B.

COMMODATUM

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

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 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 estate. This is the amount prayed
for by the appellee in its objection on 31 January 1959 to the motion filed on 7 January 1959 by the
appellant for the quashing of the writ of execution.

Special proceedings for the administration and settlement of the estate of the deceased Jose V. 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 be presented to the
probate court for payment by the appellant, the administratrix appointed by the court.

ACCORDINGLY, the writ of execution appealed from is set aside, without pronouncement as to costs.

Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes, Dizon, Regala and
Makalintal, JJ.,  concur.
Barrera, J., concurs in the result.

SECOND DIVISION

[G.R. No. 115324. February 19, 2003.]

PRODUCERS BANK OF THE PHILIPPINES (now FIRST INTERNATIONAL BANK), Petitioner, v. HON. COURT
OF APPEALS AND FRANKLIN VIVES, Respondents.

DECISION

CALLEJO, SR., J.:

This is a petition for review on certiorari of the Decision 1 of the Court of Appeals dated June 25, 1991 in
CA-G.R. CV No. 11791 and of its Resolution 2 dated May 5, 1994, denying the motion for reconsideration
of said decision filed by petitioner Producers Bank of the Philippines.chanrob1es virtua1 1aw 1ibrary

Sometime in 1979, private respondent Franklin Vives was asked by his neighbor and friend Angeles
Sanchez to help her friend and townmate, Col. Arturo Doronilla, in incorporating his business, the
Sterela Marketing and Services ("Sterela" for brevity). Specifically, Sanchez asked private respondent to
deposit in a bank a certain amount of money in the bank account of Sterela for purposes of its
incorporation. She assured private respondent that he could withdraw his money from said account
within a month’s time. Private respondent asked Sanchez to bring Doronilla to their house so that they
could discuss Sanchez’s request. 3
On May 9, 1979, private respondent, Sanchez, Doronilla and a certain Estrella Dumagpi, Doronilla’s
private secretary, met and discussed the matter. Thereafter, relying on the assurances and
representations of Sanchez and Doronilla, private respondent issued a check in the amount of Two
Hundred Thousand Pesos (P200,000.00) in favor of Sterela. Private respondent instructed his wife, Mrs.
Inocencia Vives, to accompany Doronilla and Sanchez in opening a savings account in the name of
Sterela in the Buendia, Makati branch of Producers Bank of the Philippines. However, only Sanchez, Mrs.
Vives and Dumagpi went to the bank to deposit the check. They had with them an authorization letter
from Doronilla authorizing Sanchez and her companions, "in coordination with Mr. Rufo Atienza," to
open an account for Sterela Marketing Services in the amount of P200,000.00. In opening the account,
the authorized signatories were Inocencia Vives and/or Angeles Sanchez. A passbook for Savings
Account No. 10-1567 was thereafter issued to Mrs. Vives. 4

Subsequently, private respondent learned that Sterela was no longer holding office in the address
previously given to him. Alarmed, he and his wife went to the Bank to verify if their money was still
intact. The bank manager referred them to Mr. Rufo Atienza, the assistant manager, who informed them
that part of the money in Savings Account No. 10-1567 had been withdrawn by Doronilla, and that only
P90,000.00 remained therein. He likewise told them that Mrs. Vives could not withdraw said remaining
amount because it had to answer for some postdated checks issued by Doronilla. According to Atienza,
after Mrs. Vives and Sanchez opened Savings Account No. 10-1567, Doronilla opened Current Account
No. 10-0320 for Sterela and authorized the Bank to debit Savings; Account No. 10-1567 for the amounts
necessary to cover overdrawings in Current Account No. 10-0320. In opening said current account,
Sterela, through Doronilla, obtained a loan of P175,000.00 from the Bank. To cover payment thereof,
Doronilla issued three postdated checks, all of which were dishonored. Atienza also said that Doronilla
could assign or withdraw the money in Savings Account No. 10-1567 because he was the sole proprietor
of Sterela. 5

Private respondent tried to get in touch with Doronilla through Sanchez. On June 29, 1979, he received a
letter from Doronilla, assuring him that his money was intact and would be returned to him. On August
13, 1979, Doronilla issued a postdated check for Two Hundred Twelve Thousand Pesos (P212,000.00) in
favor of private Respondent. However, upon presentment thereof by private respondent to the drawee
bank, the check was dishonored. Doronilla requested private respondent to present the same check on
September 15, 1979 but when the latter presented the check, it was again dishonored. 6

Private respondent referred the matter to a lawyer, who made a written demand upon Doronilla for the
return of his client’s money. Doronilla issued another check for P212,000.00 in private respondent’s
favor but the check was again dishonored for insufficiency of funds. 7

Private respondent instituted an action for recovery of sum of money in the Regional Trial Court (RTC) in
Pasig, Metro Manila against Doronilla, Sanchez, Dumagpi and petitioner. The case was docketed as Civil
Case No. 44485. He also filed criminal actions against Doronilla, Sanchez and Dumagpi in the RTC.
However, Sanchez passed away on March 16, 1985 while the case was pending before the trial court. On
October 3, 1995, the RTC of Pasig, Branch 157, promulgated its Decision in Civil Case No. 44485, the
dispositive portion of which reads:chanrob1es virtual 1aw library
IN VIEW OF THE FOREGOING, judgment is hereby rendered sentencing defendants Arturo J. Doronila,
Estrella Dumagpi and Producers Bank of the Philippines to pay plaintiff Franklin Vives jointly and
severally —

(a) the amount of P200,000.00, representing the money deposited, with interest at the legal rate from
the filing of the complaint until the same is fully paid;

(b) the sum of P50,000.00 for moral damages and a similar amount for exemplary damages;

(c) the amount of P40,000.00 for attorney’s fees; and

(d) the costs of the suit.

