G.R. No.
L-4150 February 10, 1910 Santos, the remaining six second and third class carabaos, or the value thereof at the rate of
FELIX DE LOS SANTOS, plaintiff-appelle,
vs.
AGUSTINA JARRA, administratrix of the estate of Magdaleno Jimenea, deceased, defendant-
appellant.
Matias Hilado, for appellant.
Jose Felix Martinez, for appellee.
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
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 be returned him by the bailee in bonds of the same class as those which constituted
indemnify the owner for their value. the contract, thereby properly applies law 9 of title 11 of partida 5.

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.
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.

ART. 1742. The obligations and rights which arise from the commodatum pass to the For the reasons above set forth, by which the errors assigned to the judgment appealed from
heirs of both contracting parties, unless the loan has been in consideration for the have been refuted, and considering that the same is in accordance with the law and the merits of
person of the bailee, in which case his heirs shall not have the right to continue using the case, it is our opinion that it should be affirmed and we do hereby affirm it with the costs
the thing loaned. against the appellant. So ordered.

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
G.R. No. 80294-95 September 21, 1988
CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE, petitioner,
vs.
COURT OF APPEALS, HEIRS OF EGMIDIO OCTAVIANO AND JUAN VALDEZ, respondents.
Valdez, Ereso, Polido & Associates for petitioner.
Claustro, Claustro, Claustro Law Office collaborating counsel for petitioner.
Jaime G. de Leon for the Heirs of Egmidio Octaviano.
Cotabato Law Office for the Heirs of Juan Valdez.
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 and the Heirs of Egmidio Octaviano filed their
Answer/Opposition on Lots Nos. 2 and 3, 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.
SO ORDERED.
COLITO T. PAJUYO, petitioner, vs. COURT OF APPEALS and EDDIE GUEVARRA, respondents.
DECISION
The Case
Before us is a petition for review[1] of the 21 June 2000 Decision[2] and 14 December 2000
Resolution of the Court of Appeals in CA-G.R. SP No. 43129. The Court of Appeals set aside the
11 November 1996 decision[3] of the Regional Trial Court of Quezon City, Branch 81,[4] affirming
the 15 December 1995 decision[5] of the Metropolitan Trial Court of Quezon City, Branch 31.[6]
The Antecedents
In June 1979, petitioner Colit T. Pajuyo (Pajuyo) paid P400 to a certain Pedro Perez for the
rights over a 250-square meter lot in Barrio Payatas, Quezon City. Pajuyo then constructed a
house made of light materials on the lot. Pajuyo and his family lived in the house from 1979 to 7
December 1985.
On 8 December 1985, Pajuyo and private respondent Eddie Guevarra (Guevarra) executed
a Kasunduan or agreement. Pajuyo, as owner of the house, allowed Guevarra to live in the house
for free provided Guevarra would maintain the cleanliness and orderliness of the house.
Guevarra promised that he would voluntarily vacate the premises on Pajuyos demand.
In September 1994, Pajuyo informed Guevarra of his need of the house and demanded
that Guevarra vacate the house. Guevarra refused.
Pajuyo filed an ejectment case against Guevarra with the Metropolitan Trial Court of
Quezon City, Branch 31 (MTC).
In his Answer, Guevarra claimed that Pajuyo had no valid title or right of possession over
the lot where the house stands because the lot is within the 150 hectares set aside by
Proclamation No. 137 for socialized housing. Guevarra pointed out that from December 1985 to
September 1994, Pajuyo did not show up or communicate with him. Guevarra insisted that
neither he nor Pajuyo has valid title to the lot.
On 15 December 1995, the MTC rendered its decision in favor of Pajuyo. The dispositive
portion of the MTC decision reads:
WHEREFORE, premises considered, judgment is hereby rendered for the plaintiff and against
defendant, ordering the latter to:
A) vacate the house and lot occupied by the defendant or any other person or
persons claiming any right under him;
B) pay unto plaintiff the sum of THREE HUNDRED PESOS (P300.00) monthly as
reasonable compensation for the use of the premises starting from the last
demand;
 C) pay plaintiff the sum of P3,000.00 as and by way of attorneys fees; and
D) pay the cost of suit.
SO ORDERED.[7]
Aggrieved, Guevarra appealed to the Regional Trial Court of Quezon City, Branch 81 (RTC).
On 11 November 1996, the RTC affirmed the MTC decision. The dispositive portion of the
RTC decision reads:
WHEREFORE, premises considered, the Court finds no reversible error in the decision appealed
from, being in accord with the law and evidence presented, and the same is hereby affirmed en
toto.
SO ORDERED.[8]
Guevarra received the RTC decision on 29 November 1996. Guevarra had only until 14
December 1996 to file his appeal with the Court of Appeals. Instead of filing his appeal with the
Court of Appeals, Guevarra filed with the Supreme Court a Motion for Extension of Time to File
Appeal by Certiorari Based on Rule 42 (motion for extension). Guevarra theorized that his appeal
raised pure questions of law. The Receiving Clerk of the Supreme Court received the motion for
extension on 13 December 1996 or one day before the right to appeal expired.
On 3 January 1997, Guevarra filed his petition for review with the Supreme Court.
On 8 January 1997, the First Division of the Supreme Court issued a Resolution[9] referring
the motion for extension to the Court of Appeals which has concurrent jurisdiction over the case.
The case presented no special and important matter for the Supreme Court to take cognizance
of at the first instance.
On 28 January 1997, the Thirteenth Division of the Court of Appeals issued a
Resolution[10] granting the motion for extension conditioned on the timeliness of the filing of
the motion.
On 27 February 1997, the Court of Appeals ordered Pajuyo to comment on Guevaras
petition for review. On 11 April 1997, Pajuyo filed his Comment.
On 21 June 2000, the Court of Appeals issued its decision reversing the RTC decision. The
dispositive portion of the decision reads:
WHEREFORE, premises considered, the assailed Decision of the court a quo in Civil Case No. Q-
96-26943 is REVERSED and SET ASIDE; and it is hereby declared that the ejectment case filed
against defendant-appellant is without factual and legal basis.
SO ORDERED.[11]
Pajuyo filed a motion for reconsideration of the decision. Pajuyo pointed out that the Court
of Appeals should have dismissed outright Guevarras petition for review because it was filed out
of time. Moreover, it was Guevarras counsel and not Guevarra who signed the certification
against forum-shopping.
On 14 December 2000, the Court of Appeals issued a resolution denying Pajuyos motion
for reconsideration. The dispositive portion of the resolution reads:
WHEREFORE, for lack of merit, the motion for reconsideration is hereby DENIED. No costs.
SO ORDERED.[12]
The Ruling of the MTC
The MTC ruled that the subject of the agreement between Pajuyo and Guevarra is the
house and not the lot. Pajuyo is the owner of the house, and he allowed Guevarra to use the
house only by tolerance. Thus, Guevarras refusal to vacate the house on Pajuyos demand made
Guevarras continued possession of the house illegal.
The Ruling of the RTC
The RTC upheld the Kasunduan, which established the landlord and tenant relationship
between Pajuyo and Guevarra. The terms of the Kasunduan bound Guevarra to return
possession of the house on demand.
The RTC rejected Guevarras claim of a better right under Proclamation No. 137, the
Revised National Government Center Housing Project Code of Policies and other pertinent laws.
In an ejectment suit, the RTC has no power to decide Guevarras rights under these laws. The RTC
declared that in an ejectment case, the only issue for resolution is material or physical
possession, not ownership.
The Ruling of the Court of Appeals
The Court of Appeals declared that Pajuyo and Guevarra are squatters. Pajuyo and
Guevarra illegally occupied the contested lot which the government owned.
Perez, the person from whom Pajuyo acquired his rights, was also a squatter. Perez had no
right or title over the lot because it is public land. The assignment of rights between Perez and
Pajuyo, and the Kasunduan between Pajuyo and Guevarra, did not have any legal effect. Pajuyo
and Guevarra are in pari delicto or in equal fault. The court will leave them where they are.
The Court of Appeals reversed the MTC and RTC rulings, which held that
the Kasunduan between Pajuyo and Guevarra created a legal tie akin to that of a landlord and
tenant relationship. The Court of Appeals ruled that the Kasunduan is not a lease contract but
a commodatum because the agreement is not for a price certain.
 Since Pajuyo admitted that he resurfaced only in 1994 to claim the property, the appellate
court held that Guevarra has a better right over the property under Proclamation No.
137. President Corazon C. Aquino (President Aquino) issued Proclamation No. 137 on 7
September 1987. At that time, Guevarra was in physical possession of the property. Under
Article VI of the Code of Policies Beneficiary Selection and Disposition of Homelots and
Structures in the National Housing Project (the Code), the actual occupant or caretaker of the lot
shall have first priority as beneficiary of the project. The Court of Appeals concluded that
Guevarra is first in the hierarchy of priority.
In denying Pajuyos motion for reconsideration, the appellate court debunked Pajuyos claim
that Guevarra filed his motion for extension beyond the period to appeal.
The Court of Appeals pointed out that Guevarras motion for extension filed before the
Supreme Court was stamped 13 December 1996 at 4:09 PM by the Supreme Courts Receiving
Clerk. The Court of Appeals concluded that the motion for extension bore a date, contrary to
Pajuyos claim that the motion for extension was undated. Guevarra filed the motion for
extension on time on 13 December 1996 since he filed the motion one day before the expiration
of the reglementary period on 14 December 1996. Thus, the motion for extension properly
complied with the condition imposed by the Court of Appeals in its 28 January 1997
Resolution. The Court of Appeals explained that the thirty-day extension to file the petition for
review was deemed granted because of such compliance.
The Court of Appeals rejected Pajuyos argument that the appellate court should have
dismissed the petition for review because it was Guevarras counsel and not Guevarra who signed
the certification against forum-shopping. The Court of Appeals pointed out that Pajuyo did not
raise this issue in his Comment. The Court of Appeals held that Pajuyo could not now seek the
dismissal of the case after he had extensively argued on the merits of the case. This technicality,
the appellate court opined, was clearly an afterthought.
The Issues
Pajuyo raises the following issues for resolution:
WHETHER THE COURT OF APPEALS ERRED OR ABUSED ITS AUTHORITY AND DISCRETION
TANTAMOUNT TO LACK OF JURISDICTION:
1) in GRANTING, instead of denying, Private Respondents Motion for an
Extension of thirty days to file petition for review at the time when
there was no more period to extend as the decision of the Regional
Trial Court had already become final and executory.
2) in giving due course, instead of dismissing, private
respondents Petition for Review even though the certification
against forum-shopping was signed only by counsel instead of by
petitioner himself.
3) in ruling that the Kasunduan voluntarily entered into by the parties
was in fact a commodatum, instead of a Contract of Lease as found
by the Metropolitan Trial Court and in holding that the
ejectment case filed against defendant-appellant is without legal and
factual basis.
4) in reversing and setting aside the Decision of the Regional Trial Court
in Civil Case No. Q-96-26943 and in holding that the parties are in
pari delicto being both squatters, therefore, illegal occupants of the
contested parcel of land.
5) in deciding the unlawful detainer case based on the so-called Code of
Policies of the National Government Center Housing Project instead
of deciding the same under the Kasunduan voluntarily executed by
the parties, the terms and conditions of which are the laws between
themselves.[13]
The Ruling of the Court
The procedural issues Pajuyo is raising are baseless. However, we find merit in the
substantive issues Pajuyo is submitting for resolution.
Procedural Issues
Pajuyo insists that the Court of Appeals should have dismissed outright Guevarras petition
for review because the RTC decision had already become final and executory when the appellate
court acted on Guevarras motion for extension to file the petition. Pajuyo points out that
Guevarra had only one day before the expiry of his period to appeal the RTC decision. Instead of
filing the petition for review with the Court of Appeals, Guevarra filed with this Court an undated
motion for extension of 30 days to file a petition for review.This Court merely referred the
motion to the Court of Appeals. Pajuyo believes that the filing of the motion for extension with
this Court did not toll the running of the period to perfect the appeal. Hence, when the Court of
Appeals received the motion, the period to appeal had already expired.
We are not persuaded.
Decisions of the regional trial courts in the exercise of their appellate jurisdiction are
appealable to the Court of Appeals by petition for review in cases involving questions of fact or
mixed questions of fact and law.[14] Decisions of the regional trial courts involving pure
questions of law are appealable directly to this Court by petition for review.[15] These modes of
appeal are now embodied in Section 2, Rule 41 of the 1997 Rules of Civil Procedure.
Guevarra believed that his appeal of the RTC decision involved only questions of
law. Guevarra thus filed his motion for extension to file petition for review before this Court on
14 December 1996. On 3 January 1997, Guevarra then filed his petition for review with this
Court. A perusal of Guevarras petition for review gives the impression that the issues he raised
were pure questions of law. There is a question of law when the doubt or difference is on what
the law is on a certain state of facts.[16] There is a question of fact when the doubt or difference
is on the truth or falsity of the facts alleged.[17]
In his petition for review before this Court, Guevarra no longer disputed the
facts. Guevarras petition for review raised these questions: (1) Do ejectment cases pertain only
to possession of a structure, and not the lot on which the structure stands? (2) Does a suit by a
squatter against a fellow squatter constitute a valid case for ejectment? (3) Should a Presidential
Proclamation governing the lot on which a squatters structure stands be considered in an
ejectment suit filed by the owner of the structure?
These questions call for the evaluation of the rights of the parties under the law on
ejectment and the Presidential Proclamation. At first glance, the questions Guevarra raised
appeared purely legal. However, some factual questions still have to be resolved because they
have a bearing on the legal questions raised in the petition for review. These factual matters
refer to the metes and bounds of the disputed property and the application of Guevarra as
beneficiary of Proclamation No. 137.
The Court of Appeals has the power to grant an extension of time to file a petition for
review. In Lacsamana v. Second Special Cases Division of the Intermediate Appellate
Court,[18] we declared that the Court of Appeals could grant extension of time in appeals by
petition for review. In Liboro v. Court of Appeals,[19] we clarified that the prohibition against
granting an extension of time applies only in a case where ordinary appeal is perfected by a mere
notice of appeal. The prohibition does not apply in a petition for review where the pleading
needs verification. A petition for review, unlike an ordinary appeal, requires preparation and
research to present a persuasive position.[20] The drafting of the petition for review entails
more time and effort than filing a notice of appeal.[21]Hence, the Court of Appeals may allow an
extension of time to file a petition for review.
In the more recent case of Commissioner of Internal Revenue v. Court of Appeals,[22] we
held that Liboros clarification of Lacsamana is consistent with the Revised Internal Rules of the
Court of Appeals and Supreme Court Circular No. 1-91. They all allow an extension of time for
filing petitions for review with the Court of Appeals. The extension, however, should be limited
to only fifteen days save in exceptionally meritorious cases where the Court of Appeals may
grant a longer period.
A judgment becomes final and executory by operation of law. Finality of judgment
becomes a fact on the lapse of the reglementary period to appeal if no appeal is
perfected.[23] The RTC decision could not have gained finality because the Court of Appeals
granted the 30-day extension to Guevarra.
The Court of Appeals did not commit grave abuse of discretion when it approved
Guevarras motion for extension. The Court of Appeals gave due course to the motion for
extension because it complied with the condition set by the appellate court in its resolution
dated 28 January 1997. The resolution stated that the Court of Appeals would only give due
course to the motion for extension if filed on time. The motion for extension met this condition.
The material dates to consider in determining the timeliness of the filing of the motion for
extension are (1) the date of receipt of the judgment or final order or resolution subject of the
petition, and (2) the date of filing of the motion for extension.[24] It is the date of the filing of
the motion or pleading, and not the date of execution, that determines the timeliness of the
filing of that motion or pleading. Thus, even if the motion for extension bears no date, the date
of filing stamped on it is the reckoning point for determining the timeliness of its filing.
Guevarra had until 14 December 1996 to file an appeal from the RTC decision. Guevarra
filed his motion for extension before this Court on 13 December 1996, the date stamped by this
Courts Receiving Clerk on the motion for extension. Clearly, Guevarra filed the motion for
extension exactly one day before the lapse of the reglementary period to appeal.
Assuming that the Court of Appeals should have dismissed Guevarras appeal on technical
grounds, Pajuyo did not ask the appellate court to deny the motion for extension and dismiss the
petition for review at the earliest opportunity. Instead, Pajuyo vigorously discussed the merits of
the case. It was only when the Court of Appeals ruled in Guevarras favor that Pajuyo raised the
procedural issues against Guevarras petition for review.
A party who, after voluntarily submitting a dispute for resolution, receives an adverse
decision on the merits, is estopped from attacking the jurisdiction of the court.[25] Estoppel sets
in not because the judgment of the court is a valid and conclusive adjudication, but because the
practice of attacking the courts jurisdiction after voluntarily submitting to it is against public
policy.[26]
In his Comment before the Court of Appeals, Pajuyo also failed to discuss Guevarras failure
to sign the certification against forum shopping. Instead, Pajuyo harped on Guevarras counsel
signing the verification, claiming that the counsels verification is insufficient since it is based only
on mere information.
A partys failure to sign the certification against forum shopping is different from the partys
failure to sign personally the verification. The certificate of non-forum shopping must be signed
by the party, and not by counsel.[27] The certification of counsel renders the petition
defective.[28]
On the other hand, the requirement on verification of a pleading is a formal and not a
jurisdictional requisite.[29] It is intended simply to secure an assurance that what are alleged in
the pleading are true and correct and not the product of the imagination or a matter of
speculation, and that the pleading is filed in good faith.[30] The party need not sign the
verification. A partys representative, lawyer or any person who personally knows the truth of the
facts alleged in the pleading may sign the verification.[31]
We agree with the Court of Appeals that the issue on the certificate against forum
shopping was merely an afterthought. Pajuyo did not call the Court of Appeals attention to this
defect at the early stage of the proceedings. Pajuyo raised this procedural issue too late in the
proceedings.
Absence of Title over the Disputed Property will not Divest the Courts of Jurisdiction to Resolve
the Issue of Possession
Settled is the rule that the defendants claim of ownership of the disputed property will not
divest the inferior court of its jurisdiction over the ejectment case.[32] Even if the pleadings raise
the issue of ownership, the court may pass on such issue to determine only the question of
possession, especially if the ownership is inseparably linked with the possession.[33] The
adjudication on the issue of ownership is only provisional and will not bar an action between the
same parties involving title to the land.[34] This doctrine is a necessary consequence of the
nature of the two summary actions of ejectment, forcible entry and unlawful detainer, where
the only issue for adjudication is the physical or material possession over the real property.[35]
In this case, what Guevarra raised before the courts was that he and Pajuyo are not the
owners of the contested property and that they are mere squatters. Will the defense that the
parties to the ejectment case are not the owners of the disputed lot allow the courts to
renounce their jurisdiction over the case? The Court of Appeals believed so and held that it
would just leave the parties where they are since they are in pari delicto.
We do not agree with the Court of Appeals.
Ownership or the right to possess arising from ownership is not at issue in an action for
recovery of possession. The parties cannot present evidence to prove ownership or right to legal
possession except to prove the nature of the possession when necessary to resolve the issue of
physical possession.[36] The same is true when the defendant asserts the absence of title over
the property. The absence of title over the contested lot is not a ground for the courts to
withhold relief from the parties in an ejectment case.
The only question that the courts must resolve in ejectment proceedings is - who is
entitled to the physical possession of the premises, that is, to the possession de facto and not to
the possession de jure.[37] It does not even matter if a partys title to the property is
questionable,[38] or when both parties intruded into public land and their applications to own
the land have yet to be approved by the proper government agency.[39] Regardless of the actual
condition of the title to the property, the party in peaceable quiet possession shall not be thrown
out by a strong hand, violence or terror.[40] Neither is the unlawful withholding of property
allowed. Courts will always uphold respect for prior possession.
Thus, a party who can prove prior possession can recover such possession even against the
owner himself.[41] Whatever may be the character of his possession, if he has in his favor prior
possession in time, he has the security that entitles him to remain on the property until a person
with a better right lawfully ejects him.[42] To repeat, the only issue that the court has to settle in
an ejectment suit is the right to physical possession.
In Pitargue v. Sorilla,[43] the government owned the land in dispute. The government did
not authorize either the plaintiff or the defendant in the case of forcible entry case to occupy the
land. The plaintiff had prior possession and had already introduced improvements on the public
land. The plaintiff had a pending application for the land with the Bureau of Lands when the
defendant ousted him from possession. The plaintiff filed the action of forcible entry against the
defendant. The government was not a party in the case of forcible entry.
The defendant questioned the jurisdiction of the courts to settle the issue of possession
because while the application of the plaintiff was still pending, title remained with the
government, and the Bureau of Public Lands had jurisdiction over the case. We disagreed with
the defendant. We ruled that courts have jurisdiction to entertain ejectment suits even before
the resolution of the application. The plaintiff, by priority of his application and of his entry,
acquired prior physical possession over the public land applied for as against other private
claimants. That prior physical possession enjoys legal protection against other private claimants
because only a court can take away such physical possession in an ejectment case.
While the Court did not brand the plaintiff and the defendant in Pitargue[44] as squatters,
strictly speaking, their entry into the disputed land was illegal. Both the plaintiff and defendant
entered the public land without the owners permission. Title to the land remained with the
government because it had not awarded to anyone ownership of the contested public land. Both
the plaintiff and the defendant were in effect squatting on government property. Yet, we upheld
the courts jurisdiction to resolve the issue of possession even if the plaintiff and the defendant in
the ejectment case did not have any title over the contested land.
Courts must not abdicate their jurisdiction to resolve the issue of physical possession
because of the public need to preserve the basic policy behind the summary actions of forcible
entry and unlawful detainer. The underlying philosophy behind ejectment suits is to prevent
breach of the peace and criminal disorder and to compel the party out of possession to respect
and resort to the law alone to obtain what he claims is his.[45] The party deprived of possession
must not take the law into his own hands.[46] Ejectment proceedings are summary in nature so
the authorities can settle speedily actions to recover possession because of the overriding need
to quell social disturbances.[47]
We further explained in Pitargue the greater interest that is at stake in actions for recovery
of possession. We made the following pronouncements in Pitargue:
The question that is before this Court is: Are courts without jurisdiction to take cognizance of
possessory actions involving these public lands before final award is made by the Lands
Department, and before title is given any of the conflicting claimants? It is one of utmost
importance, as there are public lands everywhere and there are thousands of settlers, especially
in newly opened regions. It also involves a matter of policy, as it requires the determination of
the respective authorities and functions of two coordinate branches of the Government in
connection with public land conflicts.
Our problem is made simple by the fact that under the Civil Code, either in the old, which was in
force in this country before the American occupation, or in the new, we have a possessory
action, the aim and purpose of which is the recovery of the physical possession of real property,
irrespective of the question as to who has the title thereto. Under the Spanish Civil Code we had
the accion interdictal, a summary proceeding which could be brought within one year from
dispossession (Roman Catholic Bishop of Cebu vs. Mangaron, 6 Phil. 286, 291); and as early as
October 1, 1901, upon the enactment of the Code of Civil Procedure (Act No. 190 of the
Philippine Commission) we implanted the common law action of forcible entry (section 80 of Act
No. 190), the object of which has been stated by this Court to be to prevent breaches of the
peace and criminal disorder which would ensue from the withdrawal of the remedy, and the
reasonable hope such withdrawal would create that some advantage must accrue to those
persons who, believing themselves entitled to the possession of property, resort to force to
gain possession rather than to some appropriate action in the court to assert their claims.
(Supia and Batioco vs. Quintero and Ayala, 59 Phil. 312, 314.) So before the enactment of the
first Public Land Act (Act No. 926) the action of forcible entry was already available in the courts
of the country. So the question to be resolved is, Did the Legislature intend, when it vested the
power and authority to alienate and dispose of the public lands in the Lands Department, to
exclude the courts from entertaining the possessory action of forcible entry between rival
claimants or occupants of any land before award thereof to any of the parties? Did Congress
intend that the lands applied for, or all public lands for that matter, be removed from the
jurisdiction of the judicial Branch of the Government, so that any troubles arising therefrom, or
