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 Resolution9 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 Resolution10 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 Code48 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.
G.R. No. 115324             February 19, 2003

PRODUCERS BANK OF THE PHILIPPINES (now FIRST INTERNATIONAL BANK), petitioner,

vs.
HON. COURT OF APPEALS AND FRANKLIN VIVES, respondents.

DECISION

CALLEJO, SR., J.:

This is a petition for review on certiorari of the Decision1 of the Court of Appeals dated June 25, 1991 in
CA-G.R. CV No. 11791 and of its Resolution2 dated May 5, 1994, denying the motion for reconsideration
of said decision filed by petitioner Producers Bank of the Philippines.

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 (₱200,000.00) 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 ₱200,000.00. 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
₱90,000.00 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 ₱175,000.00 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 (₱212,000.00) 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 ₱212,000.00 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:

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 ₱200,000.00, 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 ₱50,000.00 for moral damages and a similar amount for exemplary damages;

(c) the amount of ₱40,000.00 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 reply12 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.

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
₱212,000.00, or ₱12,000 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 ₱200,000.00 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 ₱200,000.00 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.1a\^/phi1.net
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 ₱200,000.00
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.

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:

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:

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 ₱200,000.00 which the latter
deposited in Sterela’s account together with an additional ₱12,000.00, 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 ₱12,000.00 corresponds to the fruits of the lending
of the ₱200,000.00. 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:

XXX

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 ₱200,000.00 be deposited in his
bank, the Manila Banking Corporation, but Doronilla and Dumagpi insisted that it must be in defendant’s
branch in 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 ₱200,000.00, as
"per coordination with Mr. Rufo Atienza, Assistant Manager of the Bank x x x" (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.1awphi1.nét

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 ₱200,000.00 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. x x x.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 interests34 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 ₱200,000.00 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.

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

SO ORDERED.
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.
G.R. No. L-4150             February 10, 1910

FELIX DE LOS SANTOS, plaintiff-appelle,

vs.
AGUSTINA JARRA, administratrix of the estate of Magdaleno Jimenea, deceased, defendant-appellant.

Matias Hilado, for appellant.

Jose Felix Martinez, for appellee.

TORRES, J.:

On the 1st of September, 1906, Felix de los Santos brought suit against Agustina Jarra, the administratrix
of the estate of Magdaleno Jimenea, alleging that in the latter part of 1901 Jimenea borrowed and
obtained from the plaintiff ten first-class carabaos, to be used at the animal-power mill of his hacienda
during the season of 1901-2, without recompense or remuneration whatever for the use thereof, under
the sole condition that they should be returned to the owner as soon as the work at the mill was
terminated; that Magdaleno Jimenea, however, did not return the carabaos, notwithstanding the fact
that the plaintiff claimed their return after the work at the mill was finished; that Magdaleno Jimenea
died on the 28th of October, 1904, and the defendant herein was appointed by the Court of First
Instance of Occidental Negros administratrix of his estate and she took over the administration of the
same and is still performing her duties as such administratrix; that the plaintiff presented his claim to the
commissioners of the estate of Jimenea, within the legal term, for the return of the said ten carabaos,
but the said commissioners rejected his claim as appears in their report; therefore, the plaintiff prayed
that judgment be entered against the defendant as administratrix of the estate of the deceased,
ordering her to return the ten first-class carabaos loaned to the late Jimenea, or their present value, and
to pay the costs.

The defendant was duly summoned, and on the 25th of September, 1906, she demurred in writing to
the complaint on the ground that it was vague; but on the 2d of October of the same year, in answer to
the complaint, she said that it was true that the late Magdaleno Jimenea asked the plaintiff to loan him
ten carabaos, but that he only obtained three second-class animals, which were afterwards transferred
by sale by the plaintiff to the said Jimenea; that she denied the allegations contained in paragraph 3 of
the complaint; for all of which she asked the court to absolve her of the complaint with the cost against
the plaintiff.

By a writing dated the 11th of December, 1906, Attorney Jose Felix Martinez notified the defendant and
her counsel, Matias Hilado, that he had made an agreement with the plaintiff to the effect that the latter
would not compromise the controversy without his consent, and that as fees for his professional
services he was to receive one half of the amount allowed in the judgment if the same were entered in
favor of the plaintiff.

The case came up for trial, evidence was adduced by both parties, and either exhibits were made of
record. On the 10th of January, 1907, the court below entered judgment sentencing Agustina Jarra, as
administratrix of the estate of Magdaleno Jimenea, to return to the plaintiff, Felix de los Santos, the
remaining six second and third class carabaos, or the value thereof at the rate of P120 each, or a total of
P720 with the costs.
Counsel for the defendant excepted to the foregoing judgment, and, by a writing dated January 19,
moved for anew trial on the ground that the findings of fact were openly and manifestly contrary to the
weight of the evidence. The motion was overruled, the defendant duly excepted, and in due course
submitted the corresponding bill of exceptions, which was approved and submitted to this court.

The defendant has admitted that Magdaleno Jimenea asked the plaintiff for the loan of ten carabaos
which are now claimed by the latter, as shown by two letters addressed by the said Jimenea to Felix de
los Santos; but in her answer the said defendant alleged that the late Jimenea only obtained three
second-class carabaos, which were subsequently sold to him by the owner, Santos; therefore, in order
to decide this litigation it is indispensable that proof be forthcoming that Jimenea only received three
carabaos from his son-in-law Santos, and that they were sold by the latter to him.

The record discloses that it has been fully proven from the testimony of a sufficient number of witnesses
that the plaintiff, Santos, sent in charge of various persons the ten carabaos requested by his father-in-
law, Magdaleno Jimenea, in the two letters produced at the trial by the plaintiff, and that Jimenea
received them in the presence of some of said persons, one being a brother of said Jimenea, who saw
the animals arrive at the hacienda where it was proposed to employ them. Four died of rinderpest, and
it is for this reason that the judgment appealed from only deals with six surviving carabaos.

The alleged purchase of three carabaos by Jimenea from his son-in-law Santos is not evidenced by any
trustworthy documents such as those of transfer, nor were the declarations of the witnesses presented
by the defendant affirming it satisfactory; for said reason it can not be considered that Jimenea only
received three carabaos on loan from his son-in-law, and that he afterwards kept them definitely by
virtue of the purchase.

By the laws in force the transfer of large cattle was and is still made by means of official documents
issued by the local authorities; these documents constitute the title of ownership of the carabao or
horse so acquired. Furthermore, not only should the purchaser be provided with a new certificate or
credential, a document which has not been produced in evidence by the defendant, nor has the loss of
the same been shown in the case, but the old documents ought to be on file in the municipality, or they
should have been delivered to the new purchaser, and in the case at bar neither did the defendant
present the old credential on which should be stated the name of the previous owner of each of the
three carabaos said to have been sold by the plaintiff.

From the foregoing it may be logically inferred that the carabaos loaned or given on commodatum to
the now deceased Magdaleno Jimenea were ten in number; that they, or at any rate the six surviving
ones, have not been returned to the owner thereof, Felix de los Santos, and that it is not true that the
latter sold to the former three carabaos that the purchaser was already using; therefore, as the said six
carabaos were not the property of the deceased nor of any of his descendants, it is the duty of the
administratrix of the estate to return them or indemnify the owner for their value.

The Civil Code, in dealing with loans in general, from which generic denomination the specific one of
commodatum is derived, establishes prescriptions in relation to the last-mentioned contract by the
following articles:

ART. 1740. By the contract of loan, one of the parties delivers to the other, either anything not
perishable, in order that the latter may use it during a certain period and return it to the former, in
which case it is called commodatum, or money or any other perishable thing, under the condition to
return an equal amount of the same kind and quality, in which case it is merely called a loan.

Commodatum is essentially gratuitous.

A simple loan may be gratuitous, or made under a stipulation to pay interest.

ART. 1741. The bailee acquires retains the ownership of the thing loaned. The bailee acquires the use
thereof, but not its fruits; if any compensation is involved, to be paid by the person requiring the use,
the agreement ceases to be a commodatum.

ART. 1742. The obligations and rights which arise from the commodatum pass to the heirs of both
contracting parties, unless the loan has been in consideration for the person of the bailee, in which case
his heirs shall not have the right to continue using the thing loaned.

The carabaos delivered to be used not being returned by the defendant upon demand, there is no doubt
that she is under obligation to indemnify the owner thereof by paying him their value.

Article 1101 of said code reads:

Those who in fulfilling their obligations are guilty of fraud, negligence, or delay, and those who in any
manner whatsoever act in contravention of the stipulations of the same, shall be subjected to indemnify
for the losses and damages caused thereby.

The obligation of the bailee or of his successors to return either the thing loaned or its value, is
sustained by the supreme tribunal of Sapin. In its decision of March 21, 1895, it sets out with precision
the legal doctrine touching commodatum as follows:

Although it is true that in a contract of commodatum the bailor retains the ownership of the thing
loaned, and at the expiration of the period, or after the use for which it was loaned has been
accomplished, it is the imperative duty of the bailee to return the thing itself to its owner, or to pay him
damages if through the fault of the bailee the thing should have been lost or injured, it is clear that
where public securities are involved, the trial court, in deferring to the claim of the bailor that the
amount loaned be returned him by the bailee in bonds of the same class as those which constituted the
contract, thereby properly applies law 9 of title 11 of partida  5.

With regard to the third assignment of error, based on the fact that the plaintiff Santos had not
appealed from the decision of the commissioners rejecting his claim for the recovery of his carabaos, it
is sufficient to estate that we are not dealing with a claim for the payment of a certain sum, the
collection of a debt from the estate, or payment for losses and damages (sec. 119, Code of Civil
Procedure), but with the exclusion from the inventory of the property of the late Jimenea, or from his
capital, of six carabaos which did not belong to him, and which formed no part of the inheritance.

The demand for the exclusion of the said carabaos belonging to a third party and which did not form
part of the property of the deceased, must be the subject of a direct decision of the court in an ordinary
action, wherein the right of the third party to the property which he seeks to have excluded from the
inheritance and the right of the deceased has been discussed, and rendered in view of the result of the
evidence adduced by the administrator of the estate and of the claimant, since it is so provided by the
second part of section 699 and by section 703 of the Code of Civil Procedure; the refusal of the
commissioners before whom the plaintiff unnecessarily appeared can not affect nor reduce the
unquestionable right of ownership of the latter, inasmuch as there is no law nor principle of justice
authorizing the successors of the late Jimenea to enrich themselves at the cost and to the prejudice of
Felix de los Santos.

For the reasons above set forth, by which the errors assigned to the judgment appealed from have been
refuted, and considering that the same is in accordance with the law and the merits of the case, it is our
opinion that it should be affirmed and we do hereby affirm it with the costs against the appellant. So
ordered.
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.
G.R. No. 80294-95 September 21, 1988

CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE, petitioner,

vs.
COURT OF APPEALS, HEIRS OF EGMIDIO OCTAVIANO AND JUAN VALDEZ, respondents.

Valdez, Ereso, Polido & Associates for petitioner.

Claustro, Claustro, Claustro Law Office collaborating counsel for petitioner.

Jaime G. de Leon for the Heirs of Egmidio Octaviano.

Cotabato Law Office for the Heirs of Juan Valdez.

GANCAYCO, J.:

The principal issue in this case is whether or not a decision of the Court of Appeals promulgated a long
time ago can properly be considered res judicata by respondent Court of Appeals in the present two
cases between petitioner and two private respondents.

Petitioner questions as allegedly erroneous the Decision dated August 31, 1987 of the Ninth Division of
Respondent Court of Appeals 1 in CA-G.R. No. 05148 [Civil Case No. 3607 (419)] and CA-G.R. No. 05149
[Civil Case No. 3655 (429)], both for Recovery of Possession, which affirmed the Decision of the
Honorable Nicodemo T. Ferrer, Judge of the Regional Trial Court of Baguio and Benguet in Civil Case No.
3607 (419) and Civil Case No. 3655 (429), with the dispositive portion as follows:

WHEREFORE, Judgment is hereby rendered ordering the defendant, Catholic Vicar Apostolic of the
Mountain Province to return and surrender Lot 2 of Plan Psu-194357 to the plaintiffs. Heirs of Juan
Valdez, and Lot 3 of the same Plan to the other set of plaintiffs, the Heirs of Egmidio Octaviano
(Leonardo Valdez, et al.). For lack or insufficiency of evidence, the plaintiffs' claim or damages is hereby
denied. Said defendant is ordered to pay costs. (p. 36, Rollo)

Respondent Court of Appeals, in affirming the trial court's decision, sustained the trial court's
conclusions that the Decision of the Court of Appeals, dated May 4,1977 in CA-G.R. No. 38830-R, in the
two cases affirmed by the Supreme Court, touched on the ownership of lots 2 and 3 in question; that the
two lots were possessed by the predecessors-in-interest of private respondents under claim of
ownership in good faith from 1906 to 1951; that petitioner had been in possession of the same lots as
bailee in commodatum up to 1951, when petitioner repudiated the trust and when it applied for
registration in 1962; that petitioner had just been in possession as owner for eleven years, hence there
is no possibility of acquisitive prescription which requires 10 years possession with just title and 30 years
of possession without; that the principle of res judicata on these findings by the Court of Appeals will
bar a reopening of these questions of facts; and that those facts may no longer be altered.