SO ORDERED. 8

Petitioner appealed the trial court’s decision to the Court of Appeals. In its Decision dated June 25, 1991,
the appellate court affirmed in toto the decision of the RTC 9 It likewise denied with finality petitioner’s
motion for reconsideration in its Resolution dated May 5, 1994. 10

On June 30, 1994, petitioner filed the present petition, arguing that —

I.

THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT THE TRANSACTION BETWEEN THE
DEFENDANT DORONILLA AND RESPONDENT VIVES WAS ONE OF SIMPLE LOAN AND NOT
ACCOMMODATION;

II.

THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT PETITIONER’S BANK MANAGER, MR.
RUFO ATIENZA, CONNIVED WITH THE OTHER DEFENDANTS IN DEFRAUDING PETITIONER (Sic. Should be
PRIVATE RESPONDENT) AND AS A CONSEQUENCE, THE PETITIONER SHOULD BE HELD LIABLE UNDER THE
PRINCIPLE OF NATURAL JUSTICE;

III.

THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING THE ENTIRE RECORDS OF THE REGIONAL
TRIAL COURT AND AFFIRMING THE JUDGMENT APPEALED FROM, AS THE FINDINGS OF THE REGIONAL
TRIAL COURT WERE BASED ON A MISAPPREHENSION OF FACTS;

IV.
THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT THE CITED DECISION IN SALUDARES
VS. MARTINEZ, 29 SCRA 745, UPHOLDING THE LIABILITY OF AN EMPLOYER FOR ACTS COMMITTED BY AN
EMPLOYEE IS APPLICABLE;

V.

THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE DECISION OF THE LOWER COURT THAT
HEREIN PETITIONER BANK IS JOINTLY AND SEVERALLY LIABLE WITH THE OTHER DEFENDANTS FOR THE
AMOUNT OF P200,000.00 REPRESENTING THE SAVINGS ACCOUNT DEPOSIT, P50,000.00 FOR MORAL
DAMAGES, P50,000.00 FOR EXEMPLARY DAMAGES, P40,000.00 FOR ATTORNEY’S FEES AND THE COSTS
OF SUIT. 11

Private respondent filed his Comment on September 23, 1994. Petitioner filed its Reply thereto on
September 25, 1995. The Court then required private respondent to submit a rejoinder to the reply.
However, said rejoinder was filed only on April 21, 1997, due to petitioner’s delay in furnishing private
respondent with copy of the reply 12 and several substitutions of counsel on the part of
private Respondent. 13 On January 17, 2001, the Court resolved to give due course to the petition and
required the parties to submit their respective memoranda. 14 Petitioner filed its memorandum on April
16, 2001 while private respondent submitted his memorandum on March 22, 2001.chanrob1es virtua1
1aw 1ibrary

Petitioner contends that the transaction between private respondent and Doronilla is a simple loan
(mutuum) since all the elements of a mutuum are present: first, what was delivered by private
respondent to Doronilla was money, a consumable thing; and second, the transaction was onerous as
Doronilla was obliged to pay interest, as evidenced by the check issued by Doronilla in the amount of
P212,000.00, or P12,000 more than what private respondent deposited in Sterela’s bank account. 15
Moreover, the fact that private respondent sued his good friend Sanchez for his failure to recover his
money from Doronilla shows that the transaction was not merely gratuitous but "had a business angle"
to it. Hence, petitioner argues that it cannot be held liable for the return of private respondent’s
P200,000.00 because it is not privy to the transaction between the latter and Doronilla. 16

It argues further that petitioner’s Assistant Manager, Mr. Rufo Atienza, could not be faulted for allowing
Doronilla to withdraw from the savings account of Sterela since the latter was the sole proprietor of said
company. Petitioner asserts that Doronilla’s May 8, 1979 letter addressed to the bank, authorizing Mrs.
Vives and Sanchez to open a savings account for Sterela, did not contain any authorization for these two
to withdraw from said account. Hence, the authority to withdraw therefrom remained exclusively with
Doronilla, who was the sole proprietor of Sterela, and who alone had legal title to the savings account.
17 Petitioner points out that no evidence other than the testimonies of private respondent and Mrs.
Vives was presented during trial to prove that private respondent deposited his P200,000.00 in Sterela’s
account for purposes of its incorporation. 18 Hence, petitioner should not be held liable for allowing
Doronilla to withdraw from Sterela’s savings account.
Petitioner also asserts that the Court of Appeals erred in affirming the trial court’s decision since the
findings of fact therein were not accord with the evidence presented by petitioner during trial to prove
that the transaction between private respondent and Doronilla was a mutuum, and that it committed no
wrong in allowing Doronilla to withdraw from Sterela’s savings account. 19

Finally, petitioner claims that since there is no wrongful act or omission on its part, it is not liable for the
actual damages suffered by private respondent, and neither may it be held liable for moral and
exemplary damages as well as attorney’s fees. 20

Private respondent, on the other hand, argues that the transaction between him and Doronilla is not a
mutuum but an accommodation, 21 since he did not actually part with the ownership of his P200,000.00
and in fact asked his wife to deposit said amount in the account of Sterela so that a certification can be
issued to the effect that Sterela had sufficient funds for purposes of its incorporation but at the same
time, he retained some degree of control over his money through his wife who was made a signatory to
the savings account and in whose possession the savings account passbook was given. 22

He likewise asserts that the trial court did not err in finding that petitioner, Atienza’s employer, is liable
for the return of his money. He insists that Atienza, petitioner’s assistant manager, connived with
Doronilla in defrauding private respondent since it was Atienza who facilitated the opening of Sterela’s
current account three days after Mrs. Vives and Sanchez opened a savings account with petitioner for
said company, as well as the approval of the authority to debit Sterela’s savings account to cover any
overdrawings in its current account. 23

There is no merit in the petition.

