1. G.R. No.
o. 80294-95 September 21, 1988 and the Heirs of Egmidio Octaviano filed their Answer/Opposition on Lots Nos. 2 and 3,
CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE, petitioner,
vs.
COURT OF APPEALS, HEIRS OF EGMIDIO OCTAVIANO AND JUAN
VALDEZ, respondents.
GANCAYCO, J.:
The principal issue in this case is whether or not a decision of the Court of Appeals
promulgated a long time ago can properly be considered res judicata by respondent
Court of Appeals in the present two cases between petitioner and two private
respondents.
Petitioner questions as allegedly erroneous the Decision dated August 31, 1987 of the
Ninth Division of Respondent Court of Appeals 1 in CA-G.R. No. 05148 [Civil Case No.
3607 (419)] and CA-G.R. No. 05149 [Civil Case No. 3655 (429)], both for Recovery of
Possession, which affirmed the Decision of the Honorable Nicodemo T. Ferrer, Judge of
the Regional Trial Court of Baguio and Benguet in Civil Case No. 3607 (419) and Civil
Case No. 3655 (429), with the dispositive portion as follows:
WHEREFORE, Judgment is hereby rendered ordering the defendant, Catholic Vicar
Apostolic of the Mountain Province to return and surrender Lot 2 of Plan Psu-194357 to
the plaintiffs. Heirs of Juan Valdez, and Lot 3 of the same Plan to the other set of
plaintiffs, the Heirs of Egmidio Octaviano (Leonardo Valdez, et al.). For lack or
insufficiency of evidence, the plaintiffs' claim or damages is hereby denied. Said
defendant is ordered to pay costs. (p. 36, Rollo)
Respondent Court of Appeals, in affirming the trial court's decision, sustained the trial
court's conclusions that the Decision of the Court of Appeals, dated May 4,1977 in CA-
G.R. No. 38830-R, in the two cases affirmed by the Supreme Court, touched on the
ownership of lots 2 and 3 in question; that the two lots were possessed by the
predecessors-in-interest of private respondents under claim of ownership in good faith
from 1906 to 1951; that petitioner had been in possession of the same lots as bailee in
commodatum up to 1951, when petitioner repudiated the trust and when it applied for
registration in 1962; that petitioner had just been in possession as owner for eleven
years, hence there is no possibility of acquisitive prescription which requires 10 years
possession with just title and 30 years of possession without; that the principle of res
judicata on these findings by the Court of Appeals will bar a reopening of these questions
of facts; and that those facts may no longer be altered.
Petitioner's motion for reconsideation of the respondent appellate court's Decision in the
two aforementioned cases (CA G.R. No. CV-05418 and 05419) was denied.
The facts and background of these cases as narrated by the trail court are as follows —
... The documents and records presented reveal that the whole controversy started when
the defendant Catholic Vicar Apostolic of the Mountain Province (VICAR for brevity) filed
with the Court of First Instance of Baguio Benguet on September 5, 1962 an application
for registration of title over Lots 1, 2, 3, and 4 in Psu-194357, situated at Poblacion
Central, La Trinidad, Benguet, docketed as LRC N-91, said Lots being the sites of the
Catholic Church building, convents, high school building, school gymnasium, school
dormitories, social hall, stonewalls, etc. On March 22, 1963 the Heirs of Juan Valdez
respectively, asserting ownership and title thereto. After trial on the merits, the land
registration court promulgated its Decision, dated November 17, 1965, confirming the
registrable title of VICAR to Lots 1, 2, 3, and 4.
The Heirs of Juan Valdez (plaintiffs in the herein Civil Case No. 3655) and the Heirs of
Egmidio Octaviano (plaintiffs in the herein Civil Case No. 3607) appealed the decision of
the land registration court to the then Court of Appeals, docketed as CA-G.R. No. 38830-
R. The Court of Appeals rendered its decision, dated May 9, 1977, reversing the decision
of the land registration court and dismissing the VICAR's application as to Lots 2 and 3,
the lots claimed by the two sets of oppositors in the land registration case (and two sets
of plaintiffs in the two cases now at bar), the first lot being presently occupied by the
convent and the second by the women's dormitory and the sister's convent.
On May 9, 1977, the Heirs of Octaviano filed a motion for reconsideration praying the
Court of Appeals to order the registration of Lot 3 in the names of the Heirs of Egmidio
Octaviano, and on May 17, 1977, the Heirs of Juan Valdez and Pacita Valdez filed their
motion for reconsideration praying that both Lots 2 and 3 be ordered registered in the
names of the Heirs of Juan Valdez and Pacita Valdez. On August 12,1977, the Court of
Appeals denied the motion for reconsideration filed by the Heirs of Juan Valdez on the
ground that there was "no sufficient merit to justify reconsideration one way or the other
...," and likewise denied that of the Heirs of Egmidio Octaviano.
Thereupon, the VICAR filed with the Supreme Court a petition for review on certiorari of
the decision of the Court of Appeals dismissing his (its) application for registration of
Lots 2 and 3, docketed as G.R. No. L-46832, entitled 'Catholic Vicar Apostolic of the
Mountain Province vs. Court of Appeals and Heirs of Egmidio Octaviano.'
From the denial by the Court of Appeals of their motion for reconsideration the Heirs of
Juan Valdez and Pacita Valdez, on September 8, 1977, filed with the Supreme Court a
petition for review, docketed as G.R. No. L-46872, entitled, Heirs of Juan Valdez and
Pacita Valdez vs. Court of Appeals, Vicar, Heirs of Egmidio Octaviano and Annable O.
Valdez.
On January 13, 1978, the Supreme Court denied in a minute resolution both petitions
(of VICAR on the one hand and the Heirs of Juan Valdez and Pacita Valdez on the other)
for lack of merit. Upon the finality of both Supreme Court resolutions in G.R. No. L-
46832 and G.R. No. L- 46872, the Heirs of Octaviano filed with the then Court of First
Instance of Baguio, Branch II, a Motion For Execution of Judgment praying that the
Heirs of Octaviano be placed in possession of Lot 3. The Court, presided over by Hon.
Salvador J. Valdez, on December 7, 1978, denied the motion on the ground that the
Court of Appeals decision in CA-G.R. No. 38870 did not grant the Heirs of Octaviano any
affirmative relief.
On February 7, 1979, the Heirs of Octaviano filed with the Court of Appeals a petitioner
for certiorari and mandamus, docketed as CA-G.R. No. 08890-R, entitled Heirs of
Egmidio Octaviano vs. Hon. Salvador J. Valdez, Jr. and Vicar. In its decision dated May
16, 1979, the Court of Appeals dismissed the petition.
It was at that stage that the instant cases were filed. The Heirs of Egmidio Octaviano
filed Civil Case No. 3607 (419) on July 24, 1979, for recovery of possession of Lot 3; and
the Heirs of Juan Valdez filed Civil Case No. 3655 (429) on September 24, 1979, likewise
for recovery of possession of Lot 2 (Decision, pp. 199-201, Orig. Rec.).
In Civil Case No. 3607 (419) trial was held. The plaintiffs Heirs of Egmidio Octaviano
presented one (1) witness, Fructuoso Valdez, who testified on the alleged ownership of
the land in question (Lot 3) by their predecessor-in-interest, Egmidio Octaviano (Exh. C
); his written demand (Exh. B—B-4 ) to defendant Vicar for the return of the land to
them; and the reasonable rentals for the use of the land at P10,000.00 per month. On
the other hand, defendant Vicar presented the Register of Deeds for the Province of
Benguet, Atty. Nicanor Sison, who testified that the land in question is not covered by
any title in the name of Egmidio Octaviano or any of the plaintiffs (Exh. 8). The defendant
dispensed with the testimony of Mons.William Brasseur when the plaintiffs admitted
that the witness if called to the witness stand, would testify that defendant Vicar has
been in possession of Lot 3, for seventy-five (75) years continuously and peacefully and
has constructed permanent structures thereon.
In Civil Case No. 3655, the parties admitting that the material facts are not in dispute,
submitted the case on the sole issue of whether or not the decisions of the Court of
Appeals and the Supreme Court touching on the ownership of Lot 2, which in effect
declared the plaintiffs the owners of the land constitute res judicata.
In these two cases , the plaintiffs arque that the defendant Vicar is barred from setting
up the defense of ownership and/or long and continuous possession of the two lots in
question since this is barred by prior judgment of the Court of Appeals in CA-G.R. No.
038830-R under the principle of res judicata. Plaintiffs contend that the question of
possession and ownership have already been determined by the Court of Appeals (Exh.
C, Decision, CA-G.R. No. 038830-R) and affirmed by the Supreme Court (Exh. 1, Minute
Resolution of the Supreme Court). On his part, defendant Vicar maintains that the
principle of res judicata would not prevent them from litigating the issues of long
possession and ownership because the dispositive portion of the prior judgment in CA-
G.R. No. 038830-R merely dismissed their application for registration and titling of lots
2 and 3. Defendant Vicar contends that only the dispositive portion of the decision, and
not its body, is the controlling pronouncement of the Court of Appeals. 2
The alleged errors committed by respondent Court of Appeals according to petitioner are
as follows:
1. ERROR IN APPLYING LAW OF THE CASE AND RES JUDICATA;
2. ERROR IN FINDING THAT THE TRIAL COURT RULED THAT LOTS 2 AND 3 WERE
ACQUIRED BY PURCHASE BUT WITHOUT DOCUMENTARY EVIDENCE PRESENTED;
3. ERROR IN FINDING THAT PETITIONERS' CLAIM IT PURCHASED LOTS 2 AND 3
FROM VALDEZ AND OCTAVIANO WAS AN IMPLIED ADMISSION THAT THE FORMER
OWNERS WERE VALDEZ AND OCTAVIANO;
4. ERROR IN FINDING THAT IT WAS PREDECESSORS OF PRIVATE RESPONDENTS
WHO WERE IN POSSESSION OF LOTS 2 AND 3 AT LEAST FROM 1906, AND NOT
PETITIONER;
5. ERROR IN FINDING THAT VALDEZ AND OCTAVIANO HAD FREE PATENT
APPLICATIONS AND THE PREDECESSORS OF PRIVATE RESPONDENTS ALREADY
HAD FREE PATENT APPLICATIONS SINCE 1906;
6. ERROR IN FINDING THAT PETITIONER DECLARED LOTS 2 AND 3 ONLY IN 1951
AND JUST TITLE IS A PRIME NECESSITY UNDER ARTICLE 1134 IN RELATION TO ART.
1129 OF THE CIVIL CODE FOR ORDINARY ACQUISITIVE PRESCRIPTION OF 10
YEARS;
7. ERROR IN FINDING THAT THE DECISION OF THE COURT OF APPEALS IN CA G.R.
NO. 038830 WAS AFFIRMED BY THE SUPREME COURT;
8. ERROR IN FINDING THAT THE DECISION IN CA G.R. NO. 038830 TOUCHED ON
OWNERSHIP OF LOTS 2 AND 3 AND THAT PRIVATE RESPONDENTS AND THEIR
PREDECESSORS WERE IN POSSESSION OF LOTS 2 AND 3 UNDER A CLAIM OF
OWNERSHIP IN GOOD FAITH FROM 1906 TO 1951;
9. ERROR IN FINDING THAT PETITIONER HAD BEEN IN POSSESSION OF LOTS 2 AND
3 MERELY AS BAILEE BOR ROWER) IN COMMODATUM, A GRATUITOUS LOAN FOR
USE;
10. ERROR IN FINDING THAT PETITIONER IS A POSSESSOR AND BUILDER IN GOOD
FAITH WITHOUT RIGHTS OF RETENTION AND REIMBURSEMENT AND IS BARRED BY
THE FINALITY AND CONCLUSIVENESS OF THE DECISION IN CA G.R. NO. 038830. 3
The petition is bereft of merit.
Petitioner questions the ruling of respondent Court of Appeals in CA-G.R. Nos. 05148
and 05149, when it clearly held that it was in agreement with the findings of the trial
court that the Decision of the Court of Appeals dated May 4,1977 in CA-G.R. No. 38830-
R, on the question of ownership of Lots 2 and 3, declared that the said Court of Appeals
Decision CA-G.R. No. 38830-R) did not positively declare private respondents as owners
of the land, neither was it declared that they were not owners of the land, but it held
that the predecessors of private respondents were possessors of Lots 2 and 3, with claim
of ownership in good faith from 1906 to 1951. Petitioner was in possession as borrower
in commodatum up to 1951, when it repudiated the trust by declaring the properties in
its name for taxation purposes. When petitioner applied for registration of Lots 2 and 3
in 1962, it had been in possession in concept of owner only for eleven years. Ordinary
acquisitive prescription requires possession for ten years, but always with just title.
Extraordinary acquisitive prescription requires 30 years. 4
On the above findings of facts supported by evidence and evaluated by the Court of
Appeals in CA-G.R. No. 38830-R, affirmed by this Court, We see no error in respondent
appellate court's ruling that said findings are res judicatabetween the parties. They can
no longer be altered by presentation of evidence because those issues were resolved with
finality a long time ago. To ignore the principle of res judicata would be to open the door
to endless litigations by continuous determination of issues without end.
An examination of the Court of Appeals Decision dated May 4, 1977, First Division 5 in
CA-G.R. No. 38830-R, shows that it reversed the trial court's Decision 6 finding
petitioner to be entitled to register the lands in question under its ownership, on its
evaluation of evidence and conclusion of facts.
The Court of Appeals found that petitioner did not meet the requirement of 30 years
possession for acquisitive prescription over Lots 2 and 3. Neither did it satisfy the
requirement of 10 years possession for ordinary acquisitive prescription because of the
absence of just title. The appellate court did not believe the findings of the trial court
that Lot 2 was acquired from Juan Valdez by purchase and Lot 3 was acquired also by
purchase from Egmidio Octaviano by petitioner Vicar because there was absolutely no
documentary evidence to support the same and the alleged purchases were never
mentioned in the application for registration.
By the very admission of petitioner Vicar, Lots 2 and 3 were owned by Valdez and
Octaviano. Both Valdez and Octaviano had Free Patent Application for those lots since
1906. The predecessors of private respondents, not petitioner Vicar, were in possession
of the questioned lots since 1906.
There is evidence that petitioner Vicar occupied Lots 1 and 4, which are not in question,
but not Lots 2 and 3, because the buildings standing thereon were only constructed after
liberation in 1945. Petitioner Vicar only declared Lots 2 and 3 for taxation purposes in
1951. The improvements oil Lots 1, 2, 3, 4 were paid for by the Bishop but said Bishop
was appointed only in 1947, the church was constructed only in 1951 and the new
convent only 2 years before the trial in 1963.
When petitioner Vicar was notified of the oppositor's claims, the parish priest offered to
buy the lot from Fructuoso Valdez. Lots 2 and 3 were surveyed by request of petitioner
Vicar only in 1962.
Private respondents were able to prove that their predecessors' house was borrowed by
petitioner Vicar after the church and the convent were destroyed. They never asked for
the return of the house, but when they allowed its free use, they became bailors
in commodatum and the petitioner the bailee. The bailees' failure to return the subject
matter of commodatum to the bailor did not mean adverse possession on the part of the
borrower. The bailee held in trust the property subject matter of commodatum. The
adverse claim of petitioner came only in 1951 when it declared the lots for taxation
purposes. The action of petitioner Vicar by such adverse claim could not ripen into title
by way of ordinary acquisitive prescription because of the absence of just title.
The Court of Appeals found that the predecessors-in-interest and private respondents
were possessors under claim of ownership in good faith from 1906; that petitioner Vicar
was only a bailee in commodatum; and that the adverse claim and repudiation of trust
came only in 1951.