any breaches of the peace or disorders caused by rival claimants, could be inquired into only by
the Lands Department to the exclusion of the courts? The answer to this question seems to us
evident. The Lands Department does not have the means to police public lands; neither does it
have the means to prevent disorders arising therefrom, or contain breaches of the peace among
settlers; or to pass promptly upon conflicts of possession. Then its power is clearly limited to
disposition and alienation, and while it may decide conflicts of possession in order to make
proper award, the settlement of conflicts of possession which is recognized in the court herein
has another ultimate purpose, i.e., the protection of actual possessors and occupants with a
view to the prevention of breaches of the peace. The power to dispose and alienate could not
have been intended to include the power to prevent or settle disorders or breaches of the
peace among rival settlers or claimants prior to the final award. As to this, therefore, the
corresponding branches of the Government must continue to exercise power and jurisdiction
within the limits of their respective functions. The vesting of the Lands Department with
authority to administer, dispose, and alienate public lands, therefore, must not be understood
as depriving the other branches of the Government of the exercise of the respective functions
or powers thereon, such as the authority to stop disorders and quell breaches of the peace by
the police, the authority on the part of the courts to take jurisdiction over possessory actions
arising therefrom not involving, directly or indirectly, alienation and disposition.
Our attention has been called to a principle enunciated in American courts to the effect that
courts have no jurisdiction to determine the rights of claimants to public lands, and that until the
disposition of the land has passed from the control of the Federal Government, the courts will
not interfere with the administration of matters concerning the same. (50 C. J. 1093-1094.) We
have no quarrel with this principle. The determination of the respective rights of rival claimants
to public lands is different from the determination of who has the actual physical possession or
occupation with a view to protecting the same and preventing disorder and breaches of the
peace. A judgment of the court ordering restitution of the possession of a parcel of land to the
actual occupant, who has been deprived thereof by another through the use of force or in any
other illegal manner, can never be prejudicial interference with the disposition or alienation of
public lands. On the other hand, if courts were deprived of jurisdiction of cases involving
conflicts of possession, that threat of judicial action against breaches of the peace committed
on public lands would be eliminated, and a state of lawlessness would probably be produced
between applicants, occupants or squatters, where force or might, not right or justice, would
rule.
It must be borne in mind that the action that would be used to solve conflicts of possession
between rivals or conflicting applicants or claimants would be no other than that of forcible
entry. This action, both in England and the United States and in our jurisdiction, is a summary
and expeditious remedy whereby one in peaceful and quiet possession may recover the
possession of which he has been deprived by a stronger hand, by violence or terror; its ultimate
object being to prevent breach of the peace and criminal disorder. (Supia and Batioco vs.
Quintero and Ayala, 59 Phil. 312, 314.) The basis of the remedy is mere possession as a fact, of
physical possession, not a legal possession. (Mediran vs. Villanueva, 37 Phil. 752.) The title or
right to possession is never in issue in an action of forcible entry; as a matter of fact, evidence
thereof is expressly banned, except to prove the nature of the possession. (Second 4, Rule 72,
Rules of Court.) With this nature of the action in mind, by no stretch of the imagination can
conclusion be arrived at that the use of the remedy in the courts of justice would constitute an
interference with the alienation, disposition, and control of public lands. To limit ourselves to the
case at bar can it be pretended at all that its result would in any way interfere with the manner
of the alienation or disposition of the land contested? On the contrary, it would facilitate
adjudication, for the question of priority of possession having been decided in a final manner by
the courts, said question need no longer waste the time of the land officers making the
adjudication or award. (Emphasis ours)
The Principle of Pari Delicto is not Applicable to Ejectment Cases
The Court of Appeals erroneously applied the principle of pari delicto to this case.
Articles 1411 and 1412 of the Civil Code[48] embody the principle of pari delicto. We
explained the principle of pari delicto in these words:
The rule of pari delicto is expressed in the maxims ex dolo malo non eritur actio and in pari
delicto potior est conditio defedentis. The law will not aid either party to an illegal agreement. It
leaves the parties where it finds them.[49]
The application of the pari delicto principle is not absolute, as there are exceptions to its
application. One of these exceptions is where the application of the pari delicto rule would
violate well-established public policy.[50]
In Drilon v. Gaurana,[51] we reiterated the basic policy behind the summary actions of
forcible entry and unlawful detainer. We held that:
It must be stated that the purpose of an action of forcible entry and detainer is that, regardless
of the actual condition of the title to the property, the party in peaceable quiet possession shall
not be turned out by strong hand, violence or terror. In affording this remedy of restitution the
object of the statute is to prevent breaches of the peace and criminal disorder which would
ensue from the withdrawal of the remedy, and the reasonable hope such withdrawal would
create that some advantage must accrue to those persons who, believing themselves entitled to
the possession of property, resort to force to gain possession rather than to some appropriate
action in the courts to assert their claims. This is the philosophy at the foundation of all these
actions of forcible entry and detainer which are designed to compel the party out of possession
to respect and resort to the law alone to obtain what he claims is his.[52]
Clearly, the application of the principle of pari delicto to a case of ejectment between
squatters is fraught with danger. To shut out relief to squatters on the ground of pari
delicto would openly invite mayhem and lawlessness. A squatter would oust another squatter
from possession of the lot that the latter had illegally occupied, emboldened by the knowledge
that the courts would leave them where they are. Nothing would then stand in the way of the
ousted squatter from re-claiming his prior possession at all cost.
Petty warfare over possession of properties is precisely what ejectment cases or actions for
recovery of possession seek to prevent.[53] Even the owner who has title over the disputed
property cannot take the law into his own hands to regain possession of his property. The owner
must go to court.
 Courts must resolve the issue of possession even if the parties to the ejectment suit are
squatters. The determination of priority and superiority of possession is a serious and urgent
matter that cannot be left to the squatters to decide. To do so would make squatters receive
better treatment under the law. The law restrains property owners from taking the law into their
own hands. However, the principle of pari delicto as applied by the Court of Appeals would give
squatters free rein to dispossess fellow squatters or violently retake possession of properties
usurped from them. Courts should not leave squatters to their own devices in cases involving
recovery of possession.
Possession is the only Issue for Resolution in an Ejectment Case
The case for review before the Court of Appeals was a simple case of ejectment. The Court
of Appeals refused to rule on the issue of physical possession. Nevertheless, the appellate court
held that the pivotal issue in this case is who between Pajuyo and Guevarra has the priority right
as beneficiary of the contested land under Proclamation No. 137.[54] According to the Court of
Appeals, Guevarra enjoys preferential right under Proclamation No. 137 because Article VI of the
Code declares that the actual occupant or caretaker is the one qualified to apply for socialized
housing.
The ruling of the Court of Appeals has no factual and legal basis.
First. Guevarra did not present evidence to show that the contested lot is part of a
relocation site under Proclamation No. 137. Proclamation No. 137 laid down the metes and
bounds of the land that it declared open for disposition to bona fide residents.
The records do not show that the contested lot is within the land specified by Proclamation
No. 137. Guevarra had the burden to prove that the disputed lot is within the coverage of
Proclamation No. 137. He failed to do so.
Second. The Court of Appeals should not have given credence to Guevarras
unsubstantiated claim that he is the beneficiary of Proclamation No. 137. Guevarra merely
alleged that in the survey the project administrator conducted, he and not Pajuyo appeared as
the actual occupant of the lot.
There is no proof that Guevarra actually availed of the benefits of Proclamation No.
137. Pajuyo allowed Guevarra to occupy the disputed property in 1985. President Aquino signed
Proclamation No. 137 into law on 11 March 1986. Pajuyo made his earliest demand for Guevarra
to vacate the property in September 1994.
During the time that Guevarra temporarily held the property up to the time that
Proclamation No. 137 allegedly segregated the disputed lot, Guevarra never applied as
beneficiary of Proclamation No. 137. Even when Guevarra already knew that Pajuyo was
reclaiming possession of the property, Guevarra did not take any step to comply with the
requirements of Proclamation No. 137.
Third. Even assuming that the disputed lot is within the coverage of Proclamation No. 137
and Guevarra has a pending application over the lot, courts should still assume jurisdiction and
resolve the issue of possession. However, the jurisdiction of the courts would be limited to the
issue of physical possession only.
In Pitargue,[55] we ruled that courts have jurisdiction over possessory actions involving
public land to determine the issue of physical possession. The determination of the respective
rights of rival claimants to public land is, however, distinct from the determination of who has
the actual physical possession or who has a better right of physical possession.[56] The
administrative disposition and alienation of public lands should be threshed out in the proper
government agency.[57]
The Court of Appeals determination of Pajuyo and Guevarras rights under Proclamation
No. 137 was premature. Pajuyo and Guevarra were at most merely potential beneficiaries of the
law. Courts should not preempt the decision of the administrative agency mandated by law to
determine the qualifications of applicants for the acquisition of public lands. Instead, courts
should expeditiously resolve the issue of physical possession in ejectment cases to prevent
disorder and breaches of peace.[58]
Pajuyo is Entitled to Physical Possession of the Disputed Property
Guevarra does not dispute Pajuyos prior possession of the lot and ownership of the house
built on it. Guevarra expressly admitted the existence and due execution of
the Kasunduan. The Kasunduan reads:
Ako, si COL[I]TO PAJUYO, may-ari ng bahay at lote sa Bo. Payatas, Quezon City, ay nagbibigay
pahintulot kay G. Eddie Guevarra, na pansamantalang manirahan sa nasabing bahay at lote ng
walang bayad. Kaugnay nito, kailangang panatilihin nila ang kalinisan at kaayusan ng bahay at
lote.
Sa sandaling kailangan na namin ang bahay at lote, silay kusang aalis ng walang reklamo.
Based on the Kasunduan, Pajuyo permitted Guevarra to reside in the house and lot free of
rent, but Guevarra was under obligation to maintain the premises in good condition. Guevarra
promised to vacate the premises on Pajuyos demand but Guevarra broke his promise and
refused to heed Pajuyos demand to vacate.
These facts make out a case for unlawful detainer. Unlawful detainer involves the
withholding by a person from another of the possession of real property to which the latter is
entitled after the expiration or termination of the formers right to hold possession under a
contract, express or implied.[59]
Where the plaintiff allows the defendant to use his property by tolerance without any
contract, the defendant is necessarily bound by an implied promise that he will vacate on
demand, failing which, an action for unlawful detainer will lie.[60] The defendants refusal to
comply with the demand makes his continued possession of the property unlawful.[61] The
status of the defendant in such a case is similar to that of a lessee or tenant whose term of lease
has expired but whose occupancy continues by tolerance of the owner.[62]
This principle should apply with greater force in cases where a contract embodies the
permission or tolerance to use the property. The Kasunduan expressly articulated Pajuyos
forbearance. Pajuyo did not require Guevarra to pay any rent but only to maintain the house and
lot in good condition. Guevarra expressly vowed in the Kasunduan that he would vacate the
property on demand. Guevarras refusal to comply with Pajuyos demand to vacate made
Guevarras continued possession of the property unlawful.
We do not subscribe to the Court of Appeals theory that the Kasunduan is one
of commodatum.
In a contract of commodatum, one of the parties delivers to another something not
consumable so that the latter may use the same for a certain time and return it.[63] An essential
feature of commodatum is that it is gratuitous. Another feature of commodatum is that the use
of the thing belonging to another is for a certain period.[64] Thus, the bailor cannot demand the
return of the thing loaned until after expiration of the period stipulated, or after accomplishment
of the use for which the commodatum is constituted.[65] If the bailor should have urgent need
of the thing, he may demand its return for temporary use.[66] If the use of the thing is merely
tolerated by the bailor, he can demand the return of the thing at will, in which case the
contractual relation is called a precarium.[67] Under theCivil Code, precarium is a kind
of commodatum.[68]
The Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra was not
essentially gratuitous. While the Kasunduan did not require Guevarra to pay rent, it obligated
him to maintain the property in good condition. The imposition of this obligation makes
the Kasunduan a contract different from a commodatum. The effects of the Kasunduan are also
different from that of a commodatum. Case law on ejectment has treated relationship based on
tolerance as one that is akin to a landlord-tenant relationship where the withdrawal of
permission would result in the termination of the lease.[69] The tenants withholding of the
property would then be unlawful. This is settled jurisprudence.
Even assuming that the relationship between Pajuyo and Guevarra is one of commodatum,
Guevarra as bailee would still have the duty to turn over possession of the property to Pajuyo,
the bailor. The obligation to deliver or to return the thing received attaches to contracts for
safekeeping, or contracts of commission, administration and commodatum.[70] These contracts
certainly involve the obligation to deliver or return the thing received.[71]
Guevarra turned his back on the Kasunduan on the sole ground that like him, Pajuyo is also
a squatter. Squatters, Guevarra pointed out, cannot enter into a contract involving the land they
illegally occupy. Guevarra insists that the contract is void.
Guevarra should know that there must be honor even between squatters. Guevarra freely
entered into the Kasunduan. Guevarra cannot now impugn the Kasunduan after he had
benefited from it. The Kasunduan binds Guevarra.
The Kasunduan is not void for purposes of determining who between Pajuyo and Guevarra
has a right to physical possession of the contested property. The Kasunduan is the undeniable
evidence of Guevarras recognition of Pajuyos better right of physical possession. Guevarra is
clearly a possessor in bad faith. The absence of a contract would not yield a different result, as
there would still be an implied promise to vacate.
Guevarra contends that there is a pernicious evil that is sought to be avoided, and that is
allowing an absentee squatter who (sic) makes (sic) a profit out of his illegal act.[72] Guevarra
bases his argument on the preferential right given to the actual occupant or caretaker under
Proclamation No. 137 on socialized housing.
We are not convinced.
Pajuyo did not profit from his arrangement with Guevarra because Guevarra stayed in the
property without paying any rent. There is also no proof that Pajuyo is a professional squatter
who rents out usurped properties to other squatters. Moreover, it is for the proper government
agency to decide who between Pajuyo and Guevarra qualifies for socialized housing. The only
issue that we are addressing is physical possession.
Prior possession is not always a condition sine qua non in ejectment.[73] This is one of the
distinctions between forcible entry and unlawful detainer.[74] In forcible entry, the plaintiff is
deprived of physical possession of his land or building by means of force, intimidation, threat,
strategy or stealth. Thus, he must allege and prove prior possession.[75] But in unlawful
detainer, the defendant unlawfully withholds possession after the expiration or termination of
his right to possess under any contract, express or implied. In such a case, prior physical
possession is not required.[76]
Pajuyos withdrawal of his permission to Guevarra terminated the Kasunduan. Guevarras
transient right to possess the property ended as well. Moreover, it was Pajuyo who was in actual
possession of the property because Guevarra had to seek Pajuyos permission to temporarily hold
the property and Guevarra had to follow the conditions set by Pajuyo in the Kasunduan. Control
over the property still rested with Pajuyo and this is evidence of actual possession.
Pajuyos absence did not affect his actual possession of the disputed property. Possession
in the eyes of the law does not mean that a man has to have his feet on every square meter of
the ground before he is deemed in possession.[77] One may acquire possession not only by
physical occupation, but also by the fact that a thing is subject to the action of ones
will.[78] Actual or physical occupation is not always necessary.[79]
Ruling on Possession Does not Bind Title to the Land in Dispute
We are aware of our pronouncement in cases where we declared that squatters and
intruders who clandestinely enter into titled government property cannot, by such act, acquire
any legal right to said property.[80] We made this declaration because the person who had title
or who had the right to legal possession over the disputed property was a party in the ejectment
suit and that party instituted the case against squatters or usurpers.
In this case, the owner of the land, which is the government, is not a party to the
ejectment case. This case is between squatters. Had the government participated in this case,
the courts could have evicted the contending squatters, Pajuyo and Guevarra.
Since the party that has title or a better right over the property is not impleaded in this
case, we cannot evict on our own the parties. Such a ruling would discourage squatters from
seeking the aid of the courts in settling the issue of physical possession. Stripping both the
plaintiff and the defendant of possession just because they are squatters would have the same
dangerous implications as the application of the principle of pari delicto. Squatters would then
rather settle the issue of physical possession among themselves than seek relief from the courts
if the plaintiff and defendant in the ejectment case would both stand to lose possession of the
disputed property. This would subvert the policy underlying actions for recovery of possession.
 Since Pajuyo has in his favor priority in time in holding the property, he is entitled to
remain on the property until a person who has title or a better right lawfully ejects
him. Guevarra is certainly not that person. The ruling in this case, however, does not preclude
Pajuyo and Guevarra from introducing evidence and presenting arguments before the proper
administrative agency to establish any right to which they may be entitled under the law.[81]
In no way should our ruling in this case be interpreted to condone squatting. The ruling on
the issue of physical possession does not affect title to the property nor constitute a binding and
conclusive adjudication on the merits on the issue of ownership.[82] The owner can still go to
court to recover lawfully the property from the person who holds the property without legal
title. Our ruling here does not diminish the power of government agencies, including local
governments, to condemn, abate, remove or demolish illegal or unauthorized structures in
accordance with existing laws.
Attorneys Fees and Rentals
The MTC and RTC failed to justify the award of P3,000 attorneys fees to Pajuyo. Attorneys
fees as part of damages are awarded only in the instances enumerated in Article 2208 of the Civil
Code.[83] Thus, the award of attorneys fees is the exception rather than the rule.[84] Attorneys
fees are not awarded every time a party prevails in a suit because of the policy that no premium
should be placed on the right to litigate.[85] We therefore delete the attorneys fees awarded to
Pajuyo.
We sustain the P300 monthly rentals the MTC and RTC assessed against
Guevarra. Guevarra did not dispute this factual finding of the two courts. We find the amount
reasonable compensation to Pajuyo. The P300 monthly rental is counted from the last demand
to vacate, which was on 16 February 1995.
WHEREFORE, we GRANT the petition. The Decision dated 21 June 2000 and Resolution
dated 14 December 2000 of the Court of Appeals in CA-G.R. SP No. 43129 are SET ASIDE. The
Decision dated 11 November 1996 of the Regional Trial Court of Quezon City, Branch 81 in Civil
Case No. Q-96-26943, affirming the Decision dated 15 December 1995 of the Metropolitan Trial
Court of Quezon City, Branch 31 in Civil Case No. 12432, is REINSTATED with MODIFICATION. The
award of attorneys fees is deleted. No costs.
SO ORDERED.
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.
D. T. Reyes, Liaison and Associates for petitioner-appellant.
Office of the Solicitor General for plaintiff-appellee.
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 Bagtas who died on 23 October 1951 and
as administratrix of his estate, was notified. 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 November 1958 the third bull, the Sahiniwal, died from gunshot wound
inflicted during a Huk raid on Hacienda Felicidad Intal, and praying that the writ of execution be
quashed and that a writ of preliminary injunction be issued. On 31 January 1959 the plaintiff
objected to her motion. On 6 February 1959 she filed a reply thereto. On the same day, 6
February, the Court denied her motion. Hence, this appeal certified by the Court of Appeals to
this Court as stated at the beginning of this opinion.
It is true that on 26 June 1952 Jose M. Bagtas, Jr., son of the appellant by the late defendant,
returned the Sindhi and Bhagnari bulls to Roman Remorin, Superintendent of the NVB Station,
Bureau of Animal Industry, Bayombong, Nueva Vizcaya, as 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 against the estate of defendant deceased Jose V. Bagtas." She cannot
be held liable for the two bulls which already had been returned to and received by the appellee.
The appellant contends that the Sahiniwal bull was accidentally killed during a raid by the Huk in
November 1953 upon the surrounding barrios of Hacienda Felicidad Intal, Baggao, Cagayan,
where the animal was kept, and that as such death was due to force 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 Jose V. Bagtas of the three bulls for breeding
purposes for a period of one year from 8 May 1948 to 7 May 1949, later on renewed for another
year as regards one bull, was subject to the payment by the borrower of breeding fee of 10% of
the book value of the bulls. The appellant contends that the contract was commodatum and
that, for that reason, as the appellee retained ownership or title to the bull it should suffer its
loss due to force majeure. A contract of commodatum is essentially gratuitous.1 If the breeding
fee be considered a compensation, then the contract would be a lease of the bull. Under article
1671 of the Civil Code the lessee would be subject to the responsibilities of a possessor in bad
faith, because she had continued possession of the bull after the expiry of the contract. And even
if the contract be commodatum, still the appellant is liable, because article 1942 of the Civil Code
provides that a bailee in a contract of commodatum —
. . . is liable for loss of the things, even if it should be through a fortuitous event:
(2) If he keeps it longer than the period stipulated . . .
(3) If the thing loaned has been delivered with appraisal of its value, unless there is a
stipulation exempting the bailee from responsibility in case of a fortuitous event;
The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one bull 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 stray bullets. Furthermore,
when lent and delivered to the deceased husband of the appellant the bulls had each an
appraised book value, to with: the Sindhi, at P1,176.46, the Bhagnari at P1,320.56 and the
Sahiniwal at P744.46. It was not stipulated that in case of loss of the bull due to fortuitous event
the late husband of the appellant would be exempt from liability.
The appellant's contention that the demand or prayer by the appellee for the return of the bull
or the payment of its value being a money claim should be presented or filed in the intestate
proceedings of the defendant who died on 23 October 1951, is not altogether without merit.
However, the claim that his civil personality having ceased to exist the trial court lost jurisdiction
over the case against him, is untenable, because section 17 of Rule 3 of the Rules of Court
provides that —
After a party dies and the claim is not thereby extinguished, the court shall order, upon
proper notice, the legal representative of the deceased to appear and to be substituted
for the deceased, within a period of thirty (30) days, or within such time as may be
granted. . . .
and after the defendant's death on 23 October 1951 his counsel failed to comply with section 16
of Rule 3 which provides that —
Whenever a party to a pending case dies . . . it shall be the duty of his attorney to
inform the court promptly of such death . . . and to give the name and residence of the
executory administrator, guardian, or other legal representative of the deceased . . . .
The notice by the probate court and its publication in the Voz de Manila that Felicidad M. Bagtas
had been issue letters of administration of the estate of the late Jose Bagtas and that "all
persons having claims for monopoly against the deceased Jose V. Bagtas, arising from contract
express or implied, whether the same be due, not due, or contingent, for funeral expenses and
expenses of the last sickness of the said decedent, and judgment for monopoly against him, to
file said claims with the Clerk of this Court at the City Hall Bldg., Highway 54, Quezon City, within
six (6) months from the date of the first publication of this order, serving a copy thereof upon the
aforementioned Felicidad M. Bagtas, the appointed administratrix of the estate of the said
deceased," is not a notice to the court and the appellee who were to be notified of the
defendant's death in accordance with the above-quoted rule, and there was no reason for such
failure to notify, because the attorney who appeared for the defendant was the same who
represented the administratrix in the special proceedings instituted for the administration and
settlement of his estate. The appellee or its attorney or representative could not be expected to
know of the death of the defendant or of the administration 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.
As the appellant already had returned the two bulls to the appellee, the estate of the late G.R. Nos. 173654-765 August 28, 2008
defendant is only liable for the sum of P859.63, the value of the bull which has not been
returned to the appellee, because it was killed while in the custody of the administratrix of his PEOPLE OF THE PHILIPPINES, petitioner,
estate. This is the amount prayed for by the appellee in its objection on 31 January 1959 to the vs.
motion filed on 7 January 1959 by the appellant for the quashing of the writ of execution. TERESITA PUIG and ROMEO PORRAS, respondents.