At the outset, it must be emphasized that only questions of law may be raised in a petition for review
filed with this Court. The Court has repeatedly held that it is not its function to analyze and weigh all
over again the evidence presented by the parties during trial. 24 The Court’s jurisdiction is in principle
limited to reviewing errors of law that might have been committed by the Court of Appeals. 25
Moreover, factual findings of courts, when adopted and confirmed by the Court of Appeals, are final and
conclusive on this Court unless these findings are not supported by the evidence on record. 26 There is
no showing of any misapprehension of facts on the part of the Court of Appeals in the case at bar that
would require this Court to review and overturn the factual findings of that court, especially since the
conclusions of fact of the Court of Appeals and the trial court are not only consistent but are also amply
supported by the evidence on record.chanrob1es virtua1 1aw 1ibrary

No error was committed by the Court of Appeals when it ruled that the transaction between private
respondent and Doronilla was a commodatum and not a mutuum. A circumspect examination of the
records reveals that the transaction between them was a commodatum. Article 1933 of the Civil Code
distinguishes between the two kinds of loans in this wise:chanrob1es virtual 1aw library

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

Commodatum is essentially gratuitous.

Simple loan may be gratuitous or with a stipulation to pay interest.

In commodatum, the bailor retains the ownership of the thing loaned, while in simple loan, ownership
passes to the borrower.

The foregoing provision seems to imply that if the subject of the contract is a consumable thing, such as
money, the contract would be a mutuum. However, there are some instances where a commodatum
may have for its object a consumable thing. Article 1936 of the Civil Code provides:chanrob1es virtual
1aw library

Consumable goods may be the subject of commodatum if the purpose of the contract is not the
consumption of the object, as when it is merely for exhibition.

Thus, if consumable goods are loaned only for purposes of exhibition, or when the intention of the
parties is to lend consumable goods and to have the very same goods returned at the end of the period
agreed upon, the loan is a commodatum and not a mutuum.

The rule is that the intention of the parties thereto shall be accorded primordial consideration in
determining the actual character of a contract. 27 In case of doubt, the contemporaneous and
subsequent acts of the parties shall be considered in such determination. 28

As correctly pointed out by both the Court of Appeals and the trial court, the evidence shows that
private respondent agreed to deposit his money in the savings account of Sterela specifically for the
purpose of making it appear "that said firm had sufficient capitalization for incorporation, with the
promise that the amount shall be returned within thirty (30) days. 29 Private respondent merely
"accommodated" Doronilla by lending his money without consideration, as a favor to his good friend
Sanchez. It was however clear to the parties to the transaction that the money would not be removed
from Sterela’s savings account and would be returned to private respondent after thirty (30) days.

Doronilla’s attempts to return to private respondent the amount of P200,000.00 which the latter
deposited in Sterela’s account together with an additional P12,000.00, allegedly representing interest on
the mutuum, did not convert the transaction from a commodatum into a mutuum because such was not
the intent of the parties and because the additional P12,000.00 corresponds to the fruits of the lending
of the P200,000.00. Article 1935 of the Civil Code expressly states that" [t]he bailee in commodatum
acquires the use of the thing loaned but not its fruits." Hence, it was only proper for Doronilla to remit
to private respondent the interest accruing to the latter’s money deposited with petitioner.

Neither does the Court agree with petitioner’s contention that it is not solidarily liable for the return of
private respondent’s money because it was not privy to the transaction between Doronilla and
private Respondent. The nature of said transaction, that is, whether it is a mutuum or a commodatum,
has no bearing on the question of petitioner’s liability for the return of private respondent’s money
because the factual circumstances of the case clearly show that petitioner, through its employee Mr.
Atienza, was partly responsible for the loss of private respondent’s money and is liable for its restitution.

Petitioner’s rules for savings deposits written on the passbook it issued Mrs. Vives on behalf of Sterela
for Savings Account No. 10-1567 expressly states that —

"2. Deposits and withdrawals must be made by the depositor personally or upon his written authority
duly authenticated, and neither a deposit nor a withdrawal will be permitted except upon the
production of the depositor savings bank book in which will be entered by the Bank the amount
deposited or withdrawn." 30

Said rule notwithstanding, Doronilla was permitted by petitioner, through Atienza, the Assistant Branch
Manager for the Buendia Branch of petitioner, to withdraw therefrom even without presenting the
passbook (which Atienza very well knew was in the possession of Mrs. Vives), not just once, but several
times. Both the Court of Appeals and the trial court found that Atienza allowed said withdrawals
because he was party to Doronilla’s "scheme" of defrauding private respondent:chanrob1es virtual 1aw
library

x              x              x

But the scheme could not have been executed successfully without the knowledge, help and
cooperation of Rufo Atienza, assistant manager and cashier of the Makati (Buendia) branch of the
defendant bank. Indeed, the evidence indicates that Atienza had not only facilitated the commission of
the fraud but he likewise helped in devising the means by which it can be done in such manner as to
make it appear that the transaction was in accordance with banking procedure.