We find no reason to disregard or reverse the ruling of the Court of Appeals in CA-G.R.
No. 38830-R. Its findings of fact have become incontestible. This Court declined to review
said decision, thereby in effect, affirming it. It has become final and executory a long
time ago.
Respondent appellate court did not commit any reversible error, much less grave abuse
of discretion, when it held that the Decision of the Court of Appeals in CA-G.R. No.
38830-R is governing, under the principle of res judicata, hence the rule, in the present
cases CA-G.R. No. 05148 and CA-G.R. No. 05149. The facts as supported by evidence
established in that decision may no longer be altered.
WHEREFORE AND BY REASON OF THE FOREGOING, this petition is DENIED for lack
of merit, the Decision dated Aug. 31, 1987 in CA-G.R. Nos. 05148 and 05149, by
respondent Court of Appeals is AFFIRMED, with costs against petitioner.
2. G.R. No. L-17474 October 25, 1962
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,
vs.
JOSE V. BAGTAS, defendant,
FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate left by the late
Jose V. Bagtas, petitioner-appellant.
PADILLA, J.:
The Court of Appeals certified this case to this Court because only questions of law are
raised.
On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the Philippines through
the Bureau of Animal Industry three bulls: a Red Sindhi with a book value of P1,176.46,
a Bhagnari, of P1,320.56 and a Sahiniwal, of P744.46, for a period of one year from 8
May 1948 to 7 May 1949 for breeding purposes subject to a government charge of
breeding fee of 10% of the book value of the bulls. Upon the expiration on 7 May 1949
of the contract, the borrower asked for a renewal for another period of one year. However,
the Secretary of Agriculture and Natural Resources approved a renewal thereof of only
one bull for another year from 8 May 1949 to 7 May 1950 and requested the return of
the other two. On 25 March 1950 Jose V. Bagtas wrote to the Director of Animal Industry
that he would pay the value of the three bulls. On 17 October 1950 he reiterated his
desire to buy them at a value with a deduction of yearly depreciation to be approved by
the Auditor General. On 19 October 1950 the Director of Animal Industry advised him
that the book value of the three bulls could not be reduced and that they either be
returned or their book value paid not later than 31 October 1950. Jose V. Bagtas failed
to pay the book value of the three bulls or to return them. So, on 20 December 1950 in
the Court of First Instance of Manila the Republic of the Philippines commenced an
action against him praying that he be ordered to return the three bulls loaned to him or
to pay their book value in the total sum of P3,241.45 and the unpaid breeding fee in the
sum of P199.62, both with interests, and costs; and that other just and equitable relief
be granted in (civil No. 12818).
On 5 July 1951 Jose V. Bagtas, through counsel Navarro, Rosete and Manalo, answered
that because of the bad peace and order situation in Cagayan Valley, particularly in the
barrio of Baggao, and of the pending appeal he had taken to the Secretary of Agriculture
and Natural Resources and the President of the Philippines from the refusal by the
Director of Animal Industry to deduct from the book value of the bulls corresponding
yearly depreciation of 8% from the date of acquisition, to which depreciation the Auditor
General did not object, he could not return the animals nor pay their value and prayed
for the dismissal of the complaint.
After hearing, on 30 July 1956 the trial court render judgment —
. . . sentencing the latter (defendant) to pay the sum of P3,625.09 the total value
of the three bulls plus the breeding fees in the amount of P626.17 with interest
on both sums of (at) the legal rate from the filing of this complaint and costs.
On 9 October 1958 the plaintiff moved ex parte for a writ of execution which the court
granted on 18 October and issued on 11 November 1958. On 2 December 1958 granted
an ex-parte motion filed by the plaintiff on November 1958 for the appointment of a
special sheriff to serve the writ outside Manila. Of this order appointing a special sheriff,
on 6 December 1958, Felicidad M. Bagtas, the surviving spouse of the defendant Jose case of loss of the bull due to fortuitous event the late husband of the appellant would
Bagtas who died on 23 October 1951 and as administratrix of his estate, was notified. be exempt from liability.
On 7 January 1959 she file a motion alleging that on 26 June 1952 the two bull Sindhi
and Bhagnari were returned to the Bureau Animal of Industry and that sometime in
The appellant's contention that the demand or prayer by the appellee for the return of
November 1958 the third bull, the Sahiniwal, died from gunshot wound inflicted during
the bull or the payment of its value being a money claim should be presented or filed in
a Huk raid on Hacienda Felicidad Intal, and praying that the writ of execution be
the intestate proceedings of the defendant who died on 23 October 1951, is not altogether
quashed and that a writ of preliminary injunction be issued. On 31 January 1959 the
without merit. However, the claim that his civil personality having ceased to exist the
plaintiff objected to her motion. On 6 February 1959 she filed a reply thereto. On the
trial court lost jurisdiction over the case against him, is untenable, because section 17
same day, 6 February, the Court denied her motion. Hence, this appeal certified by the
of Rule 3 of the Rules of Court provides that —
Court of Appeals to this Court as stated at the beginning of this opinion.

After a party dies and the claim is not thereby extinguished, the court shall
It is true that on 26 June 1952 Jose M. Bagtas, Jr., son of the appellant by the late
order, upon proper notice, the legal representative of the deceased to appear
defendant, returned the Sindhi and Bhagnari bulls to Roman Remorin, Superintendent
and to be substituted for the deceased, within a period of thirty (30) days, or
of the NVB Station, Bureau of Animal Industry, Bayombong, Nueva Vizcaya, as
within such time as may be granted. . . .
evidenced by a memorandum receipt signed by the latter (Exhibit 2). That is why in its
objection of 31 January 1959 to the appellant's motion to quash the writ of execution
the appellee prays "that another writ of execution in the sum of P859.53 be issued and after the defendant's death on 23 October 1951 his counsel failed to comply with
against the estate of defendant deceased Jose V. Bagtas." She cannot be held liable for section 16 of Rule 3 which provides that —
the two bulls which already had been returned to and received by the appellee.
Whenever a party to a pending case dies . . . it shall be the duty of his attorney
The appellant contends that the Sahiniwal bull was accidentally killed during a raid by to inform the court promptly of such death . . . and to give the name and
the Huk in November 1953 upon the surrounding barrios of Hacienda Felicidad Intal, residence of the executory administrator, guardian, or other legal
Baggao, Cagayan, where the animal was kept, and that as such death was due to force representative of the deceased . . . .
majeure she is relieved from the duty of returning the bull or paying its value to the
appellee. The contention is without merit. The loan by the appellee to the late defendant
The notice by the probate court and its publication in the Voz de Manila that Felicidad
Jose V. Bagtas of the three bulls for breeding purposes for a period of one year from 8
M. Bagtas had been issue letters of administration of the estate of the late Jose Bagtas
May 1948 to 7 May 1949, later on renewed for another year as regards one bull, was
and that "all persons having claims for monopoly against the deceased Jose V. Bagtas,
subject to the payment by the borrower of breeding fee of 10% of the book value of the
arising from contract express or implied, whether the same be due, not due, or
bulls. The appellant contends that the contract was commodatum and that, for that
contingent, for funeral expenses and expenses of the last sickness of the said decedent,
reason, as the appellee retained ownership or title to the bull it should suffer its loss due
and judgment for monopoly against him, to file said claims with the Clerk of this Court
to force majeure. A contract of commodatum is essentially gratuitous.1 If the breeding fee
at the City Hall Bldg., Highway 54, Quezon City, within six (6) months from the date of
be considered a compensation, then the contract would be a lease of the bull. Under
the first publication of this order, serving a copy thereof upon the aforementioned
article 1671 of the Civil Code the lessee would be subject to the responsibilities of a
Felicidad M. Bagtas, the appointed administratrix of the estate of the said deceased," is
possessor in bad faith, because she had continued possession of the bull after the expiry
not a notice to the court and the appellee who were to be notified of the defendant's
of the contract. And even if the contract be commodatum, still the appellant is liable,
death in accordance with the above-quoted rule, and there was no reason for such failure
because article 1942 of the Civil Code provides that a bailee in a contract
to notify, because the attorney who appeared for the defendant was the same who
of commodatum —
represented the administratrix in the special proceedings instituted for the
administration and settlement of his estate. The appellee or its attorney or representative
. . . is liable for loss of the things, even if it should be through a fortuitous could not be expected to know of the death of the defendant or of the administration
event: proceedings of his estate instituted in another court that if the attorney for the deceased
defendant did not notify the plaintiff or its attorney of such death as required by the
rule.
(2) If he keeps it longer than the period stipulated . . .

As the appellant already had returned the two bulls to the appellee, the estate of the late
(3) If the thing loaned has been delivered with appraisal of its value, unless
defendant is only liable for the sum of P859.63, the value of the bull which has not been
there is a stipulation exempting the bailee from responsibility in case of a
returned to the appellee, because it was killed while in the custody of the administratrix
fortuitous event;
of his estate. This is the amount prayed for by the appellee in its objection on 31 January
1959 to the motion filed on 7 January 1959 by the appellant for the quashing of the writ
The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one bull of execution.
was renewed for another period of one year to end on 8 May 1950. But the appellant
kept and used the bull until November 1953 when during a Huk raid it was killed by
Special proceedings for the administration and settlement of the estate of the deceased
stray bullets. Furthermore, when lent and delivered to the deceased husband of the
Jose V. Bagtas having been instituted in the Court of First Instance of Rizal (Q-200), the
appellant the bulls had each an appraised book value, to with: the Sindhi, at P1,176.46,
money judgment rendered in favor of the appellee cannot be enforced by means of a writ
the Bhagnari at P1,320.56 and the Sahiniwal at P744.46. It was not stipulated that in
of execution but must be presented to the probate court for payment by the appellant,
the administratrix appointed by the court.
 3. G.R. No. L-24968 April 27, 1972
SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee,
vs.
DEVELOPMENT BANK OF THE PHILIPPINES, defendant-appellant.
MAKALINTAL, J.:p
In Civil Case No. 55908 of the Court of First Instance of Manila, judgment was rendered
on June 28, 1965 sentencing defendant Development Bank of the Philippines (DBP) to
pay actual and consequential damages to plaintiff Saura Import and Export Co., Inc. in
the amount of P383,343.68, plus interest at the legal rate from the date the complaint
was filed and attorney's fees in the amount of P5,000.00. The present appeal is from that
judgment.
In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) applied to the
Rehabilitation Finance Corporation (RFC), before its conversion into DBP, for an
industrial loan of P500,000.00, to be used as follows: P250,000.00 for the construction
of a factory building (for the manufacture of jute sacks); P240,900.00 to pay the balance
of the purchase price of the jute mill machinery and equipment; and P9,100.00 as
additional working capital.
Parenthetically, it may be mentioned that the jute mill machinery had already been
purchased by Saura on the strength of a letter of credit extended by the Prudential Bank
and Trust Co., and arrived in Davao City in July 1953; and that to secure its release
without first paying the draft, Saura, Inc. executed a trust receipt in favor of the said
bank.
On January 7, 1954 RFC passed Resolution No. 145 approving the loan application for
P500,000.00, to be secured by a first mortgage on the factory building to be constructed,
the land site thereof, and the machinery and equipment to be installed. Among the other
terms spelled out in the resolution were the following:
1. That the proceeds of the loan shall be utilized exclusively for the following purposes:
For construction of factory building P250,000.00
For payment of the balance of purchase
price of machinery and equipment 240,900.00
For working capital 9,100.00
T O T A L P500,000.00
4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto Caolboy and Gregoria
Estabillo and China Engineers, Ltd. shall sign the promissory notes jointly with the
borrower-corporation;
5. That release shall be made at the discretion of the Rehabilitation Finance Corporation,
subject to availability of funds, and as the construction of the factory buildings
progresses, to be certified to by an appraiser of this Corporation;"
Saura, Inc. was officially notified of the resolution on January 9, 1954. The day before,
however, evidently having otherwise been informed of its approval, Saura, Inc. wrote a
letter to RFC, requesting a modification of the terms laid down by it, namely: that in lieu
of having China Engineers, Ltd. (which was willing to assume liability only to the extent
of its stock subscription with Saura, Inc.) sign as co-maker on the corresponding
promissory notes, Saura, Inc. would put up a bond for P123,500.00, an amount
equivalent to such subscription; and that Maria S. Roca would be substituted for
Inocencia Arellano as one of the other co-makers, having acquired the latter's shares in
Saura, Inc.
In view of such request RFC approved Resolution No. 736 on February 4, 1954,
designating of the members of its Board of Governors, for certain reasons stated in the
resolution, "to reexamine all the aspects of this approved loan ... with special reference
as to the advisability of financing this particular project based on present conditions
obtaining in the operations of jute mills, and to submit his findings thereon at the next
meeting of the Board."
On March 24, 1954 Saura, Inc. wrote RFC that China Engineers, Ltd. had again agreed
to act as co-signer for the loan, and asked that the necessary documents be prepared in
accordance with the terms and conditions specified in Resolution No. 145. In connection
with the reexamination of the project to be financed with the loan applied for, as stated
in Resolution No. 736, the parties named their respective committees of engineers and
technical men to meet with each other and undertake the necessary studies, although
in appointing its own committee Saura, Inc. made the observation that the same "should
not be taken as an acquiescence on (its) part to novate, or accept new conditions to, the
agreement already) entered into," referring to its acceptance of the terms and conditions
mentioned in Resolution No. 145.
On April 13, 1954 the loan documents were executed: the promissory note, with F.R.
Halling, representing China Engineers, Ltd., as one of the co-signers; and the
corresponding deed of mortgage, which was duly registered on the following April 17.
It appears, however, that despite the formal execution of the loan agreement the
reexamination contemplated in Resolution No. 736 proceeded. In a meeting of the RFC
Board of Governors on June 10, 1954, at which Ramon Saura, President of Saura, Inc.,
was present, it was decided to reduce the loan from P500,000.00 to P300,000.00.
Resolution No. 3989 was approved as follows:
RESOLUTION No. 3989. Reducing the Loan Granted Saura Import & Export Co., Inc.
under Resolution No. 145, C.S., from P500,000.00 to P300,000.00. Pursuant to Bd. Res.
No. 736, c.s., authorizing the re-examination of all the various aspects of the loan
granted the Saura Import & Export Co. under Resolution No. 145, c.s., for the purpose
of financing the manufacture of jute sacks in Davao, with special reference as to the
advisability of financing this particular project based on present conditions obtaining in
the operation of jute mills, and after having heard Ramon E. Saura and after extensive
discussion on the subject the Board, upon recommendation of the Chairman,
RESOLVED that the loan granted the Saura Import & Export Co. be REDUCED from
P500,000 to P300,000 and that releases up to P100,000 may be authorized as may be
necessary from time to time to place the factory in actual operation: PROVIDED that all
terms and conditions of Resolution No. 145, c.s., not inconsistent herewith, shall remain
in full force and effect."
On June 19, 1954 another hitch developed. F.R. Halling, who had signed the promissory
note for China Engineers Ltd. jointly and severally with the other RFC that his company
no longer to of the loan and therefore considered the same as cancelled as far as it was
concerned. A follow-up letter dated July 2 requested RFC that the registration of the
mortgage be withdrawn.
In the meantime Saura, Inc. had written RFC requesting that the loan of P500,000.00
be granted. The request was denied by RFC, which added in its letter-reply that it was
"constrained to consider as cancelled the loan of P300,000.00 ... in view of a notification
... from the China Engineers Ltd., expressing their desire to consider the loan insofar as
they are concerned."
