his favor priority in time in holding the

property, he is entitled to remain on the property until a person
who has title or a better right lawfully ejects him. Guevarra is
certainly not that person. The ruling in this case, however, does
not preclude Pajuyo and Guevarra from introducing evidence and
presenting arguments before the proper administrative agency to
establish any right to which they may be entitled under the
law.[81]

In no way should our ruling in this case be interpreted to condone

squatting. The ruling on the issue of physical possession does not
affect title to the property nor constitute a binding and
conclusive adjudication on the merits on the issue of
ownership.[82] The owner can still go to court to recover lawfully
the property from the person who holds the property without legal
title. Our ruling here does not diminish the power of government
agencies, including local governments, to condemn, abate, remove
or demolish illegal or unauthorized structures in accordance with
existing laws.

Attorneys Fees and Rentals

The MTC and RTC failed to justify the award of P3,000 attorneys
fees to Pajuyo. Attorneys fees as part of damages are awarded only
in the instances enumerated in Article 2208 of the Civil Code.[83]
Thus, the award of attorneys fees is the exception rather than the
rule.[84] Attorneys fees are not awarded every time a party
prevails in a suit because of the policy that no premium should be
placed on the right to litigate.[85] We therefore delete the
attorneys fees awarded to Pajuyo.

We sustain the P300 monthly rentals the MTC and RTC assessed
against Guevarra. Guevarra did not dispute this factual finding of
the two courts. We find the amount reasonable compensation to
Pajuyo. The P300 monthly rental is counted from the last demand to
vacate, which was on 16 February 1995.

WHEREFORE, we GRANT the petition. The Decision dated 21 June 2000

and Resolution dated 14 December 2000 of the Court of Appeals in
CA-G.R. SP No. 43129 are SET ASIDE. The Decision dated 11 November
1996 of the Regional Trial Court of Quezon City, Branch 81 in Civil
Case No. Q-96-26943, affirming the Decision dated 15 December 1995
of the Metropolitan Trial Court of Quezon City, Branch 31 in Civil
Case No. 12432, is REINSTATED with MODIFICATION. The award of
attorneys fees is deleted. No costs.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Panganiban, Ynares-Santiago, and

Azcuna, JJ., concur.
G.R. No. L-50550-52 October 31, 1979

CHEE KIONG YAM, AMPANG MAH, ANITA YAM JOSE Y.C. YAM AND RICHARD
YAM, Petitioners, vs. HON. NABDAR J. MALIK, Municipal Judge of
Jolo, Sulu (Branch I), THE PEOPLE OF THE PHILIPPINES, ROSALINDA
AMIN, TAN CHU KAO and LT. COL. AGOSTO SAJOR Respondents.

Tomas P. Matic, Jr. for petitioners.chanrobles virtual law library

Jose E. Fernandez for private respondent.chanrobles virtual law

library

Office of the Solicitor General for respondent the People of the

Philippines.

ABAD SANTOS, J.:

This is a petition for certiorari, prohibition, and mandamus with

preliminary injunction. Petitioners alleged that respondent
Municipal Judge Nabdar J. Malik of Jolo, Sulu, acted without
jurisdiction, in excess of jurisdiction and with grave abuse of
discretion when: chanrobles virtual law library

(a) he held in the preliminary investigation of the charges of

estafa filed by respondents Rosalinda Amin, Tan Chu Kao and Augusto
Sajor against petitioners that there was a prima facie case against
the latter; chanrobles virtual law library

(b) he issued warrants of arrest against petitioners after making

the above determination; and chanrobles virtual law library

(c) he undertook to conduct trial on the merits of the charges

which were docketed in his court as Criminal Cases No. M-111, M-
183 and M-208.chanroblesvirtualawlibrarychanrobles virtual law
library