Special proceedings for the administration and settlement of the estate of the deceased Jose V. DECISION
Bagtas having been instituted in the Court of First Instance of Rizal (Q-200), the money judgment
rendered in favor of the appellee cannot be enforced by means of a writ of execution but must
CHICO-NAZARIO, J.:
be presented to the probate court for payment by the appellant, the administratrix appointed by
the court.
This is a Petition for Review under Rule 45 of the Revised Rules of Court with petitioner People of
the Philippines, represented by the Office of the Solicitor General, praying for the reversal of the
ACCORDINGLY, the writ of execution appealed from is set aside, without pronouncement as to
Orders dated 30 January 2006 and 9 June 2006 of the Regional Trial Court (RTC) of the 6th Judicial
costs.
Region, Branch 68, Dumangas, Iloilo, dismissing the 112 cases of Qualified Theft filed against
respondents Teresita Puig and Romeo Porras, and denying petitioner’s Motion for
Reconsideration, in Criminal Cases No. 05-3054 to 05-3165.

The following are the factual antecedents:

On 7 November 2005, the Iloilo Provincial Prosecutor’s Office filed before Branch 68 of the RTC
in Dumangas, Iloilo, 112 cases of Qualified Theft against respondents Teresita Puig (Puig) and
Romeo Porras (Porras) who were the Cashier and Bookkeeper, respectively, of private
complainant Rural Bank of Pototan, Inc. The cases were docketed as Criminal Cases No. 05-3054
to 05-3165.

The allegations in the Informations1 filed before the RTC were uniform and pro-forma, except for
the amounts, date and time of commission, to wit:

INFORMATION

That on or about the 1st day of August, 2002, in the Municipality of Pototan, Province
of Iloilo, Philippines, and within the jurisdiction of this Honorable Court, above-named
[respondents], conspiring, confederating, and helping one another, with grave abuse
of confidence, being the Cashier and Bookkeeper of the Rural Bank of Pototan, Inc.,
Pototan, Iloilo, without the knowledge and/or consent of the management of the Bank
and with intent of gain, did then and there willfully, unlawfully and feloniously take,
steal and carry away the sum of FIFTEEN THOUSAND PESOS (P15,000.00), Philippine
Currency, to the damage and prejudice of the said bank in the aforesaid amount.

After perusing the Informations in these cases, the trial court did not find the existence of
probable cause that would have necessitated the issuance of a warrant of arrest based on the
following grounds:

(1) the element of ‘taking without the consent of the owners’ was missing on the
ground that it is the depositors-clients, and not the Bank, which filed the complaint in
 these cases, who are the owners of the money allegedly taken by respondents and
hence, are the real parties-in-interest; and
(2) the Informations are bereft of the phrase alleging "dependence, guardianship or
vigilance between the respondents and the offended party that would have created
a high degree of confidence between them which the respondents could have
abused."
It added that allowing the 112 cases for Qualified Theft filed against the respondents to push
through would be violative of the right of the respondents under Section 14(2), Article III of the
1987 Constitution which states that in all criminal prosecutions, the accused shall enjoy the right
to be informed of the nature and cause of the accusation against him. Following Section 6, Rule
112 of the Revised Rules of Criminal Procedure, the RTC dismissed the cases on 30 January 2006
and refused to issue a warrant of arrest against Puig and Porras.
A Motion for Reconsideration2 was filed on 17 April 2006, by the petitioner.
On 9 June 2006, an Order3 denying petitioner’s Motion for Reconsideration was issued by the
RTC, finding as follows:
Accordingly, the prosecution’s Motion for Reconsideration should be, as it hereby,
DENIED. The Order dated January 30, 2006 STANDS in all respects.
Petitioner went directly to this Court via Petition for Review on Certiorari under Rule 45, raising
the sole legal issue of:
WHETHER OR NOT THE 112 INFORMATIONS FOR QUALIFIED THEFT SUFFICIENTLY
ALLEGE THE ELEMENT OF TAKING WITHOUT THE CONSENT OF THE OWNER, AND THE
QUALIFYING CIRCUMSTANCE OF GRAVE ABUSE OF CONFIDENCE.
Petitioner prays that judgment be rendered annulling and setting aside the Orders dated 30
January 2006 and 9 June 2006 issued by the trial court, and that it be directed to proceed with
Criminal Cases No. 05-3054 to 05-3165.
Petitioner explains that under Article 1980 of the New Civil Code, "fixed, savings, and current
deposits of money in banks and similar institutions shall be governed by the provisions
concerning simple loans." Corollary thereto, Article 1953 of the same Code provides that "a
person who receives a loan of money or any other fungible thing acquires the ownership thereof,
and is bound to pay to the creditor an equal amount of the same kind and quality." Thus, it posits
that the depositors who place their money with the bank are considered creditors of the bank.
The bank acquires ownership of the money deposited by its clients, making the money taken by
respondents as belonging to the bank.
Petitioner also insists that the Informations sufficiently allege all the elements of the crime of
qualified theft, citing that a perusal of the Informations will show that they specifically allege
that the respondents were the Cashier and Bookkeeper of the Rural Bank of Pototan, Inc.,
respectively, and that they took various amounts of money with grave abuse of confidence, and
without the knowledge and consent of the bank, to the damage and prejudice of the bank.
Parenthetically, respondents raise procedural issues. They challenge the petition on the ground
that a Petition for Review on Certiorari via Rule 45 is the wrong mode of appeal because a
finding of probable cause for the issuance of a warrant of arrest presupposes evaluation of facts
and circumstances, which is not proper under said Rule.
Respondents further claim that the Department of Justice (DOJ), through the Secretary of
Justice, is the principal party to file a Petition for Review on Certiorari, considering that the
incident was indorsed by the DOJ.
We find merit in the petition.
The dismissal by the RTC of the criminal cases was allegedly due to insufficiency of the
Informations and, therefore, because of this defect, there is no basis for the existence of
probable cause which will justify the issuance of the warrant of arrest. Petitioner assails the
dismissal contending that the Informations for Qualified Theft sufficiently state facts which
constitute (a) the qualifying circumstance of grave abuse of confidence; and (b) the element of
taking, with intent to gain and without the consent of the owner, which is the Bank.
In determining the existence of probable cause to issue a warrant of arrest, the RTC judge found
the allegations in the Information inadequate. He ruled that the Information failed to state facts
constituting the qualifying circumstance of grave abuse of confidence and the element of taking
without the consent of the owner, since the owner of the money is not the Bank, but the
depositors therein. He also cites People v. Koc Song,4 in which this Court held:
There must be allegation in the information and proof of a relation, by reason of
dependence, guardianship or vigilance, between the respondents and the offended
party that has created a high degree of confidence between them, which the
respondents abused.
At this point, it needs stressing that the RTC Judge based his conclusion that there was no
probable cause simply on the insufficiency of the allegations in the Informations concerning the
facts constitutive of the elements of the offense charged. This, therefore, makes the issue of
sufficiency of the allegations in the Informations the focal point of discussion.
Qualified Theft, as defined and punished under Article 310 of the Revised Penal Code, is
committed as follows, viz:
ART. 310. Qualified Theft. – The crime of theft shall be punished by the penalties next
higher by two degrees than those respectively specified in the next preceding article, if
committed by a domestic servant, or with grave abuse of confidence, or if the property
stolen is motor vehicle, mail matter or large cattle or consists of coconuts taken from
the premises of a plantation, fish taken from a fishpond or fishery or if property is
 taken on the occasion of fire, earthquake, typhoon, volcanic eruption, or any other
calamity, vehicular accident or civil disturbance. (Emphasis supplied.)
Theft, as defined in Article 308 of the Revised Penal Code, requires the physical taking of
another’s property without violence or intimidation against persons or force upon things. The
elements of the crime under this Article are:
1. Intent to gain;
2. Unlawful taking;
3. Personal property belonging to another;
4. Absence of violence or intimidation against persons or force upon things.
To fall under the crime of Qualified Theft, the following elements must concur:
1. Taking of personal property;
2. That the said property belongs to another;
3. That the said taking be done with intent to gain;
4. That it be done without the owner’s consent;
5. That it be accomplished without the use of violence or intimidation against persons,
nor of force upon things;
6. That it be done with grave abuse of confidence.
On the sufficiency of the Information, Section 6, Rule 110 of the Rules of Court requires, inter
alia, that the information must state the acts or omissions complained of as constitutive of the
offense.
On the manner of how the Information should be worded, Section 9, Rule 110 of the Rules of
Court, is enlightening:
Section 9. Cause of the accusation. The acts or omissions complained of as constituting
the offense and the qualifying and aggravating circumstances must be stated in
ordinary and concise language and not necessarily in the language used in the statute
but in terms sufficient to enable a person of common understanding to know what
offense is being charged as well as its qualifying and aggravating circumstances and for
the court to pronounce judgment.
It is evident that the Information need not use the exact language of the statute in alleging the
acts or omissions complained of as constituting the offense. The test is whether it enables a
person of common understanding to know the charge against him, and the court to render
judgment properly.5
The portion of the Information relevant to this discussion reads:
A]bove-named [respondents], conspiring, confederating, and helping one another, with grave abuse of confidence, being the
Cashier and Bookkeeper of the Rural Bank of Pototan, Inc., Pototan, Iloilo, without the knowledge and/or consent of the
management of the Bank x x x.
It is beyond doubt that tellers, Cashiers, Bookkeepers and other employees of a Bank who come
into possession of the monies deposited therein enjoy the confidence reposed in them by their
employer. Banks, on the other hand, where monies are deposited, are considered the owners
thereof. This is very clear not only from the express provisions of the law, but from established
jurisprudence. The relationship between banks and depositors has been held to be that of
creditor and debtor. Articles 1953 and 1980 of the New Civil Code, as appropriately pointed out
by petitioner, provide as follows:
Article 1953. A person who receives a loan of money or any other fungible thing
acquires the ownership thereof, and is bound to pay to the creditor an equal amount
of the same kind and quality.
Article 1980. Fixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning loan.
In a long line of cases involving Qualified Theft, this Court has firmly established the nature of
possession by the Bank of the money deposits therein, and the duties being performed by its
employees who have custody of the money or have come into possession of it. The Court has
consistently considered the allegations in the Information that such employees acted with grave
abuse of confidence, to the damage and prejudice of the Bank, without particularly referring to it
as owner of the money deposits, as sufficient to make out a case of Qualified Theft. For a graphic
illustration, we cite Roque v. People,6 where the accused teller was convicted for Qualified Theft
based on this Information:
That on or about the 16th day of November, 1989, in the municipality of Floridablanca,
province of Pampanga, Philippines and within the jurisdiction of his Honorable Court,
the above-named accused ASUNCION GALANG ROQUE, being then employed
as teller of the Basa Air Base Savings and Loan Association Inc. (BABSLA) with office
address at Basa Air Base, Floridablanca, Pampanga, and as such was authorized and
reposed with the responsibility to receive and collect capital contributions from its
member/contributors of said corporation, and having collected and received in her
capacity as teller of the BABSLA the sum of TEN THOUSAND PESOS (P10,000.00), said
accused, with intent of gain, with grave abuse of confidence and without the
knowledge and consent of said corporation, did then and there willfully, unlawfully
and feloniously take, steal and carry away the amount of P10,000.00, Philippine
currency, by making it appear that a certain depositor by the name of Antonio Salazar
 withdrew from his Savings Account No. 1359, when in truth and in fact said Antonio
Salazar did not withdr[a]w the said amount of P10,000.00 to the damage and prejudice
of BABSLA in the total amount of P10,000.00, Philippine currency.
In convicting the therein appellant, the Court held that:
[S]ince the teller occupies a position of confidence, and the bank places money in the
teller’s possession due to the confidence reposed on the teller, the felony of qualified
theft would be committed.7
Also in People v. Sison,8 the Branch Operations Officer was convicted of the crime of Qualified
Theft based on the Information as herein cited:
That in or about and during the period compressed between January 24, 1992 and
February 13, 1992, both dates inclusive, in the City of Manila, Philippines, the said
accused did then and there wilfully, unlawfully and feloniously, with intent of gain and
without the knowledge and consent of the owner thereof, take, steal and carry away
the following, to wit:
Cash money amounting to P6,000,000.00 in different denominations belonging to the
PHILIPPINE COMMERCIAL INTERNATIONAL BANK (PCIBank for brevity), Luneta Branch,
Manila represented by its Branch Manager, HELEN U. FARGAS, to the damage and
prejudice of the said owner in the aforesaid amount of P6,000,000.00, Philippine
Currency.
That in the commission of the said offense, herein accused acted with grave abuse of
confidence and unfaithfulness, he being the Branch Operation Officer of the said
complainant and as such he had free access to the place where the said amount of
money was kept.
The judgment of conviction elaborated thus:
The crime perpetuated by appellant against his employer, the Philippine Commercial
and Industrial Bank (PCIB), is Qualified Theft. Appellant could not have committed the
crime had he not been holding the position of Luneta Branch Operation Officer which
gave him not only sole access to the bank vault xxx. The management of the PCIB
reposed its trust and confidence in the appellant as its Luneta Branch Operation
Officer, and it was this trust and confidence which he exploited to enrich himself to the
damage and prejudice of PCIB x x x.9
From another end, People v. Locson,10 in addition to People v. Sison, described the nature of
possession by the Bank. The money in this case was in the possession of the defendant as
receiving teller of the bank, and the possession of the defendant was the possession of the Bank.
The Court held therein that when the defendant, with grave abuse of confidence, removed the
money and appropriated it to his own use without the consent of the Bank, there was taking as
contemplated in the crime of Qualified Theft.11
Conspicuously, in all of the foregoing cases, where the Informations merely alleged the positions
of the respondents; that the crime was committed with grave abuse of confidence, with intent to
gain and without the knowledge and consent of the Bank, without necessarily stating the phrase
being assiduously insisted upon by respondents, "of a relation by reason of dependence,
guardianship or vigilance, between the respondents and the offended party that has created a
high degree of confidence between them, which respondents abused,"12 and without employing
the word "owner" in lieu of the "Bank" were considered to have satisfied the test of sufficiency
of allegations.
As regards the respondents who were employed as Cashier and Bookkeeper of the Bank in this
case, there is even no reason to quibble on the allegation in the Informations that they acted
with grave abuse of confidence. In fact, the Information which alleged grave abuse of confidence
by accused herein is even more precise, as this is exactly the requirement of the law in qualifying
the crime of Theft.
In summary, the Bank acquires ownership of the money deposited by its clients; and the
employees of the Bank, who are entrusted with the possession of money of the Bank due to the
confidence reposed in them, occupy positions of confidence. The Informations, therefore,
sufficiently allege all the essential elements constituting the crime of Qualified Theft.
On the theory of the defense that the DOJ is the principal party who may file the instant petition,
the ruling in Mobilia Products, Inc. v. Hajime Umezawa13 is instructive. The Court thus
enunciated:
In a criminal case in which the offended party is the State, the interest of the private
complainant or the offended party is limited to the civil liability arising therefrom.
Hence, if a criminal case is dismissed by the trial court or if there is an acquittal, a
reconsideration of the order of dismissal or acquittal may be undertaken, whenever
legally feasible, insofar as the criminal aspect thereof is concerned and may be made
only by the public prosecutor; or in the case of an appeal, by the State only, through
the OSG. x x x.
On the alleged wrong mode of appeal by petitioner, suffice it to state that the rule is well-settled
that in appeals by certiorari under Rule 45 of the Rules of Court, only errors of law may be
raised,14 and herein petitioner certainly raised a question of law.
As an aside, even if we go beyond the allegations of the Informations in these cases, a closer look
at the records of the preliminary investigation conducted will show that, indeed, probable cause
exists for the indictment of herein respondents. Pursuant to Section 6, Rule 112 of the Rules of
Court, the judge shall issue a warrant of arrest only upon a finding of probable cause after
personally evaluating the resolution of the prosecutor and its supporting evidence. Soliven v.
Makasiar,15 as reiterated in Allado v. Driokno,16 explained that probable cause for the issuance
of a warrant of arrest is the existence of such facts and circumstances that would lead a
reasonably discreet and prudent person to believe that an offense has been committed by the
person sought to be arrested.17 The records reasonably indicate that the respondents may have,
indeed, committed the offense charged.
Before closing, let it be stated that while it is truly imperative upon the fiscal or the judge, as the G.R. No. 123498 November 23, 2007
case may be, to relieve the respondents from the pain of going through a trial once it is
ascertained that no probable cause exists to form a sufficient belief as to the guilt of the BPI FAMILY BANK, Petitioner,
respondents, conversely, it is also equally imperative upon the judge to proceed with the case vs.
upon a showing that there is a prima faciecase against the respondents. AMADO FRANCO and COURT OF APPEALS, Respondents.