On July 24, 1954 Saura, Inc. took exception to the cancellation of the loan and informed
RFC that China Engineers, Ltd. "will at any time reinstate their signature as co-signer
of the note if RFC releases to us the P500,000.00 originally approved by you.".
On December 17, 1954 RFC passed Resolution No. 9083, restoring the loan to the
original amount of P500,000.00, "it appearing that China Engineers, Ltd. is now willing
to sign the promissory notes jointly with the borrower-corporation," but with the
following proviso:
That in view of observations made of the shortage and high cost of imported raw
materials, the Department of Agriculture and Natural Resources shall certify to the
following:
1. That the raw materials needed by the borrower-corporation to carry out its operation
are available in the immediate vicinity; and
2. That there is prospect of increased production thereof to provide adequately for the
requirements of the factory."
The action thus taken was communicated to Saura, Inc. in a letter of RFC dated
December 22, 1954, wherein it was explained that the certification by the Department
of Agriculture and Natural Resources was required "as the intention of the original
approval (of the loan) is to develop the manufacture of sacks on the basis of locally
available raw materials." This point is important, and sheds light on the subsequent
actuations of the parties. Saura, Inc. does not deny that the factory he was building in
Davao was for the manufacture of bags from local raw materials. The cover page of its
brochure (Exh. M) describes the project as a "Joint venture by and between the
Mindanao Industry Corporation and the Saura Import and Export Co., Inc. to finance,
manage and operate a Kenaf mill plant, to manufacture copra and corn bags, runners,
floor mattings, carpets, draperies; out of 100% local raw materials, principal kenaf." The
explanatory note on page 1 of the same brochure states that, the venture "is the first
serious attempt in this country to use 100% locally grown raw materials
notably kenaf which is presently grown commercially in theIsland of Mindanao where
the proposed jutemill is located ..."
This fact, according to defendant DBP, is what moved RFC to approve the loan
application in the first place, and to require, in its Resolution No. 9083, a certification
from the Department of Agriculture and Natural Resources as to the availability of local
raw materials to provide adequately for the requirements of the factory. Saura, Inc. itself
confirmed the defendant's stand impliedly in its letter of January 21, 1955: (1) stating
that according to a special study made by the Bureau of Forestry "kenaf will not be
available in sufficient quantity this year or probably even next year;" (2) requesting
"assurances (from RFC) that my company and associates will be able to bring in
sufficient jute materials as may be necessary for the full operation of the jute mill;" and
(3) asking that releases of the loan be made as follows:
a) For the payment of the receipt for jute mill
machineries with the Prudential Bank &
Trust Company P250,000.00
(For immediate release)
b) For the purchase of materials and equip-
ment per attached list to enable the jute
mill to operate 182,413.91
c) For raw materials and labor 67,586.09
1) P25,000.00 to be released on the open-
ing of the letter of credit for raw jute
for $25,000.00.
2) P25,000.00 to be released upon arrival
of raw jute.
3) P17,586.09 to be released as soon as the
mill is ready to operate.
On January 25, 1955 RFC sent to Saura, Inc. the following reply:
Dear Sirs:
This is with reference to your letter of January 21, 1955, regarding the release of your
loan under consideration of P500,000. As stated in our letter of December 22, 1954, the
releases of the loan, if revived, are proposed to be made from time to time, subject to
availability of funds towards the end that the sack factory shall be placed in actual
operating status. We shall be able to act on your request for revised purpose and manner
of releases upon re-appraisal of the securities offered for the loan.
With respect to our requirement that the Department of Agriculture and Natural
Resources certify that the raw materials needed are available in the immediate vicinity
and that there is prospect of increased production thereof to provide adequately the
requirements of the factory, we wish to reiterate that the basis of the original approval
is to develop the manufacture of sacks on the basis of the locally available raw materials.
Your statement that you will have to rely on the importation of jute and your request
that we give you assurance that your company will be able to bring in sufficient jute
materials as may be necessary for the operation of your factory, would not be in line with
our principle in approving the loan.
With the foregoing letter the negotiations came to a standstill. Saura, Inc. did not pursue
the matter further. Instead, it requested RFC to cancel the mortgage, and so, on June
17, 1955 RFC executed the corresponding deed of cancellation and delivered it to Ramon
F. Saura himself as president of Saura, Inc.
It appears that the cancellation was requested to make way for the registration of a
mortgage contract, executed on August 6, 1954, over the same property in favor of the
Prudential Bank and Trust Co., under which contract Saura, Inc. had up to December
31 of the same year within which to pay its obligation on the trust receipt heretofore
mentioned. It appears further that for failure to pay the said obligation the Prudential
Bank and Trust Co. sued Saura, Inc. on May 15, 1955.
On January 9, 1964, ahnost 9 years after the mortgage in favor of RFC was cancelled at
the request of Saura, Inc., the latter commenced the present suit for damages, alleging
failure of RFC (as predecessor of the defendant DBP) to comply with its obligation to
release the proceeds of the loan applied for and approved, thereby preventing the plaintiff
from completing or paying contractual commitments it had entered into, in connection
with its jute mill project.
The trial court rendered judgment for the plaintiff, ruling that there was a perfected
contract between the parties and that the defendant was guilty of breach thereof. The
defendant pleaded below, and reiterates in this appeal: (1) that the plaintiff's cause of
action had prescribed, or that its claim had been waived or abandoned; (2) that there
was no perfected contract; and (3) that assuming there was, the plaintiff itself did not
comply with the terms thereof.
We hold that there was indeed a perfected consensual contract, as recognized in Article
1934 of the Civil Code, which provides:
ART. 1954. An accepted promise to deliver something, by way of commodatum or simple
loan is binding upon the parties, but the commodatum or simple loan itself shall not be
perferted until the delivery of the object of the contract.
There was undoubtedly offer and acceptance in this case: the application of Saura, Inc.
for a loan of P500,000.00 was approved by resolution of the defendant, and the
corresponding mortgage was executed and registered. But this fact alone falls short of
resolving the basic claim that the defendant failed to fulfill its obligation and the plaintiff
is therefore entitled to recover damages.
It should be noted that RFC entertained the loan application of Saura, Inc. on the
assumption that the factory to be constructed would utilize locally grown raw materials,
principally kenaf. There is no serious dispute about this. It was in line with such
assumption that when RFC, by Resolution No. 9083 approved on December 17, 1954,
restored the loan to the original amount of P500,000.00. it imposed two conditions, to
wit: "(1) that the raw materials needed by the borrower-corporation to carry out its
operation are available in the immediate vicinity; and (2) that there is prospect of
increased production thereof to provide adequately for the requirements of the factory."
The imposition of those conditions was by no means a deviation from the terms of the
agreement, but rather a step in its implementation. There was nothing in said conditions
that contradicted the terms laid down in RFC Resolution No. 145, passed on January 7,
1954, namely — "that the proceeds of the loan shall be utilized exclusively for the
following purposes: for construction of factory building — P250,000.00; for payment of
the balance of purchase price of machinery and equipment — P240,900.00; for working
capital — P9,100.00." Evidently Saura, Inc. realized that it could not meet the conditions
required by RFC, and so wrote its letter of January 21, 1955, stating that local jute "will
not be able in sufficient quantity this year or probably next year," and asking that out of
the loan agreed upon the sum of P67,586.09 be released "for raw materials and labor."
This was a deviation from the terms laid down in Resolution No. 145 and embodied in
the mortgage contract, implying as it did a diversion of part of the proceeds of the loan
to purposes other than those agreed upon.
When RFC turned down the request in its letter of January 25, 1955 the negotiations
which had been going on for the implementation of the agreement reached an impasse.
Saura, Inc. obviously was in no position to comply with RFC's conditions. So instead of
doing so and insisting that the loan be released as agreed upon, Saura, Inc. asked that
the mortgage be cancelled, which was done on June 15, 1955. The action thus taken by
both parties was in the nature cf mutual desistance — what Manresa terms "mutuo
disenso"1 — which is a mode of extinguishing obligations. It is a concept that derives
from the principle that since mutual agreement can create a contract, mutual
disagreement by the parties can cause its extinguishment.2
The subsequent conduct of Saura, Inc. confirms this desistance. It did not protest
against any alleged breach of contract by RFC, or even point out that the latter's stand
was legally unjustified. Its request for cancellation of the mortgage carried no reservation
of whatever rights it believed it might have against RFC for the latter's non-compliance.
In 1962 it even applied with DBP for another loan to finance a rice and corn project,
which application was disapproved. It was only in 1964, nine years after the loan
agreement had been cancelled at its own request, that Saura, Inc. brought this action
for damages.All these circumstances demonstrate beyond doubt that the said agreement
had been extinguished by mutual desistance — and that on the initiative of the plaintiff-
appellee itself.
With this view we take of the case, we find it unnecessary to consider and resolve the
other issues raised in the respective briefs of the parties.
WHEREFORE, the judgment appealed from is reversed and the complaint dismissed,
with costs against the plaintiff-appellee.
4. G.R. No. L-48349 December 29, 1986
FRANCISCO HERRERA, plaintiff-appellant,
vs.
PETROPHIL CORPORATION, defendant-appellee.
Paterno R. Canlas Law Offices for plaintiff-appellant.
CRUZ, J.:
This is an appeal by the plaintiff-appellant from a decision rendered by the then Court
of First Instance of Rizal on a pure question of law. 1
The judgment appealed from was rendered on the pleadings, the parties having agreed
during the pretrial conference on the factual antecedents.
The facts are as follows: On December 5, 1969, the plaintiff-appellant and ESSO
Standard Eastern. Inc., (later substituted by Petrophil Corporation) entered into a "Lease
Agreement" whereby the former leased to the latter a portion of his property for a period
of twenty (20) years from said date, subject inter alia to the following conditions:
3. Rental: The LESSEE shall pay the LESSOR a rental of Pl.40 sqm. per month on 400
sqm. and are to be expropriated later on (sic) or P560 per month and Fl.40 per sqm. per
month on 1,693 sqm. or P2,370.21 per month or a total of P2,930.20 per month 2,093
sqm. more or less, payable yearly in advance within the 1st twenty days of each year;
provided, a financial aid in the sum of P15,000 to clear the leased premises of existing
improvements thereon is paid in this manner; P10,000 upon execution of this lease and
P5,000 upon delivery of leased premises free and clear of improvements thereon within
30 days from the date of execution of this agreement. The portion on the side of the
leased premises with an area of 365 sqrm. more or less, will be occupied by LESSEE
without rental during the lifetime of this lease. PROVIDED FINALLY, that the Lessor is
paid 8 years advance rental based on P2,930.70 per month discounted at 12% interest
per annum or a total net amount of P130,288.47 before registration of lease. Leased
premises shall be delivered within 30 days after 1st partial payment of financial aid. 2
On December 31, 1969, pursuant to the said contract, the defendant-appellee paid to
the plaintfff-appellant advance rentals for the first eight years, subtracting therefrom the
amount of P101,010.73, the amount it computed as constituting the interest or discount
for the first eight years, in the total sum P180,288.47. On August 20, 1970, the
defendant-appellee, explaining that there had been a mistake in computation, paid to
the appellant the additional sum of P2,182.70, thereby reducing the deducted amount
to only P98,828.03. 3
On October 14, 1974, the plaintiff-appellant sued the defendant-appellee for the sum of
P98,828.03, with interest, claiming this had been illegally deducted from him in violation
of the Usury Law. 4 He also prayed for moral damages and attorney's fees. In its answer,
the defendant-appellee admitted the factual allegations of the complaint but argued that
the amount deducted was not usurious interest but a given to it for paying the rentals
in advance for eight years. 5 Judgment on the pleadings was rendered for the
defendant. 6
Plaintiff-appellant now prays for a reversal of that judgment, insisting that the lower
court erred in the computation of the interest collected out of the rentals paid for the
first eight years; that such interest was excessive and violative of the Usury Law; and
that he had neither agreed to nor accepted the defendant-appellant's computation of the
total amount to be deducted for the eight years advance rentals. 7
The thrust of the plaintiff-appellant's position is set forth in paragraph 6 of his
complaint, which read:
6. The interest collected by defendant out of the rentals for the first eight years was
excessive and beyond that allowable by law, because the total interest on the said
amount is only P33,755.90 at P4,219.4880 per yearly rental; and considering that the
interest should be computed excluding the first year rental because at the time the
amount of P281, 199.20 was paid it was already due under the lease contract hence no
interest should be collected from the rental for the first year, the amount of P29,536.42
only as the total interest should have been deducted by defendant from the sum of
P281,299.20.
The defendant maintains that the correct amount of the discount is P98,828.03 and that
the same is not excessive and above that allowed by law.
As its title plainly indicates, the contract between the parties is one of lease and not of
loan. It is clearly denominated a "LEASE AGREEMENT." Nowhere in the contract is there
any showing that the parties intended a loan rather than a lease. The provision for the
payment of rentals in advance cannot be construed as a repayment of a loan because
there was no grant or forbearance of money as to constitute an indebtedness on the part
of the lessor. On the contrary, the defendant-appellee was discharging its obligation in
advance by paying the eight years rentals, and it was for this advance payment that it
was getting a rebate or discount.
The provision for a discount is not unusual in lease contracts. As to its validity, it is
settled that the parties may establish such stipulations, clauses, terms and condition as
they may want to include; and as long as such agreements are not contrary to law,
morals, good customs, public policy or public order, they shall have the force of law
between them. 8
There is no usury in this case because no money was given by the defendant-appellee to
the plaintiff-appellant, nor did it allow him to use its money already in his
possession. 9 There was neither loan nor forbearance but a mere discount which the
plaintiff-appellant allowed the defendant-appellee to deduct from the total payments
because they were being made in advance for eight years. The discount was in effect a
reduction of the rentals which the lessor had the right to determine, and any reduction
thereof, by any amount, would not contravene the Usury Law.
The difference between a discount and a loan or forbearance is that the former does not
have to be repaid. The loan or forbearance is subject to repayment and is therefore
governed by the laws on usury. 10
To constitute usury, "there must be loan or forbearance; the loan must be of money or
something circulating as money; it must be repayable absolutely and in all events; and
something must be exacted for the use of the money in excess of and in addition to
interest allowed by law." 11
It has been held that the elements of usury are (1) a loan, express or implied; (2) an
understanding between the parties that the money lent shall or may be returned; that
for such loan a greater rate or interest that is allowed by law shall be paid, or agreed to
be paid, as the case may be; and (4) a corrupt intent to take more than the legal rate for
the use of money loaned. Unless these four things concur in every transaction, it is safe
to affirm that no case of usury can be declared. 12
Concerning the computation of the deductible discount, the trial court declared:
As above-quoted, the 'Lease Agreement' expressly provides that the lessee (defendant)
shag pay the lessor (plaintiff) eight (8) years in advance rentals based on P2,930.20 per
month discounted at 12% interest per annum. Thus, the total rental for one-year period
is P35,162.40 (P2,930.20 multiplied by 12 months) and that the interest therefrom is
P4,219.4880 (P35,162.40 multiplied by 12%). So, therefore, the total interest for the first
eight (8) years should be only P33,755.90 (P4,129.4880 multiplied by eight (8) years and
not P98,828.03 as the defendant claimed it to be.
The afore-quoted manner of computation made by plaintiff is patently erroneous. It is
most seriously misleading. He just computed the annual discount to be at P4,129.4880
and then simply multiplied it by eight (8) years. He did not take into consideration the
naked fact that the rentals due on the eight year were paid in advance by seven (7) years,
the rentals due on the seventh year were paid in advance by six (6) years, those due on
the sixth year by five (5) years, those due on the fifth year by four (4) years, those due
on the fourth year by three (3) years, those due on the third year by two (2) years, and
those due on the second year by one (1) year, so much so that the total number of years
by which the annual rental of P4,129.4880 was paid in advance is twenty-eight (28),
resulting in a total amount of P118,145.44 (P4,129.48 multiplied by 28 years) as the
discount. However, defendant was most fair to plaintiff. It did not simply multiply the
annual rental discount by 28 years. It computed the total discount with the principal
diminishing month to month as shown by Annex 'A' of its memorandum. This is why the
total discount amount to only P 8,828.03.