Respondent judge is said to have acted without jurisdiction, in

excess of jurisdiction and with grave abuse of discretion because
the facts recited in the complaints did not constitute the crime
of estafa, and assuming they did, they were not within the
jurisdiction of the respondent
judge.chanroblesvirtualawlibrarychanrobles virtual law library
In a resolution dated May 23, 1979, we required respondents to
comment in the petition and issued a temporary restraining order
against the respondent judge from further proceeding with Criminal
Cases Nos. M-111, M-183 and M-208 or from enforcing the warrants
of arrest he had issued in connection with said
cases.chanroblesvirtualawlibrarychanrobles virtual law library

Comments by the respondent judge and the private respondents pray

for the dismissal of the petition but the Solicitor General has
manifested that the People of the Philippines have no objection to
the grant of the reliefs prayed for, except the damages. We
considered the comments as answers and gave due course to the
petition.chanroblesvirtualawlibrarychanrobles virtual law library

The position of the Solicitor General is well taken. We have to

grant the petition in order to prevent manifest injustice and the
exercise of palpable excess of
authority.chanroblesvirtualawlibrary chanrobles virtual law
library

In Criminal Case No. M-111, respondent Rosalinda M. Amin charges

petitioners Yam Chee Kiong and Yam Yap Kieng with estafa through
misappropriation of the amount of P50,000.00. But the complaint
states on its face that said petitioners received the amount from
respondent Rosalinda M. Amin "as a loan." Moreover, the complaint
in Civil Case No. N-5, an independent action for the collection of
the same amount filed by respondent Rosalinda M. Amin with the
Court of First Instance of Sulu on September 11, 1975, likewise
states that the P50,000.00 was a "simple business loan" which
earned interest and was originally demandable six (6) months from
July 12, 1973. (Annex E of the petition.) chanrobles virtual law
library

In Criminal Case No. M-183, respondent Tan Chu Kao charges

petitioners Yam Chee Kiong, Jose Y.C. Yam, Ampang Mah and Anita
Yam, alias Yong Tay, with estafa through misappropriation of the
amount of P30,000.00. Likewise, the complaint states on its face
that the P30,000.00 was "a simple loan." So does the complaint in
Civil Case No. N-8 filed by respondent Tan Chu Kao on April 6,
1976 with the Court of First Instance of Sulu for the collection
of the same amount. (Annex D of the
petition.).chanroblesvirtualawlibrarychanrobles virtual law
library

In Criminal Case No. M-208, respondent Augusto Sajor charges

petitioners Jose Y.C. Yam, Anita Yam alias Yong Tai Mah, Chee Kiong
Yam and Richard Yam, with estafa through misappropriation of the
amount of P20,000.00. Unlike the complaints in the other two cases,
the complaint in Criminal Case No. M-208 does not state that the
amount was received as loan. However, in a sworn statement dated
September 29, 1976, submitted to respondent judge to support the
complaint, respondent Augusto Sajor states that the amount was a
"loan." (Annex G of the
petition.).chanroblesvirtualawlibrarychanrobles virtual law
library

We agree with the petitioners that the facts alleged in the three
criminal complaints do not constitute estafa through
misappropriation.chanroblesvirtualawlibrary chanrobles virtual
law library

Estafa through misappropriation is committed according to Article

315, paragraph 1, subparagraph (b), of the Revised Penal Code as
follows:

Art. 315. Swindling (Estafa). - Any person who shall defraud

another by any of the means mentioned herein below shall be
punished by:chanrobles virtual law library

xxx xxx xxx chanrobles virtual law library

1. With unfaithfulness or abuse of confidence namely: chanrobles

virtual law library

xxx xxx xxx chanrobles virtual law library

b) By misappropriating or converting, to the prejudice of

another, money, goods, or any other personal property received by
the offender in trust or on commission, or for administration, or
under any other obligation involving the duty to make delivery of
or to return the same, even though such obligation be totally or
partially guaranteed by a bond; or by denying having received such
money, goods, or other property.

In order that a person can be convicted under the abovequoted

provision, it must be proven that he has the obligation to deliver
or return the same money, goods or personal property that he
received. Petitioners had no such obligation to return the same
money, i.e., the bills or coins, which they received from private
respondents. This is so because as clearly stated in criminal
complaints, the related civil complaints and the supporting sworn
statements, the sums of money that petitioners received were
loans.chanroblesvirtualawlibrarychanrobles virtual law library
The nature of simple loan is defined in Articles 1933 and 1953 of
the Civil Code.

