G.R. No.
L-19190             November 29, 1922 Counsel for the defense assign ten errors as having been committed by the trial court.
THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellee,
vs.
VENANCIO CONCEPCION, defendant-appellant.
Recaredo Ma. Calvo for appellant.
Attorney-General Villa-Real for appellee.
MALCOLM, J.:
By telegrams and a letter of confirmation to the manager of the Aparri branch of the
Philippine National Bank, Venancio Concepcion, President of the Philippine National Bank,
between April 10, 1919, and May 7, 1919, authorized an extension of credit in favor of
"Puno y Concepcion, S. en C." in the amount of P300,000. This special authorization was
essential in view of the memorandum order of President Concepcion dated May 17, 1918,
limiting the discretional power of the local manager at Aparri, Cagayan, to grant loans and
discount negotiable documents to P5,000, which, in certain cases, could be increased to
P10,000. Pursuant to this authorization, credit aggregating P300,000, was granted the firm
of "Puno y Concepcion, S. en C.," the only security required consisting of six demand notes.
The notes, together with the interest, were taken up and paid by July 17, 1919.
"Puno y Concepcion, S. en C." was a copartnership capitalized at P100,000. Anacleto
Concepcion contributed P5,000; Clara Vda. de Concepcion, P5,000; Miguel S. Concepcion,
P20,000; Clemente Puno, P20,000; and Rosario San Agustin, "casada con Gral. Venancio
Concepcion," P50,000. Member Miguel S. Concepcion was the administrator of the
company.
On the facts recounted, Venancio Concepcion, as President of the Philippine National Bank
and as member of the board of directors of this bank, was charged in the Court of First
Instance of Cagayan with a violation of section 35 of Act No. 2747. He was found guilty by
the Honorable Enrique V. Filamor, Judge of First Instance, and was sentenced to
imprisonment for one year and six months, to pay a fine of P3,000, with subsidiary
imprisonment in case of insolvency, and the costs.
Section 35 of Act No. 2747, effective on February 20, 1918, just mentioned, to which
reference must hereafter repeatedly be made, reads as follows: "The National Bank shall
not, directly or indirectly, grant loans to any of the members of the board of directors of the
bank nor to agents of the branch banks." Section 49 of the same Act provides: "Any person
who shall violate any of the provisions of this Act shall be punished by a fine not to exceed
ten thousand pesos, or by imprisonment not to exceed five years, or by both such fine and
imprisonment." These two sections were in effect in 1919 when the alleged unlawful acts
took place, but were repealed by Act No. 2938, approved on January 30, 1921.
These errors they have argued adroitly and exhaustively in their printed brief, and again in
oral argument. Attorney-General Villa-Real, in an exceptionally accurate and
comprehensive brief, answers the proposition of appellant one by one.
The question presented are reduced to their simplest elements in the opinion which follows:
I. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en
C." by Venancio Concepcion, President of the Philippine National Bank, a "loan" within the
meaning of section 35 of Act No. 2747?
Counsel argue that the documents of record do not prove that authority to make a loan was
given, but only show the concession of a credit. In this statement of fact, counsel is correct,
for the exhibits in question speak of a "credito" (credit) and not of a "  prestamo" (loan).
The "credit" of an individual means his ability to borrow money by virtue of the confidence or
trust reposed by a lender that he will pay what he may promise. (Donnell vs. Jones [1848],
13 Ala., 490; Bouvier's Law Dictionary.) A "loan" means the delivery by one party and the
receipt by the other party of a given sum of money, upon an agreement, express or implied,
to repay the sum loaned, with or without interest. (Payne vs. Gardiner [1864], 29 N. Y., 146,
167.) The concession of a "credit" necessarily involves the granting of "loans" up to the limit
of the amount fixed in the "credit,"
II. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en
C.," by Venancio Concepcion, President of the Philippine National Bank, a "loan" or a
"discount"?
Counsel argue that while section 35 of Act No. 2747 prohibits the granting of a "loan," it
does not prohibit what is commonly known as a "discount."
In a letter dated August 7, 1916, H. Parker Willis, then President of the National Bank,
inquired of the Insular Auditor whether section 37 of Act No. 2612 was intended to apply to
discounts as well as to loans. The ruling of the Acting Insular Auditor, dated August 11,
1916, was to the effect that said section referred to loans alone, and placed no restriction
upon discount transactions. It becomes material, therefore, to discover the distinction
between a "loan" and a "discount," and to ascertain if the instant transaction comes under
the first or the latter denomination.
Discounts are favored by bankers because of their liquid nature, growing, as they do, out of
an actual, live, transaction. But in its last analysis, to discount a paper is only a mode of
loaning money, with, however, these distinctions: (1) In a discount, interest is deducted in
advance, while in a loan, interest is taken at the expiration of a credit; (2) a discount is
always on double-name paper; a loan is generally on single-name paper.
Conceding, without deciding, that, as ruled by the Insular Auditor, the law covers loans and
not discounts, yet the conclusion is inevitable that the demand notes signed by the firm
"Puno y Concepcion, S. en C." were not discount paper but were mere evidences of
indebtedness, because (1) interest was not deducted from the face of the notes, but was
paid when the notes fell due; and (2) they were single-name and not double-name paper.
The facts of the instant case having relation to this phase of the argument are not
essentially different from the facts in the Binalbagan Estate case. Just as there it was
declared that the operations constituted a loan and not a discount, so should we here lay
down the same ruling.
III. Was the granting of a credit of P300,000 to the copartnership, "Puno y Concepcion, S.
en C." by Venancio Concepcion, President of the Philippine National Bank, an "indirect
loan" within the meaning of section 35 of Act No. 2747?
Counsel argue that a loan to the partnership "Puno y Concepcion, S. en C." was not an
"indirect loan." In this connection, it should be recalled that the wife of the defendant held
one-half of the capital of this partnership.
In the interpretation and construction of statutes, the primary rule is to ascertain and give
effect to the intention of the Legislature. In this instance, the purpose of the Legislature is
plainly to erect a wall of safety against temptation for a director of the bank. The prohibition
against indirect loans is a recognition of the familiar maxim that no man may serve two
masters — that where personal interest clashes with fidelity to duty the latter almost always
suffers. If, therefore, it is shown that the husband is financially interested in the success or
failure of his wife's business venture, a loan to partnership of which the wife of a director is a
member, falls within the prohibition.
Various provisions of the Civil serve to establish the familiar relationship called a conjugal
partnership. (Articles 1315, 1393, 1401, 1407, 1408, and 1412 can be specially noted.) A
loan, therefore, to a partnership of which the wife of a director of a bank is a member, is an
indirect loan to such director.
That it was the intention of the Legislature to prohibit exactly such an occurrence is shown
by the acknowledged fact that in this instance the defendant was tempted to mingle his
personal and family affairs with his official duties, and to permit the loan P300,000 to a
partnership of no established reputation and without asking for collateral security.
In the case of Lester and Wife vs. Howard Bank ([1870], 33 Md., 558; 3 Am. Rep., 211), the
Supreme Court of Maryland said:
What then was the purpose of the law when it declared that no director or officer
should borrow of the bank, and "if any director," etc., "shall be convicted," etc., "of
directly or indirectly violating this section he shall be punished by fine and
imprisonment?" We say to protect the stockholders, depositors and creditors of the
bank, against the temptation to which the directors and officers might be exposed,
and the power which as such they must necessarily possess in the control and
management of the bank, and the legislature unwilling to rely upon the implied
understanding that in assuming this relation they would not acquire any interest
hostile or adverse to the most exact and faithful discharge of duty, declared in
express terms that they should not borrow, etc., of the bank.