To begin with, the deposit was made in defendant’s Buendia branch precisely because Atienza was a key
officer therein. The records show that plaintiff had suggested that the P200,000.00 be deposited in his
bank, the Manila Banking Corporation, but Doronilla and Dumagpi insisted that it must be in defendant’s
branch Makati for "it will be easier for them to get a certification." In fact before he was introduced to
plaintiff, Doronilla had already prepared a letter addressed to the Buendia branch manager authorizing
Angeles B. Sanchez and company to open a savings account for Sterela in the amount of P200,000.00, as
"per coordination with Mr. Rufo Atienza, Assistant Manager of the Bank . . ." (Exh. 1). This is a clear
manifestation that the other defendants had been in consultation with Atienza from the inception of the
scheme. Significantly, there were testimonies and admission that Atienza is the brother-in-law of a
certain Romeo Mirasol, a friend and business associate of Doronilla.

Then there is the matter of the ownership of the fund. Because of the "coordination" between Doronilla
and Atienza, the latter knew before hand that the money deposited did not belong to Doronilla nor to
Sterela. Aside from such foreknowledge, he was explicitly told by Inocencia Vives that the money
belonged to her and her husband and the deposit was merely to accommodate Doronilla. Atienza even
declared that the money came from Mrs. Vives.

Although the savings account was in the name of Sterela, the bank records disclose that the only ones
empowered to withdraw the same were Inocencia Vives and Angeles B. Sanchez. In the signature card
pertaining to this account (Exh. J), the authorized signatories were Inocencia Vives &/or Angeles B.
Sanchez. Atienza stated that it is the usual banking procedure that withdrawals of savings deposits could
only be made by persons whose authorized signatures are in the signature cards on file with the bank.
He, however, said that this procedure was not followed here because Sterela was owned by Doronilla.
He explained that Doronilla had the full authority to withdraw by virtue of such ownership. The Court is
not inclined to agree with Atienza. In the first place, he was all the time aware that the money came
from Vives and did not belong to Sterela.. He was also told by Mrs. Vives that they were only
accommodating Doronilla so that a certification can be issued to the effect that Sterela had a deposit of
so much amount to be sued in the incorporation of the firm. In the second place, the signature of
Doronilla was not authorized in so far as that account is concerned inasmuch as he had not signed the
signature card provided by the bank whenever a deposit is opened. In the third place, neither Mrs. Vives
nor Sanchez had given Doronilla the authority to withdraw.

Moreover, the transfer of fund was done without the passbook having been presented. It is an accepted
practice that whenever a withdrawal is made in a savings deposit, the bank requires the presentation of
the passbook. In this case, such recognized practice was dispensed with. The transfer from the savings
account to the current account was without the submission of the passbook which Atienza had given to
Mrs. Vives. Instead, it was made to appear in a certification signed by Estrella Dumagpi that a duplicate
passbook was issued to Sterela because the original passbook had been surrendered to the Makati
Branch in view of a loan accommodation assigning the savings account (Exh. C). Atienza, who
undoubtedly had a hand in the execution of this certification, was aware that the contents of the same
are not true. He knew that the passbook was in the hands of Mrs. Vives for he was the one who gave it
to her. Besides, as assistant manager of the branch and the bank official servicing the savings and
current accounts in question, he also was aware that the original passbook was never surrendered. He
was also cognizant that Estrella Dumagpi was not among those authorized to withdraw so her
certification had no effect whatsoever.

The circumstance surrounding the opening of the current account also demonstrate that Atienza’s active
participation in the perpetration of the fraud and deception that caused the loss. The records indicate
that this account was opened three days later after the P200,000.00 was deposited. In spite of his
disclaimer, the Court believes that Atienza was mindful and posted regarding the opening of the current
account considering that Doronilla was all the while in "coordination" with him. That it was he who
facilitated the approval of the authority to debit the savings account to cover any overdrawings in the
current account (Exh. 2) is not hard to comprehend.

Clearly Atienza had committed wrongful acts that had resulted to the loss subject of this case. . . . 31

Under Article 2180 of the Civil Code, employers shall be held primarily and solidarily liable for damages
caused by their employees acting within the scope of their assigned tasks. To hold the employer liable
under this provision, it must be shown that an employer-employee relationship exists, and that the
employee was acting within the scope of his assigned task when the act complained of was committed
32 Case law in the United States of America has it that a corporation that entrusts a general duty to its
employee is responsible to the injured party for damages flowing from the employee’s wrongful act
done in the course of his general authority, even though in doing such act, the employee may have
failed in its duty to the employer and disobeyed the latter’s instructions. 33

There is no dispute that Atienza was an employee of petitioner. Furthermore, petitioner did not deny
that Atienza was acting within the scope of his authority as Assistant Branch Manager when he assisted
Doronilla in withdrawing funds from Sterela’s Savings Account No. 10-1567, in which account private
respondent’s money was deposited, and in transferring the money withdrawn to Sterela’s Current
Account with petitioner. Atienza’s acts of helping Doronilla, a customer of the petitioner, were obviously
done in furtherance of petitioner’s interests 34 even though in the process, Atienza violated some of
petitioner’s rules such as those stipulated in its savings account passbook. 35 It was established that the
transfer of funds from Sterela’s savings account to its current account could not have been
accomplished by Doronilla without the invaluable assistance of Atienza, and that it was their connivance
which was the cause of private respondent’s loss.