The allegation of plaintiff that defendant made the computation in a compounded
manner is erroneous. Also after making its own computations and after examining
closely defendant's Annex 'A' of its memorandum, the court finds that defendant did not
charge 12% discount on the rentals due for the first year so much so that the
computation conforms with the provision of the Lease Agreement to the effect that the
rentals shall be 'payable yearly in advance within the 1st 20 days of each year. '
We do not agree. The above computation appears to be too much technical mumbo-
jumbo and could not have been the intention of the parties to the transaction. Had it
been so, then it should have been clearly stipulated in the contract. Contracts should be
interpreted according to their literal meaning and should not be interpreted beyond their
obvious intendment. 13
The plaintfff-appellant simply understood that for every year of advance payment there
would be a deduction of 12% and this amount would be the same for each of the eight
years. There is no showing that the intricate computation applied by the trial court was
explained to him by the defendant-appellee or that he knowingly accepted it.
The lower court, following the defendant-appellee's formula, declared that the plaintiff-
appellant had actually agreed to a 12% reduction for advance rentals for all of twenty
eight years. That is absurd. It is not normal for a person to agree to a reduction
corresponding to twenty eight years advance rentals when all he is receiving in advance
rentals is for only eight years.
The deduction shall be for only eight years because that was plainly what the parties
intended at the time they signed the lease agreement. "Simplistic" it may be, as the
Solicitor General describes it, but that is how the lessor understood the arrangement. In
fact, the Court will reject his subsequent modification that the interest should be limited
to only seven years because the first year rental was not being paid in advance. The
agreement was for a uniform deduction for the advance rentals for each of
the eight years, and neither of the parties can deviate from it now.
On the annual rental of P35,168.40, the deducted 12% discount was P4,220.21; and for
eight years, the total rental was P281,347.20 from which was deducted the total discount
of P33,761.68, leaving a difference of P247,585.52. Subtracting from this amount, the
sum of P182,471.17 already paid will leave a balance of P65,114.35 still due the plaintiff-
appellant.
The above computation is based on the more reasonable interpretation of the contract as
a whole rather on the single stipulation invoked by the respondent for the flat reduction
of P130,288.47.
WHEREFORE, the decision of the trial court is hereby modified, and the defendant-
appellee Petrophil Corporation is ordered to pay plaintiff-appellant the amount of Sixty
Five Thousand One Hundred Fourteen pesos and Thirty-Five Centavos (P65,114.35),
with interest at the legal rate until fully paid, plus Ten Thousand Pesos (P10,000.00) as
attorney's fees. Costs against the defendant-appellee.
5. G.R. No. L-60705 June 28, 1989
INTEGRATED REALTY CORPORATION and RAUL L. SANTOS, petitioners,
vs.
PHILIPPINE NATIONAL BANK, OVERSEAS BANK OF MANILA and THE HON.
COURT OF APPEALS, respondents.
G.R. No. L-60907 June 28, 1989
OVERSEAS BANK OF MANILA, petitioner,
vs.
COURT OF APPEALS, INTEGRATED REALTY CORPORATION, and RAUL L.
SANTOS, respondents.
REGALADO, J.:
In these petitions for review on certiorari, Integrated Realty Corporation and Raul Santos
(G.R. No. 60705), and Overseas Bank of Manila (G.R. No. 60907) appeal from the decision
of the Court of Appeals, 1 the decretal portion of which states:
WHEREFORE, with the modification that appellee Overseas Bank of Manila is ordered
to pay to the appellant Raul Santos the sum of P 700,000.00 due under the time deposit
certificates Nos. 2308 and 2367 with 6 1/2 (sic) interest per annum from date of issue
until fully paid, the appealed decision is affirmed in all other respects.
In G.R. No. 60705, petitioners Integrated Realty Corporation (hereafter, IRC and Raul L.
Santos (hereafter, Santos) seek the dismissal of the complaint filed by the Philippine
National Bank (hereafter, PNB), or in the event that they be held liable thereunder, to
revive and affirm that portion of the decision of the trial court ordering Overseas Bank
of Manila (hereafter, OBM) to pay IRC and Santos whatever amounts the latter will pay
to PNB, with interest from the date of payment. 2
On the other hand, in G.R. No. 60907, petitioner OBM challenges the decision of
respondent court insofar as it holds OBM liable for interest on the time deposit with it
of Santos corresponding to the period of its closure by order of the Central Bank. 3
In its assailed decision, the respondent Court of Appeals, quoting from the decision of
the lower court, 4 narrated the antecedents of this case in this wise:
The facts of this case are not seriously disputed by any of the parties. They are set forth
in the decision of the trial court as follows:
Under date 11 January 1967 defendant Raul L. Santos made a time deposit with
defendant OBM in the amount of P 500,000.00. (Exhibit-10 OBM) and was issued a
Certificate of Time Deposit No. 2308 (Exhibit 1 Santos, Exhibit D). Under date 6 February
1967 defendant Raul L. Santos also made a time deposit with defendant OBM in the
amount of P 200,000.00 (Exhibit 11 OBM and was issued certificate of Time Deposit No.
2367 (Exhibit 2 Santos, Exhibit E).
Under date 9 February 1967 defendant IRC thru its President-defendant Raul L. Santos,
applied for a loan and/or credit line (Exhibit A) in the amount of P 700,000.00 with
plaintiff bank. To secure the said loan, defendant Raul L. Santos executed on August
11, 1967 a Deed of Assignment (Exhibit C) of the two time deposits (Exhibits 1-Santos
and 2 Santos, also Exhibits D and E) in favor of plaintiff. Defendant OBM gave its
conformity to the assignment thru letter dated 11 August 1967 (Exhibit F). On the same
date, defendant IRC thru its President Raul L. Santos, also executed a Deed of
Conformity to Loan Conditions (Exhibit G).
The defendant OBM after the due dates of the time deposit certificates, did not pay
plaintiff PNB. Plaintiff demanded payment from defendants IRC and Raul L. Santos
(Exhibit K) and from defendant OBM (Exhibit L). Defendants IRC and Raul L. Santos
replied that the obligation (loan) of defendant IRC was deemed paid with the irrevocable
assignment of the time deposit certificates (Exhibits 5 Santos, 6 Santos and 7 Santos).
On April 6, 1969 (sic), ** PNB filed a complaint to collect from IRC and Santos the loan
of P 700,000.00 with interest as well as attomey's fees. It impleaded OBM as a defendant
to compel it to redeem and pay to it Santos' time deposit certificates with interest, plus
exemplary and corrective damages, attorney's fees, and cost.
In their answer to the complaint, IRC and Santos alleged that PNB has no cause of action
against them because their obligation to PNB was fully paid or extinguished upon the'
irrevocable' assignment of the time deposit certificates, and that they are not answerable
for the insolvency of OBM They filed a counterclaim for damages against PNB and a
cross-claim against OBM alleging that OBM acted fraudulently in refusing to pay the
time deposit certificates to PNB resulting in the filing of the suit against them by PNB,
and that, therefore, OBM should pay them whatever amount they may be ordered by the
court to pay PNB with interest. They also asked that OBM be ordered to pay them
compensatory, moral, exemplary and corrective damages.
In its answer to the complaint, OBM denied knowledge of the time deposit certificates
because the alleged time deposit of Santos 'does not appear in its books of account.
Whereupon, IRC and Santos, with leave of court, filed a third-party complaint against
Emerito B. Ramos, Jr., president of OBM and Rodolfo R. Sunico, treasurer of said bank,
who allegedly received the time deposits of Santos and issued the certificates therefor.
Answering the third-party complaint, Ramos and Sunico alleged that IRC and Santos
have no cause of action against them because they received and signed the time deposit
certificates as officers of OBM that the time deposits are recorded in the subsidiary
ledgers of the bank and are 'civil liabilities of the defendant OBM
On November 18, 1970, OBM filed an amended or supplemental answer to the
complaint, acknowledging the certificates of time deposit that it issued to Santos, and
admitting its failure to pay the same due to its distressed financial situation. As
affirmative defenses, it alleged that by reason of its state of insolvency its operations
have been suspended by the Central Bank since August 1, 1968; that the time deposits
ceased to earn interest from that date; that it may not give preference to any depositor
or creditor; and that payment of the plaintiffs claim is prohibited.
On January 30, 1976, the lower court rendered judgment for the plaintiff, the dispositive
portion of which reads as foIlows
WHEREFORE, judgment is hereby rendered, ordering:
1. The defendant Integrated Realty Corporation and Raul L. Santos to pay the plaintiff,
jointly and solidarily, the total amount of P 700,000.00 plus interest at the rate of 9%
per annum from maturity dates of the two promissory notes on January 11 and February
6, 1968, respectively (Exhibits M and I), plus 1-1/ 2% additional interest effective
February 28, 1968 and additional penalty interest of 1% per annum of the Id amount of
P 700,000.00 from the time of maturity of Id loan up to the time the said amount of P
700,000.00 is actually paid to the plaintiff;
2. The defendants topay l0% of the amount of P 700,000.00 as and for attorney's fees;
3. The defendant Overseas Bank of Manila to pay cross-plaintiffs Integrated Realty
Corporation and Raul L. Santos whatever amounts the latter will pay to the plaintiff with
interest from date of payment;
4. The defendant Overseas Bank of Manila to pay cross-plaintiffs Integrated Realty
Corporation and Raul L. Santos the amount of P 10,000.00 as and for attorney's fees;
5. The third-party complaint and cross-claim dismissed;
6. The defendant Overseas Bank of Manila to pay the costs.
SO ORDERED. 5
IRC Santos and OBM all appealed to the respondent Court of Appeals. As
stated in limine, on March 16, 1982 respondent court promulgated its appealed
decision, with a modification and the deletion of that portion of the judgment of the trial
court ordering OBM to pay IRC and Santos whatever amounts they will pay to PNB with
interest from the date of payment.
Therein defendants-appellants, through separate petitions, have brought the said
decision to this Court for review.
1. The first issue posed before us for resolution is whether the liability of IRC and Santos
with PNB should be deemed to have been paid by virtue of the deed of assignment made
by the former in favor of PNB, which reads:
KNOW ALL MEN BY THESE PRESENTS;
I, RAUL L. SANTOS, of legal age, Filipino, with residence and postal address at 661
Richmond St., Mandaluyong, Rizal for and in consideration of certain loans, overdrafts
and other credit accommodations granted or those that may hereafter be granted to
me/us by the PHILIPPINE NATIONAL BANK, have assigned, transferred and conveyed
and by these presents, do hereby assign, transfer and convey by way of security unto
said PHILIPPINE NATIONAL BANK its successors and assigns the following Certificates
of Time Deposit issued by the OVERSEAS BANK OF MANILA, its CONFORMITY issued
on August 11, 1967, hereto enclosed as Annex ' A', in favor of RAUL L. SANTOS and/or
NORA S. SANTOS, in the aggregate sum of SEVEN HUNDRED THOUSAND PESOS ONLY
(P 700,000.00), Philippine Currency, ....
xxx xxx xxx
It is also understood that the herein Assignor/s shall remain hable for any outstanding
balance of his/their obligation if the Bank is unable to actually receive or collect the
above assigned sums , monies or properties resulting from any agreements, orders or
decisions of the court or for any other cause whatsoever. 6
xxx xxx xxx
Respondent Court of Appeals did not consider the aforesaid assignment as payment,
thus:
The contention of IRC and Santos that the irrevocable assignment of the time deposit
certificates to PNB constituted payment' of their obligation to the latter is not well taken.
Where a certificate of deposit in a bank, payable at a future day, was handed over by a
debtor to his creditor, it was not payment, unless there was an express agreement on
the part of the creditor to receive it as such, and the question whether there was or was
not such an agreement, was one of facts to be decided by the jury. (Downey vs. Hicks,
55 U.S. [14 How.] 240 L. Ed. 404; See also Michie, Vol. 5-B Banks and Banking, p.
200). 7
We uphold respondent court on this score.
In Lopez vs. Court of appeals, et al., 8 petitioner Benito Lopez obtained a loan for P
20,000.00 from the Prudential Bank and Trust Company. On the same day, he executed
a promissory note in favor of the bank and, in addition, he executed a surety bond in
which he, as principal, and Philippine American General Insurance Co., Inc. (Philamgen),
as surety, bound themselves jointly and severally in favor of the bank for the payment
of the loan. On the same occasion, Lopez also executed in favor of Philamgen an
indemnity agreement whereby he agreed to indemnify the company against any damages
which the latter may sustain in consequence of having become a surety upon the bond.
At the same time, Lopez executed a deed of assignment of his shares of stock in the
Baguio Military Institute, Inc. in favor of Philamgen. When Lopez' obligation matured
without being settled, Philamgen caused the transfer of the shares of stocks to its name
in order that it may sell the same and apply the proceeds thereof in payment of the loan
to the bank. However, when no payment was still made by the principal debtor or surety,
the bank filed a complaint which compelled Philamgen to pay the bank. Thereafter,
Philamgen filed an action to recover the amount of the loan against Lopez. The trial court
therein held that the obligation of Lopez was deemed paid when his shares of stocks
were transferred in the name of Philamgen. On appeal, the Court of Appeals ruled that
Lopez was still liable to Philamgen because, pending payment, Philamgen was merely
holding the stock as security for the payment of Lopez' obligation.
In upholding the finding therein of the Court of Appeals, We held that:
Notwithstanding the express terms of the 'Stock Assignment Separate from Certificate',
however, We hold and rule that the transaction should not be regarded as an absolute
conveyance in view of the circumstances obtaining at the time of the execution thereof.
It should be remembered that on June 2, 1959, the day Lopez obtained a loan of P
20,000.00 from Prudential Bank, Lopez executed a promissory note for P 20,000.00,
plus interest at the rate of ten (10%) per cent per annum, in favor of said Bank. He
likewise posted a surety bond to secure his full and faithful performance of his obligation
under the promissory note with Philamgen as his surety. In return for the undertaking
of Philamgen under the surety bond, Lopez executed on the same day not only an
indemnity agreement but also a stock assignment.
The indemnity agreement and stock assignment must be considered together as related
transactions because in order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered. (Article 1371,
New Civil Code). Thus, considering that the indemnity agreement connotes a continuing
obligation of Lopez towards Philamgen while the stock assignment indicates a complete
discharge of the same obligation, the existence of the indemnity agreement whereby
Lopez had to pay a premium of P l,000.00 for a period of one year and agreed at all times
to indemnify Philamgen of any and all kinds of losses which the latter might sustain by
reason of it becoming a surety, is inconsistent with the theory of an absolute sale for
and in consideration of the same undertaking of Philamgen. There would have been no
necessity for the execution of the indemnity agreement if the stock assignment was really
intended as an absolute conveyance. ...
Along the same vein, in the case at bar it would not have been necessary on the part of
IRC and Santos to execute promissory notes in favor of PNB if the assignment of the time
deposits of Santos was really intended as an absolute conveyance.