Petitioner's motion for reconsideation of the respondent appellate court's Decision in the two
aforementioned cases (CA G.R. No. CV-05418 and 05419) was denied.

The facts and background of these cases as narrated by the trail court are as follows —
... The documents and records presented reveal that the whole controversy started when the defendant
Catholic Vicar Apostolic of the Mountain Province (VICAR for brevity) filed with the Court of First
Instance of Baguio Benguet on September 5, 1962 an application for registration of title over Lots 1, 2, 3,
and 4 in Psu-194357, situated at Poblacion Central, La Trinidad, Benguet, docketed as LRC N-91, said
Lots being the sites of the Catholic Church building, convents, high school building, school gymnasium,
school dormitories, social hall, stonewalls, etc. On March 22, 1963 the Heirs of Juan Valdez and the Heirs
of Egmidio Octaviano filed their Answer/Opposition on Lots Nos. 2 and 3, respectively, asserting
ownership and title thereto. After trial on the merits, the land registration court promulgated its
Decision, dated November 17, 1965, confirming the registrable title of VICAR to Lots 1, 2, 3, and 4.

The Heirs of Juan Valdez (plaintiffs in the herein Civil Case No. 3655) and the Heirs of Egmidio Octaviano
(plaintiffs in the herein Civil Case No. 3607) appealed the decision of the land registration court to the
then Court of Appeals, docketed as CA-G.R. No. 38830-R. The Court of Appeals rendered its decision,
dated May 9, 1977, reversing the decision of the land registration court and dismissing the VICAR's
application as to Lots 2 and 3, the lots claimed by the two sets of oppositors in the land registration case
(and two sets of plaintiffs in the two cases now at bar), the first lot being presently occupied by the
convent and the second by the women's dormitory and the sister's convent.

On May 9, 1977, the Heirs of Octaviano filed a motion for reconsideration praying the Court of Appeals
to order the registration of Lot 3 in the names of the Heirs of Egmidio Octaviano, and on May 17, 1977,
the Heirs of Juan Valdez and Pacita Valdez filed their motion for reconsideration praying that both Lots 2
and 3 be ordered registered in the names of the Heirs of Juan Valdez and Pacita Valdez. On August
12,1977, the Court of Appeals denied the motion for reconsideration filed by the Heirs of Juan Valdez on
the ground that there was "no sufficient merit to justify reconsideration one way or the other ...," and
likewise denied that of the Heirs of Egmidio Octaviano.

Thereupon, the VICAR filed with the Supreme Court a petition for review on certiorari of the decision of
the Court of Appeals dismissing his (its) application for registration of Lots 2 and 3, docketed as G.R. No.
L-46832, entitled 'Catholic Vicar Apostolic of the Mountain Province vs. Court of Appeals and Heirs of
Egmidio Octaviano.'

From the denial by the Court of Appeals of their motion for reconsideration the Heirs of Juan Valdez and
Pacita Valdez, on September 8, 1977, filed with the Supreme Court a petition for review, docketed as
G.R. No. L-46872, entitled, Heirs of Juan Valdez and Pacita Valdez vs. Court of Appeals, Vicar, Heirs of
Egmidio Octaviano and Annable O. Valdez.

On January 13, 1978, the Supreme Court denied in a minute resolution both petitions (of VICAR on the
one hand and the Heirs of Juan Valdez and Pacita Valdez on the other) for lack of merit. Upon the finality
of both Supreme Court resolutions in G.R. No. L-46832 and G.R. No. L- 46872, the Heirs of Octaviano
filed with the then Court of First Instance of Baguio, Branch II, a Motion For Execution of Judgment
praying that the Heirs of Octaviano be placed in possession of Lot 3. The Court, presided over by Hon.
Salvador J. Valdez, on December 7, 1978, denied the motion on the ground that the Court of Appeals
decision in CA-G.R. No. 38870 did not grant the Heirs of Octaviano any affirmative relief.

On February 7, 1979, the Heirs of Octaviano filed with the Court of Appeals a petitioner for certiorari
and mandamus, docketed as CA-G.R. No. 08890-R, entitled Heirs of Egmidio Octaviano vs. Hon. Salvador
J. Valdez, Jr. and Vicar. In its decision dated May 16, 1979, the Court of Appeals dismissed the petition.
It was at that stage that the instant cases were filed. The Heirs of Egmidio Octaviano filed Civil Case No.
3607 (419) on July 24, 1979, for recovery of possession of Lot 3; and the Heirs of Juan Valdez filed Civil
Case No. 3655 (429) on September 24, 1979, likewise for recovery of possession of Lot 2 (Decision, pp.
199-201, Orig. Rec.).

In Civil Case No. 3607 (419) trial was held. The plaintiffs Heirs of Egmidio Octaviano presented one (1)
witness, Fructuoso Valdez, who testified on the alleged ownership of the land in question (Lot 3) by their
predecessor-in-interest, Egmidio Octaviano (Exh. C ); his written demand (Exh. B—B-4 ) to defendant
Vicar for the return of the land to them; and the reasonable rentals for the use of the land at P10,000.00
per month. On the other hand, defendant Vicar presented the Register of Deeds for the Province of
Benguet, Atty. Nicanor Sison, who testified that the land in question is not covered by any title in the
name of Egmidio Octaviano or any of the plaintiffs (Exh. 8). The defendant dispensed with the testimony
of Mons.William Brasseur when the plaintiffs admitted that the witness if called to the witness stand,
would testify that defendant Vicar has been in possession of Lot 3, for seventy-five (75) years
continuously and peacefully and has constructed permanent structures thereon.

In Civil Case No. 3655, the parties admitting that the material facts are not in dispute, submitted the case
on the sole issue of whether or not the decisions of the Court of Appeals and the Supreme Court
touching on the ownership of Lot 2, which in effect declared the plaintiffs the owners of the land
constitute res judicata.

In these two cases , the plaintiffs arque that the defendant Vicar is barred from setting up the defense of
ownership and/or long and continuous possession of the two lots in question since this is barred by prior
judgment of the Court of Appeals in CA-G.R. No. 038830-R under the principle of res judicata. Plaintiffs
contend that the question of possession and ownership have already been determined by the Court of
Appeals (Exh. C, Decision, CA-G.R. No. 038830-R) and affirmed by the Supreme Court (Exh. 1, Minute
Resolution of the Supreme Court). On his part, defendant Vicar maintains that the principle of res
judicata would not prevent them from litigating the issues of long possession and ownership because
the dispositive portion of the prior judgment in CA-G.R. No. 038830-R merely dismissed their application
for registration and titling of lots 2 and 3. Defendant Vicar contends that only the dispositive portion of
the decision, and not its body, is the controlling pronouncement of the Court of Appeals. 2

The alleged errors committed by respondent Court of Appeals according to petitioner are as follows:

1. ERROR IN APPLYING LAW OF THE CASE AND RES JUDICATA;

2. ERROR IN FINDING THAT THE TRIAL COURT RULED THAT LOTS 2 AND 3 WERE ACQUIRED BY
PURCHASE BUT WITHOUT DOCUMENTARY EVIDENCE PRESENTED;

3. ERROR IN FINDING THAT PETITIONERS' CLAIM IT PURCHASED LOTS 2 AND 3 FROM VALDEZ AND
OCTAVIANO WAS AN IMPLIED ADMISSION THAT THE FORMER OWNERS WERE VALDEZ AND
OCTAVIANO;

4. ERROR IN FINDING THAT IT WAS PREDECESSORS OF PRIVATE RESPONDENTS WHO WERE IN

POSSESSION OF LOTS 2 AND 3 AT LEAST FROM 1906, AND NOT PETITIONER;

5. ERROR IN FINDING THAT VALDEZ AND OCTAVIANO HAD FREE PATENT APPLICATIONS AND THE
PREDECESSORS OF PRIVATE RESPONDENTS ALREADY HAD FREE PATENT APPLICATIONS SINCE 1906;
6. ERROR IN FINDING THAT PETITIONER DECLARED LOTS 2 AND 3 ONLY IN 1951 AND JUST TITLE IS A
PRIME NECESSITY UNDER ARTICLE 1134 IN RELATION TO ART. 1129 OF THE CIVIL CODE FOR ORDINARY
ACQUISITIVE PRESCRIPTION OF 10 YEARS;

7. ERROR IN FINDING THAT THE DECISION OF THE COURT OF APPEALS IN CA G.R. NO. 038830 WAS
AFFIRMED BY THE SUPREME COURT;

8. ERROR IN FINDING THAT THE DECISION IN CA G.R. NO. 038830 TOUCHED ON OWNERSHIP OF LOTS 2
AND 3 AND THAT PRIVATE RESPONDENTS AND THEIR PREDECESSORS WERE IN POSSESSION OF LOTS 2
AND 3 UNDER A CLAIM OF OWNERSHIP IN GOOD FAITH FROM 1906 TO 1951;

9. ERROR IN FINDING THAT PETITIONER HAD BEEN IN POSSESSION OF LOTS 2 AND 3 MERELY AS BAILEE
BOR ROWER) IN COMMODATUM, A GRATUITOUS LOAN FOR USE;

10. ERROR IN FINDING THAT PETITIONER IS A POSSESSOR AND BUILDER IN GOOD FAITH WITHOUT
RIGHTS OF RETENTION AND REIMBURSEMENT AND IS BARRED BY THE FINALITY AND CONCLUSIVENESS
OF THE DECISION IN CA G.R. NO. 038830. 3

The petition is bereft of merit.

Petitioner questions the ruling of respondent Court of Appeals in CA-G.R. Nos. 05148 and 05149, when it
clearly held that it was in agreement with the findings of the trial court that the Decision of the Court of
Appeals dated May 4,1977 in CA-G.R. No. 38830-R, on the question of ownership of Lots 2 and 3,
declared that the said Court of Appeals Decision CA-G.R. No. 38830-R) did not positively declare private
respondents as owners of the land, neither was it declared that they were not owners of the land, but it
held that the predecessors of private respondents were possessors of Lots 2 and 3, with claim of
ownership in good faith from 1906 to 1951. Petitioner was in possession as borrower in commodatum
up to 1951, when it repudiated the trust by declaring the properties in its name for taxation purposes.
When petitioner applied for registration of Lots 2 and 3 in 1962, it had been in possession in concept
of owner only for eleven years. Ordinary acquisitive prescription requires possession for ten years, but
always with just title. Extraordinary acquisitive prescription requires 30 years. 4

On the above findings of facts supported by evidence and evaluated by the Court of Appeals in CA-G.R.
No. 38830-R, affirmed by this Court, We see no error in respondent appellate court's ruling that said
findings are res judicata between the parties. They can no longer be altered by presentation of evidence
because those issues were resolved with finality a long time ago. To ignore the principle of res
judicata would be to open the door to endless litigations by continuous determination of issues without
end.

An examination of the Court of Appeals Decision dated May 4, 1977, First Division 5 in CA-G.R. No.
38830-R, shows that it reversed the trial court's Decision 6 finding petitioner to be entitled to register the
lands in question under its ownership, on its evaluation of evidence and conclusion of facts.

The Court of Appeals found that petitioner did not meet the requirement of 30 years possession for
acquisitive prescription over Lots 2 and 3. Neither did it satisfy the requirement of 10 years possession
for ordinary acquisitive prescription because of the absence of just title. The appellate court did not
believe the findings of the trial court that Lot 2 was acquired from Juan Valdez by purchase and Lot 3
was acquired also by purchase from Egmidio Octaviano by petitioner Vicar because there was absolutely
no documentary evidence to support the same and the alleged purchases were never mentioned in the
application for registration.

By the very admission of petitioner Vicar, Lots 2 and 3 were owned by Valdez and Octaviano. Both
Valdez and Octaviano had Free Patent Application for those lots since 1906. The predecessors of private
respondents, not petitioner Vicar, were in possession of the questioned lots since 1906.

There is evidence that petitioner Vicar occupied Lots 1 and 4, which are not in question, but not Lots 2
and 3, because the buildings standing thereon were only constructed after liberation in 1945. Petitioner
Vicar only declared Lots 2 and 3 for taxation purposes in 1951. The improvements oil Lots 1, 2, 3, 4 were
paid for by the Bishop but said Bishop was appointed only in 1947, the church was constructed only in
1951 and the new convent only 2 years before the trial in 1963.

When petitioner Vicar was notified of the oppositor's claims, the parish priest offered to buy the lot
from Fructuoso Valdez. Lots 2 and 3 were surveyed by request of petitioner Vicar only in 1962.

Private respondents were able to prove that their predecessors' house was borrowed by petitioner Vicar
after the church and the convent were destroyed. They never asked for the return of the house, but
when they allowed its free use, they became bailors in commodatum and the petitioner the bailee. The
bailees' failure to return the subject matter of commodatum to the bailor did not mean adverse
possession on the part of the borrower. The bailee held in trust the property subject matter of
commodatum. The adverse claim of petitioner came only in 1951 when it declared the lots for taxation
purposes. The action of petitioner Vicar by such adverse claim could not ripen into title by way of
ordinary acquisitive prescription because of the absence of just title.

The Court of Appeals found that the predecessors-in-interest and private respondents were possessors
under claim of ownership in good faith from 1906; that petitioner Vicar was only a bailee
in commodatum; and that the adverse claim and repudiation of trust came only in 1951.

We find no reason to disregard or reverse the ruling of the Court of Appeals in CA-G.R. No. 38830-R. Its
findings of fact have become incontestible. This Court declined to review said decision, thereby in effect,
affirming it. It has become final and executory a long time ago.