The foregoing shows that the Court of Appeals correctly held that under Article 2180 of the Civil Code,
petitioner is liable for private respondent’s loss and is solidarily liable with Doronilla and Dumagpi for
the return of the P200,000.00 since it is clear that petitioner failed to prove that it exercised due
diligence to prevent the unauthorized withdrawals from Sterela’s savings account, and that it was not
negligent in the selection and supervision of Atienza. Accordingly, no error was committed by the
appellate court in the award of actual, moral and exemplary damages, attorney’s fees and costs of suit
to private Respondent.chanrob1es virtua1 1aw 1ibrary

WHEREFORE, the petition is hereby DENIED. The assailed Decision and Resolution of the Court of
Appeals are AFFIRMED.

SO ORDERED.

Bellosillo, Mendoza, Quisumbing and Austria-Martinez, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-8321             October 14, 1913

ALEJANDRA MINA, ET AL., plaintiffs-appellants,

vs.
RUPERTA PASCUAL, ET AL., defendants-appellees.

N. Segundo for appellants.

Iñigo Bitanga for appellees.

ARELLANO, C.J.:

Francisco Fontanilla and Andres Fontanilla were brothers. Francisco Fontanilla acquired during his
lifetime, on March 12, 1874, a lot in the center of the town of Laoag, the capital of the Province of Ilocos
Norte, the property having been awarded to him through its purchase at a public auction held by
the alcalde mayor of that province. The lot has a frontage of 120 meters and a depth of 15.

Andres Fontanilla, with the consent of his brother Francisco, erected a warehouse on a part of the said
lot, embracing 14 meters of its frontage by 11 meters of its depth.

Francisco Fontanilla, the former owner of the lot, being dead, the herein plaintiffs, Alejandro Mina, et
al., were recognized without discussion as his heirs.

Andres Fontanilla, the former owner of the warehouse, also having died, the children of Ruperta Pascual
were recognized likes without discussion, though it is not said how, and consequently are entitled to the
said building, or rather, as Ruperta Pascual herself stated, to only six-sevenths of one-half of it, the other
half belonging, as it appears, to the plaintiffs themselves, and the remaining one-seventh of the first
one-half to the children of one of the plaintiffs, Elena de Villanueva. The fact is that the plaintiffs and the
defendants are virtually, to all appearance, the owners of the warehouse; while the plaintiffs are
undoubtedly, the owners of the part of the lot occupied by that building, as well as of the remainder
thereof.

This was the state of affairs, when, on May 6, 1909, Ruperta Pascual, as the guardian of her minor
children, the herein defendants, petitioned the Curt of First Instance of Ilocos Norte for authorization to
sell "the six-sevenths of the one-half  of the warehouse, of 14 by 11 meters, together with its  lot." The
plaintiffs — that is Alejandra Mina, et al. — opposed the petition of Ruperta Pascual for the reason that
the latter had included therein the lot occupied by the warehouse, which they claimed was their
exclusive property. All this action was taken in a special proceeding in re guardianship.

The plaintiffs did more than oppose Pascual's petition; they requested the court, through motion, to
decide the question of the ownership of the lot before it pass upon the petition for the sale of the
warehouse. But the court before determining the matter of the ownership of the lot occupied by the
warehouse, ordered the sale of this building, saying:

While the trial continues with respect to the ownership of the lot, the court orders the sale at public
auction of the said warehouse and of the lot on which it is built, with the present boundaries of the land
and condition of the building, at a price of not less than P2,890 Philippine currency . . . .

So, the warehouse, together with the lot on which it stands, was sold to Cu Joco, the other defendant in
this case, for the price mentioned.

The plaintiffs insisted upon a decision of the question of the ownership of the lot, and the court decided
it by holding that this land belonged to the owner of the warehouse which had been built thereon thirty
years before.

The plaintiffs appealed and this court reversed the judgment of the lower court and held that the
appellants were the owners of the lot in question.  1

When the judgment became final and executory, a writ of execution issued and the plaintiffs were given
possession of the lot; but soon thereafter the trial court annulled this possession for the reason that it
affected Cu Joco, who had not been a party to the suit in which that writ was served.

It was then that the plaintiffs commenced the present action for the purpose of having the sale of the
said lot declared null and void and of no force and effect.

An agreement was had ad to the facts, the ninth paragraph of which is as follows:

9. That the herein plaintiffs excepted to the judgment and appealed therefrom to the Supreme Court
which found for them by holding that they are the owners of the lot in question, although there existed
and still exists a commodatum by virtue of which the guardianship (meaning the defendants) had and
has the use, and the plaintiffs the ownership, of the property, with no finding concerning the decree of
the lower court that ordered the sale.

The obvious purport of the cause "although there existed and still exists a commodatum," etc., appears
to be that it is a part of the decision of the Supreme Court and that, while finding the plaintiffs to be the
owners of the lot, we recognized in principle the existence of a commodatum under which the
defendants held the lot. Nothing could be more inexact. Possibly, also, the meaning of that clause is
that, notwithstanding the finding made by the Supreme Court that the plaintiffs were the owners, these
former and the defendants agree that there existed, and still exists, a commodatum, etc. But such an
agreement would not affect the truth of the contents of the decision of this court, and the opinions held
by the litigants in regard to this point could have no bearing whatever on the present decision.

Nor did the decree of the lower court that ordered the sale have the least influence in our previous
decision to require our making any finding in regard thereto, for, with or without that decree, the
Supreme Court had to decide the ownership of the lot consistently with its titles and not in accordance
with the judicial acts or proceedings had prior to the setting up of the issue in respect to the ownership
of the property that was the subject of the judicial decree.

What is essentially pertinent to the case is the fact that the defendant agree that the plaintiffs have the
ownership, and they themselves only the use, of the said lot.
On this premise, the nullity of the sale of the lot is in all respects quite evident, whatsoever be the
manner in which the sale was effected, whether judicially or extrajudicially.