In the case of People vs. Knapp ([1912], 206 N. Y., 373), relied upon in the Binalbagan
Estate decision, it was said:
We are of opinion the statute forbade the loan to his copartnership firm as well as
to himself directly. The loan was made indirectly to him through his firm.
IV. Could Venancio Concepcion, President of the Philippine National Bank, be convicted of
a violation of section 35 of Act No. 2747 in relation with section 49 of the same Act, when
these portions of Act No. 2747 were repealed by Act No. 2938, prior to the finding of the
information and the rendition of the judgment?
As noted along toward the beginning of this opinion, section 49 of Act No. 2747, in relation
to section 35 of the same Act, provides a punishment for any person who shall violate any
of the provisions of the Act. It is contended, however, by the appellant, that the repeal of
these sections of Act No. 2747 by Act No. 2938 has served to take away the basis for
criminal prosecution.
This same question has been previously submitted and has received an answer adverse to
such contention in the cases of United Stated vs. Cuna ([1908], 12 Phil., 241); People vs.
Concepcion ([1922], 43 Phil., 653); and Ong Chang Wing and Kwong Fok vs. United States
([1910], 218 U. S., 272; 40 Phil., 1046). In other words, it has been the holding, and it must
again be the holding, that where an Act of the Legislature which penalizes an offense, such
repeals a former Act which penalized the same offense, such repeal does not have the
effect of thereafter depriving the courts of jurisdiction to try, convict, and sentenced
offenders charged with violations of the old law.
V. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en
C." by Venancio Concepcion, President of the Philippine National Bank, in violation of
section 35 of Act No. 2747, penalized by this law?
Counsel argue that since the prohibition contained in section 35 of Act No. 2747 is on the
bank, and since section 49 of said Act provides a punishment not on the bank when it
violates any provisions of the law, but on a  person violating any provisions of the same, and
imposing imprisonment as a part of the penalty, the prohibition contained in said section 35
is without penal sanction.lawph!l.net
The answer is that when the corporation itself is forbidden to do an act, the prohibition
extends to the board of directors, and to each director separately and individually.
(People vs. Concepcion, supra.)
VI. Does the alleged good faith of Venancio Concepcion, President of the Philippine
National Bank, in extending the credit of P300,000 to the copartnership "Puno y
Concepcion, S. en C." constitute a legal defense?
Counsel argue that if defendant committed the acts of which he was convicted, it was
because he was misled by rulings coming from the Insular Auditor. It is furthermore stated
that since the loans made to the copartnership "Puno y Concepcion, S. en C." have been
paid, no loss has been suffered by the Philippine National Bank.
Neither argument, even if conceded to be true, is conclusive. Under the statute which the
defendant has violated, criminal intent is not necessarily material. The doing of the inhibited
act, inhibited on account of public policy and public interest, constitutes the crime. And, in
this instance, as previously demonstrated, the acts of the President of the Philippine
National Bank do not fall within the purview of the rulings of the Insular Auditor, even
conceding that such rulings have controlling effect.
Morse, in his work, Banks and Banking, section 125, says:
It is fraud for directors to secure by means of their trust, and advantage not
common to the other stockholders. The law will not allow private profit from a trust,
and will not listen to any proof of honest intent.
JUDGMENT
On a review of the evidence of record, with reference to the decision of the trial court, and
the errors assigned by the appellant, and with reference to previous decisions of this court
on the same subject, we are irresistibly led to the conclusion that no reversible error was
committed in the trial of this case, and that the defendant has been proved guilty beyond a
reasonable doubt of the crime charged in the information. The penalty imposed by the trial
judge falls within the limits of the punitive provisions of the law.
Judgment is affirmed, with the costs of this instance against the appellant. So ordered.
G.R. No. 154878             March 16, 2007
CAROLYN M. GARCIA, Petitioner,
vs.
RICA MARIE S. THIO, Respondent.
DECISION
CORONA, J.:
Assailed in this petition for review on certiorari1 are the June 19, 2002 decision2 and August
20, 2002 resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 56577 which set aside
the February 28, 1997 decision of the Regional Trial Court (RTC) of Makati City, Branch 58.
Sometime in February 1995, respondent Rica Marie S. Thio received from petitioner
Carolyn M. Garcia a crossed check4 dated February 24, 1995 in the amount of US$100,000
payable to the order of a certain Marilou Santiago.5 Thereafter, petitioner received from
respondent every month (specifically, on March 24, April 26, June 26 and July 26, all in
1995) the amount of US$3,0006 and ₱76,5007 on July 26,8 August 26, September 26 and
October 26, 1995.
In June 1995, respondent received from petitioner another crossed check9 dated June 29,
1995 in the amount of ₱500,000, also payable to the order of Marilou
Santiago.10 Consequently, petitioner received from respondent the amount of ₱20,000 every
month on August 5, September 5, October 5 and November 5, 1995.11
According to petitioner, respondent failed to pay the principal amounts of the loans
(US$100,000 and ₱500,000) when they fell due. Thus, on February 22, 1996, petitioner filed
a complaint for sum of money and damages in the RTC of Makati City, Branch 58 against
respondent, seeking to collect the sums of US$100,000, with interest thereon at 3% a
month from October 26, 1995 and ₱500,000, with interest thereon at 4% a month from
November 5, 1995, plus attorney’s fees and actual damages.12
Petitioner alleged that on February 24, 1995, respondent borrowed from her the amount of
US$100,000 with interest thereon at the rate of 3% per month, which loan would mature on
October 26, 1995.13 The amount of this loan was covered by the first check. On June 29,
1995, respondent again borrowed the amount of ₱500,000 at an agreed monthly interest of
4%, the maturity date of which was on November 5, 1995.14 The amount of this loan was
covered by the second check. For both loans, no promissory note was executed since
petitioner and respondent were close friends at the time.15 Respondent paid the stipulated
monthly interest for both loans but on their maturity dates, she failed to pay the principal
amounts despite repeated demands.161awphi1.nét
Respondent denied that she contracted the two loans with petitioner and countered that it
was Marilou Santiago to whom petitioner lent the money. She claimed she was merely
asked by petitioner to give the crossed checks to Santiago.17 She issued the checks for
₱76,000 and ₱20,000 not as payment of interest but to accommodate petitioner’s request
that respondent use her own checks instead of Santiago’s.18
In a decision dated February 28, 1997, the RTC ruled in favor of petitioner.19 It found that
respondent borrowed from petitioner the amounts of US$100,000 with monthly interest of
3% and ₱500,000 at a monthly interest of 4%:20
WHEREFORE, finding preponderance of evidence to sustain the instant complaint,
judgment is hereby rendered in favor of [petitioner], sentencing [respondent] to pay the
former the amount of:
1. [US$100,000.00] or its peso equivalent with interest thereon at 3% per month
from October 26, 1995 until fully paid;
2. ₱500,000.00 with interest thereon at 4% per month from November 5, 1995 until
fully paid.
3. ₱100,000.00 as and for attorney’s fees; and
 4. ₱50,000.00 as and for actual damages.
For lack of merit, [respondent’s] counterclaim is perforce dismissed.
With costs against [respondent].