There are cogent reasons to conclude that the parties intended said deed of assignment
to complement the promissory notes. In declaring that the deed of assignment did not
operate as payment of the loan so as to extinguish the obligations of IRC and Santos
with PNB, the trial court advanced several valid bases, to wit:
a. It is clear from the Deed of Assignment that it was only by way of security;
xxx xxx xxx
b. The promissory notes (Exhibits H and I) were executed on August 16, 1967. If
defendants IRC and Raul L. Santos, upon executing the Deed of Assignment on August
11, 1967 had already paid their loan of P 700,000.00 or otherwise extinguished the
same, why were the promissory notes made on August 16, 1967 still executed by IRC
and signed by Raul L. Santos as President?
c. In the application for a credit line (Exhibit A),the time deposits were offered as
collateral. 9
For all intents and purposes, the deed of assignment in this case is actually a pledge.
Adverting again to the Court's pronouncements in Lopez, supra, we quote therefrom:
The character of the transaction between the parties is to be determined by their
intention, regardless of what language was used or what the form of the transfer was. If
it was intended to secure the payment of money, it must be construed as a pledge; but
if there was some other intention, it is not a pledge. However, even though a transfer, if
regarded by itself, appears to have been absolute, its object and character might still be
qualified and explained by a contemporaneous writing declaring it to have been a deposit
of the property as collateral security. It has been said that a transfer of property by the
debtor to a creditor, even if sufficient on its face to make an absolute conveyance, should
be treated as a pledge if the debt continues in existence and is not discharged by the
transfer, and that accordingly, the use of the terms ordinarily importing conveyance, of
absolute ownership will not be given that effect in such a transaction if they are also
commonly used in pledges and mortgages and therefore do not unqualifiedly indicate a
transfer of absolute ownership, in the absence of clear and unambiguous language or
other circumstances excluding an intent to pledge. 10
The facts and circumstances leading to the execution of the deed of assignment, as found
by the court a quo and the respondent court, yield said conclusion that it is in fact a
pledge. The deed of assignment has satisfied the requirements of a contract of pledge (1)
that it be constituted to secure the fulfillment of a principal obligation; (2) that the
pledgor be the absolute owner of the thing pledged; (3) that the persons constituting the
pledge have the free disposal of their property, and in the absence thereof, that they be
legally authorized for the purpose. 11 The further requirement that the thing pledged be
placed in the possession of the creditor, or of a third person by common
agreement 12 was complied with by the execution of the deed of assignment in favor of
PNB.
It must also be emphasized that Santos, as assignor, made an express undertaking that
he would remain liable for any outstanding balance of his obligation should PNB be
unable to actually receive or collect the assigned sums resulting from any agreements,
orders or decisions of the court or for any other cause whatsoever. The term "for any
cause whatsoever" is broad enough to include the situation involved in the present case.
Under the foregoing circumstances and considerations, the unavoidable conclusion is
that IRC and Santos should be held liable to PNB for the amount of the loan with the
corresponding interest thereon.
2. We find nothing illegal in the interest of one and one-half percent (1-1/2%) imposed
by PNB pursuant to the resolution of its Board which presumably was done in
accordance with ordinary banking procedures. Not only did IRC and Santos fail to
overcome the presumption of regularity of business transactions, but they are likewise
estopped from questioning the validity thereof for the first time in this petition. There is
nothing in the records to show that they raised this issue during the trial by presenting
countervailing evidence. What was merely touched upon during the proceedings in the
court below was the alleged lack of notice to them of the board resolution, but not the
veracity or validity thereof.
3. On the issue of whether OBM should be held liable for interests on the time deposits
of IRC and Santos from the time it ceased operations until it resumed its business, the
answer is in the negative.
We have held in The Overseas Bank of Manila vs. Court of Appeals and Tony D.
Tapia, 13 that:
It is a matter of common knowledge, which We take judicial notice of, that what enables
a bank to pay stipulated interest on money deposited with it is that thru the other
aspects of its operation it is able to generate funds to cover the payment of such interest.
Unless a bank can lend money, engage in international transactions, acquire foreclosed
mortgaged properties or their proceeds and generally engage in other banking and
financing activities from which it can derive income, it is inconceivable how it can carry
on as a depository obligated to pay stipulated interest. Conventional wisdom dictated;
this inexorable fair and just conclusion. And it can be said that all who deposit money
in banks are aware of such a simple economic proposition petition. Consequently, it
should be deemed read into every contract of deposit with a bank that the obligation to
pay interest on the deposit ceases the moment the operation of the bank is completely
suspended by the duly constituted authority, the Central Bank.
We consider it of trivial consequence that the stoppage of the bank's operation by the
Central Bank has been subsequently declared illegal by the Supreme Court, for before
the Court's order, the bank had no alternative under the law than to obey the orders of
the Central Bank. Whatever be the juridical significance of the subsequent action of the
Supreme Court, the stubborn fact remained that the petitioner was totally crippled from
then on from earning the income needed to meet its obligations to its depositors. If such
a situation cannot, strictly speaking, be legally denominated as 'force majeure', as
maintained by private respondent, We hold it is a matter of simple equity that it be
treated as such.
The Court further adjured that:
Parenthetically, We may add for the guidance of those who might be concerned, and so
that unnecessary litigations be avoided from further clogging the dockets of the courts,
that in the light of the considerations expounded in the above opinion, the same formula
that exempts petitioner from the payment of interest to its depositors during the whole
period of factual stoppage of its operations by orders of the Central Bank, modified in
effect by the decision as well as the approval of a formula of rehabilitation by this Court,
should be, as a matter of consistency, applicable or followed in respect to all other
obligations of petitioner which could not be paid during the period of its actual complete
closure.
We cannot accept the holding of the respondent Court of Appeals that the above-cited
decisions apply only where the bank is in a state of liquidation. In the very case
aforecited, this issue was likewise raised and We resolved:
Thus, Our task is narrowed down to the resolution of the legal problem of whether or
not, for purposes of the payment of the interest here in question, stoppage of the
operations of a bank by a legal order of liquidation may be equated with actual cessation
of the bank's operation, not different, factually speaking, in its effects, from legal
liquidation the factual cessation having been ordered by the Central Bank.
In the case of Chinese Grocer's Association, et al. vs. American Apothecaries, 65 Phil.
395, this Court held:
As to the second assignment of error, this Court, in G.R. No. 43682, In re Liquidation of
the Mercantile Bank of China, Tan Tiong Tick, claimant and appellant vs. American
Apothecaries, C., et al., claimants and appellees, through Justice Imperial, held the
following:
4. The court held that the appellant is not entitled to charge interest on the amounts of
his claims, and this is the object of the second assignment of error, Upon this point a
distinction must be made between the interest which the deposits should earn from their
existence until the bank ceased to operate, and that which they may earn from the time
the bank's operations were stopped until the date of payment of the deposits. As to the
first-class, we hold that it should be paid because such interest has been earned in the
ordinary course of the bank's businesses and before the latter has been declared in a
state of liquidation. Moreover, the bank being authorized by law to make use of the
deposits with the limitation stated, to invest the same in its business and other
operations, it may be presumed that it bound itself to pay interest to the depositors as
in fact it paid interest prior to the dates of the Id claims. As to the interest which may be
charged from the date the bank ceased to do business because it was declared in a state
of liquidation, we hold that the said interest should not be paid.
The Court of Appeals considered this ruling inapplicable to the instant case, precisely
because, as contended by private respondent, the said Apothecaries case had in fact in
contemplation a valid order of liquidation of the bank concerned, whereas here, the order
of the Central Bank of August 13, 1968 completely forbidding herein petitioner to do
business preparatory to its liquidation was first restrained and then nullified by this
Supreme Court. In other words, as far as private respondent is concerned, it is the legal
reason for cessation of operations, not the actual cessation thereof, that matters and is
decisive insofar as his right to the continued payment of the interest on his deposit
during the period of cessation is concerned.
In the light of the peculiar circumstances of this particular case, We disagree. It is Our
considered view, after mature deliberation, that it is utterly unfair to award private
respondent his prayer for payment of interest on his deposit during the period that
petitioner bank was not allowed by the Central Bank to operate.
4. Lastly, IRC and Santos claim that OBM should reimburse them for whatever amounts
they may be adjudged to pay PNB by way of compensation for damages incurred,
pursuant to Articles 1170 and 2201 of the Civil Code.
It appears that as early as April, 1967, the financial situation of OBM had already caused
mounting concern in the Central Bank. 14 On December 5, 1967, new directors and
officers drafted from the Central Bank (CB) itself, the Philippine National Bank (PNB)
and the Development Bank of the Philippines (DBP) were elected and installed and they
took over the management and control of the Overseas Bank. 15 However, it was only
on July 31, 1968 when OBM was excluded from clearing with the CB under Monetary
Board Resolution No. 1263. Subsequently, on August 2, 1968, pursuant to Resolution
No. 1290 of the CB OBM's operations were suspended. 16 These CB resolutions were
eventually annulled and set aside by this Court on October 4, 1971 in the decision
rendered in the herein cited case of Ramos.
Thus, when PNB demanded from OBM payment of the amounts due on the two time
deposits which matured on January 11, 1968 and February 6, 1968, respectively, there
was as yet no obstacle to the faithful compliance by OBM of its liabilities thereunder.
Consequently, for having incurred in delay in the performance of its obligation, OBM
should be held liable for damages. 17 When respondent Santos invested his money in
time deposits with OBM they entered into a contract of simple loan or mutuum, 18 not
a contract of deposit.
While it is true that under Article 1956 of the Civil Code no interest shall be due unless
it has been expressly stipulated in writing, this applies only to interest for the use of
money. It does not comprehend interest paid as damages. 19 OBM contends that it had
agreed to pay interest only up to the dates of maturity of the certificates of time deposit
and that respondent Santos is not entitled to interest after the maturity dates had
expired, unless the contracts are renewed. This is true with respect to the stipulated
interest, but the obligations consisting as they did in the payment of money, under
Article 1108 of the Civil Code he has the right to recover damages resulting from the
default of OBM and the measure of such damages is interest at the legal rate of six
percent (6%) per annum on the amounts due and unpaid at the expiration of the periods
respectively provided in the contracts. In fine, OBM is being required to pay such
interest, not as interest income stipulated in the certificates of time deposit, but as
damages for failure and delay in the payment of its obligations which thereby compelled
IRC and Santos to resort to the courts.
The applicable rule is that legal interest, in the nature of damages for non-compliance
with an obligation to pay a sum of money, is recoverable from the date judicial or extra-
judicial demand is made, 20 Which latter mode of demand was made by PNB, after the
maturity of the certificates of time deposit, on March 1, 1968. 21 The measure of such
damages, there being no stipulation to the contrary, shall be the payment of the interest
agreed upon in the certificates of deposit 22 Which is six and onehalf percent (6-1/2%).
Such interest due or accrued shall further earn legal interest from the time of judicial
demand. 23
interests upon OBM whose liability should be strictly confined to and within the
provisions of the certificates of time deposit involved in this case. In fact, as noted by
respondent court, when OBM assigned as error that portion of the judgment of the court
a quo requiring OBM to make the disputed reimbursement, IRC and Santos did not
dispute that objection of OBM Besides, IRC and Santos are not without fault. They
likewise acted in bad faith when they refuse to comply with their obligations under the
promissory notes, thus incurring liability for all damages reasonably attributable to the
non-payment of said obligations. 24
WHEREFORE, judgment is hereby rendered, ordering:
1. Integrated Realty Corporation and Raul L. Santos to pay Philippine National Bank,
jointly and severally, the total amount of seven hundred thousand pesos (P 700,000.00),
with interest thereon at the rate of nine percent (9%) per annum from the maturity dates
of the two promissory notes on January 11 and February 6, 1968, respectively, plus one
and one-half percent (1-1/2%) additional interest per annum effective February 28, 1968
and additional penalty interest of one percent (1%) per annum of the said amount of
seven hundred thousand pesos (P 700,000.00) from the time of maturity of said loan up
to the time the said amount of seven hundred thousand pesos (P 700,000.00) is fully
paid to Philippine National Bank.
2. Integrated Realty Corporation and Raul L. Santos to pay solidarily Philippine National
Bank ten percent (10%) of the amount of seven hundred thousand pesos (P 700,000.00)
as and for attorney's fees.
3. Overseas Bank of Manila to pay Integrated Realty Corporation and Raul L. Santos the
sum of seven hundred thousand pesos (P 700,000.00) due under Time Deposit
Certificates Nos. 2308 and 2367, with interest thereon of six and one-half percent (6-
1/2%) per annum from their dates of issue on January 11, 1967 and February 6, 1967,
respectively, until the same are fully paid, except that no interest shall be paid during
the entire period of actual cessation of operations by Overseas Bank of Manila;
4. Overseas Bank of Manila to pay Integrated Realty Corporation and Raul L. Santos six
and one-half per cent (6-1/2%) interest in the concept of damages on the principal
amounts of said certificates of time deposit from the date of extrajudicial demand by PNB
on March 1, 1968, plus legal interest of six percent (6%) on said interest from April 6,
1968, until fifth payment thereof, except during the entire period of actual cessation of
operations of said bank.
5. Overseas Bank of Manila to pay Integrated Realty Corporation and Raul L. Santos ten
thousand pesos (P l0,000.00) as and for attorney's fees.

We reject the proposition of IRC and Santos that OBM should reimburse them the entire
amount they may be adjudged to pay PNB. It must be noted that their liability to pay the
various interests of nine percent (9%) on the principal obligation, one and one-half
percent (1-1/2%) additional interest and one percent (1%) penalty interest is an offshoot
of their failure to pay under the terms of the two promissory notes executed in favor of
PNB. OBM was never a party to Id promissory notes. There is, therefore, no privity of
contract between OBM and PNB which will justify the imposition of the aforesaid
 6. G.R. No. L-46145 November 26, 1986
REPUBLIC OF THE PHILIPPINES (BUREAU OF LANDS), petitioner,
vs.
THE HON. COURT OF APPEALS, HEIRS OF DOMINGO P. BALOY, represented by
RICARDO BALOY, ET AL., respondents.
Pelaez, Jalondoni, Adriano and Associates for respondents.
PARAS, J.:p
This case originally emanated from a decision of the then Court of First Instance of
Zambales in LRC Case No. 11-0, LRC Record No. N-29355, denying respondents'
application for registration. From said order of denial the applicants, heirs of Domingo
Baloy, represented by Ricardo P. Baloy, (herein private respondents) interposed on
appeal to the Court of Appeals which was docketed as CA-G.R. No. 52039-R. The
appellate court, thru its Fifth Division with the Hon. Justice Magno Gatmaitan as
ponente, rendered a decision dated February 3, 1977 reversing the decision appealed
from and thus approving the application for registration. Oppositors (petitioners herein)
filed their Motion for Reconsideration alleging among other things that applicants'
possessory information title can no longer be invoked and that they were not able to
prove a registerable title over the land. Said Motion for Reconsideration was denied,
hence this petition for review on certiorari.
Applicants' claim is anchored on their possessory information title (Exhibit F which had
been translated in Exhibit F-1) coupled with their continuous, adverse and public
possession over the land in question. An examination of the possessory information title
shows that the description and the area of the land stated therein substantially coincides
with the land applied for and that said possessory information title had been regularly
issued having been acquired by applicants' predecessor, Domingo Baloy, under the
provisions of the Spanish Mortgage Law. Applicants presented their tax declaration on
said lands on April 8, 1965.
The Director of Lands opposed the registration alleging that this land had become public
land thru the operation of Act 627 of the Philippine Commission. On November 26, 1902
pursuant to the executive order of the President of the U.S., the area was declared within
the U.S. Naval Reservation. Under Act 627 as amended by Act 1138, a period was fixed
within which persons affected thereby could file their application, (that is within 6
months from July 8, 1905) otherwise "the said lands or interest therein will be
conclusively adjudged to be public lands and all claims on the part of private individuals
for such lands or interests therein not to presented will be forever barred." Petitioner
argues that since Domingo Baloy failed to file his claim within the prescribed period, the
land had become irrevocably public and could not be the subject of a valid registration
for private ownership.