Respondent appellate court did not commit any reversible error, much less grave abuse of discretion,
when it held that the Decision of the Court of Appeals in CA-G.R. No. 38830-R is governing, under the
principle of res judicata, hence the rule, in the present cases CA-G.R. No. 05148 and CA-G.R. No. 05149.
The facts as supported by evidence established in that decision may no longer be altered.

WHEREFORE AND BY REASON OF THE FOREGOING, this petition is DENIED for lack of merit, the Decision
dated Aug. 31, 1987 in CA-G.R. Nos. 05148 and 05149, by respondent Court of Appeals is AFFIRMED,
with costs against petitioner.

SO ORDERED.
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 electric 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.
G.R. No. 84719             January 25, 1991

YONG CHAN KIM, petitioner,

vs.
PEOPLE OF THE PHILIPPINES, HON. EDGAR D. GUSTILO, Presiding Judge, RTC, 6th Judicial Region,
Branch 28 Iloilo City and Court of Appeals (13th Division) respondents.

Remedios C. Balbin and Manuel C. Cases, Jr. for petitioner.

Hector P. Teodosio for private respondent.

PADILLA, J.:

This petition seeks the review on certiorari of the following:

1. The decision dated 3 September 1986 of the 15th Municipal Circuit Trial Court (Guimbal-Igbaras-
Tigbauan-Tubungan) in Guimbal, Iloilo, in Criminal Case No. 628,1 and the affirming decision of the
Regional Trial Court, Branch XXVIII, Iloilo City, in Criminal Case No. 20958, promulgated on 30 July 1987;2

2. The decision of the Court of Appeals, dated 29 April 1988,3

dismissing petitioner's appeal/petition for review for having been filed out of time, and the resolution,
dated 19 August 1988, denying petitioner's motion for reconsideration.4

The antecedent facts are as follows:

Petitioner Yong Chan Kim was employed as a Researcher at the Aquaculture Department of the
Southeast Asian Fisheries Development Center (SEAFDEC) with head station at Tigbauan, Province of
Iloilo. As Head of the Economics Unit of the Research Division, he conducted prawn surveys which
required him to travel to various selected provinces in the country where there are potentials for prawn
culture.

On 15 June 1982, petitioner was issued Travel Order No. 2222 which covered his travels to different
places in Luzon from 16 June to 21 July 1982, a period of thirty five (35) days. Under this travel order, he
received P6,438.00 as cash advance to defray his travel expenses.

Within the same period, petitioner was issued another travel order, T.O. 2268, requiring him to travel
from the Head Station at Tigbauan, Iloilo to Roxas City from 30 June to 4 July 1982, a period of five (5)
days. For this travel order, petitioner received a cash advance of P495.00.

On 14 January 1983, petitioner presented both travel orders for liquidation, submitting Travel Expense
Reports to the Accounting Section. When the Travel Expense Reports were audited, it was discovered
that there was an overlap of four (4) days (30 June to 3 July 1982) in the two (2) travel orders for which
petitioner collected  per diems twice. In sum, the total amount in the form of  per diems and allowances
charged and collected by petitioner under Travel Order No. 2222, when he did not actually and
physically travel as represented by his liquidation papers, was P1,230.00.

Petitioner was required to comment on the internal auditor's report regarding the alleged anomalous
claim for  per diems. In his reply, petitioner denied the alleged anomaly, claiming that he made make-up
trips to compensate for the trips he failed to undertake under T.O. 2222 because he was recalled to the
head office and given another assignment.

In September 1983, two (2) complaints for Estafa were filed against the petitioner before the Municipal
Circuit Trial Court at Guimbal, Iloilo, docketed as Criminal Case Nos. 628 and 631.

After trial in Criminal Case No. 628, the Municipal Circuit Trial Court rendered a decision, the dispositive
part of which reads as follows:

IN VIEW OF THE FOREGOING CONSIDERATIONS, the court finds the accused, Yong Chan Kim, guilty
beyond reasonable doubt for the crime of Estafa penalized under paragraph l(b) of Article 315, Revised
Penal Code. Records disclose there is no aggravating circumstance proven by the prosecution. Neither
there is any mitigating circumstance proven by the accused. Considering the amount subject of the
present complaint, the imposable penalty should be in the medium period of arresto mayor in its
maximum period to  prision correccional in its minimum period in accordance with Article 315, No. 3,
Revised Penal Code. Consonantly, the Court hereby sentences the accused to suffer an imprisonment
ranging from four (4) months as the minimum to one (1) year and six (6) months as the maximum in
accordance with the Indeterminate Sentence Law and to reimburse the amount of P1,230.00 to
SEAFDEC.

The surety bond of the accused shall remain valid until final judgment in accordance herewith.

Costs against the accused.5

Criminal Case No. 631 was subsequently dismissed for failure to prosecute.

Petitioner appealed from the decision of the Municipal Circuit Trial Court in Criminal Case No. 628. On
30 July 1987, the Regional Trial Court in Iloilo City in Criminal Case No. 20958 affirmed in toto the trial
court's decision.6

The decision of the Regional Trial Court was received by petitioner on 10 August 1987. On 11 August
1987, petitioner, thru counsel, filed a notice of appeal with the Regional Trial Court which ordered the
elevation of the records of the case to the then Intermediate Appellate Court on the following day, 12
August 1987. The records of the case were received by the Intermediate Appellate Court on 8 October
1987, and the appeal was docketed as CA-G.R. No. 05035.

On 30 October 1987, petitioner filed with the appellate court a petition for review. As earlier stated, on
29 April 1988, the Court of Appeals dismissed the petition for having been filed out of time. Petitioner's
motion for reconsideration was denied for lack of merit.

Hence, the present recourse.

On 19 October 1988, the Court resolved to require the respondents to comment on the petition for
review. The Solicitor General filed his Comment on 20 January 1989, after several grants of extensions of
time to file the same.

In his Comment, the Solicitor General prayed for the dismissal of the instant petition on the ground that,
as provided for under Section 22, Batas Pambansa 129, Section 22 of the Interim Rules and Guidelines,
and Section 3, Rule 123 of the 1985 Rules of Criminal Procedure, the petitioner should have filed a
petition for review with the then Intermediate Appellate Court instead of a notice of appeal with the
Regional Trial Court, in perfecting his appeal from the RTC to the Intermediate Appellate Court, since the
RTC judge was rendered in the exercise of its appellate jurisdiction over municipal trial courts. The
failure of petitioner to file the proper petition rendered the decision of the Regional Trial Court final and
executory, according to the Solicitor General.

Petitioner's counsel submitted a Reply (erroneously termed Comment)7 wherein she contended that the
peculiar circumstances of a case, such as this, should be considered in order that the principle barring a
petitioner's right of review can be made flexible in the interest of justice and equity.

In our Resolution of 29 May 1989, we resolved to deny the petition for failure of petitioner to sufficiently
show that the Court of Appeals had committed any reversible error in its questioned judgment which
had dismissed petitioner's petition for review for having been filed out of time.8

Petitioner filed a motion for reconsideration maintaining that his petition for review did not limit itself to
the issue upon which the appellate court's decision of 29 April 1988 was based, but rather it delved into
the substance and merits of the case.9

On 10 August 1990, we resolved to set aside our resolution dismissing this case and gave due course to
the petition. In the said resolution, we stated:

In several cases decided by this Court, it had set aside technicalities in the Rules in order to give way to
justice and equity. In the present case, we note that the petitioner, in filing his Notice of Appeal the very
next day after receiving the decision of the court a quo lost no time in showing his intention to appeal,
although the procedure taken was not correct. The Court can overlook the wrong pleading filed, if strict
compliance with the rules would mean sacrificing justice to technicality. The imminence of a person
being deprived unjustly of his liberty due to procedural lapse of counsel is a strong and compelling
reason to warrant suspension of the Rules. Hence, we shall consider the petition for review filed in the
Court of Appeals as a Supplement to the Notice of Appeal. As the Court declared in a recent decision,
'. . . there is nothing sacred about the procedure of pleadings. This Court may go beyond the pleadings
when the interest of justice so warrants. It has the prerogative to suspend its rules for the same
purpose. . . . Technicality, when it deserts its proper office as an aid to justice and becomes its great
hindrance and chief enemy, deserves scant consideration from courts. [Alonzo v. Villamor, et al., 16 Phil.
315]

Conscience cannot rest in allowing a man to go straight to jail, closing the door to his every entreaty for
a full opportunity to be heard, even as he has made a  prima facie showing of a meritorious cause,
simply because he had chosen an appeal route, to be sure, recognized by law but made inapplicable to
his case, under altered rules of procedure. While the Court of Appeals can not be faulted and, in fact, it
has to be lauded for correctly applying the rules of procedure in appeals to the Court of Appeals from
decisions of the RTC rendered in the exercise of its appellate jurisdiction, yet, this Court, as the ultimate
bulwark of human rights and individual liberty, will not allow substantial justice to be sacrified at the
altar of procedural rigor.10

In the same resolution, the parties were required to file their respective memoranda, and in compliance
with said resolution, petitioner filed his memorandum on 25 October 1989, while private respondent
SEAFDEC filed its required memorandum on 10 April 1990. On the other hand, the Solicitor General filed
on 13 March 1990 a Recommendation for Acquittal in lieu of the required memorandum.
Two (2) issues are raised by petitioner to wit:

I. WHETHER OR NOT THE DECISION (sic) OF THE MUNICIPAL CIRCUIT TRIAL COURT (GUIMBAL, ILOILO)
AND THE REGIONAL TRIAL COURT, BRANCH 28 (ILOILO CITY) ARE SUPPORTED BY THE FACTS AND
EVIDENCE OR CONTRARY TO LAW AND THAT THE TWO COURTS A QUO HAVE ACTED WITH GRAVE
ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION OR HAVE ACTED WITHOUT OR IN
EXCESS OF JURISDICTION.

II. WHETHER OR NOT THE DECISION OF THE HONORABLE COURT OF APPEALS IS CONTRARY TO LAW,
ESTABLISHED JURISPRUDENCE, EQUITY AND DUE PROCESS.

The second issue has been resolved in our Resolution dated 10 August 1990, when we granted
petitioner's second motion for reconsideration. We shall now proceed to the first issue.

We find merit in the petition.

It is undisputed that petitioner received a cash advance from private respondent SEAFDEC to defray his
travel expenses under T.O. 2222. It is likewise admitted that within the period covered by T.O. 2222,
petitioner was recalled to the head station in Iloilo and given another assignment which was covered by
T.O. 2268. The dispute arose when petitioner allegedly failed to return P1,230.00 out of the cash
advance which he received under T.O. 2222. For the alleged failure of petitioner to return the amount of
P1,230.00, he was charged with the crime of Estafa under Article 315, par. 1(b) of the Revised Penal
Code, which reads as follows:

Art. 315. Swindling (Estafa). Any person who shall defraud another by any of the means mentioned
herein below shall be punished by:

x x x           x x x          x x x

1. With unfaithfulness or abuse of confidence, namely:

(a) x x x           x x x          x x x

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

In order that a person can be convicted under the abovequoted provision, it must be proven that he had
the obligation to deliver or return the same money, good or personal property that he had received.11

Was petitioner under obligation to return the same money (cash advance) which he had received? We
belive not. Executive Order No. 10, dated 12 February 1980 provides as follows:

B. Cash Advance for Travel

x x x           x x x          x x x

4. All cash advances must be liquidated within 30 days after date of projected return of the person.
Otherwise, corresponding salary deduction shall be made immediately following the expiration day.
Liquidation simply means the settling of an indebtedness. An employee, such as herein petitioner,
who liquidates a cash advance is in fact paying back his debt in the form of a loan of money advanced
to him by his employer, as  per diems and allowances. Similarly, as stated in the assailed decision of
the lower court, "if the amount of the cash advance he received is less than the amount he spent for
actual travel . . . he has the right to demand reimbursement from his employer the amount he spent
coming from his personal funds.12 In other words, the money advanced by either party is actually a
loan to the other. Hence, petitioner was under no legal obligation to return the same cash or
money, i.e., the bills or coins, which he received from the private respondent. 13

Article 1933 and Article 1953 of the Civil Code define the nature of a simple loan.

Art. 1933. By the contract of loan, one of the parties delivers to another, either something not
consumable so that the latter may use the same for a certain time and return it, in which case the
contract is called a commodatum; or money or other consumable thing, upon the condition that the
same amount of the same kind and quality shall be paid, in which case the contract is simply called a
loan or mutuum.

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.

Art. 1953.— A person who receives a loan of money or any other fungible thing acquires the ownership
thereof, and is bound to pay to the creditor an equal amount of the same kind and quality.

The ruling of the trial judge that ownership of the cash advanced to the petitioner by private respondent
was not transferred to the latter is erroneous. Ownership of the money was transferred to the
petitioner. Even the prosecution witness, Virgilio Hierro, testified thus:

Q When you gave cash advance to the accused in this Travel Order No. 2222 subject to liquidation, who
owns the funds, accused or SEAFDEC? How do you consider the funds in the possession of the accused
at the time when there is an actual transfer of cash? . . .

A The one drawing cash advance already owns the money but subject to liquidation. If he will not
liquidate, be is obliged to return the amount.