Art. 1933. - By the contract of loan, one of the parties delivers

to another, either something not consumable so that the latter may
use the same for a certain time and return it, in which case the
contract is called a commodatum; or money or other consumable thing
upon the condition that the same amount of the same kind and
quality shall be paid, in which case the contract is simply called
a loan or mutuum.chanroblesvirtualawlibrarychanrobles virtual law
library

Commodatum is essentially gratuitous.chanroblesvirtualawlibrary

chanrobles virtual law library

Simple loan may be gratuitous or with a stipulation to pay

interest.chanroblesvirtualawlibrarychanrobles virtual law library

In commodatum the bailor retains the ownership of the thing loaned,

while in simple loam ownership passes to the
borrower.chanroblesvirtualawlibrarychanrobles virtual law library

Art. 1953. - A person who receives a loan of money or any other

fungible thing acquires the ownership thereof, and is bound to pay
to the creditor an equal amount of the same kind and quality.

It can be readily noted from the above-quoted provisions that in

simple loan (mutuum), as contrasted to commodatum, the borrower
acquires ownership of the money, goods or personal property
borrowed. Being the owner, the borrower can dispose of the thing
borrowed (Article 248, Civil Code) and his act will not be
considered misappropriation thereof.chanroblesvirtualawlibrary
chanrobles virtual law library

In U.S. vs. Ibaez, 19 Phil. 559, 560 (1911), this Court held that
it is not estafa for a person to refuse to nay his debt or to deny
its existence.

We are of the opinion and so decide that when the relation is

purely that of debtor and creditor, the debtor can not be held
liable for the crime of estafa, under said article, by merely
refusing to pay or by denying the indebtedness.

It appears that respondent judge failed to appreciate the

distinction between the two types of loan, mutuum and commodatum,
when he performed the questioned acts, He mistook the transaction
between petitioners and respondents Rosalinda Amin, Tan Chu Kao
and Augusto Sajor to be commodatum wherein the borrower does not
acquire ownership over the thing borrowed and has the duty to
return the same thing to the lender.chanroblesvirtualawlibrary
chanrobles virtual law library

Under Sec. 87 of the Judiciary Act, the municipal court of a

provincial capital, which the Municipal Court of Jolo is, has
jurisdiction over criminal cases where the penalty provided by law
does not exceed prision correccional or imprisonment for not more
than six (6) years, or fine not exceeding P6,000.00 or both, The
amounts allegedly misappropriated by petitioners range from
P20,000.00 to P50,000.00. The penalty for misappropriation of this
magnitude exceeds prision correccional or 6 year imprisonment.
(Article 315, Revised Penal Code), Assuming then that the acts
recited in the complaints constitute the crime of estafa, the
Municipal Court of Jolo has no jurisdiction to try them on the
merits. The alleged offenses are under the jurisdiction of the
Court of First Instance.chanroblesvirtualawlibrary chanrobles
virtual law library

Respondents People of the Philippines being the sovereign

authority can not be sued for damages. They are immune from such
type of suit.chanroblesvirtualawlibrarychanrobles virtual law
library

With respect to the other respondents, this Court is not the proper
forum for the consideration of the claim for damages against
them.chanroblesvirtualawlibrarychanrobles virtual law library

WHEREFORE, the petition is hereby granted; the temporary

restraining order previously issued is hereby made permanent; the
criminal complaints against petitioners are hereby declared null
and void; respondent judge is hereby ordered to dismiss said
criminal cases and to recall the warrants of arrest he had issued
in connection therewith. Moreover, respondent judge is hereby
rebuked for manifest ignorance of elementary law. Let a copy of
this decision be included in his personal life. Costs against
private respondents.chanroblesvirtualawlibrary chanrobles virtual
law library

SO ORDERED.

Barredo, Antonio and Santos, JJ.,

concur.chanroblesvirtualawlibrarychanrobles virtual law library

Concepcion Jr. ,J., is on leave.