WHEREFORE, premises considered, the Petition for Review on Certiorari is hereby GRANTED. DECISION
The Orders dated 30 January 2006 and 9 June 2006 of the RTC dismissing Criminal Cases No. 05-
3054 to 05-3165 are REVERSED and SET ASIDE. Let the corresponding Warrants of Arrest issue
NACHURA, J.:
against herein respondents TERESITA PUIG and ROMEO PORRAS. The RTC Judge of Branch 68, in
Dumangas, Iloilo, is directed to proceed with the trial of Criminal Cases No. 05-3054 to 05-3165,
inclusive, with reasonable dispatch. No pronouncement as to costs. Banks are exhorted to treat the accounts of their depositors with meticulous care and utmost
fidelity. We reiterate this exhortation in the case at bench.
SO ORDERED.
Before us is a Petition for Review on Certiorari seeking the reversal of the Court of Appeals (CA)
Decision1 in CA-G.R. CV No. 43424 which affirmed with modification the judgment2 of the
Regional Trial Court, Branch 55, Manila (Manila RTC), in Civil Case No. 90-53295.

This case has its genesis in an ostensible fraud perpetrated on the petitioner BPI Family Bank
(BPI-FB) allegedly by respondent Amado Franco (Franco) in conspiracy with other
individuals,3 some of whom opened and maintained separate accounts with BPI-FB, San
Francisco del Monte (SFDM) branch, in a series of transactions.

On August 15, 1989, Tevesteco Arrastre-Stevedoring Co., Inc. (Tevesteco) opened a savings and
current account with BPI-FB. Soon thereafter, or on August 25, 1989, First Metro Investment
Corporation (FMIC) also opened a time deposit account with the same branch of BPI-FB with a
deposit of ₱100,000,000.00, to mature one year thence.

Subsequently, on August 31, 1989, Franco opened three accounts, namely, a

current,4 savings,5 and time deposit,6with BPI-FB. The current and savings accounts were
respectively funded with an initial deposit of ₱500,000.00 each, while the time deposit account
had ₱1,000,000.00 with a maturity date of August 31, 1990. The total amount of ₱2,000,000.00
used to open these accounts is traceable to a check issued by Tevesteco allegedly in
consideration of Franco’s introduction of Eladio Teves,7 who was looking for a conduit bank to
facilitate Tevesteco’s business transactions, to Jaime Sebastian, who was then BPI-FB SFDM’s
Branch Manager. In turn, the funding for the ₱2,000,000.00 check was part of the
₱80,000,000.00 debited by BPI-FB from FMIC’s time deposit account and credited to Tevesteco’s
current account pursuant to an Authority to Debit purportedly signed by FMIC’s officers.

It appears, however, that the signatures of FMIC’s officers on the Authority to Debit were
forged.8 On September 4, 1989, Antonio Ong,9 upon being shown the Authority to Debit,
personally declared his signature therein to be a forgery. Unfortunately, Tevesteco had already
effected several withdrawals from its current account (to which had been credited the
₱80,000,000.00 covered by the forged Authority to Debit) amounting to ₱37,455,410.54,
including the ₱2,000,000.00 paid to Franco.
On September 8, 1989, impelled by the need to protect its interests in light of FMIC’s forgery
claim, BPI-FB, thru its Senior Vice-President, Severino Coronacion, instructed Jesus
Arangorin10 to debit Franco’s savings and current accounts for the amounts remaining
therein.11 However, Franco’s time deposit account could not be debited due to the capacity
limitations of BPI-FB’s computer.12
In the meantime, two checks13 drawn by Franco against his BPI-FB current account were
dishonored upon presentment for payment, and stamped with a notation "account under
garnishment." Apparently, Franco’s current account was garnished by virtue of an Order of
Attachment issued by the Regional Trial Court of Makati (Makati RTC) in Civil Case No. 89-4996
(Makati Case), which had been filed by BPI-FB against Franco et al.,14 to recover the
₱37,455,410.54 representing Tevesteco’s total withdrawals from its account.
Notably, the dishonored checks were issued by Franco and presented for payment at BPI-FB
prior to Franco’s receipt of notice that his accounts were under garnishment.15 In fact, at the
time the Notice of Garnishment dated September 27, 1989 was served on BPI-FB, Franco had yet
to be impleaded in the Makati case where the writ of attachment was issued.
It was only on May 15, 1990, through the service of a copy of the Second Amended Complaint in
Civil Case No. 89-4996, that Franco was impleaded in the Makati case.16 Immediately, upon
receipt of such copy, Franco filed a Motion to Discharge Attachment which the Makati RTC
granted on May 16, 1990. The Order Lifting the Order of Attachment was served on BPI-FB on
even date, with Franco demanding the release to him of the funds in his savings and current
accounts. Jesus Arangorin, BPI-FB’s new manager, could not forthwith comply with the demand
as the funds, as previously stated, had already been debited because of FMIC’s forgery claim. As
such, BPI-FB’s computer at the SFDM Branch indicated that the current account record was "not
on file."
With respect to Franco’s savings account, it appears that Franco agreed to an arrangement, as a
favor to Sebastian, whereby ₱400,000.00 from his savings account was temporarily transferred
to Domingo Quiaoit’s savings account, subject to its immediate return upon issuance of a
certificate of deposit which Quiaoit needed in connection with his visa application at the Taiwan
Embassy. As part of the arrangement, Sebastian retained custody of Quiaoit’s savings account
passbook to ensure that no withdrawal would be effected therefrom, and to preserve Franco’s
deposits.
On May 17, 1990, Franco pre-terminated his time deposit account. BPI-FB deducted the amount
of ₱63,189.00 from the remaining balance of the time deposit account representing advance
interest paid to him.
These transactions spawned a number of cases, some of which we had already resolved.
FMIC filed a complaint against BPI-FB for the recovery of the amount of ₱80,000,000.00 debited
from its account.17The case eventually reached this Court, and in BPI Family Savings Bank, Inc.
v. First Metro Investment Corporation,18 we upheld the finding of the courts below that BPI-FB
failed to exercise the degree of diligence required by the nature of its obligation to treat the
accounts of its depositors with meticulous care. Thus, BPI-FB was found liable to FMIC for the
debited amount in its time deposit. It was ordered to pay ₱65,332,321.99 plus interest at 17%
per annum from August 29, 1989 until fully restored. In turn, the 17% shall itself earn interest at
12% from October 4, 1989 until fully paid.
In a related case, Edgardo Buenaventura, Myrna Lizardo and Yolanda Tica (Buenaventura, et
al.),19 recipients of a ₱500,000.00 check proceeding from the ₱80,000,000.00 mistakenly
credited to Tevesteco, likewise filed suit. Buenaventura et al., as in the case of Franco, were also
prevented from effecting withdrawals20 from their current account with BPI-FB, Bonifacio
Market, Edsa, Caloocan City Branch. Likewise, when the case was elevated to this Court docketed
as BPI Family Bank v. Buenaventura,21 we ruled that BPI-FB had no right to freeze
Buenaventura, et al.’s accounts and adjudged BPI-FB liable therefor, in addition to damages.
Meanwhile, BPI-FB filed separate civil and criminal cases against those believed to be the
perpetrators of the multi-million peso scam.22 In the criminal case, Franco, along with the other
accused, except for Manuel Bienvenida who was still at large, were acquitted of the crime of
Estafa as defined and penalized under Article 351, par. 2(a) of the Revised Penal
Code.23 However, the civil case24 remains under litigation and the respective rights and
liabilities of the parties have yet to be adjudicated.
Consequently, in light of BPI-FB’s refusal to heed Franco’s demands to unfreeze his accounts and
release his deposits therein, the latter filed on June 4, 1990 with the Manila RTC the subject suit.
In his complaint, Franco prayed for the following reliefs: (1) the interest on the remaining
balance25 of his current account which was eventually released to him on October 31, 1991; (2)
the balance26 on his savings account, plus interest thereon; (3) the advance interest27 paid to
him which had been deducted when he pre-terminated his time deposit account; and (4) the
payment of actual, moral and exemplary damages, as well as attorney’s fees.
BPI-FB traversed this complaint, insisting that it was correct in freezing the accounts of Franco
and refusing to release his deposits, claiming that it had a better right to the amounts which
consisted of part of the money allegedly fraudulently withdrawn from it by Tevesteco and ending
up in Franco’s accounts. BPI-FB asseverated that the claimed consideration of ₱2,000,000.00 for
the introduction facilitated by Franco between George Daantos and Eladio Teves, on the one
hand, and Jaime Sebastian, on the other, spoke volumes of Franco’s participation in the
fraudulent transaction.
On August 4, 1993, the Manila RTC rendered judgment, the dispositive portion of which reads as
follows:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of [Franco] and
against [BPI-FB], ordering the latter to pay to the former the following sums:
 1. ₱76,500.00 representing the legal rate of interest on the amount of ₱450,000.00
from May 18, 1990 to October 31, 1991;
2. ₱498,973.23 representing the balance on [Franco’s] savings account as of May 18,
1990, together with the interest thereon in accordance with the bank’s guidelines on
the payment therefor;
3. ₱30,000.00 by way of attorney’s fees; and
4. ₱10,000.00 as nominal damages.
The counterclaim of the defendant is DISMISSED for lack of factual and legal anchor.
Costs against [BPI-FB].
SO ORDERED.28
Unsatisfied with the decision, both parties filed their respective appeals before the CA. Franco
confined his appeal to the Manila RTC’s denial of his claim for moral and exemplary damages,
and the diminutive award of attorney’s fees. In affirming with modification the lower court’s
decision, the appellate court decreed, to wit:
WHEREFORE, foregoing considered, the appealed decision is hereby AFFIRMED with modification
ordering [BPI-FB] to pay [Franco] ₱63,189.00 representing the interest deducted from the time
deposit of plaintiff-appellant. ₱200,000.00 as moral damages and ₱100,000.00 as exemplary
damages, deleting the award of nominal damages (in view of the award of moral and exemplary
damages) and increasing the award of attorney’s fees from ₱30,000.00 to ₱75,000.00.
Cost against [BPI-FB].
SO ORDERED.29
In this recourse, BPI-FB ascribes error to the CA when it ruled that: (1) Franco had a better right
to the deposits in the subject accounts which are part of the proceeds of a forged Authority to
Debit; (2) Franco is entitled to interest on his current account; (3) Franco can recover the
₱400,000.00 deposit in Quiaoit’s savings account; (4) the dishonor of Franco’s checks was not
legally in order; (5) BPI-FB is liable for interest on Franco’s time deposit, and for moral and
exemplary damages; and (6) BPI-FB’s counter-claim has no factual and legal anchor.
The petition is partly meritorious.
We are in full accord with the common ruling of the lower courts that BPI-FB cannot unilaterally
freeze Franco’s accounts and preclude him from withdrawing his deposits. However, contrary to
the appellate court’s ruling, we hold that Franco is not entitled to unearned interest on the time
deposit as well as to moral and exemplary damages.
First. On the issue of who has a better right to the deposits in Franco’s accounts, BPI-FB urges us
that the legal consequence of FMIC’s forgery claim is that the money transferred by BPI-FB to
Tevesteco is its own, and considering that it was able to recover possession of the same when
the money was redeposited by Franco, it had the right to set up its ownership thereon and
freeze Franco’s accounts.
BPI-FB contends that its position is not unlike that of an owner of personal property who regains
possession after it is stolen, and to illustrate this point, BPI-FB gives the following example:
where X’s television set is stolen by Y who thereafter sells it to Z, and where Z unwittingly
entrusts possession of the TV set to X, the latter would have the right to keep possession of the
property and preclude Z from recovering possession thereof. To bolster its position, BPI-FB cites
Article 559 of the Civil Code, which provides:
Article 559. The possession of movable property acquired in good faith is equivalent to a title.
Nevertheless, one who has lost any movable or has been unlawfully deprived thereof, may
recover it from the person in possession of the same.
If the possessor of a movable lost or of which the owner has been unlawfully deprived, has
acquired it in good faith at a public sale, the owner cannot obtain its return without reimbursing
the price paid therefor.
BPI-FB’s argument is unsound. To begin with, the movable property mentioned in Article 559 of
the Civil Code pertains to a specific or determinate thing.30 A determinate or specific thing is
one that is individualized and can be identified or distinguished from others of the same kind.31
In this case, the deposit in Franco’s accounts consists of money which, albeit characterized as a
movable, is generic and fungible.32 The quality of being fungible depends upon the possibility of
the property, because of its nature or the will of the parties, being substituted by others of the
same kind, not having a distinct individuality.33
Significantly, while Article 559 permits an owner who has lost or has been unlawfully deprived of
a movable to recover the exact same thing from the current possessor, BPI-FB simply claims
ownership of the equivalent amount of money, i.e., the value thereof, which it had mistakenly
debited from FMIC’s account and credited to Tevesteco’s, and subsequently traced to Franco’s
account. In fact, this is what BPI-FB did in filing the Makati Case against Franco, et al. It staked its
claim on the money itself which passed from one account to another, commencing with the
forged Authority to Debit.
It bears emphasizing that money bears no earmarks of peculiar ownership,34 and this
characteristic is all the more manifest in the instant case which involves money in a banking
transaction gone awry. Its primary function is to pass from hand to hand as a medium of
exchange, without other evidence of its title.35 Money, which had passed through various
transactions in the general course of banking business, even if of traceable origin, is no
exception.
Thus, inasmuch as what is involved is not a specific or determinate personal property, BPI-FB’s
illustrative example, ostensibly based on Article 559, is inapplicable to the instant case.
There is no doubt that BPI-FB owns the deposited monies in the accounts of Franco, but not as a
legal consequence of its unauthorized transfer of FMIC’s deposits to Tevesteco’s account. BPI-FB
conveniently forgets that the deposit of money in banks is governed by the Civil Code provisions
on simple loan or mutuum.36 As there is a debtor-creditor relationship between a bank and its
depositor, BPI-FB ultimately acquired ownership of Franco’s deposits, but such ownership is
coupled with a corresponding obligation to pay him an equal amount on demand.37Although
BPI-FB owns the deposits in Franco’s accounts, it cannot prevent him from demanding payment
of BPI-FB’s obligation by drawing checks against his current account, or asking for the release of
the funds in his savings account. Thus, when Franco issued checks drawn against his current
account, he had every right as creditor to expect that those checks would be honored by BPI-FB
as debtor.
More importantly, BPI-FB does not have a unilateral right to freeze the accounts of Franco based
on its mere suspicion that the funds therein were proceeds of the multi-million peso scam
Franco was allegedly involved in. To grant BPI-FB, or any bank for that matter, the right to take
whatever action it pleases on deposits which it supposes are derived from shady transactions,
would open the floodgates of public distrust in the banking industry.
Our pronouncement in Simex International (Manila), Inc. v. Court of Appeals38 continues to
resonate, thus:
The banking system is an indispensable institution in the modern world and plays a vital role in
the economic life of every civilized nation. Whether as mere passive entities for the safekeeping
and saving of money or as active instruments of business and commerce, banks have become an
ubiquitous presence among the people, who have come to regard them with respect and even
gratitude and, most of all, confidence. Thus, even the humble wage-earner has not hesitated to
entrust his life’s savings to the bank of his choice, knowing that they will be safe in its custody
and will even earn some interest for him. The ordinary person, with equal faith, usually
maintains a modest checking account for security and convenience in the settling of his monthly
bills and the payment of ordinary expenses. x x x.
In every case, the depositor expects the bank to treat his account with the utmost fidelity,
whether such account consists only of a few hundred pesos or of millions. The bank must record
every single transaction accurately, down to the last centavo, and as promptly as possible. This
has to be done if the account is to reflect at any given time the amount of money the depositor
can dispose of as he sees fit, confident that the bank will deliver it as and to whomever directs. A
blunder on the part of the bank, such as the dishonor of the check without good reason, can
cause the depositor not a little embarrassment if not also financial loss and perhaps even civil
and criminal litigation.
The point is that as a business affected with public interest and because of the nature of its
functions, the bank is under obligation to treat the accounts of its depositors with meticulous
care, always having in mind the fiduciary nature of their relationship. x x x.
Ineluctably, BPI-FB, as the trustee in the fiduciary relationship, is duty bound to know the
signatures of its customers. Having failed to detect the forgery in the Authority to Debit and in
the process inadvertently facilitate the FMIC-Tevesteco transfer, BPI-FB cannot now shift liability
thereon to Franco and the other payees of checks issued by Tevesteco, or prevent withdrawals
from their respective accounts without the appropriate court writ or a favorable final judgment.
Further, it boggles the mind why BPI-FB, even without delving into the authenticity of the
signature in the Authority to Debit, effected the transfer of ₱80,000,000.00 from FMIC’s to
Tevesteco’s account, when FMIC’s account was a time deposit and it had already paid advance
interest to FMIC. Considering that there is as yet no indubitable evidence establishing Franco’s
participation in the forgery, he remains an innocent party. As between him and BPI-FB, the
latter, which made possible the present predicament, must bear the resulting loss or
inconvenience.
Second. With respect to its liability for interest on Franco’s current account, BPI-FB argues that
its non-compliance with the Makati RTC’s Order Lifting the Order of Attachment and the legal
consequences thereof, is a matter that ought to be taken up in that court.
The argument is tenuous. We agree with the succinct holding of the appellate court in this
respect. The Manila RTC’s order to pay interests on Franco’s current account arose from BPI-FB’s
unjustified refusal to comply with its obligation to pay Franco pursuant to their contract of
mutuum. In other words, from the time BPI-FB refused Franco’s demand for the release of the
deposits in his current account, specifically, from May 17, 1990, interest at the rate of 12% began
to accrue thereon.39
Undeniably, the Makati RTC is vested with the authority to determine the legal consequences of
BPI-FB’s non-compliance with the Order Lifting the Order of Attachment. However, such
authority does not preclude the Manila RTC from ruling on BPI-FB’s liability to Franco for
payment of interest based on its continued and unjustified refusal to perform a contractual
obligation upon demand. After all, this was the core issue raised by Franco in his complaint
before the Manila RTC.
Third. As to the award to Franco of the deposits in Quiaoit’s account, we find no reason to depart
from the factual findings of both the Manila RTC and the CA.
Noteworthy is the fact that Quiaoit himself testified that the deposits in his account are actually
owned by Franco who simply accommodated Jaime Sebastian’s request to temporarily transfer
₱400,000.00 from Franco’s savings account to Quiaoit’s account.40 His testimony cannot be
characterized as hearsay as the records reveal that he had personal knowledge of the
arrangement made between Franco, Sebastian and himself.41
BPI-FB makes capital of Franco’s belated allegation relative to this particular arrangement. It
insists that the transaction with Quiaoit was not specifically alleged in Franco’s complaint before
the Manila RTC. However, it appears that BPI-FB had impliedly consented to the trial of this issue
given its extensive cross-examination of Quiaoit.
Section 5, Rule 10 of the Rules of Court provides:
Section 5. Amendment to conform to or authorize presentation of evidence.— When issues not
raised by the pleadings are tried with the express or implied consent of the parties, they shall be
treated in all respects as if they had been raised in the pleadings. Such amendment of the
pleadings as may be necessary to cause them to conform to the evidence and to raise these
issues may be made upon motion of any party at any time, even after judgment; but failure to
amend does not affect the result of the trial of these issues. If evidence is objected to at the trial
on the ground that it is now within the issues made by the pleadings, the court may allow the
pleadings to be amended and shall do so with liberality if the presentation of the merits of the
action and the ends of substantial justice will be subserved thereby. The court may grant a
continuance to enable the amendment to be made. (Emphasis supplied)
In all, BPI-FB’s argument that this case is not the right forum for Franco to recover the
₱400,000.00 begs the issue. To reiterate, Quiaoit, testifying during the trial, unequivocally
disclaimed ownership of the funds in his account, and pointed to Franco as the actual owner
thereof. Clearly, Franco’s action for the recovery of his deposits appropriately covers the
deposits in Quiaoit’s account.
Fourth. Notwithstanding all the foregoing, BPI-FB continues to insist that the dishonor of
Franco’s checks respectively dated September 11 and 18, 1989 was legally in order in view of the
Makati RTC’s supplemental writ of attachment issued on September 14, 1989. It posits that as
the party that applied for the writ of attachment before the Makati RTC, it need not be served
with the Notice of Garnishment before it could place Franco’s accounts under garnishment.
The argument is specious. In this argument, we perceive BPI-FB’s clever but transparent ploy to
circumvent Section 4,42 Rule 13 of the Rules of Court. It should be noted that the strict
requirement on service of court papers upon the parties affected is designed to comply with the
elementary requisites of due process. Franco was entitled, as a matter of right, to notice, if the
requirements of due process are to be observed. Yet, he received a copy of the Notice of
Garnishment only on September 27, 1989, several days after the two checks he issued were
dishonored by BPI-FB on September 20 and 21, 1989. Verily, it was premature for BPI-FB to
freeze Franco’s accounts without even awaiting service of the Makati RTC’s Notice of
Garnishment on Franco.
Additionally, it should be remembered that the enforcement of a writ of attachment cannot be
made without including in the main suit the owner of the property attached by virtue thereof.
Section 5, Rule 13 of the Rules of Court specifically provides that "no levy or attachment
pursuant to the writ issued x x x shall be enforced unless it is preceded, or contemporaneously
accompanied, by service of summons, together with a copy of the complaint, the application for
attachment, on the defendant within the Philippines."
Franco was impleaded as party-defendant only on May 15, 1990. The Makati RTC had yet to
acquire jurisdiction over the person of Franco when BPI-FB garnished his
accounts.43 Effectively, therefore, the Makati RTC had no authority yet to bind the deposits of
Franco through the writ of attachment, and consequently, there was no legal basis for BPI-FB to
dishonor the checks issued by Franco.
Fifth. Anent the CA’s finding that BPI-FB was in bad faith and as such liable for the advance
interest it deducted from Franco’s time deposit account, and for moral as well as exemplary
damages, we find it proper to reinstate the ruling of the trial court, and allow only the recovery
of nominal damages in the amount of ₱10,000.00. However, we retain the CA’s award of
₱75,000.00 as attorney’s fees.
In granting Franco’s prayer for interest on his time deposit account and for moral and exemplary
damages, the CA attributed bad faith to BPI-FB because it (1) completely disregarded its
obligation to Franco; (2) misleadingly claimed that Franco’s deposits were under garnishment;
(3) misrepresented that Franco’s current account was not on file; and (4) refused to return the
₱400,000.00 despite the fact that the ostensible owner, Quiaoit, wanted the amount returned to
Franco.
In this regard, we are guided by Article 2201 of the Civil Code which provides:
Article 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in
good faith is liable shall be those that are the natural and probable consequences of the breach
of the obligation, and which the parties have foreseen or could have reasonable foreseen at the
time the obligation was constituted.
In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all
damages which may be reasonably attributed to the non-performance of the obligation.
(Emphasis supplied.)
We find, as the trial court did, that BPI-FB acted out of the impetus of self-protection and not out
of malevolence or ill will. BPI-FB was not in the corrupt state of mind contemplated in Article
2201 and should not be held liable for all damages now being imputed to it for its breach of
obligation. For the same reason, it is not liable for the unearned interest on the time deposit.
Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or
some moral obliquity and conscious doing of wrong; it partakes of the nature of fraud.44 We
have held that it is a breach of a known duty through some motive of interest or ill will.45 In the
instant case, we cannot attribute to BPI-FB fraud or even a motive of self-enrichment. As the trial
court found, there was no denial whatsoever by BPI-FB of the existence of the accounts. The
computer-generated document which indicated that the current account was "not on file"
resulted from the prior debit by BPI-FB of the deposits. The remedy of freezing the account, or
the garnishment, or even the outright refusal to honor any transaction thereon was resorted to
solely for the purpose of holding on to the funds as a security for its intended court
action,46 and with no other goal but to ensure the integrity of the accounts.
We have had occasion to hold that in the absence of fraud or bad faith,47 moral damages
cannot be awarded; and that the adverse result of an action does not per se make the action
wrongful, or the party liable for it. One may err, but error alone is not a ground for granting such No pronouncement as to costs.
damages.48
SO ORDERED.
An award of moral damages contemplates the existence of the following requisites: (1) there
must be an injury clearly sustained by the claimant, whether physical, mental or psychological;
(2) there must be a culpable act or omission factually established; (3) the wrongful act or
omission of the defendant is the proximate cause of the injury sustained by the claimant; and (4)
the award for damages is predicated on any of the cases stated in Article 2219 of the Civil
Code.49