Considering the foregoing facts respondents Court of Appeals ruled as follows:
... perhaps, the consequence was that upon failure of Domingo Baloy to have filed his
application within that period the land had become irrevocably public; but perhaps also,
for the reason that warning was from the Clerk of the Court of Land Registration, named
J.R. Wilson and there has not been presented a formal order or decision of the said Court
of Land Registration so declaring the land public because of that failure, it can with
plausibility be said that after all, there was no judicial declaration to that effect, it is true
that the U.S. Navy did occupy it apparently for some time, as a recreation area, as this
Court understands from the communication of the Department of Foreign Affairs to the
U.S. Embassy exhibited in the record, but the very tenor of the communication
apparently seeks to justify the title of herein applicants, in other words, what this Court
has taken from the occupation by the U.S. Navy is that during the interim, the title of
applicants was in a state of suspended animation so to speak but it had not died either;
and the fact being that this land was really originally private from and after the issuance
and inscription of the possessory information Exh. F during the Spanish times, it would
be most difficult to sustain position of Director of Lands that it was land of no private
owner; open to public disposition, and over which he has control; and since immediately
after U.S. Navy had abandoned the area, applicant came in and asserted title once again,
only to be troubled by first Crispiniano Blanco who however in due time, quitclaimed in
favor of applicants, and then by private oppositors now, apparently originally tenants of
Blanco, but that entry of private oppositors sought to be given color of ownership when
they sought to and did file tax declaration in 1965, should not prejudice the original
rights of applicants thru their possessory information secured regularly so long ago, the
conclusion must have to be that after all, applicants had succeeded in bringing
themselves within the provisions of Sec. 19 of Act 496, the land should be registered in
their favor;
IN VIEW WHEREOF, this Court is constrained to reverse, as it now reverses, judgment
appealed from the application is approved, and once this decision shall have become
final, if ever it would be, let decree issue in favor of applicants with the personal
circumstances outlined in the application, costs against private oppositors.
Petitioner now comes to Us with the following:
ASSIGNMENT OF ERRORS:
1. Respondent court erred in holding that to bar private respondents from asserting any
right under their possessory information title there is need for a court order to that effect.
2. Respondent court erred in not holding that private respondents' rights by virtue of
their possessory information title was lost by prescription.
3. Respondent court erred in concluding that applicants have registerable title.
A cursory reading of Sec. 3, Act 627 reveals that several steps are to be followed before
any affected land can "be conclusively adjudged to be public land." Sec. 3, Act 627 reads
as follows:
SEC. 3. Immediately upon receipt of the notice from the civil Governor in the preceeding
section mentioned it shall be the duty of the judge of the Court of Land Registration to
issue a notice, stating that the lands within the limits aforesaid have been reserved for
military purposes, and announced and declared to be military reservations, and that
claims for all private lands, buildings, and interests therein, within the limits aforesaid,
must be presented for registration under the Land Registration Act within six calendar
months from the date of issuing the notice, and that all lands, buildings, and interests
therein within the limits aforesaid not so presented within the time therein limited will
be conclusively adjudged to be public lands and all claims on the part of private
individuals for such lands, buildings, or an interest therein not so presented will be
forever barred. The clerk of the Court of Land Registration shall immediately upon the
issuing of such notice by the judge cause the same to be published once a week for three
successive weeks in two newspapers, one of which newspapers shall be in the English
Language, and one in the Spanish language in the city or province where the land lies,
if there be no such Spanish or English newspapers having a general circulation in the
city or province wherein the land lies, then it shall be a sufficient compliance with this
section if the notice be published as herein provided, in a daily newspaper in the Spanish
language and one in the English language, in the City of Manila, having a general
circulation. The clerk shall also cause a duly attested copy of the notice in the Spanish
language to be posted in conspicuous place at each angle formed by the lines of the
limits of the land reserved. The clerk shall also issue and cause to be personally served
the notice in the Spanish language upon every person living upon or in visible possession
of any part of the military reservation. If the person in possession is the head of the
family living upon the hand, it shall be sufficient to serve the notice upon him, and if he
is absent it shall be sufficient to leave a copy at his usual place of residence. The clerk
shall certify the manner in which the notices have been published, posted, and served,
and his certificate shall be conclusive proof of such publication, posting, and service,
but the court shall have the power to cause such further notice to be given as in its
opinion may be necessary.
Clearly under said provisions, private land could be deemed to have become public land
only by virtue of a judicial declaration after due notice and hearing. It runs contrary
therefore to the contention of petitioners that failure to present claims set forth under
Sec. 2 of Act 627 made the land ipso facto public without any deed of judicial
pronouncement. Petitioner in making such declaration relied on Sec. 4 of Act 627 alone.
But in construing a statute the entire provisions of the law must be considered in order
to establish the correct interpretation as intended by the law-making body. Act 627 by
its terms is not self-executory and requires implementation by the Court of Land
Registration. Act 627, to the extent that it creates a forfeiture, is a penal statute in
derogation of private rights, so it must be strictly construed so as to safeguard private
respondents' rights. Significantly, petitioner does not even allege the existence of any
judgment of the Land Registration court with respect to the land in question. Without a
judgment or order declaring the land to be public, its private character and the
possessory information title over it must be respected. Since no such order has been
rendered by the Land Registration Court it necessarily follows that it never became
public land thru the operation of Act 627. To assume otherwise is to deprive private
respondents of their property without due process of law. In fact it can be presumed that
the notice required by law to be given by publication and by personal service did not
include the name of Domingo Baloy and the subject land, and hence he and his lane
were never brought within the operation of Act 627 as amended. The procedure laid
down in Sec. 3 is a requirement of due process. "Due process requires that the statutes
which under it is attempted to deprive a citizen of private property without or against
his consent must, as in expropriation cases, be strictly complied with, because such
statutes are in derogation of general rights." (Arriete vs. Director of Public Works, 58
Phil. 507, 508, 511).
We also find with favor private respondents' views that court judgments are not to be
presumed. It would be absurd to speak of a judgment by presumption. If it could be
contended that such a judgment may be presumed, it could equally be contended that
applicants' predecessor Domingo Baloy presumably seasonably filed a claim, in
accordance with the legal presumption that a person takes ordinary care of his concerns,
and that a judgment in his favor was rendered.
The finding of respondent court that during the interim of 57 years from November 26,
1902 to December 17, 1959 (when the U.S. Navy possessed the area) the possessory
rights of Baloy or heirs were merely suspended and not lost by prescription, is supported
by Exhibit "U," a communication or letter No. 1108-63, dated June 24, 1963, which
contains an official statement of the position of the Republic of the Philippines with
regard to the status of the land in question. Said letter recognizes the fact that Domingo
Baloy and/or his heirs have been in continuous possession of said land since 1894 as
attested by an "Informacion Possessoria" Title, which was granted by the Spanish
Government. Hence, the disputed property is private land and this possession was
interrupted only by the occupation of the land by the U.S. Navy in 1945 for recreational
purposes. The U.S. Navy eventually abandoned the premises. The heirs of the late
Domingo P. Baloy, are now in actual possession, and this has been so since the
abandonment by the U.S. Navy. A new recreation area is now being used by the U.S.
Navy personnel and this place is remote from the land in question.
Clearly, the occupancy of the U.S. Navy was not in the concept of owner. It partakes of
the character of a commodatum. It cannot therefore militate against the title of Domingo
Baloy and his successors-in-interest. One's ownership of a thing may be lost by
prescription by reason of another's possession if such possession be under claim of
ownership, not where the possession is only intended to be transient, as in the case of
the U.S. Navy's occupation of the land concerned, in which case the owner is not divested
of his title, although it cannot be exercised in the meantime.
WHEREFORE, premises considered, finding no merit in the petition the appealed
decision is hereby AFFIRMED.
7. G.R. No. L-46240 November 3, 1939
MARGARITA QUINTOS and ANGEL A. ANSALDO, plaintiffs-appellants,
vs.
BECK, defendant-appellee.
Mauricio Carlos for appellants.
Felipe Buencamino, Jr. for appellee.
IMPERIAL, J.:
The plaintiff brought this action to compel the defendant to return her certain furniture
which she lent him for his use. She appealed from the judgment of the Court of First
Instance of Manila which ordered that the defendant return to her the three has heaters
and the four electric lamps found in the possession of the Sheriff of said city, that she
call for the other furniture from the said sheriff of Manila at her own expense, and that
the fees which the Sheriff may charge for the deposit of the furniture be paid pro rata by
both parties, without pronouncement as to the costs.
The defendant was a tenant of the plaintiff and as such occupied the latter's house on
M. H. del Pilar street, No. 1175. On January 14, 1936, upon the novation of the contract
of lease between the plaintiff and the defendant, the former gratuitously granted to the
latter the use of the furniture described in the third paragraph of the stipulation of facts,
subject to the condition that the defendant would return them to the plaintiff upon the
latter's demand. The plaintiff sold the property to Maria Lopez and Rosario Lopez and on
September 14, 1936, these three notified the defendant of the conveyance, giving him
sixty days to vacate the premises under one of the clauses of the contract of lease. There
after the plaintiff required the defendant to return all the furniture transferred to him
for them in the house where they were found. On November 5, 1936, the
defendant, through another person, wrote to the plaintiff reiterating that she may call
for the furniture in the ground floor of the house. On the 7th of the same month, the
defendant wrote another letter to the plaintiff informing her that he could not give up
the three gas heaters and the four electric lamps because he would use them until the
15th of the same month when the lease in due to expire. The plaintiff refused to get the
furniture in view of the fact that the defendant had declined to make delivery of all of
them. On November 15th, before vacating the house, the defendant deposited
with the Sheriff all the furniture belonging to the plaintiff and they are now on deposit
in the warehouse situated at No. 1521, Rizal Avenue, in the custody of the said sheriff.
In their seven assigned errors the plaintiffs contend that the trial court incorrectly
applied the law: in holding that they violated the contract by not calling for all the
furniture on November 5, 1936, when the defendant placed them at their disposal; in
not ordering the defendant to pay them the value of the furniture in case they are not
delivered; in holding that they should get all the furniture from the Sheriff at their
expenses; in ordering them to pay-half of the expenses claimed by the Sheriff for the
deposit of the furniture; in ruling that both parties should pay their respective legal
expenses or the costs; and in denying pay their respective legal expenses or the costs;
and in denying the motions for reconsideration and new trial. To dispose of the case, it
is only necessary to decide whether the defendant complied with his obligation to return
the furniture upon the plaintiff's demand; whether the latter is bound to bear the deposit
fees thereof, and whether she is entitled to the costs of litigation.lawphi1.net
The contract entered into between the parties is one of commadatum, because under it
the plaintiff gratuitously granted the use of the furniture to the defendant, reserving for
herself the ownership thereof; by this contract the defendant bound himself to return
the furniture to the plaintiff, upon the latters demand (clause 7 of the contract, Exhibit
A; articles 1740, paragraph 1, and 1741 of the Civil Code). The obligation voluntarily
assumed by the defendant to return the furniture upon the plaintiff's demand, means
that he should return all of them to the plaintiff at the latter's residence or house. The
defendant did not comply with this obligation when he merely placed them at the
disposal of the plaintiff, retaining for his benefit the three gas heaters and the four eletric
lamps. The provisions of article 1169 of the Civil Code cited by counsel for the parties
are not squarely applicable. The trial court, therefore, erred when it came to the legal
conclusion that the plaintiff failed to comply with her obligation to get the furniture when
they were offered to her.
As the defendant had voluntarily undertaken to return all the furniture to the plaintiff,
upon the latter's demand, the Court could not legally compel her to bear the expenses
occasioned by the deposit of the furniture at the defendant's behest. The latter, as bailee,
was not entitled to place the furniture on deposit; nor was the plaintiff under a duty to
accept the offer to return the furniture, because the defendant wanted to retain the three
gas heaters and the four electric lamps.
As to the value of the furniture, we do not believe that the plaintiff is entitled to the
payment thereof by the defendant in case of his inability to return some of the furniture
because under paragraph 6 of the stipulation of facts, the defendant has neither agreed
to nor admitted the correctness of the said value. Should the defendant fail to deliver
some of the furniture, the value thereof should be latter determined by the trial Court
through evidence which the parties may desire to present.
The costs in both instances should be borne by the defendant because the plaintiff is
the prevailing party (section 487 of the Code of Civil Procedure). The defendant was the
one who breached the contract of commodatum, and without any reason he refused to
return and deliver all the furniture upon the plaintiff's demand. In these circumstances,
it is just and equitable that he pay the legal expenses and other judicial costs which the
plaintiff would not have otherwise defrayed.
The appealed judgment is modified and the defendant is ordered to return and deliver to
the plaintiff, in the residence to return and deliver to the plaintiff, in the residence or
house of the latter, all the furniture described in paragraph 3 of the stipulation of facts
Exhibit A. The expenses which may be occasioned by the delivery to and deposit of the
furniture with the Sheriff shall be for the account of the defendant. the defendant shall
pay the costs in both instances. So ordered.
8. G.R. No. L-20240 December 31, 1965
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,
vs.
JOSE GRIJALDO, defendant-appellant.
ZALDIVAR, J.:
In the year 1943 appellant Jose Grijaldo obtained five loans from the branch office of the
Bank of Taiwan, Ltd. in Bacolod City, in the total sum of P1,281.97 with interest at the
rate of 6% per annum, compounded quarterly. These loans are evidenced by five
promissory notes executed by the appellant in favor of the Bank of Taiwan, Ltd., as
follows: On June 1, 1943, P600.00; on June 3, 1943, P159.11; on June 18, 1943,
P22.86; on August 9, 1943,P300.00; on August 13, 1943, P200.00, all notes without due
dates, but because the loans were due one year after they were incurred. To secure the
payment of the loans the appellant executed a chattel mortgage on the standing crops
on his land, Lot No. 1494 known as Hacienda Campugas in Hinigiran, Negros
Occidental.
By virtue of Vesting Order No. P-4, dated January 21, 1946, and under the authority
provided for in the Trading with the Enemy Act, as amended, the assets in the Philippines
of the Bank of Taiwan, Ltd. were vested in the Government of the United States. Pursuant
to the Philippine Property Act of 1946 of the United States, these assets, including the
loans in question, were subsequently transferred to the Republic of the Philippines by
the Government of the United States under Transfer Agreement dated July 20, 1954.
These assets were among the properties that were placed under the administration of
the Board of Liquidators created under Executive Order No. 372, dated November 24,
1950, and in accordance with Republic Acts Nos. 8 and 477 and other pertinent laws.
On September 29, 1954 the appellee, Republic of the Philippines, represented by the
Chairman of the Board of Liquidators, made a written extrajudicial demand upon the
appellant for the payment of the account in question. The record shows that the
appellant had actually received the written demand for payment, but he failed to pay.
The aggregate amount due as principal of the five loans in question, computed under
the Ballantyne scale of values as of the time that the loans were incurred in 1943, was
P889.64; and the interest due thereon at the rate of 6% per annum compounded
quarterly, computed as of December 31, 1959 was P2,377.23.