SECOND DIVISION

G.R. No. 183360, September 08, 2014

ROLANDO C. DE LA PAZ,*, Petitioner, v. L & J DEVELOPMENT COMPANY,

Respondent.

D E C I S I O N

DEL CASTILLO, J.:

No interest shall be due unless it has been expressly stipulated

in writing.1cralawred

This is a Petition for Review on Certiorari2 assailing the February

27, 2008 Decision3 of the Court of Appeals (CA) in CA-G.R. SP No.
100094, which reversed and set aside the Decision4 dated April 19,
2007 of the Regional Trial Court (RTC), Branch 192, Marikina City
in Civil Case No. 06-1145-MK. The said RTC Decision affirmed in
all respects the Decision5 dated June 30, 2006 of the Metropolitan
Trial Court (MeTC), Branch 75, Marikina City in Civil Case No. 05-
7755, which ordered respondent L & J Development Company (L&J) to
pay petitioner Architect Rolando C. De La Paz (Rolando) its
principal obligation of P350,000.00, plus 12% interest per annum
reckoned from the filing of the Complaint until full payment of
the obligation.

Likewise assailed is the CAs June 6, 2008 Resolution6 which denied

Rolandos Motion for Reconsideration.

Factual Antecedents

On December 27, 2000, Rolando lent P350,000.00 without any security

to L&J, a property developer with Atty. Esteban Salonga (Atty.
Salonga) as its President and General Manager. The loan, with no
specified maturity date, carried a 6% monthly interest, i.e.,
P21,000.00. From December 2000 to August 2003, L&J paid Rolando
a total of P576,000.007 representing interest charges.

As L&J failed to pay despite repeated demands, Rolando filed a

Complaint8 for Collection of Sum of Money with Damages against L&J
and Atty. Salonga in his personal capacity before the MeTC,
docketed as Civil Case No. 05-7755. Rolando alleged, among others,
that L&Js debt as of January 2005, inclusive of the monthly
interest, stood at P772,000.00; that the 6% monthly interest was
upon Atty. Salongas suggestion; and, that the latter tricked him
into parting with his money without the loan transaction being
reduced into writing.

In their Answer,9 L&J and Atty. Salonga denied Rolandos

allegations. While they acknowledged the loan as a corporate debt,
they claimed that the failure to pay the same was due to a
fortuitous event, that is, the financial difficulties brought
about by the economic crisis. They further argued that Rolando
cannot enforce the 6% monthly interest for being unconscionable
and shocking to the morals. Hence, the payments already made
should be applied to the P350,000.00 principal loan.

During trial, Rolando testified that he had no communication with

Atty. Salonga prior to the loan transaction but knew him as a
lawyer, a son of a former Senator, and the owner of L&J which
developed Brentwood Subdivision in Antipolo where his associate
Nilo Velasco (Nilo) lives. When Nilo told him that Atty. Salonga
and L&J needed money to finish their projects, he agreed to lend
them money. He personally met with Atty. Salonga and their meeting
was cordial.

He narrated that when L&J was in the process of borrowing the

P350,000.00 from him, it was Arlene San Juan (Arlene), the
secretary/treasurer of L&J, who negotiated the terms and
conditions thereof. She said that the money was to finance L&Js
housing project. Rolando claimed that it was not he who demanded
for the 6% monthly interest. It was L&J and Atty. Salonga, through
Arlene, who insisted on paying the said interest as they asserted
that the loan was only a short-term one.

Ruling of the Metropolitan Trial Court

The MeTC, in its Decision10 of June 30, 2006, upheld the 6% monthly
interest. In so ruling, it ratiocinated that since L&J agreed
thereto and voluntarily paid the interest at such rate from 2000
to 2003, it is already estopped from impugning the same.
Nonetheless, for reasons of equity, the said court reduced the
interest rate to 12% per annum on the remaining principal
obligation of P350,000.00. With regard to Rolandos prayer for
moral damages, the MeTC denied the same as it found no malice or
bad faith on the part of L&J in not paying the obligation. It
likewise relieved Atty. Salonga of any liability as it found that
he merely acted in his official capacity in obtaining the loan.
The MeTC disposed of the case as
follows:ChanRoblesVirtualawlibrary
WHEREFORE, premises considered, judgment is hereby rendered in
favor of the plaintiff, Arch. Rolando C. Dela Paz, and against the
defendant, L & J Development Co., Inc., as
follows:ChanRoblesVirtualawlibrary