Q x x x           x x x          x x x

So why do you treat the itinerary of travel temporary when in fact as of that time the accused owned
already the cash advance. You said the cash advance given to the accused is his own money. In other
words, at the time you departed with the money it belongs already to the accused?

A Yes, but subject for liquidation. He will be only entitled for that credence if he liquidates.

Q If other words, it is a transfer of ownership subject to a suspensive condition that he liquidates the
amount of cash advance upon return to station and completion of the travel?

A Yes, sir.
(pp. 26-28, tsn, May 8, 1985).14

Since ownership of the money (cash advance) was transferred to petitioner, no fiduciary relationship
was created. Absent this fiduciary relationship between petitioner and private respondent, which is
an essential element of the crime of estafa by misappropriation or conversion, petitioner could not
have committed estafa.15

Additionally, it has been the policy of private respondent that all cash advances not liquidated are to be
deducted correspondingly from the salary of the employee concerned. The evidence shows that the
corresponding salary deduction was made in the case of petitioner vis-a-vis the cash advance in
question.

WHEREFORE, the decision dated 3 September 1986 of the 15th Municipal Circuit Trial Court in Guimbal,
Iloilo in Criminal Case No. 628, finding petitioner guilty of estafa under Article 315, par. 1 (b) of the
Revised Penal Code and the affirming decision of the Regional Trial Court, Branch XXVIII, Iloilo City, in
Criminal Case No. 20958, promulgated on 30 July 1987 are both hereby SET ASIDE. Petitioner is
ACQUITTED of criminal charge filed against him.

SO ORDERED.
G.R. No. 133632               February 15, 2002

BPI INVESTMENT CORPORATION, petitioner,

vs.
HON. COURT OF APPEALS and ALS MANAGEMENT & DEVELOPMENT CORPORATION, respondents.

DECISION

QUISUMBING, J.:

This petition for certiorari assails the decision dated February 28, 1997, of the Court of Appeals and its
resolution dated April 21, 1998, in CA-G.R. CV No. 38887. The appellate court affirmed the judgment of
the Regional Trial Court of Pasig City, Branch 151, in (a) Civil Case No. 11831, for foreclosure of mortgage
by petitioner BPI Investment Corporation (BPIIC for brevity) against private respondents ALS
Management and Development Corporation and Antonio K. Litonjua,1 consolidated with (b) Civil Case
No. 52093, for damages with prayer for the issuance of a writ of preliminary injunction by the private
respondents against said petitioner.

The trial court had held that private respondents were not in default in the payment of their monthly
amortization, hence, the extrajudicial foreclosure conducted by BPIIC was premature and made in bad
faith. It awarded private respondents the amount of ₱300,000 for moral damages, ₱50,000 for
exemplary damages, and ₱50,000 for attorney’s fees and expenses for litigation. It likewise dismissed
the foreclosure suit for being premature.

The facts are as follows:

Frank Roa obtained a loan at an interest rate of 16 1/4% per annum from Ayala Investment and
Development Corporation (AIDC), the predecessor of petitioner BPIIC, for the construction of a house on
his lot in New Alabang Village, Muntinlupa. Said house and lot were mortgaged to AIDC to secure the
loan. Sometime in 1980, Roa sold the house and lot to private respondents ALS and Antonio Litonjua for
₱850,000. They paid ₱350,000 in cash and assumed the ₱500,000 balance of Roa’s indebtedness with
AIDC. The latter, however, was not willing to extend the old interest rate to private respondents and
proposed to grant them a new loan of ₱500,000 to be applied to Roa’s debt and secured by the same
property, at an interest rate of 20% per annum and service fee of 1% per annum on the outstanding
principal balance payable within ten years in equal monthly amortization of ₱9,996.58 and penalty
interest at the rate of 21% per annum per day from the date the amortization became due and payable.

Consequently, in March 1981, private respondents executed a mortgage deed containing the above
stipulations with the provision that payment of the monthly amortization shall commence on May 1,
1981.

On August 13, 1982, ALS and Litonjua updated Roa’s arrearages by paying BPIIC the sum of ₱190,601.35.
This reduced Roa’s principal balance to ₱457,204.90 which, in turn, was liquidated when BPIIC applied
thereto the proceeds of private respondents’ loan of ₱500,000.

On September 13, 1982, BPIIC released to private respondents ₱7,146.87, purporting to be what was
left of their loan after full payment of Roa’s loan.
In June 1984, BPIIC instituted foreclosure proceedings against private respondents on the ground that
they failed to pay the mortgage indebtedness which from May 1, 1981 to June 30, 1984, amounted to
Four Hundred Seventy Five Thousand Five Hundred Eighty Five and 31/100 Pesos (₱475,585.31). A
notice of sheriff’s sale was published on August 13, 1984.

On February 28, 1985, ALS and Litonjua filed Civil Case No. 52093 against BPIIC. They alleged, among
others, that they were not in arrears in their payment, but in fact made an overpayment as of June 30,
1984. They maintained that they should not be made to pay amortization before the actual release of
the ₱500,000 loan in August and September 1982. Further, out of the ₱500,000 loan, only the total
amount of ₱464,351.77 was released to private respondents. Hence, applying the effects of legal
compensation, the balance of ₱35,648.23 should be applied to the initial monthly amortization for the
loan.

On August 31, 1988, the trial court rendered its judgment in Civil Case Nos. 11831 and 52093, thus:

WHEREFORE, judgment is hereby rendered in favor of ALS Management and Development Corporation
and Antonio K. Litonjua and against BPI Investment Corporation, holding that the amount of loan
granted by BPI to ALS and Litonjua was only in the principal sum of P464,351.77, with interest at 20%
plus service charge of 1% per annum, payable on equal monthly and successive amortizations at
P9,283.83 for ten (10) years or one hundred twenty (120) months. The amortization schedule attached
as Annex "A" to the "Deed of Mortgage" is correspondingly reformed as aforestated.

The Court further finds that ALS and Litonjua suffered compensable damages when BPI caused their
publication in a newspaper of general circulation as defaulting debtors, and therefore orders BPI to pay
ALS and Litonjua the following sums:

a) P300,000.00 for and as moral damages;

b) P50,000.00 as and for exemplary damages;

c) P50,000.00 as and for attorney’s fees and expenses of litigation.

The foreclosure suit (Civil Case No. 11831) is hereby DISMISSED for being premature.

Costs against BPI.

SO ORDERED.2

Both parties appealed to the Court of Appeals. However, private respondents’ appeal was dismissed for
non-payment of docket fees.

On February 28, 1997, the Court of Appeals promulgated its decision, the dispositive portion reads:

WHEREFORE, finding no error in the appealed decision the same is hereby AFFIRMED in toto.

SO ORDERED.3

In its decision, the Court of Appeals reasoned that a simple loan is perfected only upon the delivery of
the object of the contract. The contract of loan between BPIIC and ALS & Litonjua was perfected only on
September 13, 1982, the date when BPIIC released the purported balance of the ₱500,000 loan after
deducting therefrom the value of Roa’s indebtedness. Thus, payment of the monthly amortization
should commence only a month after the said date, as can be inferred from the stipulations in the
contract. This, despite the express agreement of the parties that payment shall commence on May 1,
1981. From October 1982 to June 1984, the total amortization due was only ₱194,960.43. Evidence
showed that private respondents had an overpayment, because as of June 1984, they already paid a
total amount of ₱201,791.96. Therefore, there was no basis for BPIIC to extrajudicially foreclose the
mortgage and cause the publication in newspapers concerning private respondents’ delinquency in the
payment of their loan. This fact constituted sufficient ground for moral damages in favor of private
respondents.

The motion for reconsideration filed by petitioner BPIIC was likewise denied, hence this petition, where
BPIIC submits for resolution the following issues:

I. WHETHER OR NOT A CONTRACT OF LOAN IS A CONSENSUAL CONTRACT IN THE LIGHT OF THE RULE
LAID DOWN IN BONNEVIE VS. COURT OF APPEALS, 125 SCRA 122.

II. WHETHER OR NOT BPI SHOULD BE HELD LIABLE FOR MORAL AND EXEMPLARY DAMAGES AND
ATTORNEY’S FEES IN THE FACE OF IRREGULAR PAYMENTS MADE BY ALS AND OPPOSED TO THE RULE
LAID DOWN IN SOCIAL SECURITY SYSTEM VS. COURT OF APPEALS, 120 SCRA 707.

On the first issue, petitioner contends that the Court of Appeals erred in ruling that because a simple
loan is perfected upon the delivery of the object of the contract, the loan contract in this case was
perfected only on September 13, 1982. Petitioner claims that a contract of loan is a consensual contract,
and a loan contract is perfected at the time the contract of mortgage is executed conformably with our
ruling in Bonnevie v. Court of Appeals, 125 SCRA 122. In the present case, the loan contract was
perfected on March 31, 1981, the date when the mortgage deed was executed, hence, the amortization
and interests on the loan should be computed from said date.

Petitioner also argues that while the documents showed that the loan was released only on August
1982, the loan was actually released on March 31, 1981, when BPIIC issued a cancellation of mortgage
of Frank Roa’s loan. This finds support in the registration on March 31, 1981 of the Deed of Absolute
Sale executed by Roa in favor of ALS, transferring the title of the property to ALS, and ALS executing the
Mortgage Deed in favor of BPIIC. Moreover, petitioner claims, the delay in the release of the loan should
be attributed to private respondents. As BPIIC only agreed to extend a ₱500,000 loan, private
respondents were required to reduce Frank Roa’s loan below said amount. According to petitioner,
private respondents were only able to do so in August 1982.

In their comment, private respondents assert that based on Article 1934 of the Civil Code,4 a simple loan
is perfected upon the delivery of the object of the contract, hence a real contract. In this case, even
though the loan contract was signed on March 31, 1981, it was perfected only on September 13, 1982,
when the full loan was released to private respondents. They submit that petitioner
misread Bonnevie.  To give meaning to Article 1934, according to private respondents, Bonnevie  must be
construed to mean that the contract to extend the loan was perfected on March 31, 1981 but the
contract of loan itself was only perfected upon the delivery of the full loan to private respondents on
September 13, 1982.

Private respondents further maintain that even granting, arguendo,  that the loan contract was
perfected on March 31, 1981, and their payment did not start a month thereafter, still no default took
place. According to private respondents, a perfected loan agreement imposes reciprocal obligations,
where the obligation or promise of each party is the consideration of the other party. In this case, the
consideration for BPIIC in entering into the loan contract is the promise of private respondents to pay
the monthly amortization. For the latter, it is the promise of BPIIC to deliver the money. In reciprocal
obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. Therefore, private respondents conclude, they did not
incur in delay when they did not commence paying the monthly amortization on May 1, 1981, as it was
only on September 13, 1982 when petitioner fully complied with its obligation under the loan contract.

We agree with private respondents. A loan contract is not a consensual contract but a real contract. It is
perfected only upon the delivery of the object of the contract.5 Petitioner misapplied Bonnevie. The
contract in Bonnevie  declared by this Court as a perfected consensual contract falls under the first
clause of Article 1934, Civil Code. It is an accepted promise to deliver something by way of simple loan.

In Saura Import and Export Co. Inc. vs. Development Bank of the Philippines,  44 SCRA 445, petitioner
applied for a loan of ₱500,000 with respondent bank. The latter approved the application through a
board resolution. Thereafter, the corresponding mortgage was executed and registered. However,
because of acts attributable to petitioner, the loan was not released. Later, petitioner instituted an
action for damages. We recognized in this case, a perfected consensual contract which under normal
circumstances could have made the bank liable for not releasing the loan. However, since the fault was
attributable to petitioner therein, the court did not award it damages.

A perfected consensual contract, as shown above, can give rise to an action for damages. However, said
contract does not constitute the real contract of loan which requires the delivery of the object of the
contract for its perfection and which gives rise to obligations only on the part of the borrower.6

In the present case, the loan contract between BPI, on the one hand, and ALS and Litonjua, on the other,
was perfected only on September 13, 1982, the date of the second release of the loan. Following the
intentions of the parties on the commencement of the monthly amortization, as found by the Court of
Appeals, private respondents’ obligation to pay commenced only on October 13, 1982, a month after
the perfection of the contract.7

We also agree with private respondents that a contract of loan involves a reciprocal obligation, wherein
the obligation or promise of each party is the consideration for that of the other.8 As averred by private
respondents, the promise of BPIIC to extend and deliver the loan is upon the consideration that ALS and
Litonjua shall pay the monthly amortization commencing on May 1, 1981, one month after the supposed
release of the loan. It is a basic principle in reciprocal obligations that neither party incurs in delay, if the
other does not comply or is not ready to comply in a proper manner with what is incumbent upon
him.9 Only when a party has performed his part of the contract can he demand that the other party also
fulfills his own obligation and if the latter fails, default sets in. Consequently, petitioner could only
demand for the payment of the monthly amortization after September 13, 1982 for it was only then
when it complied with its obligation under the loan contract. Therefore, in computing the amount due
as of the date when BPIIC extrajudicially caused the foreclosure of the mortgage, the starting date is
October 13, 1982 and not May 1, 1981.

Other points raised by petitioner in connection with the first issue, such as the date of actual release of
the loan and whether private respondents were the cause of the delay in the release of the loan, are
factual. Since petitioner has not shown that the instant case is one of the exceptions to the basic rule
that only questions of law can be raised in a petition for review under Rule 45 of the Rules of
Court,10 factual matters need not tarry us now. On these points we are bound by the findings of the
appellate and trial courts.