On January 17, 1961 the appellee filed a complaint in the Justice of the Peace Court of
Hinigaran, Negros Occidental, to collect from the appellant the unpaid account in
question. The Justice of the Peace Of Hinigaran, after hearing, dismissed the case on the
ground that the action had prescribed. The appellee appealed to the Court of First
Instance of Negros Occidental and on March 26, 1962 the court a quo rendered a
decision ordering the appellant to pay the appellee the sum of P2,377.23 as of December
31, 1959, plus interest at the rate of 6% per annum compounded quarterly from the date
of the filing of the complaint until full payment was made. The appellant was also ordered
to pay the sum equivalent to 10% of the amount due as attorney's fees and costs.
The appellant appealed directly to this Court. During the pendency of this appeal the
appellant Jose Grijaldo died. Upon motion by the Solicitor General this Court, in a
resolution of May 13, 1963, required Manuel Lagtapon, Jacinto Lagtapon, Ruben
Lagtapon and Anita L. Aguilar, who are the legal heirs of Jose Grijaldo to appear and be
substituted as appellants in accordance with Section 17 of Rule 3 of the Rules of Court.
In the present appeal the appellant contends: (1) that the appellee has no cause of action
against the appellant; (2) that if the appellee has a cause of action at all, that action had
prescribed; and (3) that the lower court erred in ordering the appellant to pay the amount
of P2,377.23.
In discussing the first point of contention, the appellant maintains that the appellee has
no privity of contract with the appellant. It is claimed that the transaction between the
Taiwan Bank, Ltd. and the appellant, so that the appellee, Republic of the Philippines,
could not legally bring action against the appellant for the enforcement of the obligation
involved in said transaction. This contention has no merit. It is true that the Bank of
Taiwan, Ltd. was the original creditor and the transaction between the appellant and the
Bank of Taiwan was a private contract of loan. However, pursuant to the Trading with
the Enemy Act, as amended, and Executive Order No. 9095 of the United States; and
under Vesting Order No. P-4, dated January 21, 1946, the properties of the Bank of
Taiwan, Ltd., an entity which was declared to be under the jurisdiction of the enemy
country (Japan), were vested in the United States Government and the Republic of the
Philippines, the assets of the Bank of Taiwan, Ltd. were transferred to and vested in the
Republic of the Philippines. The successive transfer of the rights over the loans in
question from the Bank of Taiwan, Ltd. to the United States Government, and from the
United States Government to the government of the Republic of the Philippines, made
the Republic of the Philippines the successor of the rights, title and interest in said loans,
thereby creating a privity of contract between the appellee and the appellant. In defining
the word "privy" this Court, in a case, said:
The word "privy" denotes the idea of succession ... hence an assignee of a credit, and one
subrogated to it, etc. will be privies; in short, he who by succession is placed in the
position of one of those who contracted the judicial relation and executed the private
document and appears to be substituting him in the personal rights and obligation is a
privy (Alpurto vs. Perez, 38 Phil. 785, 790).
The United States of America acting as a belligerent sovereign power seized the assets of
the Bank of Taiwan, Ltd. which belonged to an enemy country. The confiscation of the
assets of the Bank of Taiwan, Ltd. being an involuntary act of war, and sanctioned by
international law, the United States succeeded to the rights and interests of said Bank
of Taiwan, Ltd. over the assets of said bank. As successor in interest in, and transferee
of, the property rights of the United States of America over the loans in question, the
Republic of the Philippines had thereby become a privy to the original contracts of loan
between the Bank of Taiwan, Ltd. and the appellant. It follows, therefore, that the
Republic of the Philippines has a legal right to bring the present action against the
appellant Jose Grijaldo.
The appellant likewise maintains, in support of his contention that the appellee has no
cause of action, that because the loans were secured by a chattel mortgage on the
standing crops on a land owned by him and these crops were lost or destroyed through
enemy action his obligation to pay the loans was thereby extinguished. This argument
is untenable. The terms of the promissory notes and the chattel mortgage that the
appellant executed in favor of the Bank of Taiwan, Ltd. do not support the claim of
appellant. The obligation of the appellant under the five promissory notes was not to
deliver a determinate thing namely, the crops to be harvested from his land, or the value
of the crops that would be harvested from his land. Rather, his obligation was to pay a
generic thing — the amount of money representing the total sum of the five loans, with
interest. The transaction between the appellant and the Bank of Taiwan, Ltd. was a
series of five contracts of simple loan of sums of money. "By a contract of (simple) loan,
one of the parties delivers to another ... money or other consumable thing upon the
condition that the same amount of the same kind and quality shall be paid." (Article
1933, Civil Code) The obligation of the appellant under the five promissory notes
evidencing the loans in questions is to pay the value thereof; that is, to deliver a sum of
money — a clear case of an obligation to deliver, a generic thing. Article 1263 of the Civil
Code provides:
In an obligation to deliver a generic thing, the loss or destruction of anything of the same
kind does not extinguish the obligation.
The chattel mortgage on the crops growing on appellant's land simply stood as a security
for the fulfillment of appellant's obligation covered by the five promissory notes, and the
loss of the crops did not extinguish his obligation to pay, because the account could still
be paid from other sources aside from the mortgaged crops.
In his second point of contention, the appellant maintains that the action of the appellee
had prescribed. The appellant points out that the loans became due on June 1, 1944;
and when the complaint was filed on January 17,1961 a period of more than 16 years
had already elapsed — far beyond the period of ten years when an action based on a
written contract should be brought to court.
This contention of the appellant has no merit. Firstly, it should be considered that the
complaint in the present case was brought by the Republic of the Philippines not as a
nominal party but in the exercise of its sovereign functions, to protect the interests of
the State over a public property. Under paragraph 4 of Article 1108 of the Civil Code
prescription, both acquisitive and extinctive, does not run against the State. This Court
has held that the statute of limitations does not run against the right of action of the
Government of the Philippines (Government of the Philippine Islands vs. Monte de
Piedad, etc., 35 Phil. 738-751).Secondly, the running of the period of prescription of the
action to collect the loan from the appellant was interrupted by the moratorium laws
(Executive Orders No. 25, dated November 18, 1944; Executive Order No. 32. dated
March 10, 1945; and Republic Act No. 342, approved on July 26, 1948). The loan in
question, as evidenced by the five promissory notes, were incurred in the year 1943, or
during the period of Japanese occupation of the Philippines. This case is squarely
covered by Executive Order No. 25, which became effective on November 18, 1944,
providing for the suspension of payments of debts incurred after December 31, 1941.
The period of prescription was, therefore, suspended beginning November 18, 1944. This
Court, in the case of Rutter vs. Esteban (L-3708, May 18, 1953, 93 Phil. 68), declared
on May 18, 1953 that the Moratorium Laws, R.A. No. 342 and Executive Orders Nos. 25
and 32, are unconstitutional; but in that case this Court ruled that the moratorium laws
had suspended the prescriptive period until May 18, 1953. This ruling was categorically
reiterated in the decision in the case of Manila Motors vs. Flores, L-9396, August 16,
1956. It follows, therefore, that the prescriptive period in the case now before US was
suspended from November 18,1944, when Executive Orders Nos. 25 and 32 were
declared unconstitutional by this Court. Computed accordingly, the prescriptive period
was suspended for 8 years and 6 months. By the appellant's own admission, the cause
of action on the five promissory notes in question arose on June 1, 1944. The complaint
in the present case was filed on January 17, 1961, or after a period of 16 years, 6 months
and 16 days when the cause of action arose. If the prescriptive period was not
interrupted by the moratorium laws, the action would have prescribed already; but, as
We have stated, the prescriptive period was suspended by the moratorium laws for a
period of 8 years and 6 months. If we deduct the period of suspension (8 years and 6
months) from the period that elapsed from the time the cause of action arose to the time
when the complaint was filed (16 years, 6 months and 16 days) there remains a period
of 8 years and 16 days. In other words, the prescriptive period ran for only 8 years and
16 days. There still remained a period of one year, 11 months and 14 days of the
prescriptive period when the complaint was filed.
In his third point of contention the appellant maintains that the lower court erred in
ordering him to pay the amount of P2,377.23. It is claimed by the appellant that it was
error on the part of the lower court to apply the Ballantyne Scale of values in evaluating
the Japanese war notes as of June 1943 when the loans were incurred, because what
should be done is to evaluate the loans on the basis of the Ballantyne Scale as of the
time the loans became due, and that was in June 1944. This contention of the appellant
is also without merit.
The decision of the court a quo ordered the appellant to pay the sum of P2,377.23 as of
December 31, 1959, plus interest rate of 6% per annum compounded quarterly from the
date of the filing of the complaint. The sum total of the five loans obtained by the
appellant from the Bank of Taiwan, Ltd. was P1,281.97 in Japanese war notes.
Computed under the Ballantyne Scale of values as of June 1943, this sum of P1,281.97
in Japanese war notes in June 1943 is equivalent to P889.64 in genuine Philippine
currency which was considered the aggregate amount due as principal of the five loans,
and the amount of P2,377.23 as of December 31, 1959 was arrived at after computing
the interest on the principal sum of P889.64 compounded quarterly from the time the
obligations were incurred in 1943.
It is the stand of the appellee that the Ballantyne scale of values should be applied as of
the time the obligation was incurred, and that was in June 1943. This stand of the
appellee was upheld by the lower court; and the decision of the lower court is supported
by the ruling of this Court in the case of Hilado vs. De la Costa (G.R. No. L-150, April
30, 1949; 46 O.G. 5472), which states:
... Contracts stipulating for payments presumably in Japanese war notes may be
enforced in our Courts after the liberation to the extent of the just obligation of the
contracting parties and, as said notes have become worthless, in order that justice may
be done and the party entitled to be paid can recover their actual value in Philippine
Currency, what the debtor or defendant bank should return or pay is the value of the
Japanese military notes in relation to the peso in Philippine Currency obtaining on the
date when and at the place where the obligation was incurred unless the parties had
agreed otherwise. ... . (italics supplied)
IN VIEW OF THE FOREGOING, the decision appealed from is affirmed, with costs against
the appellant. Inasmuch as the appellant Jose Grijaldo died during the pendency of this
appeal, his estate must answer in the execution of the judgment in the present case.
9. G.R. No. L-4150 February 10, 1910
FELIX DE LOS SANTOS, plaintiff-appelle,
vs.
AGUSTINA JARRA, administratrix of the estate of Magdaleno Jimenea,
deceased, defendant-appellant.
TORRES, J.:
On the 1st of September, 1906, Felix de los Santos brought suit against Agustina Jarra,
the administratrix of the estate of Magdaleno Jimenea, alleging that in the latter part of
1901 Jimenea borrowed and obtained from the plaintiff ten first-class carabaos, to be
used at the animal-power mill of his hacienda during the season of 1901-2, without
recompense or remuneration whatever for the use thereof, under the sole condition that
they should be returned to the owner as soon as the work at the mill was terminated;
that Magdaleno Jimenea, however, did not return the carabaos, notwithstanding the fact
that the plaintiff claimed their return after the work at the mill was finished; that
Magdaleno Jimenea died on the 28th of October, 1904, and the defendant herein was
appointed by the Court of First Instance of Occidental Negros administratrix of his estate
and she took over the administration of the same and is still performing her duties as
such administratrix; that the plaintiff presented his claim to the commissioners of the
estate of Jimenea, within the legal term, for the return of the said ten carabaos, but the
said commissioners rejected his claim as appears in their report; therefore, the plaintiff
prayed that judgment be entered against the defendant as administratrix of the estate
of the deceased, ordering her to return the ten first-class carabaos loaned to the late
Jimenea, or their present value, and to pay the costs.
The defendant was duly summoned, and on the 25th of September, 1906, she demurred
in writing to the complaint on the ground that it was vague; but on the 2d of October of
the same year, in answer to the complaint, she said that it was true that the late
Magdaleno Jimenea asked the plaintiff to loan him ten carabaos, but that he only
obtained three second-class animals, which were afterwards transferred by sale by the
plaintiff to the said Jimenea; that she denied the allegations contained in paragraph 3
of the complaint; for all of which she asked the court to absolve her of the complaint
with the cost against the plaintiff.
By a writing dated the 11th of December, 1906, Attorney Jose Felix Martinez notified the
defendant and her counsel, Matias Hilado, that he had made an agreement with the
plaintiff to the effect that the latter would not compromise the controversy without his
consent, and that as fees for his professional services he was to receive one half of the
amount allowed in the judgment if the same were entered in favor of the plaintiff.
The case came up for trial, evidence was adduced by both parties, and either exhibits
were made of record. On the 10th of January, 1907, the court below entered judgment
sentencing Agustina Jarra, as administratrix of the estate of Magdaleno Jimenea, to
return to the plaintiff, Felix de los Santos, the remaining six second and third class
carabaos, or the value thereof at the rate of P120 each, or a total of P720 with the costs.
Counsel for the defendant excepted to the foregoing judgment, and, by a writing dated
January 19, moved for anew trial on the ground that the findings of fact were openly and
manifestly contrary to the weight of the evidence. The motion was overruled, the
defendant duly excepted, and in due course submitted the corresponding bill of
exceptions, which was approved and submitted to this court.
The defendant has admitted that Magdaleno Jimenea asked the plaintiff for the loan of
ten carabaos which are now claimed by the latter, as shown by two letters addressed by
the said Jimenea to Felix de los Santos; but in her answer the said defendant alleged
that the late Jimenea only obtained three second-class carabaos, which were
subsequently sold to him by the owner, Santos; therefore, in order to decide this
litigation it is indispensable that proof be forthcoming that Jimenea only received three
carabaos from his son-in-law Santos, and that they were sold by the latter to him.
The record discloses that it has been fully proven from the testimony of a sufficient
number of witnesses that the plaintiff, Santos, sent in charge of various persons the ten
carabaos requested by his father-in-law, Magdaleno Jimenea, in the two letters produced
at the trial by the plaintiff, and that Jimenea received them in the presence of some of
said persons, one being a brother of said Jimenea, who saw the animals arrive at the
hacienda where it was proposed to employ them. Four died of rinderpest, and it is for
this reason that the judgment appealed from only deals with six surviving carabaos.
The alleged purchase of three carabaos by Jimenea from his son-in-law Santos is not
evidenced by any trustworthy documents such as those of transfer, nor were the
declarations of the witnesses presented by the defendant affirming it satisfactory; for
said reason it can not be considered that Jimenea only received three carabaos on loan
from his son-in-law, and that he afterwards kept them definitely by virtue of the
purchase.
By the laws in force the transfer of large cattle was and is still made by means of official
documents issued by the local authorities; these documents constitute the title of
ownership of the carabao or horse so acquired. Furthermore, not only should the
purchaser be provided with a new certificate or credential, a document which has not
been produced in evidence by the defendant, nor has the loss of the same been shown
in the case, but the old documents ought to be on file in the municipality, or they should
have been delivered to the new purchaser, and in the case at bar neither did the
defendant present the old credential on which should be stated the name of the previous
owner of each of the three carabaos said to have been sold by the plaintiff.
From the foregoing it may be logically inferred that the carabaos loaned or given on
commodatum to the now deceased Magdaleno Jimenea were ten in number; that they,
or at any rate the six surviving ones, have not been returned to the owner thereof, Felix
de los Santos, and that it is not true that the latter sold to the former three carabaos
that the purchaser was already using; therefore, as the said six carabaos were not the
property of the deceased nor of any of his descendants, it is the duty of the administratrix
of the estate to return them or indemnify the owner for their value.
The Civil Code, in dealing with loans in general, from which generic denomination the
specific one of commodatum is derived, establishes prescriptions in relation to the last-
mentioned contract by the following articles:
ART. 1740. By the contract of loan, one of the parties delivers to the other, either
anything not perishable, in order that the latter may use it during a certain period and
return it to the former, in which case it is called commodatum, or money or any other
perishable thing, under the condition to return an equal amount of the same kind and
quality, in which case it is merely called a loan.