IT IS SO ORDERED. 21
On appeal, the CA reversed the decision of the RTC and ruled that there was no contract of
loan between the parties:
A perusal of the record of the case shows that [petitioner] failed to substantiate her claim
that [respondent] indeed borrowed money from her. There is nothing in the record that
shows that [respondent] received money from [petitioner]. What is evident is the fact
that [respondent] received a MetroBank [crossed] check dated February 24, 1995 in the
sum of US$100,000.00, payable to the order of Marilou Santiago and a CityTrust [crossed]
check dated June 29, 1995 in the amount of ₱500,000.00, again payable to the order of
Marilou Santiago, both of which were issued by [petitioner]. The checks received by
[respondent], being crossed, may not be encashed but only deposited in the bank by
the payee thereof, that is, by Marilou Santiago herself.
It must be noted that crossing a check has the following effects: (a) the check may not be
encashed but only deposited in the bank; (b) the check may be negotiated only once—to
one who has an account with the bank; (c) and the act of crossing the check serves as
warning to the holder that the check has been issued for a definite purpose so that he must
inquire if he has received the check pursuant to that purpose, otherwise, he is not a holder
in due course.
Consequently, the receipt of the [crossed] check by [respondent] is not the issuance and
delivery to the payee in contemplation of law since the latter is not the person who could
take the checks as a holder, i.e., as a payee or indorsee thereof, with intent to transfer title
thereto. Neither could she be deemed as an agent of Marilou Santiago with respect to the
checks because she was merely facilitating the transactions between the former and
[petitioner].
With the foregoing circumstances, it may be fairly inferred that there were really no
contracts of loan that existed between the parties. x x x (emphasis supplied)22
Hence this petition.23
As a rule, only questions of law may be raised in a petition for review on certiorari under
Rule 45 of the Rules of Court. However, this case falls under one of the exceptions, i.e.,
when the factual findings of the CA (which held that there were no contracts of loan
between petitioner and respondent) and the RTC (which held that there were contracts of
loan) are contradictory.24
The petition is impressed with merit.
A loan is a real contract, not consensual, and as such is perfected only upon the delivery of
the object of the contract.25 This is evident in Art. 1934 of the Civil Code which provides:
An accepted promise to deliver something by way of commodatum or simple loan is binding
upon the parties, but the commodatum or simple loan itself shall not be perfected until
the delivery of the object of the contract. (Emphasis supplied)
Upon delivery of the object of the contract of loan (in this case the money received by the
debtor when the checks were encashed) the debtor acquires ownership of such money or
loan proceeds and is bound to pay the creditor an equal amount.26
It is undisputed that the checks were delivered to respondent. However, these checks were
crossed and payable not to the order of respondent but to the order of a certain Marilou
Santiago. Thus the main question to be answered is: who borrowed money from petitioner
— respondent or Santiago?
Petitioner insists that it was upon respondent’s instruction that both checks were made
payable to Santiago.27 She maintains that it was also upon respondent’s instruction that both
checks were delivered to her (respondent) so that she could, in turn, deliver the same to
Santiago.28 Furthermore, she argues that once respondent received the checks, the latter
had possession and control of them such that she had the choice to either forward them to
Santiago (who was already her debtor), to retain them or to return them to petitioner.29
We agree with petitioner. Delivery is the act by which the res or substance thereof is placed
within the actual or constructive possession or control of another.30 Although respondent did
not physically receive the proceeds of the checks, these instruments were placed in her
control and possession under an arrangement whereby she actually re-lent the amounts to
Santiago.
Several factors support this conclusion.
First, respondent admitted that petitioner did not personally know Santiago.31 It was highly
improbable that petitioner would grant two loans to a complete stranger without requiring as
much as promissory notes or any written acknowledgment of the debt considering that the
amounts involved were quite big. Respondent, on the other hand, already had transactions
with Santiago at that time.32
Second, Leticia Ruiz, a friend of both petitioner and respondent (and whose name appeared
in both parties’ list of witnesses) testified that respondent’s plan was for petitioner to lend
her money at a monthly interest rate of 3%, after which respondent would lend the same
amount to Santiago at a higher rate of 5% and realize a profit of 2%.33 This explained why
respondent instructed petitioner to make the checks payable to Santiago. Respondent has
not shown any reason why Ruiz’ testimony should not be believed.
Third, for the US$100,000 loan, respondent admitted issuing her own checks in the amount
of ₱76,000 each (peso equivalent of US$3,000) for eight months to cover the monthly
interest. For the ₱500,000 loan, she also issued her own checks in the amount of ₱20,000
each for four months.34 According to respondent, she merely accommodated petitioner’s
request for her to issue her own checks to cover the interest payments since petitioner was
not personally acquainted with Santiago.35 She claimed, however, that Santiago would
replace the checks with cash.36 Her explanation is simply incredible. It is difficult to believe
that respondent would put herself in a position where she would be compelled to pay
interest, from her own funds, for loans she allegedly did not contract. We declared in one
case that:
In the assessment of the testimonies of witnesses, this Court is guided by the rule that for
evidence to be believed, it must not only proceed from the mouth of a credible witness, but
must be credible in itself such as the common experience of mankind can approve as
probable under the circumstances. We have no test of the truth of human testimony except
its conformity to our knowledge, observation, and experience. Whatever is repugnant to
these belongs to the miraculous, and is outside of juridical cognizance.37
Fourth, in the petition for insolvency sworn to and filed by Santiago, it was respondent, not
petitioner, who was listed as one of her (Santiago’s) creditors.38
Last, respondent inexplicably never presented Santiago as a witness to corroborate her
story.39 The presumption is that "evidence willfully suppressed would be adverse if
produced."40 Respondent was not able to overturn this presumption.
We hold that the CA committed reversible error when it ruled that respondent did not borrow
the amounts of US$100,000 and ₱500,000 from petitioner. We instead agree with the ruling
of the RTC making respondent liable for the principal amounts of the loans.
We do not, however, agree that respondent is liable for the 3% and 4% monthly interest for
the US$100,000 and ₱500,000 loans respectively. There was no written proof of the interest
payable except for the verbal agreement that the loans would earn 3% and 4% interest per
month. Article 1956 of the Civil Code provides that "[n]o interest shall be due unless it has
been expressly stipulated in writing."
Be that as it may, while there can be no stipulated interest, there can be legal interest
pursuant to Article 2209 of the Civil Code. It is well-settled that:
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.41
Hence, respondent is liable for the payment of legal interest per annum to be computed
from November 21, 1995, the date when she received petitioner’s demand letter.42 From the
finality of the decision until it is fully paid, the amount due shall earn interest at
12% per annum, the interim period being deemed equivalent to a forbearance of credit.43
The award of actual damages in the amount of ₱50,000 and ₱100,000 attorney’s fees is
deleted since the RTC decision did not explain the factual bases for these damages.
WHEREFORE, the petition is hereby GRANTED and the June 19, 2002 decision and
August 20, 2002 resolution of the Court of Appeals in CA-G.R. CV No. 56577
are REVERSED and SET ASIDE. The February 28, 1997 decision of the Regional Trial
Court in Civil Case No. 96-266 is AFFIRMED with the MODIFICATION that respondent is
directed to pay petitioner the amounts of US$100,000 and ₱500,000 at
12% per annum interest from November 21, 1995 until the finality of the decision. The total
amount due as of the date of finality will earn interest of 12% per annum  until fully paid. The
award of actual damages and attorney’s fees is deleted.