He who has only the use of a thing cannot validly sell the thing itself. The effect of the sale being a
transfer of the ownership of the thing, it is evident that he who has only the mere use of the thing
cannot transfer its ownership. The sale of a thing effected by one who is not its owner is null and void.
The defendants never were the owners of the lot sold. The sale of it by them is necessarily null and void.
On cannot convey to another what he has never had himself.

The returns of the auction contain the following statements:

I, Ruperta Pascual, the guardian of the minors, etc., by virtue of the authorization conferred upon me on
the 31st of July, 1909, by the Court of First Instance of Ilocos Norte, proceeded with the sale at public
auction of the six-sevenths part of the one-half of the warehouse constructed of rubble stone, etc.

Whereas I, Ruperta Pascual, the guardian of the minors, etc., sold at public auction all the land and all
the rights title, interest, and ownership in the said property to Cu Joco, who was the highest bidder, etc.

Therefore, . . . I cede and deliver forever to the said purchaser, Cu Joco, his heirs and assigns, all the
interest, ownership and inheritance rights and others that, as the guardian of the said minors, I have and
may have in the said property, etc.

The purchaser could not acquire anything more than the interest that might be held by a person to
whom realty in possession of the vendor might be sold, for at a judicial auction nothing else is disposed
of. What the minor children of Ruperta Pascual had in their possession was the ownership of the six-
sevenths part of one-half of the warehouse and the use of the lot occupied by his building. This, and
nothing more, could the Chinaman Cu Joco acquire at that sale: not the ownership of the lot; neither the
other half, nor the remaining one-seventh of the said first half, of the warehouse. Consequently, the sale
made to him of this one-seventh of one-half and the entire other half of the building was null and void,
and likewise with still more reason the sale of the lot the building occupies.

The purchaser could and should have known what it was that was offered for sale and what it was that
he purchased. There is nothing that can justify the acquisition by the purchaser of the warehouse of the
ownership of the lot that this building occupies, since the minors represented by Ruperta Pascual never
were the owners of the said lot, nor were they ever considered to be such.

The trial court, in the judgment rendered, held that there were no grounds for the requested annulment
of the sale, and that the plaintiffs were entitled to the P600 deposited with the clerk of the court as the
value of the lot in question. The defendants, Ruperta Pascual and the Chinaman Cu Joco, were absolved
from the complaint, without express finding as to costs.

The plaintiffs cannot be obliged to acquiesce in or allow the sale made and be compelled to accept the
price set on the lot by expert appraisers, not even though the plaintiffs be considered as coowner of the
warehouse. It would be much indeed that, on the ground of coownership, they should have to abide by
and tolerate the sale of the said building, which point this court does not decide as it is not a question
submitted to us for decision, but, as regards the sale of the lot, it is in all respects impossible to hold that
the plaintiffs must abide by it and tolerate, it, and this conclusion is based on the fact that they did not
give their consent (art. 1261, Civil Code), and only the contracting parties who have given it are obliged
to comply (art. 1091, idem).

The sole purpose of the action in the beginning was to obtain an annulment of the sale of the lot; but
subsequently the plaintiffs, through motion, asked for an amendment by their complaint in the sense
that the action should be deemed to be one for the recovery of possession of a lot and for the
annulment of its sale. The plaintiff's petition was opposed by the defendant's attorney, but was allowed
by the court; therefore the complaint seeks, after the judicial annulment of the sale of the lot, to have
the defendants sentenced immediately to deliver the same to the plaintiffs.

Such a finding appears to be in harmony with the decision rendered by the Supreme Court in previous
suit, wherein it was held that the ownership of the lot lay in the plaintiffs, and for this reason steps were
taken to give possession thereof to the defendants; but, as the purchaser Cu Joco was not a party to that
suit, the present action is strictly one for recover against Cu Joco to compel him, once the sale has been
annulled, to deliver the lot to its lawful owners, the plaintiffs.

As respects this action for recovery, this Supreme Court finds:

1. That it is a fact admitted by the litigating parties, both in this and in the previous suit, that Andres
Fontanilla, the defendants' predecessor in interest, erected the warehouse on the lot, some thirty years
ago, with the explicit consent of his brother Francisco Fontanilla, the plaintiff's predecessor in interest.

2. That it also appears to be an admitted fact that the plaintiffs and the defendants are the coowners of
the warehouse.

3. That it is a fact explicitly admitted in the agreement, that neither Andres Fontanilla nor his successors
paid any consideration or price whatever for the use of the lot occupied by the said building; whence it
is, perhaps, that both parties have denominated that use a commodatum.

Upon the premise of these facts, or even merely upon that of the first of them, the sentencing of the
defendants to deliver the lot to the plaintiffs does not follow as a necessary corollary of the judicial
declaration of ownership made in the previous suit, nor of that of the nullity of the sale of the lot, made
in the present case.

The defendants do not hold lawful possession of the lot in question.1awphil.net

But, although both litigating parties may have agreed in their idea of the commodatum, on account of its
not being, as indeed it is not, a question of fact but of law, yet that denomination given by them to the
use of the lot granted by Francisco Fontanilla to his brother, Andres Fontanilla, is not acceptable.
Contracts are not to be interpreted in conformity with the name that the parties thereto agree to give
them, but must be construed, duly considering their constitutive elements, as they are defined and
denominated by law.

By the contract of loan, one of the parties delivers to the other, either anything not perishable, in order
that the latter may use it during the certain period  and return it to the former, in which case it is
called commodatum  . . . (art. 1740, Civil Code).

