SECOND DIVISION

[G.R. No. L-24968. April 27, 1972.]

SAURA IMPORT & EXPORT CO., INC., plaintiff-appellee, vs. DEVELOPMENT BANK OF THE
PHILIPPINES, defendant-appellant.
Mabanag, Eliger & Associates & Saura, Magno & Associates for plaintiff-appellee.
Jesus A. Avanceña and Hilario G. Orsolino for defendant-appellant.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACTS; PERFECTION UPON
ACCEPTANCE OF PROMISE TO DELIVER SOMETHING BY WAY OF SIMPLE LOAN; ART.
1954 OF THE CIVIL CODE. — Where the application of Saura Inc. for a loan of P500,000.00 was
approved by resolution of the defendant, and the corresponding mortgage executed and registered,
there is undoubtedly offer and acceptance and We hold that there was indeed a perfected consensual
contract as recognized in Article 1954 of the Civil Code.
2. ID.; ID.; ID.; ID.; DEFENDANT DID NOT DEVIATE FROM PERFECTED CONTRACT IN
CASE AT BAR. — The terms laid down in RFC Resolution No. 145 passed on Jan. 7, 1954 which
resolution approved the loan application state 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." There is no serious dispute 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 . It was in line with such assumption that when RFC, by Resolution 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 RFC Resolution No. 145.
3. ID.; ID.; ID.; ID.; DEVIATION MADE BY PLAINTIFF. — Evidently Saura Inc., realized that
it could not meet the conditions required by RFC in Resolution 9083, and so wrote its letter of January
21, 1955, stating that local jute "will not be available 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.
4. ID.; ID.; EXTINGUISHMENT OF OBLIGATION BY MUTUAL DESISTANCE; IN
INSTANT CASE. — When RFC turned down the request of Saura Inc., 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 of mutual desistance — what Manresa
terms "mutuo disenso" — which is a mode of extinguishing obligations. It is a concept that derives
from the principle that since mutual agreement by the parties can create a contract, mutual
disagreement by the parties can cause its extinguishment.
DECISION
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 buildings 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 & equipment 240,900.00
For working capital 9,100.00
—————
TOTAL 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 re-examination 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 re-examination
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 co-signers, wrote RFC that his company no longer
wished to avail of the loan and therefore considered the same 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 cancelled 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 the Island 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 equipment
per attached list to enable the jute
mill to operateP182,413.91
c) For raw materials and labor 67,586.09
1) P25,000.00 to be released on the opening
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 purposes 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, almost 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 perfected 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 that 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. 9033
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 available 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 of 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 noncompliance. 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.
Reyes, J.B.L., Actg. C.J., Zaldivar, Castro, Fernando, Teehankee, Barredo and Antonio, JJ., concur.
Makasiar, J., took no part.
Footnotes
1. 8 Manresa, p. 294.
2. Castan, p. 560.
SECOND DIVISION
[G.R. No. L-45710. October 3, 1985.]
CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR ANTONIO T. CASTRO, JR.
OF THE DEPARTMENT OF COMMERCIAL AND SAVINGS BANK, in his capacity as statutory
receiver of Island Savings Bank, petitioners, vs. THE HONORABLE COURT OF APPEALS and
SULPICIO M. TOLENTINO, respondents.
I. B. Regalado, Jr., Fabian S. Lombos and Marino E. Eslao for petitioners.
Antonio R. Tupaz for private respondent.
DECISION
MAKASIAR, C.J p:
This is a petition for review on certiorari to set aside as null and void the decision of the Court of
Appeals, in C.A.-G.R. No. 52253-R dated February 11, 1977, modifying the decision dated February
15, 1972 of the Court of First Instance of Agusan, which dismissed the petition of respondent Sulpicio
M. Tolentino for injunction, specific performance or rescission, and damages with preliminary
injunction.
On April 28, 1965, Island Savings Bank, upon favorable recommendation of its legal department,
approved the loan application for P80,000.00 of Sulpicio M. Tolentino, who, as a security for the loan,
executed on the same day a real estate mortgage over his 100-hectare land located in Cubo, Las Nieves,
Agusan, and covered by TCT No. T-305, and which mortgage was annotated on the said title the next
day. The approved loan application called for a lump sum P80,000.00 loan, repayable in semi-annual
installments for a period of 3 years, with 12% annual interest. It was required that Sulpicio M.
Tolentino shall use the loan proceeds solely as an additional capital to develop his other property into a
subdivision.
On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00 loan was made by the Bank; and
Sulpicio M. Tolentino and his wife Edita Tolentino signed a promissory note for P17,000.00 at 12%
annual interest, payable within 3 years from the date of execution of the contract at semi-annual
installments of P3,459.00 (p. 64, rec.), An advance interest for the P80,000.00 loan covering a 6-month
period amounting to P4,800.00 was deducted from the partial release of P17,000.00. But this pre-
deducted interest was refunded to Sulpicio M. Tolentino on July 23, 1965, after being informed by the
Bank that there was no fund yet available for the release of the P63,000.00 balance (p. 47, rec.). The
Bank, thru its vice-president and treasurer, promised repeatedly the release of the P63,000.00 balance
(p. 113, rec.).
On August 13, 1965, the Monetary Board of the Central Bank, after finding Island Savings Bank was
suffering liquidity problems, issued Resolution No. 1049, which provides:
"In view of the chronic reserve deficiencies of the Island Savings Bank against its deposit liabilities, the
Board, by unanimous vote, decided as follows:
"1) To prohibit the bank from making new loans and investments [except investments in
government securities] excluding extensions or renewals of already approved loans, provided that such
extensions or renewals shall be subject to review by the Superintendent of Banks, who may impose
such limitations as may be necessary to insure correction of the bank's deficiency as soon as possible;
. . ." (p. 46, rec.).
On June 14, 1968, the Monetary Board, after finding that Island Savings Bank failed to put up the
required capital to restore its solvency, issued Resolution No. 967 which prohibited Island Savings
Bank from doing business in the Philippines and instructed the Acting Superintendent of Banks to take
charge of the assets of Island Savings Bank (pp. 48-49, rec.).
On August 1, 1968, Island Savings Bank, in view of non-payment of the P17,000.00 covered by the
promissory note, filed an application for the extra-judicial foreclosure of the real estate mortgage
covering the 100-hectare land of Sulpicio M. Tolentino; and the sheriff scheduled the auction for
January 22, 1969.
On January 20, 1969, Sulpicio M. Tolentino filed a petition with the Court of First Instance of Agusan
for injunction, specific performance or rescission and damages with preliminary injunction, alleging
that since Island Savings Bank failed to deliver the P63,000.00 balance of the P80,000.00 loan, he is
entitled to specific performance by ordering Island Savings Bank to deliver the P63,000.00 with
interest of 12% per annum from April 28, 1965, and if said balance cannot be delivered, to rescind the
real estate mortgage (pp. 32-43, rec.).
On January 21, 1969, the trial court, upon the filing of a P5,000.00 surety bond, issued a temporary
restraining order enjoining the Island Savings Bank from continuing with the foreclosure of the
mortgage (pp. 86-87, rec.).
On January 29, 1969, the trial court admitted the answer in intervention praying for the dismissal of the
petition of Sulpicio M. Tolentino and the setting aside of the restraining order, filed by the Central
Bank and by the Acting Superintendent of Banks (pp. 65-76, rec.).
On February 15, 1972, the trial court, after trial on the merits, rendered its decision, finding
unmeritorious the petition of Sulpicio M. Tolentino, ordering him to pay Island Savings Bank the
amount of P17,000.00 plus legal interest and legal charges due thereon, and lifting the restraining order
so that the sheriff may proceed with the foreclosure (pp. 135-136, rec.).
On February 11, 1977, the Court of Appeals, on appeal by Sulpicio M. Tolentino, modified the Court
of First Instance decision by affirming the dismissal of Sulpicio M. Tolentino's petition for specific
performance, but it ruled that Island Savings Bank can neither foreclose the real estate mortgage nor
collect the P17,000.00 loan (pp. 30-31, rec.). prcd
Hence, this instant petition by the Central Bank.
The issues are:
1. Can the action of Sulpicio M. Tolentino for specific performance prosper?
2. Is Sulpicio M. Tolentino liable to pay the P17,000.00 debt covered by the promissory note?
3. If Sulpicio M. Tolentino's liability to pay the P17,000.00 subsists, can his real estate mortgage
be foreclosed to satisfy said amount?.
When Island Savings Bank and Sulpicio M. Tolentino entered into an P80,000.00 loan agreement on
April 28, 1965, they undertook reciprocal obligations. In reciprocal obligations, the obligation or
promise of each party is the consideration for that of the other (Penaco vs. Ruaya, 110 SCRA 46
[1981]; Vda. de Quirino vs. Pelarca, 29 SCRA 1 [1969]); and when one party has performed or is ready
and willing to perform his part of the contract, the other party who has not performed or is not ready
and willing to perform incurs in delay (Art. 1169 of the Civil Code). The promise of Sulpicio M.
Tolentino to pay was the consideration for the obligation of Island Savings Bank to furnish the
P80,000.00 loan. When Sulpicio M. Tolentino executed a real estate mortgage on April 28, 1965, he
signified his willingness to pay the P80,000.00 loan. From such date, the obligation of Island Savings
Bank to furnish the P80,000.00 loan accrued. Thus, the Bank's delay in furnishing the entire loan
started on April 28, 1965, and lasted for a period of 3 years or when the Monetary Board of the Central
Bank issued Resolution No. 967 on June 14, 1968, which prohibited Island Savings Bank from doing
further business. Such prohibition made it legally impossible for Island Savings Bank to furnish the
P63,000.00 balance of the P80,000.00 loan. The power of the Monetary Board to take over insolvent
banks for the protection of the public is recognized by Section 29 of R.A. No. 265, which took effect
on June 15, 1948, the validity of which is not in question.
The Monetary Board Resolution No. 1049 issued on August 13, 1965 cannot interrupt the default of
Island Savings Bank in complying with its obligation of releasing the P63,000.00 balance because said
resolution merely prohibited the Bank from making new loans and investments, and nowhere did it
prohibit Island Savings Bank from releasing the balance of loan agreements previously contracted.
Besides, the mere pecuniary inability to fulfill an engagement does not discharge the obligation of the
contract, nor does it constitute any defense to a decree of specific performance (Gutierrez Repide vs.
Afzelins and Afzelins, 39 Phil. 190 [1918]). And, the mere fact of insolvency of a debtor is never an
excuse for the non-fulfillment of an obligation but instead it is taken as a breach of the contract by him
(Vol. 17A, 1974 ed., CJS p. 650). LexLib
The fact that Sulpicio M. Tolentino demanded and accepted the refund of the pre-deducted interest
amounting to P4,800.00 for the supposed P80,000.00 loan covering a 6-month period cannot be taken
as a waiver of his right to collect the P63,000.00 balance. The act of Island Savings Bank, in asking the
advance interest for 6 months on the supposed P80,000.00 loan, was improper considering that only
P17,000.00 out of the P80,000.00 loan was released. A person cannot be legally charged interest for a
non-existing debt. Thus, the receipt by Sulpicio M. Tolentino of the pre-deducted interest was an
exercise of his right to it, which right exist independently of his right to demand the completion of the
P80,000.00 loan. The exercise of one right does not affect, much less neutralize, the exercise of the
other.
The alleged discovery by Island Savings Bank of the over-valuation of the loan collateral cannot
exempt it from complying with its reciprocal obligation to furnish the entire P80,000.00 loan. This
Court previously ruled that bank officials and employees are expected to exercise caution and prudence
in the discharge of their functions (Rural Bank of Caloocan, Inc. vs. C.A., 104 SCRA 151 [1981]). It is
the obligation of the bank's officials and employees that before they approve the loan application of
their customers, they must investigate the existence and valuation of the properties being offered as a
loan security. The recent rush of events where collaterals for bank loans turn out to be non-existent or
grossly over-valued underscore the importance of this responsibility. The mere reliance by bank
officials and employees on their customer's representation regarding the loan collateral being offered as
loan security is a patent non-performance of this responsibility. If ever, bank officials and employees
totally rely on the representation of their customers as to the valuation of the loan collateral, the bank
shall bear the risk in case the collateral turn out to be over-valued. The representation made by the
customer is immaterial to the bank's responsibility to conduct its own investigation. Furthermore, the
lower court, on objections of Sulpicio M. Tolentino, had enjoined petitioners from presenting proof on
the alleged over-valuation because of their failure to raise the same in their pleadings (pp. 198-199,
t.s.n., Sept. 15, 1971). The lower court's action is sanctioned by the Rules of Court, Section 2, Rule 9,
which states that "defenses and objections not pleaded either in a motion to dismiss or in the answer are
deemed waived." Petitioners, thus, cannot raise the same issue before the Supreme Court.
Since Island Savings Bank was in default in fulfilling its reciprocal obligation under their loan
agreement, Sulpicio M. Tolentino, under Article 1191 of the Civil Code, may choose between specific
performance or rescission with damages in either case. But since Island Savings Bank is now
prohibited from doing further business by Monetary Board Resolution No. 967, WE cannot grant
specific performance in favor of Sulpicio M. Tolentino.
Rescission is the only alternative remedy left. WE rule, however, that rescission is only for the
P63,000.00 balance of the P80,000.00 loan, because the bank is in default only insofar as such amount
is concerned, as there is no doubt that the bank failed to give the P63,000.00. As far as the partial
release of P17,000.00, which Sulpicio M. Tolentino accepted and executed a promissory note to cover
it, the bank was deemed to have complied with its reciprocal obligation to furnish a P17,000.00 loan.
The promissory note gave rise to Sulpicio M. Tolentino's reciprocal obligation to pay the P17,000.00
loan when it falls due. His failure to pay the overdue amortizations under the promissory note made
him a party in default, hence not entitled to rescission (Article 1191 of the Civil Code). If there is a
right to rescind the promissory note, it shall belong to the aggrieved party, that is, Island Savings Bank.
If Tolentino had not signed a promissory note setting the date for payment of P17,000.00 within 3
years, he would be entitled to ask for rescission of the entire loan because he cannot possibly be in
default as there was no date for him to perform his reciprocal obligation to pay.
Since both parties were in default in the performance of their respective reciprocal obligations, that is,
Island Savings Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M.
Tolentino failed to comply with his obligation to pay his P17,000.00 debt within 3 years as stipulated,
they are both liable for damages. Cdpr
Article 1192 of the Civil Code provides that in case both parties have committed a breach of their
reciprocal obligations, the liability of the first infractor shall be equitably tempered by the courts. WE
rule that the liability of Island Savings Bank for damages in not furnishing the entire loan is offset by
the liability of Sulpicio M. Tolentino for damages, in the form of penalties and surcharges, for not
paying his overdue P17,000.00 debt. The liability of Sulpicio M. Tolentino for interest on his
P17,000.00 debt shall not be included in offsetting the liabilities of both parties. Since Sulpicio M.
Tolentino derived some benefit for his use of the P17,000.00, it is just that he should account for the
interest thereon.
WE hold, however, that the real estate mortgage of Sulpicio M. Tolentino cannot be entirely foreclosed
to satisfy his P17,000.00 debt.
The consideration of the accessory contract of real estate mortgage is the same as that of the principal
contract (Banco de Oro vs. Bayuga, 93 SCRA 443 [1979]). For the debtor, the consideration of his
obligation to pay is the existence of a debt. Thus, in the accessory contract of real estate mortgage, the
consideration of the debtor in furnishing the mortgage is the existence of a valid, voidable, or
unenforceable debt (Art. 2086, in relation to Art. 2052, of the Civil Code).
The fact that when Sulpicio M. Tolentino executed his real estate mortgage, no consideration was then
in existence, as there was no debt yet because Island Savings Bank had not made any release on the
loan, does not make the real estate mortgage void for lack of consideration. It is not necessary that any
consideration should pass at the time of the execution of the contract of real mortgage (Bonnevie vs.
C.A., 125 SCRA 122 [1983]). It may either be a prior or subsequent matter. But when the consideration
is subsequent to the mortgage, the mortgage can take effect only when the debt secured by it is created
as a binding contract to pay (Parks vs. Sherman, Vol. 176 N.W. p. 583, cited in the 8th ed., Jones on
Mortgage, Vol. 2, pp. 5-6). And, when there is partial failure of consideration, the mortgage becomes
unenforceable to the extent of such failure (Dow, et al. vs. Poore, Vol. 172 N.E. p. 82, cited in Vol. 59,
1974 ed. CJS, p. 138). Where the indebtedness actually owing to the holder of the mortgage is less than
the sum named in the mortgage, the mortgage cannot be enforced for more than the actual sum due
(Metropolitan Life Ins. Co. vs. Peterson, Vol. 19, F(2d) p. 88, cited in 6th ed., Wiltsie on Mortgage,
Vol. 1, p. 180). LLpr
Since Island Savings Bank failed to furnish the P63,000.00 balance of the P80,000.00 loan, the real
estate mortgage of Sulpicio M. Tolentino became unenforceable to such extent. P63,000.00 is 78.75%
of P80,000.00, hence the real estate mortgage covering 100 hectares is unenforceable to the extent of
78.75 hectares. The mortgage covering the remainder of 21.25 hectares subsists as a security for the
P17,000.00 debt. 21.25 hectares is more than sufficient to secure a P17,000.00 debt.
The rule of indivisibility of a real estate mortgage provided for by Article 2089 of the Civil Code is
inapplicable to the facts of this case.
Article 2089 provides:
"A pledge or mortgage is indivisible even though the debt may be divided among the successors in
interest of the debtor or creditor.
"Therefore, the debtor's heirs who has paid a part of the debt can not ask for the proportionate
extinguishment of the pledge or mortgage as long as the debt is not completely satisfied.
"Neither can the creditor's heir who have received his share of the debt return the pledge or cancel the
mortgage, to the prejudice of other heirs who have not been paid."
The rule of indivisibility of the mortgage as outlined by Article 2089 above-quoted presupposes several
heirs of the debtor or creditor which does not obtain in this case. Hence, the rule of indivisibility of a
mortgage cannot apply.
WHEREFORE, THE DECISION OF THE COURT OF APPEALS DATED FEBRUARY 11, 1977 IS
HEREBY MODIFIED, AND
1. SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY IN FAVOR OF HEREIN
PETITIONERS THE SUM OF P17,000.00, PLUS P41,210.00 REPRESENTING 12% INTEREST
PER ANNUM COVERING THE PERIOD FROM MAY 22, 1965 TO AUGUST 22, 1985, AND 12%
INTEREST ON THE TOTAL AMOUNT COUNTED' FROM AUGUST 22, 1985 UNTIL PAID;
2. IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS REAL ESTATE MORTGAGE
COVERING 21.25 HECTARES SHALL BE FORECLOSED TO SATISFY HIS TOTAL
INDEBTEDNESS; AND
3. THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES IS HEREBY
DECLARED UNENFORCEABLE AND IS HEREBY ORDERED RELEASED IN FAVOR OF
SULPICIO M. TOLENTINO.
NO COSTS. SO ORDERED.
Concepcion, Jr., Escolin, Cuevas and Alampay, JJ., concur.
Aquino (Chairman) and Abad Santos, JJ., took no part.
SECOND DIVISION
[G.R. No. 133632. February 15, 2002.]
BPI INVESTMENT CORPORATION, petitioner, vs. HON. COURT OF APPEALS and ALS
MANAGEMENT & DEVELOPMENT CORPORATION, respondents.
Benedicto Tale Versoza & Associates for petitioner.
Vicente B. Chuidian for private respondent.
SYNOPSIS
The appellate court affirmed the judgment of the Regional Trial Court of Pasig City in a case for
foreclosure of mortgage by petitioner BPI Investment Corporation (BPIIC for brevity) against private
respondents ALS Management and Development Corporation and Antonio K. Litonjua, consolidated
with 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 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. In the instant petition, petitioner contended 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
claimed 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 the Court's ruling in Bonnevie v. Court of Appeals.
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. HaAISC
The Supreme Court affirmed the judgment of the Court of Appeals with modification as to the
damages. The Court ruled that 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. Petitioner misapplied Bonnevie. The
contract in Bonnevie declared by the 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 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.
SYLLABUS
1. CIVIL LAW; CONTRACTS; LOAN; NOT A CONSENSUAL CONTRACT BUT A REAL
CONTRACT; IT IS PERFECTED ONLY UPON DELIVERY OF THE OBJECT OF THE
CONTRACT; CASE AT BAR. — 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. 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 P500,000 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. 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.
2. ID.; ID.; ID.; INVOLVES RECIPROCAL OBLIGATION WHEREIN THE OBLIGATION OR
PROMISE OF EACH PARTY IS THE CONSIDERATION FOR THAT OF THE OTHER. — 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. 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. 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. HESCcA
3. ID.; DAMAGES; NO BASIS FOR AWARD OF MORAL AND EXEMPLARY DAMAGES;
NOMINAL DAMAGES AWARDED TO RESPONDENTS BY REASON OF PETITIONER'S
NEGLIGENCE. — 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.
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. For this purpose, the amount of P25,000 is sufficient.
DECISION
QUISUMBING, J p:
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. SAHaTc
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 P300,000 for moral damages, P50,000 for
exemplary damages, and P50,000 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 16¼% 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 P850,000. They paid P350,000 in cash and assumed the P500,000 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 P500,000 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 P9,996.58 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
P190,601.35. This reduced Roa's principal balance to P457,204.90 which, in turn, was liquidated when
BPIIC applied thereto the proceeds of private respondents' loan of P500,000.
On September 13, 1982, BPIIC released to private respondents P7,146.87, 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 (P475,585.31). 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 P500,000 loan in August and September 1982. Further, out of the P500,000 loan, only the
total amount of P464,351.77 was released to private respondents. Hence, applying the effects of legal
compensation, the balance of P35,648.23 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 P500,000 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 P194,960.43. Evidence
showed that private respondents had an overpayment, because as of June 1984, they already paid a total
amount of P201,791.96. 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 P500,000 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 P500,000 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. 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 P25,000 is sufficient.
Lastly, as in SSS where we awarded attorney's fees because private respondents were compelled to
litigate, we sustain the award of P50,000 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 P50,000 is UPHELD. Additionally, petitioner is ORDERED to pay
private respondents P25,000 as nominal damages. Costs against petitioner. ACTIcS
SO ORDERED.
Bellosillo, Mendoza, Buena and De Leon, Jr., JJ., concur.
Footnotes
1. While Antonio K. Litonjua was not included in the caption of the petition before this court,
apparently, the intention of petitioner was to include Litonjua as private respondent for he was a party
in all stages of the case both before the Regional Trial Court and the Court of Appeals and it was
clearly indicated in the petition that "ALS" collectively referred to as ALS Management and
Development Corporation and Antonio K. Litonjua.
2. RTC Records, p. 278.
3. Rollo, p. 32.
4. Art. 1934. 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.
5. Art. 1934, Civil Code of the Philippines; Monte de Piedad vs. Javier, et al., 36 OG 2176; A.
Padilla, Civil Code of the Philippines Annotated, Vol. VI, pp. 474-475 (1987); E. Paras, Civil Code of
the Philippines Annotated, Vol. V, p. 885 (1995).
6. A. Tolentino, Civil Code of the Philippines, V. 5, p. 443 (1992).
7. Supra, note 3 at 30.
8. Rose Packing Co. Inc. vs. Court of Appeals, No. L-33084, 167 SCRA 309, 318-319 (1988).
9. Art. 1169, Civil Code:
xxx xxx xxx
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. From the moment one of the
parties fulfills his obligation, delay by the other begins.
10. American President Lines, Ltd. vs. Court of Appeals, G.R. No. 110853, 336 SCRA 582, 586
(2000).
11. Art. 2234, Civil Code: While the amount of the exemplary damages need not be proved, the
plaintiff must show that he is entitled to moral, temperate or compensatory damages before the court
may consider the question of whether or not exemplary damages should be awarded. In case liquidated
damages have been agreed upon, although no proof of loss is necessary in order that such liquidated
damages may be recovered, nevertheless, before the court may consider the question of granting
exemplary in addition to the liquidated damages, the plaintiff must show that he would be entitled to
moral, temperate or compensatory damages were it not for the stipulation for liquidated damages.
12. Art. 2221, Civil Code: Nominal damages are adjudicated in order that a right of the plaintiff,
which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the
purpose of indemnifying the plaintiff for any loss suffered by him.
SECOND DIVISION
[G.R. No. L-49101. October 24, 1983.]
RAOUL S.V. BONNEVIE and HONESTO V. BONNEVIE, petitioners, vs. THE HONORABLE
COURT OF APPEALS and THE PHILIPPINE BANK OF COMMERCE, respondents.
Edgardo I. De Leon for petitioners.
Siguion Reyna, Montecillo & Associates for private respondent.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACT OF LOAN WITH
MORTGAGE; BEING A CONSENSUAL CONTRACT, DEEMED PERFECTED AT THE
EXECUTION OF THE CONTRACT OF MORTGAGE; FAILURE TO TAKE IMMEDIATE
COLLECTION OF CONSIDERATION, IMMATERIAL. — From the recitals of the mortgage deed
itself, it is clearly seen that the mortgage deed was executed for and on condition of the loan granted to
the Lozano spouses. The fact that the latter did not collect from the respondent Bank the consideration
of the mortgage on the date it was executed is immaterial. A contract of loan being a consensual
contract, the herein contract of loan was perfected at the same time the contract of mortgage was
executed. The promissory note executed on December 12, 1966 is only an evidence of indebtedness
and does not indicate lack of consideration of the mortgage at the time of its execution.
2. ID.; ID.; SALE WITH ASSUMPTION OF MORTGAGE; CONSENT OF THlE MORTGAGE
NOT SECURED; VENDEES ESTOPPED FROM QUESTIONING VALIDITY OF THE ORIGINAL
LOAN WITH MORTGAGE. — Petitioners admit that they did not secure the consent of respondent
Bank to the sale with assumption of mortgage. Coupled with the fact that the sale/assignment was not
registered so that the title remained in the name of the Lozano spouses, insofar as respondent Bank was
concerned, the Lozano spouses could rightfully and validly mortgage the property. Respondent Bank
had every right to rely on the certificate of title. It was not hound to go behind the same to look for
flaws in the mortgagor's title, the doctrine of innocent purchaser for value being applicable to an
innocent mortgage for value. (Roxas vs. Dinglasan, 28 SCRA 430; Mallorca vs. De Ocampo, 32 SCRA
48). Another argument for the respondent Bank is that a mortgage follows the property whoever the
possessor may he and subjects the fulfillment of the obligation for whose security it was constituted.
Finally, it can also be said that petitioners voluntarily assumed the mortgage when they entered into the
Deed of Sale with Assumption of Mortgage. They are, therefore, estopped from impugning its validity
whether on the original loan or renewals thereof.
3. ID.; MORTGAGE; EXTRA-JUDICIAL FORECLOSURE; PERSONAL NOTICE UNDER
ACT 3135, NOT REQUIRED NOR TO ANYONE NOT PRIVY TO THE OBLIGATION. — The lack
of notice of the foreclosure sale on petitioners is a flimsy ground. Respondent Bank not being a party to
the Deed of Sale with Assumption of Mortgage, it can validly claim that it was not aware of the same
and hence, it may not be obliged to notify petitioners. Secondly, petitioner Honesto Bonnevie was not
entitled to any notice because as of May 14, 1968, he had transferred and assigned all his rights and
interests over the property in favor of intervenor Raoul Bonnevie and respondent Bank was not
likewise informed of the same. For the same reason, Raoul Bonnevie is not entitled to notice. Most
importantly, Act No. 3135 does not require personal notice on the mortgagor. In the case at bar, the
notice of sale was published in the Luzon Courier on June 30, July 7 and July 14, 1968 and notices of
the sale were posted for not less than twenty days in at least three (3) public places in the Municipality
where the property is located. Petitioners were thus placed on constructive notice.
4. ID.; ID.; SANTIAGO CASE; NOT APPLICABLE IN THE CASE AT BAR. — The case of
Santiago vs. Dionisio, 92 Phil. 495, cited by petitioners is inapplicable because said case involved a
judicial foreclosure and the sale to the vendee of the mortgaged property was duly registered making
the mortgagee privy to the sale.
5. ID.; ID.; EXTRA-JUDICIAL FORECLOSURE; PERIOD OF PUBLICATION OF NOTICE
OF AUCTION SALE, CONSTRUED. — As regards the claim that the period of publication of the
notice of auction sale was not in accordance with law, namely: once a week for at least three
consecutive weeks, the Court of Appeals ruled that the publication of notice on June 30, July 7 and July
14, 1968 satisfies the publication requirement under Act No. 3133 notwithstanding the fact that June 30
to July 14 is only 14 days. We agree. Act No. 3135 merely requires that "such notice shall be published
once a week for at least three consecutive weeks." Such phrase, as interpreted by the Court in Basa vs.
Mercado, 61 Phil. 632, does not mean that notice should be published for three full weeks.
6. REMEDIAL LAW; EVIDENCE; AFFIDAVIT OF PUBLICATION BY THE PUBLISHER,
BUSINESS/ADVERTISING MANAGER OF A NEWSPAPER; PRIMA FACIE EVIDENCE OF
PUBLICATION. — The argument that the publication of the notice in the "Luzon Weekly Courier"
was not in accordance with law as said newspaper is not of general circulation must likewise he
disregarded. The affidavit of publication, executed by the publisher, business/advertising manager of
the Luzon Weekly Courier, states that it is "a newspaper of general circulation in . . . Rizal; and that the
Notice of Sheriff's sale was published in said paper on June 30, July and July 14, 1968." This
constitutes prima facie evidence of compliance with the requisite publication. (Sadang vs. GSlS, 18
SCRA 491). To be a newspaper of general circulation, it is enough that "it is published for the
dissemination of local news and general information; that it has a bona fide subscription list of paying
subscribers; that it is published at regular intervals." (Basa vs. Mercado, 61 Phil. 632). The newspaper
need not have the largest circulation so long as it is of general circulation. (Banta vs. Pacheco, 74 Phil.
67). The testimony of three witnesses that they do not read the Luzon Weekly Courier is not proof that
said newspaper is not a newspaper of general circulation in the province of Rizal.
7. ID.; NOTICE; PUBLICATION; NEWSPAPER OF GENERAL CIRCULATION,
CONSTRUED. — Whether or not the notice of auction sale was posted for the period required by law
is a question of fact. It can no longer be entertained by this Court. (See Reyes, et al. vs. CA, et al., 107
SCRA 126) Nevertheless, the records show that copies of said notice were posted in three conspicuous
places in the municipality of Pasig, Rizal namely: the Hall of Justice, the Pasig Municipal Market and
Pasig Municipal Hall. In the same manner, copies of said notice were also posted in the place where the
property was located, namely: the Municipal Building of San Juan, Rizal; the Municipal Market and on
Benitez Street. The following statement of Atty. Santiago Pastor, head of the legal department of
respondent bank namely: "Q - How many days were the notices posted in these two places, if you
know? A- We posted them only once in one day" (TSN, p.45, July 25, 1973) is not a sufficient
countervailing evidence to prove that there was no compliance with the posting requirement in the
absence of proof or even of allegation that the notices were removed before the expiration of the twenty
day period. A single act of posting (which may even extend beyond the period required by law)
satisfies the requirement of law. The burden of proving that the posting requirement was not complied
with is now shifted to the one who alleges non-compliance.
8. CIVIL LAW; MORTGAGE; UNREGISTERED MORTGAGOR; RIGHT TO REDEEM;
DISALLOWED. — On the question of whether or not the petitioners had a right to redeem the
property, the Supreme Court holds that the Court of Appeals did not err in ruling that they had no right
to redeem. No consent having been secured from respondent Bank to the sale with assumption of
mortgage by petitioners, the latter were not validly substituted as debtors. In fact, their rights were
never recorded and hence, respondent Bank is charged with the obligation to recognize the right of
redemption only of the Lozano spouses. But even granting that as purchaser or assignee of the
property, as the case may be, the petitioners had acquired a right to redeem the property, petitioners
failed to exercise said right within the period granted by law. The certificate of sale in favor of
appellee was registered on September 2, 1968 and the one year redemption period expired on
September 3, 1969. It was not until September 29, 1969 that petitioner Honesto Bonnevie first wrote
respondent and offered to redeem the property. Moreover, on September 29, 1969, Honesto had at that
time already transferred his rights to intervenor Raoul Bonnevie.
9. ID.; OBLIGATIONS AND CONTRACTS; RENEWAL OF LOAN; NOT DEPENDENT
SOLELY ON THE DEBTOR BUT ON THE DISCRETION OF THE CREDITOR BANK; BAD
FAITH; ABSENCE IN THE CASE AT BAR. — On the question of whether or not respondent Court
of Appeals erred in holding that respondent Bank did not act in bad faith, the undeniable fact is that the
loan matured on December 26, 1967. On June 10, 1968, when respondent Bank applied for foreclosure
the loan was already six months overdue. Petitioners' payment of interest on July 12, 1968 does not
thereby make the earlier act of respondent Bank inequitous nor does it ipso facto result in the renewal
of the loan. In order that a renewal of a loan may he effected, not only the payment of the accrued
interest is necessary but also the payment of interest for the proposed period of renewal as well.
Besides, whether or not a loan may be renewed does not solely depend on the debtor but more so on the
discretion of the bank. Respondent Bank may not be, therefore, charged of bad faith.
DECISION
GUERRERO, J p:
Petition for review on certiorari seeking the reversal of the decision of the defunct Court of Appeals,
now Intermediate Appellate Court, in CA-G.R. No. 61193-R, entitled "Honesto Bonnevie vs.
Philippine Bank of Commerce, et al.," promulgated August 11, 1978 1 as well as the Resolution
denying the motion for reconsideration.
The complaint filed on January 26, 1971 by petitioner Honesto Bonnevie with the Court of First
Instance of Rizal against respondent Philippine Bank of Commerce sought the annulment of the Deed
of Mortgage dated December 6, 1966 executed in favor of the Philippine Bank of Commerce by the
spouses Jose M. Lozano and Josefa P. Lozano as well as the extrajudicial foreclosure made on
September 4, 1968. It alleged among others that (a) the Deed of Mortgage lacks consideration and (b)
the mortgage was executed by one who was not the owner of the mortgaged property. It further alleged
that the property in question was foreclosed pursuant to Act No. 3135 as amended, without, however,
complying with the condition imposed for a valid foreclosure. Granting the validity of the mortgage
and the extrajudicial foreclosure, it finally alleged that respondent Bank should have accepted
petitioner's offer to redeem the property under the principle of equity and justice.
On the other hand, the answer of defendant Banks, now private respondent herein, specifically denied
most of the allegations in the complaint and raised the following affirmative defenses: (a) that the
defendant has not given its consent, much less the requisite written consent, to the sale of the
mortgaged property to plaintiff and the assumption by the latter of the loan secured thereby; (b) that the
demand letters and notice of foreclosure were sent to Jose Lozano at his address; (c) that it was notified
for the first time about the alleged sale after it had foreclosed the Lozano mortgage; (d) that the law on
contracts requires defendant's consent before Jose Lozano can be released from his bilateral agreement
with the former and doubly so, before plaintiff may be substituted for Jose Lozano and Alfonso Lim;
(e) that the loan of P75,000.00 which was secured by mortgage, after two renewals remain unpaid
despite countless reminders and demands; (f) that the property in question remained registered in the
name of Jose M. Lozano in the land records of Rizal and there was no entry, notation or indication of
the alleged sale to plaintiff; (g) that it is an established banking practice that payments against accounts
need not be personally made by the debtor himself; and (h) that it is not true that the mortgage, at the
time of its execution and registration, was without consideration as alleged because the execution and
registration of the securing mortgage, the signing and delivery of the promissory note and the
disbursement of the proceeds of the loan are mere implementation of the basic consensual contract of
loan.
After petitioner Honesto V. Bonnevie had rested his case, petitioner Raoul S.V. Bonnevie filed a
motion for intervention. The intervention was premised on the Deed of Assignment executed by
petitioner Honesto Bonnevie in favor of petitioner Raoul S.V. Bonnevie covering the rights and
interests of petitioner Honesto Bonnevie over the subject property. The intervention was ultimately
granted in order that all issues be resolved in one proceeding to avoid multiplicity of suits.
On March 29, 1976, the lower court rendered its decision, the dispositive portion of which reads as
follows: LibLex
"WHEREFORE, all the foregoing premises considered, judgment is hereby rendered dismissing the
complaint with costs against the plaintiff and the intervenor."
After the motion for reconsideration of the lower court's decision was denied, petitioners appealed to
respondent Court of Appeals assigning the following errors:
1. The lower court erred in not finding that the real estate mortgage executed by Jose Lozano was
null and void;
2. The lower court erred in not finding that the auction sale made on August 19, 1968 was null and
void;
3. The lower court erred in not allowing the plaintiff and the intervenor to redeem the property;
4. The lower court erred in not finding that the defendant acted in bad faith; and
5. The lower court erred in dismissing the complaint.
On August 11, 1978, the respondent court promulgated its decision affirming the decision of the lower
court, and on October 3, 1978 denied the motion for reconsideration. Hence, the present petition for
review.
The factual findings of respondent Court of Appeals being conclusive upon this Court, We hereby
adopt the facts found by the trial court and found by the Court of Appeals to be consistent with the
evidence adduced during trial, to wit:
"It is not disputed that spouses Jose M. Lozano and Josefa P. Lozano were the owners of the property
which they mortgaged on December 6, 1966, to secure the payment of the loan in the principal amount
of P75,000.00 they were about to obtain from defendant-appellee Philippine Bank of Commerce; that
on December 8, 1966, they executed in favor of plaintiff-appellant the Deed of Sale with Assumption
of Mortgage, for and in consideration of the sum of P100,000.00, P20,000.00 of which amount being
payable to the Lozano spouses upon the execution of the document, and the balance of P75,000.00
being payable to defendant-appellee; that on December 6, 1966, when the mortgage was executed by
the Lozano spouses in favor of defendant-appellee, the loan of P75,000.00 was not yet received by
them, as it was on December 12, 1966 when they and their co-maker Alfonso Lim signed the
promissory note for that amount; that from April 28, 1967 to July 12, 1968, plaintiff-appellant made
payments to defendant-appellee on the mortgage in the total amount of P18,944.22; that on May 4,
1968, plaintiff-appellant assigned all his rights under the Deed of Sale with Assumption of Mortgage to
his brother, intervenor Raoul Bonnevie; that on June 10, 1968, defendant-appellee applied for the
foreclosure of the mortgage, and notice of sale was published in the Luzon Weekly Courier on June 30,
July 7, and July 14, 1968; that auction sale was conducted on August 19, 1968, and the property was
sold to defendant-appellee for P84,387.00; and that offers from plaintiff-appellant to repurchase the
property failed, and on October 9, 1969, he caused an adverse claim to be annotated on the title of the
property." (Decision of the Court of Appeals, p. 5)
Presented for resolution in this review are the following issues:
I
Whether the real estate mortgage executed by the spouses Lozano in favor of respondent bank was
validly and legally executed.
II
Whether the extrajudicial foreclosure of the said mortgage was validly and legally effected.
III
Whether petitioners had a right to redeem the foreclosed property.
IV
Granting that petitioners had such a right, whether respondent was justified in refusing their offers to
repurchase the property.
As clearly seen from the foregoing issues raised, petitioners' course of action is three-fold. They
primarily attack the validity of the mortgage executed by the Lozano spouses in favor of respondent
Bank. Next, they attack the validity of the extrajudicial foreclosure and finally, appeal to justice and
equity. In attacking the validity of the deed of mortgage, they contended that when it was executed on
December 6, 1966 there was yet no principal obligation to secure as the loan of P75,000.00 was not
received by the Lozano spouses "so much so that in the absence of a principal obligation, there is want
of consideration in the accessory contract, which consequently impairs its validity and fatally affects its
very existence." (Petitioners' Brief, par. 1, p. 7)
This contention is patently devoid of merit. From the recitals of the mortgage deed itself, it is clearly
seen that the mortgage deed was executed for and on condition of the loan granted to the Lozano
spouses. The fact that the latter did not collect from the respondent Bank the consideration of the
mortgage on the date it was executed is immaterial. A contract of loan being a consensual contract, the
herein contract of loan was perfected at the same time the contract of mortgage was executed. The
promissory note executed on December 12, 1966 is only an evidence of indebtedness and does not
indicate lack of consideration of the mortgage at the time of its execution.
Petitioners also argued that granting the validity of the mortgage, the subsequent renewals of the
original loan, using as security the same property which the Lozano spouses had already sold to
petitioners, rendered the mortgage null and void.
This argument failed to consider the provision 2 of the contract of mortgage which prohibits the sale,
disposition of, mortgage and encumbrance of the mortgaged properties, without the written consent of
the mortgagee, as well as the additional proviso that if in spite of said stipulation, the mortgaged
property is sold, the vendee shall assume the mortgage in the terms and conditions under which it is
constituted. These provisions are expressly made part and parcel of the Deed of Sale with Assumption
of Mortgage.
Petitioners admit that they did not secure the consent of respondent Bank to the sale with assumption of
mortgage. Coupled with the fact that the sale/assignment was not registered so that the title remained in
the name of the Lozano spouses, insofar as respondent Bank was concerned, the Lozano spouses could
rightfully and validly mortgage the property. Respondent Bank had every right to rely on the certificate
of title. It was not bound to go behind the same to look for flaws in the mortgagor's title, the doctrine of
innocent purchaser for value being applicable to an innocent mortgagee for value. (Roxas vs.
Dinglasan, 28 SCRA 430; Mallorca vs. De Ocampo, 32 SCRA 48). Another argument for the
respondent Bank is that a mortgage follows the property whoever the possessor may be and subjects the
fulfillment of the obligation for whose security it was constituted. Finally, it can also be said that
petitioners voluntarily assumed the mortgage when they entered into the Deed of Sale with Assumption
of Mortgage. They are, therefore, estopped from impugning its validity whether on the original loan or
renewals thereof.
Petitioners next assail the validity and legality of the extrajudicial foreclosure on the following
grounds: LLpr
a) Petitioners were never notified of the foreclosure sale.
b) The notice of auction sale was not posted for the period required by law.
c) The publication of the notice of auction sale in the Luzon Weekly Courier was not in
accordance with law.
The lack of notice of the foreclosure sale on petitioners is a flimsy ground. Respondent Bank not being
a party to the Deed of Sale with Assumption of Mortgage, it can validly claim that it was not aware of
the same and hence, it may not be obliged to notify petitioners. Secondly, petitioner Honesto Bonnevie
was not entitled to any notice because as of May 14, 1968, he had transferred and assigned all his rights
and interests over the property in favor of intervenor Raoul Bonnevie and respondent Bank was not
likewise informed of the same. For the same reason, Raoul Bonnevie is not entitled to notice. Most
importantly, Act No. 3135 does not require personal notice on the mortgagor. The requirement on
notice is that:
"Section 3. Notice shall be given by posting notices of the sale for not less than twenty days in at
least three pub]ic places of the municipality or city where the property is situated, and if such property
is worth more than four hundred pesos, such notice shall also be published once a week for at least
three consecutive weeks in a newspaper of general circulation in the municipality or city."
In the case at bar, the notice of sale was published in the Luzon Courier on June 30, July 7 and July 14,
1968 and notices of the sale were posted for not less than twenty days in at least three (3) public places
in the Municipality where the property is located. Petitioners were thus placed on constructive notice.
The case of Santiago vs. Dionisio, 92 Phil. 495, cited by petitioners is inapplicable because said case
involved a judicial foreclosure and the sale to the vendee of the mortgaged property was duly registered
making the mortgaged privy to the sale.
As regards the claim that the period of publication of the notice of auction sale was not in accordance
with law, namely: once a week for at least three consecutive weeks, the Court of Appeals ruled that the
publication of notice on June 30, July 7 and July 14, 1968 satisfies the publication requirement under
Act No. 3135 notwithstanding the fact that June 30 to July 14 is only 14 days. We agree. Act No. 3135
merely requires that "such notice shall be published once a week for at least three consecutive weeks."
Such phrase, as interpreted by this Court in Basa vs. Mercado, 61 Phil. 632, does not mean that notice
should be published for three full weeks.
The argument that the publication of the notice in the "Luzon Weekly Courier" was not in accordance
with law as said newspaper is not of general circulation must likewise be disregarded. The affidavit of
publication, executed by the publisher, business/advertising manager of the Luzon Weekly Courier,
states that it is "a newspaper of general circulation in . . . Rizal: and that the Notice of Sheriff's sale was
published in said paper on June 30, July 7 and July 14, 1968." This constitutes prima facie evidence of
compliance with the requisite publication. (Sadang vs. GSIS, 18 SCRA 491) Cdpr
To be a newspaper of general circulation, it is enough that "it is published for the dissemination of local
news and general information; that it has a bona fide subscription list of paying subscribers; that it is
published at regular intervals." (Basa vs. Mercado, 61 Phil. 632). The newspaper need not have the
largest circulation so long as it is of general circulation. (Banta vs. Pacheco, 74 Phil. 67). The testimony
of three witnesses that they do read the Luzon Weekly Courier is no proof that said newspaper is not a
newspaper of general circulation in the province of Rizal.
Whether or not the notice of auction sale was posted for the period required by law is a question of fact.
It can no longer be entertained by this Court. (see Reyes, et al. vs. CA, et al., 107 SCRA 126).
Nevertheless, the records show that copies of said notice were posted in three conspicuous places in the
municipality of Pasig, Rizal namely: the Hall of Justice, the Pasig Municipal Market and Pasig
Municipal Hall. In the same manner, copies of said notice were also posted in the place where the
property was located, namely: the Municipal Building of San Juan, Rizal; the Municipal Market and on
Benitez Street. The following statement of Atty. Santiago Pastor, head of the legal department of
respondent bank, namely:
"Q How many days were the notices posted in these two places, if you know?
A We posted them only once in one day." (TSN, p. 45, July 25, 1973)
is not a sufficient countervailing evidence to prove that there was no compliance with the posting
requirement in the absence of proof or even of allegation that the notices were removed before the
expiration of the twenty-day period. A single act of posting (which may even extend beyond the period
required by law) satisfies the requirement of law. The burden of proving that the posting requirement
was not complied with is now shifted to the one who alleges non compliance.
On the question of whether or not the petitioners had a right to redeem the property, We hold that the
Court of Appeals did not err in ruling that they had no right to redeem. No consent having been secured
from respondent Bank to the sale with assumption of mortgage by petitioners, the latter were not
validly substituted as debtors. In fact, their rights were never recorded and hence, respondent Bank is
charged with the obligation to recognize the right of redemption only of the Lozano spouses. But even
granting that as purchaser or assignee of the property, as the case may be, the petitioners had acquired a
right to redeem the property, petitioners failed to exercise said right within the period granted by law.
The certificate of sale in favor of appellee was registered on September 2, 1968 and the one year
redemption period expired on September 3, 1969. It was not until September 29, 1969 that petitioner
Honesto Bonnevie first wrote respondent and offered to redeem the property. Moreover, on September
29, 1969, Honesto had at that time already transferred his rights to intervenor Raoul Bonnevie.
On the question of whether or not respondent Court of Appeals erred in holding that respondent Bank
did not act in bad faith, petitioners rely on Exhibit "B" which is the letter of Jose Lozano to respondent
Bank dated December 8, 1966 advising the latter that Honesto Bonnevie was authorized to make
payments for the amount secured by the mortgage on the subject property, to receive acknowledgment
of payments, obtain the Release of the Mortgage after full payment of the obligation and to take
delivery of the title of said property. On the assumption that said letter was received by respondent
Bank, a careful reading of the same shows that the plaintiff was merely authorized to do acts mentioned
therein and does not mention that petitioner is the new owner of the property nor request that all
correspondence and notice should be sent to him. LLphil
The claim of appellants that the collection of interests on the loan up to July 12, 1968 extends the
maturity of said loan up to said date and accordingly on June 10, 1968 when defendant applied for the
foreclosure of the mortgage, the loan was not yet due and demandable, is totally incorrect and
misleading. The undeniable fact is that the loan matured on December 26, 1967. On June 10, 1968,
when respondent Bank applied for foreclosure, the loan was already six months overdue. Petitioners'
payment of interest on July 12, 1968 does not thereby make the earlier act of respondent Bank
inequitous nor does it ipso facto result in the renewal of the loan. In order that a renewal of a loan may
be effected, not only the payment of the accrued interest is necessary but also the payment of interest
for the proposed period of renewal as well. Besides, whether or not a loan may be renewed does not
solely depend on the debtor but more so on the discretion of the bank. Respondent Bank may not be,
therefore, charged of bad faith.
WHEREFORE, the appeal being devoid of merit, the decision of the Court of Appeals is hereby
AFFIRMED. Costs against petitioners.
SO ORDERED.
Aquino, J., concur.
Makasiar (Chairman), Abad Santos and Escolin, JJ., concur in the result.
Concepcion, Jr., J., did not take part.
De Castro, J., is on leave.
Footnotes
1. Third Division, Reyes, L.B., J., ponente; Busran and Nocon, JJ., concurring.
2. "4. The MORTGAGOR shall not sell, dispose of, mortgage, nor in any manner encumber the
mortgaged properties without the written consent of MORTGAGEE. If in spite of this stipulation, a
mortgaged property is sold, the Vendee shall assume the mortgaged in the terms and conditions under
which it is constituted, it being understood that the assumption of the Vendee (does) not release the
Vendor of his obligation to the MORTGAGEE; on the contrary, both the Vendor and the Vendee shall
be jointly and severally liable for said mortgage obligation . . ."
EN BANC
[G.R. No. L-17474. October 25, 1962.]
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, vs. JOSE V. BAGTAS, defendant.
FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate left by the late Jose V. Bagtas,
petitioner-appellant.
D. T. Reyes, Luison & Associates for petitioner-appellant.
Solicitor General for plaintiff-appellee.
SYLLABUS
1. CONTRACTS; LOAN OF BULLS FOR BREEDING PURPOSES; NATURE OF
CONTRACT AFFECTED BY PAYMENT OF FEE. — The loan by the Bureau of Animal Industry to
the defendant of three bulls for breeding purposes for a period of one year, later on renewed for another
as regards one bull, was subject to the payment by the borrower of breeding fee of 10% of the book
value of the bulls. If the breeding fee be considered a compensation, the contract would be a lease of
the bulls; it could not be a contract of commodatum, because that contract is essential gratuitous.
2. JUDGMENTS; PROCEEDINGS FOR ADMINISTRATIONS AND SETTLEMENT OF
ESTATE OF THE DECEASED; ENFORCEMENT OF MONEY JUDGMENT. — Where special
proceedings for the administration and settlement of the estate of the deceased have been instituted, the
money judgment rendered in favor of a party cannot be enforced by means of a writ of execution, but
must be presented to the probate court for payment by the administrator appointed by the court.
DECISION
PADILLA, J p:
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 P499.62, both with interests, and costs; and that
other just and equitable relief be granted it (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 rendered 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 it granted an ex-parte motion filed by
the plaintiff on 28 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 V. Bagtas who died on 23 October 1951 and as administratrix of
his estate, was notified. On 7 January 1959 she filed a motion alleging that on 26 June 1952 the two
bulls, Sindhi and Bhagnari, were returned to the Bureau of Animal Industry and that sometime in
November 1953 the third bull, the Sahiniwal, died from gunshot wounds inflicted during a Huks 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 P859.5.3 be issued
against the estate of defendant deceased José 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 Huks 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 the
returning the bull or paying its value to the appellee. The contention is without merit. The loan by the
appellee to the late defendant José 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 thing, 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 wit:
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 executor or 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 issued letters of administration of the estate of the late José V. Bagtas and that "all persons having
claims for money against the deceased José 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 money 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 abovequoted 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,
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 José V. Bagtas
having been instituted in the Court of First Instance of Rizal (Q-200), the money judgment rendered in
favor of the appellee cannot be enforced by means of a writ of execution but must be presented to the
probate court for payment by the appellant, the administratrix appointed by the court.
ACCORDINGLY, the writ of execution appealed from is set aside, without pronouncement as to costs.
Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes, Dizon, Regala and
Makalintal, JJ., concur.
Barrera, J., concurs in the result.
FIRST DIVISION
[G.R. No. 80294-95. September 21, 1988.]
CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE, petitioner, vs. COURT OF
APPEALS, HEIRS OF EGMIDIO OCTAVIANO AND JUAN VALDEZ, respondents.
Valdez Ereso Polido & Associates for petitioner.
Claustro, Claustro Claustro Law Office collaborating counsel for petitioner.
Jaime G. de Leon for the Heirs of Egmidio Octaviano.
Cabato Law Office for the Heirs of Juan Valdez.
SYLLABUS
1. REMEDIAL LAW; JUDGMENT; RES JUDICATA.— The findings of the trial court affirmed
by the appellate court that the private respondent's predecessor were possessors of the lots in dispute
with claim of ownership from 1906 to 1951 while the petitioner was in possession as borrower in
commodatum up to 1951 are res judicata between the parties.
DECISION
GANCAYCO, J p:
The principal issue in this case is whether or not a decision of the Court of Appeals promulgated a long
time ago can properly be considered res judicata by respondent Court of Appeals in the present two
cases between petitioner and two private respondents.
Petitioner questions as allegedly erroneous the Decision dated August 31, 1987 of the Ninth Division of
Respondent Court of Appeals 1 in CA-G.R. No. 05148 [Civil Case No. 3607 (419)] and CA-G.R. No.
05149 [Civil Case No. 3655 (429)], both for Recovery of Possession, which affirmed the Decision of
the Honorable Nicodemo T. Ferrer, Judge of the Regional Trial Court of Baguio and Benguet in Civil
Case No. 3607 (419) and Civil Case No. 3655 (429), with the dispositive portion as follows:
"WHEREFORE, Judgment is hereby rendered ordering the defendant, Catholic Vicar Apostolic of the
Mountain Province to return and surrender Lot 2 of Plan Psu-194357 to the plaintiffs. Heirs of Juan
Valdez, and Lot 3 of the same Plan to the other set of plaintiffs, the Heirs of Egmidio Octaviano
(Leonardo Valdez, et al.). For lack or insufficiency of evidence, the plaintiffs' claim or damages is
hereby denied. Said defendant is ordered to pay costs." (p 36, Rollo)
Respondent Court of Appeals, in affirming the trial court's decision, sustained the trial court's
conclusions that the Decision of the Court of Appeals, dated May 4, 1977 in CA-G.R. No. 38830-R, in
the two cases affirmed by the Supreme Court, touched on the ownership of lots 2 and 3 in question; that
the two lots were possessed by the predecessors-in-interest of private respondents under claim of
ownership in good faith from 1906 to 1951; that petitioner had been in possession of the same lots as
bailee in commodatum up to 1951, when petitioner repudiated the trust and when it applied for
registration in 1962; that petitioner had just been in possession as owner for eleven years, hence there is
no possibility of acquisitive prescription which requires 10 years possession with just title and 30 years
of possession without; that the principle of res judicata on these findings by the Court of Appeals will
bar a reopening of these questions of fact; and that those facts may no longer be altered. cdll
Petitioner's motion for reconsideration of the respondent appellate court's Decision in the two
aforementioned cases (CA-G.R. No. CV-05418 and 05419) was denied.