SO ORDERED.
G.R. No. L-24968 April 27, 1972
SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee,
vs.
DEVELOPMENT BANK OF THE PHILIPPINES, defendant-appellant.
Mabanag, Eliger and Associates and Saura, Magno and Associates for plaintiff-appellee.
Jesus A. Avanceña and Hilario G. Orsolino for defendant-appellant.
MAKALINTAL, J.:p
In Civil Case No. 55908 of the Court of First Instance of Manila, judgment was rendered on
June 28, 1965 sentencing defendant Development Bank of the Philippines (DBP) to pay
actual and consequential damages to plaintiff Saura Import and Export Co., Inc. in the
amount of P383,343.68, plus interest at the legal rate from the date the complaint was filed
and attorney's fees in the amount of P5,000.00. The present appeal is from that judgment.
In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) applied to the Rehabilitation
Finance Corporation (RFC), before its conversion into DBP, for an industrial loan of
P500,000.00, to be used as follows: P250,000.00 for the construction of a factory building
(for the manufacture of jute sacks); P240,900.00 to pay the balance of the purchase price of
the jute mill machinery and equipment; and P9,100.00 as additional working capital.
Parenthetically, it may be mentioned that the jute mill machinery had already been
purchased by Saura on the strength of a letter of credit extended by the Prudential Bank
and Trust Co., and arrived in Davao City in July 1953; and that to secure its release without
first paying the draft, Saura, Inc. executed a trust receipt in favor of the said bank.
On January 7, 1954 RFC passed Resolution No. 145 approving the loan application for
P500,000.00, to be secured by a first mortgage on the factory building to be constructed,
the land site thereof, and the machinery and equipment to be installed. Among the other
terms spelled out in the resolution were the following:
1. That the proceeds of the loan shall be utilized exclusively for the
following purposes:
For construction of factory building P250,000.00
For payment of the balance of purchase
price of machinery and equipment 240,900.00
For working capital 9,100.00
T O T A L P500,000.00
4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto Caolboy and Gregoria
Estabillo and China Engineers, Ltd. shall sign the promissory notes jointly with the borrower-
corporation;
5. That release shall be made at the discretion of the Rehabilitation Finance Corporation,
subject to availability of funds, and as the construction of the factory buildings progresses,
to be certified to by an appraiser of this Corporation;"
Saura, Inc. was officially notified of the resolution on January 9, 1954. The day before,
however, evidently having otherwise been informed of its approval, Saura, Inc. wrote a letter
to RFC, requesting a modification of the terms laid down by it, namely: that in lieu of having
China Engineers, Ltd. (which was willing to assume liability only to the extent of its stock
subscription with Saura, Inc.) sign as co-maker on the corresponding promissory notes,
Saura, Inc. would put up a bond for P123,500.00, an amount equivalent to such
subscription; and that Maria S. Roca would be substituted for Inocencia Arellano as one of
the other co-makers, having acquired the latter's shares in Saura, Inc.
In view of such request RFC approved Resolution No. 736 on February 4, 1954, designating
of the members of its Board of Governors, for certain reasons stated in the resolution, "to
reexamine all the aspects of this approved loan ... with special reference as to the
advisability of financing this particular project based on present conditions obtaining in the
operations of jute mills, and to submit his findings thereon at the next meeting of the Board."
On March 24, 1954 Saura, Inc. wrote RFC that China Engineers, Ltd. had again agreed to
act as co-signer for the loan, and asked that the necessary documents be prepared in
accordance with the terms and conditions specified in Resolution No. 145. In connection
with the reexamination of the project to be financed with the loan applied for, as stated in
Resolution No. 736, the parties named their respective committees of engineers and
technical men to meet with each other and undertake the necessary studies, although in
appointing its own committee Saura, Inc. made the observation that the same "should not
be taken as an acquiescence on (its) part to novate, or accept new conditions to, the
agreement already) entered into," referring to its acceptance of the terms and conditions
mentioned in Resolution No. 145.
On April 13, 1954 the loan documents were executed: the promissory note, with F.R.
Halling, representing China Engineers, Ltd., as one of the co-signers; and the
corresponding deed of mortgage, which was duly registered on the following April 17.
It appears, however, that despite the formal execution of the loan agreement the
reexamination contemplated in Resolution No. 736 proceeded. In a meeting of the RFC
Board of Governors on June 10, 1954, at which Ramon Saura, President of Saura, Inc., was
present, it was decided to reduce the loan from P500,000.00 to P300,000.00. Resolution
No. 3989 was approved as follows:
RESOLUTION No. 3989. Reducing the Loan Granted Saura Import & Export Co., Inc. under
Resolution No. 145, C.S., from P500,000.00 to P300,000.00. Pursuant to Bd. Res. No. 736,
c.s., authorizing the re-examination of all the various aspects of the loan granted the Saura
Import & Export Co. under Resolution No. 145, c.s., for the purpose of financing the
manufacture of jute sacks in Davao, with special reference as to the advisability of financing
this particular project based on present conditions obtaining in the operation of jute mills,
and after having heard Ramon E. Saura and after extensive discussion on the subject the
Board, upon recommendation of the Chairman, RESOLVED that the loan granted the Saura
Import & Export Co. be REDUCED from P500,000 to P300,000 and that releases up to
P100,000 may be authorized as may be necessary from time to time to place the factory in
actual operation: PROVIDED that all terms and conditions of Resolution No. 145, c.s., not
inconsistent herewith, shall remain in full force and effect."
On June 19, 1954 another hitch developed. F.R. Halling, who had signed the promissory
note for China Engineers Ltd. jointly and severally with the other RFC that his company no
longer to of the loan and therefore considered the same as cancelled as far as it was
concerned. A follow-up letter dated July 2 requested RFC that the registration of the
mortgage be withdrawn.
In the meantime Saura, Inc. had written RFC requesting that the loan of P500,000.00 be
granted. The request was denied by RFC, which added in its letter-reply that it was
"constrained to consider as cancelled the loan of P300,000.00 ... in view of a notification ...
from the China Engineers Ltd., expressing their desire to consider the loan insofar as they
are concerned."
On July 24, 1954 Saura, Inc. took exception to the cancellation of the loan and informed
RFC that China Engineers, Ltd. "will at any time reinstate their signature as co-signer of the
note if RFC releases to us the P500,000.00 originally approved by you.".
On December 17, 1954 RFC passed Resolution No. 9083, restoring the loan to the original
amount of P500,000.00, "it appearing that China Engineers, Ltd. is now willing to sign the
promissory notes jointly with the borrower-corporation," but with the following proviso:
That in view of observations made of the shortage and high cost of
imported raw materials, the Department of Agriculture and Natural
Resources shall certify to the following:
1. That the raw materials needed by the borrower-corporation to carry out
its operation are available in the immediate vicinity; and
2. That there is prospect of increased production thereof to provide
adequately for the requirements of the factory."