It is, therefore, an essential feature of the commodatum that the use of the thing belonging to another
shall for a certain period. Francisco Fontanilla did not fix any definite period or time during which Andres
Fontanilla could have the use of the lot whereon the latter was to erect a stone warehouse of
considerable value, and so it is that for the past thirty years of the lot has been used by both Andres and
his successors in interest. The present contention of the plaintiffs that Cu Joco, now in possession of the
lot, should pay rent for it at the rate of P5 a month, would destroy the theory of the commodatum
sustained by them, since, according to the second paragraph of the aforecited article 1740,
"commodatum is essentially gratuitous," and, if what the plaintiffs themselves aver on page 7 of their
brief is to be believed, it never entered Francisco's mind to limit the period during which his brother
Andres was to have the use of the lot, because he expected that the warehouse would eventually fall
into the hands of his son, Fructuoso Fontanilla, called the adopted son of Andres, which did not come to
pass for the reason that Fructuoso died before his uncle Andres. With that expectation in view, it
appears more likely that Francisco intended to allow his brother Andres a surface right; but this right
supposes the payment of an annual rent, and Andres had the gratuitous use of the lot.

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

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

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

Torres, Johnson, Carson, Moreland and Trent, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-46240             November 3, 1939

MARGARITA QUINTOS and ANGEL A. ANSALDO, plaintiffs-appellants,

vs.
BECK, defendant-appellee.

Mauricio Carlos for appellants.

Felipe Buencamino, Jr. for appellee.

IMPERIAL, J.:

The plaintiff brought this action to compel the defendant to return her certain furniture which she lent
him for his use. She appealed from the judgment of the Court of First Instance of Manila which ordered
that the defendant return to her the three has heaters and the four electric lamps found in the
possession of the Sheriff of said city, that she call for the other furniture from the said sheriff of Manila
at her own expense, and that the fees which the Sheriff may charge for the deposit of the furniture be
paid  pro rata  by both parties, without pronouncement as to the costs.

The defendant was a tenant of the plaintiff and as such occupied the latter's house on M. H. del Pilar
street, No. 1175. On January 14, 1936, upon the novation of the contract of lease between the plaintiff
and the defendant, the former gratuitously granted to the latter the use of the furniture described in the
third paragraph of the stipulation of facts, subject to the condition that the defendant would return
them to the plaintiff upon the latter's demand. The plaintiff sold the property to Maria Lopez and
Rosario Lopez and on September 14, 1936, these three notified the defendant of the conveyance, giving
him sixty days to vacate the premises under one of the clauses of the contract of lease. There after the
plaintiff required the defendant to return all the furniture transferred to him for them in the house
where they were found. On             November 5, 1936, the defendant, through another person, wrote to
the plaintiff reiterating that she may call for the furniture in the ground floor of the house. On the 7th of
the same month, the defendant wrote another letter to the plaintiff informing her that he could not give
up the three gas heaters and the four electric lamps because he would use them until the 15th of the
same month when the lease in due to expire. The plaintiff refused to get the furniture in view of the fact
that the defendant had declined to make delivery of all of them. On             November 15th, before
vacating the house, the defendant deposited with the Sheriff all the furniture belonging to the plaintiff
and they are now on deposit in the warehouse situated at No. 1521, Rizal Avenue, in the custody of the
said sheriff.

In their seven assigned errors the plaintiffs contend that the trial court incorrectly applied the law: in
holding that they violated the contract by not calling for all the furniture on November 5, 1936, when
the defendant placed them at their disposal; in not ordering the defendant to pay them the value of the
furniture in case they are not delivered; in holding that they should get all the furniture from the Sheriff
at their expenses; in ordering them to pay-half of the expenses claimed by the Sheriff for the deposit of
the furniture; in ruling that both parties should pay their respective legal expenses or the costs; and in
denying pay their respective legal expenses or the costs; and in denying the motions for reconsideration
and new trial. To dispose of the case, it is only necessary to decide whether the defendant complied
with his obligation to return the furniture upon the plaintiff's demand; whether the latter is bound to
bear the deposit fees thereof, and whether she is entitled to the costs of litigation.lawphi1.net

The contract entered into between the parties is one of commadatum, because under it the plaintiff
gratuitously granted the use of the furniture to the defendant, reserving for herself the ownership
thereof; by this contract the defendant bound himself to return the furniture to the plaintiff, upon the
latters demand (clause 7 of the contract, Exhibit A; articles 1740, paragraph 1, and 1741 of the Civil
Code). The obligation voluntarily assumed by the defendant to return the furniture upon the plaintiff's
demand, means that he should return all of them to the plaintiff at the latter's residence or house. The
defendant did not comply with this obligation when he merely placed them at the disposal of the
plaintiff, retaining for his benefit the three gas heaters and the four eletric lamps. The provisions of
article 1169 of the Civil Code cited by counsel for the parties are not squarely applicable. The trial court,
therefore, erred when it came to the legal conclusion that the plaintiff failed to comply with her
obligation to get the furniture when they were offered to her.

As the defendant had voluntarily undertaken to return all the furniture to the plaintiff, upon the latter's
demand, the Court could not legally compel her to bear the expenses occasioned by the deposit of the
furniture at the defendant's behest. The latter, as bailee, was not entitled to place the furniture on
deposit; nor was the plaintiff under a duty to accept the offer to return the furniture, because the
defendant wanted to retain the three gas heaters and the four electric lamps.