The facts and background of the cases as narrated by the trial court are as follows —
". . . The documents and records presented reveal that the whole controversy started when the
defendant Catholic Vicar Apostolic of the Mountain Province (VICAR for brevity) filed with the Court
of First Instance of Baguio-Benguet, on September 5, 1962 an application for registration of title over
Lots 1, 2, 3, and 4 in Psu-194357, situated at Poblacion Central, La Trinidad, Benguet, docketed as
LRC N-91, said Lots being the sites of the Catholic Church building, convents, high school building,
school gymnasium, school dormitories, social hall, stonewalls, etc. On March 22, 1963 the Heirs of
Juan Valdez and the Heirs of Egmidio Octaviano filed their Answer/Opposition on Lots Nos. 2 and 3,
respectively, asserting ownership and title thereto. After trial on the merits, the land registration court
promulgated its Decision, dated November 17, 1965, confirming the registrable title of VICAR to Lots
1, 2, 3, and 4.
The Heirs of Juan Valdez (plaintiffs in the herein Civil Case No. 3655) and the Heirs of Egmidio
Octaviano (plaintiffs in the herein Civil Case No. 3607) appealed the decision of the land registration
court to the then Court of Appeals, docketed as CA-G.R. No. 38830-R. The Court of Appeals rendered
its decision, dated May 9, 1977, reversing the decision of the land registration court and dismissing the
VICAR's application as to Lots 2 and 3, the lots claimed by the two sets of oppositors in the land
registration case (and two sets of plaintiffs in the two cases now at bar), the first lot being presently
occupied by the convent and the second by the women's dormitory and the sisters' convent.
On May 9, 1977, the Heirs of Octaviano filed a motion for reconsideration praying the Court of
Appeals to order the registration of Lot 3 in the names of the Heirs of Egmidio Octaviano, and on May
17, 1977, the Heirs of Juan Valdez and Pacita Valdez filed their motion for reconsideration praying that
both Lots 2 and 3 be ordered registered in the names of the Heirs of Juan Valdez and Pacita Valdez. On
August 12, 1977, the Court of Appeals denied the motion for reconsideration filed by the Heirs of Juan
Valdez on the ground that there was "no sufficient merit to justify reconsideration one way or the
other . . .," and likewise denied that of the Heirs of Egmidio Octaviano.
Thereupon, the VICAR filed with the Supreme Court a petition for review on certiorari of the decision
of the Court of Appeals dismissing his (its) application for registration of Lots 2 and 3, docketed as
G.R. No. L-46832, entitled, 'Catholic Vicar Apostolic of the Mountain Province vs. Court of Appeals
and Heirs of Egmidio Octaviano.'
From the denial by the Court of Appeals of their motion for reconsideration, the Heirs of Juan Valdez
and Pacita Valdez, on September 8, 1977, filed with the Supreme Court a petition for review, docketed
as G.R. No. L-46872, entitled, 'Heirs of Juan Valdez and Pacita Valdez vs. Court of Appeals, Vicar,
Heirs of Egmidio Octaviano and Amable O. Valdez.
On January 13, 1978, the Supreme Court denied in a minute resolution both petitions (of VICAR on the
one hand and the Heirs of Juan Valdez and Pacita Valdez on the other) for lack of merit. Upon the
finality of both Supreme Court resolutions in G.R. No. L-46832 and G.R. No. L-46872, the Heirs of
Octaviano filed with the then Court of First Instance of Baguio, Branch 11, a Motion For Execution of
Judgment praying that the Heirs of Octaviano be placed in possession of Lot 3. The Court, presided
over by Hon. Salvador J. Valdez, on December 7, 1978, denied the motion on the ground that the Court
of Appeals decision in CA-G.R. No. 38870 did not grant the Heirs of Octaviano any affirmative relief.
On February 7, 1979, the Heirs of Octaviano filed with the Court of Appeals a petition for certiorari
and mandamus, docketed as CA-G.R. No. 08890-R, entitled 'Heirs of Egmidio Octaviano vs. Hon.
Salvador J. Valdez, Jr. and Vicar.' In its decision dated May 16, 1979, the Court of Appeals dismissed
the petition.
It was at that stage that the instant cases were filed. The Heirs of Egmidio Octaviano filed Civil Case
No. 3607 (419) on July 24, 1979, for recovery of possession of Lot 3; and the Heirs of Juan Valdez
filed Civil Case No. 3655 (429) on September 24, 1979, likewise for recovery of possession of Lot 2
(Decision, pp. 199-201, Orig. Rec.).
"In Civil Case No. 3607 (419) trial was held. The plaintiffs Heirs of Egmidio Octaviano presented one
(1) witness, Fructuoso Valdez, who testified on the alleged ownership of the land in question (Lot 3) by
their predecessor-in-interest, Egmidio Octaviano (Exh. C); his written demand (Exh. B - B-4) to
defendant Vicar for the return of the land to them; and the reasonable rentals for the use of the land at
P10,000.00 per month. On the other hand, defendant Vicar presented the Register of Deeds for the
Province of Benguet, Atty. Nicanor Sison, who testified that the land in question is not covered by any
title in the name of Egmidio Octaviano or any of the plaintiffs (Exh. 8). The defendant dispensed with
the testimony of Mons. William Brasseur when the plaintiffs admitted that the witness if called to the
witness stand, would testify that defendant Vicar has been in possession of Lot 3, for seventy-five (75)
years continuously and peacefully and has constructed permanent structures thereon.
"In Civil Case No. 3655, the parties admitting that the material facts are not in dispute, submitted the
case on the sole issue of whether or not the decisions of the Court of Appeals and the Supreme Court
touching on the ownership of Lot 2, which in effect declared the plaintiffs the owners of the land
constitute res judicata.
"In these two cases, the plaintiffs argue that the defendant Vicar is barred from setting up the defense of
ownership and or long and continuous possession of the two lots in question since this is barred by
prior judgment of the Court of Appeals in CA-G.R. No. 038830-R under the principle of res judicata.
Plaintiffs contend that the question of possession and ownership have already been determined by the
Court of Appeals (Exh. C, Decision, CA-G.R. No. 038830-R) and affirmed by the Supreme Court
(Exh. 1, Minute Resolution of the Supreme Court). On his part, defendant Vicar maintains that the
principle of res judicata would not prevent them from litigating the issues of long possession and
ownership Because the dispositive portion of the prior judgment in CA-G.R. No. 038830-R merely
dismissed their application for registration and titling of lots 2 and 3. Defendant Vicar contends that
only the dispositive portion of the decision, and not its body, is the controlling pronouncement of the
Court of Appeals." 2
The alleged errors committed by respondent Court of Appeals according to petitioner are as follows:
1. ERROR IN APPLYING LAW OF THE CASE AND RES JUDICATA;
2. ERROR IN FINDING THAT THE TRIAL COURT RULED THAT LOTS 2 AND 3 WERE
ACQUIRED BY PURCHASE BUT WITHOUT DOCUMENTARY EVIDENCE PRESENTED;
3. ERROR IN FINDING THAT PETITIONER'S CLAIM IT PURCHASED LOTS 2 AND 3
FROM VALDEZ AND OCTAVIANO WAS AN IMPLIED ADMISSION THAT THE FORMER
OWNERS WERE VALDEZ AND OCTAVIANO;
4. ERROR IN FINDING THAT IT WAS PREDECESSORS OF PRIVATE RESPONDENTS
WHO WERE IN POSSESSION OF LOTS 2 AND 3 AT LEAST FROM 1906, AND NOT
PETITIONER;
5. ERROR IN FINDING THAT VALDEZ AND OCTAVIANO HAD FREE PATENT
APPLICATIONS AND THE PREDECESSORS OF PRIVATE RESPONDENTS ALREADY HAD
FREE PATENT APPLICATIONS SINCE 1906;
6. ERROR IN FINDING THAT PETITIONER DECLARED LOTS 2 AND 3 ONLY IN 1951
AND JUST TITLE IS A PRIME NECESSITY UNDER ARTICLE 1134 IN RELATION TO ART.
1129 OF THE CIVIL CODE FOR ORDINARY ACQUISITIVE PRESCRIPTION OF 10 YEARS;
7. ERROR IN FINDING THAT THE DECISION OF THE COURT OF APPEALS IN CA G.R.
NO. 038830 WAS AFFIRMED BY THE SUPREME COURT;
8. ERROR IN FINDING THAT THE DECISION IN CA G.R. NO. 038830 TOUCHED ON
OWNERSHIP OF LOTS 2 AND 3 AND THAT PRIVATE RESPONDENTS AND THEIR
PREDECESSORS WERE IN POSSESSION OF LOTS 2 AND 3 UNDER A CLAIM OF
OWNERSHIP IN GOOD FAITH FROM 1906 TO 1951;
9. ERROR IN FINDING THAT PETITIONER HAD BEEN IN POSSESSION OF LOTS 2 AND
3 MERELY AS BAILEE (BORROWER) IN COMMODATUM, A GRATUITOUS LOAN FOR USE;
10. ERROR IN FINDING THAT PETITIONER IS A POSSESSOR AND BUILDER IN GOOD
FAITH WITHOUT RIGHTS OF RETENTION AND REIMBURSEMENT AND IS BARRED BY
THE FINALITY AND CONCLUSIVENESS OF THE DECISION IN CA G.R. NO. 033830. 3
The petition is bereft of merit.
Petitioner questions the ruling of respondent Court of Appeals in CA-G.R. Nos. 05148 and 05149,
when it clearly held that it was in agreement with the findings of the trial court that the Decision of the
Court of Appeals dated May 4, 1977 in CA-G.R. No. 38830-R, on the question of ownership of Lots 2
and 3, declared that the said Court of Appeals Decision (CA-G.R. No. 38830-R) did not positively
declare private respondents as owners of the land, neither was it declared that they were not owners of
the land, but it held that the predecessors of private respondents were possessors of Lots 2 and 3, with
claim of ownership in good faith from 1906 to 1951. Petitioner was in possession as borrower in
commodatum up to 1951, when it repudiated the trust by declaring the properties in its name for
taxation purposes. When petitioner applied for registration of Lots 2 and 3 in 1962, it had been in
possession in concept of owner only for eleven years. Ordinary acquisitive prescription requires
possession for ten years, but always with just title. Extraordinary acquisitive prescription requires 30
years. 4
On the above findings of facts supported by evidence and evaluated by the Court of Appeals in CA-
G.R. No. 38830-R, affirmed by this Court, We see no error in respondent appellate court's ruling that
said findings are res judicata between the parties. They can no longer be altered by presentation of
evidence because those issues were resolved with finality a long time ago. To ignore the principle of
res judicata would be to open the door to endless litigations by continuous determination of issues
without end.
An examination of the Court of Appeals Decision dated May 4, 1977, First Division 5 in CA-G.R. No.
38830-R, shows that it reversed the trial court's Decision 6 finding petitioner to be entitled to register
the lands in question under its ownership, on its evaluation of evidence and conclusion of facts.
The Court of Appeals found that petitioner did not meet the requirement of 30 years possession for
acquisitive prescription over Lots 2 and 3. Neither did it satisfy the requirement of 10 years possession
for ordinary acquisitive prescription because of the absence of just title. The appellate court did not
believe the findings of the trial court that Lot 2 was acquired from Juan Valdez by purchase and Lot 3
was acquired also by purchase from Egmidio Octaviano by petitioner Vicar because there was
absolutely no documentary evidence to support the same and the alleged purchases were never
mentioned in the application for registration.
By the very admission of petitioner Vicar, Lots 2 and 3 were owned by Valdez and Octaviano. Both
Valdez and Octaviano had Free Patent Application for those lots since 1906. The predecessors of
private respondents, not petitioner Vicar, were in possession of the questioned lots since 1906.
There is evidence that petitioner Vicar occupied Lots 1 and 4, which are not in question, but not Lots 2
and 3, because the buildings standing thereon were only constructed after liberation in 1945. Petitioner
Vicar only declared Lots 2 and 3 for taxation purposes in 1951. The improvements on Lots 1, 2, 3, 4
were paid for by the Bishop but said Bishop was appointed only in 1947, the church was constructed
only in 1951 and the new convent only 2 years before the trial in 1963. prLL
When petitioner Vicar was notified of the oppositor's claims, the parish priest offered to buy the lot
from Fructuoso Valdez. Lots 2 and 3 were surveyed by request of petitioner Vicar only in 1962.
Private respondents were able to prove that their predecessors' house was borrowed by petitioner Vicar
after the church and the convent were destroyed. They never asked for the return of the house, but
when they allowed its free use, they became bailors in commodatum and the petitioner the bailee. The
bailees' failure to return the subject matter of commodatum to the bailor did not mean adverse
possession on the part of the borrower. The bailee held in trust the property subject matter of
commodatum. The adverse claim of petitioner came only in 1951 when it declared the lots for taxation
purposes. The action of petitioner Vicar by such adverse claim could not ripen into title by way of
ordinary acquisitive prescription because of the absence of just title.
The Court of Appeals found that the predecessors-in-interest and private respondents were possessors
under claim of ownership in good faith from 1906; that petitioner Vicar was only a bailee in
commodatum; and that the adverse claim and repudiation of trust came only in 1951.
We find no reason to disregard or reverse the ruling of the Court of Appeals in CA-G.R. No. 38830-R.
Its findings of fact have become incontestible. This Court declined to review said decision, thereby in
effect, affirming it. It has become final and executory a long time ago.
Respondent appellate court did not commit any reversible error, much less grave abuse of discretion,
when it held that the Decision of the Court of Appeals in CA-G.R. No. 38830-R is governing, under the
principle of res judicata, hence the rule, in the present cases CA-G.R. No. 05148 and CA-G.R. No.
05149. The facts as supported by evidence established in that decision may no longer be altered.
WHEREFORE AND BY REASON OF THE FOREGOING, this petition is DENIED for lack of merit,
the Decision dated Aug. 31, 1987 in CA-G.R. Nos. 05148 and 05149, by respondent Court of Appeals
is AFFIRMED, with costs against petitioner. LibLex
SO ORDERED.
Narvasa, Cruz, Griño-Aquino and Medialdea, JJ ., concur.
Footnotes
1. Associate Justices Conrado T. Limcaoco, Jose C. Campos, Jr. and Gloria C. Paras.
2. Decision in CA-G.R. No. CV Nos. 05148 and 05149 dated August 31, 1987; pp. 112-117,
Rollo.
3. Pp. 5-15, Petition; pp. 6-17, Rollo.
4. Arts. 1134 and 1129, Civil Code.
5. Presiding Justice Magno S. Gatmaitan, Associate Justices Pacifico P. de Castro and Samuel
Reyes.
6. Land Reg. No. N91, LRC Rec. No. N-22991 of the then C.F.I. of Baguio City.
FIRST DIVISION
[G.R. No. 146364. June 3, 2004.]
COLITO T. PAJUYO, petitioner, vs. COURT OF APPEALS and EDDIE GUEVARRA, respondents.
DECISION
CARPIO, J p:
The Case
Before us is a petition for review 1 of the 21 June 2000 Decision 2 and 14 December 2000 Resolution
of the Court of Appeals in CA-G.R. SP No. 43129. The Court of Appeals set aside the 11 November
1996 decision 3 of the Regional Trial Court of Quezon City, Branch 81, 4 affirming the 15 December
1995 decision 5 of the Metropolitan Trial Court of Quezon City, Branch 31. 6
The Antecedents
In June 1979, petitioner Colito T. Pajuyo ("Pajuyo") paid P400 to a certain Pedro Perez for the rights
over a 250-square meter lot in Barrio Payatas, Quezon City. Pajuyo then constructed a house made of
light materials on the lot. Pajuyo and his family lived in the house from 1979 to 7 December 1985.
On 8 December 1985, Pajuyo and private respondent Eddie Guevarra ("Guevarra") executed a
Kasunduan or agreement. Pajuyo, as owner of the house, allowed Guevarra to live in the house for free
provided Guevarra would maintain the cleanliness and orderliness of the house. Guevarra promised that
he would voluntarily vacate the premises on Pajuyo's demand. acHETI
In September 1994, Pajuyo informed Guevarra of his need of the house and demanded that Guevarra
vacate the house. Guevarra refused.
Pajuyo filed an ejectment case against Guevarra with the Metropolitan Trial Court of Quezon City,
Branch 31 ("MTC").
In his Answer, Guevarra claimed that Pajuyo had no valid title or right of possession over the lot where
the house stands because the lot is within the 150 hectares set aside by Proclamation No. 137 for
socialized housing. Guevarra pointed out that from December 1985 to September 1994, Pajuyo did not
show up or communicate with him. Guevarra insisted that neither he nor Pajuyo has valid title to the
lot.
On 15 December 1995, the MTC rendered its decision in favor of Pajuyo. The dispositive portion of
the MTC decision reads:
WHEREFORE, premises considered, judgment is hereby rendered for the plaintiff and against
defendant, ordering the latter to:
A) vacate the house and lot occupied by the defendant or any other person or persons claiming any
right under him;
B) pay unto plaintiff the sum of THREE HUNDRED PESOS (P300.00) monthly as reasonable
compensation for the use of the premises starting from the last demand;
C) pay plaintiff the sum of P3,000.00 as and by way of attorney's fees; and
D) pay the cost of suit.
SO ORDERED. 7
Aggrieved, Guevarra appealed to the Regional Trial Court of Quezon City, Branch 81 ("RTC").
On 11 November 1996, the RTC affirmed the MTC decision. The dispositive portion of the RTC
decision reads:
WHEREFORE, premises considered, the Court finds no reversible error in the decision appealed from,
being in accord with the law and evidence presented, and the same is hereby affirmed en toto.
SO ORDERED. 8
Guevarra received the RTC decision on 29 November 1996. Guevarra had only until 14 December
1996 to file his appeal with the Court of Appeals. Instead of filing his appeal with the Court of
Appeals, Guevarra filed with the Supreme Court a "Motion for Extension of Time to File Appeal by
Certiorari Based on Rule 42" ("motion for extension"). Guevarra theorized that his appeal raised pure
questions of law. The Receiving Clerk of the Supreme Court received the motion for extension on 13
December 1996 or one day before the right to appeal expired.
On 3 January 1997, Guevarra filed his petition for review with the Supreme Court.
On 8 January 1997, the First Division of the Supreme Court issued a Resolution 9 referring the motion
for extension to the Court of Appeals which has concurrent jurisdiction over the case. The case
presented no special and important matter for the Supreme Court to take cognizance of at the first
instance.
On 28 January 1997, the Thirteenth Division of the Court of Appeals issued a Resolution 10 granting
the motion for extension conditioned on the timeliness of the filing of the motion.
On 27 February 1997, the Court of Appeals ordered Pajuyo to comment on Guevarra'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." ACIESH
A party's failure to sign the certification against forum shopping is different from the party's failure to
sign personally the verification. The certificate of non-forum shopping must be signed by the party, and
not by counsel. 27 The certification of counsel renders the petition defective. 28
On the other hand, the requirement on verification of a pleading is a formal and not a jurisdictional
requisite. 29 It is intended simply to secure an assurance that what are alleged in the pleading are true
and correct and not the product of the imagination or a matter of speculation, and that the pleading is
filed in good faith. 30 The party need not sign the verification. A party's representative, lawyer or any
person who personally knows the truth of the facts alleged in the pleading may sign the verification. 31
We agree with the Court of Appeals that the issue on the certificate against forum shopping was merely
an afterthought. Pajuyo did not call the Court of Appeals' attention to this defect at the early stage of
the proceedings. Pajuyo raised this procedural issue too late in the proceedings.
Absence of Title over the Disputed Property will not Divest the Courts of Jurisdiction to Resolve the
Issue of Possession
Settled is the rule that the defendant's claim of ownership of the disputed property will not divest the
inferior court of its jurisdiction over the ejectment case. 32 Even if the pleadings raise the issue of
ownership, the court may pass on such issue to determine only the question of possession, especially if
the ownership is inseparably linked with the possession. 33 The adjudication on the issue of ownership
is only provisional and will not bar an action between the same parties involving title to the land. 34
This doctrine is a necessary consequence of the nature of the two summary actions of ejectment,
forcible entry and unlawful detainer, where the only issue for adjudication is the physical or material
possession over the real property. 35
In this case, what Guevarra raised before the courts was that he and Pajuyo are not the owners of the
contested property and that they are mere squatters. Will the defense that the parties to the ejectment
case are not the owners of the disputed lot allow the courts to renounce their jurisdiction over the case?
The Court of Appeals believed so and held that it would just leave the parties where they are since they
are in pari delicto.
We do not agree with the Court of Appeals.
Ownership or the right to possess arising from ownership is not at issue in an action for recovery of
possession. The parties cannot present evidence to prove ownership or right to legal possession except
to prove the nature of the possession when necessary to resolve the issue of physical possession. 36 The
same is true when the defendant asserts the absence of title over the property. The absence of title over
the contested lot is not a ground for the courts to withhold relief from the parties in an ejectment case.
The only question that the courts must resolve in ejectment proceedings is — who is entitled to the
physical possession of the premises, that is, to the possession de facto and not to the possession de jure.
37 It does not even matter if a party's title to the property is questionable, 38 or when both parties
intruded into public land and their applications to own the land have yet to be approved by the proper
government agency. 39 Regardless of the actual condition of the title to the property, the party in
peaceable quiet possession shall not be thrown out by a strong hand, violence or terror. 40 Neither is
the unlawful withholding of property allowed. Courts will always uphold respect for prior possession.
Thus, a party who can prove prior possession can recover such possession even against the owner
himself. 41 Whatever may be the character of his possession, if he has in his favor prior possession in
time, he has the security that entitles him to remain on the property until a person with a better right
lawfully ejects him. 42 To repeat, the only issue that the court has to settle in an ejectment suit is the
right to physical possession.
In Pitargue v. Sorilla, 43 the government owned the land in dispute. The government did not authorize
either the plaintiff or the defendant in the case of forcible entry case to occupy the land. The plaintiff
had prior possession and had already introduced improvements on the public land. The plaintiff had a
pending application for the land with the Bureau of Lands when the defendant ousted him from
possession. The plaintiff filed the action of forcible entry against the defendant. The government was
not a party in the case of forcible entry.
The defendant questioned the jurisdiction of the courts to settle the issue of possession because while
the application of the plaintiff was still pending, title remained with the government, and the Bureau of
Public Lands had jurisdiction over the case. We disagreed with the defendant. We ruled that courts
have jurisdiction to entertain ejectment suits even before the resolution of the application. The plaintiff,
by priority of his application and of his entry, acquired prior physical possession over the public land
applied for as against other private claimants. That prior physical possession enjoys legal protection
against other private claimants because only a court can take away such physical possession in an
ejectment case.
While the Court did not brand the plaintiff and the defendant in Pitargue 44 as squatters, strictly
speaking, their entry into the disputed land was illegal. Both the plaintiff and defendant entered the
public land without the owner's permission. Title to the land remained with the government because it
had not awarded to anyone ownership of the contested public land. Both the plaintiff and the defendant
were in effect squatting on government property. Yet, we upheld the courts' jurisdiction to resolve the
issue of possession even if the plaintiff and the defendant in the ejectment case did not have any title
over the contested land.
Courts must not abdicate their jurisdiction to resolve the issue of physical possession because of the
public need to preserve the basic policy behind the summary actions of forcible entry and unlawful
detainer. The underlying philosophy behind ejectment suits is to prevent breach of the peace and
criminal disorder and to compel the party out of possession to respect and resort to the law alone to
obtain what he claims is his. 45 The party deprived of possession must not take the law into his own
hands. 46 Ejectment proceedings are summary in nature so the authorities can settle speedily actions to
recover possession because of the overriding need to quell social disturbances. 47
We further explained in Pitargue the greater interest that is at stake in actions for recovery of
possession. We made the following pronouncements in Pitargue:
The question that is before this Court is: Are courts without jurisdiction to take cognizance of
possessory actions involving these public lands before final award is made by the Lands Department,
and before title is given any of the conflicting claimants? It is one of utmost importance, as there are
public lands everywhere and there are thousands of settlers, especially in newly opened regions. It also
involves a matter of policy, as it requires the determination of the respective authorities and functions
of two coordinate branches of the Government in connection with public land conflicts.
Our problem is made simple by the fact that under the Civil Code, either in the old, which was in force
in this country before the American occupation, or in the new, we have a possessory action, the aim
and purpose of which is the recovery of the physical possession of real property, irrespective of the
question as to who has the title thereto. Under the Spanish Civil Code we had the accion interdictal, a
summary proceeding which could be brought within one year from dispossession (Roman Catholic
Bishop of Cebu vs. Mangaron, 6 Phil. 286, 291); and as early as October 1, 1901, upon the enactment
of the Code of Civil Procedure (Act No. 190 of the Philippine Commission) we implanted the common
law action of forcible entry (section 80 of Act No. 190), the object of which has been stated by this
Court to be "to prevent breaches of the peace and criminal disorder which would ensue from the
withdrawal of the remedy, and the reasonable hope such withdrawal would create that some advantage
must accrue to those persons who, believing themselves entitled to the possession of property, resort to
force to gain possession rather than to some appropriate action in the court to assert their claims."
(Supia and Batioco vs. Quintero and Ayala, 59 Phil. 312, 314.) So before the enactment of the first
Public Land Act (Act No. 926) the action of forcible entry was already available in the courts of the
country. So the question to be resolved is, Did the Legislature intend, when it vested the power and
authority to alienate and dispose of the public lands in the Lands Department, to exclude the courts
from entertaining the possessory action of forcible entry between rival claimants or occupants of any
land before award thereof to any of the parties? Did Congress intend that the lands applied for, or all
public lands for that matter, be removed from the jurisdiction of the judicial Branch of the Government,
so that any troubles arising therefrom, or any breaches of the peace or disorders caused by rival
claimants, could be inquired into only by the Lands Department to the exclusion of the courts? The
answer to this question seems to us evident. The Lands Department does not have the means to police
public lands; neither does it have the means to prevent disorders arising therefrom, or contain breaches
of the peace among settlers; or to pass promptly upon conflicts of possession. Then its power is clearly
limited to disposition and alienation, and while it may decide conflicts of possession in order to make
proper award, the settlement of conflicts of possession which is recognized in the court herein has
another ultimate purpose, i.e., the protection of actual possessors and occupants with a view to the
prevention of breaches of the peace. The power to dispose and alienate could not have been intended to
include the power to prevent or settle disorders or breaches of the peace among rival settlers or
claimants prior to the final award. As to this, therefore, the corresponding branches of the Government
must continue to exercise power and jurisdiction within the limits of their respective functions. The
vesting of the Lands Department with authority to administer, dispose, and alienate public lands,
therefore, must not be understood as depriving the other branches of the Government of the exercise of
the respective functions or powers thereon, such as the authority to stop disorders and quell breaches of
the peace by the police, the authority on the part of the courts to take jurisdiction over possessory
actions arising therefrom not involving, directly or indirectly, alienation and disposition.
Our attention has been called to a principle enunciated in American courts to the effect that courts have
no jurisdiction to determine the rights of claimants to public lands, and that until the disposition of the
land has passed from the control of the Federal Government, the courts will not interfere with the
administration of matters concerning the same. (50 C. J. 1093-1094.) We have no quarrel with this
principle. The determination of the respective rights of rival claimants to public lands is different from
the determination of who has the actual physical possession or occupation with a view to protecting the
same and preventing disorder and breaches of the peace. A judgment of the court ordering restitution of
the possession of a parcel of land to the actual occupant, who has been deprived thereof by another
through the use of force or in any other illegal manner, can never be "prejudicial interference" with the
disposition or alienation of public lands. On the other hand, if courts were deprived of jurisdiction of
cases involving conflicts of possession, that threat of judicial action against breaches of the peace
committed on public lands would be eliminated, and a state of lawlessness would probably be produced
between applicants, occupants or squatters, where force or might, not right or justice, would rule.
It must be borne in mind that the action that would be used to solve conflicts of possession between
rivals or conflicting applicants or claimants would be no other than that of forcible entry. This action,
both in England and the United States and in our jurisdiction, is a summary and expeditious remedy
whereby one in peaceful and quiet possession may recover the possession of which he has been
deprived by a stronger hand, by violence or terror; its ultimate object being to prevent breach of the
peace and criminal disorder. (Supia and Batioco vs. Quintero and Ayala, 59 Phil. 312, 314.) The basis
of the remedy is mere possession as a fact, of physical possession, not a legal possession. (Mediran vs.
Villanueva, 37 Phil. 752.) The title or right to possession is never in issue in an action of forcible entry;
as a matter of fact, evidence thereof is expressly banned, except to prove the nature of the possession.
(Second 4, Rule 72, Rules of Court.) With this nature of the action in mind, by no stretch of the
imagination can conclusion be arrived at that the use of the remedy in the courts of justice would
constitute an interference with the alienation, disposition, and control of public lands. To limit
ourselves to the case at bar can it be pretended at all that its result would in any way interfere with the
manner of the alienation or disposition of the land contested? On the contrary, it would facilitate
adjudication, for the question of priority of possession having been decided in a final manner by the
courts, said question need no longer waste the time of the land officers making the adjudication or
award. (Emphasis ours)
The Principle of Pari Delicto is not Applicable to Ejectment Cases
The Court of Appeals erroneously applied the principle of pari delicto to this case.
Articles 1411 and 1412 of the Civil Code 48 embody the principle of pari delicto. We explained the
principle of pari delicto in these words:
The rule of pari delicto is expressed in the maxims 'ex dolo malo non eritur actio' and 'in pari delicto
potior est conditio defedentis.' The law will not aid either party to an illegal agreement. It leaves the
parties where it finds them. 49
The application of the pari delicto principle is not absolute, as there are exceptions to its application.
One of these exceptions is where the application of the pari delicto rule would violate well-established
public policy. 50
In Drilon v. Gaurana, 51 we reiterated the basic policy behind the summary actions of forcible entry
and unlawful detainer. We held that:
It must be stated that the purpose of an action of forcible entry and detainer is that, regardless of the
actual condition of the title to the property, the party in peaceable quiet possession shall not be turned
out by strong hand, violence or terror. In affording this remedy of restitution the object of the statute is
to prevent breaches of the peace and criminal disorder which would ensue from the withdrawal of the
remedy, and the reasonable hope such withdrawal would create that some advantage must accrue to
those persons who, believing themselves entitled to the possession of property, resort to force to gain
possession rather than to some appropriate action in the courts to assert their claims. This is the
philosophy at the foundation of all these actions of forcible entry and detainer which are designed to
compel the party out of possession to respect and resort to the law alone to obtain what he claims is his.
52
Clearly, the application of the principle of pari delicto to a case of ejectment between squatters is
fraught with danger. To shut out relief to squatters on the ground of pari delicto would openly invite
mayhem and lawlessness. A squatter would oust another squatter from possession of the lot that the
latter had illegally occupied, emboldened by the knowledge that the courts would leave them where
they are. Nothing would then stand in the way of the ousted squatter from re-claiming his prior
possession at all cost.
Petty warfare over possession of properties is precisely what ejectment cases or actions for recovery of
possession seek to prevent. 53 Even the owner who has title over the disputed property cannot take the
law into his own hands to regain possession of his property. The owner must go to court.
Courts must resolve the issue of possession even if the parties to the ejectment suit are squatters. The
determination of priority and superiority of possession is a serious and urgent matter that cannot be left
to the squatters to decide. To do so would make squatters receive better treatment under the law. The
law restrains property owners from taking the law into their own hands. However, the principle of pari
delicto as applied by the Court of Appeals would give squatters free rein to dispossess fellow squatters
or violently retake possession of properties usurped from them. Courts should not leave squatters to
their own devices in cases involving recovery of possession.
Possession is the only Issue for Resolution in an Ejectment Case
The case for review before the Court of Appeals was a simple case of ejectment. The Court of Appeals
refused to rule on the issue of physical possession. Nevertheless, the appellate court held that the
pivotal issue in this case is who between Pajuyo and Guevarra has the "priority right as beneficiary of
the contested land under Proclamation No. 137." 54 According to the Court of Appeals, Guevarra
enjoys preferential right under Proclamation No. 137 because Article VI of the Code declares that the
actual occupant or caretaker is the one qualified to apply for socialized housing.
The ruling of the Court of Appeals has no factual and legal basis.
First. Guevarra did not present evidence to show that the contested lot is part of a relocation site under
Proclamation No. 137. Proclamation No. 137 laid down the metes and bounds of the land that it
declared open for disposition to bona fide residents.
The records do not show that the contested lot is within the land specified by Proclamation No. 137.
Guevarra had the burden to prove that the disputed lot is within the coverage of Proclamation No. 137.
He failed to do so.
Second. The Court of Appeals should not have given credence to Guevarra's unsubstantiated claim that
he is the beneficiary of Proclamation No. 137. Guevarra merely alleged that in the survey the project
administrator conducted, he and not Pajuyo appeared as the actual occupant of the lot.
There is no proof that Guevarra actually availed of the benefits of Proclamation No. 137. Pajuyo
allowed Guevarra to occupy the disputed property in 1985. President Aquino signed Proclamation No.
137 into law on 11 March 1986. Pajuyo made his earliest demand for Guevarra to vacate the property
in September 1994.
During the time that Guevarra temporarily held the property up to the time that Proclamation No. 137
allegedly segregated the disputed lot, Guevarra never applied as beneficiary of Proclamation No. 137.
Even when Guevarra already knew that Pajuyo was reclaiming possession of the property, Guevarra
did not take any step to comply with the requirements of Proclamation No. 137.
Third. Even assuming that the disputed lot is within the coverage of Proclamation No. 137 and
Guevarra has a pending application over the lot, courts should still assume jurisdiction and resolve the
issue of possession. However, the jurisdiction of the courts would be limited to the issue of physical
possession only.
In Pitargue, 55 we ruled that courts have jurisdiction over possessory actions involving public land to
determine the issue of physical possession. The determination of the respective rights of rival claimants
to public land is, however, distinct from the determination of who has the actual physical possession or
who has a better right of physical possession. 56 The administrative disposition and alienation of public
lands should be threshed out in the proper government agency. 57
The Court of Appeals' determination of Pajuyo and Guevarra's rights under Proclamation No. 137 was
premature. Pajuyo and Guevarra were at most merely potential beneficiaries of the law. Courts should
not preempt the decision of the administrative agency mandated by law to determine the qualifications
of applicants for the acquisition of public lands. Instead, courts should expeditiously resolve the issue
of physical possession in ejectment cases to prevent disorder and breaches of peace. 58
Pajuyo is Entitled to Physical Possession of the Disputed Property
Guevarra does not dispute Pajuyo's prior possession of the lot and ownership of the house built on it.
Guevarra expressly admitted the existence and due execution of the Kasunduan. The Kasunduan reads:
Ako, si COL[I]TO PAJUYO, may-ari ng bahay at lote sa Bo. Payatas, Quezon City, ay nagbibigay
pahintulot kay G. Eddie Guevarra, na pansamantalang manirahan sa nasabing bahay at lote ng "walang
bayad." Kaugnay nito, kailangang panatilihin nila ang kalinisan at kaayusan ng bahay at lote.
Sa sandaling kailangan na namin ang bahay at lote, sila'y kusang aalis ng walang reklamo.
Based on the Kasunduan, Pajuyo permitted Guevarra to reside in the house and lot free of rent, but
Guevarra was under obligation to maintain the premises in good condition. Guevarra promised to
vacate the premises on Pajuyo's demand but Guevarra broke his promise and refused to heed Pajuyo's
demand to vacate.
These facts make out a case for unlawful detainer. Unlawful detainer involves the withholding by a
person from another of the possession of real property to which the latter is entitled after the expiration
or termination of the former's right to hold possession under a contract, express or implied. 59
Where the plaintiff allows the defendant to use his property by tolerance without any contract, the
defendant is necessarily bound by an implied promise that he will vacate on demand, failing which, an
action for unlawful detainer will lie. 60 The defendant's refusal to comply with the demand makes his
continued possession of the property unlawful. 61 The status of the defendant in such a case is similar
to that of a lessee or tenant whose term of lease has expired but whose occupancy continues by
tolerance of the owner. 62
This principle should apply with greater force in cases where a contract embodies the permission or
tolerance to use the property. The Kasunduan expressly articulated Pajuyo's forbearance. Pajuyo did
not require Guevarra to pay any rent but only to maintain the house and lot in good condition. Guevarra
expressly vowed in the Kasunduan that he would vacate the property on demand. Guevarra's refusal to
comply with Pajuyo's demand to vacate made Guevarra's continued possession of the property
unlawful.
We do not subscribe to the Court of Appeals' theory that the Kasunduan is one of commodatum.
In a contract of commodatum, one of the parties delivers to another something not consumable so that
the latter may use the same for a certain time and return it. 63 An essential feature of commodatum is
that it is gratuitous. Another feature of commodatum is that the use of the thing belonging to another is
for a certain period. 64 Thus, the bailor cannot demand the return of the thing loaned until after
expiration of the period stipulated, or after accomplishment of the use for which the commodatum is
constituted. 65 If the bailor should have urgent need of the thing, he may demand its return for
temporary use. 66 If the use of the thing is merely tolerated by the bailor, he can demand the return of
the thing at will, in which case the contractual relation is called a precarium. 67 Under the Civil Code,
precarium is a kind of commodatum. 68
The Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra was not essentially
gratuitous. While the Kasunduan did not require Guevarra to pay rent, it obligated him to maintain the
property in good condition. The imposition of this obligation makes the Kasunduan a contract different
from a commodatum. The effects of the Kasunduan are also different from that of a commodatum.
Case law on ejectment has treated relationship based on tolerance as one that is akin to a landlord-
tenant relationship where the withdrawal of permission would result in the termination of the lease. 69
The tenant's withholding of the property would then be unlawful. This is settled jurisprudence.
Even assuming that the relationship between Pajuyo and Guevarra is one of commodatum, Guevarra as
bailee would still have the duty to turn over possession of the property to Pajuyo, the bailor. The
obligation to deliver or to return the thing received attaches to contracts for safekeeping, or contracts of
commission, administration and commodatum. 70 These contracts certainly involve the obligation to
deliver or return the thing received. 71
Guevarra turned his back on the Kasunduan on the sole ground that like him, Pajuyo is also a squatter.
Squatters, Guevarra pointed out, cannot enter into a contract involving the land they illegally occupy.
Guevarra insists that the contract is void.
Guevarra should know that there must be honor even between squatters. Guevarra freely entered into
the Kasunduan. Guevarra cannot now impugn the Kasunduan after he had benefited from it. The
Kasunduan binds Guevarra.
The Kasunduan is not void for purposes of determining who between Pajuyo and Guevarra has a right
to physical possession of the contested property. The Kasunduan is the undeniable evidence of
Guevarra's recognition of Pajuyo's better right of physical possession. Guevarra is clearly a possessor in
bad faith. The absence of a contract would not yield a different result, as there would still be an implied
promise to vacate. IEHDAT
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 P3,000 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 P300 monthly rentals the MTC and RTC assessed against Guevarra. Guevarra did not
dispute this factual finding of the two courts. We find the amount reasonable compensation to Pajuyo.
The P300 monthly rental is counted from the last demand to vacate, which was on 16 February 1995.
WHEREFORE, we GRANT the petition. The Decision dated 21 June 2000 and Resolution dated 14
December 2000 of the Court of Appeals in CA-G.R. SP No. 43129 are SET ASIDE. The Decision
dated 11 November 1996 of the Regional Trial Court of Quezon City, Branch 81 in Civil Case No. Q-
96-26943, affirming the Decision dated 15 December 1995 of the Metropolitan Trial Court of Quezon
City, Branch 31 in Civil Case No. 12432, is REINSTATED with MODIFICATION. The award of
attorney's fees is deleted. No costs.
SO ORDERED. ASHECD
Davide, Jr., C .J ., Panganiban, Ynares-Santiago and Azcuna, JJ ., concur.
Footnotes
1. Under Rule 45 of the 1997 Rules of Court.
2. Penned by Associate Justice Andres B. Reyes, Jr. with Associate Justices Quirino D. Abad
Santos, Jr. and Romeo A. Brawner, concurring.
3. Penned by Judge Wenceslao I. Agnir.
4. Docketed as Civil Case No. Q-96-26943.
5. Penned by Judge Mariano M. Singzon, Jr.
6. Docketed as Civil Case No. 12432.
7. Rollo, p. 41.
8. Ibid., p. 49.
9. Ibid., p. 221.
10. Ibid., p. 224.
11. Ibid., p. 60.
12. Ibid., p. 73.
13. Rollo, p. 134.
14. Macawiwili Gold Mining and Development Co., Inc. v. Court of Appeals, 358 Phil. 245 (1998).
15. Ibid.
16. Ibid.
17. Ibid.
18. 227 Phil. 606 (1986).
19. G.R. No. 101132, 29 January 1993, 218 SCRA 193.
20. Ibid.
21. Ibid.
22. Commissioner of Internal Revenue v. Court of Appeals, G.R. No. 110003, 9 February 2001,
351 SCRA 436.
23. City of Manila v. Court of Appeals, G.R. No. 100626, 29 November 1991, 204 SCRA 362.
24. Castilex Industrial Corporation v. Vasquez, Jr., 378 Phil. 1009 (1999).
25. Refugia v. Court of Appeals, 327 Phil. 982 (1996).
26. Ibid.
27. Far Eastern Shipping Company v. Court of Appeals, 357 Phil. 703 (1998).
28. Ibid.
29. Buenaventura v. Uy, G.R. No. L-28156, 31 March 1987, 149 SCRA 220.
30. Ibid.
31. FLORENZ D. REGALADO, REMEDIAL LAW COMPENDIUM, VOL. I, SIXTH REV. ED.,
143.
32. Dizon v. Court of Appeals, 332 Phil. 429 (1996).
33. Ibid.
34. De Luna v. Court of Appeals, G.R. No. 94490, 6 August 1992, 212 SCRA 276.
35. Ibid.
36. Pitargue v. Sorilla, 92 Phil. 5 (1952); Dizon v. Court of Appeals, supra note 32; Section 16,
Rule 70 of the 1997 Rules of Court.
37. Ibid.; Fige v. Court of Appeals, G.R. No. 107951, 30 June 1994, 233 SCRA 586; Oblea v. Court
of Appeals, 313 Phil. 804 (1995).
38. Dizon v. Court of Appeals, supra note 32.
39. Supra note 36.
40. Drilon v. Gaurana, G.R. No. L-35482, 30 April 1987, 149 SCRA 342.
41. Rubio v. The Hon. Municipal Trial Court in Cities, 322 Phil. 179 (1996).
42. Ibid.
43. 92 Phil. 5 (1952).
44. Ibid.
45. Ibid.; Reynoso v. Court of Appeals, G.R. No. 49344, 23 February 1989, 170 SCRA 546;
Aguilon v. Bohol, G.R. No. L-27169, 20 October 1977, 79 SCRA 482.
46. Ibid.
47. Ibid.
48. Art. 1411. When the nullity proceeds from the illegality of the cause or object of the contract,
and the act constitutes a criminal offense, both parties being in pari delicto, they shall have no action
against each other, and both shall be prosecuted. Moreover, the provisions of the Penal Code relative to
the disposal of effects or instruments of a crime shall be applicable to the things or the price of the
contract.
This rule shall be applicable when only one of the parties is guilty; but the innocent one
may claim what he has given, and shall not be bound to comply with his promise.
Art. 1412. If the act in which the unlawful or forbidden cause consists does not
constitute a criminal offense, the following rule shall be observed:
(1) When the fault is on the part of both contracting parties, neither may recover
what he has given by virtue of the contract, or demand the performance of the other's undertaking;
(2) When only one of the contracting parties is at fault, he cannot recover what he
has given by reason of the contract, or ask for the fulfillment of what has been promised to him. The
other who is not at fault, may demand the return of what he has given without any obligation to comply
with his promise.
49. Top-Weld Manufacturing, Inc. v. ECED S.A., G.R. No. L-44944, 9 August 1985, 138 SCRA
118.
50. Silagan v. Intermediate Appellate Court, 274 Phil. 182 (1991).
51. Supra note 40.
52. Ibid.
53. Dizon v. Concina, 141 Phil. 589 (1969); Cine Ligaya v. Labrador, 66 Phil. 659 (1938).
54. Rollo, p. 54.
55. Supra note 43.
56. Ibid.; Aguilon v. Bohol, supra note 45; Reynoso v. Court of Appeals, supra note 45.
57. Reynoso v. Court of Appeals, supra note 45.
58. Aguilon v. Bohol, supra note 45.
59. Section 1, Rule 70 of the 1964 Rules of Court.
60. Arcal v. Court of Appeals, 348 Phil. 813 (1998).
61. Ibid.
62. Ibid.
63. Art. 1933. By the contract of loan, one of the parties delivers to another, either something not
consumable so that the latter may use the same for a certain time and return it, in which case the
contract is called a commodatum; or money or other consumable thing, upon the condition that the
same amount of the same kind and quality shall be paid, in which case the contract is simply called a
loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum the bailor retains the ownership of the thing loaned, while in simple
loan, ownership passes to the borrower.
64. Pascual v. Mina, 20 Phil. 202 (1911).
65. Art. 1946. The bailor cannot demand the return of the thing loaned till after the expiration of the
period stipulated, or after the accomplishment of the use for which the commodatum has been
constituted. However, if in the meantime, he should have urgent need of the thing, he may demand its
return or temporary use.
In case of temporary use by the bailor, the contract of commodatum is suspended while
the thing is in the possession of the bailor.
66. Ibid.
67. Art. 1947. The bailor may demand the thing at will, and the contractual relation is called a
precarium, in the following cases:
(1) If neither the duration of the contract nor the use to which the thing loaned
should be devoted, has been stipulated; or
(2) If the use of the thing is merely tolerated by the owner.
68. ARTURO M. TOLENTINO, COMMENTARIES AND JURISPRUDENCE ON THE CIVIL
CODE OF THE PHILIPPINES, Vol. V, 448.
69. Arcal v. Court of Appeals, supra note 60; Dakudao v. Consolacion, 207 Phil. 750 (1983);
Calubayan v. Pascual, 128 Phil. 160 (1967).
70. United States v. Camara, 28 Phil. 238 (1914).
71. Ibid.
72. Rollo, p. 87.
73. Benitez v. Court of Appeals, G.R. No. 104828, 16 January 1997, 266 SCRA 242.
74. Ibid.
75. Ibid.
76. Ibid.
77. Dela Rosa v. Carlos, G.R. No. 147549, 23 October 2003.
78. Benitez v. Court of Appeals, supra note 73.
79. Ibid.
80. Caballero v. Court of Appeals, G.R. No. 59888, 29 January 1993, 218 SCRA 56; Florendo, Jr.
v. Coloma, G.R. No. L-60544, 19 May 1984, 214 SCRA 268.
81. Florendo, Jr. v. Coloma, supra note 80.
82. Dizon v. Court of Appeals, supra note 32; Section 7, Rule 70 of the 1964 Rules of Court.
83. Padillo v. Court of Appeals, 442 Phil. 344 (2001).
84. Ibid.
85. Ibid.
SECOND DIVISION
[G.R. No. L-46145. November 26, 1986.]
REPUBLIC OF THE PHILIPPINES (BUREAU OF LANDS), petitioner, vs. THE HON. COURT OF
APPEALS, HEIRS OF DOMINGO P. BALOY, represented by RICARDO BALOY, ET AL.,
respondents.
Pelaez, Jalandoni, Adriano, and Associates for respondents.
DECISION
PARAS, J p:
This case originally emanated from a decision of the then Court of First Instance of Zambales in LRC
Case No. 11-0, LRC Record No. N-29355, denying respondents' application for registration. From said
order of denial the applicants, heirs of Domingo Baloy, represented by Ricardo P. Baloy, (herein
private respondents) interposed on appeal to the Court of Appeals which was docketed as CA-G.R. No.
52039-R. The appellate court, thru its Fifth Division with the Hon. Justice Magno Gatmaitan as
ponente, rendered a decision dated February 3, 1977 reversing the decision appealed from and thus
approving the application for registration. Oppositors (petitioners herein) filed their Motion for
Reconsideration alleging among other things that applicants' possessory information title can no longer
be invoked and that they were not able to prove a registerable title over the land. Said Motion for
Reconsideration was denied, hence this petition for review on certiorari.
Applicants' claim is anchored on their possessory information title (Exhibit F which had been translated
in Exhibit F-1) coupled with their continuous, adverse and public possession over the land in question.
An examination of the possessory information title shows that the description and the area of the land
stated therein substantially coincides with the land applied for and that said possessory information title
had been regularly issued having been acquired by applicants' predecessor, Domingo Baloy, under the
provisions of the Spanish Mortgage Law. Applicants presented their tax declaration on said lands on
April 8, 1965.
The Director of Lands opposed the registration alleging that this land had become public land thru the
operation of Act 627 of the Philippine Commission. On November 26, 1902 pursuant to the executive
order of the President of the U.S., the area was declared within the U.S. Naval Reservation. Under Act
627 as amended by Act 1138, a period was fixed within which persons affected thereby could file their
application, (that is within 6 months from July 8, 1905) otherwise "the said lands or interests therein
will be conclusively adjudged to be public lands and all claims on the part of private individuals for
such lands or interests therein not to presented will be forever barred." Petitioner argues that since
Domingo Baloy failed to file his claim within the prescribed period, the land had become irrevocably
public and could not be the subject of a valid registration for private ownership.
Considering the foregoing facts respondent Court of Appeals ruled as follows:
". . . perhaps, the consequence was that upon failure of Domingo Baloy to have filed his application
within that period the land had become irrevocably public; but perhaps also, for the reason that warning
was from the Clerk of the Court of Land Registration, named J.R. Wilson and there has not been
presented a formal order or decision of the said Court of Land Registration so declaring the land public
because of that failure, it can with plausibility be said that after all, there was no judicial declaration to
that effect, it is true that the U.S. Navy did occupy it apparently-for some time, as a recreation area, as
this Court understands from the communication of the Department of Foreign Affairs to the U.S.
Embassy exhibited in the record, but the very tenor of the communication apparently seeks to justify
the title of herein applicants, in other words, what this Court has taken from the occupation by the U.S.
Navy is that during the interim, the title of applicants was in a state of suspended animation so to speak
but it had not died either; and the fact being that this land was really originally private from and after
the issuance and inscription of the possessory information Exh. F during the Spanish times, it would be
most difficult to sustain position of Director of Lands that it was land of no private owner; open to
public imposition, and over which he has control; and since immediately after U.S. Navy had
abandoned the area, applicant came in and asserted title once again, only to be troubled by first
Crispiniano Blanco who however in due time, quitclaimed in favor of applicants, and then by private
oppositors now, apparently originally tenants of Blanco, but that entry of private oppositors sought to
be given color of ownership when they sought to and did file tax declaration in 1965, should not
prejudice the original rights of applicants thru their possessory information secured regularly so long
ago, the conclusion must have to be that after all, applicants had succeeded in bringing themselves
within the provisions of Sec. 19 of Act 496, the land should be registered in their favor;
IN VIEW WHEREOF, this Court is constrained to reverse, as it now reverses, judgment appealed from
the application is approved, and once this decision shall have become final, if ever it would be, let
decree issue in favor of applicants with the personal circumstances outlined in the application, costs
against private oppositors."
Petitioner now comes to Us with the following:
"ASSIGNMENT OF ERRORS"
1 Respondent court erred in holding that to bar private respondents from asserting any right under
their possessory information title there is need for a court order to that effect.
2. Respondent court erred in not holding that private respondents' rights by virtue of their
possessory information title was lost by prescription.
3. Respondent court erred in concluding that applicants have registerable title.
A cursory reading of Sec. 3, Act 627 reveals that several steps are to be followed before any affected
land can "be conclusively adjudged to be public land." Sec. 3, Act 627 reads as follows:
"SEC. 3. Immediately upon receipt of the notice from the Civil Governor in the preceding section
mentioned it shall be the duty of the judge of the Court of Land Registration to issue a notice, stating
that the lands within the limits aforesaid have been reserved for military purposes, and announced and
declared to be military reservations, and that claims for all private lands, buildings, and interests
therein, within the limits aforesaid, must be presented for registration under the Land Registration Act
within six calendar months from the date of issuing the notice, and that all lands, buildings, and
interests therein within the limits aforesaid not so presented within the time therein limited will be
conclusively adjudged to be public lands, and all claims on the part of private individuals for such
lands, buildings, or an interest therein not so presented will be forever barred. The clerk of the Court of
Land Registration shall immediately upon the issuing of such notice by the judge cause the same to be
published once a week for three successive weeks in two newspapers, one of which newspapers shall
be in the English language, and one in the Spanish language in the city or province where the land lies,
if there be no such Spanish or English newspapers having a general circulation in the city or province
wherein the land lies, then it shall be a sufficient compliance with this section if the notice be published
as herein provided, in a daily newspaper in the Spanish language and one in the English language, in
the City of Manila, having a general circulation. The clerk shall also cause a duly attested copy of the
notice in the Spanish language to be posted in conspicuous place at each angle formed by the lines of
the limits of the land reserved. The clerk shall also issue and cause to be personally served the notice in
the Spanish language upon every person living upon or in visible possession of any part of the military
reservation. If the person in possession is the head of the family bring upon the land, it shall be
sufficient to serve the notice upon him, and if he is absent it shall be sufficient to leave a copy at his
usual place of residence. The clerk shall certify the manner in which the notices have been published,
posted, and served, and his certificate shall be conclusive proof of such publication, posting, and
service, but the court shall have power to cause such further notice to be given as in its opinion may be
necessary."
Clearly under said provision, private land could be deemed to have become public land only by virtue
of a judicial declaration after due notice and hearing. It runs contrary therefore to the contention of
petitioners that failure to present claims set forth under Sec. 2 of Act 627 made the land ipso facto
public without any need of judicial pronouncement. Petitioner in making such declaration relied on
Sec. 4 of Act 627 alone. But in construing a statute the entire provisions of the law must be considered
in order to establish the correct interpretation as intended by the law-making body. Act 627 by its terms
is not self-executory and requires implementation by the Court of Land Registration. Act 627, to the
extent that it creates a forfeiture, is a penal statute in derogation of private rights, so it must be strictly
construed so as to safeguard private respondents' rights. Significantly, petitioner does not even allege
the existence of any judgment of the Land Registration court with respect to the land in question.
Without a judgment or order declaring the land to be public, its private character and the possessory
information title over it must be respected. Since no such order has been rendered by the Land
Registration Court it necessarily follows that it never became public land thru the operation of Act 627.