The action thus taken was communicated to Saura, Inc. in a letter of RFC dated December
22, 1954, wherein it was explained that the certification by the Department of Agriculture
and Natural Resources was required "as the intention of the original approval (of the loan) is
to develop the manufacture of sacks on the basis of locally available raw materials." This
point is important, and sheds light on the subsequent actuations of the parties. Saura, Inc.
does not deny that the factory he was building in Davao was for the manufacture of bags
from local raw materials. The cover page of its brochure (Exh. M) describes the project as a
"Joint venture by and between the Mindanao Industry Corporation and the Saura Import and
Export Co., Inc. to finance, manage and operate a Kenaf mill plant, to manufacture copra
and corn bags, runners, floor mattings, carpets, draperies; out of 100% local raw materials,
principal kenaf." The explanatory note on page 1 of the same brochure states that, the
venture "is the first serious attempt in this country to use 100% locally grown raw materials
notably kenaf which is presently grown commercially in theIsland of Mindanao where the
proposed jutemill is located ..."
This fact, according to defendant DBP, is what moved RFC to approve the loan application
in the first place, and to require, in its Resolution No. 9083, a certification from the
Department of Agriculture and Natural Resources as to the availability of local raw materials
to provide adequately for the requirements of the factory. Saura, Inc. itself confirmed the
defendant's stand impliedly in its letter of January 21, 1955: (1) stating that according to a
special study made by the Bureau of Forestry "kenaf will not be available in sufficient
quantity this year or probably even next year;" (2) requesting "assurances (from RFC) that
my company and associates will be able to bring in sufficient jute materials as may be
necessary for the full operation of the jute mill;" and (3) asking that releases of the loan be
made as follows:
a) For the payment of the receipt for jute mill
machineries with the Prudential Bank &
Trust Company P250,000.00
(For immediate release)
b) For the purchase of materials and equip-
ment per attached list to enable the jute
mill to operate 182,413.91
c) For raw materials and labor 67,586.09
1) P25,000.00 to be released on the open-
ing of the letter of credit for raw jute
for $25,000.00.
2) P25,000.00 to be released upon arrival
of raw jute.
3) P17,586.09 to be released as soon as the
mill is ready to operate.
On January 25, 1955 RFC sent to Saura, Inc. the following reply:
Dear Sirs:
This is with reference to your letter of January 21, 1955,
regarding the release of your loan under consideration
of P500,000. As stated in our letter of December 22,
1954, the releases of the loan, if revived, are proposed
to be made from time to time, subject to availability of
funds towards the end that the sack factory shall be
placed in actual operating status. We shall be able to
act on your request for revised purpose and manner of
releases upon re-appraisal of the securities offered for
the loan.
With respect to our requirement that the Department of
Agriculture and Natural Resources certify that the raw
materials needed are available in the immediate vicinity
and that there is prospect of increased production
thereof to provide adequately the requirements of the
factory, we wish to reiterate that the basis of the original
approval is to develop the manufacture of sacks on the
basis of the locally available raw materials. Your
statement that you will have to rely on the importation of
jute and your request that we give you assurance that
your company will be able to bring in sufficient jute
materials as may be necessary for the operation of your
factory, would not be in line with our principle in
approving the loan.
With the foregoing letter the negotiations came to a standstill. Saura, Inc. did not pursue the
matter further. Instead, it requested RFC to cancel the mortgage, and so, on June 17, 1955
RFC executed the corresponding deed of cancellation and delivered it to Ramon F. Saura
himself as president of Saura, Inc.
It appears that the cancellation was requested to make way for the registration of a
mortgage contract, executed on August 6, 1954, over the same property in favor of the
Prudential Bank and Trust Co., under which contract Saura, Inc. had up to December 31 of
the same year within which to pay its obligation on the trust receipt heretofore mentioned. It
appears further that for failure to pay the said obligation the Prudential Bank and Trust Co.
sued Saura, Inc. on May 15, 1955.
On January 9, 1964, ahnost 9 years after the mortgage in favor of RFC was cancelled at the
request of Saura, Inc., the latter commenced the present suit for damages, alleging failure
of RFC (as predecessor of the defendant DBP) to comply with its obligation to release the
proceeds of the loan applied for and approved, thereby preventing the plaintiff from
completing or paying contractual commitments it had entered into, in connection with its jute
mill project.
The trial court rendered judgment for the plaintiff, ruling that there was a perfected contract
between the parties and that the defendant was guilty of breach thereof. The defendant
pleaded below, and reiterates in this appeal: (1) that the plaintiff's cause of action had
prescribed, or that its claim had been waived or abandoned; (2) that there was no perfected
contract; and (3) that assuming there was, the plaintiff itself did not comply with the terms
thereof.
We hold that there was indeed a perfected consensual contract, as recognized in Article
1934 of the Civil Code, which provides:
ART. 1954. An accepted promise to deliver something, by way of
commodatum or simple loan is binding upon the parties, but the
commodatum or simple loan itself shall not be perferted until the delivery
of the object of the contract.
There was undoubtedly offer and acceptance in this case: the application of Saura, Inc. for
a loan of P500,000.00 was approved by resolution of the defendant, and the corresponding
mortgage was executed and registered. But this fact alone falls short of resolving the basic
claim that the defendant failed to fulfill its obligation and the plaintiff is therefore entitled to
recover damages.
It should be noted that RFC entertained the loan application of Saura, Inc. on the
assumption that the factory to be constructed would utilize locally grown raw materials,
principally kenaf. There is no serious dispute about this. It was in line with such assumption
that when RFC, by Resolution No. 9083 approved on December 17, 1954, restored the loan
to the original amount of P500,000.00. it imposed two conditions, to wit: "(1) that the raw
materials needed by the borrower-corporation to carry out its operation are available in the
immediate vicinity; and (2) that there is prospect of increased production thereof to provide
adequately for the requirements of the factory." The imposition of those conditions was by
no means a deviation from the terms of the agreement, but rather a step in its
implementation. There was nothing in said conditions that contradicted the terms laid down
in RFC Resolution No. 145, passed on January 7, 1954, namely — "that the proceeds of the
loan shall be utilized exclusively for the following purposes: for construction of factory
building — P250,000.00; for payment of the balance of purchase price of machinery and
equipment — P240,900.00; for working capital — P9,100.00." Evidently Saura, Inc. realized
that it could not meet the conditions required by RFC, and so wrote its letter of January 21,
1955, stating that local jute "will not be able in sufficient quantity this year or probably next
year," and asking that out of the loan agreed upon the sum of P67,586.09 be released "for
raw materials and labor." This was a deviation from the terms laid down in Resolution No.
145 and embodied in the mortgage contract, implying as it did a diversion of part of the
proceeds of the loan to purposes other than those agreed upon.
When RFC turned down the request in its letter of January 25, 1955 the negotiations which
had been going on for the implementation of the agreement reached an impasse. Saura,
Inc. obviously was in no position to comply with RFC's conditions. So instead of doing so
and insisting that the loan be released as agreed upon, Saura, Inc. asked that the mortgage
be cancelled, which was done on June 15, 1955. The action thus taken by both parties was
in the nature cf mutual desistance — what Manresa terms "mutuo disenso"1 — which is a
mode of extinguishing obligations. It is a concept that derives from the principle that since
mutual agreement can create a contract, mutual disagreement by the parties can cause its
extinguishment.2
The subsequent conduct of Saura, Inc. confirms this desistance. It did not protest against
any alleged breach of contract by RFC, or even point out that the latter's stand was legally
unjustified. Its request for cancellation of the mortgage carried no reservation of whatever
rights it believed it might have against RFC for the latter's non-compliance. In 1962 it even
applied with DBP for another loan to finance a rice and corn project, which application was
disapproved. It was only in 1964, nine years after the loan agreement had been cancelled at
its own request, that Saura, Inc. brought this action for damages.All these circumstances
demonstrate beyond doubt that the said agreement had been extinguished by mutual
desistance — and that on the initiative of the plaintiff-appellee itself.