Franco could not point to, or identify any particular circumstance in Article 2219 of the Civil
Code,50 upon which to base his claim for moral damages.1âwphi1

Thus, not having acted in bad faith, BPI-FB cannot be held liable for moral damages under Article
2220 of the Civil Code for breach of contract.51

We also deny the claim for exemplary damages. Franco should show that he is entitled to moral,
temperate, or compensatory damages before the court may even consider the question of
whether exemplary damages should be awarded to him.52 As there is no basis for the award of
moral damages, neither can exemplary damages be granted.

While it is a sound policy not to set a premium on the right to litigate,53 we, however, find that
Franco is entitled to reasonable attorney’s fees for having been compelled to go to court in order
to assert his right. Thus, we affirm the CA’s grant of ₱75,000.00 as attorney’s fees.

Attorney’s fees may be awarded when a party is compelled to litigate or incur expenses to
protect his interest,54 or when the court deems it just and equitable.55 In the case at bench,
BPI-FB refused to unfreeze the deposits of Franco despite the Makati RTC’s Order Lifting the
Order of Attachment and Quiaoit’s unwavering assertion that the ₱400,000.00 was part of
Franco’s savings account. This refusal constrained Franco to incur expenses and litigate for
almost two (2) decades in order to protect his interests and recover his deposits. Therefore, this
Court deems it just and equitable to grant Franco ₱75,000.00 as attorney’s fees. The award is
reasonable in view of the complexity of the issues and the time it has taken for this case to be
resolved.56

Sixth. As for the dismissal of BPI-FB’s counter-claim, we uphold the Manila RTC’s ruling, as
affirmed by the CA, that BPI-FB is not entitled to recover ₱3,800,000.00 as actual damages. BPI-
FB’s alleged loss of profit as a result of Franco’s suit is, as already pointed out, of its own making.
Accordingly, the denial of its counter-claim is in order.

WHEREFORE, the petition is PARTIALLY GRANTED. The Court of Appeals Decision dated
November 29, 1995 is AFFIRMED with the MODIFICATION that the award of unearned interest
on the time deposit and of moral and exemplary damages is DELETED.
G.R. No. 123031 October 12, 1999
CEBU INTERNATIONAL FINANCE CORPORATION, petitioner,
vs.
COURT OF APPEALS, VICENTE ALEGRE, respondents.
QUISUMBING, J.:
This petition for review on certiorari assails respondent appellate court's Decision, 1 dated
December 8, 1995, in CA G.R. CV No. 44085, which affirmed the ruling of the Regional Trial Court
of Makati, Branch 132. The dispositive portion of the trial court's decision reads:
WHEREFORE, judgment is hereby rendered ordering defendant [herein
petitioner] to pay plaintiff [herein private respondent]:
(1) the principal sum of P514,390.94 with legal interest
thereon computed from August 6, 1991 until fully paid;
and
(2) the costs of suit.
SO ORDERED. 2
Based on the records, the following are the pertinent facts of the case:
Cebu International Finance Corporation (CIFC), a quasi-banking institution, is engaged in money
market operations.
On April 25, 1991, private respondent, Vicente Alegre, invested with CIFC, five hundred thousand
(P500,000.00) pesos, in cash. Petitioner issued a promissory note to mature on May 27, 1991.
The note for five hundred sixteen thousand, two hundred thirty-eight pesos and sixty-seven
centavos (P516,238.67) covered private respondent's placement plus interest at twenty and a
half (20.5%) percent for thirty-two (32) days.
On May 27, 1991, CIFC issued BPI Check No. 513397 (hereinafter the CHECK) for five hundred
fourteen thousand, three hundred ninety pesos and ninety-four centavos (P514,390.94) in favor
of the private respondent as proceeds of his matured investment plus interest. The CHECK was
drawn from petitioner's current account number 0011-0803-59, maintained with the Bank of the
Philippine Islands (BPI), main branch at Makati City.1âwphi1.nêt
On June 17, 1991, private respondent's wife deposited the CHECK with Rizal Commercial Banking
Corp. (RCBC), in Puerto Princesa, Palawan. BPI dishonored the CHECK with the annotation, that
the "Check (is) Subject of an Investigation." BPI took custody of the CHECK pending an
investigation of several counterfeit checks drawn against CIFC's aforestated checking account.
BPI used the check to trace the perpetrators of the forgery.
Immediately, private respondent notified CIFC of the dishonored CHECK and demanded, on
several occasions, that he be paid in cash. CIFC refused the request, and instead instructed
private respondent to wait for its ongoing bank reconciliation with BPI. Thereafter, private
respondent, through counsel, made a formal demand for the payment of his money market
placement. In turn, CIFC promised to replace the CHECK but required an impossible condition
that the original must first be surrendered.
On February 25, 1992, private respondent Alegre filed a complaint 3 for recovery of a sum of
money against the petitioner with the Regional Trial Court of Makati (RTC-Makati), Branch 132.
On July 13, 1992, CIFC sought to recover its lost funds and formally filed against BPI, a separate
civil action 4 for collection of a sum of money with the RTC-Makati, Branch 147. The collection
suit alleged that BPI unlawfully deducted from CIFC's checking account, counterfeit checks
amounting to one million, seven hundred twenty-four thousand, three hundred sixty-four pesos
and fifty-eight centavos (P1,724,364.58). The action included the prayer to collect the amount of
the CHECK paid to Vicente Alegre but dishonored by BPI.
Meanwhile, in response to Alegre's complaint with RTC-Makati, Branch 132, CIFC filed a motion
for leave of court to file a third-party complaint against BPI. BPI was impleaded by CIFC to
enforce a right, for contribution and indemnity, with respect to Alegre's claim. CIFC asserted that
the CHECK it issued in favor of Alegre was genuine, valid and sufficiently funded.
On July 23, 1992, the trial court granted CIFC's motion. However, BPI moved to dismiss the third-
party complaint on the ground of pendency of another action with RTC-Makati, Branch 147.
Acting on the motion, the trial court dismissed the third-party complaint on November 4, 1992,
after finding that the third party complaint filed by CIFC against BPI is similar to its ancillary claim
against the bank, filed with RTC-Makati Branch 147.
Thereafter, during the hearing by RTC-Makati, Branch 132, held on May 27, and June 22, 1993,
Vito Arieta, Bank Manager of BPI, testified that the bank, indeed, dishonored the CHECK,
retained the original copy and forwarded only a certified true copy to RCBC. When Arieta was
recalled on July 20, 1993, he testified that on July 16, 1993, BPI encashed and deducted the said
amount from the account of CIFC, but the proceeds, as well as the CHECK remained in BPI's
custody. The bank's move was in accordance with the Compromise Agreement 5 it entered with
CIFC to end the litigation in RTC-Makati, Branch 147. The compromise agreement, which was
submitted for the approval of the said court, provided that:
1. Defendant [BPI] shall pay to the plaintiff [CIFC] the
amount of P1,724,364.58 plus P20,000 litigation
expenses as full and final settlement of all of plaintiff's
claims as contained in the Amended Complaint dated
September 10, 1992. The aforementioned amount shall
be credited to plaintiff's current account No. 0011-0803-
59 maintained at defendant's Main Branch upon
execution of this Compromise Agreement.
 2. Thereupon, defendant shall debit the sum of
P514,390.94 from the aforesaid current account
representing payment/discharge of BPI Check No. 513397
payable to Vicente Alegre.
3. In case plaintiff is adjudged liable to Vicente Alegre in
Civil Case No. 92-515 arising from the alleged dishonor of
BPI Check No. 513397, plaintiff cannot go after the
defendant: otherwise stated, the defendant shall not be
liable to the plaintiff. Plaintiff [CIFC] may however set-up
the defense of payment/discharge stipulated in par. 2
above. 6
On July 27, 1993, BPI filed a separate collection suit 7 against Vicente Alegre with the RTC-
Makati, Branch 62. The complaint alleged that Vicente Alegre connived with certain Lina A. Pena
and Lita A. Anda and forged several checks of BPI's client, CIFC. The total amount of counterfeit
checks was P1,724,364.58. BPI prevented the encashment of some checks amounting to two
hundred ninety five thousand, seven hundred seventy-five pesos and seven centavos
(P295,775.07). BPI admitted that the CHECK, payable to Vicente Alegre for P514,390.94, was
deducted from BPI's claim, hence, the balance of the loss incurred by BPI was nine hundred
fourteen thousand, one hundred ninety-eight pesos and fifty-seven centavos (P914,198.57), plus
costs of suit for twenty thousand (P20,000.00) pesos. The records are silent on the outcome of
this case.
On September 27, 1993, RTC-Makati, Branch 132, rendered judgment in favor of Vicente Alegre.
CIFC appealed from the adverse decision of the trial court. The respondent court affirmed the
decision of the trial court.
Hence this appeal, 8 in which petitioner interposes the following assignments of errors:
1. The Honorable Court of Appeals erred in affirming the
finding of the Honorable Trial Court holding that
petitioner was not discharged from the liability of paying
the value of the subject check to private respondent after
BPI has debited the value thereof against petitioner's
current account.
2. The Honorable Court of Appeals erred in applying the
provisions of paragraph 2 of Article 1249 of the Civil Code
in the instant case. The applicable law being the
Negotiable Instruments Law.
3. The Honorable Court of Appeals erred in affirming the
Honorable Trial Court's findings that the petitioner was
guilty of negligence and delay in the performance of its
obligation to the private respondent.
4. The Honorable Court of Appeals erred in affirming the
Honorable Trial Court's decision ordering petitioner to
pay legal interest and the cost of suit.
5. The Honorable Court of Appeals erred in affirming the
Honorable Trial Court's dismissal of petitioner's third-
party complaint against BPI.
These issues may be synthesized into three:
1. WHETHER OR NOT ARTICLE 1249 OF THE NEW CIVIL
CODE APPLIES IN THE PRESENT CASE;
2. WHETHER OR NOT "BPI CHECK NO. 513397" WAS
VALIDLY DISCHARGED; and
3. WHETHER OR NOT THE DISMISSAL OF THE THIRD
PARTY COMPLAINT OF PETITIONER AGAINST BPI BY
REASON OF LIS PENDENS WAS PROPER?
On the first issue, petitioner contends that the provisions of the Negotiable Instruments Law
(NIL) are the pertinent laws to govern its money market transaction with private respondent,
and not paragraph 2 of Article 1249 of the Civil Code. Petitioner stresses that it had already been
discharged from the liability of paying the value of the CHECK due to the following
circumstances:
1) There was "ACCEPTANCE" of the subject check by BPI,
the drawee bank, as defined under the Negotiable
Instruments Law, and therefore, BPI, the drawee bank,
became primarily liable for the payment of the check,
and consequently, the drawer, herein petitioner, was
discharged from its liability thereon;
2) Moreover, BPI, the drawee bank, has not validly
DISHONORED the subject check; and,
3) The act of BPI, the drawee bank of debiting/deducting
the value of the check from petitioner's account
amounted to and/or constituted a discharge of the
drawer's (petitioner's) liability under the
instrument/subject check. 9
Petitioner cites Section 137 of the Negotiable Instruments Law, which states:
Liability of drawee retaining or destroying bill — Where a drawee
to whom a bill is delivered for acceptance destroys the same, or
refuses within twenty-four hours after such delivery or such other
period as the holder may allow, to return the bill accepted or non-
accepted to the Holder, he will be deemed to have accepted the
same.
Petitioner asserts that since BPI accepted the instrument, the bank became primarily liable for
the payment of the CHECK. Consequently, when BPI offset the value of CHECK against the losses
from the forged checks allegedly committed by the private respondent, the check was deemed
paid.
Art. 1249 of the New Civil Code deals with a mode of extinction of an obligation and expressly
provides for the medium in the "payment of debts." It provides that:
The payment of debts in money shall be made in the currency
stipulated, and if it is not possible to deliver such currency, then in
the currency, which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of
exchange or other mercantile documents shall produce the effect
of payment only when they have been cashed, or when through
the fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation
shall be held in abeyance.
Considering the nature of a money market transaction, the above-quoted provision should be
applied in the present controversy. As held in Perez vs. Court of Appeals, 10 a "money market is
a market dealing in standardized short-term credit instruments (involving large amounts) where
lenders and borrowers do not deal directly with each other but through a middle man or dealer
in open market. In a money market transaction, the investor is a lender who loans his money to a
borrower through a middleman or dealer. 11
In the case at bar, the money market transaction between the petitioner and the private
respondent is in the nature of a loan. The private respondent accepted the CHECK, instead of
requiring payment in money. Yet, when he presented it to RCBC for encashment, as early as June
17, 1991, the same was dishonored by non-acceptance, with BPI's annotation: "Check (is) subject
of an investigation." These facts were testified to by BPI's manager. Under these circumstances,
and after the notice of dishonor, 12 the holder has an immediate right of recourse against the
drawer, 13 and consequently could immediately file an action for the recovery of the value of
the check.
In a loan transaction, the obligation to pay a sum certain in money may be paid in money, which
is the legal tender or, by the use of a check. A check is not a legal tender, and therefore cannot
constitute valid tender of payment. In the case of Philippine Airlines, Inc. vs. Court of
Appeals, 14 this Court held:
Since a negotiable instrument is only a substitute for money and not money,
the delivery of such an instrument does not, by itself, operate as payment
(citation omitted). A check, whether a manager's check or ordinary check, is
not legal tender, and an offer of a check in payment of a debt is not a valid
tender of payment and may be refused receipt by the obligee or creditor.
Mere delivery of checks does not discharge the obligation under a judgment.
The obligation is not extinguished and remains suspended until the payment
by commercial document is actually realized (Art. 1249, Civil Code, par.
3.) 15
Turning now to the second issue, when the bank deducted the amount of the CHECK from CIFC's
current account, this did not ipso facto operate as a discharge or payment of the instrument.
Although the value of the CHECK was deducted from the funds of CIFC, it was not delivered to
the payee, Vicente Alegre. Instead, BPI offset the amount against the losses it incurred from
forgeries of CIFC checks, allegedly committed by Alegre. The confiscation of the value of the
check was agreed upon by CIFC and BPI. The parties intended to amicably settle the collection
suit filed by CIFC with the RTC-Makati, Branch 147, by entering into a compromise agreement,
which reads:
xxx xxx xxx
2. Thereupon, defendant shall debit the sum of
P514,390.94 from the aforesaid current account
representing payment/discharge of BPI Check No. 513397
payable to Vicente Alegre.
3. In case plaintiff is adjudged liable to Vicente Alegre in
Civil Case No. 92-515 arising from the alleged dishonor of
BPI Check No. 513397, plaintiff cannot go after the
defendant; otherwise stated, the defendant shall not be
liable to the plaintiff. Plaintiff however (sic) set-up the
defense of payment/discharge stipulated in par. 2
above. 16
A compromise is a contract whereby the parties, by making reciprocal concessions, avoid a
litigation or put an end to one already commenced. 17 It is an agreement between two or more
persons who, for preventing or putting an end to a lawsuit, adjust their difficulties by mutual
consent in the manner which they agree on, and which everyone of them prefers in the hope of
gaining, balanced by the danger of losing. 18 The compromise agreement could not bind a party
who did not sign the compromise agreement nor avail of its benefits. 19 Thus, the stipulations
in the compromise agreement is unenforceable against Vicente Alegre, not a party thereto. His xxx xxx xxx
money could not be the subject of an agreement between CIFC and BPI. Although Alegre's
money was in custody of the bank, the bank's possession of it was not in the concept of an WHEREFORE, the motion to dismiss is granted and consequently, the Third
owner. BPI cannot validly appropriate the money as its own. The codal admonition on this issue
Party Complaint is hereby ordered dismissed on ground of lis pendens. 24
is clear:

Art. 1317 —
No one may contract in the name of another without being authorized by the
latter, or unless he has by law a right to represent him.
We agree with the observation of the respondent court that, as between the third party claim
filed by the petitioner against BPI in Civil Case No. 92-515 and petitioner's ancillary claim against
the bank in Civil Case No. 92-1940, there is identity of parties as well as identity of rights
asserted, and that any judgment that may be rendered in one case will amount to res judicata in
another.

A Contract entered into in the name of another by one who has no authority
or legal representation, or who has acted beyond his powers, shall be
unenforceable, unless it is ratified, expressly or impliedly, by the person on
whose behalf it has been executed, before it is revoked by the other
contracting party. 20
BPI's confiscation of Alegre's money constitutes garnishment without the parties going through a
valid proceeding in court. Garnishment is an attachment by means of which the plaintiff seeks to
subject to his claim the property of the defendant in the hands of a third person or money owed
to such third person or a garnishee to the defendant. 21 The garnishment procedure must be
upon proper order of RTC-Makati, Branch 62, the court who had jurisdiction over the collection
suit filed by BPI against Alegre. In effect, CIFC has not yet tendered a valid payment of its
obligation to the private respondent. Tender of payment involves a positive and unconditional
act by the obligor of offering legal tender currency as payment to the obligee for the former's
obligation and demanding that the latter accept the same. 22 Tender of payment cannot be
presumed by a mere inference from surrounding circumstances.
The compromise agreement between CIFC and BPI, categorically provided that "In case plaintiff
is adjudged liable to Vicente Alegre in Civil Case No. 92-515 arising from the alleged dishonor of
BPI Check No. 513397, plaintiff (CIFC) cannot go after the defendant (BPI); otherwise stated, the
defendant shall not be liable to the plaintiff." 25Clearly, this stipulation expressed that CIFC had
already abandoned any further claim against BPI with respect to the value of BPI Check No.
513397. To ask this Court to allow BPI to be a party in the case at bar, would amount to res
judicata and would violate terms of the compromise agreement between CIFC and BPI. The
general rule is that a compromise has upon the parties the effect and authority of res judicata,
with respect to the matter definitely stated therein, or which by implication from its terms
should be deemed to have been included therein. 26 This holds true even if the agreement has
not been judicially approved. 27
WHEREFORE, the instant petition is hereby DENIED. The Decision of the Court of Appeals in CA-
G.R. CV No. 44085 is AFFIRMED. Costs against petitioner.1âwphi1.nêt
SO ORDERED.