To assume otherwise is to deprive private respondents of their property without due process of law. In
fact it can be presumed that the notice required by law to be given by publication and by personal
service did not include the name of Domingo Baloy and the subject land, and hence he and his land
were never brought within the operation of Act 627 as amended. The procedure laid down in Sec. 3 is a
requirement of due process. "Due process requires that the statutes under which it is attempted to
deprive a citizen of private property without or against his consent must, as in expropriation cases, be
strictly complied with, because such statutes are in derogation of general rights." (Arriete vs. Director
of Public Works, 58 Phil. 507, 508, 511).
We also find with favor private respondents' views that court judgments are not to be presumed. It
would be absurd to speak of a judgment by presumption. If it could be contended that such a judgment
may be presumed, it could equally be contended that applicants' predecessor Domingo Baloy
presumably seasonably filed a claim, in accordance with the legal presumption that a person takes
ordinary care of his concerns, and that a judgment in his favor was rendered.
The finding of respondent court that during the interim of 57 years from November 26, 1902 to
December 17, 1959 (when the U.S. Navy possessed the area) the possessory rights of Baloy or heirs
were merely suspended and not lost by prescription, is supported by Exhibit "U," a communication or
letter No. 1108-63, dated June 24, 1963, which contains an official statement of the position of the
Republic of the Philippines with regard to the status of the land in question. Said letter recognizes the
fact that Domingo Baloy and/or his heirs have been in continuous possession of said land since 1894 as
attested by an "Informacion Possessoria" Title, which was granted by the Spanish Government. Hence,
the disputed property is private land and this possession was interrupted only by the occupation of the
land by the U.S. Navy in 1945 for recreational purposes. The U.S. Navy eventually abandoned the
premises. The heirs of the late Domingo P. Baloy, are now in actual possession, and this has been so
since the abandonment by the U.S. Navy. A new recreation area is now being used by the U.S. Navy
personnel and this place is remote from the land in question.
Clearly, the occupancy of the U.S. Navy was not in the concept of owner. It partakes of the character of
a commodatum. It cannot therefore militate against the title of Domingo Baloy and his successors-in-
interest. One's ownership of a thing may be lost by prescription by reason of another's possession if
such possession be under claim of ownership, not where the possession is only intended to be transient,
as in the case of the U.S. Navy's occupation of the land concerned, in which case the owner is not
divested of his title, although it cannot be exercised in the meantime.
WHEREFORE, premises considered, finding no merit in the petition the appealed decision is hereby
AFFIRMED. prLL
SO ORDERED.
Feria, Alampay and Feliciano, ** JJ ., concur.
Fernan, J ., no part.
Gutierrez, Jr., J ., I concur pro hoc vice in the results.
Footnotes
** Feliciano was designated in lieu of J. Fernan.
FIRST DIVISION
[G.R. No. 114286. April 19, 2001.]
THE CONSOLIDATED BANK AND TRUST CORPORATION (SOLIDBANK), petitioner, vs. THE
COURT OF APPEALS, CONTINENTAL CEMENT CORPORATION, GREGORY T.. LIM and
SPOUSE, respondents.
Delos Reyes Bañaga Briones and Associates for petitioner.
Gil Venerando R. Racho for private respondents.
SYNOPSIS
Respondents Continental Cement Corporation and Gregory T. Lim obtained from petitioner
Consolidated Bank And Trust Corporation (CBTC) a letter of credit in the amount of P1,068,150.00.
The Corporation paid a marginal deposit of P320,445.00 to the petitioner. In relation to the same
transaction, the Corporation, with Lim as signatory, executed a trust receipt for the amount of
Pl,001,520.93. The petitioner filed a complaint for sum of money against respondents herein on the
claim that they failed to turn over the goods covered by the trust receipt or the proceeds thereof. The
respondents averred that the transaction between them was a simple loan and not a trust receipt and the
amount claimed did not account for the payments already made. The trial court rendered its decision
dismissing the complaint and ordered petitioner to pay respondents the amounts, under their
counterclaim. Both parties appealed to the Court of Appeals, which partially modified the decision
deleting the award of attorney's fees in favor of petitioner, and instead ordered respondent Corporation
to pay petitioner attorney's fees and litigation expenses. Hence, the instant petition. EASIHa
The Supreme Court affirmed the decision of the Court of Appeals. According to the Court by all
indications there was really no trust receipt transaction that took place. Evidently, the respondent
corporation was required to sign a trust receipt simply to facilitate collection by petitioner of the loan it
had extended to the former.
SYLLABUS
1. COMMERCIAL LAW; LETTERS OF CREDIT; MARGINAL DEPOSIT SHOULD BE SET
OFF FIRST BEFORE COMPUTING INTEREST THEREON; RATIONALE; APPLICATION IN
CASE AT BAR. — Moreover, petitioner's contention that the marginal deposit made by respondent
Corporation should not be deducted outright from the amount of the letter of credit is untenable.
Petitioner argues that the marginal deposit should be considered only after computing the principal plus
accrued interests and other charges. However, to sustain petitioner on this score would be to
countenance a clear case of unjust enrichment, for while a marginal deposit earns no interest in favor of
the debtor-depositor, the bank is not only able to use the same for its own purposes, interest-free, but is
also able to earn interest on the money loaned to respondent Corporation. Indeed, it would be onerous
to compute interest and other charges on the face value of the letter of credit which the petitioner
issued, without first crediting or setting off the marginal deposit which the respondent Corporation paid
to it. Compensation is proper and should take effect by operation of law because the requisites in
Article 1279 of the Civil Code are present and should extinguish both debts to the concurrent amount.
Hence, the interests and other charges on the subject letter of credit should be computed only on the
balance of P681,075.93, which was the portion actually loaned by the bank to respondent Corporation.
EAHDac
2. CIVIL LAW; LOAN; INTEREST RATES; THERE SHOULD ALWAYS BE A REFERENCE
RATE UPON WHICH TO PEG A VARIABLE INTEREST RATE; NOT PRESENT IN CASE AT
BAR. — While it may be acceptable, for practical reasons given the fluctuating economic conditions,
for banks to stipulate that interest rates on a loan not be fixed and instead be made dependent upon
prevailing market conditions, there should always be a reference rate upon which to peg such variable
interest rates. An example of such a valid variable interest rate was found in Polotan, Sr. v. Court of
Appeals. In that case, the contractual provision stating that "if there occurs any change in the prevailing
market rates, the new interest rate shall be the guiding rate in computing the interest due on the
outstanding obligation without need of serving notice to the Cardholder other than the required posting
on the monthly statement served to the Cardholder" was considered valid. The aforequoted provision
was upheld notwithstanding that it may partake of the nature of an escalation clause, because at the
same time it provides for the decrease in the interest rate in case the prevailing market rates dictate its
reduction. In other words, unlike the stipulation subject of the instant case, the interest rate involved in
the Polotan case is designed to be based on the prevailing market rate. On the other hand, a stipulation
ostensibly signifying an agreement to "any increase or decrease in the interest rate," without more,
cannot be accepted by this Court as valid for it leaves solely to the creditor the determination of what
interest rate to charge against an outstanding loan.
3. ID.; ID.; SIMPLE LOAN AND TRUST RECEIPT TRANSACTION, DISTINGUISHED;
CASE AT BAR. — The recent case of Colinares v. Court of Appeals appears to be foursquare with the
facts obtaining in the case at bar. There, we found that inasmuch as the debtor received the goods
subject of the trust receipt before the trust receipt itself was entered into, the transaction in question was
a simple loan and not a trust receipt agreement. Prior to the date of execution of the trust receipt,
ownership over the goods was already transferred to the debtor. This situation is inconsistent with what
normally obtains in a pure trust receipt transaction, wherein the goods belong in ownership to the bank
and are only released to the importer in trust after the loan is granted. In the case at bar, as in Colinares,
the delivery to respondent Corporation of the goods subject of the trust receipt occurred long before the
trust receipt itself was executed. More specifically, delivery of the bunker fuel oil to respondent
Corporation's Bulacan plant commenced on July 7, 1982 and was completed by July 19, 1982. Further,
the oil was used up by respondent Corporation in its normal operations by August, 1982. On the other
hand, the subject trust receipt was only executed nearly two months after full delivery of the oil was
made to respondent Corporation, or on September 2, 1982. The danger in characterizing a simple loan
as a trust receipt transaction was explained in Colinares, to wit: The Trust Receipts Law does not seek
to enforce payment of the loan, rather it punishes the dishonesty and abuse of confidence in the
handling of money or goods to the prejudice of another regardless of whether the latter is the owner.
Here, it is crystal clear that on the part of Petitioners there was neither dishonesty nor abuse of
confidence in the handling of money to the prejudice of PBC. Petitioners continually endeavored to
meet their obligations, as shown by several receipts issued by PBC acknowledging payment of the
loan. The Information charges Petitioners with intent to defraud and misappropriating the money for
their personal use. The mala prohibita nature of the alleged offense notwithstanding, intent as a state of
mind was not proved to be present in Petitioners' situation. Petitioners employed no artifice in dealing
with PBC and never did they evade payment of their obligation nor attempt to abscond. Instead,
Petitioners sought favorable terms precisely to meet their obligation. Also noteworthy is the fact that
Petitioners are not importers acquiring the goods for re-sale, contrary to the express provision
embodied in the trust receipt. They are contractors who obtained the fungible goods for their
construction project. At no time did title over the construction materials pass to the bank, but directly to
the Petitioners from CM Builders Centre. This impresses upon the trust receipt in question vagueness
and ambiguity, which should not be the basis for criminal prosecution in the event of violation of its
provisions. The practice of banks of making borrowers sign trust receipts to facilitate collection of
loans and place them under the threats of criminal prosecution should they be unable to pay it may be
unjust and inequitable, if not reprehensible. Such agreements are contracts of adhesion which
borrowers have no option but to sign lest their loan be disapproved. The resort to this scheme leaves
poor and hapless borrowers at the mercy of banks, and is prone to misinterpretation, as had happened in
this case. Eventually, PBC showed its true colors and admitted that it was only after collection of the
money, as manifested by its Affidavit of Desistance. TCcIaA
4. COMMERCIAL LAW; CORPORATION; PERSONALITY THEREOF SEPARATE AND
DISTINCT FROM THE PERSONS COMPOSING IT; PRESENT IN CASE AT BAR. — Petitioner's
argument that respondent Corporation and respondent Lim and his spouse are one and the same cannot
be sustained. The transactions sued upon were clearly entered into by respondent Lim in his capacity as
Executive Vice President of respondent Corporation. We stress the hornbook law that corporate
personality is a shield against personal liability of its officers. Thus, we agree that respondents Gregory
T. Lim and his spouse cannot be made personally liable since respondent Lim entered into and signed
the contract clearly in his official capacity as Executive Vice-President. The personality of the
corporation is separate and distinct from the persons composing it. CHATEa
DECISION
YNARES-SANTIAGO, J p:
The instant petition for review seeks to partially set aside the July 26, 1993 Decision 1 of respondent
Court of Appeals in CA-G.R. CV No. 29950, insofar as it orders petitioner to reimburse respondent
Continental Cement Corporation the amount of P490,228.90 with interest thereon at the legal rate from
July 26, 1988 until fully paid. The petition also seeks to set aside the March 8, 1994 Resolution 2 of
respondent Court of Appeals denying its Motion for Reconsideration.
The facts are as follows:
On July 13, 1982, respondents Continental Cement Corporation (hereinafter, respondent Corporation)
and Gregory T. Lim (hereinafter, respondent Lim) obtained from petitioner Consolidated Bank and
Trust Corporation Letter of Credit No. DOM-23277 in the amount of P1,068,150.00 On the same date,
respondent Corporation paid a marginal deposit of P320,445.00 to petitioner. The letter of credit was
used to purchase around five hundred thousand liters of bunker fuel oil from Petrophil Corporation,
which the latter delivered directly to respondent Corporation in its Bulacan plant. In relation to the
same transaction, a trust receipt for the amount of P1,001,520.93 was executed by respondent
Corporation, with respondent Lim as signatory.
Claiming that respondents failed to turn over the goods covered by the trust receipt or the proceeds
thereof, petitioner filed a complaint for sum of money with application for preliminary attachment 3
before the Regional Trial Court of Manila. In answer to the complaint, respondents averred that the
transaction between them was a simple loan and not a trust receipt transaction, and that the amount
claimed by petitioner did not take into account payments already made by them. Respondent Lim also
denied any personal liability in the subject transactions. In a Supplemental Answer, respondents prayed
for reimbursement of alleged overpayment to petitioner of the amount of P490,228.90.
At the pre-trial conference, the parties agreed on the following issues:
1) Whether or not the transaction involved is a loan transaction or a trust receipt transaction;
2) Whether or not the interest rates charged against the defendants by the plaintiff are proper under
the letter of credit, trust receipt and under existing rules or regulations of the Central Bank;
3) Whether or not the plaintiff properly applied the previous payment of P300,456.27 by the
defendant corporation on July 13, 1982 as payment for the latter's account; and
4) Whether or not the defendants are personally liable under the transaction sued for in this case. 4
On September 17, 1990, the trial court rendered its Decision, 5 dismissing the Complaint and ordering
petitioner to pay respondents the following amounts under their counterclaim: P490,228.90
representing overpayment of respondent Corporation, with interest thereon at the legal rate from July
26, 1988 until fully paid; P10,000.00 as attorney's fees; and costs.
Both parties appealed to the Court of Appeals, which partially modified the Decision by deleting the
award of attorney's fees in favor of respondents and, instead, ordering respondent Corporation to pay
petitioner P37,469.22 as and for attorney's fees and litigation expenses.
Hence, the instant petition raising the following issues:
1. WHETHER OR NOT THE RESPONDENT APPELLATE COURT ACTED INCORRECTLY
OR COMMITTED REVERSIBLE ERROR IN HOLDING THAT THERE WAS OVERPAYMENT
BY PRIVATE RESPONDENTS TO THE PETITIONER IN THE AMOUNT OF P490,228.90
DESPITE THE ABSENCE OF ANY COMPUTATION MADE IN THE DECISION AND THE
ERRONEOUS APPLICATION OF PAYMENTS WHICH IS IN VIOLATION OF THE NEW CIVIL
CODE.
2. WHETHER OR NOT THE MANNER OF COMPUTATION OF THE MARGINAL DEPOSIT
BY THE RESPONDENT APPELLATE COURT IS IN ACCORDANCE WITH BANKING
PRACTICE.
3. WHETHER OR NOT THE AGREEMENT AMONG THE PARTIES AS TO THE FLOATING
OF INTEREST RATE IS VALID UNDER APPLICABLE JURISPRUDENCE AND THE RULES
AND REGULATIONS OF THE CENTRAL BANK.
4. WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY ERRED
IN NOT CONSIDERING THE TRANSACTION AT BAR AS A TRUST RECEIPT TRANSACTION
ON THE BASIS OF THE JUDICIAL ADMISSIONS OF THE PRIVATE RESPONDENTS AND
FOR WHICH RESPONDENTS ARE LIABLE THEREFOR.
5. WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY ERRED
IN NOT HOLDING PRIVATE RESPONDENT SPOUSES LIABLE UNDER THE TRUST RECEIPT
TRANSACTION. 6
The petition must be denied.
On the first issue respecting the fact of overpayment found by both the lower court and respondent
Court of Appeals, we stress the time-honored rule that findings of fact by the Court of Appeals
especially if they affirm factual findings of the trial court will not be disturbed by this Court, unless
these findings are not supported by evidence. 7
Petitioner decries the lack of computation by the lower court as basis for its ruling that there was an
overpayment made. While such a computation may not have appeared in the Decision itself, we note
that the trial court's finding of overpayment is supported by evidence presented before it. At any rate,
we painstakingly reviewed and computed the payments together with the interest and penalty charges
due thereon and found that the amount of overpayment made by respondent Bank to petitioner, i.e.,
P563,070.13, was more than what was ordered reimbursed by the lower court. However, since
respondents did not file an appeal in this case, the amount ordered reimbursed by the lower court
should stand.
Moreover, petitioner's contention that the marginal deposit made by respondent Corporation should not
be deducted outright from the amount of the letter of credit is untenable. Petitioner argues that the
marginal deposit should be considered only after computing the principal plus accrued interests and
other charges. However, to sustain petitioner on this score would be to countenance a clear case of
unjust enrichment, for while a marginal deposit earns no interest in favor of the debtor-depositor, the
bank is not only able to use the same for its own purposes, interest-free, but is also able to earn interest
on the money loaned to respondent Corporation. Indeed, it would be onerous to compute interest and
other charges on the face value of the letter of credit which the petitioner issued, without first crediting
or setting off the marginal deposit which the respondent Corporation paid to it. Compensation is proper
and should take effect by operation of law because the requisites in Article 1279 of the Civil Code are
present and should extinguish both debts to the concurrent amount. 8
Hence, the interests and other charges on the subject letter of credit should be computed only on the
balance of P681,075.93, which was the portion actually loaned by the bank to respondent Corporation.
Neither do we find error when the lower court and the Court of Appeals set aside as invalid the floating
rate of interest exhorted by petitioner to be applicable. The pertinent provision in the trust receipt
agreement of the parties fixing the interest rate states:
I, WE jointly and severally agree to any increase or decrease in the interest rate which may occur after
July 1, 1981, when the Central Bank floated the interest rate, and to pay additionally the penalty of 1%
per month until the amount/s or installment/s due and unpaid under the trust receipt on the reverse side
hereof is/are fully paid. 9
We agree with respondent Court of Appeals that the foregoing stipulation is invalid, there being no
reference rate set either by it or by the Central Bank, leaving the determination thereof at the sole will
and control of petitioner.
While it may be acceptable, for practical reasons given the fluctuating economic conditions, for banks
to stipulate that interest rates on a loan not be fixed and instead be made dependent upon prevailing
market conditions, there should always be a reference rate upon which to peg such variable interest
rates. An example of such a valid variable interest rate was found in Polotan, Sr. v. Court of Appeals.
10 In that case, the contractual provision stating that "if there occurs any change in the prevailing
market rates, the new interest rate shall be the guiding rate in computing the interest due on the
outstanding obligation without need of serving notice to the Cardholder other than the required posting
on the monthly statement served to the Cardholder" 11 was considered valid. The aforequoted
provision was upheld notwithstanding that it may partake of the nature of an escalation clause, because
at the same time it provides for the decrease in the interest rate in case the prevailing market rates
dictate its reduction. In other words, unlike the stipulation subject of the instant case, the interest rate
involved in the Polotan case is designed to be based on the prevailing market rate. On the other hand, a
stipulation ostensibly signifying an agreement to "any increase or decrease in the interest rate," without
more, cannot be accepted by this Court as valid for it leaves solely to the creditor the determination of
what interest rate to charge against an outstanding loan.
Petitioner has also failed to convince us that its transaction with respondent Corporation is really a trust
receipt transaction instead of merely a simple loan, as found by the lower court and the Court of
Appeals.
The recent case of Colinares v. Court of Appeals 12 appears to be foursquare with the facts obtaining in
the case at bar. There, we found that inasmuch as the debtor received the goods subject of the trust
receipt before the trust receipt itself was entered into, the transaction in question was a simple loan and
not a trust receipt agreement. Prior to the date of execution of the trust receipt, ownership over the
goods was already transferred to the debtor. This situation is inconsistent with what normally obtains in
a pure trust receipt transaction, wherein the goods belong in ownership to the bank and are only
released to the importer in trust after the loan is granted.
In the case at bar, as in Colinares, the delivery to respondent Corporation of the goods subject of the
trust receipt occurred long before the trust receipt itself was executed. More specifically, delivery of the
bunker fuel oil to respondent Corporation's Bulacan plant commenced on July 7, 1982 and was
completed by July 19, 1982. 13 Further, the oil was used up by respondent Corporation in its normal
operations by August, 1982. 14 On the other hand, the subject trust receipt was only executed nearly
two months after full delivery of the oil was made to respondent Corporation, or on September 2, 1982.
The danger in characterizing a simple loan as a trust receipt transaction was explained in Colinares, to
wit:
The Trust Receipts Law does not seek to enforce payment of the loan, rather it punishes the dishonesty
and abuse of confidence in the handling of money or goods to the prejudice of another regardless of
whether the latter is the owner. Here, it is crystal clear that on the part of Petitioners there was neither
dishonesty nor abuse of confidence in the handling of money to the prejudice of PBC. Petitioners
continually endeavored to meet their obligations, as shown by several receipts issued by PBC
acknowledging payment of the loan.
The Information charges Petitioners with intent to defraud and misappropriating the money for their
personal use. The mala prohibita nature of the alleged offense notwithstanding, intent as a state of mind
was not proved to be present in Petitioners' situation. Petitioners employed no artifice in dealing with
PBC and never did they evade payment of their obligation nor attempt to abscond. Instead, Petitioners
sought favorable terms precisely to meet their obligation.
Also noteworthy is the fact that Petitioners are not importers acquiring the goods for re-sale, contrary to
the express provision embodied in the trust receipt. They are contractors who obtained the fungible
goods for their construction project. At no time did title over the construction materials pass to the
bank, but directly to the Petitioners from CM Builders Centre. This impresses upon the trust receipt in
question vagueness and ambiguity, which should not be the basis for criminal prosecution in the event
of violation of its provisions.
The practice of banks of making borrowers sign trust receipts to facilitate collection of loans and place
them under the threats of criminal prosecution should they be unable to pay it may be unjust and
inequitable, if not reprehensible. Such agreements are contracts of adhesion which borrowers have no
option but to sign lest their loan be disapproved. The resort to this scheme leaves poor and hapless
borrowers at the mercy of banks, and is prone to misinterpretation, as had happened in this case.
Eventually, PBC showed its true colors and admitted that it was only after collection of the money, as
manifested by its Affidavit of Desistance.
Similarly, respondent Corporation cannot be said to have been dishonest in its dealings with petitioner.
Neither has it been shown that it has evaded payment of its obligations. Indeed, it continually
endeavored to meet the same, as shown by the various receipts issued by petitioner acknowledging
payment on the loan. Certainly, the payment of the sum of P1,832,158.38 on a loan with a principal
amount of only P681,075.93 negates any badge of dishonesty, abuse of confidence or mishandling of
funds on the part of respondent Corporation, which are the gravamen of a trust receipt violation.
Furthermore, respondent Corporation is not an importer which acquired the bunker fuel oil for re-sale;
it needed the oil for its own operations. More importantly, at no time did title over the oil pass to
petitioner, but directly to respondent Corporation to which the oil was directly delivered long before the
trust receipt was executed. The fact that ownership of the oil belonged to respondent Corporation,
through its President, Gregory Lim, was acknowledged by petitioner's own account officer on the
witness stand, to wit:
Q After the bank opened a letter of credit in favor of Petrophil Corp. for the account of the
defendants thereby paying the value of the bunker fuel oil what transpired next after that?
A Upon purchase of the bunker fuel oil and upon the requests of the defendant possession of the
bunker fuel oil were transferred to them.
Q You mentioned them to whom are you referring to?
A To the Continental Cement Corp. upon the execution of the trust receipt acknowledging the
ownership of the bunker fuel oil this should be acceptable for whatever disposition he may make.
Q You mentioned about acknowledging ownership of the bunker fuel oil to whom by whom?
A By the Continental Cement Corp.
Q So by your statement who really owns the bunker fuel oil?
ATTY. RACHON:
Objection already answered.
COURT:
Give time to the other counsel to object.
ATTY. RACHON:
He has testified that ownership was acknowledged in favor of Continental Cement Corp. so that
question has already been answered.
ATTY. BAÑAGA:
That is why I made a follow up question asking ownership of the bunker fuel oil.
COURT:
Proceed.
ATTY. BAÑAGA:
Q Who owns the bunker fuel oil after purchase from Petrophil Corp.?
A Gregory Lim. 15
By all indications, then, it is apparent that there was really no trust receipt transaction that took place.
Evidently, respondent Corporation was required to sign the trust receipt simply to facilitate collection
by petitioner of the loan it had extended to the former.
Finally, we are not convinced that respondent Gregory T. Lim and his spouse should be personally
liable under the subject trust receipt. Petitioner's argument that respondent Corporation and respondent
Lim and his spouse are one and the same cannot be sustained. The transactions sued upon were clearly
entered into by respondent Lim in his capacity as Executive Vice President of respondent Corporation.
We stress the hornbook law that corporate personality is a shield against personal liability of its
officers. Thus, we agree that respondents Gregory T. Lim and his spouse cannot be made personally
liable since respondent Lim entered into and signed the contract clearly in his official capacity as
Executive Vice-President. The personality of the corporation is separate and distinct from the persons
composing it. 16
WHEREFORE, in view of all the foregoing, the instant Petition for Review is DENIED. The Decision
of the Court of Appeals dated July 26, 1993 in CA-G.R. CV No. 29950 is AFFIRMED.
SO ORDERED.
Davide, Jr., C.J., Puno and Kapunan, JJ., concur.
Pardo, J., took no part.
Footnotes
1. Penned by Associate Justice Cezar D. Francisco and concurred in by Associate Justices Gloria
C. Paras and Buenaventura J. Guerrero; Petition for Review, Annex "B"; Rollo, pp. 76-93.
2. Petition for Review, Annex "C"; Rollo, p. 95.
3. Docketed as Civil Case No. 86-38396; Record, pp. 1-11.
4. Pre-Trial Order, p. 3; Record, p. 236.
5. Penned by then Presiding Judge Bernardo P. Pardo, now Associate Justice of this Court;
Record, pp. 435-438.
6. Petition for Review, pp. 10-11; Rollo, pp. 17-18.
7. Bañas, Jr. v. Court of Appeals, G.R. No. 102967, 10 February 2000, citing Guerrero v. Court of
Appeals, 285 SCRA 670 [1998] and Sta. Maria v. Court of Appeals, 285 SCRA 351 [1998].
8. Civil Code, Art. 1290; Abad v. Court of Appeals, 181 SCRA 191 [1990].
9. Exhibit "A".
10. 296 SCRA 247 [1998].
11. Emphasis ours.
12. G.R. No. 90828, 5 September 2000.
13. TSN, 19 April 1989, p. 9; Exhibits "9" and "10"; Record, pp. 301-302.
14. Ibid., p. 12.
15. TSN, 12 April 1989, pp. 4-5.
16. FCY Construction Group, Inc. v. Court of Appeals, 324 SCRA 270 [2000], citing Rustan Pulp
and Paper Mills, Inc. vs. Intermediate Appellate Court, 214 SCRA 665, 672 [1992].
FIRST DIVISION
[G.R. No. 90828. September 5, 2000.]
MELVIN COLINARES and LORDINO VELOSO, petitioners, vs. HONORABLE COURT OF
APPEALS, and THE PEOPLE OF THE PHILIPPINES, respondents.
Romualdo Arnado Romualdo and Associates Law Office for petitioners.
Solicitor General for respondents.
SYNOPSIS
In 1979, petitioners Melvin Colinares and Lordino Veloso were contracted by the Carmelite Sisters of
Cagayan de Oro City to renovate the latter's convent at Camaman-an, Cagayan de Oro City. On 30
October 1979, petitioners obtained various construction materials from CM Builders Centre for the said
project. The following day, petitioners applied for a commercial letter of credit with the Philippine
Banking Corporation (PBC), Cagayan de Oro City Branch in favor of CM Builders Centre. PBC
approved the letter of credit to cover the full invoice value of the goods. Petitioners signed the pro-
forma trust receipt as security. The said loan was due on 29 January 1980. However, petitioners failed
to pay the whole amount on its due date. Several demand letters were sent to them. Petitioners
proposed that the terms of payment of the loan shall be modified. Pending approval of the said
proposal, petitioners paid some amounts. Concurrently with the separate demand for attorney's fees by
PBC's legal counsel, PBC continued to demand payment of the balance. On 14 January 1983,
petitioners were charged with violation of P.D. No. 115 (Trust Receipts Law) in relation to Article 315
of the Revised Penal Code. During trial, petitioners insisted that the transaction was that of an ordinary
loan. Subsequently, the trial court convicted the petitioners for the offense charged. On appeal, the
Court of Appeals affirmed the conviction of petitioners and increased the penalty imposed. Thus,
petitioners raised the issue to this Court. Pending resolution, petitioners filed a Motion to Dismiss on
the ground that they had already fully paid PBC. Attached thereto was the affidavit of desistance
executed by PBC. HCSDca
This Court ruled that a thorough examination of the facts obtaining in the case at bar revealed that the
transaction intended by the parties was a simple loan, not a trust receipt agreement. Petitioners are not
importers acquiring the good for re-sale, contrary to the express provision embodied in the trust receipt.
They are contractors who obtained the fungible goods for their construction project. At no time did title
over the construction materials pass to the bank, but directly to the petitioners from CM Builders
Centre. This impressed upon, the trust receipt in question vagueness and ambiguity, which should not
be the basis for criminal prosecution in the event of violation of its provisions. The practice of banks of
making borrowers sign trust receipts to facilitate collection of loans and place them under the threats of
criminal prosecution should they be unable to pay it, may be unjust and inequitable, if not
reprehensible. Such agreements are contracts of adhesion which borrowers have no option but to sign
lest their loan be disapproved. The resort to this scheme leaves poor and hapless borrowers at the mercy
of banks, and is prone to misinterpretation, as had happened in this case. Eventually, PBC showed its
true colors and admitted that it was only after collection of the money, as manifested by its Affidavit of
Desistance.
Petitioners were ACQUITTED. ADHcTE
SYLLABUS
1. REMEDIAL LAW; CRIMINAL PROCEDURE; NEW TRIAL; GRANT THEREOF IS
DISCRETIONARY UPON THE JUDGE; GROUNDS. — The grant or denial of a motion for new trial
rests upon the discretion of the judge. New trial may be granted if: (1) errors of law or irregularities
have been committed during the trial prejudicial to the substantial rights of the accused; or (2) new and
material evidence has been discovered which the accused could not with reasonable diligence have
discovered and produced at the trial, and which, if introduced and admitted, would probably change the
judgment.
2. ID.; ID.; ID.; NEWLY DISCOVERED EVIDENCE; REQUISITES. — For newly discovered
evidence to be a ground for new trial, such evidence must be (1) discovered after trial; (2) could not
have been discovered and produced at the trial even with the exercise of reasonable diligence; and (3)
material, not merely cumulative, corroborative, or impeaching, and of such weight that, if admitted,
would probably change the judgment. It is essential that the offering party exercised reasonable
diligence in seeking to locate the evidence before or during trial but nonetheless failed to secure it.
HIaSDc
3. ID.; ID.; ID.; A FORGOTTEN EVIDENCE IS NOT A NEWLY DISCOVERED EVIDENCE;
CASE AT BAR. — We find no indication in the pleadings that the Disclosure Statement is a newly
discovered evidence. Petitioners could not have been unaware that the two-page document exists. The
Disclosure Statement itself states, "NOTICE TO BORROWER: YOU ARE ENTITLED TO A COPY
OF THIS PAPER WHICH YOU SHALL SIGN." Assuming Petitioners' copy was then unavailable,
they could have compelled its production in court, which they never did. Petitioners have miserably
failed to establish the second requisite of the rule on newly discovered evidence. Petitioners themselves
admitted that "they searched again their voluminous records, meticulously and patiently, until they
discovered this new and material evidence" only upon learning of the Court of Appeals' decision and
after they were "shocked by the penalty imposed." Clearly, the alleged newly discovered evidence is
mere forgotten evidence that jurisprudence excludes as a ground for new trial.
4. MERCANTILE LAW; PRESIDENTIAL DECREE NO. 115 (TRUST RECEIPTS LAW);
TRUST RECEIPT TRANSACTION; DEFINED. — Section 4, P.D. No. 115, the Trust Receipts Law,
defines a trust receipt transaction as any transaction by and between a person referred to as the
entruster, and another person referred to as the entrustee, whereby the entruster who owns or holds
absolute title or security interest over certain specified goods, documents or instruments, releases the
same to the possession of the entrustee upon the latter's execution and delivery to the entruster of a
signed document called a "trust receipt" wherein the entrustee binds himself to hold the designated
goods, documents or instruments with the obligation to turn over to the entruster the proceeds thereof
to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods,
documents or instruments themselves if they are unsold or not otherwise disposed of, in accordance
with the terms and conditions specified in the trust receipt. DTcASE
5. ID.; ID.; ID.; TWO POSSIBLE SITUATIONS. — There are two possible situations in a trust
receipt transaction. The first is covered by the provision which refers to money received under the
obligation involving the duty to deliver it (entregarla) to the owner of the merchandise sold. The second
is covered by the provision which refers to merchandise received under the obligation to "return" it
(devolvera) to the owner. HDaACI
6. ID.; ID.; ID.; FAILURE TO TURN OVER PROCEEDS OF SALE OR RETURN
UNDISPOSED GOODS CONSTITUTES ESTAFA. — Failure of the entrustee to turn over the
proceeds of the sale of the goods, covered by the trust receipt to the entruster or to return said goods if
they were not disposed of in accordance with the terms of the trust receipt shall be punishable as estafa
under Article 315 (1) of the Revised Penal Code, without need of proving intent to defraud.
7. ID.; ID.; ID.; TRANSACTION IN CASE AT BAR, A SIMPLE LOAN NOT A TRUST
RECEIPT AGREEMENT. — A thorough examination of the facts obtaining in the case at bar reveals
that the transaction intended by the parties was a simple loan, not a trust receipt agreement. Petitioners
received the merchandise from CM Builders Centre on October 1979. On that day, ownership over the
merchandise was already transferred to Petitioners who were to use the materials for their construction
project. It was only a day later, 31 October 1979, that they went to the bank to apply for a loan to pay
for the merchandise. cSEAHa
8. ID.; ID.; ID.; TRUST RECEIPTS PARTAKE OF THE NATURE OF A CONDITIONAL
SALE. — This situation belies what normally obtains in a pure trust receipt transaction where goods
are owned by the bank and only released to the importer in trust subsequent to the grant of the loan.
The bank acquires a "security interest" in the goods as holder of a security title for the advances it had
made to the entrustee. The ownership of the merchandise continues to be vested in the person who had
advanced payment until he has been paid in full, or if the merchandise has already been sold, the
proceeds of the sale should be turned over to him by the importer or by his representative or successor
in interest. To secure that the bank shall be paid, it takes full title to the goods at the very beginning and
continues to hold that title as his indispensable security until the goods are sold and the vendee is called
upon to pay for them; hence, the importer has never owned the goods and is not able to deliver
possession. In a certain manner, trust receipts partake of the nature of a conditional sale where the
importer becomes absolute owner of the imported merchandise as soon as he has paid its price.
9. ID.; ID.; ID.; PURPOSE AND NATURE. — Trust receipt transactions are intended to aid in
financing importers and retail dealers who do not have sufficient funds or resources to finance the
importation or purchase of merchandise, and who may not be able to acquire credit except through
utilization, as collateral, of the merchandise imported or purchased. The antecedent acts in a trust
receipt transaction consist of the application and approval of the letter of credit, the making of the
marginal deposit and the effective importation of goods through the efforts of the importer.
10. ID.; ID.; ID.; PETITIONERS NOT BEING IMPORTERS ARE NOT COVERED BY THE
LAW. — Also noteworthy is the fact that Petitioners are not importers acquiring the goods for re-sale,
contrary to the express provision embodied in the trust receipt. They are contractors who obtained the
fungible goods for their construction project. At no time did title over the construction materials pass to
the bank, but directly to the Petitioners from CM Builders Centre. This impresses upon the trust receipt
in question vagueness and ambiguity, which should not be the basis for criminal prosecution in the
event of violation of its provisions. AHDTIE
11. ID.; ID.; ID.; FACT THAT THE GOODS WERE DELIVERED PREVIOUS TO THE
EXECUTION OF THE LETTER OF CREDIT AND TRUST RECEIPT SHOWS THAT THE
TRANSACTION WAS INDEED A LOAN. — PBC attempted to cover up the true delivery date of the
merchandise, yet the trial court took notice even though it failed to attach any significance to such fact
in the judgment. Despite the Court of Appeals' contrary view that the goods were delivered to
Petitioners previous to the execution of the letter of credit and trust receipt, we find that the records of
the case speak volubly and this fact remains uncontroverted. It is not uncommon for us to peruse
through the transcript of the stenographic notes of the proceedings to be satisfied that the records of the
case do support the conclusions of the trial court.
12. ID.; ID.; DISHONESTY AND ABUSE OF CONFIDENCE IN THE HANDLING OF MONEY
OR GOODS TO THE PREJUDICE OF ANOTHER, NOT PRESENT IN CASE AT BAR. — The
Trust Receipts Law does not seek to enforce payment of the loan, rather it punishes the dishonesty and
abuse of confidence in the handling of money or goods to the prejudice of another regardless of
whether the latter is the owner. Here, it is crystal clear that on the part of Petitioners there was neither
dishonesty nor abuse of confidence in the handling of money to the prejudice of PBC. Petitioners
continually endeavored to meet their obligations, as shown by several receipts issued by PBC
acknowledging payment of the loan.
13. ID.; ID.; PRACTICE OF BANKS REQUIRING BORROWERS TO SIGN TRUST RECEIPTS
UNDER THREAT OF CRIMINAL PROSECUTION SHOULD THEY BE UNABLE TO PAY
THEIR LOANS, REPREHENSIBLE AS THEY ARE CONTRACTS OF ADHESION. — The practice
of banks of making borrowers sign trust receipts to facilitate collection of loans and place them under
the threats of criminal prosecution should they be unable to pay it may be unjust and inequitable, if not
reprehensible. Such agreements are contracts of adhesion which borrowers have no option but to sign
lest their loan be disapproved. The resort to this scheme leaves poor and hapless borrowers at the mercy
of banks, and is prone to misinterpretation, as had happened in this case. Eventually, PBC showed its
true colors and admitted that it was only after collection of the money, as manifested by its Affidavit of
Resistance. DSETac
14. REMEDIAL LAW; EVIDENCE; TESTIMONY OF WITNESSES; LOAN TRANSACTION
ENTERED INTO BY PETITIONERS, NOT REFUTED. — Petitioners Veloso's claim that they were
made to believe that the transaction was a loan was also not denied by PBC. . . PBC could have
presented its former bank manager, Cayo Garcia Tuiza, who contracted with Petitioners, to refute
Veloso's testimony, yet it only presented credit investigator Grego Mutia. Nowhere from Mutia's
testimony can it be gleaned that PBC represented to Petitioners that the transaction they were entering
into was not a pure loan but had trust receipt implications.
15. CRIMINAL LAW; ESTAFA; INTENT TO DEFRAUD AND MISAPPROPRIATE THE
MONEY FOR PERSONAL USE, NOT ESTABLISHED IN CASE AT BAR. — The Information
charges Petitioners with intent to defraud and misappropriating the money for their personal use. The
mala prohibita nature of the alleged offense notwithstanding, intent as a state of mind was not proved to
be present in Petitioners' situation. Petitioners employed no artifice in dealing with PBC and never did
they evade payment of their obligation nor attempt to abscond. Instead, Petitioners sought favorable
terms precisely to meet their obligation.
DECISION
DAVIDE, JR., C. J. p:
In 1979 Melvin Colinares and Lordino Veloso (hereafter Petitioners) were contracted for a
consideration of P40,000 by the Carmelite Sisters of Cagayan de Oro City to renovate the latter's
convent at Camaman-an, Cagayan de Oro City. aSCDcH
On 30 October 1979, Petitioners obtained 5,376 SF Solatone acoustical board 2'x4'x1/2", 300 SF
tanguile wood tiles 12"x12", 260 SF Marcelo economy tiles and 2 gallons UMYLIN cement adhesive
from CM Builders Centre for the construction project. 1 The following day, 31 October 1979,
Petitioners applied for a commercial letter of credit 2 with the Philippine Banking Corporation,
Cagayan de Oro City branch (hereafter PBC) in favor of CM Builders Centre. PBC approved the letter
of credit 3 for P22,389.80 to cover the full invoice value of the goods. Petitioners signed a pro-forma
trust receipt 4 as security. The loan was due on 29 January 1980.
On 31 October 1979, PBC debited P6,720 from Petitioners' marginal deposit as partial payment of the
loan. 5
On 7 May 1980, PBC wrote 6 to Petitioners demanding that the amount be paid within seven days from
notice. Instead of complying with PBC's demand, Veloso confessed that they lost P19,195.83 in the
Carmelite Monastery Project and requested for a grace period of until 15 June 1980 to settle the
account. 7
PBC sent a new demand letter 8 to Petitioners on 16 October 1980 and informed them that their
outstanding balance as of 17 November 1979 was P20,824.40 exclusive of attorney's fees of 25%. 9
ITSCED
On 2 December 1980, Petitioners proposed 10 that the terms of payment of the loan be modified as
follows: P2,000 on or before 3 December 1980, and P1,000 per month starting 31 January 1980 until
the account is fully paid. Pending approval of the proposal, Petitioners paid P1,000 to PBC on 4
December 1980, 11 and thereafter P500 on 11 February 1981, 12 16 March 1981, 13 and 20 April
1981. 14 Concurrently with the separate demand for attorney's fees by PBC's legal counsel, PBC
continued to demand payment of the balance. 15
On 14 January 1983, Petitioners were charged with the violation of P.D. No. 115 (Trust Receipts Law)
in relation to Article 315 of the Revised Penal Code in an Information which was filed with Branch 18,
Regional Trial Court of Cagayan de Oro City. The accusatory portion of the Information reads:
That on or about October 31, 1979, in the City of Cagayan de Oro, Philippines, and within the
jurisdiction of this Honorable Court, the above-named accused entered into a trust receipt agreement
with the Philippine Banking Corporation at Cagayan de Oro City wherein the accused, as entrustee,
received from the entruster the following goods to wit:
Solatone Acoustical board
Tanguile Wood Tiles
Marcelo Cement Tiles
Umylin Cement Adhesive
with a total value of P22,389.80, with the obligation on the part of the accused-entrustee to hold the
aforesaid items in trust for the entruster and/or to sell on cash basis or otherwise dispose of the said
items and to turn over to the entruster the proceeds of the sale of said goods or if there be no sale to
return said items to the entruster on or before January 29, 1980 but that the said accused after receipt of
the goods, with intent to defraud and cause damage to the entruster, conspiring, confederating together
and mutually helping one another, did then and there wilfully, unlawfully and feloniously fail and
refuse to remit the proceeds of the sale of the goods to the entruster despite repeated demands but
instead converted, misappropriated and misapplied the proceeds to their own personal use, benefit and
gain, to the damage and prejudice of the Philippine Banking Corporation, in the aforesaid sum of
P22,389.80, Philippine Currency. aTIEcA
Contrary to PD 115 in relation to Article 315 of the Revised Penal Code. 16
The case was docketed as Criminal Case No. 1390.
During trial, petitioner Veloso insisted that the transaction was a "clean loan" as per verbal guarantee of
Cayo Garcia Tuiza, PBC's former manager. He and petitioner Colinares signed the documents without
reading the fine print, only learning of the trust receipt implication much later. When he brought this to
the attention of PBC, Mr. Tuiza assured him that the trust receipt was a mere formality. 17
On 7 July 1986, the trial court promulgated its decision 18 convicting Petitioners of estafa for violating
P.D. No. 115 in relation to Article 315 of the Revised Penal Code and sentencing each of them to suffer
imprisonment of two years and one day of prision correccional as minimum to six years and one day of
prision mayor as maximum, and to solidarily indemnify PBC the amount of P20,824.44, with legal
interest from 29 January 1980, 12% penalty charge per annum, 25% of the sums due as attorney's fees,
and costs.
The trial court considered the transaction between PBC and Petitioners as a trust receipt transaction
under Section 4, P.D. No. 115. It considered Petitioners' use of the goods in their Carmelite monastery
project an act of "disposing" as contemplated under Section 13, P.D. No. 115, and treated the charge
invoice 19 for goods issued by CM Builders Centre as a "document" within the meaning of Section 3
thereof. It concluded that the failure of Petitioners to turn over the amount they owed to PBC
constituted estafa.
Petitioners appealed from the judgment to the Court of Appeals which was docketed as CA-G.R. CR
No. 05408. Petitioners asserted therein that the trial court erred in ruling that they violated the Trust
Receipt Law, and in holding them criminally liable therefor. In the alternative, they contend that at
most they can only be made civilly liable for payment of the loan.
In its decision 20 6 March 1989, the Court of Appeals modified the judgment of the trial court by
increasing the penalty to six years and one day of prision mayor as minimum to fourteen years eight
months and one day of reclusion temporal as maximum. It held that the documentary evidence of the
prosecution prevails over Veloso's testimony, discredited Petitioners' claim that the documents they
signed were in blank, and disbelieved that they were coerced into signing them. SIcTAC
On 25 March 1989, Petitioners filed a Motion for New Trial/Reconsideration 21 alleging that the
"Disclosure Statement on Loan/Credit Transaction" 22 (hereafter Disclosure Statement) signed by them
and Tuiza was suppressed by PBC during the trial. That document would have proved that the
transaction was indeed a loan as it bears a 14% interest as opposed to the trust receipt which does not at
all bear any interest. Petitioners further maintained that when PBC allowed them to pay in installment,
the agreement was novated and a creditor-debtor relationship was created.
In its resolution 23 of 16 October 1989 the Court of Appeals denied the Motion for New
Trial/Reconsideration because the alleged newly discovered evidence was actually forgotten evidence
already in existence during the trial, and would not alter the result of the case.
Hence, Petitioners filed with us the petition in this case on 16 November 1989. They raised the
following issues:
1. WHETHER OR NOT THE DENIAL OF THE MOTION FOR NEW TRIAL ON THE
GROUND OF NEWLY DISCOVERED EVIDENCE, NAMELY, "DISCLOSURE ON
LOAN/CREDIT TRANSACTION," WHICH IF INTRODUCED AND ADMITTED, WOULD
CHANGE THE JUDGMENT, DOES NOT CONSTITUTE A DENIAL OF DUE PROCESS.
2. ASSUMING THERE WAS A VALID TRUST RECEIPT, WHETHER OR NOT THE
ACCUSED WERE PROPERLY CHARGED, TRIED AND CONVICTED FOR VIOLATION OF
SEC. 13, PD NO. 115 IN RELATION TO ARTICLE 315 PARAGRAPH (I) (B)
NOTWITHSTANDING THE NOVATION OF THE SO-CALLED TRUST RECEIPT CONVERTING
THE TRUSTOR-TRUSTEE RELATIONSHIP TO CREDITOR-DEBTOR SITUATION. ACaDTH
In its Comment of 22 January 1990, the Office of the Solicitor General urged us to deny the petition for
lack of merit.
On 28 February 1990 Petitioners filed a Motion to Dismiss the case on the ground that they had already
fully paid PBC on 2 February 1990 the amount of P70,000 for the balance of the loan, including
interest and other charges, as evidenced by the different receipts issued by PBC, 24 and that the PBC
executed an Affidavit of desistance. 25
We required the Solicitor General to comment on the Motion to Dismiss.
In its Comment of 30 July 1990, the Solicitor General opined that payment of the loan was akin to a
voluntary surrender or plea of guilty which merely serves to mitigate Petitioners' culpability, but does
not in any way extinguish their criminal liability.
In the Resolution of 13 August 1990, we gave due course to the Petition and required the parties to file
their respective memoranda.
The parties subsequently filed their respective memoranda.
It was only on 18 May 1999 when this case was assigned to the ponente. Thereafter, we required the
parties to move in the premises and for Petitioners to manifest if they are still interested in the further
prosecution of this case and inform us of their present whereabouts and whether their bail bonds are
still valid.
Petitioners submitted their Compliance.
The core issues raised in the petition are the denial by the Court of Appeals of Petitioners' Motion for
New Trial and the true nature of the contract between Petitioners and the PBC. As to the latter,
Petitioners assert that it was an ordinary loan, not a trust receipt agreement under the Trust Receipts
Law. TAEcCS
The grant or denial of a motion for new trial rests upon the discretion of the judge. New trial may be
granted if: (1) errors of law or irregularities have been committed during the trial prejudicial to the
substantial rights of the accused; or (2) new and material evidence has been discovered which the
accused could not with reasonable diligence have discovered and produced at the trial, and which, if
introduced and admitted, would probably change the judgment. 26
For newly discovered evidence to be a ground for new trial, such evidence must be (1) discovered after
trial; (2) could not have been discovered and produced at the trial even with the exercise of reasonable
diligence; and (3) material, not merely cumulative, corroborative, or impeaching, and of such weight
that, if admitted, would probably change the judgment. 27 It is essential that the offering party
exercised reasonable diligence in seeking to locate the evidence before or during trial but nonetheless
failed to secure it. 28
We find no indication in the pleadings that the Disclosure Statement is a newly discovered evidence.
Petitioners could not have been unaware that the two-page document exists. The Disclosure Statement
itself states, "NOTICE TO BORROWER: YOU ARE ENTITLED TO A COPY OF THIS PAPER
WHICH YOU SHALL SIGN." 29 Assuming Petitioners' copy was then unavailable, they could have
compelled its production in court, 30 which they never did. Petitioners have miserably failed to
establish the second requisite of the rule on newly discovered evidence.
Petitioners themselves admitted that "they searched again their voluminous records, meticulously and
patiently, until they discovered this new and material evidence" only upon learning of the Court of
Appeals' decision and after they were "shocked by the penalty imposed." 31 Clearly, the alleged newly
discovered evidence is mere forgotten evidence that jurisprudence excludes as a ground for new trial.
32 cEaCAH
However, the second issue should be resolved in favor of Petitioners.
Section 4, P.D. No. 115, the Trust Receipts Law, defines a trust receipt transaction as any transaction
by and between a person referred to as the entruster, and another person referred to as the entrustee,
whereby the entruster who owns or holds absolute title or security interest over certain specified goods,
documents or instruments, releases the same to the possession of the entrustee upon the latter's
execution and delivery to the entruster of a signed document called a "trust receipt" wherein the
entrustee binds himself to hold the designated goods, documents or instruments with the obligation to
turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster or as
appears in the trust receipt or the goods, documents or instruments themselves if they are unsold or not
otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt.
There are two possible situations in a trust receipt transaction. The first is covered by the provision
which refers to money received under the obligation involving the duty to deliver it (entregarla) to the
owner of the merchandise sold. The second is covered by the provision which refers to merchandise
received under the obligation to "return" it (devolvera) to the owner. 33
Failure of the entrustee to turn over the proceeds of the sale of the goods, covered by the trust receipt to
the entruster or to return said goods if they were not disposed of in accordance with the terms of the
trust receipt shall be punishable as estafa under Article 315 (1) of the Revised Penal Code, 34 without
need of proving intent to defraud.
A thorough examination of the facts obtaining in the case at bar reveals that the transaction intended by
the parties was a simple loan, not a trust receipt agreement.
Petitioners received the merchandise from CM Builders Centre on 30 October 1979. On that day,
ownership over the merchandise was already transferred to Petitioners who were to use the materials
for their construction project. It was only a day later, 31 October 1979, that they went to the bank to
apply for a loan to pay for the merchandise.
This situation belies what normally obtains in a pure trust receipt transaction where goods are owned
by the bank and only released to the importer in trust subsequent to the grant of the loan. The bank
acquires a "security interest" in the goods as holder of a security title for the advances it had made to
the entrustee. 35 The ownership of the merchandise continues to be vested in the person who had
advanced payment until he has been paid in full, or if the merchandise has already been sold, the
proceeds of the sale should be turned over to him by the importer or by his representative or successor-
in-interest. 36 To secure that the bank shall be paid, it takes full title to the goods at the very beginning
and continues to hold that title as his indispensable security until the goods are sold and the vendee is
called upon to pay for them; hence, the importer has never owned the goods and is not able to deliver
possession. 37 In a certain manner, trust receipts partake of the nature of a conditional sale where the
importer becomes absolute owner of the imported merchandise as soon as he has paid its price. 38
aSTAHD
Trust receipt transactions are intended to aid in financing importers and retail dealers who do not have
sufficient funds or resources to finance the importation or purchase of merchandise, and who may not
be able to acquire credit except through utilization, as collateral, of the merchandise imported or
purchased. 39
The antecedent acts in a trust receipt transaction consist of the application and approval of the letter of
credit, the making of the marginal deposit and the effective importation of goods through the efforts of
the importer. 40
PBC attempted to cover up the true delivery date of the merchandise, yet the trial court took notice
even though it failed to attach any significance to such fact in the judgment. Despite the Court of
Appeals' contrary view that the goods were delivered to Petitioners previous to the execution of the
letter of credit and trust receipt, we find that the records of the case speak volubly and this fact remains
uncontroverted. It is not uncommon for us to peruse through the transcript of the stenographic notes of
the proceedings to be satisfied that the records of the case do support the conclusions of the trial court.
41 After such perusal Grego Mutia, PBC's credit investigator, admitted thus:
ATTY. CABANLET: (continuing)
Q Do you know if the goods subject matter of this letter of credit and trust receipt agreement were
received by the accused?
A Yes, sir.
Q Do you have evidence to show that these goods subject matter of this letter of credit and trust
receipt were delivered to the accused?
A Yes, sir.
Q I am showing to you this charge invoice, are you referring to this document? cHSIAC
A Yes, sir.
xxx xxx xxx
Q What is the date of the charge invoice?
A October 31, 1979.
COURT:
Make it of record as appearing in Exhibit D, the zero in 30 has been superimposed with numeral
1. 42
During the cross and re-direct examinations he also impliedly admitted that the transaction was indeed
a loan. Thus:
Q In short the amount stated in your Exhibit C, the trust receipt was a loan to the accused you
admit that?
A Because in the bank the loan is considered part of the loan.
xxx xxx xxx
RE-DIRECT BY ATTY. CABANLET:
ATTY. CABANLET (to the witness)
Q What do you understand by loan when you were asked?
A Loan is a promise of a borrower from the value received. The borrower will pay the bank on a
certain specified date with interest. 43
Such statement is akin to an admission against interest binding upon PBC.
Petitioner Veloso's claim that they were made to believe that the transaction was a loan was also not
denied by PBC. He declared:
Q Testimony was given here that was covered by trust receipt. In short it was a special kind of
loan. What can you say as to that?
A I don't think that would be a trust receipt because we were made to understand by the manager
who encouraged us to avail of their facilities that they will be granting us a loan. 44 aETAHD
PBC could have presented its former bank manager, Cayo Garcia Tuiza, who contracted with
Petitioners, to refute Veloso's testimony, yet it only presented credit investigator Grego Mutia.
Nowhere from Mutia's testimony can it be gleaned that PBC represented to Petitioners that the
transaction they were entering into was not a pure loan but had trust receipt implications.
The Trust Receipts Law does not seek to enforce payment of the loan, rather it punishes the dishonesty
and abuse of confidence in the handling of money or goods to the prejudice of another regardless of
whether the latter is the owner. 45 Here, it is crystal clear that on the part of Petitioners there was
neither dishonesty nor abuse of confidence in the handling of money to the prejudice of PBC.