a) ordering the defendant L & J Development Co., Inc. to pay

plaintiff the amount of Three Hundred Fifty Thousand Pesos
(P350,000.00) representing the principal obligation, plus interest
at the legal rate of 12% per annum to be computed from January 20,
2005, the date of the filing of the complaint, until the whole
obligation is fully paid;

b) ordering the defendant L & J Development Co., Inc. to pay

plaintiff the amount of Five Thousand Pesos (P5,000.00) as and for
attorneys fees; and

c) to pay the costs of this suit.

SO ORDERED.11cralawred

Ruling of the Regional Trial Court

L&J appealed to the RTC. It asserted in its appeal memorandum12

that from December 2000 to March 2003, it paid monthly interest of
P21,000.00 based on the agreed-upon interest rate of 6% monthly
and from April 2003 to August 2003, interest payments in various
amounts.13 The total of interest payments made amounts to
P576,000.00 an amount which is even more than the principal
obligation of P350,000.00

L&J insisted that the 6% monthly interest rate is unconscionable

and immoral. Hence, the 12% per annum legal interest should have
been applied from the time of the constitution of the obligation.
At 12% per annum interest rate, it asserted that the amount of
interest it ought to pay from December 2000 to March 2003 and from
April 2003 to August 2003, only amounts to P105,000.00. If this
amount is deducted from the total interest payments already made,
which is P576,000.00, the amount of P471,000.00 appears to have
been paid over and above what is due. Applying the rule on
compensation, the principal loan of P350,000.00 should be set-off
against the P471,000.00, resulting in the complete payment of the
principal loan.

Unconvinced, the RTC, in its April 19, 2007 Decision,14 affirmed

the MeTC Decision, viz:ChanRoblesVirtualawlibrary
WHEREFORE, premises considered, the Decision appealed from is
hereby AFFIRMED in all respects, with costs against the appellant.

SO ORDERED.15

Ruling of the Court of Appeals

Undaunted, L&J went to the CA and echoed its arguments and proposed
computation as proffered before the RTC.

In a Decision16 dated February 27, 2008, the CA reversed and set

aside the RTC Decision.

The CA stressed that the parties failed to stipulate in writing

the imposition of interest on the loan. Hence, no interest shall
be due thereon pursuant to Article 1956 of the Civil Code.17 And
even if payment of interest has been stipulated in writing, the 6%
monthly interest is still outrightly illegal and unconscionable
because it is contrary to morals, if not against the law. Being
void, this cannot be ratified and may be set up by the debtor as
defense. For these reasons, Rolando cannot collect any interest
even if L&J offered to pay interest. Consequently, he has to
return all the interest payments of P576,000.00 to L&J.

Considering further that Rolando and L&J thereby became creditor

and debtor of each other, the CA applied the principle of legal
compensation under Article 1279 of the Civil Code.18 Accordingly,
it set off the principal loan of P350,000.00 against the
P576,000.00 total interest payments made, leaving an excess of
P226,000.00, which the CA ordered Rolando to pay L&J plus interest.
Thus:ChanRoblesVirtualawlibrary

WHEREFORE, the DECISION DATED APRIL 19, 2007 is REVERSED and SET
ASIDE.

CONSEQUENT TO THE FOREGOING, respondent Rolando C. Dela Paz is

ordered to pay to the petitioner the amount of P226,000.00, plus
interest of 12% per annum from the finality of this decision.

Costs of suit to be paid by respondent Dela Paz.