On the second issue, petitioner claims that it should not be held liable for moral and exemplary damages
for it did not act maliciously when it initiated the foreclosure proceedings. It merely exercised its right
under the mortgage contract because private respondents were irregular in their monthly
amortization.1âwphi1 It invoked our ruling in Social Security System vs. Court of Appeals, 120 SCRA 707,
where we said:

Nor can the SSS be held liable for moral and temperate damages. As concluded by the Court of Appeals
"the negligence of the appellant is not so gross as to warrant moral and temperate damages," except
that, said Court reduced those damages by only P5,000.00 instead of eliminating them. Neither can we
agree with the findings of both the Trial Court and respondent Court that the SSS had acted maliciously
or in bad faith. The SSS was of the belief that it was acting in the legitimate exercise of its right under the
mortgage contract in the face of irregular payments made by private respondents and placed reliance
on the automatic acceleration clause in the contract. The filing alone of the foreclosure application
should not be a ground for an award of moral damages in the same way that a clearly unfounded civil
action is not among the grounds for moral damages.

Private respondents counter that BPIIC was guilty of bad faith and should be liable for said damages
because it insisted on the payment of amortization on the loan even before it was released. Further, it
did not make the corresponding deduction in the monthly amortization to conform to the actual amount
of loan released, and it immediately initiated foreclosure proceedings when private respondents failed
to make timely payment.

But as admitted by private respondents themselves, they were irregular in their payment of monthly
amortization. Conformably with our ruling in  SSS,  we can not properly declare BPIIC in bad faith.
Consequently, we should rule out the award of moral and exemplary damages.11

However, in our view, BPIIC was negligent in relying merely on the entries found in the deed of
mortgage, without checking and correspondingly adjusting its records on the amount actually released
to private respondents and the date when it was released. Such negligence resulted in damage to
private respondents, for which an award of nominal damages should be given in recognition of their
rights which were violated by BPIIC.12 For this purpose, the amount of ₱25,000 is sufficient.

Lastly, as in SSS  where we awarded attorney’s fees because private respondents were compelled to
litigate, we sustain the award of ₱50,000 in favor of private respondents as attorney’s fees.

WHEREFORE, the decision dated February 28, 1997, of the Court of Appeals and its resolution dated
April 21, 1998, are AFFIRMED WITH MODIFICATION as to the award of damages. The award of moral and
exemplary damages in favor of private respondents is DELETED, but the award to them of attorney’s
fees in the amount of ₱50,000 is UPHELD. Additionally, petitioner is ORDERED to pay private
respondents ₱25,000 as nominal damages. Costs against petitioner.

SO ORDERED.
June 28, 2016

G.R. No. 213582

NYMPHA ODIAMAR,1 Petitioner
vs.
LINDA ODIAMAR VALEN CIA, Respondent

DECISION

PERLAS-BERNABE, J.:

Before the Court is a petition for review on certiorari2  assailing the Decision3 dated March 16, 2012 and
the Resolution4 dated July 14, 2014 of the Court of Appeals (CA) in C.A. G.R. CV No. 93624, which
affirmed the Decision5 dated May 5, 2009 of the Regional Trial Court of San Jose, Camarines Sur, Branch
58 (RTC) in Civil Case No. T-962 ordering petitioner Nympha S. Odiamar (petitioner) to pay respondent
Linda Odiamar Valencia (respondent) the amount of Pl,710,049.00 plus twelve percent (12%) interest,
attorney's fees, litigation expenses, and the costs of suit.

Facts

On August 20, 2003, respondent filed a complaint 6 for sum of money and damages against petitioner,
alleging that the latter owed her P2,100,000.00. Petitioner purportedly issued China Bank Check No. GH
B 114 72127 (the check) for the said amount to guarantee the payment of the debt, but upon
presentment, the same was dishonored.8 

Respondent lamented that petitioner refused to pay despite repeated demands, and that had she
invested the money loaned to petitioner or deposited the same in a bank, it would have earned interest
at the rate of 36% per annum or three percent (3%) per month.9

For her part, petitioner sought the dismissal10 of the complaint on the ground that it was her deceased
parents who owed respondent money. Accordingly, respondent's claim should be filed in the
proceedings for the settlement of their estates. Petitioner averred that respondent had, in fact,
participated in the settlement proceedings and had issued a certification 11 stating that it was
petitioner's deceased parents who were indebted to respondent for P2,000,000.00. She further
maintained that as administratix of her parents' estates, she agreed to pay such indebtedness on
installment but respondent refused to accept her payments.12

Respondent countered13 that petitioner personally borrowed almost half of the P2, 100,000.00 from her,
as evidenced by the check which she issued after agreeing to settle the same in installments.14 While
respondent conceded that petitioner made several installment payments from December 29, 2000 until
May 31, 2003, she pointed out that the latter failed to make any succeeding payments.15 Moreover,
respondent denied participating in the proceedings for the settlement of the estates of petitioner's
parents, clarifying that petitioner was the one who prepared the certification alluded to and that she
(respondent) signed it on the belief that petitioner would make good her promise to pay her
(respondent).16

In an Order17 dated October 3, 2003, the RTC denied petitioner's motion to dismiss, thus prompting her
to file an answer. 18 She asserted that respondent merely persuaded her to issue the check to guarantee
her deceased parents' loan. She further claimed that the check was blank when she issued it and that
despite having no authority to fill up the same, respondent wrote the amount and date thereon.19 She
also maintained that from December 29, 2000 to May 31, 2003, she made, in almost daily installments,
payments to respondent ranging from P500.00 to Pl0,000.00, and that while she tried to make
succeeding payments, respondent refused to accept the same, demanding, instead, the payment of the
entire balance.20 As counterclaim, petitioner prayed that moral damages, attorney's fees, litigation
expenses, and exemplary and punitive damages be awarded to her.21

The RTC Ruling

In a Decision22 dated May 5, 2009, the RTC ruled in favor of respondent and ordered petitioner to
pay: (a) ₱1,710,049.00 which represents the unpaid portion of the ₱2,100,000.00 debt; (b)  twelve
percent (12%) interest computed from the time judicial demand was made on August 20, 2003 until fully
paid; (c) ₱10,000.00 as attorney's fees; (d)  litigation expenses amounting to ₱19,662.78; and (e)  the
costs of suit.23

The RTC refused to give credence to petitioner's contention that it was her deceased parents who
borrowed money from respondent, observing that while the latter acknowledged that the former's
deceased parents owed her ₱700,000.00 out of the ₱2,100,000.00, petitioner likewise admitted that
she obtained personal loans from respondent.24 Hence, according to the RTC, petitioner cannot deny
her liability to respondent. Further, by assuming the liability of her deceased parents and agreeing to
pay their debt in installments - which she in fact paid from December 29, 2000 to May 31, 2003 in
amounts of ₱500.00 to ₱10,000.00, and which payments respondent did actually accept - a mixed
novation took place and petitioner was substituted in their place as debtor. Thus, the liabilities of the
estates of petitioner's deceased parents were extinguished and transferred to petitioner. 25

Anent the sum due, the RTC surmised that petitioner and her deceased parents owed respondent the
sum of ₱2,000,000.00 as principal and since petitioner undertook to pay the same in installments,
₱100,000.00 was added as interest; hence, petitioner issued the check for ₱2,100,000.00.26 Based on the
receipts submitted by petitioner, the genuineness and due execution of which were not put in issue,
petitioner had paid a total of ₱389,95l.00 in installments, leaving an unpaid balance of ₱l,710,049.00,
subject to interest of twelve percent (12%) per annum from the time judicial demand was made on
August 20, 2003, in the absence of any written stipulation on interest.27

Aggrieved, petitioner appealed28 to the CA, arguing that novation did not take place and no interest was
due respondent.29

The CA Ruling

In a Decision30 dated March 16, 2012, the CA affirmed the ruling of the RTC.31 It agreed that petitioner
cannot deny her liability to respondent in view of her admission that she borrowed money from the
latter several times.32 The CA also found petitioner's claim that she issued a blank check incredible,
pointing out that petitioner testified in court that she personally wrote the amount thereon after she
and respondent agreed that the loans she and her deceased parents obtained amounted to
P2,100,000.00.33

Anent the issue of novation, the CA concurred with the RTC that novation took place insofar as
petitioner was substituted in place of petitioner's late parents, considering that petitioner undertook to
pay her deceased parents' debt. However, the CA opined that there was no novation with respect to the
object of the contract, following the rule that an obligation is not novated by an instrument which
expressly recognizes the old obligation and changes only the terms of paying the same, as in this case
where the parties merely modified the terms of payment of the ₱2,100,000.00.34

Dissatisfied, petitioner moved for reconsideration,35 which was, however, denied in a Resolution36 dated

July 14, 2014; hence, this petition.

The Issue Before the Court

The primary issue for the Court's resolution is whether or not petitioner should be held liable to
respondent for the entire debt in the amount of ₱2,100,000.00.

The Court's Ruling

At the outset, it must be emphasized that the fact of petitioner's liability to respondent is well-
established. As correctly pointed out by the RTC and the CA, while respondent acknowledged that
petitioner's deceased parents owed her money, petitioner also admitted obtaining loans from
respondent, viz.  :

From [respondent's] recollection, the amount due from [petitioner's] parents is ₱700,000.00. Aside from
her parents' loans, however, [petitioner] herself admitted having obtained personal loans from the
respondent while her parents were still alive. She testified:

ATTY. P ASA: You also know that [respondent] was also in [lending]?

[PETITIONER]: Yes, Madam.

Q: Because she was in lending you have borrowed money also? (sic)

A: Yes, Madam.

Q: Separate from your father?

A: Yes, Madam.

xxxx

Q: You borrowed money from [respondent] separate from your father prior to his death?

A: Yes, Madam.37

Having admitted that she obtained loans from respondent without showing that the same had already
been paid or otherwise extinguished, petitioner cannot now aver otherwise. It is settled that judicial
admissions made by the parties in the pleadings or in the course of the trial or. Other proceedings in the
same case are conclusive and do not require further evidence to prove them.38 They are legally binding
on the party making it, 39 except when it is shown that they have been made through palpable mistake
or that no such admission was actually made, 40 neither of which was shown to exist in this case.
Accordingly, petitioner is bound by her admission of liability and the only material question remaining is
the extent of such liability.
Based on the records of this case, respondent, for her part, admitted that petitioner's deceased parents
owed her ₱700,000.00 of the ₱2,100,000.00 debt and that petitioner owed her ₱l,400,000.00 only:

ATTY. VILLEGAS:

Q When was the first time that the [petitioner] obtained cash advances from you?

A About 1996, sir and then she made several others and she kept on borrowing money from me.

Q Do you mean to say that she obtained part of her loan while her father was still alive?

A Yes, when he was still alive she already borrowed.

Q Are you telling us that this 2.1 Million Pesos was entirely borrowed from you by the [petitioner]?

A There were loans which were obtained by her father, some by her mother and since they died
already[,] when we summarized the amount that was the total amount that she owes me, sir.

Q How much is the amount owe[d] to you by the [petitioner's] father?

A I could no longer recall, sir because that was already long time ago but it was part of the summary that
we made, sir.

Q Could it be P200,000.00?

A More or less, that much, sir.

Q What about the defendant's mother? How much was her obligation to you?

A ₱500,000.00, more or less, but I cannot exactly recall.

Q So, the defendant's parents owed you more than ₱700,000.00 is it not?

A Yes, sir.

xxxx

COURT:

Q Is it the impression of the Court that the x x x amount of ₱700,000.00 is not a personal indebtedness
of [petitioner] but that of her parents? Is that the impression xxx the Court is getting?

A Yes, Your Honor.

xxxx

ATTY. VILLEGAS:

Q Tell us, how much really to your recollection is the indebtedness of the [petitioner's] parents?

A To the best of my recollection, that is the amount. More or less [₱]700,000[.00] for both spouses,
sir.41 (Emphases supplied)

ATTY. PASA:
Q Madam witness, during the last hearing you stated that the [petitioner's] parents were indebted [to]
you for about ₱700,000.00?

A Yes, Madam.

Q How about the [petitioner], how much did she [owe] you?

A More or less 1.4 [Million] Madam.42 (Emphasis supplied)

Applying the same principle on judicial admissions above, it is therefore incontrovertible that

petitioner's debt to respondent amounted to only ₱l,400,000.00 and not ₱2,100,000.00. Thus,
respondent only remains liable to petitioner for such amount. Considering that petitioner had already
paid ₱389,951.00 in installments as evidenced by the receipts submitted by petitioner - the genuineness
and due execution of which were not put in issue - the unpaid balance of petitioner's ₱l,400,000.00 debt
to respondent stands at ₱l,010,049.00. On the other hand, the remaining ₱700,000.00 of the total
₱2,100,000.00 debt to respondent is properly for the account of the estates of petitioner's deceased
parents and, hence, should be claimed in the relevant proceeding therefor.

At this juncture, the Court finds it apt to correct the mistaken notions that: (a)  novation by substitution
of the debtor took place so as to release the estates of the petitioner's deceased parents from their
obligation, which, thus, rendered petitioner solely liable for the entire ₱2,100,000.00 debt; and (b)  the
₱100,000.00 of the ₱2,100,000.00 debt was in the nature of accrued monetary interests.