Petitioners continually endeavored to meet their obligations, as shown by several receipts issued by
PBC acknowledging payment of the loan.
The Information charges Petitioners with intent to defraud and misappropriating the money for their
personal use. The mala prohibita nature of the alleged offense notwithstanding, intent as a state of mind
was not proved to be present in Petitioners' situation. Petitioners employed no artifice in dealing with
PBC and never did they evade payment of their obligation nor attempt to abscond. Instead, Petitioners
sought favorable terms precisely to meet their obligation.
Also noteworthy is the fact that Petitioners are not importers acquiring the goods for re-sale, contrary to
the express provision embodied in the trust receipt. They are contractors who obtained the fungible
goods for their construction project. At no time did title over the construction materials pass to the
bank, but directly to the Petitioners from CM Builders Centre. This impresses upon the trust receipt in
question vagueness and ambiguity, which should not be the basis for criminal prosecution in the event
of violation of its provisions. 46
The practice of banks of making borrowers sign trust receipts to facilitate collection of loans and place
them under the threats of criminal prosecution should they be unable to pay it may be unjust and
inequitable, if not reprehensible. Such agreements are contracts of adhesion which borrowers have no
option but to sign lest their loan be disapproved. The resort to this scheme leaves poor and hapless
borrowers at the mercy of banks, and is prone to misinterpretation, as had happened in this case.
Eventually, PBC showed its true colors and admitted that it was only after collection of the money, as
manifested by its Affidavit of Desistance. AICDSa
WHEREFORE, the challenged Decision of 6 March 1989 and the Resolution of 16 October 1989 of the
Court of Appeals in CA-G.R. No. 05408 are REVERSED and SET ASIDE. Petitioners are hereby
ACQUITTED of the crime charged, i.e., for violation of P.D. No. 115 in relation to Article 315 of the
Revised Penal Code.
No costs.
SO ORDERED.
Kapunan and Pardo, JJ., concur.
Puno, J., took no part.
Ynares-Santiago, J., is on leave.
Footnotes
1. Exhibit "D," Original Record (OR), 115.
2. Exhibit "A," Id., 112.
3. Exhibit "B," OR, 113.
4. Exhibit "C," Id., 114.
5. Exhibit "8-C," Id., 181.
6. Exhibit "4,"Id., 160.
7. Exhibits "3, 1," Id., 153.
8. Exhibit "E," Id., 116.
9. Exhibit "5," Id., 161.
10. Exhibit "F," Id., 117.
11. Exhibit "7," Id., 167.
12. Exhibit "7-A," Id., 168.
13. Exhibit "7-B," Id., 169.
14. Exhibit "7-C," Id., 170.
15. Exhibit "G," Id., 118.
16. OR, 33.
17. TSN, 21 May 1986, 21-22, 30.
18. Per Judge Senen C. Peñaranda, Rollo, 12-17.
19. Exhibit "D," supra note 1.
20. Annex "A" of Petition, Rollo, 3-10. Per Imperial, J., J., with the concurrence of Puno, R and
Francisco, C., JJ.
21. Rollo, 27-39.
22. Id., 177-178.
23. Id., 45.
24. Rollo, 127.
25. Id., 128.
26. Section 2, Rule 121, Revised Rules of Criminal Procedure.
27. See People v. Excija, 258 SCRA 424, 443 [1996]; People v. Tirona, 300 SCRA 431, 440
[1998]; Villanueva v. People, G.R. No. 135098, 12 April 2000, 7.
28. Tumang v. Court of Appeals, et al., 172 SCRA 328, 334 [1989]. See Garrido v. CA, et al., 236
SCRA 450, 456 [1994].
29. Rollo, 178.
30. People v. Ducay, et al., 225 SCRA 1 [1993].
31. Motion for New Trial/Reconsideration; Rollo, 28.
32. People v. Hernando, et al., 108 SCRA 121 [1981]; People v. Ducay, supra note 30; People v.
Penones, 200 SCRA 624 [1991].
33. People v. Cuevo, 104 SCRA 312, 318 [1981].
34. Section 13, P.D. No. 115.
35. Vintola v. IBAA, 150 SCRA 578, 583 [1987].
36. Prudential Bank v. NLRC, 251 SCRA 421 [1995], quoting National Bank v. Vda. de Hijos de
Angel Jose, 63 Phil. 814, 821 [1936].
37. People v. Yu Chai Ho, 53 Phil. 874 [1928], quoting In re: Dunlap Carpet Co., 207 Fed. 726.
38. Prudential Bank v. NLRC, supra note 36.
39. Ceferina Samo v. People, 115 Phil. 346, 349-350 [1962], citing 53 Am Jur. 961. See also
Prudential Bank v. NLRC, supra note 36.
40. Sia v. People, 121 SCRA 655 [1983].
41. People v. Vergara, et al., 270 SCRA 624 [1997].
42. TSN, 18 December 1986, 10-11.
43. Id., 21-22.
44. TSN, 21 May 1986, 3-4.
45. People v. Nitafan, et al., 207 SCRA 726 [1992].
46. Sia v. People, supra note 40.
SECOND DIVISION
[G.R. No. 60705. June 28, 1989.]
INTEGRATED REALTY CORPORATION and RAUL L. SANTOS, petitioners, vs. PHILIPPINE
NATIONAL BANK, OVERSEAS BANK OF MANILA and THE HON. COURT OF APPEALS,
respondents.
[G.R. No. 60907. June 28, 1989.]
OVERSEAS BANK OF MANILA, petitioner, vs. COURT OF APPEALS, INTEGRATED REALTY
CORPORATION, and RAUL L. SANTOS, respondents.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; NON-PERFORMANCE OF
OBLIGATIONS; LEGAL INTEREST RECOVERABLE FROM DEMAND. — Legal interest, in the
nature of damages for non-compliance with an obligation to pay a sum of money, is recoverable from
the date judicial or extrajudicial demand is made.
2. ID.; ID.; PARTY NOT PRIVY TO A CONTRACT, NOT LIABLE. — We reject the
proposition of IRC and Santos that OBM should reimburse them the entire amount they may be
adjudged to pay PNB. It must be noted that their liability to pay the various interests is an offshoot of
their failure to pay under the terms of the two promissory notes executed in favor of PNB. OBM was
never a party to said promissory notes. There is, therefore, no privity of contract between OBM and
PNB which will justify the imposition of the aforesaid interests upon OBM whose liability should be
strictly confined to and within the provisions of the certificates of time deposit involved in this case.
3. ID.; DAMAGES; PARTY IN BAD FAITH LIABLE THERETO. — IRC and Santos are not
without fault. They likewise acted in bad faith when they refused to comply with their obligations
under the promissory notes, thus incurring liability for all damages reasonably attributable to the non-
payment of said obligations.
DECISION
REGALADO, J p:
In these petitions for review on certiorari, Integrated Realty Corporation and Raul Santos (G.R. No.
60705), and Overseas Bank of Manila (G.R. No. 60907) appeal from the decision of the Court of
Appeals, 1 the decretal portion of which states: cdphil
"WHEREFORE, with the modification that appellee Overseas Bank of Manila is ordered to pay to the
appellant Raul Santos the sum of P700,000.00 due under the time deposit certificates Nos. 2308 and
2367 with 6 1/2 (sic) interest per annum from date of issue until fully paid, the appealed decision is
affirmed in all other respects."
In G.R. No. 60705, petitioners Integrated Realty Corporation (hereafter, IRC) and Raul L. Santos
(hereafter, Santos) seek the dismissal of the complaint filed by the Philippine National Bank (hereafter,
PNB), or in the event that they be held liable thereunder, to revive and affirm that portion of the
decision of the trial court ordering Overseas Bank of Manila (hereafter, OBM) to pay IRC and Santos
whatever amounts the latter will pay to PNB, with interest from the date of payment. 2
On the other hand, in G.R. No. 60907, petitioner OBM challenges the decision of respondent court
insofar as it holds OBM liable for interest on the time deposit with it of Santos corresponding to the
period of its closure by order of the Central Bank. 3
In its assailed decision, the respondent Court of Appeals, quoting from the decision of the lower court,
4 narrated the antecedents this case in this wise:
"The facts of this case are not seriously disputed by any of the parties. They are set forth in the decision
of the trial court as follows:
Under date 11 January 1967 defendant Raul L. Santos made a time deposit with defendant OBM in the
amount of P500,000.00. (Exhibit 10 OBM) and was issued a Certificate of Time Deposit No. 2308
(Exhibit 1-Santos, Exhibit D). Under date 6 February 1967 defendant Raul L. Santos also made a time
deposit with defendant OBM in the amount of P200,000.00 (Exhibit 11-OBM) and was issued
certificate of Time Deposit No. 2367 (Exhibit 2-Santos, Exhibit E).
Under date 9 February 1967 defendant IRC, thru its President — defendant Raul L. Santos, applied for
a loan and/or credit line (Exhibit A) in the amount of P700,000.00 with plaintiff bank. To secure the
said loan, defendant Raul L. Santos executed on August 11, 1967 a Deed of Assignment (Exhibit C) of
the two time deposits (Exhibits 1-Santos and 2-Santos, also Exhibits D and E) in favor of plaintiff.
Defendant OBM gave its conformity to the assignment thru letter dated 11 August 1967 (Exhibit F).
On the same date, defendant IRC, thru its President Raul L. Santos, also executed a Deed of
Conformity to Loan Conditions (Exhibit G).
The defendant OBM, after the due dates of the time deposit certificates, did not pay plaintiff PNB.
Plaintiff demanded payment from defendants IRC and Raul L. Santos (Exhibit K) and from defendant
OBM (Exhibit L). Defendants IRC and Raul L. Santos replied that the obligation (loan) of defendant
IRC was deemed paid with the irrevocable assignment of the time deposit certificates (Exhibits 5-
Santos, 6-Santos and 7-Santos).
"On April 6, 1969 (sic), * PNB filed a complaint to collect from IRC and Santos the loan of
P700,000.00 with interest as well as attorney's fees. It impleaded OBM as a defendant to compel it to
redeem and pay to it Santos' time deposit certificates with interest, plus exemplary and corrective
damages, attorney's fees, and costs.
"In their answer to the complaint, IRC and Santos alleged that PNB has no cause of action against them
because their obligation to PNB was fully paid or extinguished upon the 'irrevocable' assignment of the
time deposit certificates, and that they are not answerable for the insolvency of OBM. They filed a
counterclaim for damages against PNB and a cross-claim against OBM, alleging that OBM acted
fraudulently in refusing to pay the time deposit certificates to PNB resulting in the filing of the suit
against them by PNB, and that, therefore, OBM should pay them whatever amount they may be
ordered by the court to pay PNB with interest. They also asked that OBM be ordered to pay them
compensatory, moral, exemplary and corrective damages.
"In its answer to the complaint, OBM denied knowledge of the time deposit certificates because the
alleged time deposit of Santos 'does not appear' in its books of account.
"Whereupon, IRC and Santos, with leave of court, filed a third-party complaint against Emerito B.
Ramos, Jr., president of OBM, and Rodolfo R. Sunico, treasurer of said bank, who allegedly received
the time deposits of Santos and issued the certificates therefor.
"Answering the third-party complaint, Ramos and Sunico alleged that IRC and Santos have no cause of
action against them because they received and signed the time deposit certificates as officers of OBM,
that the time deposits are recorded in the subsidiary ledgers of the bank and are 'civil liabilities of the
defendant OBM.'
"On November 18, 1970, OBM filed an amended or supplemental answer to the complaint,
acknowledging the certificates of time deposit that it issued to Santos, and admitting its failure to pay
the same due to its distressed financial situation. As affirmative defenses, it alleged that by reason of its
state of insolvency its operations have been suspended by the Central Bank since August 1, 1968; that
the time deposits ceased to earn interest from that date; that it may not give preference to any depositor
or creditor; and that payment of the plaintiff's claim is prohibited.
"On January 30, 1976, the lower court rendered judgment for the plaintiff, the dispositive portion of
which reads as follows:
'WHEREFORE, judgment is hereby rendered, ordering:
1. The defendant Integrated Realty Corporation and Raul L. Santos to pay the plaintiff, jointly and
solidarily, the total amount of P700,000.00 plus interest at the rate of 9% per annum from maturity
dates of the two promissory notes on January 11 and February 6, 1968, respectively (Exhibits M and I),
plus 1-1/ 2% additional interest effective February 28, 1968 and additional penalty interest of 1% per
annum of the said amount of P700,000.00 from the time of maturity of said loan up to the time the said
amount of P700,000.00 is actually paid to the plaintiff;
2. The defendants to pay 10% of the amount of P700,000.00 as and for attorney's fees;
3. The defendant Overseas Bank of Manila to pay cross plaintiffs Integrated Realty Corporation
and Raul L. Santos whatever amounts the latter will pay to the plaintiff with interest from date of
payment;
4. The defendant Overseas Bank of Manila to pay cross plaintiffs Integrated Realty Corporation
and Raul L. Santos the amount of P10,000.00 as and for attorney's fees;
5. The third-party complaint and cross-claim dismissed;
6. The defendant Overseas Bank of Manila to pay the costs.
SO ORDERED.' " 5
IRC, Santos and OBM all appealed to the respondent Court of Appeals. As stated in limine, on March
16, 1982 respondent court promulgated its appealed decision, with a modification and the deletion of
that portion of the judgment of the trial court ordering OBM to pay IRC and Santos whatever amounts
they will pay to PNB with interest from the date of payment.
Therein defendants-appellants, through separate petitions, have brought the said decision to this Court
for review. LLjur
1. The first issue posed before Us for resolution is whether the liability of IRC ,and Santos with
PNB should be deemed to have been paid by virtue of the deed of assignment made by the former in
favor of PNB, which reads:
"KNOW ALL MEN BY THESE PRESENTS;
I, RAUL L. SANTOS, of legal age, Filipino, with residence and postal address at 661 Richmond St.,
Mandaluyong, Rizal for and in consideration of certain loans, overdrafts and other credit
accommodations granted or those that may hereafter be granted to me/us by the PHILIPPINE
NATIONAL BANK, have assigned, transferred and conveyed and by these presents, do hereby assign,
transfer and convey by way of security unto said PHILIPPINE NATIONAL BANK its successors and
assigns the following Certificates of Time Deposit issued by the OVERSEAS BANK OF MANILA, its
CONFORMITY issued on August 11, 1967, hereto enclosed as Annex 'A', in favor of RAUL L.
SANTOS and/or NORA S. SANTOS, in the aggregate sum of SEVEN HUNDRED THOUSAND
PESOS ONLY (P700,000.00), Philippine Currency, . . .
xxx xxx xxx
"It is also understood that the herein Assignor/s shall remain liable for any outstanding balance of
his/their obligation if the Bank is unable to actually receive or collect the above assigned sums, monies
or properties resulting from any agreements, orders or decisions of the court or for any other cause
whatsoever." 6
xxx xxx xxx
Respondent Court of Appeals did not consider the aforesaid assignment as payment, thus:
"The contention of IRC and Santos that the irrevocable assignment of the time deposit certificates to
PNB constituted 'payment' of their obligation to the latter is not well taken.
'Where a certificate of deposit in a bank, payable at a future day, was handed over by a debtor to his
creditor, it was not payment, unless there was an express agreement on the part of the creditor to
receive it as such, and the question whether there was or was not such an agreement, was one of facts to
be decided by the jury.' (Downey vs. Hicks, 55 U.S. [14 How.] 240 L. Ed. 404; See also Michie, Vol.
5B Banks and Banking, p. 200)." 7
We uphold respondent court on this score.
In Lopez vs. Court of Appeals, et al., 8 petitioner Benito Lopez obtained a loan for P20,000.00 from the
Prudential Bank and Trust Company. On the same day, he executed a promissory note in favor of the
bank and, in addition, he executed a surety bond in which he, as principal, and Philippine American
General Insurance Co., Inc. (Philamgen), as surety, bound themselves jointly and severally in favor of
the bank for the payment of the loan. On the same occasion, Lopez also executed in favor of Philamgen
an indemnity agreement whereby he agreed to indemnify the company against any damages which the
latter may sustain in consequence of having become a surety upon the bond. At the same time, Lopez
executed a deed of assignment of his shares of stock in the Baguio Military Institute, Inc. in favor of
Philamgen. When Lopez' obligation matured without being settled, Philamgen caused the transfer of
the shares of stocks to its name in order that it may sell the same and apply the proceeds thereof in
payment of the loan to the bank. However, when no payment was still made by the principal debtor or
surety, the bank filed a complaint which compelled Philamgen to pay the bank. Thereafter, Philamgen
filed an action to recover the amount of the loan against Lopez. The trial court therein held that the
obligation of Lopez was deemed paid when his shares of stocks were transferred in the name of
Philamgen. On appeal, the Court of Appeals ruled that Lopez was still liable to Philamgen because,
pending payment, Philamgen was merely holding the stock as security for the payment of Lopez'
obligation.
In upholding the finding therein of the Court of Appeals, We held that:
"Notwithstanding the express terms of the 'Stock Assignment Separate from Certificate', however, We
hold and rule that the transaction should not be regarded as an absolute conveyance in view of the
circumstances obtaining at the time of the execution thereof.
"It should be remembered that on June 2, 1959, the day Lopez obtained a loan of P20,000.00 from
Prudential Bank, Lopez executed a promissory note for P20,000.00, plus interest at the rate of ten
(10%) per cent per annum, in favor of said Bank. He likewise posted a surety bond to secure his full
and faithful performance of his obligation under the promissory note with Philamgen as his surety. In
return for the undertaking of Philamgen under the surety bond, Lopez executed on the same day not
only an indemnity agreement but also a stock assignment.
"The indemnity agreement and stock assignment must be considered together as related transactions
because in order to judge the intention of the contracting parties, their contemporaneous and
subsequent acts shall be principally considered. (Article 1371, New Civil Code). Thus, considering that
the indemnity agreement connotes a continuing obligation of Lopez towards Philamgen while the stock
assignment indicates a complete discharge of the same obligation, the existence of the indemnity
agreement whereby Lopez had to pay a premium of P1,000.00 for a period of one year and agreed at all
times to indemnify Philamgen of any and all kinds of losses which the latter might sustain by reason of
it becoming a surety, is inconsistent with the theory of an absolute sale for and in consideration of the
same undertaking of Philamgen. There would have been no necessity for the execution of the
indemnity agreement if the stock assignment was really intended as an absolute conveyance . . ."
Along the same vein, in the case at bar it would not have been necessary on the part of IRC and Santos
to execute promissory notes in favor of PNB if the assignment of the time deposits of Santos was really
intended as an absolute conveyance.
There are cogent reasons to conclude that the parties intended said deed of assignment to complement
the promissory notes. In declaring that the deed of assignment did not operate as payment of the loan so
as to extinguish the obligations of IRC and Santos with PNB, the trial court advanced several valid
bases, to wit:
"a. It is clear from the Deed of Assignment that it was only by way of security;
xxx xxx xxx
"b. The promissory notes (Exhibits H and I) were executed on August 16, 1967. If defendants IRC
and Raul L. Santos, upon executing the Deed of Assignment on August 11, 1967 had already paid their
loan of P700,000.00 or otherwise extinguished the same, why were the promissory notes made on
August 16, 1967 still executed by IRC and signed by Raul L. Santos as President?
"c. In the application for a credit line (Exhibit A), the time deposits were offered as collateral." 9
For all intents and purposes, the deed of assignment in this case is actually a pledge. Adverting again to
the Court's pronouncements in Lopez, supra, we quote therefrom: LexLib
"The character of the transaction between the parties is to be determined by their intention, regardless
of what language was used or what the form of the transfer was. If it was intended to secure the
payment of money, it must be construed as a pledge; but if there was some other intention, it is not a
pledge. However, even though a transfer, if regarded by itself, appears to have been absolute, its object
and character might still be qualified and explained by a contemporaneous writing declaring it to have
been a deposit of the property as collateral security. It has been said that a transfer of property by the
debtor to a creditor, even if sufficient on its face to make an absolute conveyance, should be treated as
a pledge if the debt continues in existence and is not discharged by the transfer, and that accordingly,
the use of the terms ordinarily importing conveyance, of absolute ownership will not be given that
effect in such a transaction if they are also commonly used in pledges and mortgages and therefore do
not unqualifiedly indicate a transfer of absolute ownership, in the absence of clear and unambiguous
language or other circumstances excluding an intent to pledge." 10
The facts and circumstances leading to the execution of the deed of assignment, as found by the court a
quo and the respondent court, yield said conclusion that it is in fact a pledge. The deed of assignment
has satisfied the requirements of a contract of pledge (1) that it be constituted to secure the fulfillment
of a principal obligation; (2) that the pledgor be the absolute owner of the thing pledged; (3) that the
persons constituting the pledge have the free disposal of their property, and in the absence thereof, that
they be legally authorized for the purpose. 11 The further requirement that the thing pledged be placed
in the possession of the creditor, or of a third person by common agreement 12 was complied with by
the execution of the deed of assignment in favor of PNB.
It must also be emphasized that Santos, as assignor, made an express undertaking that he would remain
liable for any outstanding balance of his obligation should PNB be unable to actually receive or collect
the assigned sums resulting from any agreements, orders or decisions of the court or for any other cause
whatsoever. The term "for any cause whatsoever" is broad enough to include the situation involved in
the present case.
Under the foregoing circumstances and considerations, the unavoidable conclusion is that IRC and
Santos should be held liable to PNB for the amount of the loan with the corresponding interest thereon.
2. We find nothing illegal in the interest of one and one-half percent (1-1/2%) imposed by PNB
pursuant to the resolution of its Board which presumably was done in accordance with ordinary
banking procedures. Not only did IRC and Santos fail to overcome the presumption of regularity of
business transactions, but they are likewise estopped from questioning the validity thereof for the first
time in this petition. There is nothing in the records to show that they raised this issue during the trial
by presenting countervailing evidence. What was merely touched upon during the proceedings in the
court below was the alleged lack of notice to them of the board resolution, but not the veracity or
validity thereof.
3. On the issue of whether OBM should be held liable for interests on the time deposits of IRC and
Santos from the time it ceased operations until it resumed its business, the answer is in the negative.
We have held in The Overseas Bank of Manila vs. Court of Appeals and Tony D. Tapia, 13 that:
"It is a matter of common knowledge, which We take judicial notice of, that what enables a bank to pay
stipulated interest on money deposited with it is that thru the other aspects of its operation it is able to
generate funds to cover the payment of such interest. Unless a bank can lend money, engage in
international transactions, acquire foreclosed mortgaged properties or their proceeds and generally
engage in other banking and financing activities from which it can derive income, it is inconceivable
how it can carry on as a depository obligated to pay stipulated interest. Conventional wisdom dictates
this inexorable fair and just conclusion. And it can be said that all who deposit money in banks are
aware of such a simple economic proposition. Consequently, it should be deemed read into every
contract of deposit with a bank that the obligation to pay interest on the deposit ceases the moment the
operation of the bank is completely suspended by the duly constituted authority, the Central Bank.
"We consider it of trivial consequence that the stoppage of the bank's operation by the Central Bank has
been subsequently declared illegal by the Supreme Court, for before the Court's order, the bank had no
alternative under the law than to obey the orders of the Central Bank. Whatever be the juridical
significance of the subsequent action of the Supreme Court, the stubborn fact remained that the
petitioner was totally crippled from then on from earning the income needed to meet its obligations to
its depositors. If such a situation cannot, strictly speaking, be legally denominated as 'force majeure', as
maintained by private respondent, We hold it is a matter of simple equity that it be treated as such."
The Court further adjured that:
"Parenthetically, We may add for the guidance of those who might be concerned, and so that
unnecessary litigations be avoided from further clogging the dockets of the courts, that in the light of
the considerations expounded in the above opinion, the same formula that exempts petitioner from the
payment of interest to its depositors during the whole period of factual stoppage of its operations by
orders of the Central Bank, modified in effect by the decision as well as the approval of a formula of
rehabilitation by this Court, should be, as a matter of consistency, applicable or followed in respect to
all other obligations of petitioner which could not be paid during the period of its actual complete
closure."
We cannot accept the holding of the respondent Court of Appeals that the above-cited decisions apply
only where the bank is in a state of liquidation. In the very case aforecited, this issue was likewise
raised and We resolved:
"Thus, Our task is narrowed down to the resolution of the legal problem of whether or not, for purposes
of the payment of the interest here in question, stoppage of the operations of a bank by a legal order of
liquidation may be equated with actual cessation of the bank's operation, not different, factually
speaking, in its effects, from legal liquidation the factual cessation having been ordered by the Central
Bank.
"In the case of Chinese Grocer's Association, et al. vs. American Apothecaries, 65 Phil. 395, this Court
held:
"As to the second assignment of error, this Court, in G.R. No. 43682, In re Liquidation of the
Mercantile Bank of China, Tan Tiong Tick, claimant and appellant, vs. American Apothecaries, C., et
al., claimants and appellees, through Justice Imperial, held the following:
'4. The court held that the appellant is not entitled to charge interest on the amounts of his claims,
and this is the object of the second assignment of error. Upon this point a distinction must be made
between the interest which the deposits should earn from their existence until the bank ceased to
operate, and that which they may earn from the time the bank's operations were stopped until the date
of payment of the deposits. As to the first class, we hold that it should be paid because such interest has
been earned in the ordinary course of the bank's business and before the latter has been declared in a
state of liquidation. Moreover, the bank being authorized by law to make use of the deposits with the
limitation stated, to invest the same in its business and other operations, it may be presumed that it
bound itself to pay interest to the depositors as in fact it paid interest prior to the dates of the said
claims. As to the interest which may be charged from the date the bank ceased to do business because it
was declared in a state of liquidation, we hold that the said interest should not be paid.'
"The Court of Appeals considered this ruling inapplicable to the instant case, precisely because, as
contended by private respondent, the said Apothecaries case had in fact in contemplation a valid order
of liquidation of the bank concerned, whereas here, the order of the Central Bank of August 13, 1968
completely forbidding herein petitioner to do business preparatory to its liquidation was first restrained
and then nullified by this Supreme Court. In other words, as far as private respondent is concerned, it is
the legal reason for cessation of operations, not the actual cessation thereof, that matters and is decisive
insofar as his right to the continued payment of the interest on his deposit during the period of cessation
is concerned.
"In the light of the peculiar circumstances of this particular case, We disagree. It is Our considered
view, after mature deliberation, that it is utterly unfair to award private respondent his prayer for
payment of interest on his deposit during the period that petitioner bank was not allowed by the Central
Bank to operate."
4. Lastly, IRC and Santos claim that OBM should reimburse them for whatever amounts they may
be adjudged to pay PNB by way of compensation for damages incurred, pursuant to Articles 1170 and
2201 of the Civil Code.
It appears that as early as April, 1967, the financial situation of OBM had already caused mounting
concern in the Central Bank. 14 On December 5, 1967, new directors and officers drafted from the
Central Bank (CB) itself, the Philippine National Bank (PNB) and the Development Bank of the
Philippines (DBP) were elected and installed and they took over the management and control of the
Overseas Bank. 15 However, it was only on July 31, 1968 when OBM was excluded from clearing with
the CB under Monetary Board Resolution No. 1263. Subsequently, on August 2, 1968, pursuant to
Resolution No. 1290 of the CB, OBM's operations were suspended. 16 These CB resolutions were
eventually annulled and set aside by this Court on October 4, 1971 in the decision rendered in the
herein cited case of Ramos. LLphil
Thus, when PNB demanded from OBM payment of the amounts due on the two time deposits which
matured on January 11, 1968 and February 6, 1968, respectively, there was as yet no obstacle to the
faithful compliance by OBM of its liabilities thereunder. Consequently, for having incurred in delay in
the performance of its obligation, OBM should be held liable for damages. 17 When respondent Santos
invested his money in time deposits with OBM, they entered into a contract of simple loan or mutuum,
18 not a contract of deposit.
While it is true that under Article 1956 of the Civil Code no interest shall be due unless it has been
expressly stipulated in writing, this applies only to interest for the use of money. It does not
comprehend interest paid as damages. 19 OBM contends that it had agreed to pay interest only up to
the dates of maturity of the certificates of time deposit and that respondent Santos is not entitled to
interest after the maturity dates had expired, unless the contracts are renewed. This is true with respect
to the stipulated interest, but the obligations consisting as they did in the payment of money, under
Article 1108 of the Civil Code he has the right to recover damages resulting from the default of OBM,
and the measure of such damages is interest at the legal rate of six percent (6%) per annum on the
amounts due and unpaid at the expiration of the periods respectively provided in the contracts. In fine,
OBM is being required to pay such interest, not as interest income stipulated in the certificates of time
deposit, but as damages for failure and delay in the payment of its obligations which thereby compelled
IRC and Santos to resort to the courts.
The applicable rule is that legal interest, in the nature of damages for non-compliance with an
obligation to pay a sum of money, is recoverable from the date judicial or extrajudicial demand is
made, 20 which latter mode of demand was made by PNB, after the maturity of the certificates of time
deposit, on March 1, 1968. 21 The measure of such damages, there being no stipulation to the contrary,
shall be the payment of the interest agreed upon in the certificates of deposit 22 which is six and one-
half percent (6-1/2%). Such interest due or accrued shall further earn legal interest from the time of
judicial demand. 23
We reject the proposition of IRC and Santos that OBM should reimburse them the entire amount they
may be adjudged to pay PNB. It must be noted that their liability to pay the various interests of nine
percent (9%) on the principal obligation, one and one-half percent (1-1/2%) additional interest and one
percent (1%) penalty interest is an offshoot of their failure to pay under the terms of the two promissory
notes executed in favor of PNB. OBM was never a party to said promissory notes. There is, therefore,
no privity of contract between OBM and PNB which will justify the imposition of the aforesaid
interests upon OBM whose liability should be strictly confined to and within the provisions of the
certificates of time deposit involved in this case. In fact, as noted by respondent court, when OBM
assigned as error that portion of the judgment of the court a quo requiring OBM to make the disputed
reimbursement, IRC and Santos did not dispute that objection of OBM. Besides, IRC and Santos are
not without fault. They likewise acted in bad faith when they refused to comply with their obligations
under the promissory notes, thus incurring liability for all damages reasonably attributable to the non-
payment of said obligations. 24
WHEREFORE, judgment is hereby rendered, ordering:
1. Integrated Realty Corporation and Raul L. Santos to pay Philippine National Bank, jointly and
severally, the total amount of seven hundred thousand pesos (P700,000.00), with interest thereon at the
rate of nine percent (9%) per annum from the maturity dates of the two promissory notes on January 11
and February 6, 1968, respectively, plus one and one-half percent (1-1/2%) additional interest per
annum effective February 28, 1968 and additional penalty interest of one percent (1%) per annum of
the said amount of seven hundred thousand pesos (P700,000.00) from the time of maturity of said loan
up to the time the said amount of seven hundred thousand pesos (P700,000.00) is fully paid to
Philippine National Bank.
2. Integrated Realty Corporation and Raul L. Santos to pay solidarily Philippine National Bank ten
percent (10%) of the amount of seven hundred thousand pesos (P700,000.00) as and for attorney's fees.
3. Overseas Bank of Manila to pay Integrated Realty Corporation and Raul L. Santos the sum of
seven hundred thousand pesos (P700,000.00) due under Time Deposit Certificates Nos. 2308 and 2367,
with interest thereon of six and one-half percent (6-1/2%) per annum from their dates of issue on
January 11, 1967 and February 6, 1967, respectively, until the same are fully paid, except that no
interest shall be paid during the entire period of actual cessation of operations by Overseas Bank of
Manila;
4. Overseas Bank of Manila to pay Integrated Realty Corporation and Raul L. Santos six and one-
half per cent (6-1/2%) interest in the concept of damages on the principal amounts of said certificates
of time deposit from the date of extrajudicial demand by PNB on March 1, 1968, plus legal interest of
six percent (6%) on said interest from April 6, 1968, until full payment thereof, except during the entire
period of actual cessation of operations of said bank.
5. Overseas Bank of Manila to pay Integrated Realty Corporation and Raul L. Santos ten thousand
pesos (P10,000.00) as and for attorney's fees.
SO ORDERED.
Melencio-Herrera, Paras, Padilla and Sarmiento, JJ., concur.
Footnotes
1. CA-G.R. No. 60005, penned by Associate Justice Carolina C. Griño-Aquino, with the
concurrence of Associate Justices Milagros A. German and Vicente V. Mendoza, Tenth Division;
Annex A, Petition, G.R. No. 60705; Rollo, 36.
2. Petition, G.R. No. 60705, p. 24; Rollo, 32.
3. Petition, G.R. No. 60907, p. 1; Rollo, 8.
4. Civil Case No. 72557, Court of First Instance of Manila, Branch XIX, Judge Victorino A.
Savellano, presiding.
* This should be April 6, 1968.
5. Annex A, Petition, G.R. No. 60705; Rollo, 36-39.
6. Record on Appeal, CA-G.R. No. 60005, 13-17.
7. Rollo, G.R. No. 60705, 42.
8. 114 SCRA 671 (1982).
9. Record on Appeal, 267-268.
10. Footnote 8, at p. 683, citing Am. Jur. 2d, Secured Transactions, Sec. 50.
11. Art. 2085, Civil Code.
12. Art. 2093, Civil Code.
13. 105 SCRA 49 (1981); See also The Overseas Bank of Manila vs. Court of Appeals, et al., 113
SCRA 778 (1982).
14. Ramos, et al. vs. Central Bank of the Philippines, 41 SCRA 565, 573 (1971).
15. Id., 579.
16. Id., 572.
17. Art. 1170, Civil Code.
18. Art. 1980, Civil Code.
19. Civil Code of the Philippines Annotated, Paras, 10th Ed., Vol. V, 695.
20. Art. 1169, Civil Code.
21. Exhibit L, Original Record, 317.
22. Art. 2209, Civil Code.
23. Art. 2212, Civil Code.
24. Art. 2201, Civil Code.
FIRST DIVISION
[G.R. No. 171545. December 19, 2007.]
EQUITABLE PCI BANK, * AIMEE YU and BEJAN LIONEL APAS, petitioners, vs. NG SHEUNG
NGOR ** doing business under the name and style "KEN MARKETING," KEN APPLIANCE
DIVISION, INC. and BENJAMIN E. GO, respondents.
DECISION
CORONA, J p:
This petition for review on certiorari 1 seeks to set aside the decision 2 of the Court of Appeals (CA) in
CA-G.R. SP No. 83112 and its resolution 3 denying reconsideration.
On October 7, 2001, respondents Ng Sheung Ngor, 4 Ken Appliance Division, Inc. and Benjamin E.
Go filed an action for annulment and/or reformation of documents and contracts 5 against petitioner
Equitable PCI Bank (Equitable) and its employees, Aimee Yu and Bejan Lionel Apas, in the Regional
Trial Court (RTC), Branch 16 of Cebu City. 6 They claimed that Equitable induced them to avail of its
peso and dollar credit facilities by offering low interest rates 7 so they accepted Equitable's proposal
and signed the bank's pre-printed promissory notes on various dates beginning 1996. They, however,
were unaware that the documents contained identical escalation clauses granting Equitable authority to
increase interest rates without their consent. 8 CTaSEI
Equitable, in its answer, asserted that respondents knowingly accepted all the terms and conditions
contained in the promissory notes. 9 In fact, they continuously availed of and benefited from
Equitable's credit facilities for five years. 10
After trial, the RTC upheld the validity of the promissory notes. It found that, in 2001 alone, Equitable
restructured respondents' loans amounting to US$228,200 and P1,000,000. 11 The trial court, however,
invalidated the escalation clause contained therein because it violated the principle of mutuality of
contracts. 12 Nevertheless, it took judicial notice of the steep depreciation of the peso during the
intervening period 13 and declared the existence of extraordinary deflation. 14 Consequently, the RTC
ordered the use of the 1996 dollar exchange rate in computing respondents' dollar-denominated loans.
15 Lastly, because the business reputation of respondents was (allegedly) severely damaged when
Equitable froze their accounts, 16 the trial court awarded moral and exemplary damages to them. 17
The dispositive portion of the February 5, 2004 RTC decision 18 provided:
WHEREFORE, premises considered, judgment is hereby rendered: TcCDIS
A) Ordering [Equitable] to reinstate and return the amount of [respondents'] deposit placed on hold
status;
B) Ordering [Equitable] to pay [respondents] the sum of P12 [m]illion [p]esos as moral damages;
C) Ordering [Equitable] to pay [respondents] the sum of P10 [m]illion [p]esos as exemplary
damages;
D) Ordering defendants Aimee Yu and Bejan [Lionel] Apas to pay [respondents], jointly and
severally, the sum of [t]wo [m]illion [p]esos as moral and exemplary damages;
E) Ordering [Equitable, Aimee Yu and Bejan Lionel Apas], jointly and severally, to pay
[respondents'] attorney's fees in the sum of P300,000; litigation expenses in the sum of P50,000 and the
cost of suit;
F) Directing plaintiffs Ng Sheung Ngor and Ken Marketing to pay [Equitable] the unpaid principal
obligation for the peso loan as well as the unpaid obligation for the dollar denominated loan;
G) Directing plaintiff Ng Sheung Ngor and Ken Marketing to pay [Equitable] interest as follows:
aEIADT
1) 12% per annum for the peso loans;
2) 8% per annum for the dollar loans. The basis for the payment of the dollar obligation is the
conversion rate of P26.50 per dollar availed of at the time of incurring of the obligation in accordance
with Article 1250 of the Civil Code of the Philippines;
H) Dismissing [Equitable's] counterclaim except the payment of the aforestated unpaid principal
loan obligations and interest.
SO ORDERED. 19
Equitable and respondents filed their respective notices of appeal. 20
In the March 1, 2004 order of the RTC, both notices were denied due course because Equitable and
respondents "failed to submit proof that they paid their respective appeal fees." 21
WHEREFORE, premises considered, the appeal interposed by defendants from the Decision in the
above-entitled case is DENIED due course. As of February 27, 2004, the Decision dated February 5,
2004, is considered final and executory in so far as [Equitable, Aimee Yu and Bejan Lionel Apas] are
concerned. 22 (emphasis supplied) DIETcC
Equitable moved for the reconsideration of the March 1, 2004 order of the RTC 23 on the ground that it
did in fact pay the appeal fees. Respondents, on the other hand, prayed for the issuance of a writ of
execution. 24
On March 24, 2004, the RTC issued an omnibus order denying Equitable's motion for reconsideration
for lack of merit 25 and ordered the issuance of a writ of execution in favor of respondents. 26
According to the RTC, because respondents did not move for the reconsideration of the previous order
(denying due course to the parties' notices of appeal), 27 the February 5, 2004 decision became final
and executory as to both parties and a writ of execution against Equitable was in order. 28
A writ of execution was thereafter issued 29 and three real properties of Equitable were levied upon. 30
On March 26, 2004, Equitable filed a petition for relief in the RTC from the March 1, 2004 order. 31 It,
however, withdrew that petition on March 30, 2004 32 and instead filed a petition for certiorari with an
application for an injunction in the CA to enjoin the implementation and execution of the March 24,
2004 omnibus order. 33
On June 16, 2004, the CA granted Equitable's application for injunction. A writ of preliminary
injunction was correspondingly issued. 34 HTAIcD
Notwithstanding the writ of injunction, the properties of Equitable previously levied upon were sold in
a public auction on July 1, 2004. Respondents were the highest bidders and certificates of sale were
issued to them. 35
On August 10, 2004, Equitable moved to annul the July 1, 2004 auction sale and to cite the sheriffs
who conducted the sale in contempt for proceeding with the auction despite the injunction order of the
CA. 36
On October 28, 2005, the CA dismissed the petition for certiorari. 37 It found Equitable guilty of forum
shopping because the bank filed its petition for certiorari in the CA several hours before withdrawing
its petition for relief in the RTC. 38 Moreover, Equitable failed to disclose, both in the statement of
material dates and certificate of non-forum shopping (attached to its petition for certiorari in the CA),
that it had a pending petition for relief in the RTC. 39
Equitable moved for reconsideration 40 but it was denied. 41 Thus, this petition. IaEACT
Equitable asserts that it was not guilty of forum shopping because the petition for relief was withdrawn
on the same day the petition for certiorari was filed. 42 It likewise avers that its petition for certiorari
was meritorious because the RTC committed grave abuse of discretion in issuing the March 24, 2004
omnibus order which was based on an erroneous assumption. The March 1, 2004 order denying its
notice of appeal for non payment of appeal fees was erroneous because it had in fact paid the required
fees. 43 Thus, the RTC, by issuing its March 24, 2004 omnibus order, effectively prevented Equitable
from appealing the patently wrong February 5, 2004 decision. 44
This petition is meritorious.
EQUITABLE WAS NOT GUILTY
OF FORUM SHOPPING
Forum shopping exists when two or more actions involving the same transactions, essential facts and
circumstances are filed and those actions raise identical issues, subject matter and causes of action. 45
The test is whether, in two or more pending cases, there is identity of parties, rights or causes of actions
and reliefs. 46
Equitable's petition for relief in the RTC and its petition for certiorari in the CA did not have identical
causes of action. The petition for relief from the denial of its notice of appeal was based on the RTC's
judgment or final order preventing it from taking an appeal by "fraud, accident, mistake or excusable
negligence." 47 On the other hand, its petition for certiorari in the CA, a special civil action, sought to
correct the grave abuse of discretion amounting to lack of jurisdiction committed by the RTC. 48
IEaCDH
In a petition for relief, the judgment or final order is rendered by a court with competent jurisdiction. In
a petition for certiorari, the order is rendered by a court without or in excess of its jurisdiction.
Moreover, Equitable substantially complied with the rule on non-forum shopping when it moved to
withdraw its petition for relief in the RTC on the same day (in fact just four hours and forty minutes
after) it filed the petition for certiorari in the CA. Even if Equitable failed to disclose that it had a
pending petition for relief in the RTC, it rectified what was doubtlessly a careless oversight by
withdrawing the petition for relief just a few hours after it filed its petition for certiorari in the CA — a
clear indication that it had no intention of maintaining the two actions at the same time.
THE TRIAL COURT
COMMITTED GRAVE ABUSE
OF DISCRETION IN ISSUING
ITS MARCH 1, 2004 AND
MARCH 24, 2004 ORDERS
Section 1, Rule 65 of the Rules of Court provides:
Section 1. Petition for Certiorari. — When any tribunal, board or officer exercising judicial or
quasi-judicial function has acted without or in excess of its or his jurisdiction, or with grave abuse of
discretion amounting to lack or excess of jurisdiction, and there is no appeal, nor any plain, speedy or
adequate remedy in the ordinary course of law, a person aggrieved thereby may file a verified petition
in the proper court, alleging the facts with certainty and praying that judgment be rendered annulling or
modifying the proceedings of such tribunal, board or officer, and granting such incidental reliefs as law
and justice may require. IEaHSD
The petition shall be accompanied by a certified true copy of the judgment, order or resolution subject
thereof, copies of all pleadings and documents relevant and pertinent thereto, and a sworn certificate of
non-forum shopping as provided in the third paragraph of Section 3, Rule 46.
There are two substantial requirements in a petition for certiorari. These are:
1. that the tribunal, board or officer exercising judicial or quasi-judicial functions acted without or
in excess of his or its jurisdiction or with grave abuse of discretion amounting to lack or excess of
jurisdiction; and
2. that there is no appeal or any plain, speedy and adequate remedy in the ordinary course of law.
For a petition for certiorari premised on grave abuse of discretion to prosper, petitioner must show that
the public respondent patently and grossly abused his discretion and that abuse amounted to an evasion
of positive duty or a virtual refusal to perform a duty enjoined by law or to act at all in contemplation
of law, as where the power was exercised in an arbitrary and despotic manner by reason of passion or
hostility. 49 cCTIaS
The March 1, 2004 order denied due course to the notices of appeal of both Equitable and respondents.
However, it declared that the February 5, 2004 decision was final and executory only with respect to
Equitable. 50 As expected, the March 24, 2004 omnibus order denied Equitable's motion for
reconsideration and granted respondents' motion for the issuance of a writ of execution. 51
The March 1, 2004 and March 24, 2004 orders of the RTC were obviously intended to prevent
Equitable, et al. from appealing the February 5, 2004 decision. Not only that. The execution of the
decision was undertaken with indecent haste, effectively obviating or defeating Equitable's right to
avail of possible legal remedies. No matter how we look at it, the RTC committed grave abuse of
discretion in rendering those orders.
With regard to whether Equitable had a plain, speedy and adequate remedy in the ordinary course of
law, we hold that there was none. The RTC denied due course to its notice of appeal in the March 1,
2004 order. It affirmed that denial in the March 24, 2004 omnibus order. Hence, there was no way
Equitable could have possibly appealed the February 5, 2004 decision. 52
Although Equitable filed a petition for relief from the March 24, 2004 order, that petition was not a
plain, speedy and adequate remedy in the ordinary course of law. 53 A petition for relief under Rule 38
is an equitable remedy allowed only in exceptional circumstances or where there is no other available
or adequate remedy. 54 cHDaEI
Thus, we grant Equitable's petition for certiorari and consequently give due course to its appeal.
EQUITABLE RAISED PURE
QUESTIONS OF LAW IN ITS
PETITION FOR REVIEW
The jurisdiction of this Court in Rule 45 petitions is limited to questions of law. 55 There is a question
of law "when the doubt or controversy concerns the correct application of law or jurisprudence to a
certain set of facts; or when the issue does not call for the probative value of the evidence presented,
the truth or falsehood of facts being admitted." 56
Equitable does not assail the factual findings of the trial court. Its arguments essentially focus on the
nullity of the RTC's February 5, 2004 decision. Equitable points out that that decision was patently
erroneous, specially the exorbitant award of damages, as it was inconsistent with existing law and
jurisprudence. 57 DcITaC
THE PROMISSORY NOTES
WERE VALID
The RTC upheld the validity of the promissory notes despite respondents' assertion that those
documents were contracts of adhesion.
A contract of adhesion is a contract whereby almost all of its provisions are drafted by one party. 58
The participation of the other party is limited to affixing his signature or his "adhesion" to the contract.
59 For this reason, contracts of adhesion are strictly construed against the party who drafted it. 60
It is erroneous, however, to conclude that contracts of adhesion are invalid per se. They are, on the
contrary, as binding as ordinary contracts. A party is in reality free to accept or reject it. A contract of
adhesion becomes void only when the dominant party takes advantage of the weakness of the other
party, completely depriving the latter of the opportunity to bargain on equal footing. 61
That was not the case here. As the trial court noted, if the terms and conditions offered by Equitable
had been truly prejudicial to respondents, they would have walked out and negotiated with another
bank at the first available instance. But they did not. Instead, they continuously availed of Equitable's
credit facilities for five long years. AcIaST
While the RTC categorically found that respondents had outstanding dollar- and peso-denominated
loans with Equitable, it, however, failed to ascertain the total amount due (principal, interest and
penalties, if any) as of July 9, 2001. The trial court did not explain how it arrived at the amounts of
US$228,200 and P1,000,000. 62 In Metro Manila Transit Corporation v. D.M. Consunji, 63 we
reiterated that this Court is not a trier of facts and it shall pass upon them only for compelling reasons
which unfortunately are not present in this case. 64 Hence, we ordered the partial remand of the case
for the sole purpose of determining the amount of actual damages. 65
ESCALATION CLAUSE
VIOLATED THE PRINCIPLE OF
MUTUALITY OF CONTRACTS
Escalation clauses are not void per se. However, one "which grants the creditor an unbridled right to
adjust the interest independently and upwardly, completely depriving the debtor of the right to assent to
an important modification in the agreement" is void. Clauses of that nature violate the principle of
mutuality of contracts. 66 Article 1308 67 of the Civil Code holds that a contract must bind both
contracting parties; its validity or compliance cannot be left to the will of one of them. 68
For this reason, we have consistently held that a valid escalation clause provides: CSIDTc
1. that the rate of interest will only be increased if the applicable maximum rate of interest is
increased by law or by the Monetary Board; and
2. that the stipulated rate of interest will be reduced if the applicable maximum rate of interest is
reduced by law or by the Monetary Board (de-escalation clause). 69
The RTC found that Equitable's promissory notes uniformly stated:
If subject promissory note is extended, the interest for subsequent extensions shall be at such rate as
shall be determined by the bank. 70
Equitable dictated the interest rates if the term (or period for repayment) of the loan was extended.
Respondents had no choice but to accept them. This was a violation of Article 1308 of the Civil Code.
Furthermore, the assailed escalation clause did not contain the necessary provisions for validity, that is,
it neither provided that the rate of interest would be increased only if allowed by law or the Monetary
Board, nor allowed de-escalation. For these reasons, the escalation clause was void.
With regard to the proper rate of interest, in New Sampaguita Builders v. Philippine National Bank 71
we held that, because the escalation clause was annulled, the principal amount of the loan was subject
to the original or stipulated rate of interest. Upon maturity, the amount due was subject to legal interest
at the rate of 12% per annum. 72 IDaEHS
Consequently, respondents should pay Equitable the interest rates of 12.66% p.a. for their dollar-
denominated loans and 20% p.a. for their peso-denominated loans from January 10, 2001 to July 9,
2001. Thereafter, Equitable was entitled to legal interest of 12% p.a. on all amounts due.
THERE WAS NO
EXTRAORDINARY DEFLATION
Extraordinary inflation exists when there is an unusual decrease in the purchasing power of currency
(that is, beyond the common fluctuation in the value of currency) and such decrease could not be
reasonably foreseen or was manifestly beyond the contemplation of the parties at the time of the
obligation. Extraordinary deflation, on the other hand, involves an inverse situation. 73
Article 1250 of the Civil Code provides:
Article 1250. In case an extraordinary inflation or deflation of the currency stipulated should
intervene, the value of the currency at the time of the establishment of the obligation shall be the basis
of payment, unless there is an agreement to the contrary.
For extraordinary inflation (or deflation) to affect an obligation, the following requisites must be
proven: HAcaCS
1. that there was an official declaration of extraordinary inflation or deflation from the Bangko
Sentral ng Pilipinas (BSP); 74
2. that the obligation was contractual in nature; 75 and
3. that the parties expressly agreed to consider the effects of the extraordinary inflation or
deflation. 76
Despite the devaluation of the peso, the BSP never declared a situation of extraordinary inflation.
Moreover, although the obligation in this instance arose out of a contract, the parties did not agree to
recognize the effects of extraordinary inflation (or deflation). 77 The RTC never mentioned that there
was a such stipulation either in the promissory note or loan agreement. Therefore, respondents should
pay their dollar-denominated loans at the exchange rate fixed by the BSP on the date of maturity. 78
THE AWARD OF MORAL AND
EXEMPLARY DAMAGES LACKED
BASIS
Moral damages are in the category of an award designed to compensate the claimant for actual injury
suffered, not to impose a penalty to the wrongdoer. 79 To be entitled to moral damages, a claimant
must prove: aTADCE
1. That he or she suffered besmirched reputation, or physical, mental or psychological suffering
sustained by the claimant;
2. That the defendant committed a wrongful act or omission;
3. That the wrongful act or omission was the proximate cause of the damages the claimant
sustained;
4. The case is predicated on any of the instances expressed or envisioned by Article 2219 80 and
2220 81 . 82
In culpa contractual or breach of contract, moral damages are recoverable only if the defendant acted
fraudulently or in bad faith or in wanton disregard of his contractual obligations. 83 The breach must be
wanton, reckless, malicious or in bad faith, and oppressive or abusive. 84
The RTC found that respondents did not pay Equitable the interest due on February 9, 2001 (or any
month thereafter prior to the maturity of the loan) 85 or the amount due (principal plus interest) due on
July 9, 2001. 86 Consequently, Equitable applied respondents' deposits to their loans upon maturity.
The relationship between a bank and its depositor is that of creditor and debtor. 87 For this reason, a
bank has the right to set-off the deposits in its hands for the payment of a depositor's indebtedness. 88
cSaADC
Respondents indeed defaulted on their obligation. For this reason, Equitable had the option to exercise
its legal right to set-off or compensation. However, the RTC mistakenly (or, as it now appears,
deliberately) concluded that Equitable acted "fraudulently or in bad faith or in wanton disregard" of its
contractual obligations despite the absence of proof. The undeniable fact was that, whatever damage
respondents sustained was purely the consequence of their failure to pay their loans. There was
therefore absolutely no basis for the award of moral damages to them.
Neither was there reason to award exemplary damages. Since respondents were not entitled to moral
damages, neither should they be awarded exemplary damages. 89 And if respondents were not entitled
to moral and exemplary damages, neither could they be awarded attorney's fees and litigation expenses.
90
ACCORDINGLY, the petition is hereby GRANTED.
The October 28, 2005 decision and February 3, 2006 resolution of the Court of Appeals in CA-G.R. SP
No. 83112 are hereby REVERSED and SET ASIDE.
The March 24, 2004 omnibus order of the Regional Trial Court, Branch 16, Cebu City in Civil Case
No. CEB-26983 is hereby ANNULLED for being rendered with grave abuse of discretion amounting
to lack or excess of jurisdiction. All proceedings undertaken pursuant thereto are likewise declared null
and void. SDHTEC
The March 1, 2004 order of the Regional Trial Court, Branch 16 of Cebu City in Civil Case No. CEB-
26983 is hereby SET ASIDE. The appeal of petitioners Equitable PCI Bank, Aimee Yu and Bejan
Lionel Apas is therefore given due course.
The February 5, 2004 decision of the Regional Trial Court, Branch 16 of Cebu City in Civil Case No.
CEB-26983 is accordingly SET ASIDE. New judgment is hereby entered:
1. ordering respondents Ng Sheung Ngor, doing business under the name and style of "Ken
Marketing," Ken Appliance Division, Inc. and Benjamin E. Go to pay petitioner Equitable PCI Bank
the principal amount of their dollar- and peso-denominated loans;
2. ordering respondents Ng Sheung Ngor, doing business under the name and style of "Ken
Marketing," Ken Appliance Division, Inc. and Benjamin E. Go to pay petitioner Equitable PCI Bank
interest at:
a) 12.66% p.a. with respect to their dollar-denominated loans from January 10, 2001 to July 9,
2001; aSTHDc
b) 20% p.a. with respect to their peso-denominated loans from January 10, 2001 to July 9, 2001;
91
c) pursuant to our ruling in Eastern Shipping Lines v. Court of Appeals, 92 the total amount due
on July 9, 2001 shall earn legal interest at 12% p.a. from the time petitioner Equitable PCI Bank
demanded payment, whether judicially or extra-judicially; and
d) after this Decision becomes final and executory, the applicable rate shall be 12% p.a. until full
satisfaction;
3. all other claims and counterclaims are dismissed.