With this view we take of the case, we find it unnecessary to consider and resolve the other
issues raised in the respective briefs of the parties.
WHEREFORE, the judgment appealed from is reversed and the complaint dismissed, with
costs against the plaintiff-appellee.
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.
G.R. No. 174269               May 8, 2009
POLO S. PANTALEON, Petitioner,
vs.
AMERICAN EXPRESS INTERNATIONAL, INC., Respondent.
DECISION
TINGA, J.:
The petitioner, lawyer Polo Pantaleon, his wife Julialinda, daughter Anna Regina and son
Adrian Roberto, joined an escorted tour of Western Europe organized by Trafalgar Tours of
Europe, Ltd., in October of 1991. The tour group arrived in Amsterdam in the afternoon of
25 October 1991, the second to the last day of the tour. As the group had arrived late in the
city, they failed to engage in any sight-seeing. Instead, it was agreed upon that they would
start early the next day to see the entire city before ending the tour.
The following day, the last day of the tour, the group arrived at the Coster Diamond House
in Amsterdam around 10 minutes before 9:00 a.m. The group had agreed that the visit to
Coster should end by 9:30 a.m. to allow enough time to take in a guided city tour of
Amsterdam. The group was ushered into Coster shortly before 9:00 a.m., and listened to a
lecture on the art of diamond polishing that lasted for around ten minutes.1 Afterwards, the
group was led to the store’s showroom to allow them to select items for purchase. Mrs.
Pantaleon had already planned to purchase even before the tour began a 2.5 karat diamond
brilliant cut, and she found a diamond close enough in approximation that she decided to
buy.2 Mrs. Pantaleon also selected for purchase a pendant and a chain,3 all of which totaled
U.S. $13,826.00.
To pay for these purchases, Pantaleon presented his American Express credit card together
with his passport to the Coster sales clerk. This occurred at around 9:15 a.m., or 15 minutes
before the tour group was slated to depart from the store. The sales clerk took the card’s
imprint, and asked Pantaleon to sign the charge slip. The charge purchase was then
referred electronically to respondent’s Amsterdam office at 9:20 a.m.
Ten minutes later, the store clerk informed Pantaleon that his AmexCard had not yet been
approved. His son, who had already boarded the tour bus, soon returned to Coster and
informed the other members of the Pantaleon family that the entire tour group was waiting
for them. As it was already 9:40 a.m., and he was already worried about further
inconveniencing the tour group, Pantaleon asked the store clerk to cancel the sale. The
store manager though asked plaintiff to wait a few more minutes. After 15 minutes, the store
manager informed Pantaleon that respondent had demanded bank references. Pantaleon
supplied the names of his depositary banks, then instructed his daughter to return to the bus
and apologize to the tour group for the delay.
At around 10:00 a.m, or around 45 minutes after Pantaleon had presented his AmexCard,
and 30 minutes after the tour group was supposed to have left the store, Coster decided to
release the items even without respondent’s approval of the purchase. The spouses
Pantaleon returned to the bus. It is alleged that their offers of apology were met by their
tourmates with stony silence.4 The tour group’s visible irritation was aggravated when the
tour guide announced that the city tour of Amsterdam was to be canceled due to lack of
remaining time, as they had to catch a 3:00 p.m. ferry at Calais, Belgium to London.5 Mrs.
Pantaleon ended up weeping, while her husband had to take a tranquilizer to calm his
nerves.
It later emerged that Pantaleon’s purchase was first transmitted for approval to respondent’s
Amsterdam office at 9:20 a.m., Amsterdam time, then referred to respondent’s Manila office
at 9:33 a.m, then finally approved at 10:19 a.m., Amsterdam time.6 The Approval Code was
transmitted to respondent’s Amsterdam office at 10:38 a.m., several minutes after petitioner
had already left Coster, and 78 minutes from the time the purchases were electronically
transmitted by the jewelry store to respondent’s Amsterdam office.
After the star-crossed tour had ended, the Pantaleon family proceeded to the United States
before returning to Manila on 12 November 1992. While in the United States, Pantaleon
continued to use his AmEx card, several times without hassle or delay, but with two other
incidents similar to the Amsterdam brouhaha. On 30 October 1991, Pantaleon purchased
golf equipment amounting to US $1,475.00 using his AmEx card, but he cancelled his credit
card purchase and borrowed money instead from a friend, after more than 30 minutes had
transpired without the purchase having been approved. On 3 November 1991, Pantaleon
used the card to purchase children’s shoes worth $87.00 at a store in Boston, and it took 20
minutes before this transaction was approved by respondent.
On 4 March 1992, after coming back to Manila, Pantaleon sent a letter7 through counsel to
the respondent, demanding an apology for the "inconvenience, humiliation and
embarrassment he and his family thereby suffered" for respondent’s refusal to provide credit
authorization for the aforementioned purchases.8 In response, respondent sent a letter
dated 24 March 1992,9 stating among others that the delay in authorizing the purchase from
Coster was attributable to the circumstance that the charged purchase of US $13,826.00
"was out of the usual charge purchase pattern established."10 Since respondent refused to
accede to Pantaleon’s demand for an apology, the aggrieved cardholder instituted an action
for damages with the Regional Trial Court (RTC) of Makati City, Branch 145.11 Pantaleon
prayed that he be awarded ₱2,000,000.00, as moral damages; ₱500,000.00, as exemplary
damages; ₱100,000.00, as attorney’s fees; and ₱50,000.00 as litigation expenses.12
On 5 August 1996, the Makati City RTC rendered a decision13 in favor of Pantaleon,
awarding him ₱500,000.00 as moral damages, ₱300,000.00 as exemplary damages,
₱100,000.00 as attorney’s fees, and ₱85,233.01 as expenses of litigation. Respondent filed
a Notice of Appeal, while Pantaleon moved for partial reconsideration, praying that the trial
court award the increased amount of moral and exemplary damages he had prayed
for.14 The RTC denied Pantaleon’s motion for partial reconsideration, and thereafter gave
due course to respondent’s Notice of Appeal.15
On 18 August 2006, the Court of Appeals rendered a decision16 reversing the award of
damages in favor of Pantaleon, holding that respondent had not breached its obligations to
petitioner. Hence, this petition.
The key question is whether respondent, in connection with the aforementioned
transactions, had committed a breach of its obligations to Pantaleon. In addition, Pantaleon
submits that even assuming that respondent had not been in breach of its obligations, it still
remained liable for damages under Article 21 of the Civil Code.
The RTC had concluded, based on the testimonial representations of Pantaleon and
respondent’s credit authorizer, Edgardo Jaurigue, that the normal approval time for
purchases was "a matter of seconds." Based on that standard, respondent had been in
clear delay with respect to the three subject transactions. As it appears, the Court of
Appeals conceded that there had been delay on the part of respondent in approving the
purchases. However, it made two critical conclusions in favor of respondent. First, the
appellate court ruled that the delay was not attended by bad faith, malice, or gross
negligence. Second, it ruled that respondent "had exercised diligent efforts to effect the
approval" of the purchases, which were "not in accordance with the charge pattern"
petitioner had established for himself, as exemplified by the fact that at Coster, he was
"making his very first single charge purchase of US$13,826," and "the record of [petitioner]’s
past spending with [respondent] at the time does not favorably support his ability to pay for
such purchase."17
On the premise that there was an obligation on the part of respondent "to approve or
disapprove with dispatch the charge purchase," petitioner argues that the failure to timely
approve or disapprove the purchase constituted mora solvendi on the part of respondent in
the performance of its obligation. For its part, respondent characterizes the depiction by
petitioner of its obligation to him as "to approve purchases instantaneously or in a matter of
seconds."