With regard to the third issue, for litis pendentia to be a ground for the dismissal of an action, the
following requisites must concur: (a) identity of parties or at least such as to represent the same
interest in both actions; (b) identity of rights asserted and relief prayed for, the relief being
founded on the same acts; and (c) the identity in the two cases should be such that the judgment
which may be rendered in one would, regardless of which party is successful, amount to res
judicata in the other. 23

The trial court's ruling as adopted by the respondent court states, thus:

A perusal of the complaint in Civil Case No. 92-1940, entitled Cebu

International Finance Corporation vs. Bank of the Philippine Islands now
pending before Branch 147 of this Court and the Third Party Complaint in the
instant case would readily show that the parties are not only identical but
also the cause of action being asserted, which is the recovery of the value of
BPI Check No. 513397 is the same. In Civil Case No. 92-1940 and in the Third
Party Complaint the rights asserted and relief prayed for, the reliefs being
founded on the facts, are identical.
G.R. No. L-36706 March 31, 1980
COMMISSIONER OF PUBLIC HlGHWAYS, petitioner,
vs.
HON. FRANCISCO P. BURGOS, in his capacity as Judge of the Court of First Instance of Cebu
City, Branch 11, and Victoria Amigable, respondents.
Quirico del Mar & Domingo Antiquera for respondent.
Office of the Solicitor General for petitioner.
DE CASTRO, J.:
Victoria Amigable is the owner of parcel of land situated in Cebu City with an area of 6,167
square meters. Sometime in 1924, the Government took this land for road-right-of-way purpose.
The land had since become streets known as Mango Avenue and Gorordo Avenue in Cebu City.
On February 6, 1959, Victoria Amigable filed in the Court of First Instance of Cebu a complaint,
which was later amended on April 17, 1959 to recover ownership and possession of the land,
and for damages in the sum of P50,000.00 for the alleged illegal occupation of the land by the
Government, moral damages in the sum of P25,000.00, and attorney's fees in the sum of
P5,000.00, plus costs of suit. The complaint was docketed as Civil Case No. R-5977 of the Court of
First Instance of Cebu, entitled "Victoria Amigable vs. Nicolas Cuenca, in his capacity as
Commissioner of Public Highway and Republic of the Philippines. 1
In its answer, 2 the Republic alleged, among others, that the land was either donated or sold by
its owners to the province of Cebu to enhance its value, and that in any case, the right of the
owner, if any, to recover the value of said property was already barred by estoppel and the
statute of limitations, defendants also invoking the non-suability of the Government.
In a decision rendered on July 29, 1959 by Judge Amador E. Gomez, the plaintiff's complaint was
dismissed on the grounds relied upon by the defendants therein. 3 The plaintiff appealed the
decision to the Supreme Court where it was reversed, and the case was remanded to the court
of origin for the determination of the compensation to be paid the plaintiff-appellant as owner
of the land, including attorney's fees. 4 The Supreme Court decision also directed that to
determine just compensation for the land, the basis should be the price or value thereof at the
time of the taking. 5
In the hearing held pursuant to the decision of the Supreme Court, the Government proved the
value of the property at the time of the taking thereof in 1924 with certified copies, issued by the
Bureau of Records Management, of deeds of conveyance executed in 1924 or thereabouts, of
several parcels of land in the Banilad Friar Lands in which the property in question is located,
showing the price to be at P2.37 per square meter. For her part, Victoria Amigable presented
newspaper clippings of the Manila Times showing the value of the peso to the dollar obtaining
about the middle of 1972, which was P6.775 to a dollar.
Upon consideration of the evidence presented by both parties, the court which is now the public
respondent in the instant petition, rendered judgment on January 9, 1973 directing the Republic
of the Philippines to pay Victoria Amigable the sum of P49,459.34 as the value of the property
taken, plus P145,410.44 representing interest at 6% on the principal amount of P49,459.34 from
the year 1924 up to the date of the decision, plus attorney's fees of 10% of the total amount due
to Victoria Amigable, or a grand total of P214,356.75. 6
The aforesaid decision of the respondent court is now the subject of the present petition for
review by certiorari, filed by the Solicitor General as counsel of the petitioner, Republic of the
Philippines, against the landowner, Victoria Amigable, as private respondent. The petition was
given due course after respondents had filed their comment thereto, as required. The Solicitor
General, as counsel of petitioner, was then required to file petitioner's brief and to serve copies
thereof to the adverse parties. 7 Petitioner's brief was duly filed on January 29, 1974, 8 to which
respondents filed only a "comment." 9 instead of a brief, and the case was then considered
submitted for decision. 10
1. The issue of whether or not the provision of Article 1250 of the New Civil Code is applicable in
determining the amount of compensation to be paid to respondent Victoria Amigable for the
property taken is raised because the respondent court applied said Article by considering the
value of the peso to the dollar at the time of hearing, in determining due compensation to be
paid for the property taken. The Solicitor General contends that in so doing, the respondent
court violated the order of this Court, in its decision in G.R. No. L-26400, February 29, 1972, to
make as basis of the determination of just compensation the price or value of the land at the
time of the taking.
It is to be noted that respondent judge did consider the value of the property at the time of the
taking, which as proven by the petitioner was P2.37 per square meter in 1924. However,
applying Article 1250 of the New Civil Code, and considering that the value of the peso to the
dollar during the hearing in 1972 was P6.775 to a dollar, as proven by the evidence of the private
respondent Victoria Amigable the Court fixed the value of the property at the deflated value of
the peso in relation, to the dollar, and came up with the sum of P49,459.34 as the just
compensation to be paid by the Government. To this action of the respondent judge, the
Solicitor General has taken exception.
Article 1250 of the New Civil Code seems to be the only provision in our statutes which provides
for payment of an obligation in an amount different from what has been agreed upon by the
parties because of the supervention of extra-ordinary inflation or deflation. Thus, the Article
provides:
ART. 1250. In case extra-ordinary inflation or deflation of the currency
stipulated should supervene, the value of the currency at the time of the
 establishment of the obligation shall be the basis of payment, unless there is
an agreement to the contrary.
It is clear that the foregoing provision applies only to cases where a contract or agreement is
involved. It does not apply where the obligation to pay arises from law, independent of contract.
The taking of private property by the Government in the exercise of its power of eminent
domain does not give rise to a contractual obligation. We have expressed this view in the case
of Velasco vs. Manila Electric Co., et al., L-19390, December 29, 1971. 11
Moreover, the law as quoted, clearly provides that the value of the currency at the time of the
establishment of the obligation shall be the basis of payment which, in cases of expropriation,
would be the value of the peso at the time of the taking of the property when the obligation of
the Government to pay arises. 12 It is only when there is an "agreement to the contrary" that
the extraordinary inflation will make the value of the currency at the time of payment, not at the
time of the establishment of the obligation, the basis for payment. In other words, an agreement
is needed for the effects of an extraordinary inflation to be taken into account to alter the value
of the currency at the time of the establishment of the obligation which, as a rule, is always the
determinative element, to be varied by agreement that would find reason only in the
supervention of extraordinary inflation or deflation.
We hold, therefore, that under the law, in the absence of any agreement to the contrary, even
assuming that there has been an extraordinary inflation within the meaning of Article 1250 of
the New Civil Code, a fact We decline to declare categorically, the value of the peso at the time
of the establishment of the obligation, which in the instant case is when the property was taken
possession of by the Government, must be considered for the purpose of determining just
compensation. Obviously, there can be no "agreement to the contrary" to speak of because the
obligation of the Government sought to be enforced in the present action does not originate
from contract, but from law which, generally is not subject to the will of the parties. And there
being no other legal provision cited which would justify a departure from the rule that just
compensation is determined on the basis of the value of the property at the time of the taking
thereof in expropriation by the Government, the value of the property as it is when the
Government took possession of the land in question, not the increased value resulting from the
passage of time which invariably brings unearned increment to landed properties, represents the
true value to be paid as just compensation for the property taken. 13
In the present case, the unusually long delay of private respondent in bringing the present
action-period of almost 25 years which a stricter application of the law on estoppel and the
statute of limitations and prescription may have divested her of the rights she seeks on this
action over the property in question, is an added circumstance militating against payment to her
of an amount bigger-may three-fold more than the value of the property as should have been
paid at the time of the taking. For conformably to the rule that one should take good care of his
own concern, private respondent should have commenced proper action soon after she had
been deprived of her right of ownership and possession over the land, a deprivation she knew
was permanent in character, for the land was intended for, and had become, avenues in the City
of Cebu. A penalty is always visited upon one for his inaction, neglect or laches in the assertion of
his rights allegedly withheld from him, or otherwise transgressed upon by another.
From what has been said, the correct amount of compensation due private respondent for the
taking of her land for a public purpose would be not P49,459.34, as fixed by the respondent
court, but only P14,615.79 at P2.37 per square meter, the actual value of the land of 6,167
square meters when it was taken in 1924. The interest in the sum of P145,410.44 at the rate of
6% from 1924 up to the time respondent court rendered its decision, as was awarded by the said
court should accordingly be reduced.
In Our decision in G.R. No. L-26400, February 29, 1972, 14 We have said that Victoria Amigable
is entitled to the legal interest on the price of the land from the time of the taking. This holding is
however contested by the Solicitor General, citing the case of Raymunda S. Digsan vs. Auditor
General, et al., 15 alleged to have a similar factual environment and involving the same issues,
where this Court declared that the interest at the legal rate in favor of the landowner accrued
not from the taking of the property in 1924 but from April 20, 1961 when the claim for
compensation was filed with the Auditor General. Whether the ruling in the case cited is still the
prevailing doctrine, what was said in the decision of this Court in the abovecited case involving
the same on the instant matter, has become the "law of the case", no motion for its
reconsideration having been filed by the Solicitor General before the decision became final.
Accordingly, the interest to be paid private respondent, Victoria Amigable, shall commence from
1924, when the taking of the property took place, computed on the basis of P14,615.79, the
value of the land when taken in said year 1924.
2. On the amount of attorney's fees to be paid private respondent, about which the Solicitor
General has next taken issue with the respondent court because the latter fixed the same at
P19,486.97, while in her complaint, respondent Amigable had asked for only P5,000.00, the
amount as awarded by the respondent court, would be too exhorbitant based as it is, on the
inflated value of the land. An attorney's fees of P5,000.00, which is the amount asked for by
private respondent herself in her complaint, would be reasonable.
WHEREFORE, the judgment appealed from is hereby reversed as to the basis in the
determination of the price of the land taken as just compensation for its expropriation, which
should be the value of the land at the time of the taking, in 1924. Accordingly, the same is
hereby fixed at P14,615.79 at P2.37 per square meter, with interest thereon at 6% per annum,
from the taking of the property in 1924, to be also paid by Government to private respondent,
Victoria Amigable, until the amount due is fully paid, plus attorney's fees of P5,000.00.
SO ORDERED.
G.R. No. 132284 February 28, 2006
TELENGTAN BROTHERS & SONS, INC., Petitioner,
vs.
UNITED STATES LINES, INC. and the COURT OF APPEALS, Respondents.
DECISION
GARCIA, J.:
Thru this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner
Telengtan Brothers & Sons, Inc. (Telengtan) seeks the reversal and setting aside of the
decision1 dated January 8, 1998 of the Court of Appeals (CA) in CA-G.R. CV No. 18349 which
affirmed in toto the decision dated January 10, 19852 of the Regional Trial Court of Manila,
Branch 38, finding petitioner liable to respondent United States Lines, Inc. (U.S. Lines) for
demurrage and damages.
Petitioner Telengtan is a domestic corporation doing business under the name and style La
Suerte Cigar & Cigarette Factory, while respondent U.S. Lines is a foreign corporation engaged in
the business of overseas shipping. During the period material, the provisions of the Far East
Conference Tariff No. 12 were specifically made applicable to Philippine containerized cargo from
the U.S. and Gulf Ports, effective with vessels arriving at Philippine ports on and after December
15, 1978. After that date, consignees who fail to take delivery of their containerized cargo within
the 10-day free period are liable to pay demurrage charges.
As recited in the decision under review, the factual antecedents may be summarized as follows:
On June 22, 1981, respondent U.S. Lines filed a suit against petitioner Telengtan seeking
payment of demurrage charges plus interest and damages. Docketed as Civil Case No. R-81-1196
of the Regional Trial Court of Manila and raffled to Branch 38 thereof, the complaint alleged that
between the years 1979 and 1980, goods belonging to petitioner loaded on containers aboard its
(respondent’s) vessels arrived in Manila from U.S. ports. After the 10-day free period, petitioner
still failed to withdraw its goods from the containers wherein the goods had been shipped.
Continuing, respondent U.S. Lines alleged that petitioner incurred on all those shipments a
demurrage in the total amount of ₱94,000.00 which the latter refused to pay despite repeated
demands.
In its amended answer with compulsory counterclaim, petitioner Telengtan, as defendant a
quo, disclaims liability for the demanded demurrage, alleging that it has never entered into a
contract nor signed an agreement to be bound by any rule on demurrage. It likewise maintains
that, absent an obligation to pay respondent who made no proper or legal demands in the first
place, there is justifiable reason to refuse payment of the latter’s unwarranted claims. By way of
counterclaim, petitioner states that, upon arrival of the conveying vessels, it presented the Bills
of Lading (B/Ls) and all other pertinent documents covering seven (7) shipments and demanded
from respondent delivery of all the goods covered by the aforesaid B/Ls, only to be informed
that respondent had already unloaded the goods from the container vans, stripped them of their
contents which contents were then stored in warehouses. Petitioner further states that
respondent had refused to deliver the goods covered by the B/Ls and required petitioner to pay
the amount of ₱123,738.04 before the goods can be released. It thus prays that respondent be
ordered to pay the aforestated amount with interest.
After due proceedings, the trial court found for respondent U.S. Lines, as plaintiff therein, and
accordingly rendered judgment, as follows:
WHEREFORE, in view of all the foregoing, the Court finds [petitioner] liable to [respondent] for
demurrage incurred in the amount of P99,408.00 which sum will bear interest at the legal rate
from the date of the filing of the complaint till full payment thereof plus attorney’s fees in the
amount of 20% of the total sum due, all of which shall be recomputed as of the date of payment
in accordance with the provisions of Article 1250 of the Civil Code. Exemplary damages in the
amount of P80,000.00 are also granted. The counterclaim is dismissed. Costs against [petitioner].
(Words in bracket ours)3
Party explains the trial court in its decision:4
In other words, contrary to [petitioner’s] contentions, both the provisions of the contract
between the parties, in this case the bill of lading, and the interpretation given by the higher
courts to these provisions are to the effect that demurrage may be lawfully collected. As a
matter of fact, [respondent U.S. Lines] has submitted official receipts showing that on many
other and previous occasions, [petitioner] paid demurrage to [respondent] (Exhibits "F", "F-1" to
"F-4", "G", "G-1" to "G-4", "H", "H-1" to "H-4", and "I", "I-1" to "I-3"). [Petitioner] is, therefore, in
estoppel to claim that it did not know of demurrage being charged by [respondent] and that it
had not agreed to it since these exhibits show that [petitioner] knew of this demurrage and by
paying for the same, it in effect, agreed to the collection of demurrage.
xxxxxxxxx
On the other hand, [petitioner] claims that [respondent] company owes them the far larger sum
of P123,738.04 by way of damages allegedly suffered by their goods when [respondent]
company removed these goods from its cargo vans and deposited them in bonded warehouses
without its consent. It is not disputed that [respondent] company did not [sic] in fact remove
these goods belonging to [petitioner] from its vans and deposited them in warehouses. However,
this was done by authority of the Bureau of Customs and for that purpose, [respondent]
addressed a letter-request to the Collector of Customs, for permission to remove the goods of
defendant from its vans (Exhibit "L"). xxx.
xxxxxxxxx
The Court finds that the charges for warehousing were necessary expenses covered by the terms
of the bill of lading which the consignee was responsible for. There is therefore now no necessity
of discussing whether or not the counterclaim of [petitioner] had prescribed or not. Neither is
there any question of bad faith on the part of [respondent]. When it requested for authority to
remove [petitioner’s] consigned goods from its vans and deposited them in warehouses,
[respondent] had already given consignee sufficient time to take delivery of the shipment. This,
[petitioner] chose not to do. Instead, it sat pat by the telephone calling without making any
positive effort to check up on the shipment or arrange for its delivery to its factory. Once arrived
at the port, the shipment was available to consignee for its proper delivery and receipt and the
carrier discharged of its responsibility therefor. Rather, by its inaction, [petitioner] was guilty of
bad faith. Once it had received the notice of arrival of the carrier in port, it was incumbent on
consignee to put wheels in motion in order that the shipment could be delivered to it. The
inaction of [petitioner] would only indicate that it had no intention of taking delivery except at its
own convenience thus preventing carrier from taking on other shipments and from leaving port.
Such unexplained and unbusiness-like delay smacks highly of bad faith on the part of [petitioner]
rather than of the [respondent]. (Words in bracket, added).
Appealing to the CA, whereat its recourse was docketed as CA-G.R. CV No. 18349, petitioner
contended that the trial court erred in (1) holding it liable for demurrage, (2) dismissing its
counterclaim, and (3) awarding exemplary damages and attorney’s fees to respondent.
As stated at the outset, however, the CA, in its assailed Decision dated January 8,
1998,5 affirmed in toto the judgment of the trial court.
Undaunted, petitioner is now with this Court via the present recourse, imputing to the CA the
following errors:
A. xxx in concluding that it [petitioner] was the one at fault in not withdrawing its cargo from the
container vans in which the goods were originally shipped despite documentary evidence and
written admissions of private respondent to the contrary.
B. xxx in affirming the trial court’s order for the recomputation of the judgment award in
accordance with Article 1250 of the Civil Code contrary to existing jurisprudence and without any
evidence at all to support it.6
The petition is partly meritorious.1avvphil.net
It is undisputed that the goods subject of petitioner’s counterclaim and covered by seven (7) B/Ls
with Shipper’s Reference Nos. S-16844, S-16846, S-16848, S-17748, S-17750, S-17749 and S-
177517 were loaded for shipment to Manila on respondent’s vessels in container vans on a
"House/House Containers-Shippers Load, Stowage and Count" basis. This shipping arrangement
means that the shipping company’s container vans are to be brought to the shipper for loading
of its goods; that from the shipper’s warehouse, the goods in container vans are brought to the
shipping company for shipment; that the shipping company, upon arrival of its ship at the port of
destination, is to deliver the container vans to the consignee’s compound or warehouse; and
that the shipper (consignee) is supposed to load, stow and count the goods from the container
van.8 Likewise undisputed is the fact that the container vans containing the goods covered by
three (3) of the aforesaid B/Ls, particularly those with Shipper’s Reference Nos. S-17748, S-17750
and S-17751,9 were delivered to a warehouse, stripped of their contents and the contents
deposited thereat.10
On the argument that the respondent, upon the foregoing undisputed facts, violated its
contractual obligation to deliver when, instead of delivering the goods to the petitioner as
consignee thereof, it deposited the same in bonded warehouse/s, petitioner would now score
the CA for finding it at fault for non-withdrawal of its cargo from the container vans within the
10-day free demurrage period. Pressing the point, petitioner argues that, since the CA drew an
erroneous conclusion from an undisputed set of facts, petitioner now asserts that the matter of
who is at fault - its first assigned error - could be treated as a legal issue and not a question of
fact.
After careful consideration, the Court sustain the CA’s stance faulting the petitioner for not
taking delivery of its cargo from the container vans within the 10-day free period, an inaction
which led respondent to deposit the same in warehouse/s.
It may be that, when the relevant facts are undisputed, the question of whether or not the
conclusion deduced therefrom by the CA is correct is a question of law properly cognizable by
this Court.11 However, it has also been held that all doubts as to the correctness of such
conclusions will be resolved in favor of the disposing court.12 So it must be in this case.
At any rate, the Court finds that petitioner’s first contention raises a question of fact rather than
of law. And settled is the rule that factual findings of the CA, particularly those confirmatory of
that of the trial court, as here, are binding on this Court,13 save for the most compelling of
reasons, like when they are reached arbitrarily.14
As it were, however, the conclusion of the CA on who contextually is the erring party was not
exactly drawn from a vacuum, supported as such conclusion is by the records of the case. What
the CA wrote with some measure of logic commends itself for concurrence:
However, ... We find that [petitioner] was the one at fault in not withdrawing its cargo from the
containers wherein the goods were shipped within the ten (10)-day free period. Had it done so,
then there would not have been any need of depositing the cargo in a warehouse.
It is incumbent upon the carrier to immediately advise the consignee of the arrival of the goods
for if it does not, it continues to be liable for the same until the consignee has had reasonable
opportunity to remove them.
Sound business practice dictates that the consignee, upon notification of the arrival of the goods,
should immediately get the cargo from the carrier especially since it has need of it. xxx.