As a starting point, the Regional Trial Court, Branch 16 of Cebu City shall compute the exact amounts
due on the respective dollar-denominated and peso-denominated loans, as of July 9, 2001, of
respondents Ng Sheung Ngor, doing business under the name and style of "Ken Marketing," Ken
Appliance Division and Benjamin E. Go. ACcEHI
SO ORDERED.
Puno, C.J., Sandoval-Gutierrez, Azcuna and Leonardo-de Castro, JJ., concur.
Footnotes
* Now, Banco De Oro Unibank.
** Also referred to as Ng Seung Ngor in the records.
1. Under Rule 45 of the Rules of Court. TcAECH
2. Penned by Associate Justice Mercedes Gozo-Dadole (retired) and concurred in by Associate
Justices Pampio A. Abarintos and Enrico A. Lanzanas of the Eighteenth Division of the Court of
Appeals. Dated October 28, 2005. Rollo, pp. 88-111. cAaTED
3. Penned by Associate Justice Enrico A. Lanzanas and concurred in by Associate Justices Isaias
P. Dicdican and Pampio A. Abarintos of the Special Former Eighteenth Division of the Court of
Appeals. Dated February 3, 2006. Id., pp. 112-115.
4. Doing business in the name and style of "Ken Marketing."
5. Docketed as Civil Case No. CEB-26983. Rollo, pp. 115-143.
6. Id., pp. 116-117, 177.
7. The interest rate initially offered by Equitable was 12.75% p.a. for dollar-denominated loans.
Id., p. 187.
8. Id., p. 118.
9. Id., pp. 155-175.
10. Id.
11. Id., pp. 180, 183. SCHEDULE OF LOANS:
Respondents' submission
Principal Interest Date Availed Date of Amount
Maturity Due
US$223,000 12.66%, p.a. 10 January 2001 9 July 2001 (total=)
36,700 12.66%, p.a. 10 January 2001 9 July 2001 US$232,248.00
P995,000 20%, p.a. 10 January 2001 9 July 2001 P1,081,703.14
Equitable's submission
Principal Interest Date Availed Date of Amount
Maturity due
US$184,000 12.66%, p.a. 10 January 2001 9 July 2001 US$207,771.78
37,700 12.66%, p.a. 10 January 2001 9 July 2001 41,441.44
P1,050,000 20%, p.a. 10 January 2001 9 July 2001 P1,166,193.34
Note:
1. Equitable and respondents agreed neither as to the amount of the principal nor as
to the amount due. IEHDAT
2. The RTC concluded that the rates of interest stated in the promissory notes were
only applicable for 30 days (or from January 10, 2001 to February 9, 2001). Thereafter(or every 30
days until the loan matures), Equitable may change the rates if it so desired without the prior notice to
respondents.
3. Interest due must be paid every month beginning February 9, 2001 until maturity.
IEAaST
4. The findings of the trial court, with regard to the amount of respondents'
obligation to Equitable, agreed neither with the submission of Equitable nor with that of respondents.
The RTC made its own finding as to the amount of respondent's obligation to Equitable but did not
explain how it arrived at the figures. It merely stated:
"The evidence adduced during trial show [respondents] received the proceeds of peso and dollar
loans from defendant bank as follows: (a) US$228,200 in four (4) different availments and the (b)
principal amount of P1,000,000. . . ."
12. Id., pp. 185-186. cSATDC
13. Id. The RTC took judicial notice of the fact that the exchange rate in 1996 was US$1 = P26.50
while in 2001, it was US$1 = P55. Because the cost of purchasing dollar increased by 200% over the
relatively short period of six years, it concluded that there was extraordinary inflation.
14. Id.
15. Id., p. 190. SIcTAC
16. Id., pp. 188-189.
17. Id.
18. Penned by Judge Agapito L. Hontanosas, Jr. (dismissed from the service per resolution in J.
King and Sons Company, Inc. v. Judge Agapito L. Hontanosas, Jr., A.M. No. RTJ-03-1802, 21
September 2004, 438 SCRA 525). Id., pp. 177-190. IHaCDE
19. Id., pp. 189-190.
20. Id., pp. 191-193.
21. Id., p. 194. aHATDI
22. Id.
23. Id., pp. 195-202. Equitable attached proof that it paid the appeal fees.
24. Id., pp. 203-204.
25. Id., p. 206. CTHDcS
26. Id., pp. 205-207.
27. Id., p. 205.
28. Id., p. 207. AEaSTC
29. Id., pp. 208-210.
30. Id., p. 218. Covered by TCT No. 124096, TCT No. 118031 and tax declarations GR2K-06-038-
00391 and GRK-06-038-00392.
31. Id., pp. 272-276. IaEACT
See RULES OF COURT, Rule 38, Sec. 2. The section provides:
Sec. 2. Petition for relief from denial of appeal. — When a judgment or final order is rendered
by any court in a case, and a party thereto, by fraud, accident, mistake or excusable negligence, has
been prevented from taking an appeal, he may file a petition in such court and in the same case praying
that the appeal be given due course.
32. Id., pp. 279-281. SaCDTA
33. Docketed as CA-G.R. SP No. 83112. Id., p. 221.
34. Penned by Associate Justice Estela M. Perlas-Bernabe and concurred in by Associate Justices
Monina Arevalo-Zenarosa and Vicente I. Yap (retired) of the Special Eighteenth Division of the Court
of Appeals. Dated June 16, 2004. Id., pp. 221-223. EASCDH
35. Id., pp. 226-231.
36. Id., pp. 232-240.
37. Supra note 2.
38. Id., pp. 106-110. The petition for certiorari was filed in the CA on March 30, 2004 at 9 a.m.
while the motion to withdraw the petition for relief in the RTC was filed also on March 30, 2004 at
1:40 p.m.
39. Id. CcTHaD
40. Id., pp. 248-271.
41. Supra note 3.
42. Id., p. 38.
43. Id., p. 55. SHAcID
44. Id., pp. 62-68.
45. Ligon v. Court of Appeals, G.R. No. 127683, 7 August 1998, 294 SCRA 73, 88.
46. Id. DCIAST
47. Supra note 31.
48. Florenz B. Regalado, 2 REMEDIAL LAW COMPENDIUM 18th ed., 716 citing Matute v.
Macadaeg, et al., 99 Phil. 340 (1956) and de Gala-Sison v. Maddela, et al., 160-B Phil. 626 (1975).
AIECSD
49. See Aggabao v. Commission on Elections, G.R. No. 163756, 26 January 2005, 449 SCRA 400.
See also Zarate v. Maybank, G.R. No. 160976, 8 June 2005, 459 SCRA 785. See also Agustin v. Court
of Appeals, G.R. No. 162571, 15 June 2005, 460 SCRA 315.
50. Rollo, p. 194. SDATEc
51. Id., pp. 225-231.
52. See RULES OF COURT, Rule 41, Sec. 2. The section provides:
Section 2. Modes of appeal. —
(a) Ordinary appeal. — The appeal to the Court of Appeals in cases decided by the
Regional Trial Court in the exercise of its original jurisdiction shall be taken by filing a notice of appeal
with the court which rendered the judgment or final order appealed from and serving a copy thereof
upon the adverse party. No record on appeal shall be required except in special proceedings and other
cases of multiple or separate appeals where the law or these Rules so require. In such cases, the record
on appeal shall be filed and served in the like manner. EITcaH
(b) Petition for review. — The appeal to the Court of Appeals in cases decided by
the Regional Trial Court in exercise of its appellate jurisdiction shall be by petition for review in
accordance with Rule 42.
(c) Appeal by certiorari. — In all cases where only questions of law are raised or
involved the appeal shall be to the Supreme Court by petition for review on certiorari in accordance
with Rule 45. (emphasis supplied)
53. Supra note 48 at 400 citing Palmares, et al. v. Jimenez, et al., 90 Phil. 773. (1952). CSDcTH
54. Tuason v. Court of Appeals, G.R. No. 116607, 10 April 1996, 256 SCRA 158, 167. See also
Cerezo v. Tuazon, G.R. No. 141538, 23 March 2004, 426 SCRA 167, 183. See also Azucena v.
Foreign Manpower Services, G.R. No. 147955, 25 October 2004, 441 SCRA 346, 354-355.
55. Supra note 52 and Usero v. Court of Appeals, G.R. Nos. 152112 and 155055, 26 January 2005,
449 SCRA 352, 358. HaEcAC
56. Bukidnon Doctor's Hospital v. Metropolitan Bank and Trust Company, G.R. No. 161882, 8 July
2005, 463 SCRA 222, 233.
57. Rollo, pp. 46-50.
58. Citibank, N.A. v. Sabeniano, G.R. No. 156132, 6 February 2007.
59. Id. aHcDEC
60. Id.
61. Perez v. Development Bank of the Philippines, G.R. No. 148541, 11 November 2004, 442
SCRA 238, 249-250 citing Rizal Commercial Banking Corporation v. Court of Appeals, G.R. No.
127139, 19 February 1999, 303 SCRA 449, 454. IDEHCa
62. Supra note 11.
63. G.R. No. 147594, 7 March 2007.
64. Id.
65. Id. IHaECA
66. See New Sampaguita Builders Construction, Inc. v. Philippine National Bank, G.R. No.
148753, 30 July 2004, 435 SCRA 565, 581 citing Philippine National Bank v. Court of Appeals, 328
Phil. 54, 62-63 (1996).
67. Art. 1308. The contracts must bind both contracting parties; its validity or compliance cannot be
left to the will of one of them.
68. Jose B.L. Reyes and Ricardo C. Puno, 4 AN OUTLINE OF PHILIPPINE CIVIL LAW 1957
ed., p. 178. DacTEH
69. Llorin v. Court of Appeals, G.R. No. 103592, 4 February 1993, 218 SCRA 438, 442.
70. Rollo, p. 147.
71. Supra note 66. aAHISE
72. Id., pp. 608-609.
73. Sangrador v. Valderrama, G.R. No. 58122, 29 December 1989, 168 SCRA 215, 228 citing
Filipino Pipe and Foundry Corporation v. National Waterworks and Sewage Authority, G.R. No. L-
43446, 3 May 1988.
74. Citibank v. Sabeniano, supra note 58. See also Mobil Oil Philippines v. Court of Appeals, G.R.
No. 58122, 29 December 1989, 180 SCRA 651, 667.
75. Extraordinary inflation or deflation does not affect obligations which arise from sources other
than contracts. See Velasco v. Manila Electric Company, 149 Phil. 657 (1971). ADHCSE
See CIVIL CODE, Art. 1157. The article provides:
Art. 1157. Obligations arise from:
1. Law;
2. Contracts;
3. Quasi-contracts;
4. Acts or omission punished by law; and
5. Quasi-delicts. CTHDcS
76. Commissioner of Public Highway v. Burgos, G.R. No. L-36706, 31 March 1980, 96 SCRA 831,
837.
77. The requisites for Article 1250 apply to both extraordinary inflation and deflation. This case
involved extraordinary inflation because, as RTC Judge Hontanosas noted, the peso substantially
depreciated during the intervening period. TIHDAa
For Article 1250 to apply, not only must the obligation be contractual, the parties must more
importantly agree to recognize the effects of extraordinary inflation (or deflation, as the case may be).
Here, despite the fact that the obligation was contractual (i.e., a loan), neither the loan agreement nor
the promissory notes contained a provision stating that the parties agreed to recognize the effects of
extraordinary inflation or deflation. For this reason, Article 1250 was inapplicable.
78. Bank of the Philippine Islands v. Leobrera, G.R. Nos. 137147-48, 18 November 2003, 416
SCRA 15, 19 citing C.F. Sharp & Co. v. Northwest Airlines, Inc., G.R. No. 133498, 18 April 2002, 381
SCRA 314. See also Jammang v. Takahashi, G.R. No. 149429, 9 October 2006, 504 SCRA 31, 36.
Note that Equitable did not present proof that respondents agreed to pay their dollar-denominated loans
in US dollars. TCcDaE
79. Supercars Management & Development Corporation v. Flores, G.R. No. 148173, 10 December
2004, 446 SCRA 34, 44.
See CIVIL CODE, Art. 2217. The article provides:
Art. 2217. Moral damages include physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury.
Though incapable of pecuniary estimation, moral damages may be recovered if they are the proximate
result of the defendant's wrongful act or omission. (emphasis supplied) aDICET
80. Art. 2219. Moral damages may be recovered in the following and analogous cases:
1. A criminal offense resulting in physical injury;
2. Quasi-delict causing physical injuries;
3. Seduction, abduction, rape or other lascivious acts;
4. Adultery or concubinage;
5. Illegal or arbitrary detention or arrest;
6. Illegal search; cHDaEI
7. Libel, slander or any other form of defamation;
8. Malicious prosecution;
9. Acts mentioned in Art. 309;
10. Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.
The parents of the female seduced, abducted, raped or abused, referred to in No. 3 of this article,
may also recover moral damages. HDIaST
The spouse, descendants, ascendants, brothers and sisters may bring the action mentioned in
No. 9 of this article, in the order named.
81. Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the
court should find that, under the circumstances, such damages are justly due. The same rule applies to
breaches of contract where the defendant acted fraudulently or in bad faith. (emphasis supplied)
AcSHCD
82. Philippine National Bank v. Pike, G.R. No. 157845, 20 September 2005, 470 SCRA 328, 349-
350 citing Philippine Telegraph & Telephone Corporation v. Court of Appeals, G.R. No. 139268, 3
September 2002, 388 SCRA 270.
83. Id.
84. Id. citing Herbosa v. Court of Appeals, G.R. No. 119086, 25 January 2002, 374 SCRA 578. See
also Salvador v. Court of Appeals, G.R. No. 124899, 30 March 2004, 426 SCRA 433. TIaDHE
85. Supra note 11.
86. Id.
87. Gullas v. National Bank, 62 Phil. 519, 521 (1935) citing Fulton Iron Works Co. v. China
Banking Corporation, 55 Phil. 208 (1930) and San Carlos Milling Co. v. Bank of the Philippine Islands
and China Banking Corporation, 59 Phil. 59 (1933). DTaAHS
88. Id., pp. 521-522.
89. Mahinay v. Velasquez, Jr., G.R. No. 152753, 13 January 2004, 419 SCRA 118, 122.
90. Supercars Management & Development Corporation v. Flores, supra note 79 at 44. CTEDSI
91. While this case involved extraordinary inflation because of the substantial depreciation of the
peso during the intervening period, Article 1250 of the Civil Code was inapplicable. For Article 1250
to apply, not only must the obligation be contractual, the parties must, more importantly, agree to
recognize the effects of extraordinary inflation (or deflation, as the case may be). Here, despite the
contractual obligation (i.e., a loan), neither the loan agreement nor the promissory notes contained a
provision stating that the parties agreed to recognize the effects of extraordinary inflation or deflation.
(See note 77.)
92. G.R. No. 97412, 12 July 1994, 234 SCRA 74, 95. SHacCD
THIRD DIVISION
[G.R. No. 150806. January 28, 2008.]
EUFEMIA ALMEDA and ROMEL ALMEDA, petitioners, vs. BATHALA MARKETING
INDUSTRIES, INC., respondent.
DECISION
NACHURA, J p:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, of the Decision 1 of the
Court of Appeals (CA), dated September 3, 2001, in CA-G.R. CV No. 67784, and its Resolution 2
dated November 19, 2001. The assailed Decision affirmed with modification the Decision 3 of the
Regional Trial Court (RTC), Makati City, Branch 136, dated May 9, 2000 in Civil Case No. 98-411.
STIcEA
Sometime in May 1997, respondent Bathala Marketing Industries, Inc., as lessee, represented by its
president Ramon H. Garcia, renewed its Contract of Lease 4 with Ponciano L. Almeda (Ponciano), as
lessor, husband of petitioner Eufemia and father of petitioner Romel Almeda. Under the said contract,
Ponciano agreed to lease a portion of the Almeda Compound, located at 2208 Pasong Tamo Street,
Makati City, consisting of 7,348.25 square meters, for a monthly rental of P1,107,348.69, for a term of
four (4) years from May 1, 1997 unless sooner terminated as provided in the contract. 5 The contract of
lease contained the following pertinent provisions which gave rise to the instant case:
SIXTH — It is expressly understood by the parties hereto that the rental rate stipulated is based on the
present rate of assessment on the property, and that in case the assessment should hereafter be
increased or any new tax, charge or burden be imposed by authorities on the lot and building where the
leased premises are located, LESSEE shall pay, when the rental herein provided becomes due, the
additional rental or charge corresponding to the portion hereby leased; provided, however, that in the
event that the present assessment or tax on said property should be reduced, LESSEE shall be entitled
to reduction in the stipulated rental, likewise in proportion to the portion leased by him; HDTCSI
SEVENTH — In case an extraordinary inflation or devaluation of Philippine Currency should
supervene, the value of Philippine peso at the time of the establishment of the obligation shall be the
basis of payment; 6
During the effectivity of the contract, Ponciano died. Thereafter, respondent dealt with petitioners. In a
letter 7 dated December 29, 1997, petitioners advised respondent that the former shall assess and
collect Value Added Tax (VAT) on its monthly rentals. In response, respondent contended that VAT
may not be imposed as the rentals fixed in the contract of lease were supposed to include the VAT
therein, considering that their contract was executed on May 1, 1997 when the VAT law had long been
in effect. 8
On January 26, 1998, respondent received another letter from petitioners informing the former that its
monthly rental should be increased by 73% pursuant to condition No. 7 of the contract and Article 1250
of the Civil Code. Respondent opposed petitioners' demand and insisted that there was no extraordinary
inflation to warrant the application of Article 1250 in light of the pronouncement of this Court in
various cases. 9
Respondent refused to pay the VAT and adjusted rentals as demanded by petitioners but continued to
pay the stipulated amount set forth in their contract.
On February 18, 1998, respondent instituted an action for declaratory relief for purposes of determining
the correct interpretation of condition Nos. 6 and 7 of the lease contract to prevent damage and
prejudice. 10 The case was docketed as Civil Case No. 98-411 before the RTC of Makati. SHTcDE
On March 10, 1998, petitioners in turn filed an action for ejectment, rescission and damages against
respondent for failure of the latter to vacate the premises after the demand made by the former. 11
Before respondent could file an answer, petitioners filed a Notice of Dismissal. 12 They subsequently
refiled the complaint before the Metropolitan Trial Court of Makati; the case was raffled to Branch 139
and was docketed as Civil Case No. 53596.
Petitioners later moved for the dismissal of the declaratory relief case for being an improper remedy
considering that respondent was already in breach of the obligation and that the case would not end the
litigation and settle the rights of the parties. The trial court, however, was not persuaded, and
consequently, denied the motion.
After trial on the merits, on May 9, 2000, the RTC ruled in favor of respondent and against petitioners.
The pertinent portion of the decision reads:
WHEREFORE, premises considered, this Court renders judgment on the case as follows:
1) declaring that plaintiff is not liable for the payment of Value-Added Tax (VAT) of 10% of the
rent for [the] use of the leased premises;
2) declaring that plaintiff is not liable for the payment of any rental adjustment, there being no
[extraordinary] inflation or devaluation, as provided in the Seventh Condition of the lease contract, to
justify the same;
3) holding defendants liable to plaintiff for the total amount of P1,119,102.19, said amount
representing payments erroneously made by plaintiff as VAT charges and rental adjustment for the
months of January, February and March, 1999; and HTDAac
4) holding defendants liable to plaintiff for the amount of P1,107,348.69, said amount representing
the balance of plaintiff's rental deposit still with defendants.
SO ORDERED. 13
The trial court denied petitioners their right to pass on to respondent the burden of paying the VAT
since it was not a new tax that would call for the application of the sixth clause of the contract. The
court, likewise, denied their right to collect the demanded increase in rental, there being no
extraordinary inflation or devaluation as provided for in the seventh clause of the contract. Because of
the payment made by respondent of the rental adjustment demanded by petitioners, the court ordered
the restitution by the latter to the former of the amounts paid, notwithstanding the well-established rule
that in an action for declaratory relief, other than a declaration of rights and obligations, affirmative
reliefs are not sought by or awarded to the parties.
Petitioners elevated the aforesaid case to the Court of Appeals which affirmed with modification the
RTC decision. The fallo reads:
WHEREFORE, premises considered, the present appeal is DISMISSED and the appealed decision in
Civil Case No. 98-411 is hereby AFFIRMED with MODIFICATION in that the order for the return of
the balance of the rental deposits and of the amounts representing the 10% VAT and rental adjustment,
is hereby DELETED.
No pronouncement as to costs.
SO ORDERED. 14
The appellate court agreed with the conclusions of law and the application of the decisional rules on the
matter made by the RTC. However, it found that the trial court exceeded its jurisdiction in granting
affirmative relief to the respondent, particularly the restitution of its excess payment. aESTAI
Petitioners now come before this Court raising the following issues:
I.
WHETHER OR NOT ARTICLE 1250 OF THE NEW CIVIL CODE IS APPLICABLE TO THE
CASE AT BAR.
II.
WHETHER OR NOT THE DOCTRINE ENUNCIATED IN FILIPINO PIPE AND FOUNDRY
CORP. VS. NAWASA CASE, 161 SCRA 32 AND COMPANION CASES ARE (sic) APPLICABLE
IN THE CASE AT BAR.
III.
WHETHER OR NOT IN NOT APPLYING THE DOCTRINE IN THE CASE OF DEL ROSARIO
VS. THE SHELL COMPANY OF THE PHILIPPINES, 164 SCRA 562, THE HONORABLE COURT
OF APPEALS SERIOUSLY ERRED ON A QUESTION OF LAW.
IV.
WHETHER OR NOT THE FINDING OF THE HONORABLE COURT OF APPEALS THAT
RESPONDENT IS NOT LIABLE TO PAY THE 10% VALUE ADDED TAX IS IN ACCORDANCE
WITH THE MANDATE OF RA 7716.
V.
WHETHER OR NOT DECLARATORY RELIEF IS PROPER SINCE PLAINTIFF-APPELLEE WAS
IN BREACH WHEN THE PETITION FOR DECLARATORY RELIEF WAS FILED BEFORE THE
TRIAL COURT. TaDSHC
In fine, the issues for our resolution are as follows: 1) whether the action for declaratory relief is
proper; 2) whether respondent is liable to pay 10% VAT pursuant to Republic Act (RA) 7716; and 3)
whether the amount of rentals due the petitioners should be adjusted by reason of extraordinary
inflation or devaluation.
Declaratory relief is defined as an action by any person interested in a deed, will, contract or other
written instrument, executive order or resolution, to determine any question of construction or validity
arising from the instrument, executive order or regulation, or statute, and for a declaration of his rights
and duties thereunder. The only issue that may be raised in such a petition is the question of
construction or validity of provisions in an instrument or statute. Corollary is the general rule that such
an action must be justified, as no other adequate relief or remedy is available under the circumstances.
15
Decisional law enumerates the requisites of an action for declaratory relief, as follows: 1) the subject
matter of the controversy must be a deed, will, contract or other written instrument, statute, executive
order or regulation, or ordinance; 2) the terms of said documents and the validity thereof are doubtful
and require judicial construction; 3) there must have been no breach of the documents in question; 4)
there must be an actual justiciable controversy or the "ripening seeds" of one between persons whose
interests are adverse; 5) the issue must be ripe for judicial determination; and 6) adequate relief is not
available through other means or other forms of action or proceeding. 16
It is beyond cavil that the foregoing requisites are present in the instant case, except that petitioners
insist that respondent was already in breach of the contract when the petition was filed. cCSTHA
We do not agree.
After petitioners demanded payment of adjusted rentals and in the months that followed, respondent
complied with the terms and conditions set forth in their contract of lease by paying the rentals
stipulated therein. Respondent religiously fulfilled its obligations to petitioners even during the
pendency of the present suit. There is no showing that respondent committed an act constituting a
breach of the subject contract of lease. Thus, respondent is not barred from instituting before the trial
court the petition for declaratory relief.
Petitioners claim that the instant petition is not proper because a separate action for rescission,
ejectment and damages had been commenced before another court; thus, the construction of the subject
contractual provisions should be ventilated in the same forum.
We are not convinced.
It is true that in Panganiban v. Pilipinas Shell Petroleum Corporation 17 we held that the petition for
declaratory relief should be dismissed in view of the pendency of a separate action for unlawful
detainer. However, we cannot apply the same ruling to the instant case. In Panganiban, the unlawful
detainer case had already been resolved by the trial court before the dismissal of the declaratory relief
case; and it was petitioner in that case who insisted that the action for declaratory relief be preferred
over the action for unlawful detainer. Conversely, in the case at bench, the trial court had not yet
resolved the rescission/ejectment case during the pendency of the declaratory relief petition. In fact, the
trial court, where the rescission case was on appeal, itself initiated the suspension of the proceedings
pending the resolution of the action for declaratory relief. HIAEaC
We are not unmindful of the doctrine enunciated in Teodoro, Jr. v. Mirasol 18 where the declaratory
relief action was dismissed because the issue therein could be threshed out in the unlawful detainer suit.
Yet, again, in that case, there was already a breach of contract at the time of the filing of the declaratory
relief petition. This dissimilar factual milieu proscribes the Court from applying Teodoro to the instant
case.
Given all these attendant circumstances, the Court is disposed to entertain the instant declaratory relief
action instead of dismissing it, notwithstanding the pendency of the ejectment/rescission case before
the trial court. The resolution of the present petition would write finis to the parties' dispute, as it would
settle once and for all the question of the proper interpretation of the two contractual stipulations
subject of this controversy.
Now, on the substantive law issues.
Petitioners repeatedly made a demand on respondent for the payment of VAT and for rental adjustment
allegedly brought about by extraordinary inflation or devaluation. Both the trial court and the appellate
court found no merit in petitioners' claim. We see no reason to depart from such findings.
As to the liability of respondent for the payment of VAT, we cite with approval the ratiocination of the
appellate court, viz.: HTDAac
Clearly, the person primarily liable for the payment of VAT is the lessor who may choose to pass it on
to the lessee or absorb the same. Beginning January 1, 1996, the lease of real property in the ordinary
course of business, whether for commercial or residential use, when the gross annual receipts exceed
P500,000.00, is subject to 10% VAT. Notwithstanding the mandatory payment of the 10% VAT by the
lessor, the actual shifting of the said tax burden upon the lessee is clearly optional on the part of the
lessor, under the terms of the statute. The word "may" in the statute, generally speaking, denotes that it
is directory in nature. It is generally permissive only and operates to confer discretion. In this case,
despite the applicability of the rule under Sec. 99 of the NIRC, as amended by R.A. 7716, granting the
lessor the option to pass on to the lessee the 10% VAT, to existing contracts of lease as of January 1,
1996, the original lessor, Ponciano L. Almeda did not charge the lessee-appellee the 10% VAT nor
provided for its additional imposition when they renewed the contract of lease in May 1997. More
significantly, said lessor did not actually collect a 10% VAT on the monthly rental due from the lessee-
appellee after the execution of the May 1997 contract of lease. The inevitable implication is that the
lessor intended not to avail of the option granted him by law to shift the 10% VAT upon the lessee-
appellee. . . . . 19
In short, petitioners are estopped from shifting to respondent the burden of paying the VAT.
Petitioners' reliance on the sixth condition of the contract is, likewise, unavailing. This provision
clearly states that respondent can only be held liable for new taxes imposed after the effectivity of the
contract of lease, that is, after May 1997, and only if they pertain to the lot and the building where the
leased premises are located. Considering that RA 7716 took effect in 1994, the VAT cannot be
considered as a "new tax" in May 1997, as to fall within the coverage of the sixth stipulation.
EaHDcS
Neither can petitioners legitimately demand rental adjustment because of extraordinary inflation or
devaluation.
Petitioners contend that Article 1250 of the Civil Code does not apply to this case because the contract
stipulation speaks of extraordinary inflation or devaluation while the Code speaks of extraordinary
inflation or deflation. They insist that the doctrine pronounced in Del Rosario v. The Shell Company,
Phils. Limited 20 should apply.
Essential to contract construction is the ascertainment of the intention of the contracting parties, and
such determination must take into account the contemporaneous and subsequent acts of the parties.
This intention, once ascertained, is deemed an integral part of the contract. 21
While, indeed, condition No. 7 of the contract speaks of "extraordinary inflation or devaluation" as
compared to Article 1250's "extraordinary inflation or deflation," we find that when the parties used the
term "devaluation," they really did not intend to depart from Article 1250 of the Civil Code. Condition
No. 7 of the contract should, thus, be read in harmony with the Civil Code provision.
That this is the intention of the parties is evident from petitioners' letter 22 dated January 26, 1998,
where, in demanding rental adjustment ostensibly based on condition No. 7, petitioners made explicit
reference to Article 1250 of the Civil Code, even quoting the law verbatim. Thus, the application of Del
Rosario is not warranted. Rather, jurisprudential rules on the application of Article 1250 should be
considered. aADSIc
Article 1250 of the Civil Code states:
In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of
the currency at the time of the establishment of the obligation shall be the basis of payment, unless
there is an agreement to the contrary.
Inflation has been defined as the sharp increase of money or credit, or both, without a corresponding
increase in business transaction. There is inflation when there is an increase in the volume of money
and credit relative to available goods, resulting in a substantial and continuing rise in the general price
level. 23 In a number of cases, this Court had provided a discourse on what constitutes extraordinary
inflation, thus:
[E]xtraordinary inflation exists when there is a decrease or increase in the purchasing power of the
Philippine currency which is unusual or beyond the common fluctuation in the value of said currency,
and such increase or decrease could not have been reasonably foreseen or was manifestly beyond the
contemplation of the parties at the time of the establishment of the obligation. 24
The factual circumstances obtaining in the present case do not make out a case of extraordinary
inflation or devaluation as would justify the application of Article 1250 of the Civil Code. We would
like to stress that the erosion of the value of the Philippine peso in the past three or four decades,
starting in the mid-sixties, is characteristic of most currencies. And while the Court may take judicial
notice of the decline in the purchasing power of the Philippine currency in that span of time, such
downward trend of the peso cannot be considered as the extraordinary phenomenon contemplated by
Article 1250 of the Civil Code. Furthermore, absent an official pronouncement or declaration by
competent authorities of the existence of extraordinary inflation during a given period, the effects of
extraordinary inflation are not to be applied. 25 SCaITA
WHEREFORE, premises considered, the petition is DENIED. The Decision of the Court of Appeals in
CA-G.R. CV No. 67784, dated September 3, 2001, and its Resolution dated November 19, 2001, are
AFFIRMED.
SO ORDERED.
Ynares-Santiago, Austria-Martinez, Corona * and Reyes, JJ., concur.
Footnotes
1. Penned by Associate Justice Martin S. Villarama, Jr., with Associate Justices Conrado M.
Vasquez, Jr. and Eliezer R. de los Santos, concurring; rollo, pp. 129-138.
2. Rollo, p. 185.
3. Penned by Judge Jose R. Bautista; records, pp. 260-268.
4. Records, pp. 6-11.
5. Id. at 6-7. DaCTcA
6. Id. at 7.
7. Id. at 202.
8. Embodied in a letter dated January 12, 1998; id. at 203.
9. Records, p. 33.
10. Id. at 1-5. CTSHDI
11. Id. at 80-84.
12. Id. at 98-100.
13. Id. at 267-268.
14. Rollo, p. 138.
15. Atlas Consolidated Mining & Development Corporation v. Court of Appeals, G.R. No. 54305,
February 14, 1990, 182 SCRA 166, 177. CSTDEH
16. Jumamil v. Cafe, G.R. No. 144570, September 21, 2005, 470 SCRA 475, 486-487.
17. 443 Phil. 753 (2003).
18. 99 Phil. 150 (1956).
19. Rollo, p. 134.
20. No. L-28776, August 19, 1988, 164 SCRA 556. SICaDA
21. Lorenzo Shipping Corp. v. BJ Marthel International, Inc., G.R. No. 145483, November 19,
2004, 443 SCRA 163, 175.
22. Records, p. 29.
23. Citibank, N.A. v. Sabeniano, G.R. No. 156132, February 6, 2007, 514 SCRA 441, 468.
24. Citibank, N.A. v. Sabeniano, supra, at 468; Telengtan Brothers & Sons, Inc. v. United States
Lines, Inc., G.R. No. 132284, February 28, 2006, 483 SCRA 458, 469-470; Filipino Pipe and Foundry
Corp. v. NAWASA, No. L-43446, May 3, 1988, 161 SCRA 32, 35.
25. Telengtan Brothers & Sons, Inc. v. United States Lines, Inc. supra, at 470-471. TIEHDC
* In lieu of Associate Justice Minita V. Chico-Nazario per Special Order No. 484, dated January
11, 2008.
FIRST DIVISION
[G.R. No. L-38745. August 6, 1975.]
LUCIA TAN, plaintiff-appellee, vs. ARADOR VALDEHUEZA and REDICULO VALDEHUEZA,
defendants-appellants.
Alaric P. Acosta for plaintiff-appellee.
Lorenzo P. de Guzman for defendants-appellants.
SYNOPSIS
Plaintiff filed an action for declaration of ownership and recovery of possession of a parcel of land and
for consolidation of ownership of two portions of another land. The subject matter of the first cause of
action was acquired by plaintiff in a public auction. The Deed of Absolute Sale was executed in her
favor after defendant Arador Valdehueza had failed to redeem the same within the one-year period
prescribed by law. By reason thereof, plaintiff applied for an injunction (Civil Case 2002) to prevent
defendant from entering the premises which, injunction, however, was dismissed, for failure to
prosecute.
With respect to the second cause of action, defendants executed two Pacto de Retro Deeds of Sale (one
registered and one unregistered) in favor of plaintiff, but the defendant did not vacate the premises and
continued paying the taxes thereon.
The trial court declared the plaintiff as absolute owner on the land and ordered the dispossession of
defendant under the first cause of action; and under the second cause of action, considered the
registered Pacto De Retro Deed of Sale as a mortgage and the unregistered deed "as a simple loan,
secured by the property sold under pacto de retro thus, ordering defendant to pay with interest.
Defendant appealed on the ground that there was res judicata in the first cause of action, and that in the
second cause of action the transaction were simple loan.
The Supreme Court ruled that res judicata does not apply in the first cause of action since Civil Case
2002 was for injunction involving only possession while the instant case seeks "to remove any doubt or
cloud of plaintiff's ownership with prayer for declaration of ownership and recovery of possession;"
and that under the second cause of action, the contracts are presumed to be equitable mortgages under
Art 1602 of the New Civil Code, whether registered or not, there being no third parties involve.
However, imposition of interest was held to be without legal basis for not having been expressly
stipulated in writing.
Thus modified decision affirmed in all other respects.
SYLLABUS
1. ACTIONS; DISMISSAL; PRINCIPLE OF RES JUDICATA. CAUSES OF ACTION MUST
BE IDENTICAL. — Res Judicata does not apply where the first case of action for injunction against
entry into and gathering of fruits from the land while the second case seeks to remove any doubt or
cloud of the plaintiff ownership with prayer for declaration of ownership and recovery of possession,
since the causes of action are not identical.
2. ID.; ID.; ID.; ID.; TEST OF ABSENCE OF INCONSISTENCY CASE AT BAR. — One test
of identity of causes of action is whether the judgment. The failure of plaintiff to secure an injunction
against the defendants to prevent them from entering the land and gathering fruits is not inconsistent
with her being adjudged later as owner of the land with right to recover possession thereof. As the
injunction cases involved only possession and the fruits thereof, and the other case involves ownership,
the judgment in the first could not and did not encompass the judgment in the second case, although the
second judgment would encompass the first. Moreover, the New Civil Code provides that suitors in
action to quiet title "need not be in possession of said property."
3. MORTGAGE; UNREGISTERED MORTGAGE BINDING BETWEEN THE PARTIES. —
Under Article 1875 of the Civil Code of 1889 registration was a necessary requisite for the validity of a
mortgage even as between the parties, but under Article 2125 of the New Civil Code, this is no longer
so. "If the instrument is not recorded the mortgage is nevertheless binding between the parties.
4. ID.; WHEN PACTO DE RETRO IS PRESUMED TO BE EQUITABLE MORTGAGE. —
Where the supposed vendor a retro remained in possession of the land and paid the realty tax thereon,
the contract which purports to be a pacto de retro transaction is presumed to be equitable mortgage
under Art. 1602 of the New Civil Code, whether registered or not, where no third parties are involved.
5. ID.; ID.; INTEREST; WRITTEN STIPULATION REQUIRED. — Interest may not be imposed
in the absence of a written stipulation therefor, "No interest shall be due unless it has been expressly
stipulated in writing."
6. EVIDENCE; RECEPTION OF EVIDENCE; DISCRETION OF COURT; EFFECT OF
STIPULATION OF FACTS. — Where, as in the case at bar, nowhere in the original and amended
complainant is an allegation of delivery to plaintiff of the harvest, and, further, in submitting their
stipulation of facts, the parties prayed "for its approval and may be made the basis of the decision of the
Honorable Court . . . " the court cannot be faulted for not receiving evidence on who profited from the
harvest.
DECISION
CASTRO, J p:
This appeal was certified to this Court by the Court of Appeals as involving questions purely of law.
The decision a quo was rendered by the Court of First Instance of Misamis Occidental (Branch I) in an
action instituted by the plaintiff-appellee Lucia Tan against the defendants-appellants Arador
Valdehueza and Rediculo Valdehueza (docketed as civil case 2574) for (a) declaration of ownership
and recovery of possession of the parcel of land described in the first cause of action of the complaint,
and (b) consolidation of ownership of two portions of another parcel of (unregistered) land described in
the second cause of action of the complaint, purportedly sold to the plaintiff in two separate deeds of
pacto de retro.
After the issues were joined, the parties submitted the following stipulation of facts:
"1. That parties admit the legal capacity of plaintiff to sue; that defendants herein, Arador,
Rediculo, Pacita, Concepcion and Rosario, all surnamed Valdehueza, are brothers and sisters; that the
answer filed by Arador and Rediculo stand as the answer of Pacita, Concepcion and Rosario.
"2. That the parties admit the identity of the land in the first cause of action.
"3. That the parcel of land described in the first cause of action was the subject matter of the public
auction sale held on May 6, 1955 at the Capitol Building in Oroquieta, Misamis Occidental, wherein
the plaintiff was the highest bidder and as such a Certificate of Sale was executed by MR. VICENTE
D. ROA who was then the Ex-Officio Provincial Sheriff in favor of LUCIA TAN the herein plaintiff.
Due to the failure of defendant Arador Valdehueza to redeem the said land within the period of one
year as being provided by law, MR. VICENTE D. ROA who was then the Ex-Officio Provincial
Sheriff executed an ABSOLUTE DEED OF SALE in favor of the plaintiff LUCIA TAN.
"A copy of the NOTICE OF SHERIFF'S SALE is hereby marked as 'Annex A', the CERTIFICATE OF
SALE is marked as 'Annex B' and the ABSOLUTE DEED OF SALE is hereby marked as "Annex C"
and all of which are made as integral Parts of this stipulation of facts.
"4. That the party-plaintiff is the same plaintiff in Civil Case No. 2002; that the parties defendants
Arador, Rediculo and Pacita, all Valdehueza were the same parties-defendants in the same said Civil
Case No. 2002; the complaint in Civil Case No. 2002 to be marked as Exhibit 1; the answer as Exhibit
2 and the order dated May 22, 1963 as Exhibit 3, and said exhibits are made integral part of this
stipulation.
"5. That defendants ARADOR VALDEHUEZA and REDICULO VALDEHUEZA have executed
two documents of DEED OF PACTO DE RETRO SALE in favor of the plaintiff herein, LUCIA TAN
of two portions of a parcel of land which is described in the second cause of action with the total
amount of ONE THOUSAND FIVE HUNDRED PESOS (P1,500.00), Philippine Currency, copies of
said documents are marked as "Annex D" and "Annex E", respectively and made as integral parts of
this stipulation of facts.
"6. That from the execution of the Deed of Sale with right to repurchase mentioned in the second
cause of action, defendants Arador Valdehueza and Rediculo Valdehueza remained in the possession of
the land; that land taxes to the said land were paid by the same said defendants."
Civil case 2002 referred to in stipulation of fact no. 4 was a complaint for injunction filed by Tan on
July 24, 1957 against the Valdehuezas, to enjoin them "from entering the abovedescribed parcel of land
and gathering the nuts therein . . ." This complaint and the counterclaim were subsequently dismissed
for failure of the parties "to seek for the immediate trial thereof, thus evincing lack of interest on their
part to proceed with the case." 1
The Deed of Pacto de Retro referred to in stipulation of fact no. 5 as "Annex D" (dated August 5, 1955)
was not registered in the Registry of Deeds, while the Deed of Pacto de Retro referred to as "Annex E"
(dated March 15, 1955) was registered.
On the basis of the stipulation of facts and the annexes, the trial court rendered judgment as follows:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiff:
"1. Declaring Lucia Tan the absolute owner of the property described in the first cause of action of
the amended complaint; and ordering the herein defendants not to encroach and molest her in the
exercise of her proprietary rights; and, from which property they must be dispossessed;
"2. Ordering the defendants, Arador Valdehueza and Rediculo Valdehueza, jointly and severally to
pay to the plaintiff, Lucia Tan, on Annex 'E' the amount of P1,200, with legal interest of 6% as of
August 15, 1966, within 90 days to be deposited with the Office of the Clerk of Court within 90 days
from the date of service of this decision, and that in default of such payment, the property shall be sold
in accordance with the Rules of Court for the release of the mortgage debt, plus costs;
"3. And as regards the land covered by deed of pacto de retro annex 'D', the herein defendants
Arador Valdehueza and Rediculo Valdehueza are hereby ordered to pay the plaintiff the amount of
P300 with legal interest of 6% from August 15, 1966, the said land serving as guaranty of the said
amount of payment;
"4. Sentencing the defendants Arador Valdehueza and Rediculo Valdehueza to pay jointly and
severally to the herein plaintiff Lucia Tan the amount of 1,000.00 as attorney's fees; and
"5. To pay the costs of the proceedings."
The Valdehuezas appealed, assigning the following errors:
"That the lower court erred in failing to adjudge on the first cause of action that there exists res
judicata; and
"That the lower court erred in making a finding on the second cause of action that the transactions
between the parties were simple loan, instead, it should be declared as equitable mortgage."
We affirm in part and modify in part.
1. Relying on Section 3 of Rule 17 of the Rules of Court which pertinently provides that a
dismissal for failure to prosecute "shall have the effect of an adjudication upon the merits," the
Valdehuezas submit that the dismissal of civil case 2002 operated, upon the principle of res judicata, as
a bar to the first cause of action in civil case 2574. We rule that this contention is untenable as the
causes of action in the two cases are not identical. Case 2002 was for injunction against the entry into
and the gathering of nuts from the land, while case 2574 seeks to "remove any doubt or cloud of the
plaintiff's ownership . . ." (Amended complaint, Rec. on App., p. 27), with a prayer for declaration of
ownership and recovery of possession.
Applying the test of absence of inconsistency between prior and subsequent judgments, 2 we hold that
the failure of Tan, in case 2002, to secure an injunction against the Valdehuezas to prevent them from
entering the land and gathering nuts is not inconsistent with her being adjudged, in case 2574, as owner
of the land with right to recover possession thereof. Case 2002 involved only the possession of the land
and the fruits thereof, while case 2574 involves ownership of the land, with possession as a mere
attribute of ownership. The judgment in the first case could not and did not encompass the judgment in
the second, although the second judgment would encompass the first. Moreover, the new Civil Code
provides that suitors in actions to quiet title "need not be in possession of said property." 3
2. The trial court treated the registered deed of pacto de retro as an equitable mortgage but
considered the unregistered deed of pacto de retro "as a mere case of simple loan, secured by the
property thus sold under pacto de retro," on the ground that no suit lies to foreclose an unregistered
mortgage. It would appear that the trial judge had not updated himself on law and jurisprudence; he
cited, in support of his ruling, article 1875 of the old Civil Code and decisions of this Court circa 1910
and 1912.
Under article 1875 of the Civil Code of 1889, registration was a necessary requisite for the validity of a
mortgage even as between the parties, but under article 2125 of the new Civil Code (in effect since
August 30, 1950), this is no longer so. 4
"If the instrument is not recorded, the mortgage is nonetheless binding between the parties." (Article
2125, 2nd sentence)
The Valdehuezas having remained in possession of the land and the realty taxes having been paid by
them, the contracts which purported to be pacto de retro transactions are presumed to be equitable
mortgages, 5 whether registered or not, there being no third parties involved.
3. The Valdehuezas claim that their answer to the complaint of the plaintiff affirmed that they
remained in possession of the land and gave the proceeds of the harvest to the plaintiff; it is thus argued
that they would suffer double prejudice if they are to pay legal interest on the amounts stated in the
pacto de retro contracts, as the lower court has directed, and that therefore the court should have
ordered evidence to be adduced on the harvest.
The record does not support this claim, Nowhere in the original and the amended complaints is an
allegation of delivery to the plaintiff of the harvest from the land involved in the second cause of
action. Hence, the defendants' answer had none to affirm.
In submitting their stipulation of facts, the parties prayed "for its approval and may be made the basis
of the decision of this Honorable Court." (emphasis supplied) This, the court did. It cannot therefore he
faulted for not receiving evidence on who profited from the harvest.
4. The imposition of legal interest on the amounts subject of the equitable mortgages, P1,200 and
P300, respectively, is without legal basis, for, "No interest shall be due unless it has been expressly
stipulated in writing." (Article 1956, new Civil Code) Furthermore, the plaintiff did not pray for such
interest; her thesis was a consolidation of ownership, which was properly rejected, the contracts being
equitable mortgages.
With the definitive resolution of the rights of the parties as discussed above, we find it needless to pass
upon the plaintiff's petition for receivership. Should the circumstances so warrant, she may address the
said petition to the court a quo.
ACCORDINGLY, the judgment a quo is hereby modified, as follows: (a) the amounts of P1,200 and
P300 mentioned in Annexes E and D shall bear interest at six percent per annum from the finality of
this decision; and (b) the parcel of land covered by Annex D shall be treated in the same manner as that
covered by Annex E, should the defendants fail to pay to the plaintiff the sum of P300 within 90 days
from the finality of this decision. In all other respects the judgment is affirmed. No costs.
Makalintal, C.J., Makasiar, Esguerra and Muñoz Palma, JJ., concur.
Teehankee, J., is on leave;
Martin, J., did not take part.
Footnotes
1. Order, CFI of Misamis Occidental, May 22, 1963, Rec. on App., pp. 67-68.
2. "One test of identity of causes of action is whether the judgment sought will be inconsistent
with the prior judgment. If no inconsistency is shown, the prior judgment is not a bar." (Martin, Rules
of Court, 3rd. ed., Vol. 2, p. 431, citing 34 C.J. 805).
3. Article 477; see Balbecino vs. Ortega, L-14231, April 28, 1962, 4 SCRA 1178.
4. See Padilla, Civil Law, Civil Code Anno., 1969 ed., Vol. VI, p. 656; Samanilla vs. Cajucom, et
al., 107 Phil. 432.
5. Art. 1602, Civil Code; Santos vs. Duata, L-20901, Aug. 31, 1965, and cases cited therein, 14
SCRA 1041.
FIRST DIVISION
[G.R. No. 96494. May 28, 1992.]
CASA FILIPINA DEVELOPMENT CORPORATION, petitioner, vs. THE DEPUTY EXECUTIVE
SECRETARY, OFFICE OF THE PRESIDENT, MALACAÑANG, MANILA, AND JOSE
VALENZUELA, JR., respondents.
SYLLABUS
1. REMEDIAL LAW; ACTIONS; ESTOPPEL; PRINCIPLE APPLIED IN CASE AT BAR. —
Petitioner is already estopped from raising this issue because in its appeal memorandum submitted
before the HLURB, it pleaded that: "5. Appellant prays that it be given a period/time to redeem the title
or the demand for issuance of title be suspended from the ComSavings Bank before any deed of
absolute sale be executed so that the Transfer Certificate of Title be issued and/or refund be ordered."
2. ID.; EVIDENCE; FINDINGS OF FACT OF ADMINISTRATIVE BODIES ACCORDED
RESPECT ON APPEAL. — The OAALA found as a fact that "the complainant-appellee was ready,
willing and able to pay for the expenses for the transfer of title as stipulated in the Contract to
Sell . . . ." We accord respect and finality to this finding (Filipinas Manufacturers Bank v. NLRC, et al.,
G.R. No. 72805, February 28, 1990, 182 SCRA 848; Vda. de Pineda, et al. v. Peña, etc., et al., G.R. No.
57665, July 2, 1990, 187 SCRA 22).
3. CIVIL LAW; DAMAGES; RATE OF INTEREST FOR BREACH OF CONTRACT, HOW
DETERMINED. — The ruling in Reformina v. Tomol, it must be underscored, deals exclusively with
cases where damages in the form of interest is due but no specific rate has been previously set by the
parties. In such cases, the legal interest of 12% per annum must be applied. In Solid Homes Inc. v.
Court of Appeals (170 SCRA 63 [1989]), this Honorable Court ruled: On the matter of interest, we
agree with the trial court and the Court of Appeals that the proper rate of interest is twelve (12%) per
centum per annum, which is the rate of interest expressly agreed upon in writing by the parties, as
appearing in the invoices, and sanctioned by Art. 2209 of the Civil Code, . . . It is, thus, evident that if a
particular rate of interest has been expressly stipulated by the parties, that interest, not the legal rate of
interest, shall be applied.
4. ID.; PRESIDENTIAL DECREE NO. 957 (REGULATING THE SALE OF SUBDIVISION
LOTS AND CONDOMINIUMS); REDEMPTION OF MORTGAGE WITHIN SIX (6) MONTHS
FROM ISSUANCE; ISSUANCE OF TITLE, NOT A PREREQUISITE TO THE RUNNING OF
PERIOD. — Section 25 of P.D. No. 957 imposes an obligation on the part of the owner or developer,
in the event the mortgage over the lot or unit is outstanding at the time of the issuance of the title to the
buyer, to redeem the mortgage or the corresponding portion thereof within six months from such
issuance. We focus Our attention on the period of "six months" to be reckoned "from the issuance of
the title." Supposing there is no such issuance of the title, as in this case, from what event is the six
month period to be counted? Or, will this period not begin to run at all unless the title has been issued?
The argument of petitioner that the issuance of the title is a prerequisite to the running of the six month
period of redemption, fails to convince Us. Otherwise, the owner or developer can readily concoct a
thousand and one reasons as justifications for its failure to issue the title and in the process, prolong the
period within which to deliver the title to the buyer free from any liens or encumbrances. Additionally,
by not issuing/delivering the title of the lot to private respondent upon full payment thereof, petitioner
has already violated the explicit mandate of the first sentence of Section 25 of P.D. 957. If We were to
count the six month period of redemption from the belated issuance of the title, petitioner will have a
lot to gain from its own non-observance of said provision. We shall not countenance such absurdity.
DECISION
MEDIALDEA, J p:
This is a petition for review on certiorari (treated as a petition for certiorari) seeking reversal of the
decision of the Office of the President dated April 11, 1989, in O.P. Case No. 3722, entitled "Casa
Filipina Development Corporation, Respondent-Appellant, v. Jose Valenzuela, Jr., Complainant-
Appellee," which affirmed the decision of the Housing and Land Use Regulatory Board dated October
6, 1987; and its resolution dated September 26, 1989, which denied the motion for reconsideration for
lack of merit.
The antecedent facts are, as follows:
On June 30, 1986, private respondent Jose Valenzuela, Jr. filed a complaint against petitioner Casa
Filipina Development Corporation before the Office of Appeals, Adjudication and Legal Affairs
(OAALA) of the then Human Settlements Regulatory Commission (now Housing and Land Use
Regulatory Board) for its failure to execute and deliver the deed of sale and transfer certificate of title.
He alleged therein that on May 2, 1984, he entered into a contract to sell with petitioner for the
purchase of a 120 sq. m. lot denominated as Lot 8, Block 9, Phase II of Casa Filipina, Sucat II, Bo. San
Dionisio, Parañaque, Metro Manila, for a total purchase price of P68,400.00 with P16,416.00 as
downpayment and the balance of P51,984.00 to be paid in 12 equal monthly installments of P4,915.16
with 24% interest per annum starting September 3, 1984; that on October 7, 1985, he made his full and
final payment under O.R. No. 6266; that despite full payment of the lot, petitioner refused to execute
the necessary deed of absolute sale and deliver the corresponding transfer certificate of title to him; that
since October 1985, he had offered to pay for or reimburse petitioner the expenses for the transfer of
the title but the latter refused to accept the same; and that he was constrained to hire a lawyer for a fee
to protect his interests. cdrep
For petitioner's defense, it contended that private respondent's action is premature because of his failure
to comply with the other conditional requirements of their contract such as payment of transfer
expenses, and that had the latter paid said fees, it would have been very much willing to effect the
transfer of the title.
On January 21, 1987, the OAALA rendered judgment in favor of private respondent, relying on Section
25 of Presidential Decree No. 957 (Regulating the Sale of Subdivision Lots and Condominiums,
Providing Penalties for Violations thereof), which provides:
SEC. 25. Issuance of Title — The owner or developer shall deliver the title of the lot or unit to the
buyer upon full payment of the lot or unit. No fee except those required for the registration of the deed
of sale in the Registry of Deeds, shall be collected for the issuance of such title. In the event a mortgage
over the lot or unit is outstanding at the time of the issuance of the title to the buyer, the owner of or
developer shall redeem the mortgage or the corresponding portion thereof within six months from such
issuance in order that the title over any fully paid lot or unit may be secured and delivered to the buyer
in accordance herewith.
The dispositive portion of its decision reads (p. 19, Rollo):
"WHEREFORE, PREMISES CONSIDERED, judgment is rendered ordering respondent, within 15
days from finality of this decision, to execute the deed of absolute sale for Lot 8, Block 9, Phase II,
Casa Filipina, Sucat II, Bo. San Dionisio, Parañaque, Metro Manila in favor of the complainant and
thereafter to bill complainant the total amount due for the registration and transfer expenses of the title.
Respondent is further ordered, within 15 days from receipt of complainant's payment for registration
and transfer expenses, to deliver to the latter the transfer certificate of title of subject lot free from all
liens and encumbrances. In the event respondent is unable to deliver the title to the said lot, respondent
is hereby ordered to refund (to) complainant his total payments amounting to SEVENTY SIX
THOUSAND ONE HUNDRED EIGHTY PESOS and 82/100 (P76,180.82) plus 24% interest per
annum from June 30, 1986, the date of the filing of the complaint, until fully paid. Respondent is
likewise ordered to pay complainant TWO THOUSAND PESOS (P2,000.00) by way of attorney's fees,
for compelling the latter to litigate and incur expenses in the protection of his rights.
"It is SO ORDERED."