On the first matter, while it is observed that petitioner had indeed admitted that she agreed to settle her
late parents' debt, which was supposedly evinced by (a)  the ₱2,100,000.00 check she issued therefor,
and (b)  several installment payments she made to respondent from December 29, 2000 to May 31,
2003, there was no allegation, much less any proof to show, that the estates of her deceased parents
were released from liability thereby. In S.C. Megaworld Construction and Development Corporation v.
Parada,43  the Court held that to constitute novation by substitution of debtor, the former debtor must
be expressly released from the obligation and the third person or new debtor must assume the former's
place in the contractual relations.44 Moreover, the Court ruled that the "fact that the creditor accepts
payments from a third person, who has assumed the obligation, will result merely in the addition of
debtors and not novation."45 At its core, novation is never presumed, and the animus novandi,  whether
totally or partially, must appear by express agreement of the parties, or by their acts that are too clear
and unequivocal to be mistaken. 46 Here, the intent to novate was not satisfactorily proven by
respondent. At best, petitioner only manifested her desire to shoulder the debt of her parents, which, as
above-discussed, does not amount to novation. Thus, the courts a quo  erred in holding petitioner liable
for the debts obtained by her deceased parents on account of novation by substitution of the debtor.

Similarly, both courts faultily concluded that the principal sum loaned by petitioner and her deceased
parents amounted to ₱2,000,000.00 and the ₱100,000.00 was added as interest because petitioner
undertook to pay the loan in installments.

It is fundamental that for monetary interest to be due, there must be an express written agreement
therefor.47 Article 1956 of the Civil Code provides that "[n]o interest shall be due unless it bas been
expressly stipulated in writing." In this relation, case law states that the lack of a written stipulation to
pay interest on the loaned amount bars a creditor from charging monetary interest48 and the collection
of interest without any stipulation therefor in writing is prohibited by law.49
Here, respondent herself admitted that there was no written agreement that interest would be due on
the sum loaned, only that there was an implicit understanding that the same would be subject to
interest since she also borrowed the same from banks which, as a matter of course, charged interest.
Respondent also testified on cross examination that the ₱2,100,000.00 corresponds only to the principal
and does not include interest,

 viz.  :

[Atty. Villegas]: Now, are these loans interest bearing?

[Respondent]: Yes, sir, because the money I loaned to them I have also obtained as a loan from the
bank.1âwphi1

Q: This 2.1 Million Pesos are included (sic) the interest that you charge[d] to the [petitioner's] parents
and to the petitioner, is it not?

A: That is the basis of the interest bearing, 2.1 Million Pesos at 3 percent per month.

Q: Are you telling us that when you summarized and computed the entire total obligations of the
[petitioner and her parents] you computed the interest and come out (sic) with 2.1 Million Pesos?

A: Interest has not yet been included in the 2.1 Million Pesos.

Q: This agreement of yours to pay interest is not in writing, is it not (sic)?

A: It is not in writing, sir. 50

All told, having established that no novation took place and that no interest was actually due, and
factoring in the payments already made for her account, petitioner is, thus, ordered to pay respondent
the amount of

₱l,010,049.00, which is the remaining balance of her principal debt to the latter in the original amount
of ₱l,400,000.00.

WHEREFORE, the petition is PARTLY GRANTED. The Decision dated March 16, 2012 and the Resolution
dated July 14, 2014 of the Court of Appeals (CA) in C.A. G.R. CV No. 93624 are hereby AFFIRMED with
MODIFICATION in that petitioner Nympha S. Odiamar is ORDERED to pay respondent Linda Odiamar
Valencia the amount of ₱l,010,049.00, which is the remaining balance of her principal debt to the latter
in the original amount of Pl,400,000.00.

SO ORDERED.

G.R. No. 97412 July 12, 1994

EASTERN SHIPPING LINES, INC., petitioner,
vs.
HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents.

Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner.

Zapa Law Office for private respondent.

VITUG, J.:

The issues,  albeit not completely novel, are: (a) whether or not a claim for damage sustained on a
shipment of goods can be a solidary, or joint and several, liability of the common carrier, the arrastre
operator and the customs broker; (b) whether the payment of legal interest on an award for loss or
damage is to be computed from the time the complaint is filed or from the date the decision appealed
from is rendered; and (c) whether the applicable rate of interest, referred to above, is twelve percent
(12%) or six percent (6%).

The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and undisputed
facts that have led to the controversy are hereunder reproduced:

This is an action against defendants shipping company, arrastre operator and broker-forwarder for
damages sustained by a shipment while in defendants' custody, filed by the insurer-subrogee who paid
the consignee the value of such losses/damages.

On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery
vessel "SS EASTERN COMET" owned by defendant Eastern Shipping Lines under Bill of Lading
No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine Insurance Policy No. 81/01177
for P36,382,466.38.

Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody of
defendant Metro Port Service, Inc. The latter excepted to one drum, said to be in bad order, which
damage was unknown to plaintiff.

On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant
Metro Port Service, Inc., one drum opened and without seal (per "Request for Bad Order Survey." Exh.
D).

On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment to
the consignee's warehouse. The latter excepted to one drum which contained spillages, while the rest of
the contents was adulterated/fake (per "Bad Order Waybill" No. 10649, Exh. E).

Plaintiff contended that due to the losses/damage sustained by said drum, the consignee suffered losses
totaling P19,032.95, due to the fault and negligence of defendants. Claims were presented against
defendants who failed and refused to pay the same (Exhs. H, I, J, K, L).

As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95
under the aforestated marine insurance policy, so that it became subrogated to all the rights of action
of said consignee against defendants (per "Form of Subrogation", "Release" and Philbanking check, Exhs.
M, N, and O). (pp. 85-86, Rollo.)

There were, to be sure, other factual issues that confronted both courts.

Here, the appellate court said:

Defendants filed their respective answers, traversing the material allegations of the complaint
contending that:

As for defendant Eastern Shipping it alleged that the shipment was discharged in good order from the
vessel unto the custody of Metro Port Service so that any damage/losses incurred after the shipment
was incurred after the shipment was turned over to the latter, is no longer its liability (p. 17, Record);

Metroport averred that although subject shipment was discharged unto its custody, portion of the same
was already in bad order (p. 11, Record);

Allied Brokerage alleged that plaintiff has no cause of action against it, not having negligent or at fault
for the shipment was already in damage and bad order condition when received by it, but nonetheless,
it still exercised extra ordinary care and diligence in the handling/delivery of the cargo to consignee in
the same condition shipment was received by it.

From the evidence the court found the following:

The issues are:

1. Whether or not the shipment sustained losses/damages;

2. Whether or not these losses/damages were sustained while in the custody of defendants (in whose
respective custody, if determinable);

3. Whether or not defendant(s) should be held liable for the losses/damages (see plaintiff's pre-Trial
Brief, Records, p. 34; Allied's pre-Trial Brief, adopting plaintiff's Records, p. 38).

As to the first issue, there can be no doubt that the shipment sustained losses/damages. The two drums
were shipped in good order and condition, as clearly shown by the Bill of Lading and Commercial Invoice
which do not indicate any damages drum that was shipped (Exhs. B and C). But when on December 12,
1981 the shipment was delivered to defendant Metro Port Service, Inc., it excepted to one drum in bad
order.

Correspondingly, as to the second issue, it follows that the losses/damages were sustained while in the
respective and/or successive custody and possession of defendants carrier (Eastern), arrastre operator
(Metro Port) and broker (Allied Brokerage). This becomes evident when the Marine Cargo Survey Report
(Exh. G), with its "Additional Survey Notes", are considered. In the latter notes, it is stated that when the
shipment was "landed on vessel" to dock of Pier # 15, South Harbor, Manila on December 12, 1981, it
was observed that "one (1) fiber drum (was) in damaged condition, covered by the vessel's Agent's Bad
Order Tally Sheet No.  86427." The report further states that when defendant Allied Brokerage withdrew
the shipment from defendant arrastre operator's custody on January 7, 1982, one drum was found
opened without seal, cello bag partly torn but contents intact.
Net unrecovered spillages was15 kgs. The report went on to state that when the drums reached the
consignee, one drum was found with adulterated/faked contents. It is obvious, therefore, that these
losses/damages occurred before the shipment reached the consignee while under the successive
custodies of defendants. Under Art. 1737 of the New Civil Code, the common carrier's duty to observe
extraordinary diligence in the vigilance of goods remains in full force and effect even if the goods are
temporarily unloaded and stored in transit in the warehouse of the carrier at the place of destination,
until the consignee has been advised and has had reasonable opportunity to remove or dispose of the
goods (Art. 1738, NCC). Defendant Eastern Shipping's own exhibit, the "Turn-Over Survey of Bad Order
Cargoes" (Exhs. 3-Eastern) states that on December 12, 1981 one drum was found "open".

and thus held:

WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:

A. Ordering defendants to pay plaintiff, jointly and severally:

1. The amount of P19,032.95, with the present legal interest of 12%  per annum from October 1, 1982,
the date of filing of this complaints, until fully paid (the liability of defendant Eastern Shipping, Inc. shall
not exceed US$500 per case or the CIF value of the loss, whichever is lesser, while the liability of
defendant Metro Port Service, Inc. shall be to the extent of the actual invoice value of each package,
crate box or container in no case to exceed P5,000.00 each, pursuant to Section 6.01 of the
Management Contract);

2. P3,000.00 as attorney's fees, and

3. Costs.

B. Dismissing the counterclaims and crossclaim of defendant/cross-claimant Allied Brokerage

Corporation.

SO ORDERED. (p. 207, Record).

Dissatisfied, defendant's recourse to US.

The appeal is devoid of merit.

After a careful scrutiny of the evidence on record. We find that the conclusion drawn therefrom is
correct. As there is sufficient evidence that the shipment sustained damage while in the successive
possession of appellants, and therefore they are liable to the appellee, as subrogee for the amount it
paid to the consignee. (pp. 87-89, Rollo.)

The Court of Appeals thus affirmed in toto the judgment of the court

a quo.

In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave abuse of
discretion on the part of the appellate court when —

I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH THE ARRASTRE OPERATOR AND
CUSTOMS BROKER FOR THE CLAIM OF PRIVATE RESPONDENT AS GRANTED IN THE QUESTIONED
DECISION;
II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE RESPONDENT SHOULD
COMMENCE FROM THE DATE OF THE FILING OF THE COMPLAINT AT THE RATE OF TWELVE
PERCENT PER ANNUM INSTEAD OF FROM THE DATE OF THE DECISION OF THE TRIAL COURT AND ONLY
AT THE RATE OF SIX PERCENT PER ANNUM, PRIVATE RESPONDENT'S CLAIM BEING INDISPUTABLY
UNLIQUIDATED.

The petition is, in part, granted.

In this decision, we have begun by saying that the questions raised by petitioner carrier are not all that
novel. Indeed, we do have a fairly good number of previous decisions this Court can merely tack to.

The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the
time the articles are surrendered to or unconditionally placed in the possession of, and received by, the
carrier for transportation until delivered to, or until the lapse of a reasonable time for their acceptance
by, the person entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161
SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). When the goods shipped either are lost or
arrive in damaged condition, a presumption arises against the carrier of its failure to observe that
diligence, and there need not be an express finding of negligence to hold it liable (Art. 1735, Civil Code;
Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court of Appeals,
131 SCRA 365). There are, of course, exceptional cases when such presumption of fault is not observed
but these cases, enumerated in Article 17341 of the Civil Code, are exclusive, not one of which can be
applied to this case.

The question of charging both the carrier and the arrastre operator with the obligation of properly
delivering the goods to the consignee has, too, been passed upon by the Court. In Fireman's Fund
Insurance vs.  Metro Port Services (182 SCRA 455), we have explained, in holding the carrier and the
arrastre operator liable in solidum, thus:

The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and
warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]. The relationship between the
consignee and the common carrier is similar to that of the consignee and the arrastre operator
(Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is the duty of the ARRASTRE to
take good care of the goods that are in its custody and to deliver them in good condition to the
consignee, such responsibility also devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are
therefore charged with the obligation to deliver the goods in good condition to the consignee.

We do not, of course, imply by the above pronouncement that the arrastre operator and the customs
broker are themselves always and necessarily liable solidarily with the carrier, or vice-versa, nor that
attendant facts in a given case may not vary the rule. The instant petition has been brought solely by
Eastern Shipping Lines, which, being the carrier and not having been able to rebut the presumption of
fault, is, in any event, to be held liable in this particular case. A factual finding of both the court a
quo and the appellate court, we take note, is that "there is sufficient evidence that the shipment
sustained damage while in the successive possession of appellants" (the herein petitioner among them).
Accordingly, the liability imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case, is
inevitable regardless of whether there are others solidarily liable with it.
It is over the issue of legal interest adjudged by the appellate court that deserves more than just a
passing remark.

Let us first see a chronological recitation of the major rulings of this Court:

The early case of Malayan Insurance Co., Inc., vs.  Manila Port
Service,2 decided3 on 15 May 1969, involved a suit for recovery of money arising out of short deliveries
and pilferage of goods. In this case, appellee Malayan Insurance (the plaintiff in the lower court) averred
in its complaint that the total amount of its claim for the value of the undelivered goods amounted to
P3,947.20. This demand, however, was neither established in its totality nor definitely ascertained. In
the stipulation of facts later entered into by the parties, in lieu of proof, the amount of P1,447.51 was
agreed upon. The trial court rendered judgment ordering the appellants (defendants) Manila Port
Service and Manila Railroad Company to pay appellee Malayan Insurance the sum of P1,447.51
with legal interest thereon from the date the complaint was filed on 28 December 1962 until full
payment thereof. The appellants then assailed, inter alia, the award of legal interest. In sustaining the
appellants, this Court ruled:

Interest upon an obligation which calls for the payment of money, absent a stipulation, is the legal rate.
Such interest normally is allowable from the date of demand, judicial or extrajudicial. The trial court
opted for judicial demand as the starting point.