SO ORDERED.19

In his Motion for Reconsideration,20 Rolando argued that the

circumstances exempt both the application of Article 1956 and of
jurisprudence holding that a 6% monthly interest is
unconscionable, unreasonable, and exorbitant. He alleged that
Atty. Salonga, a lawyer, should have taken it upon himself to have
the loan and the stipulated rate of interest documented but, by
way of legal maneuver, Atty. Salonga, whom he fully trusted and
relied upon, tricked him into believing that the undocumented and
uncollateralized loan was within legal bounds. Had Atty. Salonga
told him that the stipulated interest should be in writing, he
would have readily assented.

Furthermore, Rolando insisted that the 6% monthly interest rate

could not be unconscionable as in the first place, the interest
was not imposed by the creditor but was in fact offered by the
borrower, who also dictated all the terms of the loan. He stressed
that in cases where interest rates were declared unconscionable,
those meant to be protected by such declaration are helpless
borrowers which is not the case here.

Still, the CA denied Rolandos motion in its Resolution21 of June

6, 2008.

Hence, this Petition.

The Parties Arguments

Rolando argues that the 6% monthly interest rate should not have
been invalidated because Atty. Salonga took advantage of his legal
knowledge to hoodwink him into believing that no document was
necessary to reflect the interest rate. Moreover, the cases anent
unconscionable interest rates that the CA relied upon involve
lenders who imposed the excessive rates, which are totally
different from the case at bench where it is the borrower who
decided on the high interest rate. This case does not fall under
a scenario that enslaves the borrower or that leads to the
hemorrhaging of his assets that the courts seek to prevent.

L&J, in controverting Rolandos arguments, contends that the

interest rate is subject of negotiation and is agreed upon by both
parties, not by the borrower alone. Furthermore, jurisprudence
has nullified interest rates on loans of 3% per month and higher
as these rates are contrary to morals and public interest. And
while Rolando raises bad faith on Atty. Salongas part, L&J avers
that such issue is a question of fact, a matter that cannot be
raised under Rule 45.

Issue

The Courts determination of whether to uphold the judgment of the

CA that the principal loan is deemed paid is dependent on the
validity of the monthly interest rate imposed. And in determining
such validity, the Court must necessarily delve into matters
regarding a) the form of the agreement of interest under the law
and b) the alleged unconscionability of the interest rate.

Our Ruling

The Petition is devoid of merit.

The lack of a written stipulation

to pay interest on the loaned amount
disallows a creditor from charging
monetary interest.

Under Article 1956 of the Civil Code, no interest shall be due

unless it has been expressly stipulated in writing. Jurisprudence
on the matter also holds that for interest to be due and payable,
two conditions must concur: a) express stipulation for the payment
of interest; and b) the agreement to pay interest is reduced in
writing.

Here, it is undisputed that the parties did not put down in writing
their agreement. Thus, no interest is due. The collection of
interest without any stipulation in writing is prohibited by
law.22cralawred

But Rolando asserts that his situation deserves an exception to

the application of Article 1956. He blames Atty. Salonga for the
lack of a written document, claiming that said lawyer used his
legal knowledge to dupe him. Rolando thus imputes bad faith on
the part of L&J and Atty. Salonga. The Court, however, finds no
deception on the part of L&J and Atty. Salonga. For one, despite
the lack of a document stipulating the payment of interest, L&J
nevertheless devotedly paid interests on the loan. It only stopped
when it suffered from financial difficulties that prevented it
from continuously paying the 6% monthly rate. For another,
regardless of Atty. Salongas profession, Rolando who is an
architect and an educated man himself could have been a more
reasonably prudent person under the circumstances. To top it all,
he admitted that he had no prior communication with Atty. Salonga.
Despite Atty. Salonga being a complete stranger, he immediately
trusted him and lent his company P350,000.00, a significant amount.
Moreover, as the creditor, he could have requested or required
that all the terms and conditions of the loan agreement, which
include the payment of interest, be put down in writing to ensure
that he and L&J are on the same page. Rolando had a choice of not
acceding and to insist that their contract be put in written form
as this will favor and safeguard him as a lender. Unfortunately,
he did not. It must be stressed that [c]ourts cannot follow one
every step of his life and extricate him from bad bargains, protect
him from unwise investments, relieve him from one-sided contracts,
or annul the effects of foolish acts. Courts cannot constitute
themselves guardians of persons who are not legally
incompetent.23cralawred