Petitioner then filed an appeal before the Housing and Land Use Regulatory Board. In petitioner's
memorandum, it narrated the events that transpired which led to its failure to deliver the title, namely:
its original mortgagee bank was Royal Savings Bank which was absorbed by Comsavings Bank
apparently due to bankrun; Comsavings Bank is not amenable to petitioner's earlier arrangement with
Royal Savings Bank on individual redemption of title, thus, it demanded that petitioner's obligations
should be paid prior to the release of any individual title; petitioner cannot seasonably meet such
demand due to the inability of the past administration to put up a viable and progressive economic
program that brought it into a fix situation wherein it has no participation either intentionally or by
negligence. llcd
On October 6, 1987, the HLURB dismissed petitioner's appeal for lack of merit and affirmed in toto the
questioned decision of the OAALA (p. 23, Rollo). It opined that (ibid):
". . . Suffice it to state that the payment in full by the complainant-appellee of the purchased (sic) price
of the lot should warrant the immediate deliver of the title to the lot purchased. Section 25 of P.D. 957
clearly provides that the redemption by the mortgagor or (sic) any mortgage (sic) property shall be
within a period of six (6) months from (the) date of issuance of the title in favor of the buyer.
Obviously from the moment full payment is made by the buyer to (sic) his purchased lot, the maximum
period contemplated by law for delivery of title is only six (6) months. Within this period it becomes
mandatory upon the owner or developer of a subdivision to deliver (the) title of the lot buyer. In the
case at bar, full payment was made on October 7, 1985 and despite the lapse of one (1) year more or
less from (the) date of full payment, delivery of (the) title is still uncertain.
"The defense of the respondent-appellant that its failure to deliver the title allegedly due to the inability
of the past administration to put up a viable and progressive economic program which led to the closure
of the Royal Savings Bank as its original mortgagee bank is not well-taken since there is no proof
submitted to this Board to substantiate appellant's claim. On the contrary it was only the OAALA
decision that made the respondent-appellant change its line of justification which happened to be just
an allegation which need not be passed upon by this Board."
Petitioner appealed further to the Office of the President. Again, on April 11, 1989, its appeal was
dismissed for lack of merit and the questioned decision of the HLURB was affirmed (p. 32, Rollo). On
September 26, 1989, the motion for reconsideration was denied for lack of merit (p. 36, Rollo). Hence,
the present, petition, wherein petitioner raises the following issues (pp. 9-10, Rollo):
"1. THE RESPONDENT DEPUTY EXECUTIVE SECRETARY, WITH DUE RESPECT ERRED
IN NOT APPLYING SETTLED JURISPRUDENCE AND THE PROVISION OF LAW
APPLICABLE IN THIS CASE."
2. THE RESPONDENT DEPUTY EXECUTIVE SECRETARY, WITH DUE RESPECT, ERRED
IN ARRIVING AT A CONCLUSION CONTRADICTORY OF (sic) THE FACTS AND EVIDENCE,
AMOUNTING TO GRAVE ABUSE OF DISCRETION."
Mainly, petitioner asseverates that in granting both remedies of specific performance and rescission,
public respondent ignored a well-pronounced rule that these remedies cannot be availed at the same
time. There is no evidence showing that private respondent had offered to pay the expenses for the
transfer of the title. Furthermore, the amount of 24% interest imposed by the OAALA in case of refund
is high and without basis: firstly, HLURB Resolution No. R-421, series of 1988, strictly enjoins the
maximum interest to be awarded in case of refund to 12%; secondly, although condition no. 1 of their
contract to sell provides for said rate of interest, it merely applies to interest on installment payments
but not with respect to refunds; thirdly, since the contract between them is not a forbearance of money
or loan, the doctrine laid down in the case of Reformina v. Tomol, Jr., G.R. No. 59096, 139 SCRA 260
applies, that is, except where the action involves forbearance of money or loan, interest which courts
may award is only up to 12% (should be 6%). Finally, inasmuch as issuance of the title has not yet been
effected because of the take over by Comsavings Bank of the Royal Savings Bank, the period specified
under Section 25 of P.D. No. 957 has not begun to run for the purpose of redemption. LexLib
The arguments advanced by petitioner utterly lack merit.
It is plain enough in the OAALA decision that rescission is being ordered only in the event specific
performance is not feasible. Moreover, petitioner is already estopped from raising this issue because in
its appeal memorandum submitted before the HLURB, it pleaded that (p. 28, Rollo):
"5. Appellant prays that it be given a period/time to redeem the title or the demand for issuance of
title be suspended from the ComSavings Bank before any deed of absolute sale be executed so that the
Transfer Certificate of Title be issued and/or refund be ordered."
The OAALA found as a fact that "the complainant-appellee for the transfer of title as stipulated in the
Contract to Sell . . ." (p. 22, Rollo). We accord respect and finality to this finding (Filipinas
Manufacturers Bank v. NLRC, et al., G.R. No. 72805, February 28, 1990, 182 SCRA 848; Vda. de
Pineda, et al. v. Peña, etc., et al., G.R. No. 57665, July 2, 1990, 187 SCRA 22).
We adopt the disposition of the Office of the Solicitor General on the correct rate of interest as Our
own (pp. 124-125, Rollo):
"The ruling in Reformina v. Tomol, it must be underscored, deals exclusively with cases where
damages in the form of interest is due but no specific rate has been previously set by the parties. In
such cases, the legal interest of 12% per annum must be applied. In the present case, however, the
interest rate of 24% per annum was mutually agreed upon by petitioner and private respondent in their
contract to sell — this was the interest rate imposed on private respondent for the payment of the
installments on the contract price and there is no reason why this same interest rate should not be
equally applied to petitioner which is guilty of violating the reciprocal obligation.
"In Solid Homes Inc. v. Court of Appeals (170 SCRA 63 [1989]), a subdivision owner, in violation of
their Offsetting Agreement, incurred delay in the delivery of a house and lot to the supplier of the
construction materials. On review, the issue of which rate of interest — the 6% per annum which was
then the legal interest or the stipulated interest rate of 12% — was raised. This Honorable Court ruled:
'On the matter of interest, we agree with the trial court and the Court of Appeals that the proper rate of
interest is twelve (12%) per centum per annum, which is the rate of interest expressly agreed upon in
writing by the parties, as appearing in the invoices (Exhibits 'C' and 'D'), and sanctioned by Art. 2209
of the Civil Code, . . .'. (Emphasis supplied)
"It is, thus, evident that if a particular rate of interest has been expressly stipulated by the parties, that
interest, not the legal rate of interest, shall be applied.
Section 25 of P.D. No. 957 imposes an obligation on the part of the owner or developer, in the event
the mortgage over the lot or unit is outstanding at the time of the issuance of the title to the buyer, to
redeem the mortgage or the corresponding portion thereof within six months from such issuance. We
focus Our attention on the period of "six months" to be reckoned "from the issuance of the title."
Supposing there is no such issuance of the title, as in this case, from what event is the six month period
to be counted? Or, will this period not begin to run at all unless the title has been issued? The argument
of petitioner that the issuance of the title is a prerequisite to the running of the six month period of
redemption, fails to convince Us. Otherwise, the owner or developer can readily concoct a thousand
and one reasons as justifications for its failure to issue the title and in the process, prolong the period
within which to deliver the title to the buyer free from any liens or encumbrances. Additionally, by not
issuing/delivering the title of the lot to private respondent upon full payment thereof, petitioner has
already violated the explicit mandate of the first sentence of Section 25 of P.D. No. 957. If We were to
count the six month period of redemption from the belated issuance of the title, petitioner will have a
lot to gain from its own non-observance of said provision. We shall not countenance such absurdity. Of
equal importance as the preceding ratiocination are the reasons behind the enactment of P.D. No. 957,
as expressed succinctly in its "whereas" clauses, to wit:
"WHEREAS, reports of alarming magnitude also show cases of swindling and fraudulent
manipulations perpetrated by unscrupulous subdivision and condominium sellers and operators, such as
failure to deliver titles to the buyers or titles free from liens and encumbrances, and to pay real estate
taxes, and fraudulent sales of the same subdivision lots to different innocent purchasers for value; Cdpr
"WHEREAS, these acts not only undermine the land and housing program of the but also defeat the
objectives of the New Society, particularly the promotion of peace and order and the enhancement of
the economic, social and moral condition of the Filipino people;
"WHEREAS, this state of affairs has rendered it imperative that the real estate subdivision and
condominium businesses be closely supervised and regulated, and that penalties be imposed on
fraudulent practices and manipulations committed in connection therewith."
ACCORDINGLY, the petition is hereby DISMISSED. The decision of the Office of the President
dated April 11, 1989 and its resolution dated September 26, 1989 are AFFIRMED.
SO ORDERED.
Cruz, Griño-Aquino and Bellosillo, JJ., concur.
THIRD DIVISION
[G.R. No. 96372. May 22, 1995.]
ANTONIO L. CASTELO, BERNABE B. BANSON, LOURDES A. BANSON, and POMPEYO
DEPANTE, petitioners, vs. THE COURT OF APPEALS, 12th Division, and MILAGROS DELA
ROSA, respondents.
SYLLABUS
1. REMEDIAL LAW; CIVIL PROCEDURE; JUDGMENT; RULE IN CASE THE
DISPOSITIVE PORTION THEREOF CONTAINS A CLERICAL ERROR OR AN AMBIGUITY
ARISING FROM AN INADVERTENT OMISSION. — The established doctrine is that when the
dispositive portion of a judgment, which has become final and executory contains a clerical error or an
ambiguity arising from an inadvertent omission such error or ambiguity may be clarified by reference
to the body of the decision itself. In Reinsurance Company of the Orient, Inc. v. Court of Appeals, (198
SCRA 19 [1991]) the Court surveyed the applicable case law in the following manner: "It is true that
even a judgment which has become final and executory may be clarified under certain circumstances.
The dispositive portion of the judgment may, for instance, contain an error clearly clerical in nature
(perhaps best illustrated by an error in arithmetical computation) or an ambiguity arising from
inadvertent omission, which error may be rectified or ambiguity clarified and the omission supplied by
reference primarily to the body of the decision itself . Supplementary reference to the pleadings
previously filed in the case may also be resorted to by way of corroboration of the existence of the error
or of the ambiguity in the dispositive part of the judgment. In Locsin, et al. v. Paredes, et al. (63 Phil.
87 [1936]), this Court allowed a judgment which had become final and executory to be clarified by
supplying a word which had been inadvertently omitted and which, when supplied, in effect changed
the literal import of the original phraseology: '. . . it clearly appears from the allegations of the
complaint, the promissory note reproduced therein and made a part thereof, the prayer and the
conclusions of fact and of law contained in the decision of the respondent judge, that the obligation
contracted by the petitioners is joint and several and that the parties as well as the trial judge so
understood it. Under the juridical rule that the judgment should be in accordance with the allegations,
the evidence and the conclusions of fact and law, the dispositive part of the judgment under
consideration should have ordered that the debt be paid severally, and in omitting the word or adverb
"severally" inadvertently, said judgment became ambiguous. This ambiguity may be clarified at any
time after the decision is rendered and even after it had become final (34 Corpus Juris, 235, 326). The
respondent judge did not, therefore, exceed his jurisdiction in clarifying the dispositive part of the
judgment by supplying the omission. (63 Phil. at 91-91)' In Filipino Legion Corporation v. Court of
Appeals, et al. (56 SCRA 674 [1974]), the applicable principle was set out in the following terms:
'[W]here there is ambiguity caused by an omission or mistake in the dispositive portion of a decision,
the court may clarify such ambiguity by an amendment even after the judgment had become final, and
for this purpose it may resort to the pleadings filed by the parties, the court's findings of facts and
conclusions of law as expressed in the body of the decision.' (56 SCRA at 691; also Presbitero v. Court
of Appeals, 129 SCRA 443 [1984]) In Republic Surety and Insurance Company, Inc. v. Intermediate
Appellate Court (152 SCRA 309 [1987]), the Court applying the above doctrine said: '. . . We clarify,
in other words, what we did affirm. What is involved here is not what is ordinarily regarded as a
clerical error in the dispositive part of the decision of the Court of First Instance, which type of error is
perhaps best typified by an error in arithmetical computation. At the same time, what is involved here
is not a correction of an erroneous judgment or dispositive portion of a judgment. What we believe is
involved here is in the nature of an inadvertent omission on the part of the Court of First Instance
(which should have been noticed by private respondent's counsel who had prepared the complaint), of
what might be described as a logical follow-through of something set forth both in the body of the
decision and in the dispositive portion thereof : the inevitable follow-through, or translation into,
operational or behavioral terms, of the annulment of the Deed of Sale with Assumption of Mortgage,
from which petitioners' title or claim of title embodied in TCT 133153 flow." (152 SCRA at 315)
2. ID.; ID.; ID.; ID.; CASE AT BAR. — The question we must resolve is whether or not there is
an ambiguity or clerical error and inadvertent omission in the dispositive portion of the decision of
Castro-Bartolome, J., dated 21 November 1986, which may legitimately be clarified by referring to the
body of the decision and perhaps even the pleadings filed before her. It will be recalled that the second
paragraph of the dispositive portion of that decision of Castro-Bartolome, J. ordered private respondent
dela Rosa "to comply with her obligation under the conditional sale to pay the balance of the
conditional sale in the amount of P163,408.00, to pay interest and in default thereof the rescission
thereof is the alternative." The dispositive portion itself failed to specify expressly whether Castro-
Bartolome, J. was referring to the payment of interest in accordance with the terms and conditions of
the "Deed of Conditional Sale" or whether, as Luna, J. was to hold almost four (4) years later that the
requirement of "to pay interest" related, not to the interest provisions of the Conditional Sale Deed
between petitioners and private respondent, but rather to legal interest on the amount of the unpaid
balance of the purchase price of the land which would begin to accrue from the date of the entry of the
Castro-Bartolome judgment on 12 February 1987. Luna, J. said: "It is settled that the only portion
subject of execution is the dispositive portion of a judgment. The judgment of the Honorable Court of
Appeals does not refer to the interest referred to in the Conditional Deed of Sale. Said judgment or
dispositive portion cannot be stretched or enlarged to refer to the interest indicated in the Conditional
Deed of Sale. If that were the intention of the Honorable Court of Appeals, as contended by plaintiffs,
it would have said so in black and white. This Court is not authorized to re-write, alter, amend or
change the above-mentioned dispositive portion of the judgment of the Honorable Court of Appeals.
By a fair interpretation, the interest therein referred to is the legal rate of interest imposed by the
Honorable Court of Appeals which must commence from the entry of judgment on February 12, 1987.
At this stage, it appearing that the Decision of the Honorable Court of Appeals had long become final
and executory. This Court has no more jurisdiction to entertain reception of evidence in the matter of
the execution of the dispositive portion of the judgment of the Honorable Court of Appeals." It thus
appears that the Castro-Bartolome decision was ambiguous in the sense that it was too cryptic.
Examination of the body of that decision, however, sheds no light on the reference intended by Castro-
Bartolome, J. in directing private respondent "to pay interest." Luna, J. himself had resort to "fair
interpretation." We believe that, in these circumstances, we must assume that Mme. Justice Castro-
Bartolome meant to decide in accordance with law; that we cannot fairly assume that she was
unfamiliar with the applicable law or that she had intended to grant petitioners less than that they were
entitled to under the law. Thus, the important question is: under the circumstances which were before
Castro-Bartolome, J., what should private respondent dela Rosa have been held liable for in accordance
with law? We believe and so hold that the phrase “to pay interest,” found in the dispositive portion of
the Castro-Bartolome decision must, under applicable law, refer to the interest stipulated by the parties
in the Deed of Conditional Sale which they had entered into on 15 October 1982. We note, in the first
place, that the phrase “to pay interest” comes close upon the heels of the proceeding phrase "to comply
with her obligation under the conditional sale to pay the balance — of P163,408.00." A strong
inference thus arises that the "interest" required to be paid is the interest stipulated as part of the
“obligation [of private respondent dela Rosa] under the conditional sale [agreement] to pay the balance
of [the purchase price of the land]." cdrep
3. CIVIL LAW; DAMAGES; RULE IN MEASURING THE AMOUNT THEREOF IN CASE OF
DELAY IN DISCHARGING AN OBLIGATION CONSISTING OF THE PAYMENT OF A SUM OF
MONEY. — There is no question that private respondent dela Rosa had failed to pay the balance of
P163,408.00 on or before 31 December 1982. The applicable law is to be found in Article 2209 of the
Civil Code. Under Article 2209, the appropriate measure for damages in case of delay in discharging an
obligation consisting of the payment of a sum of money is the payment of penalty interest at the rate
agreed upon in the contract of the parties. In the absence of a stipulation of a particular rate of penalty
interest, payment of additional interest at a rate equal to the regular or monetary interest, becomes due
and payable. Finally, if no regular interest had been agreed upon by the contracting parties, then the
damages payable will consist of payment of legal interest which is six percent (6%) or, in the case of
loans or forbearances of money, twelve percent (12%) per annum. Applying Article 2209 to the instant
case, we must refer to the "Deed of Conditional Sale" which, as already noted, had specifically
provided for "interest at the rate of 12% per annum" and a "1% penalty charge a month [to] be imposed
on their remaining diminishing balance." There was, it thus appears, no need for the subsequent Luna,
J. decision to refer at all to the payment of legal interest from the time of entry of the Castro-Bartolome
decision.
4. ID.; ID.; ID.; NOT CONFINED TO A LOAN OR FORBEARANCE OF MONEY. — The
contention of private respondent that Article 2209 of Civil Code is not applicable in this case because
the interest referred to therein is given as compensation for the use of money, not for the incurring of
delay as in the instant case, need not detain us for long. Article 2209 governs transactions involving
the payment of indemnity in the concept of damages arising from delay in the discharge of obligations
consisting of the payment of a sum of money. The "obligation consisting in the payment of a sum of
money" referred to in Article 2209 is not confined to a loan or forbearance of money. The Court has,
for instance, consistently applied Article 2209 in the determination of the interest properly payable
where there was default in the payment of the price or consideration under a contract of sale as in the
case at bar. Article 2209 has also been applied by this Court in cases involving an action for damages
for injury to persons and loss or property; to actions for damages arising from unpaid insurance claims;
and an action involving the appropriate rate of interest on just compensation that is payable for
expropriated lands.
5. ID.; CONTRACTS; INTERPRETATION THEREOF IN CASE OF AMBIGUITY; RULE;
CASE AT BAR. — Under the terms of the stipulation in the Deed of Conditional Sale, private
respondent was bound, and entitled, to pay the balance of P163,408.00 on or before 31 December 1982
without incurring any liability for any interest and penalty charges. During the grace period of six (6)
months, that is, from 1 January 1983 to 30 June 1983, private respondent vendee was given the right to
pay the said balance or any portion that had remained unpaid provided that "interest at the rate of 12%
per annum shall be charged and 1% penalty charge shall be imposed on the remaining diminishing
balance." We observe that residual ambiguity infects this particular portion of the stipulation on
payment of interest. The question is whether, during the period of 1 January 1983 up to 30 June 1983,
12% interest per annum plus 1% penalty charge a month was payable "on the remaining diminishing
balance;" or whether during the period from 1 January 1983 to 30 June 1983, only 12% per annum
interest was payable while the 1% per month penalty charge would in addition begin to accrue on any
balance remaining unpaid as of 1 July 1983. We believe that the contracting parties intended the latter
view of their stipulation on interest; for if the parties had intended that during the grace period from 1
January 1983 to 30 June 1983, interest consisting of 12% per annum plus another 12% per annum
(equivalent to 1% per month), or a total of 24% per annum, was payable, then they could have simply
said so. Instead, the parties distinguished between interest at the rate of 12% per annum and the 1% a
month penalty charge. The interpretation we adopt is also supported by the principle that in case of
ambiguity in contract language, that interpretation which establishes a less onerous transmission of
rights or imposition of lesser burdens which permits greater reciprocity between the parties, is to be
adopted. Summarizing the import of the contractual stipulation of the parties: (1) During the period
from 1 January 1983 up to 30 June 1983, private respondent vendee dela Rosa was bound to pay
interest at the rate of 12% per annum on the unpaid balance of P163,408.00; (2) Commencing on 1
July 1983, and until full payment, dela Rosa was bound to pay interest at the rate of 12% per annum
plus another 12% per annum (or 1% penalty charge a month), or a total of 24% per annum, to be
computed on the "remaining diminishing [unpaid] balance."
6. ID.; OBLIGATIONS; EXTINGUISHMENT OF OBLIGATIONS; PAYMENT; RULE IN
CASE AMOUNT DUE IS DEPOSITED WITH THE COURT FOR THE SATISFACTION OF
JUDGMENT. — Private respondent finally contends that she had already complied with her obligation
considering that after she had been served with a writ of execution dated 2 September 1988, she
deposited with the trial court on 7 September 1988 the amount stated therein, that is, the amount of
P197,723.68. Obviously, this contention raises a question of fact; just as obvious, however, is the rule
that questions of fact cannot be raised in a petition for review on certiorari before this Court. At all
events, private respondent's factual contention is properly addressed not to this Court, but rather to the
trial court during execution proceedings. In the interest of complete resolution of this drawn out
litigation and of achieving substantial justice, we would add that if the trial court finds that, in point of
fact, the amount of P197,723.68 had indeed been deposited with the trial court on 7 September 1988,
then the total amount due from private respondent should be correspondingly reduced by the
application of the amount of the deposit in accordance with the rules on application of payments.
Conversely, the interest yield or civil fruits of the deposit, commencing from date of application of the
deposit as partial payment, would pertain to petitioners who have not thus far enjoyed the use of the
monies deposited. cdll
DECISION
FELICIANO, J p:
On 15 October 1982, petitioners Antonio Castelo, Bernabe Banson, Lourdes Banson and Pompeyo
Depante entered into a contract denominated as a "Deed of Conditional Sale" with private respondent
Milagros Dela Rosa involving a parcel of land located in 1524 España Street, Sampaloc, Manila, 84.19
square meters in area. The agreed price of the land was Two Hundred Sixty Nine Thousand, Four
Hundred and Eight Pesos (P269,408.00). Upon signing the contract, private respondent paid petitioners
One Hundred Six Thousand Pesos (106,000.00) leaving a balance of One Hundred Sixty Thousand
Four Hundred Sixty Thousand Four Hundred and Eight Pesos (P163,408.00). LLpr
The Deed of Conditional Sale also stipulated that:
"xxx xxx xxx
b.) The balance of P163,408.00 to be paid on or before December 31, 1982 without interest and
penalty charges;
c.) Should the said balance [remain unpaid] by the VENDEE, the VENDORS hereby agree to give
the VENDEE a grace period of SIX (6) months or up to June 30, 1983 to pay said balance provided
that interest at the rate of 12% per annum shall be charged and 1% penalty charge a month shall be
imposed on the remaining diminishing balance. 1 (Emphasis Supplied)
Private respondent Dela Rosa was unable to pay the remaining balance on or before 30 June 1983.
On 29 July 1983, petitioners filed an action for specific performance with damages in the Regional
Trial Court (RTC) of Manila against Dela Rosa.
The RTC, in a decision dated 17 August 1984 rendered by Judge Antonio Q. Malaya, ordered the
rescission of the Deed of Conditional Sale.
Petitioners then went on Certiorari to the Court of Appeals questioning the trial court's decision
rescinding the Deed of Conditional Sale. They claimed that rescission of the contract was only an
alternative relief available under the Civil Code, while they in their complaint before the RTC, had
asked for specific performance with damages.
In a decision written by Castro-Bartolome, J., dated 21 November 1986, the Court of Appeals, in CA
G.R. No. 07938-SP, annulled and set aside the RTC's decision of 17 August 1984. In its dispositive
portion, the Court of Appeals decision stated:
"WHEREFORE, the writ of certiorari is hereby granted annulling the decision of Judge Malaya dated
August 17, 1984 and a new one entered:
1) allowing the amendment of the complaint to conform to the evidence already presented and
defaulted defendant to answer the amendment within the reglementary period; and
2) ordering the defendant to comply with her obligation under the conditional sale to pay the
balance of the conditional sale in the amount of P163,408.00, to pay interest and in default thereof the
rescission thereof is the alternative. 2 (Emphasis supplied)
Petitioners filed a motion for execution of the 17 August 1984 judgment of the trial court as modified
by the 21 November 1986 judgment of the Court of Appeals. Private respondent opposed this motion.
A writ of execution of the 21 November 1986 judgment of the Court of Appeals was issued by the trial
court on 2 September 1988. Accordingly, a Sheriff's Notice to Pay Judgment was served on private
respondent Dela Rosa requiring her to pay petitioners a total of One Hundred Ninety Seven Thousand
Seven Hundred Twenty Three Pesos and Sixty Eight Centavos (P197,723.68), computed as follows:
LLpr
"Principal P163,408.00
plus interest of
12% (per contract)
from 21 Nov. 1986 to
2 Sept. 1988 34,315.68
—————
Total amount of judgment
(excluding sheriff's fees
and expenses) P197, 723.68" 3
Petitioners filed a motion for reconsideration and a separate motion for alias writ of execution
contending that the sum of P197,723.68, based on the Sheriff's own computation, was erroneous. They
argued that the obligation of private respondent was to pay (a) interest at the rate of twelve percent
(12%) per annum plus (b) one percent (1%) penalty charge per month, from default, i.e, from 1 January
1983:
"e) That the amount to be paid by the Defendant should be P398,814.88 instead and not
P197,723.68 or a difference of P201,091.20; detailed computation of which are as follows:
Unpaid balance P163,408.00
with interest of 12%
P.A. and 1% penalty
charge a month
January to December 1983 39,217.92
January to December 1984 39,217.92
January to December 1985 39,217.92
January to December 1986 39,217.92
January to December 1987 39,217.92
January to August 1988 26,145.28
1% interest per month (P268.16)
the interest for one (1)
year @ 24% P39,217.92
x 5 years
————
P196,089.60
Interest from January to
August 1988 26,145.28
Interest from January
1983 to August 1988 222,234.88
Principal 163,408.00
——————
385,642.88
Plus Real Estate Tax Paid 13,172.00
 ——————
Amount due to Plaintiffs P398,814.88 " 4
They also claimed that the amount arrived at by the Sheriff was inconsistent not only with the Court of
Appeals' decision of 21 November 1986, but also the stipulation in the "Deed of Conditional Sale."
In an Order of 18 April 1990, the trial court denied the motion for alias writ of execution and the
motion for reconsideration. In denying petitioner's motions, the trial court stated that it did not have
authority to enlarge the scope of the dispositive portion of the Court of Appeals' decision which was the
subject of execution. Moreover, the trial court continued, the phrase "to pay interest" found in the
dispositive portion of the Court of Appeals' 21 November 1986 decision did not refer to the stipulation
in the "Deed of Conditional Sale" but rather to the legal rate of interest imposed by the Court of
Appeals which started to run from 12 February 1987, the date of entry of judgment. Had it intended
otherwise, the Court of Appeals would have declared so. llcd
Petitioners moved for reconsideration of the 18 April 1990 Order, without success.
Petitioners then went on Certiorari for the second time to the Court of Appeals claiming that the trial
court had acted with grave abuse of discretion in issuing its Orders dated 18 April 1990 and 18 June
1990. The petition, docketed as C.A.-G.R. SP No. 22464, was, however, dismissed for lack of merit.
The Court of Appeals, speaking this time through Luna, J., pronounced that:
"Indeed, what must be the subject of execution is the "new one" or new decision (referring to the Court
of Appeals' decision in CA-G.R. No. 07938 SP dated 21 November 1986), wherein this Court decreed
in paragraph "2" of the dispositive portion, ordering the "defendant . . . to pay the balance of the
conditional sale in the amount of P163,408.00, to pay interest . . . ." Being a "new" judgment or
decision, the computation of the "interest" on the balance of the conditional sale should commence
from the date of its ENTRY on February 12, 1987, when the decision became FINAL and
EXECUTORY. It is the DECISION of this Court WHICH DECREED PAYMENT and ACCRUAL
OF INTEREST. 5
Hence this Petition for Review contending that, in the Luna, J. decision, the Court of Appeals had erred
in ignoring the stipulation for payment of interest in case of default found in the "Deed of Conditional
Sale."
The instant Petition does not seek a review of the decision of the Court of Appeals dated 21 November
1986, issued in CA G.R. No. 07938-SP, which long ago became final and executory. The Petition
before us now presents the issue of what is the correct interpretation of the phrase "to pay interest" set
out in the dispositive portion of the 21 November 1986 decision of Castro-Bartolome, J.
The established doctrine is that when the dispositive portion of a judgment, which has become final and
executory, contains a clerical error or an ambiguity arising from an inadvertent omission, such error or
ambiguity may be clarified by reference to the body of the decision itself. In Reinsurance Company of
the Orient, Inc. v. Court of Appeals, 6 the Court surveyed the applicable case law in the following
manner: LLphil
"It is true that even a judgment which has become final and executory may be clarified under certain
circumstances. The dispositive portion of the judgment may, for instance, contain an error clearly
clerical in nature (perhaps best illustrated by an error in arithmetical computation) or an ambiguity
arising from inadvertent omission, which error may be rectified or ambiguity clarified and the omission
supplied by reference primarily to the body of the decision itself. Supplementary reference to the
pleadings previously filed in the case may also be resorted to by way of corroboration of the existence
of the error or of the ambiguity in the dispositive part of the judgment. In Locsin, et al. v. Paredes, et al.
(63 Phil. 87 [1936]), this Court allowed a judgment which had become final and executory to be
clarified by supplying a word which had been inadvertently omitted and which, when supplied, in
effect changed the literal import of the original phraseology:
'. . . it clearly appears from the allegations of the complaint, the promissory note reproduced therein and
made a part thereof, the prayer and the conclusions of fact and of law contained in the decision of the
respondent judge, that the obligation contracted by the petitioners is joint and several and that the
parties as well as the trial judge so understood it. Under the juridical rule that the judgment should be in
accordance with the allegations, the evidence and the conclusions of fact and law, the dispositive part
of the judgment under consideration should have ordered that the debt be paid severally, and in
omitting the word or adverb "severally" inadvertently, said judgment became ambiguous. This
ambiguity may be clarified at any time after the decision is rendered and even after it had become final
(34 Corpus Juris, 235, 326). the respondent judge did not, therefore, exceed his jurisdiction in
clarifying the dispositive part of the judgment by supplying the omission. (63 Phil. at 91-91)'
In Filipino Legion Corporation v. Court of Appeals, et al. (56 SCRA 674 [1974]), the applicable
principle was set out in the following terms:
'[W]here there is ambiguity caused by an omission or mistake in the dispositive portion of a decision,
the court may clarify such ambiguity by an amendment even after the judgment had become final, and
for this purpose it may resort to the pleadings filed by the parties, the court's findings of facts and
conclusions of law as expressed in the body of the decision." (56 SCRA at 691; also Presbitero v. Court
of Appeals, 129 SCRA 443 [1984])
In Republic Surety and Insurance Company, Inc. v. Intermediate Appellate Court (152 SCRA 309
[1987]), the Court applying the above doctrine said:
'. . . We clarify, in other words, what we did affirm. What is involved here is not what is ordinarily
regarded as a clerical error in the dispositive part of the decision of the Court of First Instance, which
type of error is perhaps best typified by an error in arithmetical computation. At the same time, what is
involved here is not a correction of an erroneous judgment or dispositive portion of a judgment. What
we believe is involved here is in the nature of an inadvertent omission on the part of the Court of First
Instance (which should have been noticed by private respondent's counsel who had prepared the
complaint), of what might be described as a logical follow-through of something set forth both in the
body of the decision and in the dispositive portion thereof : the inevitable follow-through, or translation
into, operational or behavioral terms, of the annulment of the Deed of Sale with Assumption of
Mortgage, from which petitioners' title or claim of title embodied in TCT 133153 flow." (152 SCRA at
315) 7 (Emphasis in the original)
The question we must resolve is whether or not there is an ambiguity or clerical error and inadvertent
omission in the dispositive portion of the decision of Castro-Bartolome, J., dated 21 November 1986,
which may legitimately be clarified by referring to the body of the decision and perhaps even the
pleadings filed before her. It will be recalled that the second paragraph of the dispositive portion of that
decision of Castro-Bartolome, J. ordered private respondent dela Rosa
"to comply with her obligation under the conditional sale to pay the balance of the conditional sale in
the amount of P163,408.00, to pay interest and in default thereof the rescission thereof is the
alternative." (Emphasis supplied)
The dispositive portion itself failed to specify expressly whether Castro-Bartolome, J. was referring to
the payment of interest in accordance with the terms and conditions of the "Deed of Conditional Sale"
or whether, as Luna, J. was to hold almost four (4) years later that the requirement of "to pay interest"
related, not to the interest provisions of the Conditional Sale Deed between petitioners and private
respondent, but rather to legal interest on the amount of the unpaid balance of the purchase price of the
land which would begin to accrue from the date of the entry of the Castro-Bartolome judgment on 12
February 1987. Luna, J. said: prLL
"It is settled that the only portion subject of execution is the dispositive portion of a judgment. The
judgment of the Honorable Court of Appeals does not refer to the interest referred to in Conditional
Deed of Sale. Said judgment or dispositive portion cannot be stretched or enlarged to refer to the
interest indicated in the Conditional Deed of Sale. If that were the intention of the Honorable Court of
Appeals, as contended by plaintiffs, it would have said so in black and white. This Court is not
authorized to re-write, alter, amend or change the above-mentioned dispositive portion of the judgment
of the Honorable Court of Appeals.
By a fair interpretation, the interest therein referred to is the legal rate of interest imposed by the
Honorable Court of Appeals which must commence from the entry of judgment on February 12, 1987.
At this stage, it appearing that the Decision of the Honorable Court of Appeals had long become final
and executory. This Court has no more jurisdiction to entertain reception of evidence in the matter of
the execution of the dispositive portion of the judgment of the honorable Court of Appeals." 8
(Emphasis supplied)
It thus appears that the Castro-Bartolome decision was ambiguous in the sense that it was too cryptic.
Examination of the body of that decision, however, sheds no light on the reference intended by Castro-
Bartolome, J. in directing private respondent "to pay interest." Luna, J. himself had resort to "fair
interpretation." We believe that, in these circumstances, we must assume that Mme. Justice Castro-
Bartolome meant to decide in accordance with law; that we cannot fairly assume that she was
unfamiliar with the applicable law or that she had intended to grant petitioners less than that they were
entitled to under the law. Thus, the important question is: under the circumstances which were before
Castro-Bartolome, J., what should private respondent dela Rosa have been held liable for in accordance
with law? 9
We believe and so hold that the phrase “to pay interest,” found in the dispositive portion of the Castro-
Bartolome decision must, under applicable law, refer to the interest stipulated by the parties in the Deed
of Conditional Sale which they had entered into on 15 October 1982. We note, in the first place, that
the phrase “to pay interest” comes close upon the heels of the preceding phrase "to comply with her
obligation under the conditional sale to pay the balance — of P163,408.00." A strong inference thus
arises that the "interest" required to be paid is the interest stipulated as part of the “obligation [of
private respondent dela Rosa] under the conditional sale [agreement] to pay the balance of [the
purchase price of the land]." cdrep
There is, in the second place, no question that private respondent dela Rosa had failed to pay the
balance of P163,408.00 on or before 31 December 1982. The applicable law is to be found in Article
2209 of the Civil Code which provides as follows:
"If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the
indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest
agreed upon, and in the absence of stipulation, the legal interest which is six percent (6%) per annum."
(Emphasis supplied)
Under Article 2209, the appropriate measure for damages in case of delay in discharging an obligation
consisting of the payment of a sum of money is the payment of penalty interest at the rate agreed upon
in the contract of the parties. In the absence of a stipulation of a particular rate of penalty interest,
payment of additional interest at a rate equal to the regular or monetary interest, becomes due and
payable. Finally, if no regular interest had been agreed upon by the contracting parties, then the
damages payable will consist of payment of legal interest 10 which is six percent (6%) or, in the case
of loans or forbearances of money, twelve percent (12%) per annum. 11 Applying Article 2209 to the
instant case, we must refer to the "Deed of Conditional Sale" which, as already noted, had specifically
provided for "interest at the rate of 12% per annum" and a "1% penalty charge a month [to] be imposed
on their remaining diminishing balance." There was, it thus appears, no need for the subsequent Luna,
J. decision to refer at all to the payment of legal interest from the time of entry of the Castro-Bartolome
decision.
The contention of private respondent that Article 2209 of Civil Code is not applicable in this case
because the interest referred to therein is given as compensation for the use of money, not for the
incurring of delay as in the instant case, 12 need not detain us for long. Article 2209 governs
transactions involving the payment of indemnity in the concept of damages arising from delay in the
discharge of obligations consisting of the payment of a sum of money. 13 The "obligation consisting in
the payment of a sum of money" referred to in Article 2209 is not confined to a loan or forbearance of
money. The Court has, for instance, consistently applied Article 2209 in the determination of the
interest properly payable where there was default in the payment of the price or consideration under a
contract of sale 14 as in the case at bar. Article 2209 has also been applied by this Court in cases
involving an action for damages for injury to persons and loss or property; 15 to actions for damages
arising from unpaid insurance claims; 16 and an action involving the appropriate rate of interest on just
compensation that is payable for expropriated lands. 17
The stipulation in the "Deed of Conditional Sale" requiring the payment of interest is not unlawful. The
validity of the contract of conditional sale itself has not been put to question by private respondent dela
Rosa and there is nothing in the record to suggest that the same may be contrary to law, morals, good
custom, public order or public policy. Accordingly, the contractual stipulation must be regarded as
binding and enforceable as the law between the parties. 18
We turn, therefore, to the examination of the contractual stipulation on interest which we quoted in full
earlier. Under the terms of that stipulation, private respondent was bound, and entitled, to pay the
balance of P163,408.00 on or before 31 December 1982 without incurring any liability for any interest
and penalty charges. During the grace period of six (6) months, that is, from 1 January 1983 to 30 June
1983, private respondent vendee was given the right to pay the said balance or any portion that had
remained unpaid provided that "interest at the rate of 12% per annum shall be charged and 1% penalty
charge shall be imposed on the remaining diminishing balance." We observe that residual ambiguity
infects this particular portion of the stipulation on payment of interest. The question is whether, during
the period of 1 January 1983 up to 30 June 1983, 12% interest per annum plus 1% penalty charge a
month was payable "on the remaining diminishing balance;" or whether during the period from 1
January 1983 to 30 June 1983, only 12% per annum interest was payable while the 1% per month
penalty charge would in addition begin to accrue on any balance remaining unpaid as of 1 July 1983.
We believe that the contracting parties intended the latter view of their stipulation on interest; for if the
parties had intended that during the grace period from 1 January 1983 to 30 June 1983, interest
consisting of 12% per annum plus another 12% per annum (equivalent to 1% per month), or a total of
24% per annum, was payable, then they could have simply said so. Instead, the parties distinguished
between interest at the rate of 12% per annum and the 1% a month penalty charge. The interpretation
we adopt is also supported by the principle that in case of ambiguity in contract language, that
interpretation which establishes a less onerous transmission of rights or imposition of lesser burdens
which permits greater reciprocity between the parties, is to be adopted. 19
Summarizing the import of the contractual stipulation of the parties:
(1) During the period from 1 January 1983 up to 30 June 1983, private respondent vendee dela
Rosa was bound to pay interest at the rate of 12% per annum on the unpaid balance of P163,408.00
(2) Commencing on 1 July 1983, and until full payment, dela Rosa was bound to pay interest at the
rate of 12% per annum plus another 12% per annum (or 1% penalty charge a month), or a total of 24%
per annum, to be computed on the "remaining diminishing [unpaid] balance."
Private respondent finally contends that she had already complied with her obligation considering that
after she had been served with a writ of execution dated 2 September 1988, she deposited with the trial
court on 7 September 1988 the amount stated therein, that is, the amount of P197,723.68. 20
Obviously, this contention raises a question of fact; just as obvious, however, is the rule that questions
of fact cannot be raised in a petition for review on certiorari before this Court. At all events, private
respondent's factual contention is properly addressed not to this Court, but rather to the trial court
during execution proceedings. In the interest of complete resolution of this drawn out litigation and of
achieving substantial justice, we would add that if the trial court finds that, in point of fact, the amount
of P197,723.68 had indeed been deposited with the trial court on 7 September 1988, then the total
amount due from private respondent should be correspondingly reduced by the application of the
amount of the deposit in accordance with the rules on application of payments. 21 Conversely, the
interest yield or civil fruits of the deposit, commencing from date of application of the deposit as partial
payment, would pertain to petitioners who have not thus far enjoyed the use of the monies deposited.
cdll
The conclusion we have reached renders it unnecessary to pass upon the other contentions made by
private respondent.
WHEREFORE, for all foregoing, the Petition for Review is hereby GRANTED. The Decision of the
Court of Appeals dated 22 August 1990 in C.A.-G.R. SP No. 22464 (the Luna, J. decision) is hereby
REVERSED and SET ASIDE and the dispositive portion of the Decision by Castro-Bartolome, J.,
dated 21 November 1986, in C.A.-G.R. No. 07938-SP is hereby CLARIFIED as follows:
"WHEREFORE, the writ of certiorari is hereby GRANTED annulling the Decision of Judge Malaya
dated August 17, 1984 and a new one entered:
(1) allowing the amendment of the complaint to conform to the evidence already presented and
defaulted defendant to answer the amendment within the reglementary period.
(2) ordering the defendant to comply with her obligation under the conditional sale to pay the
balance of the conditional sale in the amount of P163,408.00, to pay interest on the amount of the
balance remaining unpaid during the period from 1 January 1983 to 30 June 1983 at the rate of 12% per
annum; and, from 1 July 1983 until full payment of the amount due, to pay interest at the rate of 12%
per annum plus another 12% per annum (i.e., 1% penalty charge per month), or a total of 24% per
annum, on the balance remaining unpaid; and
(3) in default thereof, the rescission of the "Deed of Conditional Sale" is the alternative."
No pronouncement as to costs.
SO ORDERED.
Romero, Melo and Vitug, JJ., concur.
Francisco, J., is on leave.
Footnotes
1. Deed of Conditional Sale, Annex "D," p. 2; CA Records, p. 15.
2. Court of Appeals Decision dated 22 August 1990, "Annex B", pp. 1-2.
3. Sheriff's Notice to Pay Judgment, "Annex C," CA Records, p. 14.
4. Rollo, pp. 25-26.
5. Court of Appeals Decision, 22 August 1990, p. 14; Rollo, p. 30.
6. 198 SCRA 19 (1991).
7. Reinsurance Company of the Orient, Inc. v. Court of Appeals, 198 SCRA 19 at 28-29 (1991).
8. Rollo, p. 28.
9. See, in particular, State Investment House, Inc. v. Court of Appeals, 198 SCRA 390 (1991).
10. State Investment House, Inc. v. Court of Appeals, supra.
11. Eastern Shipping Lines, Inc. v. Hon. Court of Appeals and Mercantile Insurance Company, Inc.,
234 SCRA 78 (1994); Pilipinas Bank v. Court of Appeals, 225 SCRA 268 (1993); Tio Khe Chio v.
Court of Appeals, 202 SCRA 119 (1993).
12. Memorandum for Private Respondent, p. 30.
13. Eastern Shipping Lines, Inc. vs. Hon. Court of Appeals and Mercantile Insurance Company,
Inc., 234 SCRA 78 (1994); National Power Corporation vs. Angas, 208 SCRA 542 (1992).
14. Solid Homes, Inc. vs. Court of Appeals, 170 SCRA 63 (1989); Philippine Virginia Tobacco
Administration vs. Tensuan, 188 SCRA 628 (1990); Pilipinas Bank vs. Court of Appeals, 225 SCRA
268 (1993).
15. Reformina vs. Tomol, Jr., 139 SCRA 260 (1985).
16. Tio Khe Chio vs. Court of Appeals, 202 SCRA 119 (1991).
17. National Power Corporation vs. Angas, 208 SCRA 542 (1992).
18. Article 1306, Civil Code. See also Reparations Commission vs. Visayan Packing Corporation,
193 SCRA 531 (1991); Jovellanos vs. Court of Appeals, 210 SCRA 126 (1992).
19. Article 1378, Civil Code. See Gacos v. Court of Appeals, 212 SCRA 8 (1992); Heirs of Severo
Legaspi, Sr. v. Vda. de Dayot, 188 SCRA 509 (1990); Labasan v. Lacuesta, 86 SCRA 16 (1978);
Perez v. Cortes, 15 Phil. 211 (1910); Olino v. Medina, 13 Phil. 379 (1909).
20. Memorandum for Private Respondent, p. 26.
21. Articles 1252-1254, Civil Code.
FIRST DIVISION
[G.R. No. 97873. August 12, 1993.]
PILIPINAS BANK, petitioner, vs. THE HON. COURT OF APPEALS, and LILIA R. ECHAUS,
respondents.
Gella, Reyes, Danguilan and Associates for the petitioner.
Manuel L. Melotindos for the respondents.
DECISION
QUIASON, J p:
This is a petition for certiorari under Rule 45 of the Revised Rules of Court to review the Resolution of
the Court of Appeals in CA-G.R. CV No. 06017 promulgated on March 14, 1991. The Resolution was
rendered in response to private respondent's motion for clarification of the decision of the Court of
Appeals in CA-G.R. No. 06017. The matters sought to be clarified arose in the course of the execution
of the decision of the Regional Trial Court, Branch 71, Antipolo, Rizal in Civil Case No. 239-A, as
modified by the decision of the Court of Appeals in CA-G.R. CV No. 06017.
In Civil Case No. 239-A, private respondent filed a complaint against petitioner and its president,
Constantino Bautista, for collection of a sum of money. The complaint alleged: (1) that petitioner and
Greatland Realty Corporation (Greatland) executed a "Dacion en Pago," wherein Greatland conveyed
to petitioner several parcels of land in consideration of the sum of P7,776,335.69; (2) that Greatland
assigned P2,300,000.00 out of the total consideration of the Dacion en Pago, in favor of private
respondent; and (3) that notwithstanding her demand for payment, petitioner in bad faith, refused and
failed to pay the said amount assigned to her.
Petitioner, while admitting the execution of the Dacion en Pago, claimed: (1) that its former president
had no authority to enter into such agreement; (2) that it never ratified the same; and (3) that assuming
arguendo that the agreement was binding, the conditions stipulated therein were never fulfilled.
Dismissing petitioner's defenses as unmeritorious, the trial court ruled in favor of private respondent.
The trial court ordered petitioner and its co-defendant, jointly and severally, to pay private respondent
as follows:
"1) P2,300,000.00 the total amount assigned by Greatland in her favor out of the P2,300,000.00
liability of defendant Pilipinas to Greatland plus legal interest from the dates of assignments until fully
paid;
2) P3,217,707.00 representing the total actual damages suffered by the plaintiff plus legal interest
until fully paid; prcd
3) P1,000,000.00 in moral damages to partially assuage the extreme moral sufferings of plaintiff
inflicted upon her person considering the bad faith on the part of the defendants and their failure to act
with justice, and to give what is lawfully due her and observe honesty and good faith;
4) P100,000.00 exemplary and nominal damages to vindicate plaintiff's violated rights;
5) Attorney's fees equivalent to 15% of the total award in favor of the plaintiff;
6) Costs of suit" (Rollo, p. 78).
On March 22, 1985, petitioner appealed the decision of the trial court to the Court of Appeals, which
docketed the appeal as CA-G.R. No. 06017. On the same day, private respondent filed a Motion for
Immediate Execution Pending Appeal. The trial court granted the motion for execution pending appeal
in an Order dated April 3, 1985. Petitioner challenged the Order dated April 3, 1985 before the Court of
Appeals in CA-G.R. No. SP No. 05909.
On October 30, 1986, the Court of Appeals modified the Order dated April 3, 1985, by limiting the
execution pending appeal against petitioner to P5,517,707.00 and deferring the execution of the award
for moral, exemplary and nominal damages to await the final judgment of the main case in CA-G.R.
No. 06017. On June 17, 1987, the Supreme Court in G.R. No. L-76506 affirmed the Order dated
October 30, 1986 of the Court of Appeals.
On July 1, 1988, the trial court granted the new motion for execution pending appeal filed by private
respondent pursuant to the Resolution of the Supreme Court dated June 17, 1987, upon the filing of the
required bond. Petitioner complied with the writ of execution pending appeal by issuing two manager's
checks in the total amount of P5,517,707.00 (one for P4,965,936.30 payable to private respondent and
another for P551,770.70 payable to the Clerk of Court, RTC, Antipolo, Rizal).
The check payable to private respondent was encashed on July 15, 1988.
On June 28, 1990, the Court of Appeals rendered a decision in CA-G.R. No. CV-06017, which
modified the judgment of the trial court as follows:
"1. The defendant-appellant Pilipinas Bank, formerly known as Filipinas Manufacturers Bank is
ordered to pay the plaintiff-appellee the following:
(a) The sum of Two Million Three Hundred Thousand (2,300,000.00) Pesos, representing the total
amount assigned by Greatland to her, with interest at the legal rate starting July 24, 1981, date when
demand was first made (Exh. "F" and "G");
(b) The sum of One Hundred Thousand (P100,000.00) Pesos in moral damages, to assuage moral
sufferings and embarrassment of plaintiff-appellee as a consequence of appellant-bank's unwarranted
acts;
(c) The sum of Twenty Five Thousand (P25,000.00) Pesos, as exemplary damages to serve as an
example or correction for the public good;
(d) The sum equivalent to ten (10) percent of the principal claim awarded, representing attorney's
fees; and.
2. Constantino Bautista is absolved of personal liability" (Rollo, pp. 31-32).
Petitioner filed a motion for extension of time to file a Petition for Review on Certiorari with the
Supreme Court, which however was withdrawn on July 23, 1990. Private respondent, on her part, filed
a motion for reconsideration of the decision of the Court of Appeals in CA-G.R. No. 06017, which
likewise was withdrawn on August 13, 1990. prcd
Hence, the decision of the Court of Appeals rendered in CA-G.R. No. 06017 became final and
executory.
On September 4, 1990, petitioner filed a motion in the trial court praying that private respondent and
Standard Insurance Co. (which furnished the bond required in the advance execution of the decision of
the trial court) to refund to her the excess payment of P1,898,623.67 with interests at 6% (Rollo, pp.
83-84).
It must be recalled that while private respondent was able to collect P5,517,707.00 from petitioner
pursuant to the writ of advance execution allowed in CA-G.R. No. SP No. 05909, the final judgment in
the main case (CA-G.R. No. 06017) awarded to private respondent damages in the total amount of only
P2,655,000.00 (P2,300,000.00 representing the amount assigned by Greatland to private respondent,
P100,000.00 as moral damages; P25,000.00 as exemplary damages and attorney's fees equivalent to
10% of the P2,300,000.00), together "with interest on the amount of P2,300,000.00 at the legal rate
starting July 24, 1981, date when demand was first made (Exh. "F" and "G")."
Private respondent opposed the motion of petitioner with respect to the rate of interest to be charged on
the amount of P2,300,000.00. According to private respondent, the legal interest on the principal
amount of P2,300,000.00 due her should be 12% per annum pursuant to CB Circular No. 416 and not
6% per annum as computed by petitioner.
On October 12, 1990, the trial court, while ordering the refund to petitioner of the excess payment,
fixed the interest rate due on the amount of P2,300,000.00 at 12% per annum as proposed by private
respondent, instead of 6% per annum as proposed by petitioner.
On October 16, 1990, petitioner moved to reconsider the Order dated October 12, 1990 of the trial
court, which however could not be acted upon because on October 23, 1990, private respondent filed a
Motion for Clarification with the Court of Appeals in CA-G.R. CV No. 06017, regarding the following
matters:
"a) The 'legal rate' of interest on the principal award of P2,300,000.00 from July 24, 1981 (as per
decision) up to July 14, 1988 (date of actual payment made by defendant-appellant to plaintiff-appellee
per execution pending appeal);
b) The imposition of such 'legal rate' of interest on the 'accrued interest' from July 24, 1981 up to
July 14, 1988;
c) The amount of the costs of suit will include premium on surety bond;
d) The discharge of the surety bond whether total or partial, depending on the computation of the
interest;
e) The award of attorney's fees equivalent to 10% of the principal award, whether this should
totally go to plaintiff-appellee's former counsel or to be shared on the basis of quantum meruit with the
undersigned counsel; and
f) Aside from this final award of 10% attorney's fees chargeable against defendant-appellant,
whether or not former counsel of plaintiff-appellee can still collect from her the balance of 15% out of
the 25% attorney's fees under Exh, `N'" (Rollo, p. 32).
In its Resolution promulgated on March 14, 1991, the Court of Appeals clarified that:
"a) The legal rate of interest on the principal award of P2,300,000.00 should be 12% per annum in
accordance with Circular No. 416 dated July 29, 1974 of the Central Bank. LexLib
b) The computation of compounding interest annually has no basis, therefore, not allowed in the
instant case;
c) The payment of premium on the bond in the sum of P259,813.50 as cost, being without legal
and factual basis, is denied;
d) The surety bond posted by plaintiff-appellee may be released after satisfaction of the decision;
and
e) Payment/distribution of attorney's fees may/shall be litigated in a separate proceeding if the
parties cannot settle their differences amicably.
SO ORDERED" (Rollo, pp. 35-36).
In this appeal, petitioner claims that the Court of Appeals erred:
(1) In ruling that the legal rate of interest on the amount of P2,300,000.00 adjudged to be paid by
petitioner to private respondent is 12% per annum.
(2) In not holding that the refund to which petitioner is entitled should earn interest at the rate of
12% per annum.
(3) In not holding that the surety bond should only be released after actual refund (Rollo, p. 18).
The Court of Appeals was of the theory that the action in Civil Case No. 239-A filed by private
respondent against petitioner "involves forbearance of money, as the principal award to plaintiff-
appellee (private respondent) in the amount of P2,300,000.00 was the overdue debt of defendant-
appellant to her since July 1981. The case is, in effect, a simple collection of the money due to plaintiff-
appellee, as the unpaid creditor from the defendant bank, the debtor" (Resolution, p. 3; Rollo, p. 33).
Applying Central Bank Circular No. 416, the Court of Appeals held that the applicable rate of interest
is 12% per annum.
Petitioner argues that the applicable law is Article 2209 of the Civil Code, not the Central Bank
Circular No. 416. Said Article 2209 provides:
"Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in
delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the
interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent per
annum."
Presidential Decree No. 116 authorized the Monetary Board to prescribe the maximum rate or rates of
interest for the loan or renewal thereof or the forbearance of any money, goods or credits and amended
the Usury Law (Act No. 2655) for that purpose.
As amended, the Usury Law now provides:
"SECTION 1. The rate of interest for the loan or forbearance of any money, goods, or credits and the
rate allowed in judgments, in the absence of express contract as to such rate of interest, shall be six per
centum per annum or such rate as may be prescribed by the Monetary Board of the Central Bank of the
Philippines for that purpose in accordance with the authority hereby granted."