Petitioner correctly cites that under mora solvendi, the three requisites for a finding of
default are that the obligation is demandable and liquidated; the debtor delays performance;
and the creditor judicially or extrajudicially requires the debtor’s performance.18 Petitioner
asserts that the Court of Appeals had wrongly applied the principle of mora accipiendi,
which relates to delay on the part of the obligee in accepting the performance of the
obligation by the obligor. The requisites of mora accipiendi are: an offer of performance by
the debtor who has the required capacity; the offer must be to comply with the prestation as
it should be performed; and the creditor refuses the performance without just cause.19 The
error of the appellate court, argues petitioner, is in relying on the invocation by respondent
of "just cause" for the delay, since while just cause is determinative of mora accipiendi, it is
not so with the case of mora solvendi.
We can see the possible source of confusion as to which type of mora to appreciate.
Generally, the relationship between a credit card provider and its card holders is that of
creditor-debtor,20 with the card company as the creditor extending loans and credit to the
card holder, who as debtor is obliged to repay the creditor. This relationship already takes
exception to the general rule that as between a bank and its depositors, the bank is deemed
as the debtor while the depositor is considered as the creditor.21 Petitioner is asking us, not
baselessly, to again shift perspectives and again see the credit card company as the
debtor/obligor, insofar as it has the obligation to the customer as creditor/obligee to act
promptly on its purchases on credit.
Ultimately, petitioner’s perspective appears more sensible than if we were to still regard
respondent as the creditor in the context of this cause of action. If there was delay on the
part of respondent in its normal role as creditor to the cardholder, such delay would not
have been in the acceptance of the performance of the debtor’s obligation (i.e., the
repayment of the debt), but it would be delay in the extension of the credit in the first place.
Such delay would not fall under mora accipiendi, which contemplates that the obligation of
the debtor, such as the actual purchases on credit, has already been constituted. Herein,
the establishment of the debt itself (purchases on credit of the jewelry) had not yet been
perfected, as it remained pending the approval or consent of the respondent credit card
company.
Still, in order for us to appreciate that respondent was in mora solvendi, we will have to first
recognize that there was indeed an obligation on the part of respondent to act on
petitioner’s purchases with "timely dispatch," or for the purposes of this case, within a period
significantly less than the one hour it apparently took before the purchase at Coster was
finally approved.
The findings of the trial court, to our mind, amply established that the tardiness on the part
of respondent in acting on petitioner’s purchase at Coster did constitute culpable delay on
its part in complying with its obligation to act promptly on its customer’s purchase request,
whether such action be favorable or unfavorable. We quote the trial court, thus:
As to the first issue, both parties have testified that normal approval time for purchases was
a matter of seconds.
Plaintiff testified that his personal experience with the use of the card was that except for the
three charge purchases subject of this case, approvals of his charge purchases were
always obtained in a matter of seconds.
Defendant’s credit authorizer Edgardo Jaurique likewise testified:
Q. – You also testified that on normal occasions, the normal approval time for
charges would be 3 to 4 seconds?
A. – Yes, Ma’am.
Both parties likewise presented evidence that the processing and approval of plaintiff’s
charge purchase at the Coster Diamond House was way beyond the normal approval time
of a "matter of seconds".
Plaintiff testified that he presented his AmexCard to the sales clerk at Coster, at 9:15 a.m.
and by the time he had to leave the store at 10:05 a.m., no approval had yet been received.
In fact, the Credit Authorization System (CAS) record of defendant at Phoenix Amex shows
that defendant’s Amsterdam office received the request to approve plaintiff’s charge
purchase at 9:20 a.m., Amsterdam time or 01:20, Phoenix time, and that the defendant
relayed its approval to Coster at 10:38 a.m., Amsterdam time, or 2:38, Phoenix time, or a
total time lapse of one hour and [18] minutes. And even then, the approval was conditional
as it directed in computerese [sic] "Positive Identification of Card holder necessary further
charges require bank information due to high exposure. By Jack Manila."
The delay in the processing is apparent to be undue as shown from the frantic successive
queries of Amexco Amsterdam which reads: "US$13,826. Cardmember buying jewels. ID
seen. Advise how long will this take?" They were sent at 01:33, 01:37, 01:40, 01:45, 01:52
and 02:08, all times Phoenix. Manila Amexco could be unaware of the need for speed in
resolving the charge purchase referred to it, yet it sat on its hand, unconcerned.
xxx
To repeat, the Credit Authorization System (CAS) record on the Amsterdam transaction
shows how Amexco Netherlands viewed the delay as unusually frustrating. In sequence
expressed in Phoenix time from 01:20 when the charge purchased was referred for
authorization, defendants own record shows:
01:22 – the authorization is referred to Manila Amexco
01:32 – Netherlands gives information that the identification of the cardmember
has been presented and he is buying jewelries worth US $13,826.
 01:33 – Netherlands asks "How long will this take?"
02:08 – Netherlands is still asking "How long will this take?"
The Court is convinced that defendants delay constitute[s] breach of its contractual
obligation to act on his use of the card abroad "with special handling."22 (Citations omitted)
xxx
Notwithstanding the popular notion that credit card purchases are approved "within
seconds," there really is no strict, legally determinative point of demarcation on how long
must it take for a credit card company to approve or disapprove a customer’s purchase,
much less one specifically contracted upon by the parties. Yet this is one of those instances
when "you’d know it when you’d see it," and one hour appears to be an awfully long,
patently unreasonable length of time to approve or disapprove a credit card purchase. It is
long enough time for the customer to walk to a bank a kilometer away, withdraw money over
the counter, and return to the store.
Notably, petitioner frames the obligation of respondent as "to approve or disapprove" the
purchase "in timely dispatch," and not "to approve the purchase instantaneously or within
seconds." Certainly, had respondent disapproved petitioner’s purchase "within seconds" or
within a timely manner, this particular action would have never seen the light of day.
Petitioner and his family would have returned to the bus without delay – internally humiliated
perhaps over the rejection of his card – yet spared the shame of being held accountable by
newly-made friends for making them miss the chance to tour the city of Amsterdam.
We do not wish do dispute that respondent has the right, if not the obligation, to verify
whether the credit it is extending upon on a particular purchase was indeed contracted by
the cardholder, and that the cardholder is within his means to make such transaction. The
culpable failure of respondent herein is not the failure to timely approve petitioner’s
purchase, but the more elemental failure to timely act on the same, whether favorably or
unfavorably. Even assuming that respondent’s credit authorizers did not have sufficient
basis on hand to make a judgment, we see no reason why respondent could not have
promptly informed petitioner the reason for the delay, and duly advised him that resolving
the same could take some time. In that way, petitioner would have had informed basis on
whether or not to pursue the transaction at Coster, given the attending circumstances.
Instead, petitioner was left uncomfortably dangling in the chilly autumn winds in a foreign
land and soon forced to confront the wrath of foreign folk.