It may be raised that L&J is estopped from questioning the interest

rate considering that it has been paying Rolando interest at such
rate for more than two and a half years. In fact, in its pleadings
before the MeTC and the RTC, L&J merely prayed for the reduction
of interest from 6% monthly to 1% monthly or 12% per annum.
However, in Ching v. Nicdao,24 the daily payments of the debtor to
the lender were considered as payment of the principal amount of
the loan because Article 1956 was not complied with. This was
notwithstanding the debtors admission that the payments made were
for the interests due. The Court categorically stated therein
that [e]stoppel cannot give validity to an act that is prohibited
by law or one that is against public policy.

Even if the payment of interest has been

reduced in writing, a 6% monthly interest rate
on a loan is unconscionable, regardless of who
between the parties proposed the rate.

Indeed at present, usury has been legally non-existent in view of

the suspension of the Usury Law25 by Central Bank Circular No. 905
s. 1982.26 Even so, not all interest rates levied upon loans are
permitted by the courts as they have the power to equitably reduce
unreasonable interest rates. In Trade & Investment Development
Corporation of the Philippines v. Roblett Industrial Construction
Corporation,27 we said:ChanRoblesVirtualawlibrary

While the Court recognizes the right of the parties to enter into
contracts and who are expected to comply with their terms and
obligations, this rule is not absolute. Stipulated interest rates
are illegal if they are unconscionable and the Court is allowed to
temper interest rates when necessary. In exercising this vested
power to determine what is iniquitous and unconscionable, the Court
must consider the circumstances of each case. What may be
iniquitous and unconscionable in one case, may be just in another.
x x x28

Time and again, it has been ruled in a plethora of cases that

stipulated interest rates of 3% per month and higher, are
excessive, iniquitous, unconscionable and exorbitant. Such
stipulations are void for being contrary to morals, if not against
the law.29 The Court, however, stresses that these rates shall be
invalidated and shall be reduced only in cases where the terms of
the loans are open-ended, and where the interest rates are applied
for an indefinite period. Hence, the imposition of a specific sum
of P40,000.00 a month for six months on a P1,000,000.00 loan is
not considered unconscionable.30 In the case at bench, there is
no specified period as to the payment of the loan. Hence, levying
6% monthly or 72% interest per annum is definitely outrageous and
inordinate.31cralawred

The situation that it was the debtor who insisted on the interest
rate will not exempt Rolando from a ruling that the rate is void.
As this Court cited in Asian Cathay Finance and Leasing Corporation
v. Gravador,32 [t]he imposition of an unconscionable rate of
interest on a money debt, even if knowingly and voluntarily
assumed, is immoral and unjust. It is tantamount to a repugnant
spoliation and an iniquitous deprivation of property, repulsive to
the common sense of man.33 Indeed, voluntariness does not make
the stipulation on [an unconscionable] interest valid.34cralawred

As exhaustibly discussed, no monetary interest is due Rolando

pursuant to Article 1956. The CA thus correctly adjudged that the
excess interest payments made by L&J should be applied to its
principal loan. As computed by the CA, Rolando is bound to return
the excess payment of P226,000.00 to L&J following the principle
of solutio indebiti.35cralawred

However, pursuant to Central Bank Circular No. 799 s. 2013 which

took effect on July 1, 2013,36 the interest imposed by the CA must
be accordingly modified. The P226,000.00 which Rolando is ordered
to pay L&J shall earn an interest of 6% per annum from the finality
of this Decision.

WHEREFORE, the Decision dated February 27, 2008 of the Court of

Appeals in CA-G.R. SP No. 100094 is hereby AFFIRMED with
modification that petitioner Rolando C. De La Paz is ordered to
pay respondent L&J Development Company the amount of P226,000.00,
plus interest of 6% per annum from the finality of this Decision
until fully paid.

SO ORDERED.cralawlaw library

Carpio, (Acting Chief Justice),** Brion, Villarama, Jr.,*** and

Leonen, JJ., concur.