Appellant tries to shift the blame on the [respondent] by stating that it was not informed
beforehand of the latter’s intention to deliver the goods to a warehouse. It likewise alleges that
it does not know where to contact [respondent] for it argues that the person manning the
latter’s office would only hold office for a few hours, if not always out. But had it taken the
necessary steps of inquiring for the address of [respondent] from the proper government offices,
then it would have succeeded in finding the latter’s address.
Judging from the [petitioner’s] way of conducting business in the past, We come to the
conclusion that it is used to paying demurrage charges. Exhibits "H" and "I" are certainly proofs
of appellant’s practice of not getting its cargo from the carrier immediately upon notification of
the goods’ arrival. 15 (Words in bracket added.)
It cannot be over-emphasized that the container vans were stripped of their cargo with the prior
authorization of the Bureau of Customs. The trial court said as much, thus:
It is not disputed that [respondent] company did not [sic] in fact remove these goods belonging
to [petitioner] from its vans and deposited them in warehouses. However, this was done by
authority of the Bureau of Customs and for that purpose, [respondent] addressed a letter-
request to the Collector of Customs, for permission to remove the goods of [petitioner] from its
vans (Exhibit "L"). The corresponding authority was granted by the Bureau of Customs to do so
as evidenced by a van permit … (Exhibit "M"). In other words, while [respondent] admits that it
removed the goods of [petitioner] from its vans and deposited them in various warehouses,
there is no question that this was done by authority of the Bureau of Customs which is the
proper agency of the government charged with the supervision and regulation of maritime
commerce.
Verily, the authority secured from the Bureau of Customs is indicative of the bona fides of
respondent’s intention. And as held below, the authority thus acquired relieved respondent of its
obligations under the B/Ls when it caused the containers to be stripped and the goods stored in
bonded warehouses.
Not lost on this Court is the fact that the B/Ls under which petitioner anchors its counterclaim
allow the goods carried to be delivered to bonded warehouses for the shipper’s and/or
consignee’s account if it does not take possession or delivery thereof as soon as they are at its
disposal for removal. Section 17 of the Regular Long Form Inward B/L of the
respondent16 which is incorporated by reference to the Short Form of B/L17 provides:
17. The carrier shall not be required to give any notification whatsoever of arrival, discharge or
any disposition of or action taken with respect to the goods, … even though the goods are
consigned to order with provision for notice to a named person.
The carrier or master may appoint a stevedore or any other persons to unload and take delivery
of the goods and such delivery from ship's tackle shall be considered complete and all
responsibility of the carrier shall then terminate.
It is agreed that when possession of the goods is received or taken by the customs or other
authorities or by any operator of any lighter, craft, … or other facilities whether selected by the
carrier or master, shipper of consignee, whether public or private, such authority or person shall
be considered as having received possession and delivery of the goods solely as agent of and on
behalf of the shipper and consignee, …. Also if the consignee does not take possession or
delivery of the goods as soon as the goods are at the disposal of the consignee for removal, the
goods shall be at their own risk and expense, delivery shall be considered complete and the
carrier may, subject to carrier's liens, send the goods to store, warehouse, put them on lighters
or other craft, put them in possession of authorities, dump, permit to lie where landed or
otherwise dispose of them, always at the risk and expense of the goods, and the shipper and
consignee shall pay and indemnify the carrier for any loss, damage, fine, charge or expense
whatsoever suffered or incurred in so dealing with or disposing of the goods, or by reason of the
consignee's failure or delay in taking possession and delivery as provided herein. (Emphasis Ours)
On the second issue raised, the Court finds as erroneous the trial court’s decision, as affirmed by
the CA, for the recomputation of the judgment award as of the date of payment in accordance
with Article 1250 of the Civil Code.
In calling for the application of the aforementioned provision, respondent urged that judicial
notice be taken of the succeeding devaluations of the peso vis-à-vis the US dollar since the time
the proceedings began in 1981. According to respondent, the computation of the amount thus
due from the petitioner should factor in such peso devaluations.18
Article 1250 of the Civil Code states:
In case an extraordinary inflation or deflation of the currency stipulated should supervene, the
value of the currency at the time of the establishment of the obligation shall be the basis of
payment, unless there is an agreement to the contrary.
Extraordinary inflation or deflation, as the case may be, exists when there is an unusual increase
or decrease in the purchasing power of the Philippine peso which is beyond the common
fluctuation in the value of said currency, and such increase or decrease could not have been
reasonably foreseen or was manifestly beyond the contemplation of the parties at the time of
the establishment of the obligation.19 Extraordinary inflation can never be assumed; he who
alleges the existence of such phenomenon must prove the same.20
The Court holds that there has been no extraordinary inflation within the meaning of Article
1250 of the Civil Code. Accordingly, there is no plausible reason for ordering the payment of an
obligation in an amount different from what has been agreed upon because of the purported
supervention of extraordinary inflation.
As it were, respondent was unable to prove the occurrence of extraordinary inflation since it
filed its complaint in 1981. Indeed, the record is bereft of any evidence, documentary or
testimonial, that inflation, nay, an extraordinary one, existed. Even if the price index of goods
and services may have risen during the intervening period,21 this increase, without more,
cannot be considered as resulting to "extraordinary inflation" as to justify the application of
Article 1250. The erosion of the value of the Philippine peso in the past three or four decades,
starting in the mid-sixties, is, as the Court observed in Singson vs. Caltex (Phil),
Inc., 22 characteristics of most currencies. And while the Court may take judicial notice of the
decline in the purchasing power of the Philippine currency in that span of time, such downward
trend of the peso cannot be considered as the extraordinary phenomenon contemplated by
Article 1250 of the Civil Code. Furthermore, absent an official pronouncement or declaration by
competent authorities of the existence of extraordinary inflation during a given period, as here,
the effects of extraordinary inflation, if that be the case, are not to be applied.
Lest it be overlooked, Article 1250 of the Code, as couched, clearly provides that the value of the
peso at the time of the establishment of the obligation shall control and be the basis of payment
of the contractual obligation, unless there is "agreement to the contrary." It is only when there is
a contrary agreement that extraordinary inflation will make the value of the currency at the time
of payment, not at the time of the establishment of obligation, the basis for payment.23 The
Court, in Mobil Oil Philippines, Inc. vs. Court of Appeals and Fernando A. Pedrosa,[24formulated
the same rule in the following wise:
In other words, an agreement is needed for the effects of an extraordinary inflation to be taken
into account to alter the value of the currency at the time of the establishment of the obligation
which, as a rule, is always the determinative element, to be varied by agreement that would find
reason only in the supervention of extraordinary inflation or deflation.
To be sure, neither the trial court, the CA nor respondent has pointed to any provision of the
covering B/Ls whence respondent sourced its contractual right under the premises where the
defining "agreement to the contrary" is set forth. Needless to stress, the Court sees no need to
speculate as to the existence of such agreement, the burden of proof on this regard being on
respondent.
WHEREFORE, the assailed decision of the Court of Appeals is AFFIRMED with
the MODIFICATION that the order for recomputation as of the date of payment in accordance
with the provisions of Article 1250 of the Civil Code is deleted.
Costs against petitioner.
SO ORDERED.
G.R. No. 171545 December 19, 2007
EQUITABLE PCI BANK,* AIMEE YU and BEJAN LIONEL APAS, Petitioners,
vs.
NG SHEUNG NGOR** doing business under the name and style "KEN MARKETING," KEN
APPLIANCE DIVISION, INC. and BENJAMIN E. GO, Respondents.
DECISION
CORONA, J.:
This petition for review on certiorari1 seeks to set aside the decision2 of the Court of Appeals
(CA) in CA-G.R. SP No. 83112 and its resolution3 denying reconsideration.
On October 7, 2001, respondents Ng Sheung Ngor,4 Ken Appliance Division, Inc. and Benjamin E.
Go filed an action for annulment and/or reformation of documents and contracts5 against
petitioner Equitable PCI Bank (Equitable) and its employees, Aimee Yu and Bejan Lionel Apas, in
the Regional Trial Court (RTC), Branch 16 of Cebu City.6 They claimed that Equitable induced
them to avail of its peso and dollar credit facilities by offering low interest rates7 so they
accepted Equitable's proposal and signed the bank's pre-printed promissory notes on various
dates beginning 1996. They, however, were unaware that the documents contained identical
escalation clauses granting Equitable authority to increase interest rates without their consent.8
Equitable, in its answer, asserted that respondents knowingly accepted all the terms and
conditions contained in the promissory notes.9 In fact, they continuously availed of and
benefited from Equitable's credit facilities for five years.10
After trial, the RTC upheld the validity of the promissory notes. It found that, in 2001 alone,
Equitable restructured respondents' loans amounting to US$228,200 and ₱1,000,000.11 The
trial court, however, invalidated the escalation clause contained therein because it violated the
principle of mutuality of contracts.12 Nevertheless, it took judicial notice of the steep
depreciation of the peso during the intervening period13 and declared the existence of
extraordinary deflation.14 Consequently, the RTC ordered the use of the 1996 dollar exchange
rate in computing respondents' dollar-denominated loans.15 Lastly, because the business
reputation of respondents was (allegedly) severely damaged when Equitable froze their
accounts,16 the trial court awarded moral and exemplary damages to them.17
The dispositive portion of the February 5, 2004 RTC decision18 provided:
WHEREFORE, premises considered, judgment is hereby rendered:
 A) Ordering [Equitable] to reinstate and return the amount of [respondents'] deposit
placed on hold status;
B) Ordering [Equitable] to pay [respondents] the sum of ₱12 [m]illion [p]esos as moral
damages;
C) Ordering [Equitable] to pay [respondents] the sum of ₱10 [m]illion [p]esos as
exemplary damages;
D) Ordering defendants Aimee Yu and Bejan [Lionel] Apas to pay [respondents], jointly
and severally, the sum of [t]wo [m]illion [p]esos as moral and exemplary damages;
E) Ordering [Equitable, Aimee Yu and Bejan Lionel Apas], jointly and severally, to pay
[respondents'] attorney's fees in the sum of ₱300,000; litigation expenses in the sum of
₱50,000 and the cost of suit;
F) Directing plaintiffs Ng Sheung Ngor and Ken Marketing to pay [Equitable] the unpaid
principal obligation for the peso loan as well as the unpaid obligation for the dollar
denominated loan;
G) Directing plaintiff Ng Sheung Ngor and Ken Marketing to pay [Equitable] interest as
follows:
1) 12% per annum for the peso loans;
2) 8% per annum for the dollar loans. The basis for the payment of the dollar
obligation is the conversion rate of P26.50 per dollar availed of at the time of
incurring of the obligation in accordance with Article 1250 of the Civil Code of
the Philippines;
H) Dismissing [Equitable's] counterclaim except the payment of the aforestated unpaid
principal loan obligations and interest.
SO ORDERED.19
Equitable and respondents filed their respective notices of appeal.20
In the March 1, 2004 order of the RTC, both notices were denied due course because Equitable
and respondents "failed to submit proof that they paid their respective appeal fees."21
WHEREFORE, premises considered, the appeal interposed by defendants from the Decision in
the above-entitled case is DENIED due course. As of February 27, 2004, the Decision dated
February 5, 2004, is considered final and executory in so far as [Equitable, Aimee Yu and Bejan
Lionel Apas] are concerned.22 (emphasis supplied)
Equitable moved for the reconsideration of the March 1, 2004 order of the RTC23 on the ground
that it did in fact pay the appeal fees. Respondents, on the other hand, prayed for the issuance
of a writ of execution.24
On March 24, 2004, the RTC issued an omnibus order denying Equitable's motion for
reconsideration for lack of merit25 and ordered the issuance of a writ of execution in favor of
respondents.26 According to the RTC, because respondents did not move for the
reconsideration of the previous order (denying due course to the parties’ notices of
appeal),27 the February 5, 2004 decision became final and executory as to both parties and a
writ of execution against Equitable was in order.28
A writ of execution was thereafter issued29 and three real properties of Equitable were levied
upon.30
On March 26, 2004, Equitable filed a petition for relief in the RTC from the March 1, 2004
order.31 It, however, withdrew that petition on March 30, 200432 and instead filed a petition
for certiorari with an application for an injunction in the CA to enjoin the implementation and
execution of the March 24, 2004 omnibus order.33
On June 16, 2004, the CA granted Equitable's application for injunction. A writ of preliminary
injunction was correspondingly issued.34
Notwithstanding the writ of injunction, the properties of Equitable previously levied upon were
sold in a public auction on July 1, 2004. Respondents were the highest bidders and certificates of
sale were issued to them.35
On August 10, 2004, Equitable moved to annul the July 1, 2004 auction sale and to cite the
sheriffs who conducted the sale in contempt for proceeding with the auction despite the
injunction order of the CA.36
On October 28, 2005, the CA dismissed the petition for certiorari.37 It found Equitable guilty of
forum shopping because the bank filed its petition for certiorari in the CA several hours before
withdrawing its petition for relief in the RTC.38 Moreover, Equitable failed to disclose, both in
the statement of material dates and certificate of non-forum shopping (attached to its petition
for certiorari in the CA), that it had a pending petition for relief in the RTC.39
Equitable moved for reconsideration40 but it was denied.41 Thus, this petition.
Equitable asserts that it was not guilty of forum shopping because the petition for relief was
withdrawn on the same day the petition for certiorari was filed.42 It likewise avers that its
petition for certiorari was meritorious because the RTC committed grave abuse of discretion in
issuing the March 24, 2004 omnibus order which was based on an erroneous assumption. The
March 1, 2004 order denying its notice of appeal for non payment of appeal fees was erroneous
because it had in fact paid the required fees.43 Thus, the RTC, by issuing its March 24, 2004
omnibus order, effectively prevented Equitable from appealing the patently wrong February 5,
2004 decision.44
This petition is meritorious.
Equitable Was Not Guilty Of Forum shopping
Forum shopping exists when two or more actions involving the same transactions, essential facts
and circumstances are filed and those actions raise identical issues, subject matter and causes of
action.45 The test is whether, in two or more pending cases, there is identity of parties, rights or
causes of actions and reliefs.46
Equitable's petition for relief in the RTC and its petition for certiorari in the CA did not have
identical causes of action. The petition for relief from the denial of its notice of appeal was based
on the RTC’s judgment or final order preventing it from taking an appeal by "fraud, accident,
mistake or excusable negligence."47 On the other hand, its petition for certiorari in the CA, a
special civil action, sought to correct the grave abuse of discretion amounting to lack of
jurisdiction committed by the RTC.48
In a petition for relief, the judgment or final order is rendered by a court with competent
jurisdiction. In a petition for certiorari, the order is rendered by a court without or in excess of its
jurisdiction.
Moreover, Equitable substantially complied with the rule on non-forum shopping when it moved
to withdraw its petition for relief in the RTC on the same day (in fact just four hours and forty
minutes after) it filed the petition for certiorari in the CA. Even if Equitable failed to disclose that
it had a pending petition for relief in the RTC, it rectified what was doubtlessly a careless
oversight by withdrawing the petition for relief just a few hours after it filed its petition for
certiorari in the CA ― a clear indication that it had no intention of maintaining the two actions at
the same time.
The Trial Court Committed Grave Abuse of Discretion In Issuing Its March 1, 2004 and March
24, 2004 Orders
Section 1, Rule 65 of the Rules of Court provides:
Section 1. Petition for Certiorari. When any tribunal, board or officer exercising judicial or quasi-
judicial function has acted without or in excess of its or his jurisdiction, or with grave abuse of
discretion amounting to lack or excess of jurisdiction, and there is no appeal, nor any plain,
speedy or adequate remedy in the ordinary course of law, a person aggrieved thereby may file
a verified petition in the proper court, alleging the facts with certainty and praying that judgment
be rendered annulling or modifying the proceedings of such tribunal, board or officer, and
granting such incidental reliefs as law and justice may require.
The petition shall be accompanied by a certified true copy of the judgment, order or resolution
subject thereof, copies of all pleadings and documents relevant and pertinent thereto, and a
sworn certificate of non-forum shopping as provided in the third paragraph of Section 3, Rule 46.
There are two substantial requirements in a petition for certiorari. These are:
1. that the tribunal, board or officer exercising judicial or quasi-judicial functions acted
without or in excess of his or its jurisdiction or with grave abuse of discretion
amounting to lack or excess of jurisdiction; and
2. that there is no appeal or any plain, speedy and adequate remedy in the ordinary
course of law.
For a petition for certiorari premised on grave abuse of discretion to prosper, petitioner must
show that the public respondent patently and grossly abused his discretion and that abuse
amounted to an evasion of positive duty or a virtual refusal to perform a duty enjoined by law or
to act at all in contemplation of law, as where the power was exercised in an arbitrary and
despotic manner by reason of passion or hostility.49
The March 1, 2004 order denied due course to the notices of appeal of both Equitable and
respondents. However, it declared that the February 5, 2004 decision was final and executory
only with respect to Equitable.50 As expected, the March 24, 2004 omnibus order denied
Equitable's motion for reconsideration and granted respondents' motion for the issuance of a
writ of execution.51
The March 1, 2004 and March 24, 2004 orders of the RTC were obviously intended to prevent
Equitable, et al. from appealing the February 5, 2004 decision. Not only that. The execution of
the decision was undertaken with indecent haste, effectively obviating or defeating Equitable's
right to avail of possible legal remedies. No matter how we look at it, the RTC committed grave
abuse of discretion in rendering those orders.
With regard to whether Equitable had a plain, speedy and adequate remedy in the ordinary
course of law, we hold that there was none. The RTC denied due course to its notice of appeal in
the March 1, 2004 order. It affirmed that denial in the March 24, 2004 omnibus order. Hence,
there was no way Equitable could have possibly appealed the February 5, 2004 decision.52
Although Equitable filed a petition for relief from the March 24, 2004 order, that petition was
not a plain, speedy and adequate remedy in the ordinary course of law.53 A petition for relief
under Rule 38 is an equitable remedy allowed only in exceptional circumstances or where there
is no other available or adequate remedy.54
Thus, we grant Equitable's petition for certiorari and consequently give due course to its appeal.
Equitable Raised Pure Questions of Law in Its Petition For Review
The jurisdiction of this Court in Rule 45 petitions is limited to questions of law.55 There is a
question of law "when the doubt or controversy concerns the correct application of law or
jurisprudence to a certain set of facts; or when the issue does not call for the probative value of
the evidence presented, the truth or falsehood of facts being admitted."56
Equitable does not assail the factual findings of the trial court. Its arguments essentially focus on
the nullity of the RTC’s February 5, 2004 decision. Equitable points out that that decision was
patently erroneous, specially the exorbitant award of damages, as it was inconsistent with
existing law and jurisprudence.57
The Promissory Notes Were Valid
The RTC upheld the validity of the promissory notes despite respondents’ assertion that those
documents were contracts of adhesion.
A contract of adhesion is a contract whereby almost all of its provisions are drafted by one
party.58 The participation of the other party is limited to affixing his signature or his "adhesion"
to the contract.59 For this reason, contracts of adhesion are strictly construed against the party
who drafted it.60
It is erroneous, however, to conclude that contracts of adhesion are invalid per se. They are, on
the contrary, as binding as ordinary contracts. A party is in reality free to accept or reject it. A
contract of adhesion becomes void only when the dominant party takes advantage of the
weakness of the other party, completely depriving the latter of the opportunity to bargain on
equal footing.61
That was not the case here. As the trial court noted, if the terms and conditions offered by
Equitable had been truly prejudicial to respondents, they would have walked out and negotiated
with another bank at the first available instance. But they did not. Instead, they continuously
availed of Equitable's credit facilities for five long years.
While the RTC categorically found that respondents had outstanding dollar- and peso-
denominated loans with Equitable, it, however, failed to ascertain the total amount due
(principal, interest and penalties, if any) as of July 9, 2001. The trial court did not explain how it
arrived at the amounts of US$228,200 and ₱1,000,000.62 In Metro Manila Transit Corporation
v. D.M. Consunji,63 we reiterated that this Court is not a trier of facts and it shall pass upon
them only for compelling reasons which unfortunately are not present in this case.64 Hence, we
ordered the partial remand of the case for the sole purpose of determining the amount of actual
damages.65
Escalation Clause Violated The Principle Of Mutuality Of Contracts
Escalation clauses are not void per se. However, one "which grants the creditor an unbridled
right to adjust the interest independently and upwardly, completely depriving the debtor of the
right to assent to an important modification in the agreement" is void. Clauses of that nature
violate the principle of mutuality of contracts.66 Article 130867 of the Civil Code holds that a
contract must bind both contracting parties; its validity or compliance cannot be left to the will
of one of them.68
For this reason, we have consistently held that a valid escalation clause provides:
1. that the rate of interest will only be increased if the applicable maximum rate of interest is
increased by law or by the Monetary Board; and
2. that the stipulated rate of interest will be reduced if the applicable maximum rate of interest
is reduced by law or by the Monetary Board (de-escalation clause).69
The RTC found that Equitable's promissory notes uniformly stated:
If subject promissory note is extended, the interest for subsequent extensions shall be at such
rate as shall be determined by the bank.70
Equitable dictated the interest rates if the term (or period for repayment) of the loan was
extended. Respondents had no choice but to accept them. This was a violation of Article 1308 of
the Civil Code. Furthermore, the assailed escalation clause did not contain the necessary