Moral damages avail in cases of breach of contract where the defendant acted fraudulently
or in bad faith, and the court should find that under the circumstances, such damages are
due. The findings of the trial court are ample in establishing the bad faith and unjustified
neglect of respondent, attributable in particular to the "dilly-dallying" of respondent’s Manila
credit authorizer, Edgardo Jaurique.23 Wrote the trial court:
While it is true that the Cardmembership Agreement, which defendant prepared, is silent as
to the amount of time it should take defendant to grant authorization for a charge purchase,
defendant acknowledged that the normal time for approval should only be three to four
seconds. Specially so with cards used abroad which requires "special handling", meaning
with priority. Otherwise, the object of credit or charge cards would be lost; it would be so
inconvenient to use that buyers and consumers would be better off carrying bundles of
currency or traveller’s checks, which can be delivered and accepted quickly. Such right was
not accorded to plaintiff in the instances complained off for reasons known only to defendant
at that time. This, to the Court’s mind, amounts to a wanton and deliberate refusal to comply
with its contractual obligations, or at least abuse of its rights, under the contract.24
xxx
The delay committed by defendant was clearly attended by unjustified neglect and bad faith,
since it alleges to have consumed more than one hour to simply go over plaintiff’s past
credit history with defendant, his payment record and his credit and bank references, when
all such data are already stored and readily available from its computer. This Court also
takes note of the fact that there is nothing in plaintiff’s billing history that would warrant the
imprudent suspension of action by defendant in processing the purchase. Defendant’s
witness Jaurique admits:
Q. – But did you discover that he did not have any outstanding account?
A. – Nothing in arrears at that time.
Q. – You were well aware of this fact on this very date?
A. – Yes, sir.
Mr. Jaurique further testified that there were no "delinquencies" in plaintiff’s account.25
It should be emphasized that the reason why petitioner is entitled to damages is not simply
because respondent incurred delay, but because the delay, for which culpability lies under
Article 1170, led to the particular injuries under Article 2217 of the Civil Code for which
moral damages are remunerative.26 Moral damages do not avail to soothe the plaints of the
simply impatient, so this decision should not be cause for relief for those who time the
length of their credit card transactions with a stopwatch. The somewhat unusual attending
circumstances to the purchase at Coster – that there was a deadline for the completion of
that purchase by petitioner before any delay would redound to the injury of his several
traveling companions – gave rise to the moral shock, mental anguish, serious anxiety,
wounded feelings and social humiliation sustained by the petitioner, as concluded by the
RTC.27 Those circumstances are fairly unusual, and should not give rise to a general
entitlement for damages under a more mundane set of facts.
We sustain the amount of moral damages awarded to petitioner by the RTC. There is no
hard-and-fast rule in determining what would be a fair and reasonable amount of moral
damages, since each case must be governed by its own peculiar facts, however, it must be
commensurate to the loss or injury suffered.28 Petitioner’s original prayer for ₱5,000,000.00
for moral damages is excessive under the circumstances, and the amount awarded by the
trial court of ₱500,000.00 in moral damages more seemly.1avvphi1
Likewise, we deem exemplary damages available under the circumstances, and the amount
of ₱300,000.00 appropriate. There is similarly no cause though to disturb the determined
award of ₱100,000.00 as attorney’s fees, and ₱85,233.01 as expenses of litigation.
WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals is
REVERSED and SET ASIDE. The Decision of the Regional Trial Court of Makati, Branch
145 in Civil Case No. 92-1665 is hereby REINSTATED. Costs against respondent.
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. 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.
8
SO ORDERED.
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.
9
On 8 January 1997, the First Division of the Supreme Court issued a Resolution  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.
43
In Pitargue v. Sorilla,  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. 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.
G.R. No. L-46240             November 3, 1939
MARGARITA QUINTOS and ANGEL A. ANSALDO, plaintiffs-appellants,
vs.
BECK, defendant-appellee.
Mauricio Carlos for appellants.
Felipe Buencamino, Jr. for appellee.
IMPERIAL, J.:
The plaintiff brought this action to compel the defendant to return her certain furniture which
she lent him for his use. She appealed from the judgment of the Court of First Instance of
Manila which ordered that the defendant return to her the three has heaters and the four
electric lamps found in the possession of the Sheriff of said city, that she call for the other
furniture from the said sheriff of Manila at her own expense, and that the fees which the
Sheriff may charge for the deposit of the furniture be paid pro rata by both parties, without
pronouncement as to the costs.
The defendant was a tenant of the plaintiff and as such occupied the latter's house on M. H.
del Pilar street, No. 1175. On January 14, 1936, upon the novation of the contract of lease
between the plaintiff and the defendant, the former gratuitously granted to the latter the use
of the furniture described in the third paragraph of the stipulation of facts, subject to the
condition that the defendant would return them to the plaintiff upon the latter's demand. The
plaintiff sold the property to Maria Lopez and Rosario Lopez and on September 14, 1936,
these three notified the defendant of the conveyance, giving him sixty days to vacate the
premises under one of the clauses of the contract of lease. There after the plaintiff required
the defendant to return all the furniture transferred to him for them in the house where they
were found. On             November 5, 1936, the defendant, through another person, wrote to
the plaintiff reiterating that she may call for the furniture in the ground floor of the house. On
the 7th of the same month, the defendant wrote another letter to the plaintiff informing her
that he could not give up the three gas heaters and the four electric lamps because he
would use them until the 15th of the same month when the lease in due to expire. The
plaintiff refused to get the furniture in view of the fact that the defendant had declined to
make delivery of all of them. On             November 15th, before vacating the house, the
defendant deposited with the Sheriff all the furniture belonging to the plaintiff and they are
now on deposit in the warehouse situated at No. 1521, Rizal Avenue, in the custody of the
said sheriff.
In their seven assigned errors the plaintiffs contend that the trial court incorrectly applied the
law: in holding that they violated the contract by not calling for all the furniture on November
5, 1936, when the defendant placed them at their disposal; in not ordering the defendant to
pay them the value of the furniture in case they are not delivered; in holding that they should
get all the furniture from the Sheriff at their expenses; in ordering them to pay-half of the
expenses claimed by the Sheriff for the deposit of the furniture; in ruling that both parties
should pay their respective legal expenses or the costs; and in denying pay their respective
legal expenses or the costs; and in denying the motions for reconsideration and new trial.
To dispose of the case, it is only necessary to decide whether the defendant complied with
his obligation to return the furniture upon the plaintiff's demand; whether the latter is bound
to bear the deposit fees thereof, and whether she is entitled to the costs of
litigation.lawphi1.net
The contract entered into between the parties is one of commadatum, because under it the
plaintiff gratuitously granted the use of the furniture to the defendant, reserving for herself
the ownership thereof; by this contract the defendant bound himself to return the furniture to
the plaintiff, upon the latters demand (clause 7 of the contract, Exhibit A; articles 1740,
paragraph 1, and 1741 of the Civil Code). The obligation voluntarily assumed by the
defendant to return the furniture upon the plaintiff's demand, means that he should return all
of them to the plaintiff at the latter's residence or house. The defendant did not comply with
this obligation when he merely placed them at the disposal of the plaintiff, retaining for his
benefit the three gas heaters and the four eletric lamps. The provisions of article 1169 of the
Civil Code cited by counsel for the parties are not squarely applicable. The trial court,
therefore, erred when it came to the legal conclusion that the plaintiff failed to comply with
her obligation to get the furniture when they were offered to her.

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

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

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

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