"SECTION. 1-a. The Monetary Board is hereby authorized to prescribe the maximum rate or rates
of interest for the loan or renewal thereof or the forbearance of any money, goods or credits, and to
charge such rate or rates whenever warranted by prevailing economic and social conditions: Provided,
That such changes shall not be made oftener than once every twelve months.
"In the exercise of the authority herein granted, the Monetary Board may prescribe higher maximum
rates for consumer loans or renewals thereof as well as such loans made by pawnshops, finance
companies and other similar credit institutions although the rates prescribed for these institutions need
not necessarily be uniform."
Acting on the authority vested on it by the Usury Law, as amended by P.D. No. 116, the Monetary
Board of Central Bank issued Central Bank Circular No. 416, which provides:
"By virtue of the authority granted to it under Section 1 of Act 2655, as amended, otherwise known as
the `Usury Law' the Monetary Board in its Resolution No. 1622 dated July 29, 1974, has prescribed
that the rate of interest for the loan, or forbearance of any money, goods, or credits and the rate allowed
in judgments, in the absence of express contract as to such rate of interest, shall be twelve (12%) per
cent per annum. This Circular shall take effect immediately." (italics supplied).
Note that Circular No. 416, fixing the rate of interest at 12% per annum, deals with (1) loans; (2)
forbearance of any money, goods or credit; and (3) judgments. cdll
In Reformina v. Tomol, Jr., 139 SCRA 260 [1985], the Court held that the judgments spoken of and
referred to in Circular No. 416 are "judgments in litigation involving loans or forbearance of any
money, goods or credits. Any other kind of monetary judgment which has nothing to do with nor
involving loans or forbearance of any money, goods or credits does not fall within the coverage of the
said law for it is not, within the ambit of the authority granted to the Central Bank."
Reformina was affirmed in Philippine Virginia Tobacco Administration v. Tensuan, 188 SCRA 628
[1990], which emphasized that the "judgments" contemplated in Circular No. 417 "are judgments
involving said loans or forbearance only and not in judgments in litigation that have nothing to do with
loans . . ."
We held that Circular No. 416 does not apply to judgments involving damages (Reformina v. Tomol,
Jr., supra; Philippine Virginia Tobacco Administration v. Tensuan, supra) and compensation in
expropriation proceedings (National Power Corporation v. Angas, 208 SCRA 542 [1992]). We also
held that Circular No. 416 applies to judgments involving the payment of unliquidated cash advances to
an employee by his employer (Villarica v. Court of Appeals, 123 SCRA 259 [1983]) and the return of
money paid by a buyer of a leasehold right but which contract was voided due to the fault of the seller
(Buisier v. Court of Appeals, 154 SCRA 438 [1987]).
What then is the nature of the judgment ordering petitioner to pay private respondent the amount of
P2,300,000.00?
The said amount was a portion of the P7,776,335.69 which petitioner was obligated to pay Greatland as
consideration for the sale of several parcels of land by Greatland to petitioner. The amount of
P2,300,000.00 was assigned by Greatland in favor of private respondent. The said obligation therefore
arose from a contract of purchase and sale and not from a contract of loan or mutuum. Hence, what is
applicable is the rate of 6% per annum as provided in Article 2209 of the Civil Code of the Philippines
and not the rate of 12% per annum as provided in Circular No. 416.
Petitioner next contends that, consistent with its thesis that Circular No. 416 applies only to judgments
involving the payment of loans or forbearance of money goods and credit, the Court of Appeals should
have ordered private respondent to pay interest at the rate of 12% on the overpayment collected by her
pursuant to the advance execution of the judgment.
Again, we sustain petitioner's contention as correct.
Private respondent was paid in advance the amount of P5,517,707.00 by petitioner pursuant to the order
for the execution pending appeal of the judgment of the trial court. On appeal, the Court of Appeals
reduced the total damages to P3,619,083.33, leaving a balance of P1,898,623.67 to be refunded by
private respondent to petitioner. In an execution pending appeal, funds are advanced by the losing party
to the prevailing party with the implied obligation of the latter to repay the former, in case the appellate
court cancels or reduces the monetary award.
Under Section 5 of Rule 39 of the Revised Rules of Court where "the judgment executed is reversed
totally or partially on appeal, the trial court, on motion, after the case is remanded to it, may issue such
orders of restitution, as equity and justice may warrant under the circumstances." It was to guarantee
the restitution contemplated by Section 5 of Rule 39 of the Revised Rules of Court that private
respondent was required by the trial court to post a bond before the writ of advance execution was
issued.
In the case before us, the excess amount ordered to be refunded by private respondent falls within the
ruling in Viloria and Buiser that Circular No. 416 applies to cases where money is transferred from one
person to another and the obligation to return the same or a portion thereof is subsequently adjudged.
Finally, petitioner questions as vague the ruling of the Court of Appeals that the surety bond given to
secure the advance execution may be discharged "upon the finality and satisfaction of the decision."
We believe that this ruling of the Court of Appeals is clear enough in ordering that the surety bond
shall be released only after private respondent has fully refunded the overpayment to petitioner. llcd
WHEREFORE, the petition is GRANTED. The Resolution of the Court of Appeals appealed from is
MODIFIED in that (1) the amount of P2,300,000.00 adjudged to be paid by petitioner to private
respondent shall earn interest of 6% per annum and (2) the amount of P1,898,623.67 to be refunded by
private respondent to petitioner shall earn interest of 12% per annum. Costs against private respondent.
SO ORDERED.
Cruz , Griño-Aquino, Davide, Jr. and Bellosillo, JJ., concur.
THIRD DIVISION
[G.R. Nos. 76101-02. September 30, 1991.]
TIO KHE CHIO, petitioner, vs. THE HONORABLE COURT OF APPEALS and EASTERN
ASSURANCE AND SURETY CORPORATION, respondents.
Rodolfo M. Morelos for petitioner.
Ferrer, Mariano, Sangalang & Gatdula for private respondent.
SYLLABUS
CIVIL LAW; ACTUAL DAMAGES; INTEREST FOR JUDGMENT AWARDED BASED
THEREON. — In the case of Philippine Rabbit Bus Lines, Inc. vs. Cruz, G.R. No. 71017, July 28,
1986, 143 SCRA 158, the Court declared that the legal rate of interest is six (6%) per cent per annum,
and not twelve (12%) per cent, where a judgment award is based on an action for damages for personal
injury, not use or forbearance of money, goods or credit. In the same vein, the Court held in GSIS vs.
Court of Appeals, G.R. No. 52478, October 30, 1986, 145 SCRA 311, that the rates under the Usury
Law (amended by P.D. 116) are applicable only to interest by way of compensation for the use or
forbearance of money, interest by way of damages is governed by Article 2209 of the Civil Code.
DECISION
FERNAN, C.J p:
The issue in this petition for certiorari and prohibition is the legal rate of interest to be imposed in
actions for damages arising from unpaid insurance claims. Petitioner Tio Khe Chio claims that it should
be twelve (12%) per cent pursuant to Articles 243 and 244 of the Insurance Code while private
respondent Eastern Assurance and Surety Corporation (EASCO) claims that it should be six (6%) per
cent under Article 2209 of the Civil Code. LibLex
The facts are as follows: On December 18, 1978, petitioner Tio Khe Chio imported one thousand
(1,000) bags of fishmeal valued at $36,000.30 from Agro Impex, S.A. Dallas, Texas, U.S.A. The goods
were insured with respondent EASCO and shipped on board the M/V Peskov, a vessel owned by Far
Eastern Shipping Company. When the goods reached Manila on January 28, 1979, they were found to
have been damaged by sea water which rendered the fishmeal useless. Petitioner filed a claim with
EASCO and Far Eastern Shipping. Both refused to pay. Whereupon, petitioner sued them before the
then Court of First Instance of Cebu, Branch II for damages. EASCO, as the insurer, filed a
counterclaim against the petitioner for the recovery of P18,387.86 representing the unpaid insurance
premiums.
On June 30, 1982, the trial court rendered judgment ordering EASCO and Far Eastern Shipping to pay
petitioner solidarily the sum of P105,986.68 less the amount of P18,387.86 for unpaid premiums with
interest at the legal rate from the filing of the complaint, the sum of P15,000.00 as attorney's fees and
the costs. 1
The judgment became final as to EASCO but the shipping company appealed to the Court of Appeals
and was absolved from liability by the said court in AC-G.R. No. 00161, entitled "Tio Khe Chio vs.
Eastern Assurance and Surety Corporation."
The trial court, upon motion by petitioner, issued a writ of execution against EASCO. The sheriff
enforcing the writ reportedly fixed the legal rate of interest at twelve (12%). Respondent EASCO
moved to quash the writ alleging that the legal interest to be computed should be six (6%) per cent per
annum in accordance with Article 2209 of the Civil Code and not twelve (12%) per cent as insisted
upon by petitioner s counsel. In its order of July 30, 1986, the trial court denied EASCO's motion.
EASCO then filed a petition for certiorari and prohibition before the Court of Appeals.
On July 30, 1986, the Appellate Court rendered the assailed judgment, the dispositive part of which
states:
"WHEREFORE, the order dated July 30, 1986 is hereby SET ASIDE in so far as it fixes the interest at
12% on the principal amount of P87,598.82 from the date of filing of the complaint until the full
payment of the amount, and the interest that the private respondent is entitled to collect from the
petitioner is hereby reduced to 6% per annum.
No pronouncement as to costs." 2
In disputing the aforesaid decision of the Court of Appeals, petitioner maintains that not only is it
unjust and unfair but it is also contrary to the correct interpretation of the fixing of interest rates under
Sections 243 and 244 of the Insurance Code. And since petitioner's claims is based on an insurance
contract, then it is the Insurance Code which must govern and not the Civil Code.
We rule for respondent EASCO. The legal rate of interest in the case at bar is six (6%) per annum as
correctly held by the Appellate Court. LLpr
Section 243 of the Insurance Code provides:
"The amount of any loss or damage for which an insurer may be liable, under any policy other than life
insurance policy, shall be paid within thirty days after proof of loss is received by the insurer and
ascertainment of the loss or damage is made either by agreement between the insured and the insurer or
by arbitration; but if such ascertainment is not had or made within sixty days after such receipt by the
insurer of the proof of loss, then the loss or damage shall be paid within ninety days after such receipt.
Refusal or failure to pay the loss or damage within the time prescribed herein will entitle the assured to
collect interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling
prescribed by the Monetary Board, unless such failure or refusal to pay is based on the ground that the
claim is fraudulent."
Section 244 of the aforementioned Code also provides:
"In case of any litigation for the enforcement of any policy or contract of insurance, it shall be the duty
of the Commissioner or the Court, as the case may be, to make a finding as to whether the payment of
the claim of the insured has been unreasonably denied or withheld; and in the affirmative case, the
insurance company shall be adjudged to pay damages which shall consist of attorney's fees and other
expenses incurred by the insured person by reason of such undeniable denial or withholding of
payment plus interest of twice the ceiling prescribed by the Monetary Board of the amount of the claim
due the insured, from the date following the time prescribed in section two hundred forty-two or in
section two hundred forty-three, as the case may be, until the claim is fully satisfied; Provided, That the
failure to pay any such claim within the time prescribed in said sections shall be considered prima facie
evidence of unreasonable delay in payment."
In the case at bar, the Court of Appeals made no finding that there was an unjustified refusal or
withholding of payment on petitioner's claim. In fact, respondent court had this to say on EASCO's
refusal to settle the claim of petitioner:
". . . EASCO's refusal to settle the claim to Tio Khe Chio was based on some ground which, while not
sufficient to free it from liability under its policy, nevertheless is sufficient to negate any assertion that
in refusing to pay, it acted unjustifiably.
xxx xxx xxx
"The case posed some genuine issues of interpretation of the terms of the policy as to which persons
may honestly differ. This is the reason the trial court did not say EASCO's refusal was unjustified." 3
Simply put, the aforecited sections of the Insurance Code are not pertinent to the instant case. They
apply only when the court finds an unreasonable delay or refusal in the payment of the claims. Cdpr
Neither does Circular No. 416 of the Central Bank which took effect on July 29, 1974 pursuant to
Presidential Decree No. 116 (Usury Law) which raised the legal rate of interest from six (6%) to twelve
(12%) per cent apply to the case at bar as contended by the petitioner. The adjusted rate mentioned in
the circular refers only to loans or forbearances of money, goods or credits and court judgments thereon
but not to court judgments for damages arising from injury to persons and loss of property which does
not involve a loan. 4
In the case of Philippine Rabbit Bus Lines, Inc. vs. Cruz, G.R. No. 71017, July 28, 1986, 143 SCRA
158, the Court declared that the legal rate of interest is six (6%) per cent per annum, and not twelve
(12%) per cent, where a judgment award is based on an action for damages for personal injury, not use
or forbearance of money, goods or credit. In the same vein, the Court held in GSIS vs. Court of
Appeals, G.R. No. 52478, October 30, 1986, 145 SCRA 311, that the rates under the Usury Law
(amended by P.D. 116) are applicable only to interest by way of compensation for the use or
forbearance of money, interest by way of damages is governed by Article 2209 of the Civil Code.
Clearly, the applicable law is Article 2209 of the Civil Code which reads:
"If the obligation consists in the payment of a sum of money and the debtor incurs in delay, the
indemnity for damages, there being no stipulation to the contrary, shall be the payment of interest
agreed upon, and in the absence of stipulation, the legal interest which is six per cent per annum."
And in the light of the fact that the contending parties did not allege the rate of interest stipulated in the
insurance contract, the legal interest was properly pegged by the Appellate Court at six (6%) per cent.
WHEREFORE, in view of the foregoing, the petition is DENIED for lack of merit. LLphil
SO ORDERED.
Gutierrez, Jr., Feliciano, Bidin and Davide, Jr., JJ., concur.
Footnotes
1. Rollo, p. 45.
2. Rollo, p. 11.
3. Rollo, pp. 9, 11.
4. Reformina vs. Tomol, Jr., G.R. No. 59096, October 11, 1985, 139 SCRA 260.
FIRST DIVISION
[G.R. No. 88880. April 30, 1991.]
PHILIPPINE NATIONAL BANK, petitioner, vs. THE HON. COURT OF APPEALS and
AMBROSIO PADILLA, respondents.
The Chief Legal Counsel for petitioner.
Ambrosio Padilla, Mempin & Reyes Law Offices for private respondent.
SYLLABUS
1. COMMERCIAL LAW; BANKING LAWS; RATE OF INTEREST; INCREASE OF
INTEREST RATE; NOT TO BE MADE OFTENER THAN ONCE A YEAR. — PNB, over the
objection of the private respondent, and without authority from the Monetary Board, within a period of
only four (4) months, increased the 18% interest rate on the private respondent's loan obligation three
(3) times: (a) to 32% in July 1984; (b) to 41% in October 1984; and (c) to 48% in November 1984.
Those increases were null and void. Although Section 2, P.D. No. 116 of January 29, 1973, authorizes
the Monetary Board to prescribe the maximum rate or rates of interest for loans or renewal thereof and
to change such rate or rates whenever warranted by prevailing economic and social conditions, it
expressly provides that "such changes shall not be made oftener than once every twelve months. "If the
Monetary Board itself was not authorized to make such changes oftener than once a year, even less so
may a bank which is subordinate to the Board.
2. ID.; ID.; ID.; ID.; MAY BE INCREASED WITHIN LIMITS OF LAW; PNB CIRCULARS
AND RESOLUTION ARE NEITHER LAWS NOR RESOLUTIONS OF MONETARY BOARD. —
While the private respondent-debtor did agree in the Deed of Real Estate Mortgage (Exh. 5) that the
interest rate may be increased during the life of the contract "to such increase within the rate allowed
by law, as the Board of Directors of the MORTGAGEE may prescribe" (Exh. 5-e-1) or "within the
limits allowed by law" (Promissory Notes, Exhs. 2, 3, and 4), no laws was ever passed in July to
November 1984 increasing the interest rates on loans or renewals thereof to 32%, 41% and 48% (per
annum), and no documents were executed and delivered by the debtor to effectuate the increases. The
PNB relied on its own Board Resolution No. 681 (Exh. 10), PNB Circular No. 40-79-84 (Exh. 13), and
PNB Circular No. 40-129-84 (Exh. 15), but those resolution and circulars are neither laws nor
resolutions of the Monetary Board.
3. ID.; ID.; ID.; REMOVAL OF USURY LAW CEILING ON INTEREST RATES DOES NOT
AUTHORIZE BANKS TO UNILATERALLY AND SUCCESSIVELY INCREASE INTEREST
RATES. — CB Circular No. 905, Series of 1982 (Exh. 11) removed the Usury law ceiling on interest
rates — but it did not authorize the PNB, or any bank for that matter, to unilaterally and successively
increase the agreed interest rates from 18% to 48% within a span of four (4) months, in violation of
P.D. 116 which limits such changes to "once every twelve months."
4. ID.; ID.; ID.; UNILATERAL ACTION TO INCREASE INTEREST RATES, A VIOLATION
OF ARTICLE 1308 OF CIVIL CODE. — Besides violating P.D. 116, the unilateral action of the PNB
in increasing the interest rate on the private respondent's loan, violated the mutuality of contracts
ordained in Article 1308 of the Civil Code: "ART. 1308. The contract must bind both contracting
parties; its validity or compliance cannot be left to the will of one of them."
5. ID.; ID.; ID.; SUCCESSIVE INCREASE OF INTEREST RATES, A VIOLATION OF
ARTICLE 1956 OF CIVIL CODE. — PNB's successive increases of the interest rate on the private
respondent's loan, over the latter's protest, were arbitrary as they violated an express provision of the
Credit Agreement (Exh. 1) Section 9.01 that its terms "may be amended only by an instrument in
writing signed by the party to be bound as burdened by such amendment." The increases imposed by
PNB also contravene Art. 1956 of the Civil Code which provides that "no interest shall be due unless it
has been expressly stipulated in writing."
DECISION
GRIÑO-AQUINO, J p:
The Philippine National Bank (PNB) has appealed by certiorari from the decision promulgated on June
27, 1989 by the Court of Appeals in CA-G.R. CV No. 09791 entitled, "AMBROSIO PADILLA,
plaintiff-appellant versus PHILIPPINE NATIONAL BANK, defendant-appellee," reversing the
decision of the trial court which had dismissed the private respondent's complaint "to annul interest
increases." (p. 32, Rollo.) The Court of Appeals rendered judgment:
". . . declaring the questioned increases of interest as unreasonable, excessive and arbitrary and ordering
the defendant-appellee [PNB] to refund to the plaintiff-appellant the amount of interest collected from
July, 1984 in excess of twenty-four percent (24%) per annum. Costs against the defendant-appellee."
(pp 14-15, Rollo.)
In July 1982, the private respondent applied for, and was granted by petitioner PNB, a credit line of
321.8 million, secured by a real estate mortgage, for a term of two (2) years, with 18% interest per
annum. Private respondent executed in favor of the PNB a Credit Agreement, two (2) promissory notes
in the amount of P900,000.00 each, and a Real Estate Mortgage Contract.
The Credit Agreement provided that
"9.06 Other Conditions. The Borrowers hereby agree to be bound by the rules and regulations of the
Central Bank and the current and general policies of the Bank and those which the Bank may adopt in
the future, which may have relation to or in any way affect the Line, which rules, regulations and
policies are incorporated herein by reference as if set forth herein in full. Promptly upon receipt of a
written request from the Bank, the Borrowers shall execute and deliver such documents and
instruments, in form and substance satisfactory to the Bank, in order to effectuate or otherwise comply
with such rules, regulations and policies." (p. 85, Rollo.)
The Promissory Notes, in turn, uniformly authorized the PNB to increase the stipulated 18% interest
per annum "within the limits allowed by law at any time depending on whatever policy it [PNB] may
adopt in the future; Provided, that, the interest rate on this note shall be correspondingly decreased in
the event that the applicable maximum interest rate is reduced by law or by the Monetary Board." (pp.
85-86, Rollo; emphasis ours.)
The Real Estate Mortgage Contract likewise provided that:
"(k) INCREASE OF INTEREST RATE
"The rate of interest charged on the obligation secured by this mortgage as well as the interest on the
amount which may have been advanced by the MORTGAGEE, in accordance with the provisions
hereof, shall be subject during the life of this contract to such an increase within the rate allowed by
law, as the Board of Directors of the MORTGAGEE may prescribe for its debtors." (p. 86, Rollo;
emphasis supplied.)
Four (4) months advance interest and incidental expenses/charges were deducted from the loan, the net
proceeds of which were released to the private respondent by crediting or transferring the amount to his
current account with the bank. prcd
On June 20, 1984, PNB informed the private respondent that (1) his credit line of P1.8 million "will
expire on July 4, 1984,"(2) "[i]f renewal of the line for another year is intended, please submit soonest
possible your request," and (3) the "present policy of the Bank requires at least 30% reduction of
principal before your line can be renewed." (pp. 86-87, Rollo.) Complying, private respondent on June
25, 1984, paid PNB P540,000 00 (30% of P1.8 million) and requested that "the balance of
P1,260,000.00 be renewed for another period of two (2) years under the same arrangement" and that
"the increase of the interest rate of my mortgage loan be from 18% to 21%" (p. 87, Rollo.).
On July 4, 1984, private respondent paid PNB P360,000.00.
On July 18, 1984, private respondent reiterated in writing his request that "the increase in the rate of
interest from 18% be fixed at 21% of 24%. (p. 87, Rollo.)
On July 26, 1984, private respondent made an additional payment of P100,000.
On August 10, 1984, PNB informed private respondent that "we can not give due course to your
request for preferential interest rate in view of the following reasons: Existing Loan Policies of the
bank requires 32% for loan of more than one year; our present cost of funds has substantially
increased." (pp. 8788, Rollo.)
On August 17, 1984, private respondent further paid PNB P150,000.00.
In a letter dated August 24, 1984 to PNB, private respondent announced that he would "continue
making further payments, and instead of a 'loan of more than one year,' I shall pay the said loan before
the lapse of one year or before July 4, 1985. . . . I reiterate my request that the increase of my rate of
interest from 18% 'be fixed at 21% or 24%.'" (p. 88, Rollo.)
On September 12, 1984, private respondent paid PNB P160,000.00.
In letters dated September 12, 1984 and September 13, 1984, PNB informed private respondent that
"the interest rate on your outstanding line/loan is hereby adjusted from 32% p.a. to 41% p.a. (35%
prime rate + 6%) effective September 6, 1984;" and further explained "why we can not grant your
request for a lower rate of 21% or 24%." (pp. 88-89, Rollo.)
In a letter dated September 24, 1984 to PNB, private respondent registered his protest against the
increase of interest rate from 18% to 32% on July 4, 1984 and from 32% to 41% on September 6, 1984.
On October 15, 1984, private respondent reiterated his request that the interest rate should not be
increased from 18% to 32% and from 32% to 41%. He also attached (as payment) a check for
P140,000.00. prLL
Like rubbing salt on the private respondent's wound, the petitioner informed private respondent on
October 29, 1984, that "the interest rate on your outstanding line/loan is hereby adjusted from 41% p.a.
to 48% p.a. (42% prime rate plus 6% spread) effective 25 October 1984." (p. 89, Rollo.)
In November 1984, private respondent paid PNB P50,000.00 thus reducing his principal loan
obligation to P300,000.00.
On December 18, 1984, private respondent filed in the Regional Trial Court of Manila a complaint
against PNB entitled, "AMBROSIO PADILLA vs. PHILIPPINE NATIONAL BANK" (Civil Case No.
84-28391), praying that judgment be rendered:
"a. Declaring that the unilateral increase of interest rates from 18% to 32%, then to 41% and again
to 48% are illegal, not valid nor binding on plaintiff, and that an adjustment of his interest rate from
18% to 24% is reasonable, fair and just;
"b. The interest rate on the P900,000.00 released on September 27, 1982 be counted from said date
and not from July 4, 1984;
"c. The excess of interest payment collected by defendant bank by debiting plaintiffs current
account be refunded to plaintiff or credited to his current account;
"d. Pending the determination of the merits of this case, a restraining order and or a writ of
preliminary injunction be issued (1) to restrain and or enjoin defendant bank for [sic] collecting from
plaintiff and/or debiting his current account with illegal and excessive increases of interest rates; and
(2) to prevent defendant bank from declaring plaintiff in default for non-payment and from instituting
any foreclosure proceeding, extrajudicial or judicial, of the valuable commercial property of plaintiff."
(pp. 89-90, Rollo.)
In its answer to the complaint, PNB denied that the increases in interest rates were illegal, unilateral
excessive and arbitrary and recited the reasons justifying said increases.
On March 31, 1985, the private respondent paid the P300,000 balance of his obligation to PNBN (Exh.
5).
The trial court rendered judgment on April 14, 1986, dismissing the complaint because the increases of
interest were properly made.
The private respondent appealed to the Court of Appeals. On June 27, 1989, the Court of Appeals
reversed the trial court, hence, NB's recourse to this Court by a petition for review under Rule 45 of the
Rules of Court.
The assignments of error raised in PNB's petition for review can be resolved into a single legal issue of
whether the bank, within the term of the loan which it granted to the private respondent, may
unilaterally change or increase the interest rate stipulated therein at will and as often as it pleased.
The answer to that question is no.
In the first place, although Section 2, PD. No. 116 of January 29, 1973, authorizes the Monetary Board
to prescribe the maximum rate or rates of interest for loans or renewal thereof and to change such rate
or rates whenever warranted by prevailing economic and social conditions, it expressly provides that
"such changes shall not be made oftener than once every twelve months."
In this case, PNB, over the objection of the private respondent, and without authority from the
Monetary Board, within a period of only four (4) months, increased the 18% interest rate on the private
respondent's loan obligation three (3) times: (a) to 32% in July 1984; (b) to 41% in October 1984; and
(c) to 48% in November 1984. Those increases were null and void, for if the Monetary Board itself was
not authorized to make such changes oftener than once a year, even less so may a bank which is
subordinate to the Board. LLpr
Secondly, as pointed out by the Court of Appeals, while the private respondent-debtor did agree in the
Deed of Real Estate Mortgage (Exh. 5) that the interest rate may be increased during the life of the
contract "to such increase within the rate allowed by law, as the Board of Directors of the
MORTGAGEE may prescribe" (Exh. 5-e-1) or "within the limits allowed by law" (Promissory Notes,
Ex's. 2, 3, and 4), no law was ever passed in July to November 1984 increasing the interest rates on
loans or renewals thereof to 32%, 41% and 48% (per annum), and no documents were executed and
delivered by the debtor to effectuate the increases. The Court of Appeals observed.
". . . We focus Our attention first of all on the agreement between the parties as embodied in the
following instruments, to wit: (1) Exhibit '1' — Credit Agreement dated July 1, 1982; (2) Exhibit '2' —
Promissory Note dated July 5, 1982; (3) Exhibit '(3)' — Promissory Note dated January 3, 1983; (4)
Exhibit '4' — Promissory Note, dated December 13, 1983; and (5) Exhibit '5' — Real Estate Mortgage
contract dated July 1, 1982.
"Exhibit '1' states in its portion marked Exhibit '1-g-1':
'9 .06 Other Conditions. The Borrowers hereby agree to be bound by the rules and regulations of the
Central Bank and the current and general policies of the Bank and those which the Bank may adopt in
the future, which may have relation to or in any way affect the Line, which rules, regulations and
policies are incorporated herein by reference as if set forth herein in full. Promptly upon receipt of a
written request from the Bank, the Borrowers shall execute and deliver such documents and
instruments, in form and substance satisfactory to the Bank, in order to effectuate or otherwise comply
with such rules, regulations and policies.'
"Exhibits '2,' '3,' and '4' in their portions respectively marked Exhibits '2-B,' '3-B,' and '4-B' uniformly
authorize the defendant bank to increase the stipulated interest rate of 18% per annum 'within the limits
allowed by law at any time depending on whatever policy it may adopt in the future: Provided, that, the
interest rate on this note shall be correspondingly decreased in the event that the applicable maximum
interest rate is reduced by law or by the Monetary Board.'
"Exhibit '5' in its portion marked Exhibit '5-e-1' stipulates:
'(k) INCREASE OF INTEREST RATE
'The rate of interest charged on the obligation secured by this mortgage as well as the interest on the
amount which may have been advanced by the MORTGAGEE, in accordance with the provisions
hereof, shall be subject during the life of this contract to such an increase within the rate allowed by
law, as the Board of Directors of the MORTGAGEE may prescribe for its debtors.'
"Clearly, then, the agreement between the parties authorized the defendant bank to increase the interest
rate beyond the original rate of 18% per annum but 'within the limits allowed by law' or 'within the rate
allowed by law,' it being declared the obligation of the plaintiff as borrower to execute and deliver the
corresponding documents and instruments to effectuate the increase." (pp. 11-12, Rollo.)
In Banco Filipino Savings and Mortgage Bank vs. Navarro, 15 SCRA 346 (1987), this Court
disauthorized the bank from raising the interest rate on the borrowers' loan from 12% to 17% despite an
escalation clause in the loan agreement signed by the debtors authorizing Banco Filipino "to
correspondingly increase the interest rate stipulated in this contract without advance notice to me/us in
the event a law should be enacted increasing the lawful rates of interest that may be charged on this
particular kind of loan." (emphasis supplied.) Cdpr
In the Banco Filipino case, the bank relied on Section 3 of CB Circular No. 494 dated July 1, 1976 (72
O.G. No. 3, p. 676-J) which provided that "the maximum rate of interest, including commissions
premiums, fees and other charges on loans with a maturity of more than 730 days by banking
institution . . . shall be 19%."
This Court disallowed the increase for the simple reason that said "Circular No. 494, although it has the
effect of law is not a law." Speaking through Mme. Justice Ameurfina M. Herrera, this Court held:
"It is now clear that from March 17, 1980, escalation clauses to be valid should specifically provide: (1)
that there can be an increase in interest if increased by law or by the Monetary Board; and (2) in order
for such stipulation to be valid, it must include a provision for reduction of the stipulated interest 'in the
event that the applicable maximum rate of interest is reduced by law or by the Monetary Board.'" p.
111, Rollo.).
In the present case, the PNB relied on its own Board Resolution No. 681 (Exh. 10), PNB Circular No.
40-79-84 (Exh. 13), and PNB Circular No. 40-129-84 (Exh. 15), but those resolution and circulars are
neither laws nor resolutions of the Monetary Board.
CB Circular No. 905, Series of 1982 (Exh. 11) removed the Usury Law ceiling on interest rates —
". . . increases in interest rates are not subject to any ceiling prescribed by the Usury Law."
but it did not authorize the PNB, or any bank for that matter, to unilaterally and successively increase
the agreed interest rates from 18% to 48% within a span of four (4) months, in violation of PD. 116
which limits such changes to "once every twelve months."
Besides violating PD. 116, the unilateral action of the PNB in increasing the interest rate on the private
respondent's loan, violated the mutuality of contracts ordained in Article 1308 of the Civil Code:
"ART. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left
to the will of one of them."
In order that obligations arising from contracts may have the force of law between the parties, there
must be mutuality between the parties based on their essential equality. A contract containing a
condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the
contracting parties, is void (Garcia vs. Rita Legarda, Inc., 21 SCRA 555). Hence, even assuming that
the P1.8 million loan agreement between the PNB and the private respondent gave the PNB a license
(although in fact there was none) to increase the interest rate at will during the term of the loan, that
license would have been null and void for being violative of the principle of mutuality essential in
contracts. It would have invested the loan agreement with the character of a contract of adhesion, where
the parties do not bargain on equal footing, the weaker party's (the debtor) participation being reduced
to the alternative "to take it or leave it" (Qua vs. Law Union & Rock Insurance Co., 95 Phil. 85). Such a
contract is a veritable trap for the weaker party whom the courts of justice must protect against abuse
and imposition.
PNB'S successive increases of the interest rate on the private respondent's loan, over the latter's protest,
were arbitrary as they violated an express provision of the Credit Agreement (Exh. 1) Section 9.01 that
its terms "may be amended only by an instrument in writing signed by the party to be bound as
burdened by such amendment." The increases imposed by PNB also contravene Art. 1956 of the Civil
Code which provides that "no interest shall be due unless it has been expressly stipulated in writing."
The debtor herein never agreed in writing to pay the interest increases fixed by the PNB beyond 24%
per annum, hence, he is not bound to pay a higher rate than that.
That an increase in the interest rate from 18% to 48% within a period of four (4) months is excessive,
as found by the Court of Appeals, is indisputable.
WHEREFORE, finding no reversible error in the decision of the Court of Appeals in CA-G.R. CV No.
09791, the Court resolved to deny the petition for review for lack of merit, with costs against the
petitioner.
SO ORDERED.
Narvasa, Cruz, Gancayco and Medialdea, JJ., concur.
FIRST DIVISION
[G.R. No. 113412. April 17, 1996.]
Spouses PONCIANO ALMEDA and EUFEMIA P. ALMEDA, petitioners, vs. THE COURT OF
APPEALS and PHILIPPINE NATIONAL BANK, respondents.
Cuevas De la Cuesta & De las Alas for petitioners.
Cruz Cruz & Navarro III collaborating counsel for petitioners.
PNB Legal Department for private respondent.
SYLLABUS
1. CIVIL LAW; CONTRACTS; BINDING EFFECT OF AGREEMENT BETWEEN PARTIES;
PREMISED ON THE PRINCIPLE OF MUTUALITY AND OBLIGATORY. — The binding effect of
any agreement between parties to a contract is premised on two settled principles: (1) that any
obligation arising from contract has the force of law between the parties; and (2) that there must be
mutuality between the parties based on their essential equality. Any contract which appears to be
heavily weighed in favor of one of the parties so as to lead to an unconscionable result is void. Any
stipulation regarding the validity or compliance of the contract which is left solely to the will of one of
the parties, is likewise, invalid.
2. ID.; SPECIAL CONTRACTS; LOAN; INTEREST IS REQUIRED TO BE EXPRESSLY
STIPULATED IN WRITING. — The manner of agreement is itself explicitly stipulated by the Civil
Code when it provides, in Article 1956 that "No interest shall be due unless it has been expressly
stipulated in writing." What has been "stipulated in writing" from a perusal of interest rate provision of
the credit agreement signed between the parties is that petitioners were bound merely to pay 21%
interest, subject to a possible escalation or de-escalation, when 1) the circumstances warrant such
escalation or de-escalation; 2) within the limits allowed by law; and (3) upon agreement.
3. ID.; ID.; ID.; LIFTING OF USURY CEILING; DOES NOT GRANT BANKS CARTE
BLANCHE AUTHORITY TO RAISE INTEREST; RULE UNDER CB CIRCULAR 905. — While
the Usury Law ceiling on interest rates was lifted by C.B. Circular 905, nothing in the said circular
could possibly be read as granting respondent bank carte blanche authority to raise interest rates to
levels which would either enslave its borrowers or lead to a hemorrhaging of their assets. Borrowing
represents a transfusion of capital from lending institutions to industries and businesses in order to
stimulate growth. This would not, obviously, be the effect of PNB's unilateral and lopsided policy
regarding the interest rates of petitioners' borrowings in the instant case.
4. ID.; ID.; ID.; ID.; CANNOT BE INVOKED TO JUSTIFY ESCALATION CLAUSES, NOT
BEING A GRANT OF SPECIFIC AUTHORITY. — Apart from violating the principle of mutuality of
contracts, there is authority for disallowing the interest rates imposed by respondent bank, for the credit
agreement specifically requires that the increase be "within the limits allowed by law." In the case of
PNB vs. Court of Appeals, cited above, this Court clearly emphasized that C.B. Circular No. 905 could
not be properly invoked to justify the escalation clauses of such contracts, not being a grant of specific
authority.
5. ID.; ID.; ID.; ESCALATION CLAUSES; VALID AS LONG AS NOT SOLELY
POTESTATIVE BUT BASED ON REASONABLE AND VALID GROUNDS. — Escalation clauses
are not basically wrong or legally objectionable so long as they are not solely potestative but based on
reasonable and valid grounds. Here, as clearly demonstrated above, not only the increases of the
interest rates on the basis of the escalation clause patently unreasonable and unconscionable, but also
there are no valid and reasonable standards upon which the increases are anchored.
6. ID.; ID.; MORTGAGE; AUTOMATIC FORECLOSURE PROVISIONS OF PD 385; CAN BE
INVOKED AFTER SETTLEMENT OF QUESTION INVOLVING INTEREST AND ONLY AFTER
DEBTORS REFUSED TO MEET OBLIGATION FOLLOWING SUCH DETERMINATION. — In
the first place, because of the dispute regarding the interest rate increases, an issue which was never
settled on merit in the courts below, the exact amount of petitioner's obligations could not be
determined. Thus, the foreclosure provisions of P.D. 385 could be validly invoked by respondent only
after settlement of the question involving the interest rate on the loan, and only after the spouses
refused to meet their obligations following such determination.
7. STATUTORY CONSTRUCTION; THE PHRASE "WITHIN THE LIMITS ALLOWED BY
LAW" REFERS TO LEGISLATIVE ENACTMENTS NOT ADMINISTRATIVE CIRCULARS. —
The escalation clause of the credit agreement requires that the same be made "within the limits allowed
by law," obviously referring specifically to legislative enactments not administrative circulars. Note
that the phrase "limits imposed by law," refers only to the escalation clause. However, the same
agreement allows reduction on the basis of law or the Monetary Board. Had the parties intended the
word "law" to refer to both legislative enactments and administrative circulars and issuances, the
agreement would not have gone as far as making a distinction between "law or the Monetary Board
Circulars" in referring to mutually agreed upon reductions in interest rates.
DECISION
KAPUNAN, J p:
On various dates in 1981, the Philippine National Bank granted to herein petitioners, the spouses
Ponciano L. Almeda and Eufemia P. Almeda several loan/credit accommodations totaling P18.0
Million pesos payable in a period of six years at an interest rate of 21% per annum. To secure the loan,
the spouses Almeda executed a Real Estate Mortgage Contract covering a 3,500 square meter parcel of
land, together with the building erected thereon (the Marvin Plaza) located at Pasong Tamo, Makati,
Metro Manila. A credit agreement embodying the terms and conditions of the loan was executed
between the parties. Pertinent portions of the said agreement are quoted below:
SPECIAL CONDITIONS
xxx xxx xxx
The loan shall be subject to interest at the rate of twenty one per cent (21%) per annum, payable semi-
annually in arrears, the first interest payment to become due and payable six (6) months from date of
initial release of the loan. The loan shall likewise be subject to the appropriate service charge and a
penalty charge of three per cent (3%) per annum to be imposed on any amount remaining unpaid or not
rendered when due.
xxx xxx xxx
III. OTHER CONDITIONS
(c) Interest and Charges
(1) The Bank reserves the right to increase the interest rate within the limits allowed by law at any
time depending on whatever policy it may adopt in the future; provided, that the interest rate on
this/these accommodations shall be correspondingly decreased in the event that the applicable
maximum interest rate is reduced by law or by the Monetary Board. In either case, the adjustment in
the interest rate agreed upon shall take effect on the effectivity date of the increase or decrease of the
maximum interest rate. 1
Between 1981 and 1984, petitioners made several partial payments on the loan totaling P7,735,004.66,
2 a substantial portion of which was applied to accrued interest. 3 On March 31, 1984, respondent
bank, over petitioners' protestations, raised the interest rate to 28%, allegedly pursuant to Section III-c
(1) of its credit agreement. Said interest rate thereupon increased from an initial 21% to a high of 68%
between March of 1984 to September, 1986. 4
Petitioners protested the increase in interest rates, to no avail. Before the loan was to mature in March,
1988, the spouses filed on February 6, 1988 a petition for declaratory relief with prayer for a writ of
preliminary injunction and temporary restraining order with the Regional Trial Court of Makati,
docketed as Civil Case No. 18872. In said petition, which was raffled to Branch 134 presided by Judge
Ignacio Capulong, the spouses sought clarification as to whether or not the PNB could unilaterally raise
interest rates on the loan, pursuant to the credit agreement's escalation clause, and in relation to Central
Bank Circular No. 905. As a preliminary measure, the lower court, on March 3, 1988, issued a writ of
preliminary injunction enjoining the Philippine National Bank from enforcing an interest rate above the
21% stipulated in the credit agreement. By this time the spouses were already in default of their loan
obligations.
Invoking the Law on Mandatory Foreclosure (Act 3135, as amended and P.D. 385), the PNB countered
by ordering the extrajudicial foreclosure of petitioners' mortgaged properties and scheduled an auction
sale for March 14, 1989. Upon motion by petitioners, however, the lower court, on April 5, 1989,
granted a supplemental writ of preliminary injunction, staying the public auction of the mortgaged
property.
On January 15, 1990, upon the posting of a counterbond by the PNB, the trial court dissolved the
supplemental writ of preliminary injunction. Petitioners filed a motion for reconsideration. In the
interim, respondent bank once more set a new date for the foreclosure sale of Marvin Plaza which was
March 12, 1990. Prior to the scheduled date, however, petitioners tendered to respondent bank the
amount of P40,142,518.00, consisting of the principal (P18,000,000.00) and accrued interest calculated
at the originally stipulated rate of 21%. The PNB refused to accept the payment. 5
As a result of PNB's refusal of the tender of payment, petitioners, on March 8, 1990, formally
consigned the amount of P40,142,518.00 with the Regional Trial Court in Civil Case No. 90-663. They
prayed therein for a writ of preliminary injunction with a temporary restraining order. The case was
raffled to Branch 147, presided by Judge Teofilo Guadiz. On March 15, 1990, respondent bank sought
the dismissal of the case.
On March 30, 1990 Judge Guadiz in Civil Case No. 90-663 issued an order granting the writ of
preliminary injunction enjoining the foreclosure sale of "Marvin Plaza" scheduled on March 12, 1990.
On April 17, 1990 respondent bank filed a motion for reconsideration of the said order.
On August 16, 1991, Civil Case No. 90-663 we transferred to Branch 66 presided by Judge Eriberto
Rosario who issued an order consolidating said case with Civil Case 18871 presided by Judge Ignacio
Capulong.
For Judge Ignacio Capulong's refusal to lift the writ of preliminary injunction issued March 30, 1990,
respondent bank filed a petition for Certiorari, Prohibition and Mandamus with respondent Court of
Appeals, assailing the following orders of the Regional Trial Court:
1. Order dated March 30, 1990 of Judge Guadiz granting the writ of preliminary injunction
restraining the foreclosure sale of Marvin Plaza set on March 12, 1990;
2. Order of Judge Ignacio Capulong dated January 10, 1992 denying respondent bank's motion to
lift the writ of injunction issued by Judge Guadiz as well as its motion to dismiss Civil Case No. 90-
663;
3. Order of Judge Capulong dated July 3, 1992 denying respondent bank's subsequent motion to
lift the writ of preliminary injunction; and
4. Order of Judge Capulong dated October 20, 1992 denying respondent bank's motion for
reconsideration.
On August 27, 1993, respondent court rendered its decision setting aside the assailed orders and
upholding respondent bank's right to foreclose the mortgaged property pursuant to Act 3135, as
amended and P.D. 385. Petitioners' Motion for Reconsideration and Supplemental Motion for
Reconsideration, dated September 15, 1993 and October 28, 1993, respectively, were denied by
respondent court in its resolution dated January 10, 1994.
Hence the instant petition.
This appeal by certiorari from the respondent court's decision dated August 27, 1993 raises two
principal issues namely: 1) Whether or not respondent bank was authorized to raise its interest rates
from 21% to as high as 68% under the credit agreement; and 2) Whether or not respondent bank is
granted the authority to foreclose the Marvin Plaza under the mandatory foreclosure provisions of P.D.
385.
In its comment dated April 19, 1994, respondent bank vigorously denied that the increases in the
interest rates were illegal, unilateral, excessive and arbitrary, it argues that the escalated rates of interest
it imposed was based on the agreement of the parties. Respondent bank further contends that it had a
right to foreclose the mortgaged property pursuant to P.D. 385, after petitioners were unable to pay
their loan obligations to the bank based on the increased rates upon maturity in 1984.
The instant petition is impressed with merit.
The binding effect of any agreement between parties to a contract is premised on two settled principles:
(1) that any obligation arising from contract has the force of law between the parties; and (2) that there
must be mutuality between the parties based on their essential equality. 6 Any contract which appears
to be heavily weighed in favor of one of the parties so as to lead to an unconscionable result is void.
Any stipulation regarding the validity or compliance of the contract which is left solely to the will of
one of the parties, is likewise, invalid.
It is plainly obvious, therefore, from the undisputed facts of the case that respondent bank unilaterally
altered the terms of its contract with petitioners by increasing the interest rates on the loan without the
prior assent of the latter. In fact, the manner of agreement is itself explicitly stipulated by the Civil
Code when it provides, in Article 1956 that "No interest shall be due unless it has been expressly
stipulated in writing." What has been "stipulated in writing" from a perusal of interest rate provision of
the credit agreement signed between the parties is that petitioners were bound merely to pay 21%
interest, subject to a possible escalation or de-escalation, when 1) the circumstances warrant such
escalation or de-escalation; 2) within the limits allowed by law; and 3) upon agreement.
Indeed, the interest rate which appears to have been agreed upon by the parties to the contract in this
case was the 21% rate stipulated in the interest provision. Any doubt about this is in fact readily
resolved by a careful reading of the credit agreement because the same plainly uses the phrase "interest
rate agreed upon," in reference to the original 21% interest rate. The interest provision states:
(c) Interest and Charges
(1) The Bank reserves the right to increase the interest rate within the limits allowed by law at any
time depending on whatever policy it may adopt in the future; provided, that the interest rate on
this/these accommodations shall be correspondingly decreased in the event that the applicable
maximum interest rate is reduced by law or by the Monetary Board. In either case, the adjustment in
the interest rate agreed upon shall take effect on the effectivity date of the increase or decrease of the
maximum interest rate.
In Philippine National Bank v. Court of Appeals, 7 this Court disauthorized respondent bank from
unilaterally raising the interest rate in the borrower's loan from 18% to 32%, 41% and 48% partly
because the aforestated increases violated the principle of mutuality of contracts expressed in Article
1308 of the Civil Code. The Court held:
CB Circular No. 905, Series of 1982 (Exh. 11) removed the Usury Law ceiling on interest rates —
'. . . increases in interest rates are not subject to any ceiling prescribed by the Usury Law.'
but it did not authorize the PNB, or any bank for that matter, to unilaterally and successively increase
the agreed interest rates from 18% to 48% within a span of four (4) months, in violation of P.D. 116
which limits such changes to once every twelve months.'
Besides violating P.D. 116, the unilateral action of the PNB in increasing the interest rate on the private
respondent's loan, violated the mutuality of contracts ordained in Article 1308 of the Civil Code:
ART. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left
to the will of one of them.
In order that obligations arising from contracts may have the force of law between the parties, there
must be mutuality between the parties based on their essential equality. A contract containing a
condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the
contracting parties, is void (Garcia vs. Rita Legarda, Inc., 21 SCRA 555). Hence, even assuming that
the P1.8 million loan agreement between the PNB and the private respondent gave the PNB a license
(although in fact there was none) to increase the interest rate at will during the term of the loan, that
license would have been null and void for being violative of the principle of mutuality essential in
contracts. It would have invested the loan agreement with the character of a contract of adhesion, where
the parties do not bargain on equal footing, the weaker party's (the debtor) participation being reduced
to the alternative 'to take it or lease it' (Qua vs. Law Union & Rock Insurance Co., 95 Phil. 85). Such a
contract is a veritable trap for the weaker party whom the courts of justice must protect against abuse
and imposition.
PNB's successive increases of the interest rate on the private respondent's loan, over the latter's protest,
were arbitrary as they violated an express provision of the Credit Agreement (Exh. 1) Section 9.01 that
its terms 'may be amended only by an instrument in writing signed by the party to be bound as
burdened by such amendment.' The increases imposed by PNB also contravene Art. 1956 of the Civil
Code which provides that 'no interest shall be due unless it has been expressly stipulated in writing.'
The debtor herein never agreed in writing to pay the interest increases fixed by the PNB beyond 24%
per annum, hence, he is not bound to pay a higher rate than that.
That an increase in the interest rate from 18% to 48% within a period of four (4) months is excessive,
as found by the Court of Appeals, is indisputable.
Clearly, the galloping increases in interest rate imposed by respondent bank on petitioners' loan, over
the latter's vehement protests, were arbitrary.
Moreover, respondent bank's reliance on C.B. Circular No 905, Series of 1982 did not authorize the
bank, or any lending institution for that matter, to progressively increase interest rates on borrowings to
an extent which would have made it virtually impossible for debtors to comply with their own
obligations. True, escalation clauses in credit agreements are perfectly valid and do not contravene
public policy. Such clauses, however, (as are stipulations in other contracts) are nonetheless still
subject to laws and provisions governing agreements between parties, which agreements — while they
may be the law between the contracting parties — implicitly incorporate provisions of existing law.
Consequently, while the Usury Law ceiling on interest rates was lifted by C.B. Circular 905, nothing in
the said circular could possibly be read as granting respondent bank carte blanche authority to raise
interest rates to levels which would either enslave its borrowers or lead to a hemorrhaging of their
assets. Borrowing represents a transfusion of capital from lending institutions to industries and
businesses in order to stimulate growth. This would not, obviously, be the effect of PNB's unilateral
and lopsided policy regarding the interest rates of petitioners' borrowings in the instant case.
Apart from violating the principle of mutuality of contracts, there is authority for disallowing the
interest rates imposed by respondent bank, for the credit agreement specifically requires that the
increase be "within the limits allowed by law". In the case of PNB v. Court of Appeals, cited above,
this Court clearly emphasized that C.B. Circular No. 905 could not be properly invoked to justify the
escalation clauses of such contracts, not being a grant of specific authority.
Furthermore, the escalation clause of the credit agreement requires that the same be made "within the
limits allowed by law," obviously referring specifically to legislative enactments not administrative
circulars. Note that the phrase "limits imposed by law," refers only to the escalation clause. However,
the same agreement allows reduction on the basis of law or the Monetary Board. Had the parties
intended the word "law" to refer to both legislative enactments and administrative circulars and
issuances, the agreement would not have gone as far as making a distinction between "law or the
Monetary Board Circulars" in referring to mutually agreed upon reductions in interest rates. This
distinction was the subject of the Court's disquisition in the case of Banco Filipino Savings and
Mortgage Bank v. Navarro 8 where the Court held that:
What should be resolved is whether BANCO FILIPINO can increase the interest rate on the LOAN
from 12% to 17% per annum under the Escalation Clause. It is our considered opinion that it may not.
The Escalation Clause reads as follows:
I/We hereby authorize Banco Filipino to correspondingly increase
the interest rate stipulated in this contract without advance notice to me/us in the event.
a law
increasing
the lawful rates of interest
that may be charged
on this particular
kind of loan.' (Paragraphing and italics supplied)
It is clear from the stipulation between the parties that the interest rate may be increased 'in the event a
law should be enacted increasing the lawful rate of interest that may be charged on this particular kind
of loan.' The Escalation Clause was dependent on an increase of rate made by 'law' alone.
CIRCULAR No. 494, although it has the effect of law, is not a law. "Although a circular duly issued is
not strictly a statute or a law, it has, however, the force and effect of law." (Emphasis supplied). "An
administrative regulation adopted pursuant to law has the force and effect of law." "That administrative
rules and regulations have the force of law can no longer be questioned."
The distinction between a law and an administrative regulation is recognized in the Monetary Board
guidelines quoted in the latter to the BORROWER of Ms. Paderes of September 24, 1976 (supra).
According to the guidelines, for a loan's interest to be subject to the increases provided in CIRCULAR
No. 494, there must be an Escalation Clause allowing the increase 'in the event that any law or Central
Bank regulation is promulgated increasing the maximum rate for loans.' The guidelines thus
presuppose that a Central Bank regulation is not within the term 'any law.'
The distinction is again recognized by P.D. No. 1684, promulgated on March 17, 1980, adding Section
7-a to the Usury Law, providing that parties to an agreement pertaining to a loan could stipulate that the
rate of interest agreed upon may be increased in the event that the applicable maximum rate of interest
is increased 'by law or by the Monetary Board.' To quote:
Sec. 7-a. Parties to an agreement pertaining to a loan or forbearance of money, goods or credits
may stipulate that the rate of interest agreed upon may be increased in the event that the applicable
maximum rate of interest
is increased by law or by the Monetary Board:
Provided, That such stipulation shall be valid only if there is also a stipulation in the agreement that the
rate of interest agreed upon shall be reduced in the event that the applicable maximum rate of interest is
reduced by law or by the Monetary Board;
Provided, further, That the adjustment in the rate of interest agreed upon shall take effect on or after the
effectivity of the increase or decrease in the maximum rate of interest.' (Paragraphing and italics
supplied).
It is now clear that from March 17, 1980, escalation clauses to be valid should specifically provide: (1)
that there can be an increase in interest if increased by law or by the Monetary Board; and (2) in order
for such stipulation to be valid, it must include a provision for reduction of the stipulated interest 'in the
event that the applicable maximum rate of interest is reduced by law or by the Monetary Board.'
Petitioners never agreed in writing to pay the increased interest rates demanded by respondent bank in
contravention to the tenor of their credit agreement. That an increase in interest rates from 18% to as
much as 68% is excessive and unconscionable is indisputable. Between 1981 and 1984, petitioners had
paid an amount equivalent to virtually half of the entire principal (P7,735,004.66) which was applied to
interest alone. By the time the spouses tendered the amount of P40,142,518.00 in settlement of their
obligations, respondent bank was demanding P58,377,487.00 over and above those amounts already
previously paid by the spouses.
Escalation clauses are not basically wrong or legally objectionable so long as they are not solely
potestative but based on reasonable and valid grounds. 9 Here, as clearly demonstrated above, not only
the increases of the interest rates on the basis of the escalation clause patently unreasonable and
unconscionable, but also there are no valid and reasonable standards upon which the increases are
anchored.
We go now to respondent bank's claim that the principal issue in the case at bench involves its right to
foreclose petitioners' properties under P.D. 385. We find respondent's pretense untenable.
Presidential Decree No. 385 was issued principally to guarantee that government financial institutions
would not be denied substantial cash inflows necessary to finance the government's development
projects all over the country by large borrowers who resort to litigation to prevent or delay the
government's collection of their debts or loans. 10 In facilitating collection of debts through its
automatic foreclosure provisions, the government is however, not exempted from observing basic
principles of law, and ordinary fairness and decency under the due process clause of the Constitution.
11
In the first place, because of the dispute regarding the interest rate increases, an issue which was never
settled on merit in the courts below, the exact amount of petitioner's obligations could not be
determined. Thus, the foreclosure provisions of P.D. 385 could be validly invoked by respondent bank
only after settlement of the question involving the interest rate on the loan, and only after the spouses
refused to meet their obligations following such determination. In Filipinas Marble Corporation v.