Commodatum is essentially gratuitous.
A simple loan may be gratuitous, or made under a stipulation to pay interest.
ART. 1741. The bailee acquires retains the ownership of the thing loaned. The bailee
acquires the use thereof, but not its fruits; if any compensation is involved, to be paid
by the person requiring the use, the agreement ceases to be a commodatum.
ART. 1742. The obligations and rights which arise from the commodatum pass to the
heirs of both contracting parties, unless the loan has been in consideration for the
person of the bailee, in which case his heirs shall not have the right to continue using
the thing loaned.
The carabaos delivered to be used not being returned by the defendant upon demand,
there is no doubt that she is under obligation to indemnify the owner thereof by paying
him their value.
Article 1101 of said code reads:
Those who in fulfilling their obligations are guilty of fraud, negligence, or delay, and
those who in any manner whatsoever act in contravention of the stipulations of the same,
shall be subjected to indemnify for the losses and damages caused thereby.
The obligation of the bailee or of his successors to return either the thing loaned or its
value, is sustained by the supreme tribunal of Sapin. In its decision of March 21, 1895,
it sets out with precision the legal doctrine touching commodatum as follows:
Although it is true that in a contract of commodatum the bailor retains the ownership
of the thing loaned, and at the expiration of the period, or after the use for which it was
loaned has been accomplished, it is the imperative duty of the bailee to return the thing
itself to its owner, or to pay him damages if through the fault of the bailee the thing
should have been lost or injured, it is clear that where public securities are involved, the
trial court, in deferring to the claim of the bailor that the amount loaned be returned
him by the bailee in bonds of the same class as those which constituted the contract,
thereby properly applies law 9 of title 11 of partida 5.
With regard to the third assignment of error, based on the fact that the plaintiff Santos
had not appealed from the decision of the commissioners rejecting his claim for the
recovery of his carabaos, it is sufficient to estate that we are not dealing with a claim for
the payment of a certain sum, the collection of a debt from the estate, or payment for
losses and damages (sec. 119, Code of Civil Procedure), but with the exclusion from the
inventory of the property of the late Jimenea, or from his capital, of six carabaos which
did not belong to him, and which formed no part of the inheritance.
The demand for the exclusion of the said carabaos belonging to a third party and which
did not form part of the property of the deceased, must be the subject of a direct decision
of the court in an ordinary action, wherein the right of the third party to the property
which he seeks to have excluded from the inheritance and the right of the deceased has
been discussed, and rendered in view of the result of the evidence adduced by the
administrator of the estate and of the claimant, since it is so provided by the second part
of section 699 and by section 703 of the Code of Civil Procedure; the refusal of the
commissioners before whom the plaintiff unnecessarily appeared can not affect nor
reduce the unquestionable right of ownership of the latter, inasmuch as there is no law
nor principle of justice authorizing the successors of the late Jimenea to enrich
themselves at the cost and to the prejudice of Felix de los Santos.
For the reasons above set forth, by which the errors assigned to the judgment appealed
from have been refuted, and considering that the same is in accordance with the law
and the merits of the case, it is our opinion that it should be affirmed and we do hereby
affirm it with the costs against the appellant. So ordered.
 10. G.R. No. L-8321 October 14, 1913
ALEJANDRA MINA, ET AL., plaintiffs-appellants,
vs.
RUPERTA PASCUAL, ET AL., defendants-appellees.
ARELLANO, C.J.:
Francisco Fontanilla and Andres Fontanilla were brothers. Francisco Fontanilla acquired
during his lifetime, on March 12, 1874, a lot in the center of the town of Laoag, the
capital of the Province of Ilocos Norte, the property having been awarded to him through
its purchase at a public auction held by the alcalde mayor of that province. The lot has
a frontage of 120 meters and a depth of 15.
Andres Fontanilla, with the consent of his brother Francisco, erected a warehouse on a
part of the said lot, embracing 14 meters of its frontage by 11 meters of its depth.
Francisco Fontanilla, the former owner of the lot, being dead, the herein plaintiffs,
Alejandro Mina, et al., were recognized without discussion as his heirs.
Andres Fontanilla, the former owner of the warehouse, also having died, the children of
Ruperta Pascual were recognized likes without discussion, though it is not said how,
and consequently are entitled to the said building, or rather, as Ruperta Pascual herself
stated, to only six-sevenths of one-half of it, the other half belonging, as it appears, to
the plaintiffs themselves, and the remaining one-seventh of the first one-half to the
children of one of the plaintiffs, Elena de Villanueva. The fact is that the plaintiffs and
the defendants are virtually, to all appearance, the owners of the warehouse; while the
plaintiffs are undoubtedly, the owners of the part of the lot occupied by that building, as
well as of the remainder thereof.
This was the state of affairs, when, on May 6, 1909, Ruperta Pascual, as the guardian
of her minor children, the herein defendants, petitioned the Curt of First Instance of
Ilocos Norte for authorization to sell "the six-sevenths of the one-half of the warehouse,
of 14 by 11 meters, together with its lot." The plaintiffs — that is Alejandra Mina, et al.
— opposed the petition of Ruperta Pascual for the reason that the latter had included
therein the lot occupied by the warehouse, which they claimed was their exclusive
property. All this action was taken in a special proceeding in reguardianship.
The plaintiffs did more than oppose Pascual's petition; they requested the court, through
motion, to decide the question of the ownership of the lot before it pass upon the petition
for the sale of the warehouse. But the court before determining the matter of the
ownership of the lot occupied by the warehouse, ordered the sale of this building, saying:
While the trial continues with respect to the ownership of the lot, the court orders the
sale at public auction of the said warehouse and of the lot on which it is built, with the
present boundaries of the land and condition of the building, at a price of not less than
P2,890 Philippine currency . . . .
So, the warehouse, together with the lot on which it stands, was sold to Cu Joco, the
other defendant in this case, for the price mentioned.
The plaintiffs insisted upon a decision of the question of the ownership of the lot, and
the court decided it by holding that this land belonged to the owner of the warehouse
which had been built thereon thirty years before.
The plaintiffs appealed and this court reversed the judgment of the lower court and held
that the appellants were the owners of the lot in question. 1
When the judgment became final and executory, a writ of execution issued and the
plaintiffs were given possession of the lot; but soon thereafter the trial court annulled
this possession for the reason that it affected Cu Joco, who had not been a party to the
suit in which that writ was served.
It was then that the plaintiffs commenced the present action for the purpose of having
the sale of the said lot declared null and void and of no force and effect.
An agreement was had ad to the facts, the ninth paragraph of which is as follows:
9. That the herein plaintiffs excepted to the judgment and appealed therefrom to the
Supreme Court which found for them by holding that they are the owners of the lot in
question, although there existed and still exists a commodatum by virtue of which the
guardianship (meaning the defendants) had and has the use, and the plaintiffs the
ownership, of the property, with no finding concerning the decree of the lower court that
ordered the sale.
The obvious purport of the cause "although there existed and still exists a
commodatum," etc., appears to be that it is a part of the decision of the Supreme Court
and that, while finding the plaintiffs to be the owners of the lot, we recognized in principle
the existence of a commodatum under which the defendants held the lot. Nothing could
be more inexact. Possibly, also, the meaning of that clause is that, notwithstanding the
finding made by the Supreme Court that the plaintiffs were the owners, these former
and the defendants agree that there existed, and still exists, a commodatum, etc. But
such an agreement would not affect the truth of the contents of the decision of this court,
and the opinions held by the litigants in regard to this point could have no bearing
whatever on the present decision.
Nor did the decree of the lower court that ordered the sale have the least influence in
our previous decision to require our making any finding in regard thereto, for, with or
without that decree, the Supreme Court had to decide the ownership of the lot
consistently with its titles and not in accordance with the judicial acts or proceedings
had prior to the setting up of the issue in respect to the ownership of the property that
was the subject of the judicial decree.
What is essentially pertinent to the case is the fact that the defendant agree that the
plaintiffs have the ownership, and they themselves only the use, of the said lot.
On this premise, the nullity of the sale of the lot is in all respects quite evident,
whatsoever be the manner in which the sale was effected, whether judicially or
extrajudicially.
He who has only the use of a thing cannot validly sell the thing itself. The effect of the
sale being a transfer of the ownership of the thing, it is evident that he who has only the
mere use of the thing cannot transfer its ownership. The sale of a thing effected by one
who is not its owner is null and void. The defendants never were the owners of the lot
sold. The sale of it by them is necessarily null and void. On cannot convey to another
what he has never had himself.
The returns of the auction contain the following statements:
I, Ruperta Pascual, the guardian of the minors, etc., by virtue of the authorization
conferred upon me on the 31st of July, 1909, by the Court of First Instance of Ilocos
Norte, proceeded with the sale at public auction of the six-sevenths part of the one-half
of the warehouse constructed of rubble stone, etc.
Whereas I, Ruperta Pascual, the guardian of the minors, etc., sold at public auction all
the land and all the rights title, interest, and ownership in the said property to Cu Joco,
who was the highest bidder, etc.
Therefore, . . . I cede and deliver forever to the said purchaser, Cu Joco, his heirs and
assigns, all the interest, ownership and inheritance rights and others that, as the
guardian of the said minors, I have and may have in the said property, etc.
The purchaser could not acquire anything more than the interest that might be held by
a person to whom realty in possession of the vendor might be sold, for at a judicial
auction nothing else is disposed of. What the minor children of Ruperta Pascual had in
their possession was the ownership of the six-sevenths part of one-half of the warehouse
and the use of the lot occupied by his building. This, and nothing more, could the
Chinaman Cu Joco acquire at that sale: not the ownership of the lot; neither the other
half, nor the remaining one-seventh of the said first half, of the warehouse.
Consequently, the sale made to him of this one-seventh of one-half and the entire other
half of the building was null and void, and likewise with still more reason the sale of the
lot the building occupies.
The purchaser could and should have known what it was that was offered for sale and
what it was that he purchased. There is nothing that can justify the acquisition by the
purchaser of the warehouse of the ownership of the lot that this building occupies, since
the minors represented by Ruperta Pascual never were the owners of the said lot, nor
were they ever considered to be such.
The trial court, in the judgment rendered, held that there were no grounds for the
requested annulment of the sale, and that the plaintiffs were entitled to the P600
deposited with the clerk of the court as the value of the lot in question. The defendants,
Ruperta Pascual and the Chinaman Cu Joco, were absolved from the complaint, without
express finding as to costs.
The plaintiffs cannot be obliged to acquiesce in or allow the sale made and be compelled
to accept the price set on the lot by expert appraisers, not even though the plaintiffs be
considered as coowner of the warehouse. It would be much indeed that, on the ground
of coownership, they should have to abide by and tolerate the sale of the said building,
which point this court does not decide as it is not a question submitted to us for decision,
but, as regards the sale of the lot, it is in all respects impossible to hold that the plaintiffs
must abide by it and tolerate, it, and this conclusion is based on the fact that they did
not give their consent (art. 1261, Civil Code), and only the contracting parties who have
given it are obliged to comply (art. 1091, idem).
The sole purpose of the action in the beginning was to obtain an annulment of the sale
of the lot; but subsequently the plaintiffs, through motion, asked for an amendment by
their complaint in the sense that the action should be deemed to be one for the recovery
of possession of a lot and for the annulment of its sale. The plaintiff's petition was
opposed by the defendant's attorney, but was allowed by the court; therefore the
complaint seeks, after the judicial annulment of the sale of the lot, to have the
defendants sentenced immediately to deliver the same to the plaintiffs.
Such a finding appears to be in harmony with the decision rendered by the Supreme
Court in previous suit, wherein it was held that the ownership of the lot lay in the
plaintiffs, and for this reason steps were taken to give possession thereof to the
defendants; but, as the purchaser Cu Joco was not a party to that suit, the present
action is strictly one for recover against Cu Joco to compel him, once the sale has been
annulled, to deliver the lot to its lawful owners, the plaintiffs.
As respects this action for recovery, this Supreme Court finds:
1. That it is a fact admitted by the litigating parties, both in this and in the previous suit,
that Andres Fontanilla, the defendants' predecessor in interest, erected the warehouse
on the lot, some thirty years ago, with the explicit consent of his brother Francisco
Fontanilla, the plaintiff's predecessor in interest.
2. That it also appears to be an admitted fact that the plaintiffs and the defendants are
the coowners of the warehouse.
3. That it is a fact explicitly admitted in the agreement, that neither Andres Fontanilla
nor his successors paid any consideration or price whatever for the use of the lot
occupied by the said building; whence it is, perhaps, that both parties have denominated
that use a commodatum.
Upon the premise of these facts, or even merely upon that of the first of them, the
sentencing of the defendants to deliver the lot to the plaintiffs does not follow as a
necessary corollary of the judicial declaration of ownership made in the previous suit,
nor of that of the nullity of the sale of the lot, made in the present case.
The defendants do not hold lawful possession of the lot in question.1awphil.net
But, although both litigating parties may have agreed in their idea of the commodatum,
on account of its not being, as indeed it is not, a question of fact but of law, yet that
denomination given by them to the use of the lot granted by Francisco Fontanilla to his
brother, Andres Fontanilla, is not acceptable. Contracts are not to be interpreted in
conformity with the name that the parties thereto agree to give them, but must be
construed, duly considering their constitutive elements, as they are defined and
denominated by law.
By the contract of loan, one of the parties delivers to the other, either anything not
perishable, in order that the latter may use it during the certain period and return it to
the former, in which case it is called commodatum . . . (art. 1740, Civil Code).
It is, therefore, an essential feature of the commodatum that the use of the thing
belonging to another shall for a certain period. Francisco Fontanilla did not fix any
definite period or time during which Andres Fontanilla could have the use of the lot
whereon the latter was to erect a stone warehouse of considerable value, and so it is that
for the past thirty years of the lot has been used by both Andres and his successors in
interest. The present contention of the plaintiffs that Cu Joco, now in possession of the
lot, should pay rent for it at the rate of P5 a month, would destroy the theory of the
commodatum sustained by them, since, according to the second paragraph of the
aforecited article 1740, "commodatum is essentially gratuitous," and, if what the
plaintiffs themselves aver on page 7 of their brief is to be believed, it never entered
Francisco's mind to limit the period during which his brother Andres was to have the
use of the lot, because he expected that the warehouse would eventually fall into the
hands of his son, Fructuoso Fontanilla, called the adopted son of Andres, which did not
come to pass for the reason that Fructuoso died before his uncle Andres. With that
expectation in view, it appears more likely that Francisco intended to allow his brother
Andres a surface right; but this right supposes the payment of an annual rent, and
Andres had the gratuitous use of the lot.

Hence, as the facts aforestated only show that a building was erected on another's
ground, the question should be decided in accordance with the statutes that, thirty years
ago, governed accessions to real estate, and which were Laws 41 and 42, title 28, of the
third Partida, nearly identical with the provisions of articles 361 and 362 of the Civil
Code. So, then, pursuant to article 361, the owner of the land on which a building is
erected in good faith has a right to appropriate such edifice to himself, after payment of
the indemnity prescribed in articles 453 and 454, or to oblige the builder to pay him the
value of the land. Such, and no other, is the right to which the plaintiff are entitled.

For the foregoing reasons, it is only necessary to annul the sale of the said lot which was
made by Ruperta Pascual, in representation of her minor children, to Cu Joco, and to
maintain the latter in the use of the lot until the plaintiffs shall choose one or the other
of the two rights granted them by article 361 of the Civil Code.1awphil.net

The judgment appealed from is reversed and the sale of the lot in question is held to be
null and void and of no force or effect. No special finding is made as to the costs of both
instances.

11.