As to the value of the furniture, we do not believe that the plaintiff is entitled to the payment thereof by
the defendant in case of his inability to return some of the furniture because under paragraph 6 of the
stipulation of facts, the defendant has neither agreed to nor admitted the correctness of the said value.
Should the defendant fail to deliver some of the furniture, the value thereof should be latter determined
by the trial Court through evidence which the parties may desire to present.

The costs in both instances should be borne by the defendant because the plaintiff is the prevailing party
(section 487 of the Code of Civil Procedure). The defendant was the one who breached the contract
of commodatum, and without any reason he refused to return and deliver all the furniture upon the
plaintiff's demand. In these circumstances, it is just and equitable that he pay the legal expenses and
other judicial costs which the plaintiff would not have otherwise defrayed.

The appealed judgment is modified and the defendant is ordered to return and deliver to the plaintiff, in
the residence to return and deliver to the plaintiff, in the residence or house of the latter, all the
furniture described in paragraph 3 of the stipulation of facts Exhibit A. The expenses which may be
occasioned by the delivery to and deposit of the furniture with the Sheriff shall be for the account of the
defendant. the defendant shall pay the costs in both instances. So ordered.

Avanceña, C.J., Villa-Real, Laurel, Concepcion and Moran, JJ., concur.

 FIRST DIVISION

G.R. No. 146364             June 3, 2004

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

DECISION

CARPIO, J.:

The Case

Before us is a petition for review1 of the 21 June 2000 Decision2 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
decision3 of the Regional Trial Court of Quezon City, Branch 81, 4 affirming the 15 December 1995
decision5 of the Metropolitan Trial Court of Quezon City, Branch 31. 6

The Antecedents

In June 1979, petitioner Colito T. Pajuyo ("Pajuyo") paid ₱400 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 Pajuyo’s 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 (₱300.00) monthly as reasonable compensation
for the use of the premises starting from the last demand;

C) pay plaintiff the sum of ₱3,000.00 as and by way of attorney’s 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 Guevara’s 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 Guevarra’s petition for review because it was filed out of time.
Moreover, it was Guevarra’s counsel and not Guevarra who signed the certification against forum-
shopping.
On 14 December 2000, the Court of Appeals issued a resolution denying Pajuyo’s 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,
Guevarra’s refusal to vacate the house on Pajuyo’s demand made Guevarra’s 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 Guevarra’s 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 Guevarra’s 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 Pajuyo’s motion for reconsideration, the appellate court debunked Pajuyo’s claim that
Guevarra filed his motion for extension beyond the period to appeal.
The Court of Appeals pointed out that Guevarra’s motion for extension filed before the Supreme Court
was stamped "13 December 1996 at 4:09 PM" by the Supreme Court’s Receiving Clerk. The Court of
Appeals concluded that the motion for extension bore a date, contrary to Pajuyo’s 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 Pajuyo’s argument that the appellate court should have dismissed the
petition for review because it was Guevarra’s 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 Respondent’s 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 respondent’s 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 Guevarra’s petition for review
because the RTC decision had already become final and executory when the appellate court acted on
Guevarra’s 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 Guevarra’s 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. Guevarra’s 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 squatter’s 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 Liboro’s 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 Guevarra’s 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 Court’s 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 Guevarra’s 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 Guevarra’s favor that Pajuyo raised the procedural issues
against Guevarra’s 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
court’s jurisdiction after voluntarily submitting to it is against public policy. 26

In his Comment before the Court of Appeals, Pajuyo also failed to discuss Guevarra’s failure to sign the
certification against forum shopping. Instead, Pajuyo harped on Guevarra’s counsel signing the
verification, claiming that the counsel’s verification is insufficient since it is based only on "mere
information."

A party’s failure to sign the certification against forum shopping is different from the party’s 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 party’s 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 defendant’s 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 party’s 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 Pitargue44 as squatters, strictly
speaking, their entry into the disputed land was illegal. Both the plaintiff and defendant entered the
public land without the owner’s 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 Guevarra’s 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 Guevarra’s 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 Pajuyo’s 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, sila’y 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 Pajuyo’s demand but Guevarra broke his promise and refused to heed Pajuyo’s 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 former’s 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 defendant’s 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 Pajuyo’s 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. Guevarra’s refusal to
comply with Pajuyo’s demand to vacate made Guevarra’s continued possession of the property
unlawful.

We do not subscribe to the Court of Appeals’ theory that the Kasunduan is one of commodatum.

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

The Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra was not essentially
gratuitous. While the Kasunduan did not require Guevarra to pay rent, it obligated him to maintain the
property in good condition. The imposition of this obligation makes the Kasunduan a contract different
from a commodatum. The effects of the Kasunduan are also different from that of a commodatum. Case
law on ejectment has treated relationship based on tolerance as one that is akin to a landlord-tenant
relationship where the withdrawal of permission would result in the termination of the lease. 69 The
tenant’s 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 Guevarra’s
recognition of Pajuyo’s 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

Pajuyo’s withdrawal of his permission to Guevarra terminated the Kasunduan. Guevarra’s 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 Pajuyo’s 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.

Pajuyo’s 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 one’s 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.

Attorney’s Fees and Rentals

The MTC and RTC failed to justify the award of ₱3,000 attorney’s fees to Pajuyo. Attorney’s fees as part
of damages are awarded only in the instances enumerated in Article 2208 of the Civil Code. 83 Thus, the
award of attorney’s fees is the exception rather than the rule. 84 Attorney’s 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 attorney’s fees awarded to Pajuyo.

We sustain the ₱300 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 ₱300 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 attorney’s fees is deleted.
No costs.

SO ORDERED.

Davide, Jr., Panganiban, Ynares-Santiago, and Azcuna, JJ., concur.