But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be recovered upon
unliquidated claims or damages, except when the demand can be established with reasonable
certainty." And as was held by this Court in Rivera vs.  Perez,4 L-6998, February 29, 1956, if the suit were
for damages,  "unliquidated and not known until definitely ascertained, assessed and determined by the
courts after proof (Montilla c.  Corporacion de P.P.  Agustinos, 25 Phil.  447; Lichauco v.  Guzman,
38 Phil.  302),"  then, interest  "should be from the date of the decision." (Emphasis supplied)

The case of Reformina vs.  Tomol,5 rendered on 11 October 1985, was for "Recovery of Damages for
Injury to Person and Loss of Property."  After trial, the lower court decreed:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party defendants and
against the defendants and third party plaintiffs as follows:

Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay jointly and
severally the following persons:

xxx xxx xxx

(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00 which is the value of
the boat F B Pacita III together with its accessories, fishing gear and equipment minus P80,000.00 which
is the value of the insurance recovered and the amount of P10,000.00 a month as the estimated
monthly loss suffered by them as a result of the fire of May 6, 1969 up to the time they are actually paid
or already the total sum of P370,000.00 as of June 4, 1972 with legal interest from the filing of the
complaint until paid  and to pay attorney's fees of P5,000.00 with costs against defendants and third
party plaintiffs. (Emphasis supplied.)

On appeal to the Court of Appeals, the latter modified the amount of damages awarded but sustained
the trial court in adjudging legal interest from the filing of the complaint until fully paid. When the
appellate court's decision became final, the case was remanded to the lower court for execution, and
this was when the trial court issued its assailed resolution which applied the 6% interest per
annum prescribed in Article 2209 of the Civil Code. In their petition for review on certiorari, the
petitioners contended that Central Bank Circular
No. 416, providing thus —

By virtue of the authority granted to it under Section 1 of Act 2655, as amended, Monetary Board in its
Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of interest for the loan, or
forbearance of any money, goods, or credits and the rate allowed in judgments, in the absence of
express contract as to such rate of interest, shall be twelve (12%) percent per annum. This Circular shall
take effect immediately. (Emphasis found in the text) —

should have, instead, been applied. This Court6 ruled:

The judgments spoken of and referred to are judgments in litigations involving loans or forbearance of
any money, goods or credits. Any other kind of monetary judgment which has nothing to do with, nor
involving loans or forbearance of any money, goods or credits does not fall within the coverage of the
said law for it is not within the ambit of the authority granted to the Central Bank.

xxx xxx xxx

Coming to the case at bar, the decision herein sought to be executed is one rendered in an Action for
Damages for injury to persons and loss of property and does not involve any loan, much less
forbearances of any money, goods or credits. As correctly argued by the private respondents, the law
applicable to the said case is Article 2209 of the New Civil Code which reads —

Art. 2209. — If the obligation consists in the payment of a sum of money, and the debtor incurs in delay,
the indemnity for damages, there being no stipulation to the contrary, shall be the payment of interest
agreed upon, and in the absence of stipulation, the legal interest which is six percent  per annum.

The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz,7 promulgated on 28 July 1986.
The case was for damages occasioned by an injury to person and loss of property. The trial court
awarded private respondent Pedro Manabat actual and compensatory damages in the amount of
P72,500.00 with legal interest thereon from the filing of the complaint until fully paid. Relying on
the Reformina v.  Tomol case, this Court8  modified the interest award from 12% to 6% interest per
annum but sustained the time computation thereof, i.e., from the filing of the complaint until fully paid.

In Nakpil and Sons vs.  Court of Appeals,9 the trial court, in an action for the recovery of damages arising
from the collapse of a building, ordered,
inter alia, the "defendant United Construction Co., Inc. (one of the petitioners)
. . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from November 29,
1968, the date of the filing of the complaint until full payment  . . . ." Save from the modification of the
amount granted by the lower court, the Court of Appeals sustained the trial court's decision. When
taken to this Court for review, the case, on 03 October 1986, was decided, thus:

WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special and
environmental circumstances of this case, we deem it reasonable to render a decision imposing, as We
do hereby impose, upon the defendant and the third-party defendants (with the exception of Roman
Ozaeta) a solidary (Art. 1723, Civil Code, Supra.
p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00) Pesos to
cover all damages (with the exception to attorney's fees) occasioned by the loss of the building
(including interest charges and lost rentals) and an additional ONE HUNDRED THOUSAND (P100,000.00)
Pesos as and for attorney's fees, the total sum being payable upon the finality of this decision. Upon
failure to pay on such finality, twelve (12%) per cent interest per annum shall be imposed upon
aforementioned amounts from finality until paid. Solidary costs against the defendant and third-party
defendants (Except Roman Ozaeta). (Emphasis supplied)

A motion for reconsideration was filed by United Construction, contending that "the interest of twelve
(12%) per cent  per annum imposed on the total amount of the monetary award was in contravention of
law." The Court10 ruled out the applicability of the Reformina and Philippine Rabbit Bus Lines cases and,
in its resolution of 15 April 1988, it explained:

There should be no dispute that the imposition of 12% interest pursuant to Central Bank Circular No.
416 . . . is applicable only in the following: (1) loans; (2) forbearance of any money, goods or credit; and
(3) rate allowed in judgments (judgments spoken of refer to judgments involving loans or forbearance of
any money, goods or credits. (Philippine Rabbit Bus Lines Inc. v. Cruz, 143 SCRA 160-161 [1986];
Reformina v. Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the instant case, there is neither a loan or
a forbearance, but then no interest is actually imposed provided the sums referred to in the judgment
are paid upon the finality of the judgment.  It is delay in the payment of such final judgment, that will
cause the imposition of the interest.

It will be noted that in the cases already adverted to, the rate of interest is imposed on the total sum,
from the filing of the complaint until paid; in other words, as  part of the judgment for damages. Clearly,
they are not applicable to the instant case. (Emphasis supplied.)

The subsequent case of American Express International, Inc., vs.  Intermediate Appellate Court11 was a
petition for review on certiorari from the decision, dated 27 February 1985, of the then Intermediate
Appellate Court reducing the amount of moral and exemplary damages awarded by the trial court, to
P240,000.00 and P100,000.00, respectively, and its resolution, dated 29 April 1985, restoring the
amount of damages awarded by the trial court, i.e., P2,000,000.00 as moral damages and P400,000.00
as exemplary damages with interest thereon at 12% per annum from notice of judgment, plus costs of
suit. In a decision of 09 November 1988, this Court, while recognizing the right of the private respondent
to recover damages, held the award, however, for moral damages by the trial court, later sustained by
the IAC, to be inconceivably large. The Court12 thus set aside the decision of the appellate court and
rendered a new one, "ordering the petitioner to pay private respondent the sum of One Hundred
Thousand (P100,000.00) Pesos as moral damages, with
six (6%) percent interest thereon computed from the finality of this decision until paid. (Emphasis
supplied)

Reformina came into fore again in the 21 February 1989 case of Florendo v.  Ruiz13 which arose from a
breach of employment contract. For having been illegally dismissed, the petitioner was awarded by the
trial court moral and exemplary damages without, however, providing any legal interest thereon. When
the decision was appealed to the Court of Appeals, the latter held:
WHEREFORE, except as modified hereinabove the decision of the CFI of Negros Oriental dated October
31, 1972 is affirmed in all respects, with the modification that defendants-appellants, except defendant-
appellant Merton Munn, are ordered to pay, jointly and severally, the amounts stated in the dispositive
portion of the decision, including the sum of P1,400.00 in concept of compensatory damages,
with interest at the legal rate from the date of the filing of the complaint until fully paid (Emphasis
supplied.)

The petition for review to this Court was denied. The records were thereupon transmitted to the trial
court, and an entry of judgment was made. The writ of execution issued by the trial court directed that
only compensatory damages should earn interest at 6%  per annum from the date of the filing of the
complaint. Ascribing grave abuse of discretion on the part of the trial judge, a petition
for certiorari assailed the said order. This Court said:

. . . , it is to be noted that the Court of Appeals ordered the payment of interest "at the legal rate"  from
the time of the filing of the complaint. . . Said circular [Central Bank Circular No. 416] does not apply to
actions based on a breach of employment contract like the case at bar. (Emphasis supplied)

The Court reiterated that the 6% interest  per annum  on the damages should be computed from the
time the complaint was filed until the amount is fully paid.

Quite recently, the Court had another occasion to rule on the matter. National Power Corporation
vs.  Angas,14 decided on 08 May 1992, involved the expropriation of certain parcels of land. After
conducting a hearing on the complaints for eminent domain, the trial court ordered the petitioner to pay
the private respondents certain sums of money as just compensation for their lands so expropriated
"with legal interest thereon . . . until fully paid." Again, in applying the 6% legal interest  per
annum  under the Civil Code, the Court15 declared:

. . . , (T)he transaction involved is clearly not a loan or forbearance of money, goods or credits but
expropriation of certain parcels of land for a public purpose, the payment of which is without stipulation
regarding interest, and the interest adjudged by the trial court is in the nature of indemnity for
damages. The legal interest required to be paid on the amount of just compensation for the properties
expropriated is manifestly in the form of indemnity for damages for the delay in the payment thereof.
Therefore, since the kind of interest involved in the joint judgment of the lower court sought to be
enforced in this case is interest by way of damages, and not by way of earnings from loans, etc. Art.
2209 of the Civil Code shall apply.

Concededly, there have been seeming variances in the above holdings. The cases can perhaps be
classified into two groups according to the similarity of the issues involved and the corresponding rulings
rendered by the court. The "first group" would consist of the cases of Reformina v.  Tomol (1985),
Philippine Rabbit Bus Lines v.  Cruz (1986), Florendo v.  Ruiz (1989)
and National Power Corporation v.  Angas (1992). In the "second group" would be Malayan Insurance
Company v.  Manila Port Service (1969), Nakpil and Sons v.  Court of Appeals (1988), and American
Express International v.  Intermediate Appellate Court (1988).

In the "first group", the basic issue focuses on the application of either the 6% (under the Civil Code) or
12% (under the Central Bank Circular) interest per annum. It is easily discernible in these cases that
there has been a consistent holding that the Central Bank Circular imposing the 12% interest  per
annum applies only to loans or forbearance16 of money, goods or credits, as well as to judgments
involving such loan or forbearance of money, goods or credits, and that the 6% interest under the Civil
Code governs when the transaction involves the payment of indemnities in the concept of damage
arising from the breach or a delay in the performance of obligations in general. Observe, too, that in
these cases, a common time frame in the computation of the 6% interest  per annum  has been
applied, i.e., from the time the complaint is filed until the adjudged amount is fully paid.

The "second group", did not alter the pronounced rule on the application of the 6% or 12% interest  per
annum,17 depending on whether or not the amount involved is a loan or forbearance, on the one hand,
or one of indemnity for damage, on the other hand. Unlike, however, the "first group" which remained
consistent in holding that the running of the legal interest should be from the time of the filing of the
complaint until fully paid, the "second group" varied on the commencement of the running of the legal
interest.

Malayan held that the amount awarded should bear legal interest from the date of the decision of the
court a quo, explaining that "if the suit were for damages, 'unliquidated and not known until definitely
ascertained, assessed and determined by the courts after proof,' then, interest 'should be from the date
of the decision.'" American Express International v.  IAC, introduced a different time frame for reckoning
the 6% interest by ordering it to be "computed from the finality of (the) decision until paid." The Nakpil
and Sons case ruled that 12% interest  per annum should be imposed from the finality of the decision
until the judgment amount is paid.

The ostensible discord is not difficult to explain. The factual circumstances may have called for different
applications, guided by the rule that the courts are vested with discretion, depending on the equities of
each case, on the award of interest. Nonetheless, it may not be unwise, by way of clarification and
reconciliation, to suggest the following rules of thumb for future guidance.

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-
delicts18 is breached, the contravenor can be held liable for damages.19 The provisions under Title XVIII
on "Damages" of the Civil Code govern in determining the measure of recoverable damages.20

II. With regard particularly to an award of interest in the concept of actual and compensatory damages,
the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in
writing.21 Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded.22 In the absence of stipulation, the rate of interest shall be 12%  per annum to be computed
from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article
116923 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the discretion of the court24 at the rate of 6%  per
annum.25 No interest, however, shall be adjudged on unliquidated claims or damages except when or
until the demand can be established with reasonable certainty.26 Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages may be deemed to have
been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be
on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of
legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12%  per
annum from such finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.

WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the
MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount due computed from
the decision, dated
03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%),
shall be imposed on such amount upon finality of this decision until the payment thereof.

SO ORDERED.
G.R. No. 128721 March 9, 1999

CRISMINA GARMENTS, INC., petitioner,

vs.
COURT OF APPEALS and NORMA SIAPNO, respondent.