provisions for validity, that is, it neither provided that the rate of interest would be increased
only if allowed by law or the Monetary Board, nor allowed de-escalation. For these reasons, the
escalation clause was void.
With regard to the proper rate of interest, in New Sampaguita Builders v. Philippine National
Bank71 we held that, because the escalation clause was annulled, the principal amount of the
loan was subject to the original or stipulated rate of interest. Upon maturity, the amount due
was subject to legal interest at the rate of 12% per annum.72
Consequently, respondents should pay Equitable the interest rates of 12.66% p.a. for their
dollar-denominated loans and 20% p.a. for their peso-denominated loans from January 10, 2001
to July 9, 2001. Thereafter, Equitable was entitled to legal interest of 12% p.a. on all amounts
due.
There Was No Extraordinary Deflation
Extraordinary inflation exists when there is an unusual decrease in the purchasing power of
currency (that is, beyond the common fluctuation in the value of currency) and such decrease
could not be reasonably foreseen or was manifestly beyond the contemplation of the parties at
the time of the obligation. Extraordinary deflation, on the other hand, involves an inverse
situation.73
Article 1250 of the Civil Code provides:
Article 1250. In case an extraordinary inflation or deflation of the currency stipulated should
intervene, the value of the currency at the time of the establishment of the obligation shall be
the basis of payment, unless there is an agreement to the contrary.
For extraordinary inflation (or deflation) to affect an obligation, the following requisites must be
proven:
1. that there was an official declaration of extraordinary inflation or deflation from the
Bangko Sentral ng Pilipinas (BSP);74
2. that the obligation was contractual in nature;75 and
3. that the parties expressly agreed to consider the effects of the extraordinary
inflation or deflation.76
Despite the devaluation of the peso, the BSP never declared a situation of extraordinary
inflation. Moreover, although the obligation in this instance arose out of a contract, the parties
did not agree to recognize the effects of extraordinary inflation (or deflation).77 The RTC never
mentioned that there was a such stipulation either in the promissory note or loan agreement.
Therefore, respondents should pay their dollar-denominated loans at the exchange rate fixed by
the BSP on the date of maturity.78
The Award Of Moral And Exemplary Damages Lacked Basis
Moral damages are in the category of an award designed to compensate the claimant for actual
injury suffered, not to impose a penalty to the wrongdoer.79 To be entitled to moral damages, a
claimant must prove:
1. That he or she suffered besmirched reputation, or physical, mental or psychological
suffering sustained by the claimant;
2. That the defendant committed a wrongful act or omission;
3. That the wrongful act or omission was the proximate cause of the damages the
claimant sustained;
4. The case is predicated on any of the instances expressed or envisioned by Article
221980 and 222081 . 82
In culpa contractual or breach of contract, moral damages are recoverable only if the defendant
acted fraudulently or in bad faith or in wanton disregard of his contractual obligations.83 The
breach must be wanton, reckless, malicious or in bad faith, and oppressive or abusive.84
The RTC found that respondents did not pay Equitable the interest due on February 9, 2001 (or
any month thereafter prior to the maturity of the loan)85 or the amount due (principal plus
interest) due on July 9, 2001.86Consequently, Equitable applied respondents' deposits to their
loans upon maturity.
The relationship between a bank and its depositor is that of creditor and debtor.87 For this
reason, a bank has the right to set-off the deposits in its hands for the payment of a depositor's
indebtedness.88
Respondents indeed defaulted on their obligation. For this reason, Equitable had the option to
exercise its legal right to set-off or compensation. However, the RTC mistakenly (or, as it now
appears, deliberately) concluded that Equitable acted "fraudulently or in bad faith or in wanton
disregard" of its contractual obligations despite the absence of proof. The undeniable fact was
that, whatever damage respondents sustained was purely the consequence of their failure to
pay their loans. There was therefore absolutely no basis for the award of moral damages to
them.
Neither was there reason to award exemplary damages. Since respondents were not entitled to
moral damages, neither should they be awarded exemplary damages.89 And if respondents
were not entitled to moral and exemplary damages, neither could they be awarded attorney's
fees and litigation expenses.90
ACCORDINGLY, the petition is hereby GRANTED.
The October 28, 2005 decision and February 3, 2006 resolution of the Court of Appeals in CA-
G.R. SP No. 83112 are hereby REVERSED and SET ASIDE.
The March 24, 2004 omnibus order of the Regional Trial Court, Branch 16, Cebu City in Civil Case
No. CEB-26983 is hereby ANNULLED for being rendered with grave abuse of discretion
amounting to lack or excess of jurisdiction. All proceedings undertaken pursuant thereto are
likewise declared null and void.
The March 1, 2004 order of the Regional Trial Court, Branch 16 of Cebu City in Civil Case No. CEB-
26983 is hereby SET ASIDE. The appeal of petitioners Equitable PCI Bank, Aimee Yu and Bejan
Lionel Apas is therefore given due course.1avvphi1
The February 5, 2004 decision of the Regional Trial Court, Branch 16 of Cebu City in Civil Case No.
CEB-26983 is accordingly SET ASIDE. New judgment is hereby entered:
 1. ordering respondents Ng Sheung Ngor, doing business under the name and style of
"Ken Marketing," Ken Appliance Division, Inc. and Benjamin E. Go to pay petitioner
Equitable PCI Bank the principal amount of their dollar- and peso-denominated loans;
2. ordering respondents Ng Sheung Ngor, doing business under the name and style of
"Ken Marketing," Ken Appliance Division, Inc. and Benjamin E. Go to pay petitioner
Equitable PCI Bank interest at:
a) 12.66% p.a. with respect to their dollar-denominated loans from January
10, 2001 to July 9, 2001;
b) 20% p.a. with respect to their peso-denominated loans from January 10,
2001 to July 9, 2001;91
c) pursuant to our ruling in Eastern Shipping Lines v. Court of Appeals,92 the
total amount due on July 9, 2001 shall earn legal interest at 12% p.a. from
the time petitioner Equitable PCI Bank demanded payment, whether
judicially or extra-judicially; and
d) after this Decision becomes final and executory, the applicable rate shall
be 12% p.a. until full satisfaction;
3. all other claims and counterclaims are dismissed.
As a starting point, the Regional Trial Court, Branch 16 of Cebu City shall compute the exact
amounts due on the respective dollar-denominated and peso-denominated loans, as of July 9,
2001, of respondents Ng Sheung Ngor, doing business under the name and style of "Ken
Marketing," Ken Appliance Division and Benjamin E. Go.
SO ORDERED.
G.R. No. 150806 January 28, 2008
EUFEMIA ALMEDA and ROMEL ALMEDA, petitioners,
vs.
BATHALA MARKETING INDUSTRIES, INC., respondent.
DECISION
NACHURA, J.:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, of the Decision1 of
the Court of Appeals (CA), dated September 3, 2001, in CA-G.R. CV No. 67784, and its
Resolution2 dated November 19, 2001. The assailed Decision affirmed with modification the
Decision3 of the Regional Trial Court (RTC), Makati City, Branch 136, dated May 9, 2000 in Civil
Case No. 98-411.
Sometime in May 1997, respondent Bathala Marketing Industries, Inc., as lessee, represented by
its president Ramon H. Garcia, renewed its Contract of Lease4 with Ponciano L. Almeda
(Ponciano), as lessor, husband of petitioner Eufemia and father of petitioner Romel Almeda.
Under the said contract, Ponciano agreed to lease a portion of the Almeda Compound, located at
2208 Pasong Tamo Street, Makati City, consisting of 7,348.25 square meters, for a monthly
rental of P1,107,348.69, for a term of four (4) years from May 1, 1997 unless sooner terminated
as provided in the contract.5 The contract of lease contained the following pertinent provisions
which gave rise to the instant case:
SIXTH - It is expressly understood by the parties hereto that the rental rate stipulated is
based on the present rate of assessment on the property, and that in case the
assessment should hereafter be increased or any new tax, charge or burden be
imposed by authorities on the lot and building where the leased premises are located,
LESSEE shall pay, when the rental herein provided becomes due, the additional rental
or charge corresponding to the portion hereby leased; provided, however, that in the
event that the present assessment or tax on said property should be reduced, LESSEE
shall be entitled to reduction in the stipulated rental, likewise in proportion to the
portion leased by him;
SEVENTH - In case an extraordinary inflation or devaluation of Philippine Currency
should supervene, the value of Philippine peso at the time of the establishment of the
obligation shall be the basis of payment;6
During the effectivity of the contract, Ponciano died. Thereafter, respondent dealt with
petitioners. In a letter7 dated December 29, 1997, petitioners advised respondent that the
former shall assess and collect Value Added Tax (VAT) on its monthly rentals. In response,
respondent contended that VAT may not be imposed as the rentals fixed in the contract of lease
were supposed to include the VAT therein, considering that their contract was executed on May
1, 1997 when the VAT law had long been in effect.8
On January 26, 1998, respondent received another letter from petitioners informing the former
that its monthly rental should be increased by 73% pursuant to condition No. 7 of the contract
and Article 1250 of the Civil Code. Respondent opposed petitioners' demand and insisted that
there was no extraordinary inflation to warrant the application of Article 1250 in light of the
pronouncement of this Court in various cases.9
Respondent refused to pay the VAT and adjusted rentals as demanded by petitioners but
continued to pay the stipulated amount set forth in their contract.
On February 18, 1998, respondent instituted an action for declaratory relief for purposes of
determining the correct interpretation of condition Nos. 6 and 7 of the lease contract to prevent
damage and prejudice.10 The case was docketed as Civil Case No. 98-411 before the RTC of
Makati.
On March 10, 1998, petitioners in turn filed an action for ejectment, rescission and damages
against respondent for failure of the latter to vacate the premises after the demand made by the
former.11 Before respondent could file an answer, petitioners filed a Notice of
Dismissal.12 They subsequently refiled the complaint before the Metropolitan Trial Court of
Makati; the case was raffled to Branch 139 and was docketed as Civil Case No. 53596.
Petitioners later moved for the dismissal of the declaratory relief case for being an improper
remedy considering that respondent was already in breach of the obligation and that the case
would not end the litigation and settle the rights of the parties. The trial court, however, was not
persuaded, and consequently, denied the motion.
After trial on the merits, on May 9, 2000, the RTC ruled in favor of respondent and against
petitioners. The pertinent portion of the decision reads:
WHEREFORE, premises considered, this Court renders judgment on the case as follows:
1) declaring that plaintiff is not liable for the payment of Value-Added Tax (VAT) of 10%
of the rent for [the] use of the leased premises;
2) declaring that plaintiff is not liable for the payment of any rental adjustment, there
being no [extraordinary] inflation or devaluation, as provided in the Seventh Condition
of the lease contract, to justify the same;
3) holding defendants liable to plaintiff for the total amount of P1,119,102.19, said
amount representing payments erroneously made by plaintiff as VAT charges and
rental adjustment for the months of January, February and March, 1999; and
4) holding defendants liable to plaintiff for the amount of P1,107,348.69, said amount
representing the balance of plaintiff's rental deposit still with defendants.
SO ORDERED.13
The trial court denied petitioners their right to pass on to respondent the burden of paying the
VAT since it was not a new tax that would call for the application of the sixth clause of the
contract. The court, likewise, denied their right to collect the demanded increase in rental, there
being no extraordinary inflation or devaluation as provided for in the seventh clause of the
contract. Because of the payment made by respondent of the rental adjustment demanded by
petitioners, the court ordered the restitution by the latter to the former of the amounts paid,
notwithstanding the well-established rule that in an action for declaratory relief, other than a
declaration of rights and obligations, affirmative reliefs are not sought by or awarded to the
parties.
Petitioners elevated the aforesaid case to the Court of Appeals which affirmed with modification
the RTC decision. The fallo reads:
WHEREFORE, premises considered, the present appeal is DISMISSED and the appealed
decision in Civil Case No. 98-411 is hereby AFFIRMED with MODIFICATION in that the
order for the return of the balance of the rental deposits and of the amounts
representing the 10% VAT and rental adjustment, is hereby DELETED.
No pronouncement as to costs.
SO ORDERED.14
The appellate court agreed with the conclusions of law and the application of the decisional rules
on the matter made by the RTC. However, it found that the trial court exceeded its jurisdiction in
granting affirmative relief to the respondent, particularly the restitution of its excess payment.
Petitioners now come before this Court raising the following issues:
I.
WHETHER OR NOT ARTICLE 1250 OF THE NEW CIVIL CODE IS APPLICABLE TO THE CASE
AT BAR.
II.
WHETHER OR NOT THE DOCTRINE ENUNCIATED IN FILIPINO PIPE AND FOUNDRY CORP.
VS. NAWASA CASE, 161 SCRA 32 AND COMPANION CASES ARE (sic) APPLICABLE IN THE
CASE AT BAR.
III.
 WHETHER OR NOT IN NOT APPLYING THE DOCTRINE IN THE CASE OF DEL ROSARIO VS.
THE SHELL COMPANY OF THE PHILIPPINES, 164 SCRA 562, THE HONORABLE COURT OF
APPEALS SERIOUSLY ERRED ON A QUESTION OF LAW.
IV.
WHETHER OR NOT THE FINDING OF THE HONORABLE COURT OF APPEALS THAT
RESPONDENT IS NOT LIABLE TO PAY THE 10% VALUE ADDED TAX IS IN ACCORDANCE
WITH THE MANDATE OF RA 7716.
V.
WHETHER OR NOT DECLARATORY RELIEF IS PROPER SINCE PLAINTIFF-APPELLEE WAS IN
BREACH WHEN THE PETITION FOR DECLARATORY RELIEF WAS FILED BEFORE THE TRIAL
COURT.
In fine, the issues for our resolution are as follows: 1) whether the action for declaratory relief is
proper; 2) whether respondent is liable to pay 10% VAT pursuant to Republic Act (RA) 7716; and
3) whether the amount of rentals due the petitioners should be adjusted by reason of
extraordinary inflation or devaluation.
Declaratory relief is defined as an action by any person interested in a deed, will, contract or
other written instrument, executive order or resolution, to determine any question of
construction or validity arising from the instrument, executive order or regulation, or statute,
and for a declaration of his rights and duties thereunder. The only issue that may be raised in
such a petition is the question of construction or validity of provisions in an instrument or
statute. Corollary is the general rule that such an action must be justified, as no other adequate
relief or remedy is available under the circumstances. 15
Decisional law enumerates the requisites of an action for declaratory relief, as follows: 1) the
subject matter of the controversy must be a deed, will, contract or other written instrument,
statute, executive order or regulation, or ordinance; 2) the terms of said documents and the
validity thereof are doubtful and require judicial construction; 3) there must have been no
breach of the documents in question; 4) there must be an actual justiciable controversy or the
"ripening seeds" of one between persons whose interests are adverse; 5) the issue must be ripe
for judicial determination; and 6) adequate relief is not available through other means or other
forms of action or proceeding.16
It is beyond cavil that the foregoing requisites are present in the instant case, except that
petitioners insist that respondent was already in breach of the contract when the petition was
filed.
We do not agree.
After petitioners demanded payment of adjusted rentals and in the months that followed,
respondent complied with the terms and conditions set forth in their contract of lease by paying
the rentals stipulated therein. Respondent religiously fulfilled its obligations to petitioners even
during the pendency of the present suit. There is no showing that respondent committed an act
constituting a breach of the subject contract of lease. Thus, respondent is not barred from
instituting before the trial court the petition for declaratory relief.
Petitioners claim that the instant petition is not proper because a separate action for rescission,
ejectment and damages had been commenced before another court; thus, the construction of
the subject contractual provisions should be ventilated in the same forum.
We are not convinced.
It is true that in Panganiban v. Pilipinas Shell Petroleum Corporation17 we held that the petition
for declaratory relief should be dismissed in view of the pendency of a separate action for
unlawful detainer. However, we cannot apply the same ruling to the instant case. In Panganiban,
the unlawful detainer case had already been resolved by the trial court before the dismissal of
the declaratory relief case; and it was petitioner in that case who insisted that the action for
declaratory relief be preferred over the action for unlawful detainer. Conversely, in the case at
bench, the trial court had not yet resolved the rescission/ejectment case during the pendency of
the declaratory relief petition. In fact, the trial court, where the rescission case was on appeal,
itself initiated the suspension of the proceedings pending the resolution of the action for
declaratory relief.
We are not unmindful of the doctrine enunciated in Teodoro, Jr. v. Mirasol18 where the
declaratory relief action was dismissed because the issue therein could be threshed out in the
unlawful detainer suit. Yet, again, in that case, there was already a breach of contract at the time
of the filing of the declaratory relief petition. This dissimilar factual milieu proscribes the Court
from applying Teodoro to the instant case.
Given all these attendant circumstances, the Court is disposed to entertain the instant
declaratory relief action instead of dismissing it, notwithstanding the pendency of the
ejectment/rescission case before the trial court. The resolution of the present petition would
write finis to the parties' dispute, as it would settle once and for all the question of the proper
interpretation of the two contractual stipulations subject of this controversy.
Now, on the substantive law issues.
Petitioners repeatedly made a demand on respondent for the payment of VAT and for rental
adjustment allegedly brought about by extraordinary inflation or devaluation. Both the trial
court and the appellate court found no merit in petitioners' claim. We see no reason to depart
from such findings.
As to the liability of respondent for the payment of VAT, we cite with approval the ratiocination
of the appellate court, viz.:
 Clearly, the person primarily liable for the payment of VAT is the lessor who may
choose to pass it on to the lessee or absorb the same. Beginning January 1, 1996, the
lease of real property in the ordinary course of business, whether for commercial or
residential use, when the gross annual receipts exceed P500,000.00, is subject to 10%
VAT. Notwithstanding the mandatory payment of the 10% VAT by the lessor, the actual
shifting of the said tax burden upon the lessee is clearly optional on the part of the
lessor, under the terms of the statute. The word "may" in the statute, generally
speaking, denotes that it is directory in nature. It is generally permissive only and
operates to confer discretion. In this case, despite the applicability of the rule under
Sec. 99 of the NIRC, as amended by R.A. 7716, granting the lessor the option to pass on
to the lessee the 10% VAT, to existing contracts of lease as of January 1, 1996, the
original lessor, Ponciano L. Almeda did not charge the lessee-appellee the 10% VAT nor
provided for its additional imposition when they renewed the contract of lease in May
1997. More significantly, said lessor did not actually collect a 10% VAT on the monthly
rental due from the lessee-appellee after the execution of the May 1997 contract of
lease. The inevitable implication is that the lessor intended not to avail of the option
granted him by law to shift the 10% VAT upon the lessee-appellee. x x x.19
In short, petitioners are estopped from shifting to respondent the burden of paying the VAT.
Petitioners' reliance on the sixth condition of the contract is, likewise, unavailing. This provision
clearly states that respondent can only be held liable for new taxes imposed after the effectivity
of the contract of lease, that is, after May 1997, and only if they pertain to the lot and the
building where the leased premises are located. Considering that RA 7716 took effect in 1994,
the VAT cannot be considered as a "new tax" in May 1997, as to fall within the coverage of the
sixth stipulation.
Neither can petitioners legitimately demand rental adjustment because of extraordinary inflation
or devaluation.
Petitioners contend that Article 1250 of the Civil Code does not apply to this case because the
contract stipulation speaks of extraordinary inflation or devaluation while the Code speaks of
extraordinary inflation or deflation. They insist that the doctrine pronounced in Del Rosario v.
The Shell Company, Phils. Limited20 should apply.
Essential to contract construction is the ascertainment of the intention of the contracting
parties, and such determination must take into account the contemporaneous and subsequent
acts of the parties. This intention, once ascertained, is deemed an integral part of the
contract.21
While, indeed, condition No. 7 of the contract speaks of "extraordinary inflation or devaluation"
as compared to Article 1250's "extraordinary inflation or deflation," we find that when the
parties used the term "devaluation," they really did not intend to depart from Article 1250 of the
Civil Code. Condition No. 7 of the contract should, thus, be read in harmony with the Civil Code
provision.
That this is the intention of the parties is evident from petitioners' letter22 dated January 26,
1998, where, in demanding rental adjustment ostensibly based on condition No. 7, petitioners
made explicit reference to Article 1250 of the Civil Code, even quoting the law verbatim. Thus,
the application of Del Rosario is not warranted. Rather, jurisprudential rules on the application of
Article 1250 should be considered.
Article 1250 of the Civil Code states:
In case an extraordinary inflation or deflation of the currency stipulated should
supervene, the value of the currency at the time of the establishment of the obligation
shall be the basis of payment, unless there is an agreement to the contrary.
Inflation has been defined as the sharp increase of money or credit, or both, without a
corresponding increase in business transaction. There is inflation when there is an increase in the
volume of money and credit relative to available goods, resulting in a substantial and continuing
rise in the general price level.23 In a number of cases, this Court had provided a discourse on
what constitutes extraordinary inflation, thus:
[E]xtraordinary inflation exists when there is a decrease or increase in the purchasing
power of the Philippine currency which is unusual or beyond the common fluctuation
in the value of said currency, and such increase or decrease could not have been
reasonably foreseen or was manifestly beyond the contemplation of the parties at the
time of the establishment of the obligation.24
The factual circumstances obtaining in the present case do not make out a case of extraordinary
inflation or devaluation as would justify the application of Article 1250 of the Civil Code. We
would like to stress that the erosion of the value of the Philippine peso in the past three or four
decades, starting in the mid-sixties, is characteristic of most currencies. And while the Court may
take judicial notice of the decline in the purchasing power of the Philippine currency in that span
of time, such downward trend of the peso cannot be considered as the extraordinary
phenomenon contemplated by Article 1250 of the Civil Code. Furthermore, absent an official
pronouncement or declaration by competent authorities of the existence of extraordinary
inflation during a given period, the effects of extraordinary inflation are not to be applied. 25
WHEREFORE, premises considered, the petition is DENIED. The Decision of the Court of Appeals
in CA-G.R. CV No. 67784, dated September 3, 2001, and its Resolution dated November 19, 2001,
are AFFIRMED.
SO ORDERED.