Intermediate Appellate Court, 12 involving P.D. 385's provisions on mandatory foreclosure, we held
that:
We cannot, at this point, conclude that respondent DBP together with the Bancom people actually
misappropriated and misspent the $5 million loan in whole or in part although the trial court found that
there is 'persuasive' evidence that such acts were committed by the respondent. This matter should
rightfully be litigated below in the main action. Pending the outcome of such litigation, P.D. 385 cannot
automatically be applied for if it is really proven that respondent DBP is responsible for the
misappropriation of the loan, even if only in part, then the foreclosure of the petitioner's properties
under the provisions of P.D. 385 to satisfy the whole amount of the loan would be a gross mistake. It
would unduly prejudice the petitioner, its employees and their families.
Only after trial on the merits of the main case can the true amount of the loan which was applied wisely
or not, for the benefit of the petitioner be determined. Consequently, the extent of the loan where there
was no failure of consideration and which may be properly satisfied by foreclosure proceedings under
P.D. 385 will have to await the presentation of evidence in a trial on the merits.
In Republic Planters Bank v. Court of Appeals 13 the Court reiterating the dictum in Filipinas Marble
Corporation, held:
The enforcement of P.D. 385 will 'sweep under the rug' this iceberg of a scandal in the sugar industry
during the Marcos Martial Law years. This we can not allow to happen. For the benefit of future
generations, all the dirty linen in the PHILSUCOM/NASUTRA/RPB closets have to be exposed in
public so that the same may NEVER be repeated.
It is of paramount national interest, that we allow the trial court to proceed with dispatch to allow the
parties below to present their evidence.
Furthermore, petitioners made a valid consignation of what they, in good faith and in compliance with
the letter of the Credit Agreement, honestly believed to be the real amount of their remaining
obligations with the respondent bank. The latter could not therefore claim that there was no honest-to-
goodness attempt on the part of the spouses to settle their obligations. Respondent bank's rush to
inequitably invoke the foreclosure provisions of P.D. 385 through its legal machinations in the courts
below, in spite of the unsettled differences in interpretation of the credit agreement was obviously made
in bad faith, to gain the upper hand over petitioners.
In the face of the unequivocal interest rate provisions in the credit agreement and in the law requiring
the parties to agree to changes in the interest rate in writing, we hold that the unilateral and progressive
increases imposed by respondent PNB were null and void. Their effect was to increase the total
obligation on an eighteen million peso loan to an amount way over three times that which was
originally granted to the borrowers. That these increases, occasioned by crafty manipulations in the
interest rates is unconscionable and neutralizes the salutary policies of extending loans to spur business
cannot be disputed.
WHEREFORE, PREMISES CONSIDERED, the decision of the Court of Appeals dated August 27,
1993, as well as the resolution dated February 10, 1994 is hereby REVERSED AND SET ASIDE. The
case is remanded to the Regional Trial Court of Makati for further proceedings.
SO ORDERED.
Bellosillo and Hermosisima, Jr., JJ., concur.
Padilla and Vitug, JJ., took no part.
Footnotes
1. Rollo, pp. 48-55.
2. Id., at, 165.
3. Id.
4. Id.
5. The PNB claimed that as of March 12, 1990, the spouses balance was P58,377,487.31, using the
increased interest rates for computing accrued interest.
6. Garcia v. Legarda, 21 SCRA 555 (1967).
7. 196 SCRA 536, 543 (1991).
8. 152 SCRA 346 (1987).
9. Vitug's Compendium of Civil Law and Jurisprudence, Revised Edition, 1993, p. 533, citing
PNB v. IAC, 183 SCRA 133; PNB v. Court of Appeals, 196 SCRA 536.
10. Sections 1 and 2 of P.D. 385 provide:
Section 1. It shall be mandatory for government financial institutions, after the lapse
of sixty (60) days from the issuance of this Decree, to foreclose the collaterals and/or securities for any
loan, credit accommodation, and/or guarantees granted by them whenever the arrearages on such
account, concluding accrued interest and other obligations, including interest and other charges, as
appearing in the book of accounts and/or related records of the financial institution concerned. This
shall be without prejudice to the exercise by the government financial institution of such rights and/or
remedies available to them under their respective contracts with their debtors, including the right to
foreclose on loans, credits, accommodations, and/or guarantees on which the arrearages are less than
twenty percent (20%).
Section 2. No restraining order, temporary or permanent injunction shall be issued
by the court against any government financial institution in any action taken by such institution in
compliance with the mandatory foreclosure provided in Section 1 hereof, whether such restraining
order, temporary or permanent injunction is sought by the borrower(s) or any third party or parties,
except after due hearing in which it is established by the borrower, and admitted by the government
financial institution concerned that twenty percent (20%) of the outstanding arrearages has been paid
after the filing of foreclosure proceedings.
11. Filipinas Marble Corporation v. Intermediate Appellate Court, 142 SCRA 181 (1986).
12. Id.
13. 213 SCRA 413 (1992).
THIRD DIVISION
[G.R. No. 90676. June 19, 1991.]
STATE INVESTMENT HOUSE, INC., petitioner, vs. THE HONORABLE COURT OF APPEALS,
HON. JUDGE PERLITA J. TRIA TIRONA, Presiding Judge of the Regional Trial Court of Quezon
City, Branch CII, and SPS. RAFAEL and REFUGIO AQUINO, respondents.
Padilla Law Office for petitioner.
Rodolfo T. Galing and Chaves, Hechanova & Lim Law Offices for private respondents.
SYLLABUS
1. REMEDIAL LAW; CIVIL PROCEDURE; JUDGMENT; FINAL AND EXECUTORY
JUDGMENT MAY BE CLARIFIED UNDER CERTAIN CIRCUMSTANCES. — We begin by
noting that the trial court has asserted authority to issue the clarificatory order in respect of the decision
of Judge Fortun, even though that judgment had become final and executory. In Reinsurance Company
of the Orient, Inc. v. Court of Appeals, this Court had occasion to deal with the applicable doctrine to
some extent: ". . . [E]ven a judgment which has become final and executory may be clarified under
certain circumstances. The dispositive portion of the judgment may, for instance, contain an error
clearly clerical in nature (perhaps best illustrated by an error in arithmetical computation) or an
ambiguity arising from inadvertent omission, which error may be rectified or ambiguity clarified and
the omission supplied by reference primarily to the body of the decision itself. Supplementary
reference to the pleadings previously filed in the case may also be resorted to by way of corroboration
of the existence of the error or of the ambiguity in the dispositive part of the judgment. In Locsin, et al.
v. Paredes, et al., this Court allowed a judgment which had become final and executory to be clarified
by supplying a word which had been inadvertently omitted and which, when supplied, in effect
changed the literal import of the original phraseology: . . . `Under the juridical rule that the judgment
should be in accordance with the allegations, the evidence and the conclusions of fact and law, the
dispositive part of the judgment under consideration should have ordered that the debt be paid
`severally' and in omitting the word or adverb `severally' inadvertently, said judgment became
ambiguous. This ambiguity may be clarified at any time after the decision is rendered and even after it
had become final (34 Corpus Juris, 235, 326). This respondent judge did not, therefore, exceed his
jurisdiction in clarifying the dispositive part of the judgment by supplying the omission.'
2. ID.; ID.; ID.; ID.; CASE AT BAR. — Judge Fortun evidently meant to act favorably on the
motion for reconsideration of the respondent Aquino spouses and in effect accepted respondent
spouses' argument that they had not incurred mora considering that their failure to pay PN No. IF-82-
0904-AA on time had been due to petitioner State's unjustified refusal to release the shares pledged to
it. It is not, however, clear to what precise extent Judge Fortun meant to grant the motion for
reconsideration. The promissory note in Account No. IF-82-0904-AA had three (3) components: (a)
principal of the loan in the amount of P110,000.00; (b) regular interest in the amount of seventeen
percent (17%) per annum; and (c) additional or penalty interest in case of non-payment at maturity, at
the rate of two percent (2%) per month or twenty-four percent (24%) per annum. In the dispositive part
of his resolution, Judge Fortun did not specify which of these components of the loan he was ordering
respondent spouses to pay and which component or components he was in effect deleting. We cannot
assume that Judge Fortun meant to grant the relief prayed for by respondent spouses in all its parts. For
one thing, respondent spouses in their motion for reconsideration asked for "at least P50,000.00" for
moral damages and "at least P50,000.00" for exemplary damages, as well as P20,000.00 by way of
attorney's fees and litigation expenses. Judge Fortun granted respondent spouses only P10,000.00 as
moral damages and P5,000.00 as exemplary damages, plus P6,000.00 as attorney's fees and costs. For
another, respondent spouses asked Judge Fortun to order the release of the shares pledged "upon
payment of [respondent spouses'] loan under Code No. 82-0904-AA without interest, as plaintiffs were
not in delay in accordance with Article 69 of the New Civil Code . . . ." In other words, respondent
spouses did not themselves become very clear what they were asking Judge Fortun to grant them; they
did not apparently distinguish between regular interest or "monetary interest" in the amount of
seventeen percent (17%) per annum and penalty charges or "compensatory interest" in the amount of
two percent (2%) per month or twenty-four percent (24%) per annum. It thus appears that the Fortun
decision was ambiguous in the sense that it was cryptic. We believe that in these circumstances, we
must assume that Judge Fortun meant to decide in accordance with law, that we cannot fairly assume
that Judge Fortun was grossly ignorant of the law, or that he intended to grant the respondent spouses
relief to which they were not entitled under law. Thus, the ultimate question which arises is: if
respondent Aquino spouses were not in delay, what should they have been held liable for in accordance
with law?
3. CIVIL LAW; DAMAGES; ACTUAL OR COMPENSATORY DAMAGES; PAYMENT OF A
SUM OF MONEY; LIMITED LIABILITY OF A PARTY NOT GUILTY OF DELAY. — We believe
and so hold that since respondent Aquino spouses were held not to have been in delay, they were
properly liable only for: (a) the principal of the loan or P110,000.00; and (b) regular or monetary
interest in the amount of seventeen percent (17%) per annum. They were not liable for penalty or
compensatory interest, fixed by the promissory note in Account No. IF-82-0904-AA at two percent
(2%) per month of twenty-four (24%) per annum.
4. ID.; ID.; ID.; ID.; LIABILITY IN CASE OF DELAY. — It must be stressed in this connection
that under Article 2209 of the Civil Code the appropriate measure for damages in case of delay in
discharging an obligation consisting of the payment of a sum of money, is the payment of penalty
interest at the rate agreed upon; and in the absence of a stipulation of a particular rate of penalty
interest, then the payment of additional interest at a rate equal to the regular monetary interest; and if
no regular interest had been agreed upon, then payment of legal interest or six percent (6%) per annum.
5. ID.; OBLIGATIONS; TENDER OF PAYMENT AND CONSIGNATION; REGULAR
INTEREST CONTINUES TO ACCRUE UNTIL ACTUAL PAYMENT IS EFFECTED;
CONSIGNATION IS NECESSARY TO RELEASE DEBTOR FROM OBLIGATION.— The fact that
the respondent Aquino spouses were not in default did not mean that they, as a matter of law, were
relieved from the payment not only of penalty or compensatory interest at the rate of twenty-four
percent (24%) per annum but also of regular or monetary interest of seventeen percent (17%) per
annum. The regular or monetary interest continued to accrue under the terms of the relevant promissory
note until actual payment is effected. The payment of regular interest constitutes the price or cost of the
use of money and thus, until the principal sum due is returned to the creditor, regular interest continues
to accrue since the debtor continues to use such principal amount. The relevant rule is set out in Article
1256 of the Civil Code. Where the creditor unjustly refuses to accept payment, the debtor desirous of
being released from his obligation must comply with two (2) conditions: (a) tender of payment; and (b)
consignation of the sum due. Tender of payment must be accompanied or followed by consignation in
order that the effects of payment may be produced. Thus, in Llamas v. Abaya, the Supreme Court
stressed that a written tender of payment alone, without consignation in court of the sum due, does not
suspend the accruing of regular or monetary interest.
6. ID.; ID.; ID.; ID.; ID.; RATIONALE. — For the respondent spouses to continue in possession
of the principal of the loan amounting to P110,000.00 and to continue to use the same after maturity of
the loan without payment of regular or monetary interest, would constitute unjust enrichment on the
part of the respondent spouses at the expense of petitioner State even though the spouses had not been
guilty of mora. It is precisely this unjust enrichment which Article 1256 of the Civil Code prevents by
requiring, in addition to tender of payment, the consignation of the amount due in court which amount
would thereafter be deposited by the Clerk of Court in a bank and earn interest to which the creditor
would be entitled.
DECISION
FELICIANO, J p:
On 5 April 1982, respondent spouses Rafael and Refugio Aquino pledged certain shares of stock to
petitioner State Investment House, Inc. ("State") in order to secure a loan of P120,000.00 designated as
Account No. IF 82-0631-AA. Prior to the execution of the pledge, respondent spouses, as an
accommodation to and together with the spouses Jose and Marcelina Aquino, signed an agreement
(Account No. IF-82-1375-AA) with petitioner State for the latter's purchase of receivables amounting
to P375,000.00. When Account No. IF-82-0631-AA fell due, respondent spouses paid the same partly
with their own funds and partly from the proceeds of another loan which they obtained also from
petitioner State designated as Account No. IF-82-0904-AA. This new loan was secured by the same
pledge agreement executed in relation to Account No. IF-820631-AA. When the new loan matured,
State demanded payment. Respondents expressed willingness to pay, requesting that upon payment, the
shares of stock pledged be released. Petitioner State denied the request on the ground that the loan
which it had extended to the spouses Jose and Marcelina Aquino (Account No. IF-82-1379-AA) had
remained unpaid.
On 29 June 1984, Atty. Rolando Salonga sent to respondent spouses a Notice of Notarial Sale stating
that upon request of State and by virtue of the pledge agreement, he would sell at public auction the
shares of stock pledged to State. This prompted respondents to file a case before the Regional Trial
Court of Quezon City alleging that the intended foreclosure sale was illegal because from the time the
obligation under Account No. IF-82-0904-AA became due, they had been able and willing to pay the
same, but petitioner had insisted that respondents pay even the loan account of Jose and Marcelina
Aquino which had not been secured by the pledge. It was further alleged that their failure to pay their
loan (Account No. IF-82-0904-AA) was excused because the petitioner State itself had prevented the
satisfaction of the obligation.
The trial court, in a decision dated 14 December 1984 rendered by Judge Willelmo Fortun, initially
dismissed the complaint. Respondent spouses filed a motion for reconsideration praying for a new
decision ordering petitioner State to release the shares upon payment of respondents' loan "without
interest," as the latter had not been in delay in the performance of their obligation. State countered that
the pledge executed by respondent spouses also covered the loan extended to Jose and Marcelina
Aquino, which too should be paid before the shares may be released.
Acting on the motion for reconsideration, Judge Fortun set aside his original decision and rendered a
new judgment dated 29 January 1985, ordering State to immediately release the pledge and to deliver
to respondents the share of stock "upon payment of the loan under Code No. 82-0904-AA."
On appeal, the Court of Appeals affirmed in toto the new decision of the trial court, holding that the
loan extended to Jose and Marcelina Aquino, having been executed prior to the pledge was not covered
by the pledge which secured only loans executed subsequently. Thus, upon payment of the loan under
Code No. IF-0904-AA, the shares of stock should be released. The decisions of the Court of Appeals
and of Judge Fortun became final and executory.
Upon remand of the records of the case to the trial court for execution, there developed disagreement
over the amount which respondent spouses Rafael and Refugio Aquino should pay to secure the release
of the shares of stock — petitioner State contending that respondents should also pay interest and
respondents arguing they should not. Respondent spouses then filed a motion with the trial court to
clarify the Fortun decision praying that an order issue clarifying the phrase "upon payment of plaintiffs'
loan" to mean upon payment of plaintiff loan in the principal amount of P100,000.00 alone, "without
interest, penalties and other charges."
On 17 February 1989, the trial court, speaking this time through Judge Perlita Tria Tirona, rendered a
decision purporting to clarify the decision of Judge Fortun and ruling that petitioner State shall release
respondents' shares of stock upon payment by respondents of the principal of the loan as set forth in PN
No. 82-0904-AA in the amount of P100,000.00, without interest, penalties and other charges.
Petitioner State appealed Judge Tirona's decision to the Court of Appeals; the appeal was dismissed.
The Court of Appeals agreed with Judge Tirona that no interest need be paid and added that the
clarificatory (Tirona) decision of the trial court merely restated what had been provided for in the
earlier (Fortun) decision; that the Tirona decision did not go beyond what had been adjudged in the
earlier decision. The motion for reconsideration filed by petitioner was accordingly denied.
Hence, this Petition for Review contending that no manifest ambiguity existed in the decision penned
by Judge Fortun; that the trial court through Judge Tirona, erred in clarifying the decision of Judge
Fortun; and that the amendment sought to be introduced in the Fortun decision by respondents may not
be made as the same was substantial in nature and the Fortun decision had become final.
We begin by noting that the trial court has asserted authority to issue the clarificatory order in respect
of the decision of Judge Fortun, even though that judgment had become final and executory. In
Reinsurance Company of the Orient, Inc. v. Court of Appeals, 1 this Court had occasion to deal with
the applicable doctrine to some extent:
"[E]ven a judgment which has become final and executory may be clarified under certain
circumstances. The dispositive portion of the judgment may, for instance, contain an error clearly
clerical in nature (perhaps best illustrated by an error in arithmetical computation) or an ambiguity
arising from inadvertent omission, which error may be rectified or ambiguity clarified and the omission
supplied by reference primarily to the body of the decision itself. Supplementary reference to the
pleadings previously filed in the case may also be resorted to by way of corroboration of the existence
of the error or of the ambiguity in the dispositive part of the judgment. In Locsin et al. v. Paredes, et al.,
this Court allowed a judgment which had become final and executory to be clarified by supplying a
word which had been inadvertently omitted and which, when supplied, in effect changed the literal
import of the original phraseology:
'. . . it clearly appears from the allegations of the complaint, the promissory note reproduced therein and
made a part thereof, the prayer and the conclusions of fact and of law contained in the decision of the
respondent judge, that the obligation contracted by the petitioners is joint and several and that the
parties as well as the trial judge so understood it. Under the juridical rule that the judgment should be in
accordance with the allegations, the evidence and the conclusions of fact and law, the dispositive part
of the judgment under consideration should have ordered that the debt be paid 'severally' and in
omitting the word or adverb 'severally' inadvertently, said judgment became ambiguous. This
ambiguity may be clarified at any time after the decision is rendered and even after it had become final
(34 Corpus Juris, 235, 326). This respondent judge did not, therefore, exceed his jurisdiction in
clarifying the dispositive part of the judgment by supplying the omission.' (Emphasis supplied)
In Filipino Legion Corporation vs. Court of Appeals, et al., the applicable principle was set out in the
following terms:
'[W]here there is ambiguity caused by an omission or mistake in the dispositive portion of a decision,
the court may clarify such ambiguity by an amendment even after the judgment had become final, and
for this purpose it may resort to the pleadings filed by the parties, the court's findings of facts and
conclusions of law as expressed in the body of the decision.' (Emphasis supplied)
In Republic Surety and Insurance Company, Inc. v. Intermediate Appellate Court, the Court, in
applying the above doctrine, said:
'. . . We clarify, in other words, what we did affirm. What is involved here is not what is ordinarily
regarded as a clerical error in the dispositive part of the decision of the Court of First Instance, . . . . At
the same time, what is involved here is not a correction of an erroneous judgment or dispositive portion
of a judgment. What we believe is involved here is in the nature of an inadvertent omission on the part
of the Court of First Instance (which should have been noticed by private respondents' counsel who had
prepared the complaint), of what might be described as a logical follow-through of something set forth
both in the body of the decision and in the dispositive portion thereof; the inevitable follow-through, or
translation into, operational or behavioral terms, of the annulment of the Deed of Sale with Assumption
of Mortgage, from which petitioners' title or claim of title embodied in TCT 133153 flows. (Emphasis
supplied)'" 2 (Emphasis in the original; citations omitted).
The question we must resolve is thus whether or not there is an ambiguity or clerical error or
inadvertent omission in the dispositive portion of the decision of Judge Fortun which may be
legitimately clarified by referring to the body of the decision and perhaps even the pleadings filed
before him. The decision of Judge Fortun disposing of the motion for reconsideration filed by
respondent spouses Rafael and Refugio Aquino consisted basically of quoting practically the whole
motion for reconsideration. In its dispositive portion, Judge Fortun's decision stated: LLphil
"WHEREFORE, plaintiff's 'Motion for Reconsideration' dated January 3, 1985, is granted and the
decision of this Court dated December 14, 1984 is hereby revoked and set aside and another judgment
is hereby rendered in favor of plaintiffs as follows:
(1) Ordering defendants to immediately release the pledge on, and to deliver to plaintiffs, the shares
of stocks enumerated and described in paragraph 4 of plaintiffs' complaint dated July 17, 1984, upon
payment of plaintiffs loan under Code No. 82-0904-AA to defendants;
(2) Ordering defendant State Investment House, Inc. to pay to plaintiffs P10,000.00 as moral
damages, P5,000.00 as exemplary damages, P6,000.00 as attorney's fees, plus costs,
(3) Dismissing defendants' counterclaim, for lack of merit and making the preliminary injunction
permanent.
SO ORDERED." 3
Judge Fortun evidently meant to act favorably on the motion for reconsideration of the respondent
Aquino spouses and in effect accepted respondent spouses' argument that they had not incurred mora
considering that their failure to pay PN No. IF82-0904-AA on time had been due to petitioner State's
unjustified refusal to release the shares pledged to it. It is not, however, clear to what precise extent
Judge Fortun meant to grant the motion for reconsideration. The promissory note in Account No. IF-
82-0904-AA had three (3) components: (a) principal of the loan in the amount of P110,000.00; (b)
regular interest in the amount of seventeen percent (17%) per annum; and (c) additional or penalty
interest in case of non-payment at maturity, at the rate of two percent (2%) per month or twenty-four
percent (24%) per annum. In the dispositive part of his resolution, Judge Fortun did not specify which
of these components of the loan he was ordering respondent spouses to pay and which component or
components he was in effect deleting. We cannot assume that Judge Fortun meant to grant the relief
prayed for by respondent spouses in all its parts. For one thing, respondent spouses in their motion for
reconsideration asked for "at least P50,000.00" for moral damages and "at least P50,000.00" for
exemplary damages, as well as P20,000.00 by way of attorney's fees and litigation expenses. Judge
Fortun granted respondent spouses only P10,000.00 as moral damages and P5,000.00 as exemplary
damages, plus P6,000.00 as attorney's fees and costs. For another, respondent spouses asked Judge
Fortun to order the release of the shares pledged "upon payment of [respondent spouses'] loan under
Code No. 82-0904-AA without interest, as plaintiffs were not in delay in accordance with Article 69 of
the New Civil Code — " (Emphasis supplied). In other words, respondent spouses did not themselves
become very clear what they were asking Judge Fortun to grant them; they did not apparently
distinguish between regular interest or "monetary interest" in the amount of seventeen percent (17%)
per annum and penalty charges or "compensatory interest" in the amount of two percent (2%) per
month or twenty-four percent (24%) per annum.
It thus appears that the Fortun decision was ambiguous in the sense that it was cryptic. We believe that
in these circumstances, we must assume that Judge Fortun meant to decide in accordance with law, that
we cannot fairly assume that Judge Fortun was grossly ignorant of the law, or that he intended to grant
the respondent spouses relief to which they were not entitled under law. Thus, the ultimate question
which arises is: if respondent Aquino spouses were not in delay, what should they have been held liable
for in accordance with law? cdphil
We believe and so hold that since respondent Aquino spouses were held not to have been in delay, they
were properly liable only for: (a) the principal of the loan or P110,000.00; and (b) regular or monetary
interest in the amount of seventeen percent (17%) per annum. They were not liable for penalty or
compensatory interest, fixed by the promissory note in Account No. IF-82-0904-AA at two percent
(2%) per month or twenty-four (24%) per annum. It must be stressed in this connection that under
Article 2209 of the Civil Code which provides that.
". . . [i]f the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the
indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest
agreed upon, and in the absence of stipulation, the legal interest, which is six per cent per annum."
the appropriate measure for damages in case of delay in discharging an obligation consisting of the
payment of a sum or money, is the payment of penalty interest at the rate agreed upon; and in the
absence of a stipulation of a particular rate of penalty interest, then the payment of additional interest at
a rate equal to the regular monetary interest; and if no regular interest had been agreed upon, then
payment of legal interest or six percent (6%) per annum. 4
The fact that the respondent Aquino spouses were not in default did not mean that they, as a matter of
law, were relieved from the payment not only of penalty or compensatory interest at the rate of twenty-
four percent (24%) per annum but also of regular or monetary interest of seventeen percent (17%) per
annum. The regular or monetary interest continued to accrue under the terms of the relevant promissory
note until actual payment is effected. The payment of regular interest constitutes the price or cost of the
use of money and thus, until the principal sum due is returned to the creditor, regular interest continues
to accrue since the debtor continues to use such principal amount. The relevant rule is set out in Article
1256 of the Civil Code which provides as follows:
"Art. 1256. If the creditor to whom tender of payment has been made refuses without just cause to
accept it, the debtor shall be released from responsibility by the consignation of the thing or sum due.
Consignation alone shall produce the same effect in the following cases:
(1) When the creditor is absent or unknown, or does not appear at the place of payment;
(2) When he is incapacitated to receive the payment at the time it is due;
(3) When, without just cause, he refuses to give a receipt;
(4) When two or more persons claim the same right to collect;
(5) When the title of the obligation has been lost." (Emphasis supplied)
Where the creditor unjustly refuses to accept payment, the debtor desirous of being released from his
obligation must comply with two (2) conditions: (a) tender of payment; and (b) consignation of the sum
due. Tender of payment must be accompanied or followed by consignation in order that the effects of
payment may be produced. Thus, in Llamas v. Abaya, 5 the Supreme Court stressed that a written
tender of payment alone, without consignation in court of the sum due, does not suspend the accruing
of regular or monetary interest.
In the instant case, respondent spouses Aquino, while they are properly regarded as having made a
written tender of payment to petitioner State, failed to consign in court the amount due at the time of
the maturity of Account No. IF-820904-AA. It follows that their obligation to pay principal-cum-
regular or monetary interest under the terms and conditions of Account No. IF-82-0904-AA was not
extinguished by such tender of payment alone.
For the respondent spouses to continue in possession of the principal of the loan amounting to
P110,000.00 and to continue to use the same after maturity of the loan without payment of regular or
monetary interest, would constitute unjust enrichment on the part of the respondent spouses at the
expense of petitioner State even though the spouses had not been guilty of mora. It is precisely this
unjust enrichment which Article 1256 of the Civil Code prevents by requiring, in addition to tender of
payment, the consignation of the amount due in court which amount would thereafter be deposited by
the Clerk of Court in a bank and earn interest to which the creditor would be entitled.
WHEREFORE, the Petition for Review is hereby GRANTED DUE COURSE. The Decision of the
Court of Appeals dated 30 August 1989 in C.A.-G.R. No. 17954 and the Decision of the Regional Trial
Court dated 17 February 1989 in Civil Case No. Q-42188 are hereby REVERSED and SET ASIDE.
The dispositive portion of the decision of Judge Fortun is hereby clarified so as to read as follows:
Cdpr
"(1) Ordering defendants to immediately release the pledge and to deliver to the plaintiff spouses
Rafael and Refugio Aquino the shares of stock enumerated and described in paragraph 4 of said
spouses' complaint dated 17 July 1984, upon full payment of the amount of P110,000.00 plus seventeen
percent (17%) per annum regular interest computed from the time of maturity of the plaintiffs' loan
(Account No. IF-82-0904-AA) and until full payment of such principal and interest to defendants;
(2) Ordering defendant State Investment House, Inc. to pay to the plaintiff spouses Rafael and
Refugio Aquino P10,000.00 as moral damages, P5,000.00 as exemplary damages, P6,000.00 as
attorney's fees, plus costs; and
(3) Dismissing defendants' counterclaim for lack of merit and making the preliminary injunction
permanent."
No pronouncement as to costs.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr., Bidin and Davide, Jr., JJ., concur.
Footnotes
1. G.R. No. 61250, 3 June 1991.
2. See also Campillo v. Margolles, G.R. No. 67388, 17 April 1991.
3. Annex "A-6", Comment to Petitioners' Petition for Review, Rollo, p. 78.
4. Reinsurance Company of the Orient, Inc. v. Court of Appeals, G.R. No. 61250, 3 June 1991.
5. 60 Phil. 502 (1934).
SECOND DIVISION
[G.R. Nos. 150773 & 153599. September 30, 2005.]
SPOUSES DAVID B. CARPO and RECHILDA S. CARPO, petitioners, vs. ELEANOR CHUA and
ELMA DY NG, respondents.
DECISION
TINGA, J p:
Before this Court are two consolidated petitions for review. The first, docketed as G.R. No. 150773,
assails the Decision 1 of the Regional Trial Court (RTC), Branch 26 of Naga City dated 26 October
2001 in Civil Case No. 99-4376. RTC Judge Filemon B. Montenegro dismissed the complaint 2 for
annulment of real estate mortgage and consequent foreclosure proceedings filed by the spouses David
B. Carpo and Rechilda S. Carpo (petitioners).
The second, docketed as G.R. No. 153599, seeks to annul the Court of Appeals' Decision 3 dated 30
April 2002 in CA-G.R. SP No. 57297. The Court of Appeals Third Division annulled and set aside the
orders of Judge Corazon A. Tordilla to suspend the sheriff's enforcement of the writ of possession.
SDTaHc
The cases stemmed from a loan contracted by petitioners. On 18 July 1995, they borrowed from
Eleanor Chua and Elma Dy Ng (respondents) the amount of One Hundred Seventy-Five Thousand
Pesos (P175,000.00), payable within six (6) months with an interest rate of six percent (6%) per month.
To secure the payment of the loan, petitioners mortgaged their residential house and lot situated at San
Francisco, Magarao, Camarines Sur, which lot is covered by Transfer Certificate of Title (TCT) No.
23180. Petitioners failed to pay the loan upon demand. Consequently, the real estate mortgage was
extrajudicially foreclosed and the mortgaged property sold at a public auction on 8 July 1996. The
house and lot was awarded to respondents, who were the only bidders, for the amount of Three
Hundred Sixty-Seven Thousand Four Hundred Fifty-Seven Pesos and Eighty Centavos (P367,457.80).
Upon failure of petitioners to exercise their right of redemption, a certificate of sale was issued on 5
September 1997 by Sheriff Rolando A. Borja. TCT No. 23180 was cancelled and in its stead, TCT No.
29338 was issued in the name of respondents.
Despite the issuance of the TCT, petitioners continued to occupy the said house and lot, prompting
respondents to file a petition for writ of possession with the RTC docketed as Special Proceedings (SP)
No. 98-1665. On 23 March 1999, RTC Judge Ernesto A. Miguel issued an Order 4 for the issuance of a
writ of possession.
On 23 July 1999, petitioners filed a complaint for annulment of real estate mortgage and the
consequent foreclosure proceedings, docketed as Civil Case No. 99-4376 of the RTC. Petitioners
consigned the amount of Two Hundred Fifty-Seven Thousand One Hundred Ninety-Seven Pesos and
Twenty-Six Centavos (P257,197.26) with the RTC.
Meanwhile, in SP No. 98-1665, a temporary restraining order was issued upon motion on 3 August
1999, enjoining the enforcement of the writ of possession. In an Order 5 dated 6 January 2000, the
RTC suspended the enforcement of the writ of possession pending the final disposition of Civil Case
No. 99-4376. Against this Order, respondents filed a petition for certiorari and mandamus before the
Court of Appeals, docketed as CA-G.R. SP No. 57297.ACaTIc
During the pendency of the case before the Court of Appeals, RTC Judge Filemon B. Montenegro
dismissed the complaint in Civil Case No. 99-4376 on the ground that it was filed out of time and
barred by laches. The RTC proceeded from the premise that the complaint was one for annulment of a
voidable contract and thus barred by the four-year prescriptive period. Hence, the first petition for
review now under consideration was filed with this Court, assailing the dismissal of the complaint.
The second petition for review was filed with the Court after the Court of Appeals on 30 April 2002
annulled and set aside the RTC orders in SP No. 98-1665 on the ground that it was the ministerial duty
of the lower court to issue the writ of possession when title over the mortgaged property had been
consolidated in the mortgagee.
This Court ordered the consolidation of the two cases, on motion of petitioners.
In G.R. No. 150773, petitioners claim that following the Court's ruling in Medel v. Court of Appeals 6
the rate of interest stipulated in the principal loan agreement is clearly null and void. Consequently,
they also argue that the nullity of the agreed interest rate affects the validity of the real estate mortgage.
Notably, while petitioners were silent in their petition on the issues of prescription and laches on which
the RTC grounded the dismissal of the complaint, they belatedly raised the matters in their
Memorandum. Nonetheless, these points warrant brief comment.
On the other hand, petitioners argue in G.R. No. 153599 that the RTC did not commit any grave abuse
of discretion when it issued the orders dated 3 August 1999 and 6 January 2000, and that these orders
could not have been "the proper subjects of a petition for certiorari and mandamus". More accurately,
the justiciable issues before us are whether the Court of Appeals could properly entertain the petition
for certiorari from the timeliness aspect, and whether the appellate court correctly concluded that the
writ of possession could no longer be stayed.
We first resolve the petition in G.R. No. 150773.
Petitioners contend that the agreed rate of interest of 6% per month or 72% per annum is so excessive,
iniquitous, unconscionable and exorbitant that it should have been declared null and void. Instead of
dismissing their complaint, they aver that the lower court should have declared them liable to
respondents for the original amount of the loan plus 12% interest per annum and 1% monthly penalty
charge as liquidated damages, 7 in view of the ruling in Medel v. Court of Appeals. 8
In Medel, the Court found that the interest stipulated at 5.5% per month or 66% per annum was so
iniquitous or unconscionable as to render the stipulation void.
Nevertheless, we find the interest at 5.5% per month, or 66% per annum, stipulated upon by the parties
in the promissory note iniquitous or unconscionable, and, hence, contrary to morals ("contra bonos
mores"), if not against the law. The stipulation is void. The Court shall reduce equitably liquidated
damages, whether intended as an indemnity or a penalty if they are iniquitous or unconscionable. 9
In a long line of cases, this Court has invalidated similar stipulations on interest rates for being
excessive, iniquitous, unconscionable and exorbitant. In Solangon v. Salazar, 10 we annulled the
stipulation of 6% per month or 72% per annum interest on a P60,000.00 loan. In Imperial v. Jaucian, 11
we reduced the interest rate from 16% to 1.167% per month or 14% per annum. In Ruiz v. Court of
Appeals, 12 we equitably reduced the agreed 3% per month or 36% per annum interest to 1% per
month or 12% per annum interest. The 10% and 8% interest rates per month on a P1,000,000.00 loan
were reduced to 12% per annum in Cuaton v. Salud. 13 Recently, this Court, in Arrofo v. Quino, 14
reduced the 7% interest per month on a P15,000.00 loan amounting to 84% interest per annum to 18%
per annum. DHATcE
There is no need to unsettle the principle affirmed in Medel and like cases. From that perspective, it is
apparent that the stipulated interest in the subject loan is excessive, iniquitous, unconscionable and
exorbitant. Pursuant to the freedom of contract principle embodied in Article 1306 of the Civil Code,
contracting parties may establish such stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.
In the ordinary course, the codal provision may be invoked to annul the excessive stipulated interest.
In the case at bar, the stipulated interest rate is 6% per month, or 72% per annum. By the standards set
in the above-cited cases, this stipulation is similarly invalid. However, the RTC refused to apply the
principle cited and employed in Medel on the ground that Medel did not pertain to the annulment of a
real estate mortgage, 15 as it was a case for annulment of the loan contract itself. The question thus
sensibly arises whether the invalidity of the stipulation on interest carries with it the invalidity of the
principal obligation.
The question is crucial to the present petition even if the subject thereof is not the annulment of the
loan contract but that of the mortgage contract. The consideration of the mortgage contract is the same
as that of the principal contract from which it receives life, and without which it cannot exist as an
independent contract. Being a mere accessory contract, the validity of the mortgage contract would
depend on the validity of the loan secured by it. 16
Notably in Medel, the Court did not invalidate the entire loan obligation despite the inequitability of the
stipulated interest, but instead reduced the rate of interest to the more reasonable rate of 12% per
annum. The same remedial approach to the wrongful interest rates involved was employed or affirmed
by the Court in Solangon, Imperial, Ruiz, Cuaton, and Arrofo.
The Court's ultimate affirmation in the cases cited of the validity of the principal loan obligation side
by side with the invalidation of the interest rates thereupon is congruent with the rule that a usurious
loan transaction is not a complete nullity but defective only with respect to the agreed interest.
We are aware that the Court of Appeals, on certain occasions, had ruled that a usurious loan is wholly
null and void both as to the loan and as to the usurious interest. 17 However, this Court adopted the
contrary rule, as comprehensively discussed in Briones v. Cammayo: 18
In Gui Jong & Co. vs. Rivera, et al., 45 Phil. 778, this Court likewise declared that, in any event, the
debtor in a usurious contract of loan should pay the creditor the amount which he justly owes him,
citing in support of this ruling its previous decisions in Go Chioco, Supra, Aguilar vs. Rubiato, et al.,
40 Phil. 570, and Delgado vs. Duque Valgona, 44 Phil. 739.
xxx xxx xxx
Then in Lopez and Javelona vs. El Hogar Filipino, 47 Phil. 249, We also held that the standing
jurisprudence of this Court on the question under consideration was clearly to the effect that the Usury
Law, by its letter and spirit, did not deprive the lender of his right to recover from the borrower the
money actually loaned to and enjoyed by the latter. This Court went further to say that the Usury Law
did not provide for the forfeiture of the capital in favor of the debtor in usurious contracts, and that
while the forfeiture might appear to be convenient as a drastic measure to eradicate the evil of usury,
the legal question involved should not be resolved on the basis of convenience.
Other cases upholding the same principle are Palileo vs. Cosio, 97 Phil. 919 and Pascua vs. Perez, L-
19554, January 31, 1964, 10 SCRA 199, 200-202. In the latter We expressly held that when a contract
is found to be tainted with usury "the only right of the respondent (creditor) . . . was merely to collect
the amount of the loan, plus interest due thereon."
The view has been expressed, however, that the ruling thus consistently adhered to should now be
abandoned because Article 1957 of the new Civil Code — a subsequent law — provides that contracts
and stipulations, under any cloak or device whatever, intended to circumvent the laws against usury,
shall be void, and that in such cases "the borrower may recover in accordance with the laws on usury."
From this the conclusion is drawn that the whole contract is void and that, therefore, the creditor has no
right to recover — not even his capital.
The meaning and scope of our ruling in the cases mentioned heretofore is clearly stated, and the view
referred to in the preceding paragraph is adequately answered, in Angel Jose, etc. vs. Chelda
Enterprises, et al. (L-25704, April 24, 1968). On the question of whether a creditor in a usurious
contract may or may not recover the principal of the loan, and, in the affirmative, whether or not he
may also recover interest thereon at the legal rate, We said the following:
"xxx xxx xxx
Appealing directly to Us, defendants raise two questions of law: (1) In a loan with usurious interest,
may the creditor recover the principal of the loan? (2) Should attorney's fees be awarded in plaintiff's
favor?"
Great reliance is made by appellants on Art. 1411 of the New Civil Code . . . .
Since, according to the appellants, a usurious loan is void due to illegality of cause or object, the rule of
pari delicto expressed in Article 1411, supra, applies, so that neither party can bring action against each
other. Said rule, however, appellants add, is modified as to the borrower, by express provision of the
law (Art. 1413, New Civil Code), allowing the borrower to recover interest paid in excess of the
interest allowed by the Usury Law. As to the lender, no exception is made to the rule; hence, he cannot
recover on the contract. So — they continue — the New Civil Code provisions must be upheld as
against the Usury Law, under which a loan with usurious interest is not totally void, because of Article
1961 of the New Civil Code, that: "Usurious contracts shall be governed by the Usury Law and other
special laws, so far as they are not inconsistent with this Code." HEcSDa
We do not agree with such reasoning. Article 1411 of the New Civil Code is not new; it is the same as
Article 1305 of the Old Civil Code. Therefore, said provision is no warrant for departing from previous
interpretation that, as provided in the Usury Law (Act No. 2655, as amended), a loan with usurious
interest is not totally void only as to the interest.
. . . [a]ppellants fail to consider that a contract of loan with usurious interest consists of principal and
accessory stipulations; the principal one is to pay the debt; the accessory stipulation is to pay interest
thereon.
And said two stipulations are divisible in the sense that the former can still stand without the latter.
Article 1273, Civil Code, attests to this: "The renunciation of the principal debt shall extinguish the
accessory obligations; but the waiver of the latter shall leave the former in force."
The question therefore to resolve is whether the illegal terms as to payment of interest likewise renders
a nullity the legal terms as to payments of the principal debt. Article 1420 of the New Civil Code
provides in this regard: "In case of a divisible contract, if the illegal terms can be separated from the
legal ones, the latter may be enforced."
In simple loan with stipulation of usurious interest, the prestation of the debtor to pay the principal
debt, which is the cause of the contract (Article 1350, Civil Code), is not illegal. The illegality lies only
as to the prestation to pay the stipulated interest; hence, being separable, the latter only should be
deemed void, since it is the only one that is illegal.
xxx xxx xxx
The principal debt remaining without stipulation for payment of interest can thus be recovered by
judicial action. And in case of such demand, and the debtor incurs in delay, the debt earns interest from
the date of the demand (in this case from the filing of the complaint). Such interest is not due to
stipulation, for there was none, the same being void. Rather, it is due to the general provision of law
that in obligations to pay money, where the debtor incurs in delay, he has to pay interest by way of
damages (Art. 2209, Civil Code). The court a quo therefore, did not err in ordering defendants to pay
the principal debt with interest thereon at the legal rate, from the date of filing of the complaint." 19
The Court's wholehearted affirmation of the rule that the principal obligation subsists despite the nullity
of the stipulated interest is evinced by its subsequent rulings, cited above, in all of which the main
obligation was upheld and the offending interest rate merely corrected. Hence, it is clear and settled
that the principal loan obligation still stands and remains valid. By the same token, since the mortgage
contract derives its vitality from the validity of the principal obligation, the invalid stipulation on
interest rate is similarly insufficient to render void the ancillary mortgage contract. cTaDHS
It should be noted that had the Court declared the loan and mortgage agreements void for being
contrary to public policy, no prescriptive period could have run. 20 Such benefit is obviously not
available to petitioners.
Yet the RTC pronounced that the complaint was barred by the four-year prescriptive period provided in
Article 1391 of the Civil Code, which governs voidable contracts. This conclusion was derived from
the allegation in the complaint that the consent of petitioners was vitiated through undue influence.
While the RTC correctly acknowledged the rule of prescription for voidable contracts, it erred in
applying the rule in this case. We are hard put to conclude in this case that there was any undue
influence in the first place.
There is ultimately no showing that petitioners' consent to the loan and mortgage agreements was
vitiated by undue influence. The financial condition of petitioners may have motivated them to contract
with respondents, but undue influence cannot be attributed to respondents simply because they had lent
money. Article 1391, in relation to Article 1390 of the Civil Code, grants the aggrieved party the right
to obtain the annulment of contract on account of factors which vitiate consent. Article 1337 defines
the concept of undue influence, as follows:
There is undue influence when a person takes improper advantage of his power over the will of
another, depriving the latter of a reasonable freedom of choice. The following circumstances shall be
considered: the confidential, family, spiritual and other relations between the parties or the fact that the
person alleged to have been unduly influenced was suffering from mental weakness, or was ignorant or
in financial distress.
While petitioners were allegedly financially distressed, it must be proven that there is deprivation of
their free agency. In other words, for undue influence to be present, the influence exerted must have so
overpowered or subjugated the mind of a contracting party as to destroy his free agency, making him
express the will of another rather than his own. 21 The alleged lingering financial woes of petitioners
per se cannot be equated with the presence of undue influence.
The RTC had likewise concluded that petitioners were barred by laches from assailing the validity of
the real estate mortgage. We wholeheartedly agree. If indeed petitioners unwillingly gave their consent
to the agreement, they should have raised this issue as early as in the foreclosure proceedings. It was
only when the writ of possession was issued did petitioners challenge the stipulations in the loan
contract in their action for annulment of mortgage. Evidently, petitioners slept on their rights. The
Court of Appeals succinctly made the following observations:
In all these proceedings starting from the foreclosure, followed by the issuance of a provisional
certificate of sale; then the definite certificate of sale; then the issuance of TCT No. 29338 in favor of
the defendants and finally the petition for the issuance of the writ of possession in favor of the
defendants, there is no showing that plaintiffs questioned the validity of these proceedings. It was only
after the issuance of the writ of possession in favor of the defendants, that plaintiffs allegedly tendered
to the defendants the amount of P260,000.00 which the defendants refused. In all these proceedings,
why did plaintiffs sleep on their rights? 22
Clearly then, with the absence of undue influence, petitioners have no cause of action. Even assuming
undue influence vitiated their consent to the loan contract, their action would already be barred by
prescription when they filed it. Moreover, petitioners had clearly slept on their rights as they failed to
timely assail the validity of the mortgage agreement. The denial of the petition in G.R. No. 150773 is
warranted.
We now resolve the petition in G.R. No. 153599.
Petitioners claim that the assailed RTC orders dated 3 August 1999 and 6 January 2000 could no longer
be questioned in a special civil action for certiorari and mandamus as the reglementary period for such
action had already elapsed.
It must be noted that the Order dated 3 August 1999 suspending the enforcement of the writ of
possession had a period of effectivity of only twenty (20) days from 3 August 1999, or until 23 August
1999. Thus, upon the expiration of the twenty (20)-day period, the said Order became functus officio.
Thus, there is really no sense in assailing the validity of this Order, mooted as it was. For the same
reason, the validity of the order need not have been assailed by respondents in their special civil action
before the Court of Appeals.
On the other hand, the Order dated 6 January 2000 is in the nature of a writ of injunction whose period
of efficacy is indefinite. It may be properly assailed by way of the special civil action for certiorari, as
it is interlocutory in nature. ICAcHE
As a rule, the special civil action for certiorari under Rule 65 must be filed not later than sixty (60) days
from notice of the judgment or order. 23 Petitioners argue that the 3 August 1999 Order could no
longer be assailed by respondents in a special civil action for certiorari before the Court of Appeals, as
the petition was filed beyond sixty (60) days following respondents' receipt of the Order. Considering
that the 3 August 1999 Order had become functus officio in the first place, this argument deserves scant
consideration.
Petitioners further claim that the 6 January 2000 Order could not have likewise been the subject of a
special civil action for certiorari, as it is according to them a final order, as opposed to an interlocutory
order. That the 6 January 2000 Order is interlocutory in nature should be beyond doubt. An order is
interlocutory if its effects would only be provisional in character and would still leave substantial
proceedings to be further had by the issuing court in order to put the controversy to rest. 24 The
injunctive relief granted by the order is definitely final, but merely provisional, its effectivity hinging
on the ultimate outcome of the then pending action for annulment of real estate mortgage. Indeed, an
interlocutory order hardly puts to a close, or disposes of, a case or a disputed issue leaving nothing else
to be done by the court in respect thereto, as is characteristic of a final order.
Since the 6 January 2000 Order is not a final order, but rather interlocutory in nature, we cannot agree
with petitioners who insist that it may be assailed only through an appeal perfected within fifteen (15)
days from receipt thereof by respondents. It is axiomatic that an interlocutory order cannot be
challenged by an appeal, but is susceptible to review only through the special civil action of certiorari.
25 The sixty (60)-day reglementary period for special civil actions under Rule 65 applies, and
respondents' petition was filed with the Court of Appeals well within the period.
Accordingly, no error can be attributed to the Court of Appeals in granting the petition for certiorari
and mandamus. As pointed out by respondents, the remedy of mandamus lies to compel the
performance of a ministerial duty. The issuance of a writ of possession to a purchaser in an
extrajudicial foreclosure is merely a ministerial function. 26
Thus, we also affirm the Court of Appeals' ruling to set aside the RTC orders enjoining the
enforcement of the writ of possession. 27 The purchaser in a foreclosure sale is entitled as a matter of
right to a writ of possession, regardless of whether or not there is a pending suit for annulment of the
mortgage or the foreclosure proceedings. An injunction to prohibit the issuance or enforcement of the
writ is entirely out of place. 28
One final note. The issue on the validity of the stipulated interest rates, regrettably for petitioners, was
not raised at the earliest possible opportunity. It should be pointed out though that since an excessive
stipulated interest rate may be void for being contrary to public policy, an action to annul said interest
rate does not prescribe. Such indeed is the remedy; it is not the action for annulment of the ancillary
real estate mortgage. Despite the nullity of the stipulated interest rate, the principal loan obligation
subsists, and along with it the mortgage that serves as collateral security for it. IEcDCa
WHEREFORE, in view of all the foregoing, the petitions are DENIED. Costs against petitioners.
SO ORDERED.
Puno, Austria-Martinez, Callejo, Sr. and Chico-Nazario, JJ., concur.
Footnotes
1. G.R. No. 150773, Rollo, pp. 15-21.
2. Id. at 22-25. Elevated directly to this Court, it raising pure questions of law, in accordance with
Section 1, Rule 45, Rules of Court.
3. Penned by Associate Justice Eubolo G. Verzola and concurred in by Associate Justices
Bernardo P. Abesamis and Josefina Guevara-Salonga. G.R. No. 153599, Rollo, pp. 22-26.
4. G.R. No. 153599, Rollo, p. 30.
5. Id. at 38-40.
6. 359 Phil. 820 (1998).
7. G.R. No. 150773, Rollo, p. 10.
8. Supra note 6.
9. Ibid. Citing Ibarra v. Averyro, 37 Phil. 274 (1917); Almeda v. Court of Appeals, 326 Phil. 309
(1998).
10. 412 Phil. 816 (2001).
11. G.R. No. 149004, 14 April 2004, 427 SCRA 517.
12. G.R. No. 146942, 22 April 2003, 401 SCRA 410.
13. G.R. No. 158382, 27 January 2004, 421 SCRA 278.
14. G.R. No. 145794, 26 January 2005, 449 SCRA 284.
15. G.R. No. 150773, Rollo, p. 18.
16. Naguiat v. Court of Appeals, G.R. No. 118375, 3 October 2003, 412 SCRA 591, citing China
Banking Corporation v. Lichauco, 46 Phil. 460 (1926) and Filipinas Marble Corp. v. Intermediate
Appellate Court, 226 Phil. 109, 119 (1986).
17. See H. DE LEON, COMMENTS AND CASES ON CREDIT TRANSACTIONS (2002 ed.), at
95, citing Sebastian v. Bautista [CA] 58 O.G. No. 15, 3147; People v. Masangkay, [CA] 58 O.G. No.
17, 3565; Torres v. Joco, [CA] 59 O.G. No. 10, 1580.
18. 148-B Phil. 881 (1971).
19. Id. at 891-893. Emphasis supplied.
20. See Article 1410, Civil Code.
21. Coso v. Fernandez Deza, 42 Phil. 595 (1921).
22. G.R. No. 150773, Rollo, p. 20.
23. Section 4, Rule 65, Rules of Court.
24. Sto. Tomas Hospital v. Surla, 355 Phil. 804 (1998), citing Investments, Inc. vs. Court of
Appeals, L-60036, 27 January 1987, 147 SCRA 334; Denso Phils. Inc. v. Intermediate Appellate Court,
L-75000, 27 February 1987, 148 SCRA 280; Bairan v. Tan Siu Lay, 125 Phil. 371 (1966).
25. Yamaoka v. Pescarich, 414 Phil. 211 (2001); Go v. Court of Appeals, 358 Phil. 214 (1998).
"[T]he proper remedy in such cases is an ordinary appeal from an adverse judgment on the merits,
incorporating in said appeal the grounds for assailing the interlocutory orders. Allowing appeals from
interlocutory orders would result in the 'sorry spectacle' of a case being subject of a counterproductive
ping-pong to and from the appellate court as often as a trial court is perceived to have made an error in
any of its interlocutory rulings. However, where the assailed order is patently erroneous and the remedy
of appeal would not afford adequate and expeditious relief, the Court may allow certiorari as a mode of
redress."
26. F. David Enterprises v. Insular Bank of Asia and America, G.R. No. 78714, 21 November 1990,
191 SCRA 516; Primetown Property Group v. Juntilla, G.R. No. 157801, 8 June 2005; Santiago v.
Merchants Rural Bank of Talavera, Inc., G.R. No. 147820, 18 March 2005; DBP v. Gatal, G.R. No.
138567, 4 March 2005; Mamerto Maniquis Foundation v. Pizarro, A.M. No. RTJ-03-1750, 14 January
2005, 448 SCRA 140; De Vera v. Agloro, G.R. No. 155673, 14 January 2005, 448 SCRA 203, citing
China Banking Corporation v. Ordinario, G.R. No. 121943, 24 March 2003, 399 SCRA 430; A.G.
Development Corporation v. Court of Appeals, 346 Phil. 136 (1997); Suico Industrial Corporation v.
Court of Appeals, 361 Phil. 160 (1999); Idolor v. Court of Appeals, G.R. No. 161028, 31 January 2005,
450 SCRA 396, citing Samson, et al. v. Judge Rivera, et al., G.R. No. 154355, 20 May 2004, 428
SCRA 759.
27. Primetown Property Group v. Juntilla, G.R. No. 157801, 8 June 2005; Santiago v. Merchants
Rural Bank of Talavera, Inc., G.R. No. 147820, 18 March 2005; DBP v. Gatal, G.R. No. 138567, 4
March 2005; Mamerto Maniquis Foundation v. Pizarro, A.M. No. RTJ-03-1750, 14 January 2005, 448
SCRA 140; De Vera v. Agloro, G.R. No. 155673, 14 January 2005, 448 SCRA 203, citing China
Banking Corporation v. Ordinario, G.R. No. 121943, 24 March 2003, 399 SCRA 430; A.G.
Development Corporation v. Court of Appeals, 346 Phil. 136 (1997); Suico Industrial Corporation v.
Court of Appeals, 361 Phil. 160 (1999). Idolor v. Court of Appeals, G.R. No. 161028, 31 January 2005,
450 SCRA 396, citing Samson, et al. v. Judge Rivera, et al., G.R. No. 154355, 20 May 2004, 428
SCRA 759.
28. Kho v. Court of Appeals, G.R. No. 83498, 22 October 1991, 203 SCRA 160; Veloso v.
Intermediate Appellate Court, G.R. No. 73338, 21 January 1992, 205 SCRA 227.