PANGANIBAN, J.:

Interest shall be computed in accordance with the stipulation of the parties. In the absence of such
agreement, the rate shall be twelve percent (12%) per annum when the obligation arises out of a loan or
a forbearance of money, goods or credits. In other cases, it shall be six percent (6%).

The Case

On May 5, 1997, Crismina Garments, Inc. filed a Petition for Review on Certiorari  1 assailing the
December 28, 1995 Decision 2 and March 17, 1997 Resolution 3 of the Court of Appeals in CA-GR CV No.
28973. On September 24, 1997, this Court issued a minute Resolution 4 denying the petition "for its
failure to show any reversible error on the part of the Court of Appeals."

Petitioner then filed a Motion for Reconsideration, 5 arguing that the interest rate should be computed
at 6 percent per annum as provided under Article 2209 of the Civil Code, not 12 percent per annum as
prescribed under Circular No. 416 of the Central Bank of the Philippines. Acting on the Motion, the Court
reinstated6 the Petition, but only with respect to the issue of which interest rate should be applied.7

The Facts

As the facts of the case are no longer disputed, we are reproducing hereunder the findings of the
appellate court:

During the period from February 1979 to April 1979, the [herein petitioner], which was engaged in the
export of girls' denim pants, contracted the services of the [respondent], the sole proprietress of the
D'Wilmar Garments, for the sewing of 20,762 pieces of assorted girls['] denims supplied by the
[petitioner] under Purchase Orders Nos. 1404, dated February 15, 1979, 0430 dated February 1, 1979,
1453 dated April 30, 1979. The [petitioner] was obliged to pay the [respondent], for her services, in the
total amount of P76,410.00. The [respondent] sew[ed] the materials and delivered the same to the
[petitioner] which acknowledged the same per Delivery Receipt Nos. 0030 dated February 9, 1979; 0032,
dated February 15, 1979; 0033 dated February 21, 1979; 0034, dated February 24, 1979; 0036, dated
February 20, 1979; 0038, dated March 11, 1979[;] 0039, dated March 24, 1979; 0040 dated March 27,
1979; 0041, dated March 29, 1979; 0044, dated Marc[h] 25, 1979; 0101 dated May 18, 1979[;] 0037,
dated March 10, 1979 and 0042 dated March 10, 1979, in good order condition. At first, the
[respondent] was told that the sewing of some of the pants w[as] defective. She offered to take delivery
of the defective pants. However, she was later told by [petitioner]'s representative that the goods were
already good. She was told to just return for her check of P76,410.00. However, the [petitioner] failed to
pay her the aforesaid amount. This prompted her to hire the services of counsel who, on November 12,
1979, wrote a letter to the [petitioner] demanding payment of the aforesaid amount within ten (10)
days from receipt thereof. On February 7, 1990, the [petitioner]'s [v]ice-[p]resident-[c]omptroller, wrote
a letter to [respondent]'s counsel, averring, inter alia, that the pairs of jeans sewn by her, numbering
6,164 pairs, were defective and that she was liable to the [petitioner] for the amount of P49,925.51
which was the value of the damaged pairs of denim pants and demanded refund of the aforesaid
amount.

On January 8, 1981, the [respondent] filed her complaint against the [petitioner] with the [trial court] for
the collection of the principal amount of P76,410.00. . . .

xxx xxx xxx

After due proceedings, the [trial court] rendered judgment, on February 28, 1989, in favor of the
[respondent] against the [petitioner], the dispositive portion of which reads as follows:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant ordering
the latter to pay the former:

(1) The sum of P76,140.00 with interest thereon at 12% per annum, to be counted from the filing of this
complaint on January 8, 1981, until fully paid;

(2) The sum of P5,000 as attorney[']s fees; and

(3) The costs of this suit;

(4) Defendant's counterclaim is hereby dismissed.8

The Court of Appeals (CA) affirmed the trial court's ruling, except for the award of attorney's fees which
was deleted. 9 Subsequently, the CA denied the Motion for Reconsideration.10

Hence, this recourse to this Court11

Sole Issue

In light of the Court's Resolution dated April 27, 1998, petitioner submits for our consideration this sole
issue:

Whether or not it is proper to impose interest at the rate of twelve percent (12%) per annum for an
obligation that does not involve a loan or forbearance of money in the absence of stipulation of the
parties. 12

This Court's Ruling

We sustain petitioner's contention that the interest rate should be computed at six percent (6%) per
annum.

Sole Issue: Interest Rate

The controversy revolves around petitioner's payment of the price beyond the period prescribed in a
contract for a piece of work. Article 1589 on the Civil Code provides that "[t]he vendee [herein
petitioner] shall owe interest for the period between the delivery of the thing and the payment of the
price . . . should he be in default from the time of judicial or extrajudicial demand for the payment of the
price." The only issue now is the applicable rate of interest for the late payment.

Because the case before us is "an action for the enforcement of an obligation for payment of money
arising from a contract for a piece of work," 13 

petitioner submits that the interest rate should be six percent (6%), pursuant to Article 2209 of the Civil
Code, which states:

If the obligation consists in the payment of money and the debtor incurs in delay, the indemnity for
damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon,
and in the absence of stipulation, the legal interest, which is six per cent per annum." (Emphasis
supplied.)

On the other hand, private respondent maintains that the interest rate should be twelve percent (12 %)
per annum, in accordance with Central Bank (CB) Circular No. 416, which reads:

By virtue of the authority granted to it under Section 1 of Act No. 2655, as amended, otherwise known
as the "Usury Law", the Monetary Board, in its Resolution No. 1622 dated July 29, 1974, has prescribed
that the rate of interest for the loan or forbearance of any money, goods or credits and the rate
allowed in judgments, in the absence of express contract as to such rate of interest, shall be twelve
per cent (12%) per annum." (Emphasis supplied.)

She argues that the circular applies, since "the money sought to be recovered by her is in the form of
forbearance." 14

We agree with the petitioner. In Reformina v. Tomol Jr., 15 this Court stressed that the interest rate
under CB Circular No. 416 applies to (1) loans; (2) forbearance of money, goods or credits; or (3) a
judgment involving a loan or forbearance of money, goods or credits. Cases beyond the scope of the
said circular are governed by Article 2209 of the Civil Code, 16 which considers interest a form of
indemnity for the delay in the performance of an obligation.17

In Eastern Shipping Lines,  Inc.  v.  Court of Appeals,18 the Court gave the following guidelines for the
application of the proper interest rates:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-
delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on
"Damages" of the Civil Code govern in determining the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual and compensatory damages,
the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of
the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until
the demand can be established with reasonable certainty. Accordingly, where the demand is established
with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case, be . . . the amount
finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of
legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum
from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to
forbearance of credit.19

In Keng Hua Paper Products Co.,  Inc.  v.  CA, 20 we also ruled that the monetary award shall earn interest
at twelve percent (12%) per annum from the date of finality of the judgment until its satisfaction,
regardless of whether or not the case involves a loan of forbearance of money. The interim period is
deemed to be equivalent to a forbearance of a credit. 21

Because the amount due in this case arose from a contract for a piece of work, not from a loan or
forbearance of money, the legal interest of six percent (6%) per annum should be applied. Furthermore,
since the amount of the demand could be established with certainty when the Complaint was filed, the
six percent (6%) interest should be computed from the filing of the said Complaint. But after the
judgment becomes final and exuecutory until the obligation is satisfied, the interest should be reckoned
at twelve percent (%12) per year.

Private respondent maintains that the twelve percent (12%) interest should be imposed, because the
obligation arose from a forbearance of
money. 22 This is erroneous. In Eastern Shipping, 23 the Court observed that a "forbearance" in the
context of the usury law is a "contractual obligation of lender or creditor to refrain, during a given
period of time, from requiring the borrower or debtor to repay a loan or debt then due and payable."
Using this standard, the obligation in this case was obviously not a forbearance of money, goods or
credit.

WHEREFORE, the appealed Decision is MODIFIED. The rate of interest shall be six percent (6%) per
annum, computed from the time of the filing of the Complaint in the trial court until the finality of the
judgment. If the adjudged principal and the interest (or any part thereof) remain unpaid thereafter, the
interest rate shall be twelve percent (12%) per annum computed from the time the judgment becomes
final and executory until it is fully satisfied. No pronouncement as to costs.

SO ORDERED.
G.R. No. 123643 October 30, 1996

PHILIPPINE NATIONAL BANK, petitioner,

vs.
COURT OF APPEALS and DR. ERLINDA G. IBARROLA, respondents.

RESOLUTION

FRANCISCO, J.:p

As payments for the purchase of medicines, the Province of Isabela issued several checks drawn against
its account with petitioner Philippine National Bank (PNB) in favor of the seller, Lyndon Pharmaceuticals
Laboratories, a business operated by private respondent Ibarrola. The checks were delivered to the
seller's agents 1 who turned them over to Ibarrola, except 23 checks amounting to P98,691.90, which the
agents appropriated after negotiating them with PNB. For her failure to receive the full payment for the
medicines, Ibarrola filed on November 6, 1974 before the Regional Trial Court (RTC) an "action for a sum
of money and damages," docketed as Civil Case 4226-p, 2 against the Province of Isabela, its Treasurer,
the two agents and PNB.

In its decision dated September 29, 1987, the trial court ordered all the defendants in said civil case,
except the treasurer who died in the meantime, to "jointly and solidarily" pay Ibarrola several amounts,
among which is:

(1) P98,691.90 with interest thereon at the legal rate from the date of the filing of the complaint until
the entire amount is fully paid; 3 (Emphasis supplied.)

PNB's appeal to the Court of Appeals (CA) 4 and later to the Supreme Court 5 were denied and dismissed,
respectively. All the three courts, however, did not specify whether the legal rate of interest referred to
in the judgment is 6% or 12%. The judgment in Civil Case 4226-P became final and executory on
November 26, 1993. At the execution stage, the sheriff computed the interest mentioned in the
judgment at the rate of 12% which PNB opposed insisting that the rate should only be 6%. Ibarrola
sought clarification from the same RTC which promulgated the decision. On August 4, 1994 said court
issued an order clarifying that the rate is 12%. PNB's direct appeal to this court from that order was
referred to the CA which affirmed the RTC order. Hence, this petition for review under Rule 45 where
two legal issues are raised: (1) whether in an action for damages, the legal rate of interest is 6% as
provided by Article 2209 6 of the New Civil Code or 12% as provided by CB Circular 416 series of
1974, 7 and (2) whether such rate shall be computed from the filing of the complaint until fully paid?

The issues are not new. In the case of Estern Shipping Lines, Inc. v.
CA, 8 this Court had provided a rule "of thumb for future guidance," 9 to wit:
When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the discretion of the court at the rate of 6%  per
annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until
the demand can be established with reasonable certainty. Accordingly, where the demand is established
with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially  (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount
finally adjudged. 10 (Emphasis ours.)

The case at bench does not involve a loan, forbearance of money or judgment involving a loan or
forbearance of money as it arose from a contract of sale whereby Ibarrola did not receive full payment
for her merchandise. When an obligation arises "from a contract of purchase and sale and not from a
contract of loan or mutuum," the applicable rate is "6%  per annum  as provided in Article 2209 of the
NCC and not the rate of 12%  per annum  as provided in (CB) Cir. No. 416." 11 Indeed, PNB's liability is
based only on the RTC's judgment where it was held solidarily liable with the other defendants due to its
negligence when it "failed to assure itself" if the Provincial Treasurer was "properly authorized" by
Ibarrola to "make endorsements" of said checks. 12

The rate of 12% interest referred to in Cir. 416 applies only to:

[L]oan or forbearance of money, or to cases where money is transferred from one person to another
and the obligation to return the same or a portion thereof is adjudged. Any other monetary judgment
which does not involve or which has nothing to do with loans or forbearance of any money, goods or
credit does not fall within its coverage  for such imposition is not within the ambit of the authority
granted to the Central Bank. When an obligation not constituting a loan or forbearance of money is
breached then an interest on the amount of damages awarded may be imposed at the discretion of the
court at the rate of 6%  per annum  in accordance with Art. 2209 of the Civil Code. Indeed, the monetary
judgment in favor of private respondent does not involve a loan or forbearance of money, hence the
proper imposable rate of interest is six (6%) per cent. 13 (Emphasis ours.)

Applying the aforequoted rule, therefore, the proper rate of interest referred to in the judgment under
execution is only 6%. This interest according to Eastern Shipping shall be computed from the time of the
filing of the complaint considering that the amount adjudged (P98,691.90) can be established with
reasonable certainty. Said amount being merely the uncollected balance of the purchase price covered
by the 23 checks encashed and appropriated by Ibarrola's agents. However, once the judgment becomes
final and executory, the "interim period from the finality of judgment awarding a monetary claim and
until payment thereof, is deemed to be equivalent to a forbearance of credit." 14 Thus, in accordance
with the pronouncement in Eastern Shipping the rate of 12% p.a. should be imposed, and to be
computed from the time the judgment became final and executory until fully satisfied. The actual base
for the computation of this 12% interest after the judgment in this damage suit became final shall be the
amount adjudged (P98,691.90).

ACCORDINGLY, the appealed decision is REVERSED. The rate of interest shall be 6% p.a. computed from
the time of the filing of the complaint until its full payment before finality of judgment. Thereafter, if the
amount adjudged remains unpaid, the interest rate shall be 12% p.a. computed from the time the
judgment became final and executory on November 26, 1993 until fully satisfied.

SO ORDERED.